Solar and Natural Gas

Colleagues Not Competitors

By
Wednesday, June 27th, 2012

Sitting in the Waldorf ballroom last week, the goal was apparent: make money.

Everyone was talking about their last deal and how much it was worth.

Hundreds of investment bankers, tax equity players, utility execs, venture capitalists, and lawyers representing the biggest firms in the world were there...

I heard an analyst from Booz Allen talking about how he didn't bring a suit, opting instead to buy one when he arrived in New York because “you just can't beat the tailoring.”

As we were served filet mignon and polenta cakes by silver-spoon-wielding waiters in white coats, the President of Reznick Capital Markets unexpectedly switched to fluent Japanese to make a foreign fund manager feel a bit more comfortable.

These were the sharks of energy finance. They measure the deals they did last year in billions of dollars.

And they were there for renewable energy.

Boots and Birkenstocks

The elephant in the room, of course, was the abundant reserves of natural gas we now know exist in shale form.

Prices are at a decade low and making it even harder for sources like wind and solar to compete.

But representatives — even from the natural gas industry — said there's enough room at the trough for both sides.

Richard Smead of Navigant Consulting (NYSE: NCI) even put up a slide of a pair of cowboy boots next to Birkenstocks to represent both industries.

His point was that there shouldn't be partisan or cultural clashes between energy sources. Instead, both sides are needed and should work together to reduce costs in an effort to increase domestic energy production and, therefore, energy security.

Even though natural gas is below $3.00/MMBtu for the first time in ten years, Navigant's forecast doesn't have it staying there for long...

For starters, the U.S. had no winter this year. Obviously, a nation of +300 million not having to kick up the heat as much will do a lot to suppress natural gas demand.

Increased use of natural gas for transportation (15-20 natural gas fueling stations are being built every month) will help eat up some supply. And so will the construction of new natural gas generation plants to replace outdated coal-burning ones utilities are choosing to shut down as they reach the end of their useful lives.

But the main reason the boots and Birkenstocks will come together is that they need each other.

Complementary interaction with renewables is a major market for natural gas. Conversely, a natural gas backup helps solve the intermittent issues of solar and wind.

I've always said it's not an either/or but an and/when. Yet it's a simple notion even sophisticated investors can't get through their minds.

Fossil fuels and renewables aren't competitors. They're bedfellows.

It's not boots or Birkenstocks; it's boots and Birkenstocks.

The faster you realize this, the more money you'll make.

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Solar Going Parabolic

Solar consumption is going parabolic. That's when you get a hockey stick chart up and to the right.

That's when people get rich. This isn't speculation. This is fact.

The just-released BP Statistical Review (yes, this is coming from an oil company) shows global solar generation almost doubled last year to over 55 terawatt-hours (TWh).

Solar Installation Growth

It's followed a pattern of nearly doubling every year for six or seven years now.

That's parabolic growth. Numbers don't lie.

The world will install approximately 27 nuclear power plants' worth of solar this year — about 29.9 gigawatts. And with every cent the cost of solar ticks lower, more will be installed.

That happens every day... with some very major cost-cutting advantages looming just on the horizon.

As I told you last week, solar panels cost more than $70/watt when Jimmy Carter put them on the White House.

Today a total installed system goes for less than $5.50/watt. And most of that cost isn't even the panel.

Take a look at the breakdown:

Solar Costs 2011

As costs continue to fall across the board, look how the breakdown will be in 2016, just a few years from now:

Solar Cost 2016

Data shows that as solar costs fall to $3.50/watt, demand will increase by 14 times.

That hockey stick chart of solar installations will continue its moonward climb.

Later this week, I'm going to reveal a company that has a simple patented process for lowering the cost of solar panels dramatically — perhaps by as much as half.

I'm convinced its technology is the missing piece of the solar puzzle — and will lead to a windfall for the industry and its shareholders.

Call it like you see it,

Nick Hodge Signature

Nick Hodge

follow basic@nickchodge on Twitter

Nick is the Founder and President of the Outsider Club, and the Investment Director of the thousands-strong stock advisory, Early Advantage. Co-author of two best-selling investment books, including Energy Investing for Dummies, his insights have been shared on news programs and in magazines and newspapers around the world. For more on Nick, take a look at his editor's page.

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