It's very rare that D.C. policy decisions benefit both the oil and renewable energy sectors – traditionally, a benefit to one sector means a net harm for the other. That's because they're thought of as competitors for the same energy dollar.
But this deal is different: moves to shore up oil's decline have been the primary catalyst in a nice run up for renewables.
And after I show you why this policy is such a bullish development, I'm going to show you how to make some good money on it…
Why Washington Lifted the Oil Export Ban
As part of a $1.15 trillion budget compromise late last year, signed by the president in order to avoid yet another government shutdown, Congress lifted the 40-year-old ban on exports of oil from the United States.
This ban was introduced in the early 1970s following major Arab OPEC producers cutting oil exports to the United States (and the Netherlands) for its support of Israel during the Yom Kippur, or October, War in October 1973 and thereafter.
Back then, this ban was a national security issue and also resulted in the establishment of the Strategic Petroleum Reserve.
However, the rise of huge domestic unconventional (shale and tight) oil reserves and the reality that no global producer will ever again shoot itself in the foot by not selling to the huge American market makes the export ban an anachronism.
And attending to jobs and revenue at home provides a ready-made rationale, especially in an election year…
U.S. Producers Can Expect Relief
Remember, the primary catalyst behind this legislative initiative is the intent to save American jobs and local tax bases. By providing additional markets where demand is spiking and prices are higher, operating companies are afforded a shot in the arm to offset the negative impact of stubborn production surpluses and a rapidly worsening energy junk bond environment.
During an election year, there may also be a certain satisfaction in "taking the fight to the Saudis" by allowing American producers to sell crude that has a higher average quality (Saudi exports have a very high sulfur content) in higher-priced international markets where the Saudis are more vulnerable.
But at the end of the day, this is all about the U.S. economic situation.
The advantages to local oil producers from the lifting of the export ban will not hit immediately. Global prices will temper the trade, and there will be some run-up time needed to phase the law in.
But the parts of the U.S. oil sector that have ready access to foreign markets will benefit in the medium term.
As will other sectors…
Here's How Renewables Benefit from the Deal
The removal of the export ban was not the only energy-related element in the budget compromise.
As part of the deal, solar and wind power also received an extension of federal subsidies, with the benefits kicking in late in December.
The compromise allows solar companies to continue utilizing federal investment tax credits (ITCs). An ITC provides for a 30% credit on the cost of solar energy systems installed either for residential or commercial purposes.
These credits will continue at that level through 2019. After 2019, the credit starts declining down to 10% by 2022. These credits were previously scheduled to expire at the end of 2016.
Wind power has also benefitted.
Here, the production tax credit (PTC), which pays $0.023 per kilowatt hour (KWh) of wind-generated electricity, has been extended.
Now, the PTC technically expired at the end of 2014, a victim of the last major budget impasse. But the new spending deal extends the PTC through 2020, with a complete phase out spread over the next four years.
And the good news for renewable energy doesn't end there…
Demand for Renewables Keeps Rising
There is a now a significant base for further expansion in renewables, with extended tax credits adding to the boost provided by the climate deal from the recent Paris conference, the extension of environmental tax credits in many of the 195 countries signing that international accord, and a marked global move away from fossil fuels.
Several sources have noted that major solar projects and commercial applications had slowed down in 2015, partly as a result of concerns over the tax credit situation in the United States. That concern has now been removed by the Congressional budget accord.
Even before this deal, demand for renewables had been on the rise, with market share increasing in an accelerated fashion. The Solar Energy Industries Association (SEIA) recently reported that the U.S. market for solar energy should come in with a record-setting year for 2015.
They announced that the American market had reached 4.1 gigawatts in solar generation by the end of the third quarter, with residential installations rising 69% year to year for the quarter. The SEIA also estimated that the extension of the solar credits alone will likely add at least 140,000 new jobs to the economy.
In other words, expect select solar (and wind) companies to keep growing this year, regardless of what happens to the markets at large.
Now, there are two easy to buy ETFs available to investors to profit from these developments in solar and renewables. Click here to get my full investor briefing on both of them, including the ticker symbols. You'll also get my Oil & Energy Investor research, too, so you know when and how to make these upcoming energy moves.
About the Author
Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk assessment, and emerging market economic development. He serves as an advisor to many U.S. governors and foreign governments. Kent details his latest global travels in his free Oil & Energy Investor e-letter. He makes specific investment recommendations in his newsletter, the Energy Advantage. For more active investors, he issues shorter-term trades in his Energy Inner Circle.