According to a recent report from the Environmental Defense Fund's Climate Corps program, the solar and wind industries are creating jobs 12 times as fast as the rest of the U.S. economy -- which makes for a pretty significant number.
In this week's episode of Industry Focus: Energy, Motley Fool analysts Sean O'Reilly and Taylor Muckerman look at where and how renewable energy is being used and expanded in the U.S. and overseas. Also, they talk about how well the industry is positioned in the near and long terms, as well as few ways investors can get involved in the space without taking on too much risk, and more.
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A full transcript follows the video.
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This podcast was recorded on Feb. 2, 2017.
Sean O'Reilly:Welcome to Industry Focus, the podcast that dives into a different sector of the stock market every day. Today isThursday, Feb. 2, 2017, so we're talking about energy, materials, and industrials. I'm your host, Sean O'Reilly,and joining me today in studio is the man with the plan, Mr. Taylor Muckerman. What's up, sir?
Taylor Muckerman: Goingaccordingly.
O'Reilly: Goingaccordingly? Most well?
Muckerman: So far. Don't mess it up.
O'Reilly: Is your dayadequate?
Muckerman: Yeah.I had to get in here a little earlier than I planned this morning.
O'Reilly: Really? How was the train?
Muckerman: Busier than normal. Rush hour.
O'Reilly: Do you have an open coming up? What's up?
Muckerman: No, just, all-teammeeting for the international side. We got folks inAustralia and the U.K. that we have to consider in the time frames,also Singapore. So you can't do it at noon.
O'Reilly: Oh, man. Do you Skype them in?
Muckerman: Yeah. IfSkype works.
O'Reilly: That'sthe eternal question.
Muckerman: Wego through the rotation of Skype, Slack, Google Hangouts -- they all fry on different days.
O'Reilly: Canyou believe thatMicrosoftpaid $8 billion for Skype?Think about that.
Muckerman: I cannot. Theycould have paid me $8 billion and I'd done the same thing.
O'Reilly: Eightfollowed by nine zeros,and it's not the best program.
Muckerman: It's not.
O'Reilly: Anyway. Should wetalk about energy and stuff, or ... ?
Muckerman: That'swhat you had planned, right?
O'Reilly: Yeah, well,you're the man with the plan. So, Mr. Muckerman,according to a new report from the Environmental Defense Fund's Climate Corps Program --
Muckerman: Say that one more time?
O'Reilly: Environmental Defense Fund's Climate Corps Programs. Say that five times fast.
Muckerman: No, that's all you.
O'Reilly: Environmental Defense Fund's Climate Corps Program. Environmental Defense Fund's Climate --
Muckerman: All right,what did they have to say?
O'Reilly: It wasactually kind of cool. The solar and wind industries areapparently creating jobs at a rate of 12 times fasterthan the rest of the U.S. economy. That's actually kind of significant. It's not even off a small base. This is millions of jobs.
Muckerman: Yeah. It's up to, roughly, about 4.5 million jobs in the U.S., from 3.5 in 2011.
O'Reilly: Yeah. Andwe have a population of320 million,about a little over 100 million in the workforce this year. This isnot small potatoes anymore.
Muckerman: Yeah, andif it continues growing near the20% that it has been in recent years,we're going to see some very meaningful growth. These numbers are going to continue to grow.
O'Reilly: Ihave to learn how to install solar panels.
Muckerman: Something like that.
O'Reilly: But for this reason, this growth that we're seeing,I naturally started to wonder where,this renewable-energy project, where is this usage common? You hearstories about how Las Vegas is allrenewable now, Hawaii, you go to Hawaiiand apparently solar is everywhere. So I started to wonder,where is this more common than not? Because here in Virginia, we have a lot of natural gas-fired plants, some fromOhio; I'm sure there's a coal fire plant there somewhere still --
Muckerman: Not a new one. Only about 0.17% of all newelectric generating capacitylast year came from coal.
O'Reilly: Is that, like, a guy burning coal in his shed out back?
Muckerman: I think that'swhat that amounts to. 0.17%. Yeah. Only45 megawatts.
O'Reilly: Wow. Anyway. We dove in andlooked around the world and saw where it was pretty common, and we found a few surprises, and a few otherplaces that we're not so surprising. What do you think -- should we start with the U.S. and then the world, or vice versa?
Muckerman: America first!
O'Reilly: America first, all right,perfect. Let's break it down. What's going on in America?
