How to Profit From the Fastest-Growing Energy Sector
by David Fessler, Investment U Senior Analyst
Monday, October 3, 2011
You might think this is going to be another article about natural gas, oil shale, or the tar sands.
Sure, they're all booming energy sectors, and we desperately need them to offset the decline in foreign oil imports here in the United States.
But the fastest growing energy sector between now and 2035, bar none, is renewable energy. Take a look at the graph from the EIA below.
The growth of hydro and other renewables is projected to rise 2.7 percent annually through 2035, according to the EIA's recently published International Energy Outlook 2011.
It projects overall global energy use to increase from 505 quadrillion Btus in 2008 to 770 quadrillion Btus in 2035. That's a 53-percent increase. Much of it will come from China and India, where strong, long-term economic growth will drive the demand for more and more energy.
Who Will Lead the Way in Renewables?
If you guessed the United States, you're wrong. Sure, renewable energy has made some inroads due to individual state-level mandates. But the lack of a comprehensive energy policy at the federal level insures we won't be leading the global renewables charge.
Who will it be? India and China... who else? They're the two countries growing the fastest, and will experience the largest demand for energy. It stands to reason they'll lead the way in the growth and implementation of renewables.
In terms of installed power generating capacity, hydroelectric should see the largest growth by far, rising to over 1,400 gigawatts by 2035. Check out the graph below.
The graph doesn't tell the whole story, however. That's because in terms of growth rates, solar power should increase the fastest, at 8.3 percent per year over the period.
Wind comes in at 5.7 percent, geothermal at 3.7 percent and other renewables at 1.4 percent. Hydropower only manages a two-percent growth rate, but there's already plenty of it installed globally, so it's overall contribution will be far greater.
What's the Best Way to Play the Renewables Boom?
I like the long-term prospects for solar, especially on a global basis. First Solar, Inc. (Nasdaq: FSLR) is my favorite solar company. They'll have some of the lowest-cost, highest-efficiency panels around when all the solar carnage ends.
That's because it uses an advanced, thin-film technology that most other manufacturers have shunned. The company is vertically integrated, selling modules, panels and entire utility grid-scale solar installations.
The stock is down over 50 percent in the last year, and trades at a very reasonable P/E of 11. Expect First Solar to be one of the "last men standing." Margins will increase and costs will continue to drop for the Arizona-based company.
Right now, shares of First Solar are selling at rock-bottom prices. But as world demand continues to ramp, First Solar will be one of the winners in the solar sector.