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The Recent Solar Energy Push Won’t Last Long

by | published March 11th, 2013

Not long ago, I wrote about the German drive to replace nuclear energy with solar and wind power.

At the time, Berlin was touting this overture as the “next great push” into a new energy age.

Turns out, plans haven’t gone as expected.

This winter has provided a good example of how things can go wrong. Solar has a major drawback in that all panels shut off at the same time. That requires massive reliance on other sources of energy.

Despite its avowed decision to relinquish nuclear power, Germany must now import nuclear-generated power from neighboring countries and resort to coal, despite an earlier move to the contrary, in the face of the highest energy costs in Europe. The government is even opening taboo fuel oil generators to make up the power slack.

A move against fracking has prevented the development of domestic unconventional gas, leaving the country dependent once again on importing volume, primarily from Russia. What had begun as a bold experiment in rebalancing energy sources has resulted in a developing pricing crisis.

The cost of German energy needs has begun stifling economic development. That is likely to become a more pressing issue moving forward. The solar energy industry in the country has been the recipient of massive subsidies, including what is known in the American market as “renewable energy portfolio standards.”

These “standards” require utilities and distributors to purchase a certain percentage of their power from more expensive renewable energy sources, passing those added costs on to already besieged consumers.

Rates are now projected to go up as much as 60% in the wake of the nuclear shutdown.

And the problems for end users and renewable energy sources are going to get worse.

A Record Setting Month

December marked the highest month in history for new solar systems connecting to the grid. The subsidies for adopting renewables expired at the end of the year and additional units are now expected to await a new round of government assistance.

But those making it by the deadline are eligible for subsidies over the next 20 years.

That ensures a continued bite out of taxpayer revenues for what will remain a more expensive method to generate electricity.

Unfortunately, cost increases hardly end there.

The so-called “green energy surcharge” applied to electricity bills across the nation will be moving up…again.

This will translate into on average a 200 euro ($260) per year additional expense for each household, after calculating an increasingly expensive energy bill.

This has led one of the leading German national think tanks to label the solar energy push “the most expensive mistake in German environmental policy.”

Expectations are that there will be a new emphasis placed on other renewable sources, such as wind power or biomass. Yet there is no possibility that a renewable remedy of any sort is in the cards without significant subsidies and rising costs to consumers.

Ultimately, there will be an ongoing permanent place for solar, wind, and other renewables in the developing energy balance. Despite the prospects emerging in unconventional oil to complement the same in gas, the position of sustainable non-fossil fuel alternatives will improve over time.

Unfortunately, time is also the problem.

Attempts for massive transitions in the near term are hampered by technical limitations and high prices. Unless there develops a genuine market burst point in both usage and generation, this is likely to remain an energy segment dependent on public sector assistance programs. Pure market drivers discourage the use of solar due to both reliability and cost factors.

An investor should keep this in mind when reviewing the recent moves in solar and wind stocks.

Solar Stocks Remain Down Significantly

While primary exchange traded funds (ETFs) in both solar and wind power have been moving up, you should be particularly careful about how sustainable that movement is.

First Trust Global Wind Energy (NYSEArca: FAN), is up 2% for the month, but down 6.6% over the past 13 months. Meanwhile, the two most liquid solar ETFs – American Vector Solar Energy (NYSEArca: KWT) and Guggenheim Solar (NYSEArca: TAN) – are both up for the month (4.6% and 3.2%, respectively).

But after reviewing their performance since December 2011, they are significantly down by 33.1% (KWT) and 40% (TAN).

The same shortcomings are apparent when reviewing leading individual companies. The solar sector is becoming controlled by the Chinese, where both the development of new approaches and the building of new usage networks have concentrated in a new center of the solar industry. Even still, Chinese LDK Solar (NYSE: LDK), while up 1.9% for the most recent month, is down a whopping 77.6% since December 1, 2011.