Muckerman: You'reseeing it crop up everywhere -- that's renewable,not just solar. When you look at all new energy capacity addedlast year in 2016, we're looking atabout 26 gigawatts were added, and61.5% came from biomass, waste, heat,solar, wind, or hydro. Nearly two-thirds. Another third came from natural gas, which,on the fossil-fuel side,is the cleanest of the three, meaning oil, coal, or natural gas. So,arguably, what was that, 94.5% is generally clean, almost two-thirds is renewable. That's a pretty big move.
O'Reilly: I have to ask, because a lot of companies are starting to invest in this. You have the yieldcos, like8point3 Energy Partners; you haveSunEdison [Yieldco's TerraForm Power and TerraForm Global].
Muckerman: MidAmerican Energy hasone of the largest wind projects in Iowa,generating 301 megawatts.
O'Reilly: Owned byWarren Buffett'sBerkshire Hathaway (NYSE: BRK-A)(NYSE: BRK-B).
Muckerman: Name drop.
O'Reilly: I had to.
Muckerman: It's fine. He's in it. They're in it.
O'Reilly: Did yousee that special, by the way?
Muckerman: I did not, but it has been talked about here at The Fool. What was it, PBS? HBO?
O'Reilly: It was HBO. It'smostly about his personal life.
Muckerman: OK. Just a lot of Diet Coke or actual Coke?
O'Reilly: Andbreakfast atMcDonald'severy day.
Muckerman: Perfect. Living to be 100.
O'Reilly: We arenot being compensated by HBO at all, to ourlisteners. We're talking about HBO's Becoming Warren Buffett, it aired on the 30th.
Muckerman: Oh,you didn't get a free subscription?
O'Reilly: No.I'm going to watch it this weekend. Actually, I probably will sign upfor the free trial. Anyway, bottom line,I actually knew this stuff had a future when Buffett started investing in windmills. I was like, "Oh,this is actually economical,"because he does not do things that are not going to make him money. We saw that one statistic about Alaska. What's up with those guys?
Muckerman: When you think Alaska, you think oil, generally. They have a lot of it; they're producing a lot of it. Andkodiaks, and stuff like that. But this is a state that,they basically give a paycheck to all their citizens from allthe oil revenues that they make on an annual basis. And what they're seeing is, solar and wind isactually cheaper in a lot of places than oil anddiesel,because you're looking at some places,the more remote areas of Alaska,they needed to use diesel, of all things, to generateelectricity. We're looking at upwards of$0.60 per kilowatt-hour. Meanwhile, you'relooking at some people that are generatingenergy from hydro and wind in the city of Kodiak,and you're looking at about $0.11 per hour. So a sixth of what they're paying on thediesel side. Andthat seems to be a theme. Texas,one of the fastest-growing renewable energy-generating states in the country,traditionally all oil and natural gas when you think about it. Right on par withCalifornia, whichproduces its own share of natural gas,but not nearly what Texas is doing. So Alaska, Texas, seeing thatrenewable energy is finally at parity or below parity with fossil fuelelectricity generation.
O'Reilly: So,what am I to take away from this? Arepeople just invested in this because they're like, "Oh, we need more electricity, so we're justgoing to invest in this because of regulations"? Oris this actually being done in the places where is economical, and that's it? How are businesses making decisions here?
Muckerman: Well,it's becomingeconomical in more places every day. Even if you think, Donald Trump appointed all these folksthat are closely tied to the fossil-fuel industry,but on his list of infrastructure projects,he has a lot on there that supportsthe renewable-energy industry --
O'Reilly: You'rekidding, what?
Muckerman: Projects like,a lot of transmission lines so that you can build the infrastructure for these companies,so that they can actually get the power from a wind plant. He has this Plains & Easternelectric transmission line project, which is trying to movewind energy from the western tip of Oklahoma720 miles south to --
O'Reilly: Thatsounds like the Pickens Plan, remember that?
Muckerman: -- southeast toMemphis. And that's enough clean energy for 1 millionhomes in the Mid-South. So that's just one area. That'snot actually building the wind turbines, but it's allowingthat power to be efficiently distributed to places. Obviously,if you think about Memphis'population compared to the plains of Western Oklahoma,it's a little bit more densely populated. So right now, those wind turbinesprobably aren't being usedto the efficiencyand the efficacy that they should be. But then, you have hydroelectric plants planned, more transmission lines, wind power,energy storage and grid modernizationtargeting minimizing the magnitude of potential blackouts in Californiaby increasing storage for renewable energy. All told,it says that the projects could addabout 9 gigawatts of clean powerif they are all finalized and put into place. So that'sroughly about a third of all the energy capacity that we have added in the last year, just in a few of theseprojects that Trump has laid out in his initial infrastructure plan.
