"Rough" is an understatement for energy sector over the past few years.
In this segment of the Industry Focus: Energy podcast, Sean O'Reilly and Taylor Muckerman talk to intern Lindsay Zadunayski about how green energy companies such as First Solar (NASDAQ:FSLR) and SunPower (NASDAQ:SPWR) are growing when energy is in such low demand, and how the glut has affected their business recently.
A full transcript follows the video.
This podcast was recorded on June 23, 2016.
Lindsay Zadunayski: Since oil prices have dropped, and people in governments are no longer forced to pursue alternative solutions, how much can sustainable energy companies really be expected to expand in the next few years? How is the lack of demand affecting their businesses?
Sean O'Reilly: I have to tell you, when I first saw this question, I had a big smile across my face. I was like "Man, not only do we have these really smart interns, but that is a really, really good question."
Taylor Muckerman: Yeah, it's pretty loaded, I'm not going to lie.
O'Reilly: Taylor, what comes to mind immediately?
Muckerman: What comes to mind immediately is that if what we've been seeing in the oil markets since November of 2014 happened five, seven years earlier, I think we could be in a situation where renewable energy companies begin to take a backseat again.
O'Reilly: Right. They wouldn't even have gotten off the ground.
Muckerman: Yeah. You've seen ridiculous growth over the last five years especially. I think they've gotten to a point where there's just no turning back. Still though, you're looking at renewables only accounting for around 3% of total global energy consumption. 97% of it is still available for disruption. The U.S., I think we saw, two thirds of all electricity generating capacity in 2015 was renewable, and 30% of that was solar. You're still seeing very broad adoption from a small base of renewable energy in terms of solar. Wind is still doing very well. A bigger base than solar in the United States, but solar continues to dominate.
For some perspective, we use 1100 gigawatts of energy generating capacity in 2012. Last year, we only added 7.3 gigawatts, so very small fraction of what we actually use. That was just solar. We added 7.3 gigawatts of solar energy last year. That's 16% more than we had in 2014, so we're seeing some big numbers being thrown around, but in the grand scheme of things, renewables is still relatively small.
O'Reilly: To getting around her question then, it doesn't seem like it is affecting the business right now.
Muckerman: No. You saw the big spending bill be passed at the end of last year that basically extended the tax credits for solar, or maybe it was earlier this year, I can't remember the exact date. The tax credits for solar power purchasing on the residential side [were] supposed to expire in 2017. They pushed that out into perpetuity now. Basically, a give and take on Republicans wanted oil exports from the U.S., which hasn't happened in over 30 years.
Democrats were like, OK, we'll give you that, but we want to extend renewable energy tax credits. I think that there was this mad dash for people to install solar to beat that expiration. So you have seen that maybe the numbers are a little inflated over the last couple of years and people tried to get in before that expired, but now that you see that pushed out, it's going to be a continued grown pattern here for solar and wind in the U.S. and nuclear as well.
O'Reilly: Bottom line, it seems like they don't have an excuse, even though energy prices [have] come back so much just because, technologically, they're competitive now. Finally.
Muckerman: A big portion of what we're talking about here is electricity production, and the bulk of that is coming from coal and natural gas, so it's not even directly competing with oil. That being said, the EIA, which does a lot of forecasting, predicts that 75% or so of all energy production in 2040 will still be from fossil fuels.
O'Reilly: Got it!
Muckerman: That's saying that we're going from only 3% renewable to potentially 25% renewable between now and 2040. Still only a quarter, but the EIA in 2012 was saying that fossil fuels would account for at 84%, so we've knocked off 9% of that in just a couple of years. I imagine that that prediction will continue to come down.