The Case for Investing in Solar Energy

While I called solar energy “mostly a speculative venture” in my previous post while making the case for investing in LNG transport, I want to make the case for why solar still has a role in my portfolio.

Socially Conscious Investing

When I am investing, I aim for these 3 priorities in this order:

  1. Don’t lose money.
  2. Invest in things that grow and/or produce steady income.
  3. Invest in a better world too.

I want to invest in companies I believe in that are doing good things for my planet as well as my wallet. That just makes sense to me. I want to eat salmon, tuna, and tilapia and watch cool new documentaries about whales, sharks, seals, and penguins. In the end, those things make me enjoy life on this planet a lot more than 3% dividends. So if a company is paying a sweet dividend yield while putting the oceans at risk with irresponsible policies, I say, like any good millennial, “meh.”

futurama planet

If I am investing in a company that isn’t making sure I have both money and a planet to live on, I will operate like Exxon Mobil’s awesome shareholders did last week and use my shareholder voting rights:

A number of large institutional fund firms including BlackRock Inc, the world’s largest asset manager, supported a shareholder resolution calling on Exxon Mobil Corp (XOM.N) to share more information about how new technologies and climate change regulations could impact the business of the world’s largest publicly traded oil company. The proposal won the support of 62.3 percent of votes cast.

Shareholders of Occidental Petroleum Corp (OXY.N) and PPL Corp (PPL.N) passed similar calls for reports from their companies as well. I say that instead of putting pressure on our governments to put pressure on corporations, we just skip the middle man.

This is one of the things I love about investing in stocks. A stock isn’t just a piece of paper. You own part of that company. You get a say in what that company does. Shareholders can put pressure on the company’s board to behave in a certain way, and they can vote for a regime change if they don’t like how things are going.

Households own 38% of the stock market directly. Including what we own indirectly through ETFs and mutual funds, that number is 80%. If we keep doing what XOM shareholders do, we could start swaying quite a few companies toward being socially and environmentally conscious. If we can convince institutions like Vanguard–who didn’t support the XOM vote–to support our causes, we could sway most of the market!

Don’t forget that bond investors can make an impact too. Governments and corporations can fund renewable energy projects with “green” bonds. If there are investors buying up those bonds, we’ll see more renewable energy projects going up, and eventually the cost will come down as renewable energy tech becomes commoditized.

Solar Is Getting Cheaper

In his book, Physics of the Future, Michio Kaku defines the “Four Stages of Technology.” Take a second to think about how some technologies that have followed this formula: electric lighting, the automobile, and personal computers. Here are the 4 stages:

  1. Product is rare. It is precious and closely guarded.
  2. Product is available to almost anyone, but still expensive.
  3. Product is mass-produce, making it extremely inexpensive.
  4. Product is so widely applied that it has almost no expense.

Now let’s think about the technologies going through various stages of that process right now: smart phones, space travel, electric cars, and solar power.

The next topic Dr. Kaku talks about in Physics of the Future is Moore’s Law. Moore’s Law was popularized during the technology book of the 1990s, but it was actually discovered back in 1965. Intel co-founder Gordon Moore noticed that the number of transistors per square in on a computer chip doubled every year. More than 50 years later, chip makers continue to produce faster chips at smaller sizes at an incredibly fast rate.

Stephen Mihm reports in a Bloomberg View opinion piece on a paper published last year by economists J. Doine Farmer and Francois Lafond on “a generalized version of Moore’s Law” where “costs drop exponentially.” Farmer and Lafond studied how 53 technologies in various sectors fit the model in ways that were predictable.

When inflation is factored in, Farmer and Lafond find that the prices of coal, oil, and natural gas have had relatively consistent prices for as long as we have been keeping track. There is short-term volatility, but in the long term not much changes. Nuclear power has actually increased in price. These energy production methods do not follow Moore’s Law.

Solar, on the other hand, has consistently decreased its cost-per-unit by about 10% each year, offering predictable exponential growth. This is despite the capricious involvement of government, which has not consistently subsidized renewable energy. Advocates for fossil-fuel-based energy production argue that the solar industry is not financially sustainable and will die without government subsidies, but the numbers tell a different story. Now let’s look at the numbers on older energy technologies.

Fossil Fuels Are Becoming Fossils

Let’s start with coal. Coal is the dirtiest way to produce electricity. The financial cost benefits of it do not outweigh the environmental costs, especially as the price of natural gas has dropped considerably. The coal industry can blame environmentalists and government subsidies all they want, but they will still be wrong. The reality is that many coal-fired power plants in America have been converted to burning natural gas, and many companies building new plants have elected to build natural gas or nuclear generators instead of coal.

This is not a new phenomenon; it has been happening for decades. Here is how U.S. coal prices have changed from 1975 to 2005, according to the U.S. Department of Energy’s Energy Information Administration:

Screen Shot 2017-06-12 at 11.32.51 PM

And here is how coal employment in the U.S. has changed from 1985 to today, according to the U.S. Bureau of Labor Statistics:

Screen Shot 2017-06-13 at 9.21.54 AM

Coal is a dying industry, and it has been doing so for decades.

Oil will be the next fossil fuel to fall, as hybrid vehicles have taken the market by storm over the last decades, and Tesla Motors (TSLA) has made electric cars attractive, practical, and affordable. They also have come up with solutions to charge their cars directly from solar energy. As Tesla’s production increases, fewer and fewer gasoline-powered vehicles will be on the American roadways. Oil, already facing price pressure from shale drilling, will struggle. The United States Oil Fund price history shows that oil never recovered from the 2008 financial crisis, and it is starting to look like it never will:

Screen Shot 2017-06-13 at 9.39.34 AM.png

Natural gas is the only fossil fuel with an optimistic outlook. Natural gas is currently the cheapest way to product electricity. When wind and solar inevitably catch up to gas, it may never completely take the fuel off the market, as so many households depend on it for cooking and heating their homes.

Solar, wind, and natural gas are pushing coal and oil out of the market. This is why I am keeping my money out of securities that depend on coal and oil. The only energy-related stocks in my portfolio are 8point3 Energy (CAFD), which operates and acquires solar energy generation projects, and Golar LNG Partners (GMLP), a liquified natural gas carrier. On my watchlist for potential additions to my IRA are NextEra Energy (NEE), a diversified renewable electricity generator, and the First Trust Global Wind Energy ETF (FAN). Tesla Motors (TSLA) is on my wishlist, the list of stocks that I would love to own but are far too overvalued by the current market.


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