Why the Renewable Energy Sector Will Prevail

Follow me on a simple hypothetical mathematical journey, if you will...

Let's say there is global demand for 100 pieces of fruit, and that demand is being met in a variety of ways.

50 apples; 18 bananas; 20 oranges; 9 kiwis; 3 grapes.

Now let's say the apples gain market share and there are now 51 of them. On a percentage basis, the use of apples would grow by a scant 2%.

But what if another kiwi is added? On a percentage basis, the use of kiwis would grow by a more respectable 11%.

Now supplant apples with coal and kiwis with renewable energy...

This is why renewable energy can grow so much faster than conventional fuels. And it's also why renewable energy can make you more money in the market.

Yet it's a notion the majority of investors fail to understand.

Numbers Don't Lie

In 2005 — just 5 years ago — there were 5,000 MW of installed solar capacity in the United States.

Today, there are more than 23,000 MW — a rise of 360%.

In 2005, there were just 9,000 MW of installed wind capacity in the U.S.; today, there are more than 35,000 MW — a rise of 289%.

Now consider this...

In 2005, the United States consumed 1.037 billion short tons of coal to produce electricity.

Today, we use even less than that (about 936.5 million short tons in 2009) for a loss of about 9.7%.

Here's the "ah ha!" moment...

Even though renewable energy (like the kiwis above) still accounts for only a small portion of our electricity needs, it is growing much faster than incumbents. That means renewables can make your money grow faster, as well.

In fact the use of coal isn't growing at all. It's shrinking.

So where do you want your investment dollars?

In the lumbering Goliath that can't get any bigger... Or in the David that has plenty of room to run?

Remember, solar and wind have grown several hundred percent in the past few years, but they still account for less than 4% of the mix.

By the time they're making up 10% or 15% of the mix, they will have grown several thousand percent.

And speaking of getting to 15%...

Legislation Doesn't Lie

As of this writing, 27 states and the District of Columbia have binding renewable portfolio standards (RPS), meaning utilities operating there have to generate a certain percentage of their electricity from renewables. Some are as high as 40% by 2017.

Another five states have voluntary targets.

It should be noted that states with federal representatives who oppose a national RPS already have targets at the state level. I'm looking at you Texas, Utah, and soon — as their House passes one this week — Oklahoma.

I've made this point before, but I still don't think people fully understand how much money it can make them...

More than half the states are now mandating the growth of renewable energy by law.

No other energy sources have this luxury.

This is an investment scenario most investors can only dream of.

And It Gets Even Better

Because as bullish as the renewables case sounds in the U.S., it's even more so in Europe and Asia.

Europe is several years ahead of us in the pursuit of clean technology. And Asia — specifically China — has blown passed us in the past few years.

China overtook the U.S. as the largest wind market last year; they now produce about 50% of the world's solar panels each year.

But keep in mind the David and Goliath example from above. Renewables may still account for only a small portion of the world's energy mix, but that allows them to grow much more quickly.

I know it's sometimes hard to see the forest for the trees, what with all the external factors weighing on the market...

But if you take a step back, it's easy to see how renewable energy firms are simply pounding the market.

Just look at a 5-year chart of solar leader First Solar (NASDAQ: FSLR) against Exxon (NSYE: XOM), Peabody (NYSE: BTU), and Chesapeake Energy (NYSE: CHK):

I'll say it again: Solar accounts for only a fraction of the global energy mix.

But on a market performance basis, First Solar and others are crushing the leaders of established industries like oil, coal, and natural gas.

I can't fully explain this trend in a short editorial, but this report does a great job of explaining why renewable are growing so quickly, and how the smartest investors are taking notice to make some of the easiest profits the market has ever seen.

Call it like you see it,

Nick

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