The Energy Segment That’s Taking Off Like a Rocket

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

Alternative Energy

Ten years ago, you would be hard-pressed to find any commercial building in the U.S. with solar panels on its roof. Ten years from now, you’ll be hard-pressed to find one without them.

How do I know that? Because improvements in technology and manufacturing have been applied to the solar panel industry. Over the last decade, solar power costs have dropped like a stone.

Over the next decade, that’s going to continue. It will be far cheaper to generate power from the sun than to buy it from the utility company.

Look at the following price graph.

Solar PV Industry Long Term Outlook chart

While this a busy graph, it clearly shows the grid cost convergence of solar is here. And that’s why large commercial businesses are installing solar at a record pace.

Take Apple (Nasdaq: AAPL), for instance. In its recent annual report, it noted that all of its U.S. facilities and 87% of its worldwide operations now get their power from renewables.

As of the end of last year, all of Apple’s corporate offices and data centers in the U.S., as well as its 450 retail stores around the world, run on renewables.

Apple is just one example. Wal-Mart (NYSE: WMT) installed its first solar project 10 years ago.

What a difference a decade makes. By the end of 2013, Wal-Mart had more than 335 renewable energy projects either in operation or under development.

Currently, Wal-Mart’s renewable energy installations provide its facilities with more than 2.2 billion kilowatt-hours (kWh) of electricity every year. By December 31, 2020, Wal-Mart wants to drive its production and/or purchase up to 7 billion kWh of renewable energy around the world.

That’s more than a 200% increase in just five years. By 2020, Wal-Mart should be nearly 100% powered by renewables, with over 1,000 projects in operation worldwide.

Another familiar retailer focused on renewables is Target (NYSE: TGT). Right now, 108 of Target’s 1,790 stores currently have rooftop solar arrays.

By 2020, Target expects to increase that number to 500. It also expects to add solar to its warehouse distribution centers.

Here’s what David Hughes, senior group manager of energy management for Target, had to say about its plans: “Through Target’s investment in renewables, we have expanded geographic and cost-competitive opportunities for clean energy. Our new goal to build 500 solar sites by 2020 shows how renewable energy is an integral part of our energy strategy.”

Inter Ikea Systems B.V., a privately held Swedish company, is the world’s top furniture retailer. It sells its Scandinavian-style furniture at over 350 stores in more than 40 countries.

It too is committed to moving toward renewable energy. Right now, it’s putting the finishing touches on a new store in St. Louis, Missouri, that’s slated to open in September 2015.

The company now has 165,000 solar panels installed on 90% of Ikea stores and warehouses in the U.S. However, Ikea knows that putting solar panels on the roofs of its stores won’t provide all the electricity they need.

So it’s purchased its second wind farm to increase its renewable energy footprint. This 165-megawatt (MW) wind farm is in Southern Texas, an area noted for its wind energy production.

When completed by the end of this year, the facility will have 55 Acciona 3-megawatt wind turbines. Ikea purchased another wind farm in Hoopeston, Illinois, earlier this year.

Together, the two wind farms will generate almost 1,000 gigawatt-hours of electricity annually. By the end of 2015, Ikea will own and operate 279 wind turbines in nine countries and will have $1.9 billion invested in solar and wind power.

The above examples are just a few of hundreds of commercial and industrial buildings that are installing solar panels. Why the big rush?

As we saw in the beginning of the article, the cost of installing solar continues to drop. Commercial and industrial buildings use 50% of all the electricity consumed in the U.S.

The more they switch to renewables, solar, wind, geothermal and biomass, the less power plants and transmission lines we’ll need. Solar now rivals nearly every other form of energy in cost per watt.

Back in 1977, the cost of solar photovoltaic (PV) cells per watt was nearly $80. Now it’s well under $1 per watt and installation costs have dropped nearly 10% in the past decade.

The big reason businesses are jumping on the renewable bandwagon is their reputation. Consumers are becoming more aware of a company’s environmental responsibility.

“The Global, Socially-Conscious Consumer” is a recent report put out by the Nielsen Company. It indicates the majority of U.S. consumers increasingly look for companies that are socially and environmentally responsible.

For retailers, integrating renewables into their energy sourcing is a win-win situation. They lower their energy costs, improve their environmental footprint and eliminate the risk of losing customers.

There’s no question this trend is only going to continue as the cost of solar drops even further. Every investor should consider having a solar play as part of their portfolio.

Good investing,

Dave