American energy is changing -- fast. Here are the three biggest energy trends you need to watch in 2014.
1. Natural Gas
It's no news to energy investors that natural-gas trends will continue to dictate the whimsical ways of the energy sector. Natural-gas prices are down 37% from 2009 levels, and energy companies have pounced on this fuel as a cheaper, cleaner alternative to traditional sources.
Utility NextEra Energy (NYSE:NEE) not only relies on natural gas for 23% of its electricity generation, it also has major plans to get in on Florida's growing demand for natural-gas inflow. NextEra Energy and Spectra Energy Corp (NYSE:SE) are teaming up in a $3 billion joint venture to build Florida's third major natural-gas pipeline.
The 465-mile line connects Alabama to central Florida and will provide both companies with continuous "toll booth" revenue, the kind of continuous cash flow dividend-stock investors love.
2. Solar Power
Solar power has made a massive comeback in the last year, and solar stocks have been soaring. In the past year, SunPower (NASDAQ:SPWR) stock has shot up 413%, while SolarCity (NASDAQ: SCTY) stock is up a whopping 430%.
Although SolarCity beat earnings estimates in Q3, its EPS remains solidly in the red. SunPower stock has come out ahead on earnings estimates for 10 straight quarters and has managed to make a profit for the last six.
But a bet on solar isn't about any individual company. It's a belief in technology advancements and a fundamental change in the way America generates and uses electricity.
As individual systems and smart grids make headway, solar rooftop systems may become more and more common. SolarCity CEO Lyndon Rive predicts his company will install one million rooftop projects over the next five years, while SolarCity recently partnered with Tesla Motors to improve its small-scale solar-energy-storage systems.
A new Lux Research report expects utilities to hop on board, too. The firm predicts that unsubsidized utility-scale solar power will be comparable in cost to natural gas by 2025. Watch out, NextEra Energy and Spectra Energy Corp.
Solar has soared in the past year, but nuclear has been neglected. While the Dow Jones U.S. Utilities Index is up 10.9%, nuclear-centric Exelon Corp (NYSE:EXC) stock is down 7.4%.
With 104 nuclear reactors producing 20% of our nation's energy, nuclear has lost its competitive edge to cheap natural gas. Exelon Corp alone owns around 19,000 MW of nuclear capacity, equivalent to 4% of the U.S.'s total electricity generation. That's been a big drag on company earnings, which have steadily declined over the past few years.
But a variety of factors are finally pushing natural-gas prices back up, and 2014 may be nuclear's big comeback year. In 2013 alone, natural gas prices are up nearly 9%.
With energy storage systems still in development, consistent nuclear energy should continue to complement intermittent energy generation from renewable sources like wind and energy. With Exelon stock trading near 52-week lows at an affordable valuation, contrarian investors should look to Exelon as their next diamond in the rough.
Fool contributor Justin Loiseauowns shares of Tesla Motors. You can follow him @TMFJLo. The Motley Fool recommends Exelon, SolarCity, Spectra Energy, and Tesla Motors. The Motley Fool owns shares of SolarCity and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.