Sustained Growth in Renewables Shows the Future Is Now

David Fessler By David Fessler, Energy and Infrastructure Strategist, The Oxford Club

Alternative Energy

At the turn of the century, solar and wind were expensive resources. Only a few forward-thinking power execs ever thought of them as viable energy sources for the future.

But their prices were too high. The grid wasn’t ready for them.

Enter Fessler’s Second Law of Technology: “When it comes to technology, change happens much faster than anyone expects.”

Fast-forward to 2017: Solar and wind are integral parts of our energy generation, and their roles will continue to expand.

And as I’ll show you later, there’s a sector that’s going to take off as a result.

Renewables Have Arrived… But Growth Is Just Getting Started

To get an idea of just how much renewables are taking hold, take a look at the California Independent System Operator Corporation (CAISO), which runs California’s electrical grid.

On any given day, CAISO generates 30,000 megawatts (MW) of energy. Here’s how it breaks down…

In other words, renewable sources already power the bulk of California’s energy grid. Plus, an additional 70 MW of residential solar come online every month.

It’s only a matter of time before wind and solar are the biggest sources on every U.S. energy grid. That presents a great opportunity for energy investors.

In recent articles about renewable energy, I’ve focused on wind. Today, I’m going to focus on solar.

We’re still in the early days of solar energy. Yet it’s already well on its way to “disruptor status” in the electricity generation sector.

Solar accounted for 39% of new power generation during 2016 – the most of any source. Elon Musk predicts that, in 20 years, we’ll be getting 50% of our electricity from solar.

Think that’s bold? Renowned futurist Ray Kurzweil believes we’ll be getting 100% of our energy from solar by then.

However, as of the end of 2016, we’re getting only about 0.9% of our energy from solar. So you might think that Musk and Kurzweil are off their rockers…

But think about this for a moment: Over the past decade, solar energy has achieved a compound annual growth rate (CAGR) of more than 60%. That’s impressive, but it won’t continue at that rate.

So let’s take a pessimistic view. I’m going to assume solar energy grows at a CAGR of only 30% over the next 20 years.

That means it would still double seven times, which would equal a 128-fold increase. Solar’s current 0.9% share would grow to 115.2% – more than enough to meet all of America’s energy needs.

As you can see, solar’s future looks bright. Its costs have dropped 67% since 2011 – 29% in 2016 alone. This pattern will continue.

Adoption of solar energy continues to increase too. Fortune 500 companies like Apple, Target and Wal-Mart are going solar at breakneck speeds.

The 25 largest corporate solar users in the U.S. have installed more than 1.1 gigawatts of capacity. They’ve done this at more than 2,000 different locations around the U.S.

Harnessing Energy From the Sun… When the Sun Doesn’t Shine

But solar is about to undergo an even more radical change than it has already. Solar energy systems are pairing with a technology that makes solar even more attractive.

This ties into a question I received from reader William F…

You keep talking about renewables. What do we do when the wind does not blow and the sun does not shine?

It’s a valid point, William. That’s where energy storage comes in.

Storing energy generated during the day allows it to be time-shifted into the solar night.

Up until now, cheap battery storage didn’t exist. But the drop in the cost of battery storage has been as dramatic as the rise in solar energy adoption.

Cheap batteries are enabling the electric vehicle (EV) and “solar plus storage” booms. Both EVs and solar plus storage are in their infancies.

They will play a big part in meeting America’s energy storage needs. Billions of people will have access to inexpensive, carbon-free energy.

Energy production will, in effect, undergo democratization. Everyone will be able to take part in generating their own energy.

The Investor’s Angle

I’m a big fan of pick-and-shovel plays. And there’s one sector that’s going to see explosive gains from solar plus storage.

I’m talking about the lithium mining sector.

Lithium-ion is the battery technology of choice for both EVs and energy storage. The amount of lithium that’s going to be required to supply all of the EV manufacturers is nowhere near what’s being produced today.

That means a lot of the small, off-the-radar junior lithium miners are going to see incredible gains.

You just have to know which ones have a chance…

Good investing,

Dave

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