O'Reilly: Correct meif I'm wrong,but as I just mentioned, that sounds a lot like the Pickens Plan. Do youremember that, in 2008, T. Boone Pickens was like, "Youhave this energy corridor from The Dakotas down to Oklahoma,you have all this wind, you need to get it to the coast," andhe wanted to build these hugetransmission lines? And one of the problems isthey need to be enormous, because if you're sending electricity over long distances, you lose some of it. It's actually very difficult. That's kind of exciting.
Muckerman: Yeah. A lot ofthese projects are being built by private companies,so it's very fragmented,almost on a state-by-state basis. If you go to the SEIA website, the Solar Energy Industry Association, they put out areport from September 2016 that basically listsevery project that's online,being constructed, or in developmentin the entire United States. The list is 30-40 pages long,because there are just so many small companies that are out there building one plant, two plants. Maybe eventually they will get bought up,or maybe some of those are part of a bigger holding corp. But it's very widely distributed. It's not allpublic companies that are doing this. Generally, if you think about the suppliers of these wind turbines and solar panels, those are --
O'Reilly: Like aGeneral Electricor something.
Muckerman: Yeah,those are coming from publicly traded companies like a General Electric, like aSiemens. Then on the solar-panel side you haveFirst SolarandSunPower,and thenSolarCityon the residential side. They'reactually providing the solar panelsand doing some installation. But a lot of the folks that are building these andoperating them are private companies, for now.
O'Reilly: Awesome.So,Mr. Muckerman, it sounds like in the United States, solar is becoming common.
Muckerman: Adding jobs, adding cleanenergy, being supported by states that you might not think would support clean energy,and even Donald Trump is supporting it.
O'Reilly: Andit's because of economics.
Muckerman: Yes. Flat-out.
O'Reilly: So,solar is going in where there is sun; wind is going where there's wind. It'scost effective.
Muckerman: Yeah.I'm pretty sure they even just approvedthe largest offshore wind farm in U.S.history off Long Island. So, there's that.
O'Reilly: ForNew York City, yeah.
Muckerman: Yeah. If youlook at the Northeast, they'repretty underserved. At least,natural gas energy hits New York anddoesn't make it past New York. So the New England area is definitely hurting for natural gas and renewable energy.
O'Reilly: Itwas a big learning experience for me when I saw bothhow needed and difficult it isto get natural gas lines up therein the Northeast. It's like a web,and there's not enough. It's kind of crazy.
Muckerman: They'retrying to build them, but not quickly.
O'Reilly: It'sdensely populated; it's actually kind of difficult. Really quick,before we talk about some more specifics, likein a continent like Africawith the sunlight it gets and everything and how, with solar,you can put up a solar panel and power something, it'sdecentralized. That will obviously see some growth, and we'lldiscuss that in a minute. But I wanted to quicklygo down a list. This is enormous. There's a group called The Renewable Energy Policy Network for the 21st Century. They,every year, put out of a report on the globalstatus report of renewable energy. You can go to ren21.net and check it out. They do this every June,so we have last June's report, and itmostly covers 2015. But anecdotally,this sort of thing doesn't get changed a lot. This thing is pages and pages long!All right, let's do a quiz. Where do you think --
Muckerman: Oh,I have the list right in front of me.
O'Reilly: Oh, you do?
Muckerman: Yeah. I can't cheat on air.
O'Reilly: Shut your computer!
Muckerman: I've seen it; it's too late.
O'Reilly: All right, fine.
Muckerman: We can quiz our listeners. Give them five seconds to guess.
O'Reilly: All right, ourlisteners can check this out.Google "2016 report."
Muckerman: Sorry. I ruined it. You sent it to me.
O'Reilly: I'm not going to forget this. No, I did. What stuck out to you there? You have China beating us for investment in renewable fuels --
Muckerman: Andtotal capacity or generation as of the end of 2015for all renewable power. That's only set to accelerate,I think, you're looking at Chinaexpected to, according toReuters, plow $361 billion into renewable-energy power generation by 2020 -- $361 billion. That willcreate 13 million jobs, they estimate. And that's just over a five-year period from 2016 to 2020.
