One study estimated that solar energy sources cost triple that of coal and twice that of natural gas. Wind energy is about 33% more expensive than coal, and at least 14% more expensive than natural gas.
Massive natural gas discoveries in the United States have further shifted the power to this fossil fuel over alternative energy sources. Natural gas burns much cleaner than coal, and has plummeted in price to well below $3 per million British thermal units.
The low price and abundance of natural gas could prove the smoking gun to suggest that alternative energy development in the United States has slowed down indefinitely. And until the economy improves and the government starts bringing in more tax revenue than it spends annually, there is little reason to see spending on alternative energy sources rebounding significantly.
Risks to Consider: The past few years have demonstrated that energy prices can be extremely volatile. Any unexpected rise in oil prices, be it from an external shock such as geopolitical tensions in the Middle East, could easily shift the balance of power back to alternative energy sources. Increased regulations out of Washington could also force fossil fuels to give way to solar, wind, and related alternative energy sources.
Action to Take -->
Ironically, the boom in natural gas discoveries in the U.S. has meant that leading firms in the space, such as Devon Energy (NYSE: DEV)
and Chesapeake Energy (NYSE: CHK)
are also questionable near-term investment candidates. Their long-term potential is much more positive, though.
From an investment perspective, the leading integrated energy firms are the safest bets in today's energy climate. Their diversified revenue streams, both in terms of energy resources and international operations, mean that investors can leave it up to them to decide on how to best profit
. Exxon Mobile (NYSE: XOM)
is a solid pick in today's investment climate, for example.
Exxon trades at a very reasonable price-to-earnings (P/E) ratio of only about 10 and is sitting on massive natural gas reserves, due to its $41 billion purchase of XTO Energy in late 2009. It has publicly stated it is perfectly willing to sit on these reserves indefinitely until the pricing environment improves. Additionally, its bullish stance on natural gas indicates that alternative energy will take a back seat in the energy debate for the foreseeable future.
-- Ryan Fuhrmann
Ryan Fuhrmann does not personally hold positions in any securities mentioned in this article. StreetAuthority LLC owns shares of CHK, DVN in one or more if its "real money" portfolios.
This article originally appeared on StreetAuthority
Author: Ryan Fuhrmann