As solar power enthusiasts know all too well, renewable energy has the same problem that the "normal" generation of electricity does: how to store all of the energy produced so that it can be used when it's needed.
For solar power, that means even at night.
To date, this conversation has always centered around discovering new battery technologies.
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New Arab Spring Could Breed Chaos in the Energy Markets
Investment opportunities in the energy markets always bounce between questions of available supply and prospects for demand.
These days many commentators in the U.S. are viewing excess domestic shale gas and tight oil as a factor in restraining energy prices. Meanwhile, their colleagues in Western Europe forecast continuing economic malaise, translating into a similar result.
Both put forward the position that there is a surplus of oil and gas in a weak global economy, thereby reducing concerns over either supply or price.
I have questioned those premises before here in Money Morning. And I agree that there's no crisis situation emerging any time soon. The prices may not remain as low as some believe, but supply isn't going to be an issue in North America or in the European Union.
But the same can't be said about other parts of the world. And it's this wave of unrest that may have repercussions across the entire energy sector.
Russia: The Greatest Threat to the Energy Markets
As Yogi Berra aptly put it, It's deja vu all over again.
The Soviet gulag state is coming back and this time it could wreak havoc on the world's energy markets.
I began my energy career in Russia. Back then it was part of a sprawling Soviet Union. For the past 23 years there have been 15 independent countries in its place.
But these days it sure feels like the Beatles song from the late 1960s, "Back in the USSR."
You see, many governments aren't able to work out how to plot the global energy sector because it becomes too wrapped up in local political machinations.
And the bigger the energy producer, the bigger the impact is on the global picture.
Three Hidden Water Costs That Promise to Boost Energy Prices
This may sound funny, but water availability is becoming an issue in energy generation. And it may start to impact prices.
The issue here is not the environmental impact of water usage. That is quite a different debate.
What I'm talking about today is the water supply/demand issue.
Because water is plentiful in those areas of the U.S. where shale gas and tight oil drilling is most concentrated, the price of the water itself is very low.
But there are three other costs involved with the usage of water, and those are beginning to cause some serious concerns.
Here's what I mean...
The Next Big Change in the Energy Markets
Thoughts are again turning to the next big change in the energy landscape.
As it unfolds, I have been working on how to exploit this trend and will be rolling out my recommendations when I appear at the MoneyShow in Las Vegas next Tuesday and Wednesday.
Of course, before I sketch my new approach to the Caesar's Palace audience, I'll outline it here first. You can expect more on this in coming Money Morning editions.
Today, I want to extend on Saturday's discussion and set the stage for the revisions I will be begin sketching out in my next article.
This is once again about hedging.
Investing in Clean Energy Stocks Just Got More Risky
Despite its promising future, clean energy stocks have proved to be an investing minefield.
Even China-based clean energy stocks are no longer a safe haven. Yesterday (Monday) Suntech Power Holdings Co. Ltd. (NYSE ADR: STP) defaulted on its debt.
Heavy losses caused by plummeting prices for solar panels - which fell 73% from 2010 to 2012 - left Suntech unable to make the payment on a $541 million bond that was due Friday.
The news caused Suntech stock, already down 80% over the past year, to slip another 10%.
While numerous U.S. renewable energy companies have faltered, most notably the 2011 bankruptcy of solar panel maker Solyndra, Suntech is the first Chinese clean energy company that could go under.
What's new is a reluctance on the part of the Chinese government to keep pouring subsidies into money-losing companies.
Here's the Cold Hard Truth About Solar Energy
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.
Four Timely Moves For The Next Three Crises
As I wrote last Thursday, the aftermath of the fiscal cliff deal requires some restructuring of energy sector holdings.
We are currently in a brief period between crises. Nothing was resolved in the eleventh (and a half) hour compromise.
The truth is there are still three huge fights on the horizon - revisiting the sequestration (automatic spending cuts) portion of the fiscal cliff, spending versus taxation in the budget, and raising the debt ceiling.