The most visible American company, First Solar (NasdaqGS: FSLR), has lost 13.5% for the month and 55% in the last thirteen months. And the American Depository Receipts (ADRs) of dominant wind power leader – Danish Vestas Wind Systems (OTC: VWDRY) – may be up 7.3% for the month, but still down 63.6% over the same thirteen-month period.

None of this should prompt us to conclude that renewables are on their way out.

Far from it.

But it does indicate that the prospects of these alternatives remain dictated by cycles of government support either in the form of direct subsidies or indirect incentives (such as portfolio standards).

And that does not provide for an adequate investment base.

For now, understand this reality for the solar and renewable investment environment.

Sincerely,

Kent

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  1. Malcolm
    March 11th, 2013 at 10:53 | #1

    Kent, A wise analysis of the situation. One of the best and most reasoned I have come across. The most serious drawback of all renewables is simply that the fuel source cannot be controlled. In a modern society highly dependent upon reliable electricity that fact is and always will be a show stopper. It does not matter how many subsidies one throws at Solar or wind it can not change the fact that the Sun does not shine at night and the wind does not blow all the time. This of course results in a doubling of the Capital cost involved in installing plant and equipment. You need one set to capture natural energy and another set of plants available to produce when the wind and the Sun are not cooperating. Largely this is going to be combined cycle natural gas since these are the only ones that can be brought on line quickly enough.
    Of course that is a very serious problem if you have no natural gas of your own and that is compounded by the fact that the supplier (Russia) has been known to play politics with is gas supply.
    The knock-on effects of all this to the consumer is serious enough but the really hard pill to swallow will be when German manufacturing plants are moved outside Germany to take advantage of lower prices. If that does not happen the price of German manufactures goods will rapidly increase and in a competitive auto market with big players in Asia getting to the same quality levels as German vehicles the writing is on the wall for the German economy.
    Solar Powered Danger Ahead.
    Thanks again for a really factual and unbiassed look at the facts.

  2. John Charles Brown
    March 11th, 2013 at 12:30 | #2

    There is a report on relative capital costs by Black and Veatch on the Web.
    Nuclear is $6,100 /KW + 30%,
    Gas is $651 /KW + 25%
    Domestic solar panels are $5000/KW interpolating between 2010 prices and 2015 projections.

    So the capital cost of gas back-up to domestic solar is negligible compared to the running cost which SHOULD be zero for solar, except that no-one knows how long panels will last. Of course domestic PV requires no distribution network, so gas installations can use existing grid connectivity, probably making capital costs somewhat lower.

    Presumably a gas-turbine not used in the sunny months, wears out proportionately slower, so its capital cost should be a little smaller than indicated.

    I have a friend here in the UK with domestic solar and he is happy with his (subsidised) income. He says it beats buying an annuity.
    There is a lot of talk about 3D PV technology that is up to 50% more efficient over the year since it handles low incidence angle.

    From a government perspective, so long as you have a cheapish gas supply, running back-up to domestic solar is not an expensive proposition.
    From a personal perspective, I might be attracted to solar in a year or two.
    From an investor’s perspective, don’t gas turbine manufacturers look good in the short-term? Jim Jubak thinks so.

  3. John Charles Brown
    March 11th, 2013 at 12:52 | #3

    And it just occurred to me that because of transmission losses, for both nuclear and gas, capital costs should rise by maybe 30%. In contrast, when I am not using my solar panels, a near-neighbour will often be able to do so, at losses more like 5% than 30%.

