It’s been quite a while since investors have seen high oil and gas prices. For around two years now, the oil industry has been over-saturated with OPEC production in an effort to maintain market share and cut out competitors like US Shale. As a result, oil prices have lingered in the high $30s to mid-$40s range, causing great upheaval in worldwide energy markets.
Cheap oil has helped some industries like the transportation, which benefits from the higher margins, but another industry has virtually disappeared from investors’ radar: renewable energy sources like solar and wind, once popular due to skyrocketing oil values, hasn’t been a headline since oil became so cheap. Hard commodities have suffered with the collapse of the Chinese market, so it stands to reason that energy sub-sectors more expensive than oil should be similarly downbeat.
The renewable energy industry has been facing a major headwind for two years now. Based on the performance of the Guinness Atkinson Alternative Energy Fund (GAAEX), the difficulties the industry faces are quite evident. In the past two years, the fund lost nearly a third its value, falling from $4.21 per share to $2.67 per share.
A Silver Lining in the Alternative Energy Space
Despite the drop in alternative energy equity values, there are a number of developments occurring that could translate into long-term success for green energy as a whole. Alternative energy isn’t going away, and investors might want to take advantage of this long-term trend while prices are still low.
Last year saw record investment levels in renewable energy in developing economies like China and India. The majority of funds allocated globally to green energy sources stemmed from emerging markets. As 2015 came to a close, the UK Renewable Energy Association (REA) reported that there was enough renewable energy capacity to supply 23.7% of the world’s electricity.
According to International Renewable Energy Agency’s (IREA) annual review, jobs in green energy are growing as well, with more than 8.1 million people employed by the industry. In the United States, jobs in the green energy sector grew 6%, while jobs in the oil and gas industry fell 18%. Funding into alternative energy keeps growing globally as well: in Europe, crowdfunding is quickly becoming one of the primary drivers of financing.
Solar is the top green energy source and it’s becoming cost competitive around the world. Average utility costs for solar in the United States are now just $0.05 per kWh – in Mexico, a recent solar project averaged $0.045 per kWh. Commercial applications for solar are going to be the big drivers going forward as the residential market starts becoming saturated.
The Bottom Line
The green energy industry still faces significant challenges in the short term. Oil prices are starting to make a slow comeback and alternative energy still has a long way to go before replacing fossil fuels. Even still, the long-term trend for green energy isn’t going away and investors could see huge payoffs if they’re willing to take a long-term growth approach.