Why Alternative Energy Will Never Become Widespread (In Our Lifetime)

It has been an argument that has caught fire in recent years; whether or not countries around the world should make the switch to clean energy. There are two very opposed sides, as big oil has such a prominent impact on the global economy though environmentalists have been quick to point out their destruction of the surrounding environment. But while small strides have been made in recent decades, the fact is, alternative energy is still a minute portion of our energy production [see also 25 Ways To Invest In Alternative Energy].

Many have put out timelines for when they feel each individual form of alternative energy will be dominant, but that seems unlikely to happen anytime soon. According to the EIA, official reports show that renewable resources accounted for just under 12% of total energy consumption in the U.S., and natural gas (the dominant source) is expected only to grow in the coming years. Though it may seem that solar and wind plants are springing up faster than hybrid and electric cars, the fact remains that fossil fuels remain dominant over all other forms of energy.

The biggest issue comes with adapting these new resources. Aside from the fact that it would be a major pain for companies to make the switch, cost is the real problem. Building fossil fuel plants and resources, as well as actually using them, is a cheaper option for most big businesses. Alternative energy costs more to install and maintain and with natural gas prices sitting so low and the supply growing by the day, you would be hard pressed to convince corporate America (or anywhere else in the world for that matter) that switching to clean energy is better for their business. It may help the environment, but it often hurts bottom line returns [see also Why The Solar ETF (KWT) Gained 1,400% In One Day].

Our addiction to fossil fuels is worse than that of our addiction to quantitative easing. Weening off natural gas and oil will take decades if not longer. Another major issue is the need for government subsidies to keep these programs going, as we all saw what happens when those programs run dry a la Solyndra. That brings us to the investing side of the equation, as many have utilized alternative energy in long-term portfolios in hopes of racking up strong gains.

Alternative Energy Investing

With the question remaining if we will ever see something like solar energy overtake oil in our lifetimes, there comes the question of whether or not these sources make good investments. The surrounding industry has certainly had some impressive growth in recent years, but that has not translated well to individual securities. First Solar (FSLR), one of the biggest and most popular solar providers in the world, currently has an EPS of -7 and has watched its stock price plummet since the recession began with losses of 95% since hitting its high in May of 2008 [see also The Best Way To Invest In Solar Energy].

Likewise, popular ETFs like the Guggenheim Solar ETF (TAN) and the ISE Global Wind Energy Index Fund (FAN) have lost 74% and 60% in the trailing three years. This is not to say that there isn’t a growth opportunity available; if our economy is ever to find its way back to prosperity, green energy may return to its healthy growth which could boost some of these securities. Alternative energy does not need to become the world’s number one resource for you to make money off of it, which is a good thing, because it is more than likely that we will never live to see that day.

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Disclosure: No positions at time of writing.

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  • ToddinNorway

    This reminds of some famous underestimates of technology change related to computers. Well, let us just say these quotes showed a lack of vision by many experts of their day.
    “Computers in the future may weigh no more than one-and-a-half tonnes.”-Popular Mechanics, 1949
    “I think there is a world market for maybe five computers.”- Thomas Watson, Chairman of IBM, 1943
    “I can assure you that data processing is a fad that won’t last the year.”- Chief Business Editor, Prentice Hall, 1957
    “Yeah, microchips, but what… is it good for?”- an IBM senior engineer, 1968
    “There is no reason anyone in the right state of mind will want a computer in their
    home.”- Ken Olson, President of Digital Equipment Corp, 1977.
    I would say Jared Cummans evaluation of renewables fits nicely on this list.