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How to Profit from Solar's Comeback

Written by Jason Williams
Posted June 7, 2017 at 8:00PM

It looks like solar is making a comeback.

Well, that’s only partially true. Solar was never really gone. Investors were just scared of the new president’s plans to bolster the coal and oil industries in the U.S.

And they showed that fear by dumping solar stocks immediately after the election last November. Stock prices across the industry plummeted. And those of us who stuck with our green investments saw the profits turn to losses in a hurry.

But that’s all changing.

It looks like the investing world is finally realizing that no matter who’s in power, solar energy is inevitable. And the decline of fossil fuels for electricity generation is, too.

Solar Panels

A Bright Future for Solar Power

You see, for years, the price of generating one watt of energy from solar cells has been dropping, and fast. Back in the late 1970s, it cost $76 per watt. In 2015, it was down to $0.30 per watt.

The price dropped over 99% in less than 20 years. But it was still more than coal or natural gas.

And that meant if you wanted to use solar, you were going to have to shell out some extra cash for the good feeling of going green. But that’s not the case anymore.

Thanks to huge technological breakthroughs in photovoltaic (PV) cell efficiency, solar energy costs are reaching the breakeven point with fossil fuels much faster than anyone had anticipated.

A few years ago, most projections had solar energy costs reaching the same level as coal and natural gas by the end of this decade. But it looks like that’s come a little earlier than expected.

As of last year, solar cost less than both natural gas and coal over a 30-year period. So, for the lifetime of a potential project, factoring in all the costs (including maintenance, construction, etc.), solar is cheaper than fossil fuels. And that’s coming from the U.S. Energy Information Administration (EIA). So, it’s not just some solar lobby trying to distort the facts to get you to support its product.

Solar Price Parity

Big Deals = Big Progress

What's even more impressive than those figures, though, is a deal recently signed by utility company Tucson Electric. It’s buying solar plus storage from NextEra Energy (NYSE: NEE) at a rock-bottom price.

It works out to less than 4.5 cents per kilowatt-hour (kWh) over the next 20 years. That’s incredible! That’s less than half the price of retail electricity. But even more phenomenal is that it’s competitive with coal and natural gas!

That’s huge! Gigantic! Amazing!

It’s a watershed moment for solar. It means there’s no reason consumers (retail or commercial) would need to use fossil fuels. If it costs the same (or in some cases less), then why not go green?

But the thing is, this isn’t just big news for solar companies and electricity consumers. It’s a death knell for another industry…

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Ask Not for Whom the Bell Tolls…

It tolls for utilities.

That may seem like an odd statement. The deal I just mentioned was between two utility companies. But the thing is that solar getting cheaper means it’ll be more economically viable for retail and commercial customers to go “off the grid.”

If a watt of solar energy can be generated and stored for less than it costs to produce that same energy from another source, there’s nothing stopping the widespread switch to solar.

And if customers start making and storing their own energy, utility companies aren’t going to be able to sell as much to them. Plus, there are the asset costs that get included in your electric bill. If utilities don’t need to build new plants and put in new lines, then they can’t charge customers for using them.

Those are two huge hits to revenues at any electric utility.

And if solar costs less than other fuel sources, those plants that run on coal, natural gas, and even nuclear are just going to be obsolete relics of ages past. And they’re going to be a drag on any profits utility companies might have left.

The Fourth Reich

The same thing happened in Germany just a few years ago.

Bloomberg reports that wholesale power prices in Germany are down more than 32% since 2010. The prices of German utility stocks have done even worse.

RWE is Germany’s biggest power supplier. Its stock went from above $90 in 2007 to around $10 in 2015. The company was practically bankrupted by the wide-scale adoption of solar power in Germany.

RWE Price Drop

This is because nearly 20% of German companies have gone off the grid and now generate their own power. And it’s not just small businesses. Even a massive Dow Chemical plant that consumes 1% of all German electricity now produces its own power.

The Wall Street Journal reports that 23% of Germany’s companies that have not already done so are considering investing in their own power generation.

That’s an ominous chart for U.S. electric utility companies. It’s like seeing into their own future.

Those stocks used to be called “widow and orphan investments” because they were so safe and provided both gains and income.

But that’s all going to change as solar takes the main stage and these companies become a distant memory.

One Play to Rule Them All

There are a few ways you can play this as an investor.

Sure, you can get your positions back in solar companies like SunPower (NASDAQ: SPWR) or Canadian Solar (NASDAQ: CSIQ). Both of those are solid companies that will deliver stellar returns as solar continues to rebound and eventually eclipses other energy sources.

Or you could get a foot in the door at a whole bunch of companies by investing in an ETF like the Guggenheim Solar ETF (NYSE: TAN). It’s got investments in both companies above and many more. Most of its top 10 holdings are North American solar companies. And it’s definitely going to deliver solid profits in the years to come.

But there’s a third way to play this emerging parity. And that’s with a bet against the utility industry.

You could short utility companies and hope your position goes up before your broker calls it and makes you cover. But there’s the possibility of short-term gains in utility stocks. And that could lead to exponential losses from a poorly timed short position. The gains from a short position are unlimited, but so are the losses. And that’s not something I’d like to think about in my retirement account.

Another safer way would be by purchasing put options on utility stocks. These options would give you the right to sell shares of the company at a certain price, no matter where it’s trading on the open market. If share prices go down below the strike price of our puts, you make a profit; if the stock price goes up, you can only lose as much as your initial investment. But while losses are limited, so are gains — you can only make as much as the difference between the market price and the strike price.

So, either you have unlimited losses in exchange for unlimited gains, or you enter a trade that’s very limited on both sides.

I know what you’re saying: “Isn’t there another way? Because I prefer limited losses and unlimited gains.”

Well, you’re in luck, because there is.

I can’t give it away here because it’s an active trade for my subscribers at The Wealth Advisory. But if you’re willing to take my service for a test drive, you can get access to that play (and several other green investments). And you can capitalize on both the downfall of electric utilities and the bright future of solar energy.

Plus, you’ll get access to a strategy that lets you collect royalties from almost all the world’s largest internet-based companies like Google and Facebook. And you can learn how to pull millions of dollars out the back door of some of the country’s biggest companies.

I hope you’ll give it a shot and join me and my readers who are already raking in the profits from investing in the future of energy.

To investing with integrity (and foresight),

Jason Williams
Energy and Capital

Follow me on Twitter @AllBeingsEqual


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