Right now, there are two strong, positive themes in energy: solar and natural gas are dominating headlines.
Not only are both steadily capturing a majority of market share, but both are also in line with the priorities of the entire political spectrum.
New natural gas power plants are considerably cheaper than coal, especially with new environmental regulations.
At the same time, the old story of solar being anathema to business and the forces of capitalism are gone. The old concept of having to compromise on price for environmental reasons is dead and buried.
Both natural gas and solar are delivering a one-two punch for emissions and price efficiency. Old adversaries are on the same page.
However, in the near future, we’ll see a divergence that will not undermine either but that will offer a clear advantage to continued expansion of solar power, especially the power supplied by utility-scale projects.
As it happens, solar will become a dominant factor in reducing emissions, consumer bills, and corporate profits.
The Natural Gas Side
This is a two-sided process. On the first side, we have abnormally cheap natural gas due to the fracking boom.
Obviously this has been a driving force for expansion of natural gas as a source of electricity. However, it is suffering the same fate as oil in the current environment.
Companies are producing at a loss to meet debt payments. New production is pointless, and it shows in rig counts from the weekly U.S. Energy Information Administration reports:
It also is more than apparent in the price, which is at bargain-bin levels, while stored natural gas is slightly above the five-year maximum average:
These low prices will not be sustained, if only because the companies that are swallowing them will not remain solvent for long.
Within the next couple years, debt-burdened companies will be forced to sell themselves for pennies on the dollar or seek bankruptcy protection.
Liquefied natural gas export terminals, like the one recently opened by Cheniere Energy, will provide a release valve to oversea markets in the future, but they take decades and hundreds of millions of dollars of debt.
Companies can afford neither the time nor the money today.
This makes solid natural gas companies or direct natural gas investments pretty good bets today.
However, investors are largely ignoring another source of electrical generation that will see wildly expanding profits as natural gas prices inevitably rise and find an equilibrium between producers and consumers.
The Solar Side
As natural gas prices rise, an opening will form that greatly favors utility-scale solar power generation.
Solar is already competitive, and utility-scale projects benefit from scaling so well that they will trump all other forms of power generation within the next year and a half:
Warren Buffett already secured some of the cheapest electricity rates in the country when Berkshire Hathaway–owned NV Energy landed a long-term, utility-scale deal for 100 megawatts at just $0.0387 per kilowatt-hour.
Last year, NV Energy was paying $0.1377 per kilowatt-hour, marking a nearly 72% decrease in cost.
In the near future, that massive price drop will be coupled with an even larger difference between solar and natural gas or other energy sources.
If a utility is not utilizing solar, it will have to replace it with something else. The cost of that replacement is only going up.
Thus, as natural gas prices rise, they will bring large-scale solar profits along for the ride.
Commercializing Free Energy
There is a big movement going on in the solar sector that you need to keep in mind before you assume that a rising tide will lift all ships.
Big business is stepping in to protect its turf.
Nevada’s Public Utilities Commission changed the rules to favor utilities and to support the existing electrical grid payment system.
Subsidies are gone, utilities pay below-market rates for energy coming from homes, and they can tag on grid fees.
To add insult to injury, no residents that already invested in solar cells for their homes are going to be grandfathered through.
SolarCity has shuttered operations in the state, and many smaller installers are out of business as well.
It is deplorable, but this isn’t an attempt to stop solar growth. On the contrary, it is designed to boost it on the corporate side.
After all, the very company that lobbied hard for the rule change is Buffett’s NV Energy — the same company that locked in one of the lowest electrical rates in the nation in a long-term deal.
You can bet other utilities that are well connected in local and state governments are drafting their own plans now.
So installers are increasingly risky, and utilities are going to absorb what they can into their already-bloated systems and diffuse investor profits.
That leaves one clear avenue for investors: investing in the technology that boosts efficiency, drives down cost, and has made solar into the lowest-price energy source today.
As far as solar cells have come, there are big changes coming again this year. For example, one company is licensing technologies to companies that are starting to commercialize them now.
These new cells could double the power generation of industry solar cells while cutting manufacturing costs in half.
In other words, new cells that cut prices by another 75% could be hitting the market before the year is done.
As these are rolling out, we’ll be seeing natural gas prices rising as the market stabilizes. As natural gas loses some of its luster as an energy source, solar will be the best source available by far.
