The promise of renewable energy threatens the demise of oil and gas… The big question: Where to put those investment dollars?
If you’re heavily invested in oil and gas stocks, take heed: Demand for renewable energy is fast outpacing fossil fuels.
Even super-low oil and gas prices haven’t slowed this industry’s growth, which is predicted to replace natural gas as the primary source of electricity production in just 15 years.
Get on board early; these stocks offer long-term investment opportunities.
The change has been coming for some time: Two new reports forecast that fossil fuel demand is hitting its peak and will begin a downturn within 10 years.
Demand for natural gas is already stagnate, setting the stage for its eventual demise.
By comparison, renewables such as solar and wind attract billions more in investment dollars than fossil fuels. Bloomberg New Energy Finance estimates that solar, wind, and hydro investments will total $7.8 trillion between now and 2040, dwarfing the $2.1 trillion allocated to fossil fuels like gas and coal.
The U.S. Energy Information Administration concurs—the Annual Energy Outlook for 2016 predicts the capacity for generating renewable electricity will skyrocket, beginning this year.
By 2040, capacity could reach 500 gigawatts annually. Compare that with last year’s report, which forecasted a little more than half that capacity by the same date.
Renewable energy trounces oil and gas in the global employment arena, as well. A recent report notes that jobs in renewables grew by 5% last year, for a total of 8.1 million workers—plus 1.3 million in hydropower.
By comparison, the oil and gas sector has lost over 350,000 jobs since mid-2014.
The BNEF also predicts that electric cars will flourish and increase the demand for green electricity. By 2040, electric vehicles will command 35% of new vehicle sales worldwide, 90 times more than last year’s estimate.
Battery energy storage will be big business in 2040—a $250 billion market, according to BNEF. Cheaper batteries will find a larger market than just EVs.
The report foresees an increase in solar energy systems at homes and businesses, as well.
And… research on biofuels is coming of age, too.
As part of its Carbon Neutrality Initiative, the University of California powered one of its research ships on renewable biofuel for an entire year.
For gas and oil investors, the increasing market share of renewables presents a new investment opportunity.
Where should you look to move your fossil fuel investment dollars?
Solar and Wind
Earlier this year, the EIA estimated that solar will contribute 9.5 GW out of 26 GW of additional electricity-generating capacity in 2016, dwarfing natural gas’s expected contribution of 8 GW.
According to the Solar Energies Industries Association, solar made up 64% of all new capacity in the first quarter of 2016 alone. The group expects this year’s rate of photovoltaic installations to nearly double from 2015.
Despite these sunny predictions, solar company stocks have been down in the dumps. General worries about energy, particularly oil, have put pressure on these stocks.
The bankruptcy of SunEdison, one of the biggest renewable energy players, also hit the sector hard.
The drop in values creates a buying opportunity in solar.
Although First Solar missed on revenue estimates in its first quarter report, the company still grew income 81% year over year. Management also adjusted its guidance in several key areas, increasing its 2016 expectations in the areas of gross margin, operating income and earnings per share.
SunPower also lost value after its first quarter earnings release showed a substantial year-over-year dip in revenue. The company reduced guidance considerably for the rest of the year.
This followed a breakout fourth quarter report, in which revenue was up 123% from the previous year. The considerable difference in revenue and guidance was due to the recognition of the Hooper power plant project in the last quarter of 2015 rather than the most recent quarter.
Both companies have enviable project backlogs. First Solar notes a pipeline of solar projects totaling 3 GW. SunPower has several projects in the works for entities such as the U.S. Army, Toyota, and the subway system in Santiago, Chile.
Solar panel manufacturer Canadian Solar enjoyed a profitable first quarter, and even bumped up revenue guidance for the remainder of the year. Nevertheless, the stock is currently trading close to its 52-week low.
To invest in wind energy, two good bets are actually conglomerates that include wind energy under their corporate umbrellas. General Electric (NYSE:GE) and Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) are both well regarded, profitable companies with excellent track records.
While there are some pure-play companies in the wind arena, they’re almost all listed on the over-the-counter bulletin board, which implies a less stable investment.
EVs, Energy-Storage Batteries
What’s the first company to come to mind in these two renewable energy segments?
Tesla has a vested interest in producing batteries that add appreciable driving range to its electric vehicles. The company invested $5 billion to build a Nevada factory to do just that—the Gigafactory.
The hope is that by next year, Tesla will have a battery that will considerably extend range at a lower cost.
Invest for the Future
The increasing dominance of renewable energy doesn’t mean that you won’t be able to take profits from the coming rebound in oil prices in the shorter term.
If you’re an investor taking the long view, however, it’s not too early to position your portfolio to take advantage of the energy sector’s renewable future.
Buy renewable energy stocks while prices are low, and watch long-term profits nicely line your portfolio.