Few would disagree that cutting pollution emissions and reducing our dependence on expensive, imported fuels are noble goals. In the US, public discussion of alternative energy has been largely monopolized by two energy sources: solar photovoltaics (PV) and wind power. But the high-profile bankruptcy of solar power company Solyndra—shortly after the firm received a $535 million loan guarantee from the US Dept of Energy— reveals the dangers of the nation’s unhealthy obsession with green energy.
The US Energy Information Administration estimates that the total cost of solar PV energy by 2016 will be about $211 per megawatt-hour, compared to $63 for an advanced, combined-cycle power plant fueled by natural gas. (See “Our Generation.”)
Advocates for green energy stocks argue that continued investment in innovative technologies should drive down solar energy prices and allow PV to reach grid-parity costs. But this reasoning ignores the other half of the problem: The average wind power plant in the US only runs at about one-third of its rated capacity, while solar PV plants run at about 25 percent of their nameplate capacity. Because there’s little scope to store power on the grid, variable output from solar and wind facilities can only replace a modest amount of conventional, baseload power.
Given these inherent disadvantages, alternative energy wouldn’t attract significant investment without large subsidies. The EU has been a leader in “feed-in tariffs,” a system that guarantees companies a high tariff for their renewable power. These subsidies encourage firms to build solar and wind capacity without regard to demand.
Germany and Denmark are often lauded for their efforts to encourage wind and solar power. But these energy sources cost consumers dearly. As “It’s Not Easy Being Green”—first posted on Investing Daily’s Facebook page—shows, retail customers in Germany and Denmark—the nations with the largest installed bases of alternative energy—also pay the highest electricity rates in the EU. Moreover, to offset the variability of solar and wind power sources, Germany and Denmark must trade electricity with their neighbors.
Weak economic growth and high unemployment across much of the developed world make it difficult to pass along high alternative energy subsidies to consumers, prompting Germany and other nations to cut feed-in tariffs. Governments in countries such as Spain, Greece and Italy that once directly subsidized alternative energy have more pressing needs. The era of supercharged subsidy-driven growth has ended.
I’ve consistently advised readers to ignore the greentech hype. In “How to Hedge Your Bets” from Aug. 25, 2010, I first advised selling short First Solar (NSDQ: FSLR), the world’s leading producer of thin-film solar modules.
I’m not bashing the greentech movement’s worthy goals. However, the single-minded focus on solar and wind power has diverted attention from realistic alternatives. When it comes to reducing harmful emissions or dependence on imported fuels, most pundits focus on clean energy. Sometimes it’s better to approach the problem from another angle: using the energy we produce more efficiently.
In an era of high energy prices, many companies can save money by reducing their power consumption. That makes efficiency viable even without subsidies.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.