O'Reilly: The per-capitanumbers were hilarious to me. Investment in renewable power and fuelper unit of GDP, No. 1 was Mauritania,then Honduras,Uruguay,Morocco, and Jamaica. Renewable power capacity per capita, No. 1 is of course Denmark,Germany, Sweden. But,dollar for dollar,it's pretty much us, China,Germany, a little Japan and the U.K. in there.
Muckerman: Yeah,Japan is No. 3 in terms of investment in 2015. Then the U.K., and then India.
O'Reilly: Which is not surprising, because they had the nuclear problem,they have no natural resources,they don't have oil,so it's like, what are we going to do here?
Muckerman: Makestotal sense,and they're surrounded by ocean.
O'Reilly: A littletricky there. I was surprised by how big biomass energy is. Is that thelandfills, and it has methane burning it --
Muckerman: Yeah, the waste, heat, things like that.
O'Reilly: I was surprised by how big that was.Muckerman: Yeah,not too shabby. Adecent amount. If you think about how much we actually do waste, it'ssmart to use it.
O'Reilly: Yeah.It's physics. This is just energy; it's like wind. These things happen.
Muckerman: Energy cannever be created or destroyed.
O'Reilly: Oh, man. That'svery Zen of you.
Muckerman: Isn't thatsomething that they say in physics?
O'Reilly: Yeah. All right, let's dive in here to a few uniqueinteresting situations. Saudi Arabia. Theyobviously have a ton of sunlight, but ...
Muckerman: What are they well known for, besides sunlight?
O'Reilly: Oh,I don't know, maybe they're known forgoing out into the desert andsticking a straw in the sand and getting oil.
Muckerman: Andthey are expected to dump between $30 [billion] and $50 billion into major renewable energy by 2023. So not nearly on the same level as China, but still.
O'Reilly: Well,what was the Saudi Aramco, the oil company that might be IPO-ingin a year or two, they'retalking about dabbling in it a little bit,I saw this morning.
Muckerman: Maybe $5 billion in renewable-energy deals, yeah. They've askedHSBC, [JPMorgan Chase], andCredit Suisseto go out there and try to find somecompanies that they might be able to buy with $5 billion of cash lying around.
O'Reilly: What do you thinkSaudi Arabia is thinking?I see a couple possibilities,or maybe it's all of them. Is this,we need to shift away from oilbecause someday we're not going to be able to use it?
Muckerman: Yeah,I think the last couple years was a gut check for them, because oilprovides a pretty decent amount of subsidies for the social programs they have. So they've been losing out on a lot of that revenue. So they'retrying to at least internally reduce their demand on oil.
O'Reilly: Sothey can sell more oil?
Muckerman: Yeah,I think thatprobably has something to do with it. Also, they powered their country with oil.
O'Reilly: I was about to say, they are one of the few countries that burns oil for their electricity grid.
Muckerman: Yeah. So if they can make electricity cheaper, thenwhy not? They're looking to grow up to about toabout 30% of their power from low-carbon sources by2030. Right now,they have about 10 gigawatts of power from wind, solar, and nuclear.
O'Reilly: Sweet.I have to think they're trying to play catch-up with the UAE, too. They've been doing a lot with solar.
Muckerman: I mean,they're right there' it's the desert; they have plenty of sun right along the equator.
O'Reilly: Yeah,exactly. What else stuck out to youas you looked around the globe? AsI mentioned, I'moptimistic about Africa becauseinstalling the transmission lines fortraditional centralized power like we have, like anatural gas-burning power plant or something,it's a little bit of a hassle.
Muckerman: Well,if you think about itin terms of what they have donewith telephones, for example. They've pretty much skipped land lines and went right to cellphones. So if you think about it, it's a similar situation. You have a cell-phone towerrather than telephone linescrisscrossing the country. You can liken a cellphone tower to a solar grid,because they can be placed sporadically around the country anddistributed in the regions where they're needed. So I think that's probably what's going to happen. It's just going to skip traditional power generation and go straight to renewable, moreregional distribution, as needed.
O'Reilly: Italmost seems like renewables are the best thing that ever happened fordeveloping nations.I mean, that's pretty darn useful.
Muckerman: Now that it's cost-effective, yeah. Beforehand,they were just kind of waiting on it. Companies want to invest. Foreign direct investmentis a big thing in this world.I don't know if it's going to be African companies that are building these solar and wind andhydroelectric power plants,but somebody is going to do it because there's money to be made.
