Avoiding the Green Hype
Wind vs. Natural Gas
Ever get so caught up in the hype that you don't see the edge of the cliff until you've stepped over it?
Imagine how the residents of Kittery, Maine, felt a few years back when the town installed a brand-new wind turbine...
The single turbine came with the dream of transitioning to a cleaner, renewable source of power.
It also came with a $200,000 price tag.
It took less than a year for things to go wrong.
Not only did the promise of wind-generated power fail to live up to the hype, but the company that sold the turbine plunged into bankruptcy before Kittery could get any of its money back.
The subsequent headache of reselling the turbine for a loss must have left the town with a bitter taste in its mouth for renewables.
Hype or Hope?
What went wrong?
Hasn't wind energy been one of the highlights of the renewable sector over the last decade?
It's true that wind has been growing at a rapid pace, increasing more than 300% between 2006 and 2011...
In fact, in the year leading up to Kittery's wind investment, the Department of Energy released a report claiming wind energy could make up as much as 20% of the United States' electrical generation by 2030.
During the transition, hundreds of thousands of jobs would be created, and our reliance on "dirtier" energy sources like coal would decrease — plus we would be significantly cutting GHG emissions in the process, since 40% of CO2 emissions come from power generation.
And the icing on the cake, according to the report: All of this was attainable without any further technological breakthroughs.
Forgive me for stating the obvious, but there are considerable hurdles that still need to be addressed.
The first is that wind power is an intermittent power source.
In other words, the production can change quickly: If the wind isn't blowing, the turbine won't be economical; if wind speeds are too high, turbines are built to automatically turn off.
At least Kittery residents can walk away with one concession: Their $200K bet wasn't the biggest disappointment among wind investors.
The Real Losers
Look, I'm not going to get into the subjective issues that often come up in the argument for and against wind. (Whether or not someone finds a turbine aesthetically pleasing doesn't make the cut.)
My colleague Chris DeHeamer put it best when he said, “You can dress it up however you want. I could care less — so long as it pays out. Sadly, that just ain't the case today... Wind stocks blow."
Puns aside, many investors out there are feeling the pain when it comes to wind stocks.
Chris' remark lets us focus on the real losers in the wind story: individual investors like us.
Even if right now seems like a major growth opportunity for wind energy, I know a certain group of shareholders that isn't super optimistic:
And things could get worse before they get better. Much worse.
Vestas Wind Systems recently warned that 95% of the wind turbine market would diminish if a critical production tax credit expires in December.
Moreover, too many people fall into the trap of believing wind stocks can and will offset our addiction to foreign oil.
For the first time, we have the potential to displace our oil imports, thanks to the abundance of this cheap resource.
The advent of cheap natural gas in the U.S. is simply too good to pass up — and many of these opportunities don't have to come from drillers...
Chris and his readers have been making money hand over fist by investing in the companies that will move this natural gas takeover to the next level.
Renewables can't compete with oil and natural gas when it comes to the transportation sector. And the beauty of these particular natural gas investments is that Chris' picks will flourish no matter which direction natural gas prices move.
Until next time,
Editor, Energy and Capital
P.S. Despite its shortcomings, wind energy is still one of the best bets in the renewable bunch. Next week I'll show you the more disturbing picture of the state of another renewable source. And this time, it's costing you your hard-earned money — even if you're not a shareholder. Stay tuned...