The 3 Biggest Challenges for Your Energy Investment

The energy sector is changing fast -- and some companies can't keep up.

Apr 14, 2014 at 2:03PM

The energy sector is undergoing a massive paradigm shift -- and investors need to know where their money's headed. A new survey highlights what industry leaders consider to be their three biggest challenges -- here's what you need to know.

Study the source
There's a lot of speculation on where the energy sector is headed, but a new Siemens Aktiengesellschaft (NASDAQOTH:SIEGY)-commissioned study heads straight to the source. The "State of the Electric Utility" report pulls institutional knowledge from 527 utility professionals to answer what everyone wants to know: How different will our electricity look in the next year, decade, and beyond? And more importantly, what are the biggest challenges to getting there?  

1. Current regulatory model

The energy sector is changing fast, and regulators have been slow to keep up. Thirty-two percent of all those surveyed pointed to the "current regulatory model" as a major challenge for their corporation. 

In the past, utilities have operated on a kWh sales-based model, pulling a certain profit percentage off every sale. But the days of easy earnings are over, and investors can no longer count on their coveted "return-on-equity" metric to separate good investments from bad ones.

Decentralized power grids and energy efficiency systems have shifted utility costs away from primary generation and more toward distribution and energy diffusion.

Eighty-three percent of those surveyed noted they plan to grow their energy efficiency programs over the next five years, while 53% listed distributed generation as the "most disruptive potential" to their company's current business model.

But utilities need regulators to keep up, and providing the proper incentives for energy companies to engage with customers is essential. Regulators are warming up to new ideas, but their ability to create a supportive regulatory environment will directly determine how fast and how wholeheartedly utilities can boost new business models.

2. Distributed generation

Dominion Resources Canon Rooftop

Source: Dominion Resources,; The company will install 2,000 solar panels on the roof of this Canon facility. 

Rooftop solar systems have been called the "killers" of utilities -- and some would agree. Thirty percent of respondents listed "distributed generation" as a top three challenge for their utility. Interestingly, though, a larger majority are up for the challenge. In a follow-up question, the report found that 57% view distributed generation as an opportunity for investors, compared with just 38% who view it as a threat.

That's great news. That subtle distinction is the difference between an old utility unwilling to budge its business, and a forward-thinking company ready to capitalize on a new energy paradigm.

While some utilities such as Xcel Energy and Pinnacle West are looking to financially punish decentralized energy generators to make up for lost earnings, others are partnering up to push their own products. NRG Energy acquired rooftop solar company Roof Diagnostics Solar two weeks ago, and Dominion Resources, (NYSE:D) is leasing rooftop space directly from Virginia companies to install its own systems. For example, the company announced in December that it will spend $2 million to slap 2,000 solar panels on the rooftop of a Canon facility.

3. Old infrastructure

Source: PBS; In his 2011 State of the Union address, President Obama noted America's infrastructure had "slipped." 

Utilities have been around for ages -- and that means aging infrastructure. According to the report, 48% of all respondents listed "old infrastructure" as a top concern for their company.

The worry here is twofold. First and foremost, aging electrical systems are unreliable at best, and dangerous at worst. As natural gas becomes an increasingly important part of our utility system, that problem becomes even more prevalent.

A recent New York Times report found that between Consolidated Edison (NYSE:ED) and National Grid (NYSE:NGG), the top two New York City natural gas distributors, the companies reported a whopping 9,906 leaks in 2012 alone. These leaks can be lethal, as evidenced by a Consolidated Edison pipe explosion in March that leveled two East Harlem buildings and killed eight people.

But while utilities understand that old pipes are problematic, finding the finances for upgrades can be a regulatory nightmare. Almost half of Consolidated Edison's New York City pipes were installed before 1940, and the company is having a hard time coming up with the $10 billion needed to fully renovate its network.

With lackluster electricity demand growth and continued tough times for America's average electricity consumer, politicians are hard-pressed to approve rate increases to cover the costs of systems that seem to have operated effectively for more than a half-century.

The new energy leaders
Despite difficulties ahead, there are companies out there that are capitalizing on the current trends -- and are set to pull major profit. Record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg.

For this reason, The Motley Fool is offering a look at three energy companies using a small IRS "loophole" to help line investor pockets. Learn this strategy, and the energy companies taking advantage, in our special report "The IRS Is Daring You To Make This Energy Investment." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 

Justin Loiseau has no position in any stocks mentioned. The Motley Fool recommends Dominion Resources and National Grid. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers