The Pain and Gain of Renewable Energy

Every month, at about the time I get my electric bill, I wonder why I don’t install solar panels. Our region of the country receives ample sunshine, and because of our southern location we have long days in which to capture energy from the sun.

Then I remember why I’ve not taken that step yet. The darn systems are so expensive! Well, they used to be.

Over the last decade the cost of solar power systems has halved, and that’s before you take into account the value of subsidies and tax credits. Still, it’s hard to justify installing solar power at my home, given our falling energy use as the kids go off to college.

But I’m not the prime target of solar power installations.

In fact, given the upfront costs and the reality that spreading those costs over more real estate pointing to the sun is better, retail consumers in general are not the prime target of solar power installations.

It’s all about businesses. More specifically, it’s all about businesses that have really big physical footprints.

As recently reported in The Wall Street Journal, Walmart has installed 65 megawatts of solar capacity, while Costco and Kohl’s have installed 38.9 megawatts and 35.6 megawatts, respectively. The more capacity they install, the more they control their own energy generation and cost. As the price of solar power (and other renewable fuels) declines, this move makes companies that benefit from generating their own power look even smarter.

On the other side of this trade are the traditional power companies that used to sell electricity to Walmart, Costco, et. al. These power companies are the heavily-regulated, electric generation businesses that also sell power to homeowners and small businesses across America.

As the large corporations cut the proverbial cord – or at least shrink it – they leave the traditional power companies with less revenue and fewer clients. What typically doesn’t decline in such a scenario is the need and even legal requirement for the traditional power companies to maintain their electrical generation equipment and all of the physical lines over which that power is distributed.

So on the one hand there are big companies making intelligent choices about how to manage their power needs and how to better contain costs. On the other hand there are electric companies that must continue providing certain levels of service and safety, even in the face of falling revenue.

Hmmm.

I think I see a problem here… and potentially a fall guy.

As power companies lose large commercial clients, they’ll have to find some way to make up the revenue. The first and only place they’ll turn is to their remaining clients, which of course are homeowners and businesses that were too small or too slow to install alternative power sources.

It’s more than conceivable that while our country transitions to a balance between on-site generated power and the traditional delivery from large companies that there will be a cost of maintaining the old system. A cost someone will have to pay.

Residential clients, the consumers least likely to move to alternative energy, are the ones that will foot the bill.

While this should raise alarms for homeowners, particularly those in areas like southern California where companies are quickly ginning up onsite power generation, it should also make investors scan their portfolios for investments that might be vulnerable to these trends.

The problem children of stocks include electric utilities, which tend to pay dividends. Retirees seeking income often hold such stocks.

That said, there are a couple of bright spots (no pun intended) here, beyond the obvious of harnessing a renewable energy source. As companies purchase more of this equipment the expertise involved in installation and management increases while the cost falls.

There’s also something here for those entering college. The fact that we are once again dispersing the ability to generate power means there’ll be a wide array of companies looking to hire employees who are knowledgeable about power generation, power distribution and system maintenance.

In 10 years it’s possible that companies, from grocery stores to shopping malls, will employ small departments of engineers and technicians with such expertise. For anyone sending a kid to college, this could be a path that provides quality employment for decades to come.

Rodney

P.S. For insights into the trends developing in other industries, click here.

 

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About Author

Rodney Johnson works closely with Harry Dent to study how people spend their money as they go through predictable stages of life, how that spending drives our economy and how you can use this information to invest successfully in any market. Rodney began his career in financial services on Wall Street in the 1980s with Thomson McKinnon and then Prudential Securities. He started working on projects with Harry in the mid-1990s. He’s a regular guest on several radio programs such as America’s Wealth Management, Savvy Investor Radio, and has been featured on CNBC, Fox News and Fox Business’s “America’s Nightly Scorecard, where he discusses economic trends ranging from the price of oil to the direction of the U.S. economy. He holds degrees from Georgetown University and Southern Methodist University.