Solar Power Is at a Tipping Point... and the Upshot Is Massive Profits

January 28th, 2015
in contributors

Money Morning Article of the Week

by Kent Moors, Money Morning

I have spent years tracking dozens of promising renewable energy companies.

And while the potential of these groundbreaking companies has always been tempting, there have always been limitations holding them back.

Follow up:

New projects require intensive amounts of working capital to make them fully compatible with traditional methods of generating power, and there's the widely held assumption that renewables can't survive absent government subsidies and benefits.

All these, of course, have simply added to the costs that end users have to pay.

And in the case of solar and wind, there has always been the problem of generating electricity when there's no wind or sunshine to tap.

What's more, projects in this sector have always needed a sufficient amount of private investment to get off the ground.

Yet, as it turns out, each of these drawbacks is less of a deal breaker than originally thought.

You see, despite the odds, alternative energy - led by solar power - is rapidly approaching what the industry has always considered to be the "Holy Grail."

The upshot for investors is massive profits...

A Brand New Age for Renewable Energy

It all revolves around renewables' rapid move toward "grid parity."

Grid parity reflects renewables' ability to generate power for the same underlying cost as competing sources like oil, natural gas, or coal.

In other words, it's the point at which the cost of generating renewable energy suddenly becomes equal to its peers.

And the little known fact is that even with the phasing out of government subsidies and the relaxing of power purchasing requirements by utilities, grid parity already exists in many areas.

By other yardsticks of broader economic impact, what I am seeing as this develops is quite significant.

Take the rising position of solar power, for example.

In an interesting piece at Smithsonian.com, Marissa Fessenden gives us an interesting perspective on the subject...

As Fessenden notes, the solar industry is growing fast, which puts it in that awkward position where it can lay claim to some very big numbers but also very small ones. As Mother Jones has reported, the amount of solar power produced in the United States in the past decade has "leaped 139,000%." That's despite the fact that in 2013, according to the U.S. Energy Information Administration (EIA), solar power only made up 0.2% of the energy generated in the country.

Coal, on the other hand, accounted for 39%.

Brad Plumer, from Vox, has reported on another big number: The non-profit Solar Foundation says there are now 174,000 people working in the solar industry. According to Plumer, the solar industry has created so many jobs, from solar panel manufacture to installation, that it now employs just about as many people as the coal industry does.

Plumer's comparison pits Solar Foundation's numbers against the 80,000 who work in coal mining, plus the number of people involved in coal transportation and coal power plants. Those later numbers, he notes, are based on 2006 estimates, so solar power may employ even more, as many older coal plants have closed since then.

On the face of it, this may seem like a win for solar power supporters. But Plumer also considers some of the downside.

His comparison also highlights how labor-intensive solar power is compared to other sources. He wrote:

"If the world wants to avoid drastic global warming, we'll need to replace dirtier sources of energy, like coal, with cleaner sources - solar, wind, nuclear, say - and fast. And the higher cost of solar is a real impediment to doing so."

However, the coal industry has a lot of indirect costs - health and environmental impacts - not typically folded into such comparisons.

He wrote:

"These costs don't show up on electricity bills. Instead, they're dumped on the broader public, in the former of shorter lives or higher hospital bills."

The Money Is Starting to Flood In

That jobs number may be fuel for political debates, too. The Solar Foundation reports that the tiny solar industry has provided 1.3% of all the new jobs created in the United States since the 2013 census.

That's a small number - but it could indicate that the solar industry's clout is growing just as fast as its share of energy production.

All of this means there are impediments as well as opportunities in touting solar power as a remedy for the environmental shortcomings of older sources like coal.

Nonetheless, cost parity combined with the rising benefit on the employment and secondary economic impact fronts means renewable energies like solar now have something else going for them.

This much is clear: Renewable prospects are intensifying fast. And that means something else.

In future issues, I'll be discussing the investments in this portion of the sector as the money begins to flood in.









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