There are lots of clean energy investors out there who have very principled beliefs about the future of the global energy business. However, in the near term, fossil fuel investors and clean energy investors should both be hoping for the same thing: higher prices.
According to Citi analyst Anthony Yuen, the short-term fates of clean energy investors and natural gas investors are closely linked.
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The growth of renewable should rebound when natural gas prices and forwards rise, providing a lift to power prices, Yuen explained.
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Low gas and coal prices provide little motivation for companies to switch to alternative energy and place heavy pricing pressures on alternative energy companies.
In the past two years, the United States Natural Gas Fund, LP (NYSE:UNG) is down 71.7 percent. In that same time, the Guggenheim Solar ETF (NYSE:TAN) is also down 47.6 percent.
Yuen assures both natural gas investors and alternative energy investors that relief is certainly on the way.
Citi is projecting U.S. Henry Hub natural gas prices to average $2.10/MMBtu in 2016, but the price is expected to climb to $3.20/MMBtu in 2017 before settling at $3.00/MMBtu in 2018.
Yuen believes that the shift in market sentiment toward alternative energy has been inflated by the high-profile bankruptcy of SunEdison, as well as the widespread difficulties that alternative energy companies have had securing financing. However, he believes that these difficulties are simply temporary roadblocks for the industry.
Disclosure: The author holds no position in the stocks mentioned.
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