Investing in Solar Stocks
The Shocking Truth About Solar Stocks!
To assume that governments don't pick winners and losers in the energy game is naïve.
In the United States, subsidies, incentives, and billions in lobbyist lucre from fossil fuel and nuclear interests have enabled a system that now allows Americans to pay some of the cheapest electricity rates in the developed world — on the surface, anyway.
And when renewables finally started building some significant momentum in the early part of this century, the government once again ponied up in an effort to facilitate the building blocks of growth.
Of course, it's no secret that there's never really been a free market when it comes to energy.
We've known this for years, and we have invested accordingly. This is the reason we made so much money in renewable energy from around 2005 to 2010.
Although, as you know, after the recession hit us with all the subtlety of a brick to the face, renewable energy companies got nailed. Most that were in existence just five years ago have either gone belly-up or were acquired by companies like GE (NYSE: GE) and Siemens (NYSE: SI).
And the ones that are still around today? Well, they're proof that Darwinian theories apply to public companies, too... Only the strong have survived, and today, those remaining are even stronger because of the recession.
But at the end of the day, governments across the globe still play a crucial role in deciding which sectors thrive and which go gently into that good night.
I'm not suggesting this is necessarily a role in which government should play; however, it is an undeniable fact that energy investors must not ignore.
It's Always Sunny in Germany
In the United States, both the wind and solar sectors have grown dramatically over the past ten years, thanks in part to some very generous government support.
But that support for renewables is nothing compared to what Germany's been doing to transition to an energy mix that will ultimately be monopolized by renewable energy...
You see, back in 2000, Germany passed its Renewable Energy Act, which essentially rewarded those installing renewable energy alternatives to its heavily coal- and nuclear-based energy mix. Through a series of feed-in tariffs and connection requirements, Germany quickly became the premier market for solar.
In fact, it could successfully be argued that it is because of Germany's Renewable Energy Act that the solar industry went from being little more than a niche market for environmentalists and eccentrics to a multi-billion-dollar global industrial powerhouse.
Now, I won't get into the nuts and bolts of this legislation here, but let's just say that the government support for renewable energy in Germany makes any support here in the United States look like peanuts. And as a result, Germany now gets about 22% of its power from renewables.
Of course, none of this would've been possible without government intervention. But at the end of the day, all that matters is that Germany sparked a major bull market for renewable energy. And we took full advantage.
In fact, we continue to take advantage today — with companies like:
- SolarCity (NASDAQ: SCTY) – up more than 191% since the start of the year
- SunPower Corp. (NASDAQ: SPWR) – up more than 230% since the start of the year
- Canadian Solar (NASDAQ: CSIQ) – up more than 194% since the start of the year
And there's plenty more to come...
In a moment, I'll share with you a couple of energy stocks that I'm quite bullish on for the remainder of 2013 and into 2014.
But first, let's take a closer look at where Germany is today after more than a decade of aggressive alternative energy support: Did it pan out? Or has it been a giant billion-dollar bust, leaving Germans paying more for electricity?
No Longer Profitable
Last week, German utility company RWE announced that it's going to put the kibosh on about 6% of its total generation capacity due to competition from renewables.
A rep from RWE told reporters that, due to the continuing boom in solar energy, many power stations throughout the sector and across Europe are no longer profitable to operate...
According to energy analyst Karl-Friedrich Lenz:
If RWE can’t even run fossil fuel power plants that have paid back their investment already at these low wholesale market prices, it follows that it doesn’t make any sense to start building new fossil fuel capacity now. Any new plant would need to earn back its capital cost, which is of course impossible.
Truth is, German lawmakers remain on track to power 80% of the nation from renewable energy by 2050. And the country continues to break new records. Just last month, German solar providers generated 23.9 gigawatts of electricity from solar. That's enough to power 2.3 million homes.
These days, solar alone can satisfy as much as 40% of peak demand in Germany.
In any event, whether you agree with government meddling in the energy space or not, there's no doubt you can make a lot of money by acting on certain political moves. Certainly we've done that with solar in Germany.
And here in the U.S., we do it with solar and natural gas. In fact, my colleague Keith Kohl has been absolutely crushing it on domestic oil and natural gas this year.
And for those looking for a solid, long-term play on alternative energy (including solar), check out Hannon Armstrong Sustainable Infrastructure (NYSE: HASI).
This is a sort of alternative energy REIT that I've actually taken a position in. It's a relatively safe play. And by Q4 2013, its dividend is expected to hit 7%. Not too shabby.
To a new way of life and a new generation of wealth...
@JeffSiegel on Twitter
Jeff is the managing editor of Energy and Capital and contributing analyst for the Energy Investor, an independent investment research service focusing primarily on stocks in the oil & gas, modern energy and infrastructure markets. He has been a featured guest on Fox, CNBC, and Bloomberg Asia, and is the author of the best-selling book, Investing in Renewable Energy: Making Money on Green Chip Stocks. For more on Jeff, go to his editor''s page.