It goes without saying: If you want to start an argument, bring up the issue of green (renewable) energy. Exactly how many different opinions there are is uncertain, but it’s clearly more than the total number of solar panels and windmills. In spite of the growing number of green energy startups and government programs supporting them (recently failed Solyndra being the current hot topic), there’s little agreement on when, or if, green energy will play the majority role in world energy production. Just how far have we come, and where are we now?
The green energy movement has been around for longer than most people think. Although part of the larger environmental movement, which has long historical roots, the green energy movement can be traced back to the late 1800s, when science first began to suspect that increased CO2 levels, caused by human activities, could eventually result in increased world temperatures. In 1896, Swedish researcher Svante Arrhenius became the first scientist to propose that carbon dioxide, already established as a greenhouse gas, could increase atmospheric temperature over the entire Earth, later suggesting that human-generated CO2 could potentially warm the Earth enough to reduce the chances of another ice age. Arrhenius, of course, could not predict the degree of worldwide industrialization, or the ubiquitous nature of the internal combustion engine, and assumed that any such change would take thousands of years.
Almost nobody paid attention to his idea, but scientists continued collecting data and tweaking mathematical models, eventually developing computer simulations. It wasn’t until the 1970s that the potential for near-term climate change began to gain traction, though nobody was sure just what the change would be or what it would mean. By the beginning of the 21st century, enough scientists had signed on to the notion of civilization as a driver of global warming that both the public and private sector began developing programs to advance alternatives to fossil fuels.
So where are we now? According to the U.S. Energy Information Administration, the major energy sources for the U.S., including energy used for transportation, are (figures rounded):
- Petroleum – 35%
- Natural Gas – 23%
- Coal – 20%
- Renewables – 8%
- Nuclear – 8%
- Other – 6%
The biggest part of this total energy pie (over 38%) goes for the generation of electricity, with the second biggest piece (27%) going to transportation. The figures above set renewables as representing 8% of total U.S. energy sources, but much of that is hydroelectric.
Looking at electrical generation sourcing exclusively, we get the following breakdown, providing a better idea of the still limited role played by non-hydro renewables:
- Coal – 45%
- Natural Gas – 23%
- Nuclear – 20%
- Hydroelectric – 7%
- Other Renewables – 4%
- Other – 1%
Of the 4% listed as Other Renewables (non-hydroelectric) we get the following breakdown:
- Wind – 55%
- Biomass – 35%
- Geothermal – 9%
- Solar – 1%
It’s clear that green energy continues to play little more than a supporting role in America’s overall energy picture, making it easy to forget that 4% of all the electricity generated in the United States is no small number. More importantly, non-hydro renewables represent by far the country’s fastest growing energy source, with wind power, the biggest component, leading the growth.
In spite of powerful industrial opposition, and significant remaining technical challenges, green energy continues to build market share. Critics are quick to point to the ongoing support of government programs as the only thing keeping non-hydro renewables alive, but supporters insist that this misses an important point. Historically, one of the few things government does right is to spur the type of speculative research that private industry is reluctant to fund, spinning off technologies that companies can then economically develop and apply to consumer needs.
The space race is a classic example. Its formal justification was never industrial spinoffs, but rather a highly visible affirmation (to ourselves as much as to the rest of the world) of the free market system’s technological superiority (something of an irony considering that it was a program of big government, though obviously based upon the strength of free-market engineering). In any event, it resulted in a long-term dividend, a world of diverse products, big and small, including CAT and MRI scanning, cordless power tools, freeze-dried foods, scratch-resistant lenses, LEDs, artificial limbs, and other inventions the U.S. went on to sell around the world.
Regardless of what side you come down on, competitive green energy research has led to continued technological improvements in the field, and a corresponding reduction in price per energy output of renewables. Any developing technology typically eats up money in research and development, the benefits of which show up later in the business cycle. (Think back to the first home computer you purchased, how much it cost, and how little it could do.)
But conventional wind power, currently considered by many the most cost-effective renewable energy source next to hydro power, is already closing in on coal in cost efficiency, having passed nuclear power, with geothermal and biomass close behind. Solar remains the most expensive alternative, though significant improvements are occurring there as well. As the cost efficiency of wind power and other renewable sources improves, the comparison with traditional fossil fuels becomes more compelling, and it’s a trend that shows no sign of letting up. From this perspective, the bottom line for green energy seems inevitable: continued decreasing costs and increasing efficiencies can be expected to fuel continued growth.
However, even if you support the rising role played by renewable energy, finding a specific investment in green energy with significant upside potential is a separate issue. Below are some particular analyst favorites for the remainder of 2011 and into 2012:
Broadwind Energy (NASDAQ:BWEN) – Broadwind supplies customized products and services to the U.S. wind industry.
SatCon Technology (SATC) – SatCon delivers power conversion systems for renewable energy plants.
GT Advanced Technologies (GTAT) – GT (previously GT Solar) is a global provider of advanced materials and production technologies for the solar industry.
SunPower Corp. (SPWRA) – SunPower designs and produces high-performance solar power technologies.
Also worth serious consideration are the following recommended clean energy funds:
- Gabelli SRI Green Fund (SRIGX)
- Powershares Cleantech Portfolio (NYSEARCA:PZD)
- Winslow Green Growth (WGGFX)
Purchasing funds can reduce the risk of investing, though keep in mind that buying a basket of securities also reduces your potential reward. Regardless of your feelings about green energy, it’s clearly here to stay, and current projections point to ongoing growth for the foreseeable future.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.