Alt and Traditional Energy: It's All Part of the Solution

As President Bush calls on Congress to drill for oil offshore, the Senate again stalls on tax credits for solar energy.

There's certainly some irony in this. As we saw, there was early reaction in the stocks today. Drilling play (Transocean ) was up, and solars (First Solar and SunPower ) were down.

Portfolio of Solutions
Cambridge Energy Research chairman Daniel Yergin says the longer term solution to the energy crisis will be a mix of different sources — fossil fuels and alternative energy.

"We should have a portfolio of solutions. All of these are part of the solution. It's not an either or ... not in our $14 trillion economy. We don't have the clear luxury of just either," said Yergin, CNBC's global energy analyst.

That's probably not a bad way to think when putting together your own energy portfolio.

Yergin says wind energy right now has the edge among renewables. In fact, you probably noticed there are some new ETFs in the wind sector — PowerShares and First Trust both filed for them. In fact, First Trust ISE Global Wind Energy ETF started trading today.

Drill, Drill, Drill
President Bush this morning joined the chorus who say Congress should lift the ban on drilling offshore and the Alaska National Wildlife Reserve. He says there could be some 18 billion barrels offshore and another 10 billion in ANWR.

Yergin says it's unclear what really lies in the untapped waters off the U.S. coastline. "The truth is you don't know until you explore it. We really haven't done any seismic tests since the 1970s," he said. He agreed with President Bush though that technology is better and therefore there are less risks to the environment than there were decades ago.

In terms of exploration, "You can know a lot more now with technology than you could 10 years ago," he said.

Merrill Lynch vice chairman Tom Petrie shares a similar view on ANWR. "We do not know whether or how much oil is in ANWR so we should at least drill to know whether it is even an option. That can be done with minimal environmental impact. Then we can make an informed decision about whether to pursue development of ANWR or not. The one well drilled in the area is inconclusive as to the prospectivity of the area," he wrote.

Let the Sun Shine
The Senate late yesterday once more stalled on a bill that would extend tax credits for solar PV. In a note today, Citigroup analysts said the firm's Washington sources expect to see a lot of wrangling around the issue through the end of the summer, and they do not expect a compromise until fall.

Citi says Senate Republicans do not want to set the precedent of using tax increases to pay for the extensions of existing tax policy while Democrats are urging business and others to pressure Republicans to adopt it.

Citi says Sun Power is the most leveraged to the passage of the bill and while it has upside potential, headline risks are high until the bill is passed. Citi also says in its report that it rates First Solar its favorite solar play even at current prices. It rates the stock a speculative risk due to high earnings and stock price volatility, with a target of $450 per share.

"We believe that solar stocks in general, should trade at a premium to the broader market given fundamental demand drivers that should fuel earnings growth well above that of the boarder S&P 500 in coming years," Citi analysts wrote.

Yet, they say they "realize that current valuations for many solar stocks are likely unsustainably high and will compress over the longer-term."

I found this item from the San Jose Mercury News this week. The paper quotes a report that says solar energy costs could be about the same as power from coal, nuclear and natural gas in about a decade with significant investment. That price parity would then result in more adaptation to solar which would potentially take it to 10 percent of electricity generation in the U.S. by 2025.

The newspaper quotes the Utility Solar Assessment Study, produced by non-profit Co-op America and Clean Edge research firm, which forecasts that the cost of solar will drop from an average $5.50 to $7 for a peak watt currently to $1.43 to 1.62 by 2025. The report also says that the efficiencies will only come from the concerted efforts of solar companies and will cost from $450 to $560 billion between now and 2025.

Questions? Comments?