All will hit by early March.
So the reprieve gained on New Year's Eve will be brief.
The spike after the accord was huge. Unfortunately, as we witnessed late last week, the market rally has no legs. VIX (volatility) has been abnormally low, but that will be drifting up, to accelerate as we get closer to the next round of legislative paralysis.
We cannot predict how protracted this next round will be, but early indications are hardly encouraging.
That's why investors need to be more defensive and identify energy components that are more likely to withstand the gridlock and even profit from it.
Overall, you should divide the energy sector into four segments:
- Processors/Distributors; and,
Here's what you need to know...
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The Path to Energy Independence is More Rocky Than It Seems
You might have seen yesterday's headline in the Wall Street Journal: "U.S. Redraws World Oil Map."
As the article explains, U.S. oil production is now on pace to surpass Saudi Arabia by 2020. This would make the United States world's largest oil producer. We're already the second-largest natural gas producer, according to 2010 EIA estimates.
It's all thanks to the U.S. shale boom that has unlocked billions of barrels of oil and trillions of feet of natural gas from the Appalachian Mountains to the Pacific Coast, from the Bakken in North Dakota to the shale fields of southern Texas.
But all of this fracking has caused some serious economic and environmental problems.
And while I greatly advocate increased drilling and domestic production, we still must address a wide-range of problems now plaguing the shale oil and gas sectors.
After all - with apologies to Voltaire and Spiderman - with such great fortune comes greater responsibility.
That's why I am in the third day of what has become a very interesting conference here in Pittsburgh. It was convened to set the agenda moving forward to deal with the almost invisible aspects of shale oil and gas drilling.
In fact, for the first time, the conference's primary focus will be on the negatives caused by the drilling.
We also have questions surrounding the amount of water required to frack these formations (the process needs a lot of water to break open rock and release hydrocarbons), as well as the ongoing public health fears from the chemicals used.
Now, we are seeing parallel economic problems as well.
In the Marcellus basin, researchers are now recording some of these shortcomings and placing them in four basic categories.
The real concern is that these four problems - in infrastructure, labor, local inflation, and the environment - will remain well after the drilling (and the revenue) has moved on.
So before you decide to declare "energy independence", take a look at some of the downside that may come along with it.
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Hydrokinetic Power is the Next Wave in Cheap Energy
In an era of cheap capital, emerging technology companies could provide investors the biggest bang for the buck we've seen in years.
The key is finding a market that already has billions of dollars in pent up demand - like cheap energy.
Of all the cheap alternatives available to us today, I'm most excited by hydrokinetic power systems for the simple reason that the oceans contain enough energy to potentially support more than 50% of US demand alone, according to the US Department of Energy.
In case you are not familiar with the term, hydrokinetic systems produce power from the water's kinetic energy. It's quite literally power from the motion in the ocean.
Critics charge there are limits involved because the technology we need to make, transmit and store wave-based energy is primitive and prohibitively expensive.
And they're right... it is, or at least has been to date.
That's why despite years of effort and billions of dollars in government-sponsored financing, there are a mere 5 megawatts of wave-generated energy being created worldwide.
According to Forbes Magazine, that's only enough to light 4,000 U.S. homes.
Yet studies estimate that two-thirds of the world's economically feasible hydropower has yet to be exploited. Perhaps not surprisingly, much of this untapped energy is concentrated in South America, Asia and Africa.
That's my kind of opportunity - but it will require a sea change in our thinking (pun absolutely intended).
The Rising Tide in Hydrokinetic Power
That's because traditional "alternative" power choices tend to evolve in terms of how applications like solar, hydro, thermal and gas production ties into the grid. As such, they're dependent on environmental variables that come and go.
On the other hand, hydrokinetic systems really are the grid. By placing turbines, bobbers and impellers into large bodies of water, they become part of the very system they're tapping into.
And it's a whopper of a system.