O'Reilly: Right. So I'm an investor, you're an investor, we're all Fools, we're allinvestors. How do you get in on this? What do you see asthe reasonable way to make money off these trends?
Muckerman: For me,personally, I would probably look at the bigger providers of the equipment. Like we mentioned, a few, GEkind of hedges your bets a little bit,because they're involved in oil and gas, and also, they haveexposure to renewable-energy sources. So I think that kind of hedges your bets a little bit.
O'Reilly: The hardware is like, eh, what do you think about an advanced solar-panelmanufacturer, like aCanadian Solaror something?
Muckerman: They have had their troubles.
O'Reilly: If youcan't see him, he's wincing right now.
Muckerman: That'sjust because these companies have gone in waves. One companymakes an advancement, andeveryone jumps on their bandwagon,and then somebody else's solar-panel cellsbecome more efficient,so everybody jumps ship and starts using them.
O'Reilly: It'slike computers.
Muckerman: Yeah. Sothat's why I would say big holding company like GE or Siemens to get access to wind power. Then,companies that are effectively adding solar power at utility scale. I think that's reallywhere you're going to make your money. So MidAmerican might be a good choice, or SunPower, which is a more global company. You see SunPower installingsolar panels, and First Solar, too, all over the world. SunPower is fortunate enough to have the backing ofTotal, which is a forward-thinking oil and gas company.
O'Reilly: Right. What do they own, 30% of that thing?
Muckerman: It might be more,it's at least 30%. They may have upped their stake in the pastcouple years. I'm not 100% sure.
O'Reilly: Thatwouldn't surprise me.
Muckerman: Then there's another company that's hedging its bets betweentraditional fossil fuels and renewable energy -- Total, a French company. There's just a few to point out. Bu,like I said earlier, a lot of these companies are private. You have to do some digging,but maybe you could hold a portfolio of a few of thesecompanies, little bits and pieces of each,rather than betting yourentire portfolio of renewable energy on one or two companies. You can, maybe, buy a basket of them.
O'Reilly: Awesome. Yeah,the bottom line, it sounds like, is that this trend is happening. It isbecoming increasingly common in more and more places.
Muckerman: Yeah,it sure is. You think aboutTesla (NASDAQ: TSLA)andSolarCitybeing combinedwith some help fromPanasonicand that lithium-battery factory. If energy storage does happen, which,I think it would have to fromrenewable-energy sources, the Tesla Gigafactory out there in California islooking to build more batteries than the entire capacity to build batteries worldwide is right now. So they'reexpecting the need to be there.
Muckerman: If you don't have renewable-energy generation, you don't need those batteries. So they'd better pray that the trend continues, which I expect it to.
O'Reilly: Awesome. All right. Thanks for your thoughts, Mr. Muckerman.
Muckerman: Well,what are you looking at? Let's get some thoughts from you really quick before we head out. You mentioned one company? 8point3?
O'Reilly: Yeah. We're short on time. Thank you for the shout-out, though. I'm kind of conservative withthis sort of thing. One, I'm not a tech person. I don't know which solar panel is the best, that sort of thing. But I like themonopolistic characteristics, the cash generationcharacteristics of those yieldcos that get spun out, and they just build huge solar projects. They send theelectricity into the grid. That's it. 8point3 Energy Partners has a 7% yield,it's kind of guaranteed. I mean, it's meat and potatoes.
Muckerman: Unless the sun starts charging for its rays, then thesecompanies are sitting kind of pretty in the long run.
O'Reilly: Right. Cool. All right. That is it for us, folks. Specialthanks for our producer, Austin Morgan. Thanks for laughing atall of our bad jokes, Austin! Besure to tune in tomorrow for the Technology show with Dylan Lewis.If you're a loyal listenerand have questions or comments, we would love to hear from you. Just email us at firstname.lastname@example.org. As always,people on this program may have interestsin the stocks that they talk about,and The Motley Fool may have formal recommendations for or against those stocks, so don't buy or sell anything basedsolely on what you hear on this program. For Taylor Muckerman,I am Sean O'Reilly. Thanks for listening, and Fool on!
Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's Board of Directors. LinkedIn is owned by Microsoft. Sean O'Reilly has no position in any stocks mentioned. Taylor Muckerman owns shares of Tesla. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and Tesla. The Motley Fool owns shares of General Electric. The Motley Fool recommends Total. The Motley Fool has a disclosure policy.