  4. Tim Hunter
    March 11th, 2013 at 14:39 | #4

    @John Charles Brown
    “…when I am not using my solar panels, a near-neighbour will often be able to do so..” Which world do you live in that allows a “near-neighbour” to use your solar panels? If I knew where that world was, I’d go there! Sounds like a good deal…

  5. John Charles Brown
    March 11th, 2013 at 16:02 | #5

    That’s how the grid works. Any surplus you are not using goes back into the grid. It raises the voltage seen by your neigbours, so that they use your energy rather than loading the sub-station transformer from which they were drawing power. That reduction in load goes all the way back to the generating station. In the UK we have two pumped storage schemes so that as soon as voltage rises due to a drop in demand, water is pumped up from a low reservoir to a high one, giving the generating stations time to throttle down. At times of increasing demand, water goes back in the other direction to top up the output of the generators. Everybody always talks about the whole nation boiling their kettles at the same time in the middle of a football game. The pumped storage schemes looks after such short-term surges.
    So in sunny weather, lots of gas-turbines can be shut down. I assume that that will extend their operating life. It will certainly save natural gas.

  6. enthusceptic
    March 11th, 2013 at 19:14 | #6

    In Japan they use batteries – now expensive – but technology will improve for everything renewable. Just imagine renewables combined with natgas and batteries!?
    I just read that solar is improving efficiency very rapidly, approaching “grid parity”, which I think means soon profitable without subsidies! – Maybe in sunnier places than Germany?

  7. Todd J. Smith
    March 11th, 2013 at 20:31 | #7

    This was a good article and the comments were also. I would like to point out that concentrated solar with salt of oil as a storage medium can be made to run 24 hrs with the most likely being designed for 18 hours when most energy is needed. Concentrated solar uses a parabolic trough or a tower with many mirrors focusing the sun one point in the trough or on the tower. It generates high temps and the heat energy is used to boil water and run traditional electric turbines. They have been in operation since the 80’s in our desert SW. They are 30% efficient at converting the suns energy to electricity. It would take a area 90 miles square or 81,000 sq miles to generate all the energy the US uses. Unfortunatly Germany does not have much desert. But Spain and N. Africa has great sun. So some areas can export to others just like fossil fuels just through transmission lines.

    The point is that we have alternatives that can work but we have not put
    the price of damage that burning fossil fuels does, on the fuels themselves. So the price of the damage to our health, environment, the acidification of our oceans or climate change are not placed on the cost of the fuels. If it were, alternatives would be cheaper and the markets would find better and better solutions.

    That is why a carbon fee is being introduced in the US congress now. It reimbursed 60% to citizens but if that changes to 100% the legislation becomes revenue neutral. It has a boarder adjustment to protect businesses. Will it get support? Who knows.

    One day we will wake up and realize that the external costs of burning fossil fuels is not worth it. Until then fossil fuels are a good bet.
    I am going to start investing in the best run alternatives. Kent, if you could point those companies out, even if they are not raising in price this month or the last 12, that would be helpful. They will be a bigger part of the energy picture in the future, like Kent says.

  8. Codin
    March 12th, 2013 at 10:07 | #8

    Hello from the top of the German Solar Industry!

    Why solar respectively wind stocks don’t develop the way investors expect isn’t hard to tell. Some facts limit the deployment of the solar energy (wind is a matter of solar radiation too). Technically speaking, all energy resources which aren’t based on nuclear fusion or nuclear fission has either to do with an oxidation process of carbon or with the kinetic power of the water. A particular case is taking by tide which is a matter of the moon position in relation to earth. The German government is the most responsible government in the world when it comes to facing the facts of mass exploitation of the energy resources and the accompanying mass pollution of air, water and ground. The “Enegiewende” which is described in your article like a flaw conceived by some short-sighted nerds is planned to restructure the energy industry in Germany over the next 30 years. Solar energy will take a major position and the current price for electricity is an invest into a nuclear fuel free future which is based on solar energy and intelligent and cautious use of carbon neutral forms of energy conversion. Since 1995 the number of households in Germany has increased by 16% while the total energy consumption has dropped by 22%. These figures tell that the Germans are wise energy consumers. Who on the planet, including USA can claim that?
    Fracking will pollute the ground far beyond from what has been commented and highlighted by the time being. The future of the planet does not lie in the energy resources which are to be extracted and converted but it lies in the resources which will remain untouched, thanks to a wiser and more rational consuming behavior.
    Regards, Codin

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