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Why Alternative Energy Growth Hasn't Quite Rewarded Investors

By Motley Fool Staff - Apr 13, 2016 at 12:40PM

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Innovation doesn't always heap rewards on shareholders.

While solar and wind keep becoming more and more viable as sources of energy, some huge renewables company or another always seems to be in the headlines for toeing the bankruptcy line.

In this clip from the Industry Focus: Energy podcast, Tyler Crowe, Sean O'Reilly, and Taylor Muckerman explain why buying into the renewable energy space is a bit like betting on a wrestler in a Royal Rumble -- and what investors need to remember before carving out too much of a stake in any one company. Also, one important note that we all need to remember in the face of news of renewables "replacing" or "outpacing" oil and gas.

This podcast was recorded on April 7, 2016.

Tyler Crowe: This is actually kind of bringing it back to yesterday's MarketFoolery show, they had David Kretzmann on, and they were talking about the bankruptcy of SunEdison (SUNEQ). I find the conversation between this and that very interesting in the sense that, we're basically talking about the astronomical growth of solar and wind to the point that...

Sean O'Reilly: It's competitive.

Crowe: It's also throwing the electricity market on its head. But at the same time, you have these upstart energy companies rising and falling.

Taylor Muckerman: Yeah, the market hasn't caught on to the success yet.

Crowe: From an investor's standpoint, there's that weird point where, where is the company you want to invest in that's really going to grow? And that's where I think it's so difficult, because -- and, this is going to be a weird analogy -- I feel like investing in solar, renewables, wind, things like that, it's kind of like the Royal Rumble in wrestling. I don't know if you guys know the Royal Rumble...

Muckerman: (laughs) Yokozuna was always my favorite.

O'Reilly: Taking us back to our pre-teen years. (laughs) 

Crowe: One guy comes in every minute or so, and it changes, completely disrupts, what's going on. And typically, the person that starts...

O'Reilly: And then somebody gets hit by a chair. (laughs) 

Crowe: Yeah, somebody gets knocked out with a chair, somebody gets thrown over the rope. And typically, the person that started in the fight isn't the last one in. And I feel like with the solar market, the renewable market, you do need to tread a little carefully in the sense of, don't put all your eggs in one basket, like, "This is going to be the company," because it's such a fast-moving industry that you don't know. There are so many things that could change in any given moment. We saw it with natural gas and the shale revolution -- all these companies thought they could make a ton of money on this, and then boom, collapse.

O'Reilly: They did for a few years. (laughs) 

Crowe: Well, they did make money. And then they lost it all. So you can't just say, "This is going to be the company." You need to hedge your bets a little bit. There is an opportunity there, but don't think one company will make it all happen.

O'Reilly: When you started talking about your point, the first thing that entered my mind was that age-old Warren Buffett-ism. Buffett avoids technology because technological advances do not necessarily mean you're going to make money. Sorry, but, heck, Morgan Housel had that article a year ago -- the No. 1 stock of the last 100 years in America was Altria.

Crowe: Making cigarettes.

O'Reilly: Demand has been dropping for cigarettes for 40, 50 years.

Muckerman: In the U.S.

O'Reilly: Taxes, lawsuits from the government, all this stuff, and it still beat everybody. So, yeah, tread carefully, folks. Actually, on that note, I did want to mention that we just learned, apparently -- and it seemed kind of unfair, but I think Mr. Crowe, you sent this article to me earlier from Bloomberg. It's called "Wind and Solar Are Crushing Fossil Fuels," and it talks about how expenditures in investing in wind and solar beat out fossil fuels by like two or three times or something like that last year.

Muckerman: Globally.

Crowe: We actually went over that last week, when we had our energy quiz that you kind of failed.

O'Reilly: Well, you know, I failed on purpose, along with the audience.

Crowe: Sure.

O'Reilly: It was a good time. But, it seemed unfair, when I read it, because obviously capex in oil and gas have been cut massively, to like, 60-year lows. I was like, "That's not quite fair."

Crowe: Yeah, and that's another general point for investors -- stories can be very cherry-picked sometimes. Before reading it and having a knee-jerk reaction, step back and take a look at it. When it says something like, "Yeah, it's outpacing oil's growth," like, yeah, but there is very little correlation between oil and solar. Oil is a transportation fuel and used for plastics, solar is mostly an electricity generation, and there's very little overlap between the two unless you want to talk about electric vehicles, which is .01% of the overall transportation market overall right now. It's going to grow, but it's not there yet. So when you see that, don't immediately go, "Oh man! Oil is down because of solar!" It's going to take time.

O'Reilly: Not only that, but oil and gas is already a multitrillion-dollar industry. You're not going to... (laughs) 

Muckerman: I think it's going to be at least a decade before this show is dominated by renewable energy talk.

Crowe: We'll still be talking about oil for a little while longer on this show.

O'Reilly: We need to make plastics! 

Muckerman: Well, we need oil to make plastics, until the sun can make plastic.

O'Reilly: That'll be good, yeah.

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