Obama Should Avoid Green on Thursday
We rode -- or perhaps trudged -- into the Labor Day weekend on the news that the already squishy jobs market seemed to need immediate transport to the nearest ER. Or, as The Wall Street Journal phrased it in its weekend edition lead story, "The U.S. economy slammed into a wall in August ... ratcheting up pressure on President Barack Obama to find a way to kick-start the sputtering recovery."
My major difficulty with the Journal's assessment is that the recovery may have been "sputtering" months ago, but, in keeping with the medical metaphor, it may have flat-lined once it whacked into the paper's proverbial wall last month. That situation clearly will intensify the attention and criticism the president's jobs program proposals are likely to receive following his Thursday evening speech to Congress and the nation. That'll especially be the case if, along with the inevitable call for an infrastructure stimulus, the plan boils down to the same purported elixirs that have been ineffective for the past 2.5 years.
Green needs to get going
While I won't attempt to more specifically decipher the makeup of the new jobs plan, I'll clearly be a candidate for cardiac paddles if it doesn't include a slug of funding for green, or renewable, energy projects. Since entering the White House, the president has rarely missed an opportunity, including in his weekly addresses to the nation, to extol the virtues of green energy. For instance, speaking in May at the Allison (hybrid) Transmission Plant in Indianapolis, he said, "The clean energy jobs at this plant are the jobs of the future .... And in the years ahead, it's clean energy companies like this one that will keep our economy growing."
At the same time, he's frequently called for an end to tax subsidies for oil companies, a move that would benefit the federal budget to the tune of about $4 billion a year. That's fine, but it singles out the energy industry amid the range of manufacturing concerns that benefit from identical subsidies and represents a trifling amount against a federal deficit of about $1.3 trillion.
What exactly is "green energy?" In their book, The False Promise of Green Energy, which was recently released by the Cato Institute, the foursome of Andrew Morriss, William Bogart, Roger Meiners, and Andrew Dorchak maintain that green is in the eye of the beholder. For instance, they contend that, "It is almost impossible to imagine meeting the ambitious targets proposed by those concerned with climate change without a dramatic increase in the use of nuclear power." However, Japan's March earthquake and tsunami and their frightening aftereffects on Tokyo Electric Power Company's Fukushima nuclear reactor postdated their book, so we probably should eliminate nuclear from our discussion and confine our analysis largely to solar and wind energy.
Good morning, sunshine
Unfortunately, the past few weeks have been anything but tranquil for most solar companies. For starters, First Solar (NAS: FSLR) , an active maker of thin-film panels and other related products, has seen its share price slide by more than 12% in just the early trading days of September.
And as my Foolish colleague Travis Hoium noted in his latest weekly solar roundup, California's Solyndra LLC, another solar panel manufacturer, which had received a presidential visit slightly more than a year ago, along with a half-billion-dollar federal loan, gave up the ghost and filed for bankruptcy, laying off 1,100 workers. The company was following its solar brethren Evergreen Solar of Massachusetts and New York's Spectawatt in its August grab for a bankruptcy parachute. Among the members of the group that remain among the living, LDK Solar (NYS: LDK) last week reported a nearly 35% sequential earnings plunge.
While the remaining solar companies contend that the health of their industry should not be judged on the basis of their three departed peers, the price of solar panels has plummeted by a whopping 42% this year, largely on the basis of rapidly increasing competition from China. Nevertheless, with members of the group having dropped like so many flies in August, and with solar currently constituting only 0.05% of the nation's energy needs -- and (according to the Cato Institute foursome) predicted by the Energy Department's Energy Information Administration to inch its way to just 0.13% of the total by 2030 -- the sun appears unlikely to play a meaningful role in the president's soon-to-be-revealed economic and jobs program.
Wind's lack of dependability will blow its growth prospects
Similarly, despite the inclusion of such massive companies as General Electric (NYS: GE) , Germany's Siemens AG (NYS: SI) , and Japan's Hitachi (NYS: HIT) , the potential contribution of wind energy systems appears no more promising than that of solar. According to the Department of Energy estimate (again, via the Cato crew), its current 0.6% of total U.S. energy production is likely to inch its way to 0.9% in 2020 and on to a still paltry 1.1% in 2030.
Despite earlier claims by the likes of Texas energy guru T. Boone Pickens that wind power was figuratively waiting in the wings for a bigger role in the U.S. power picture -- a view he's since abandoned -- wind's energy contribution is almost certain to be held back by at least a couple of impediments. For instance, because the wind doesn't always whip itself up when we need it most, it requires the inclusion of expensive backup systems. Further, the optimum locations for electric power are frequently not proximate to existing electrical grids, thereby cutting the efficiency of the would-be pervasive power source.
Finally, there continues to be an emerging hullabaloo about the estimated 440,000 birds that are killed by wind turbines each year, according to a U.S. Fish and Wildlife Surface estimate. That number appears high until it is juxtaposed with yet another estimate -- this one by the American Bird Conservancy -- that feral felines and pet kitties together do away with about 500 million birds annually.
The absurd subsidies gap
Last, but hardly least, is the amount of extra support that you and I are essentially forking over for even the small energy and power contributions we obtain from green and renewable fuels. According to the Energy Information Administration, natural gas and petroleum liquids received subsidies and support to electricity production in 2007 averaging $0.25 per megawatt hour. For coal, the number climbs to about $0.44, and for wind and solar, the contributions rocket to $23.37 and $24.34 per megawatt hour, respectively.
While it's clearly logical to expect higher subsidies for wind and solar given that they're still essentially new to the energy scene, it is just as clear that the magnitude of the current discrepancies between the renewables and "brown energy" are unsustainable. Indeed, once the contributions to the former descend, as ultimately they must, discussions about whether those fuel sources can or should be included in economic or energy policies will almost certainly become mute.
So, while President Obama's earlier contention that "The clean energy jobs ... are the jobs of the future," is already debatable, should we assume that renewables aren't an investible area for Fools with energy on their minds? In my opinion, the response is simply "not at all." Energy in general will unquestionably constitute a key quest for the world at large during the coming decades. And while the futures of many of the specialized wind and solar companies may be somewhat dicey in 2011, we should keep in mind that the Big Oil likes of Chevron (NYS: CVX) and ExxonMobil (NYS: XOM) -- among others -- are also endeavoring to develop nontraditional energy.
Exxon, for instance, is involved in a rather sizable -- but still nascent -- biofuels project, while Chevron is working on improving the utility of solar, geothermal, and biomass energy. To my way of thinking, Chevron thereby represents an optimum approach to benefitting from the worldwide expansion of natural gas use (note its role as the leader in Australia's massive Gorgon LNG project) while still maintaining a representation in green energy. On that basis alone, I'd recommend that the company be carefully placed on your Motley Fool watchlist.
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At the time this article was published Motley Fool newsletter serviceshave recommended buying shares of Chevron and First Solar. Try any of our Foolish newsletter servicesfree for 30 days.We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Fool contributorDavid Lee Smithdoesn't look good in green -- or any other color, for that matter -- and doesn't own shares in any of the companies named in this article. The Motley Fool has adisclosure policy.
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