This Chart Could be the End of Green Energy

July 31, 2012 by  
Filed under Green Energy News

Rising energy prices, the threat of global warming, political instability in the Middle East and a host of other factors have made renewable energy methods such as solar and wind wildly popular in the past few years.

But while there’s no question that green energy is beneficial to our planet, it could be years before any of these alternative energy methods become economically viable.

Take the solar industry for instance. Solar stocks like First Solar (Nasdaq: FSLR) were all the rage between 2007 and 2008.

Back then, oil spiked to $147 a barrel, with analysts predicting it could go as high as $200. All the major headlines were predicting “the end of cheap energy” as we know it. That’s one reason First Solar surged from $24 a share in 2006, to a high of more than $300 a share in 2008.

But things have changed since then… Crude prices returned below $100 a barrel, and with the global economy on the brink of a slowdown, many economists believe they could drop further.

And falling oil prices aren’t the only thing threatening renewable energy stocks. In fact, the leading risk for alternative energy companies comes from one of America’s most abundant commodities: natural gas.

In the past four years, natural gas prices have plummeted 70%… from $13/Mcf in 2008, to $3.10/Mcf in July.

Thanks to new extraction methods like hydraulic fracturing and horizontal drilling, America is now awash with the clean burning fuel source. Most analysts are predicting gas prices will stay below $4 for at least a decade.

At today’s price, it costs roughly $0.04 to produce one kilowatt hour (kWh) of energy from natural gas.
By comparison, it costs more than $0.20 to produce a kWh from solar, $0.10 from biomass, and even the most economically viable alternative energy source — wind — can cost upwards of $0.08 – $0.09 per kWh.

With the cost of energy from renewable methods more than twice the cost of energy produced from natural gas, it’s unlikely that alternative energy stocks will get the attention they deserve… at least for now.

Risks to Consider: Thanks to recent economic slowdown, energy prices have languished as of late. If the economy starts to pick up, or we see a sudden spike in energy prices, then renewable energy stocks could become attractive again.

Action to Take —- In the past few years, alternative energy companies have take a beating. Since 2008, Powershares Wilderhill Clean Energy (NYSE: PBW), an ETF that tracks the price of solar, wind, biomass, and other alternative energy stocks, has fallen more than 85%. With natural gas prices likely to stay depressed through at least 2025, it could be years before renewable energy stocks rebound.

Austin Hatley

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