Yahoo Finance How Investors Can Buy Obama's Renewable Energy Plan
Despite crude oil prices at their lowest level in six years, the Obama administration is continuing to push ahead with its clean energy initiatives -- and is providing an opportunity for investors to buy into clean energy stocks.
In August, President Barack Obama announced the Clean Power Plan, with the goal to reduce carbon dioxide emissions by 32 percent from 2005 levels by 2030. Within that plan, the Environmental Protection Agency announced the first of three proposed rule changes to curb the amount of methane gas released by U.S. crude oil and natural gas producers. These rules are part of the previously announced goal to reduce the energy sector's methane emissions by 40 to 45 percent of 2012 levels by 2025.
Energy companies can inadvertently release methane gas during production and transportation. While natural gas is considered a cleaner-burning fuel versus coal and crude oil regarding carbon emissions, natural gas is comprised mostly of methane -- and if natural gas is not completely burned, it can also release methane.
Methane is more harmful than carbon dioxide to the atmosphere, and the EPA says pound for pound, the comparative impact of methane on climate change is 25 times greater than carbon dioxide over a 100-year period.
The EPA could complete the rules by 2016, following a public comment period, and analysts at Barclays say rule implementation could be in effect sometime in late 2016 or early 2017. The analysts note the proposed methane standards would only affect new and modified oil and gas wells.
Marty Durbin, president and chief executive officer for America's Natural Gas Alliance, calls the proposed rules "both unnecessary and counterproductive," saying since 2005, natural gas producers have cut methane emissions by 38 percent.
Sandra Snyder, senior associate at Bracewell & Giuliani, a Texas-based energy firm, says the EPA's proposed rule will likely meet about half of the methane emission reduction target and that there are other proposed regulations to help achieve that goal. It's likely that there will be litigation around these proposed rules, too, she says.
The Barclays analysts and Snyder don't believe this will have a big impact on natural gas prices.
Crude oil prices are low. Obama's push for greater renewable energy comes during a time of low crude oil prices. Drops in fossil fuel prices can cause the public to lose interest in renewable energy. Adam Coker, market investment executive at U.S. Trust in Atlanta, says it's likely that some investors have moved out of the renewable space.
For instance, most green energy exchange-traded funds face double-digit losses, such as the three largest ETFs: Guggenheim Solar (TAN), PowerShares WilderHill Clean Energy (PBW) and Market Vectors Global Alternative Energy (GEX).
However, Coker says if fossil-fuel prices stabilize, returning to the space "will make it an easier decision for investors" as the "longer-term trend is for a meaningful uptick in renewable energy production."
Solar-power generation has risen in the U.S. at both the homeowner level, known as distributed generation, and via utilities. The Energy Information Administration, the statistical arm of the Department of Energy, expects utility-scale solar capacity will increase by almost 100 percent to 10 gigawatts between the end of 2014 and the end of 2016. The growth in wind capacity, which grew by 8 percent in 2014, is forecast to increase by 12 percent in 2015 and by 14 percent in 2016.
The scaling up of renewable energy caused price drops and has helped green energy compete with petroleum energy, analysts say.
Garvin Jabusch, co-founder and chief investment officer for Denver-based Green Alpha Advisors, says the goals in the Clean Power Plan are a "very much low-hanging fruit" because many states have mandated levels of how much renewable energy utilities need to buy, and they'll likely exceed the plan's goals.
"The main thing out of the CPP is it's the first emission-eliminating regulation in the nation's history, so symbolically it's very important," he says.
A test for the solar industry may come in 2017 when federal solar subsidies are slated to end, says Kevin Book, managing director at ClearView Energy Partners in the District of Columbia.
"That will be a test of true demand for solar," he says.
Jeff Siegel, publisher and managing editor of Green Chip Stocks, an independent investment research service in Baltimore, says he doesn't see the potential loss of federal solar subsidies as a long-term problem for the industry, citing that the wind energy industry rebounded after losing direct subsides.
Clean energy stocks are set to profit. Mark Tan, financial associate at Thrivent Financial in Chicago, says among renewable energy stocks, he likes Hannon Armstrong Sustainable Infrastructure Capital (HASI).
"They provide debt and equity finance for renewable resource projects. ... It's a standout even compared to investment in general, across the board," he says.
Jabusch says he owns three solar stocks that he believes will benefit from the renewable energy standards. One is First Solar (FSLR), which "has the cheapest power purchase agreement in Nevada at 3.8 pennies per kilowatt hour, versus 7 cents for natural gas," he says.
Another solar maker he owns is Sun Power Corp. (SPWR), which he says makes the most durable and highly efficient panels in the world.
His final pick is SolarCity Corp. (SCTY). While it's not directly affected by the plan because it is involved in distributed power, "it's a huge part of the transition to renewables," he says.
Siegel also says he believes SolarCity and Sun Power may benefit under the plan. On the wind energy side, the most pure-play investment is Vestas Wind Systems (VWDRY), a Danish company that creates wind turbines. Geothermal may also get a boost, and unlike wind and sun energy, geothermal energy offers base-load power, which means the energy is there whenever needed. In that category, he likes Ormat Technologies (ORA) and U.S. Geothermal (HTM), a small company which could be a takeover target.
Jabusch says he thinks renewable energy stocks are undervalued because "right now conventional wisdom is stuck in the legacy economy of fossil fuels. These are chronically undervalued, but for investors like us with a long-term horizon, we can load up on the shares of the better solar companies that are incorrectly valued."
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