By Mitchell Thomas
BridgeTower Media Newswires
We heat and cool our homes, drive our vehicles for pleasure and necessity and work comfortably in a temperature-controlled environment. Energy isn’t a forethought until we get the bill for all this convenience and realize the financial pain. Factors relating to the end-user are complex and involve the economics of supply and demand, geopolitical tensions, sanctions on producers and weather conditions. All these issues have a primary impact on cost associated with our energy consumption.
In the last decade, the price of oil has been highly volatile for investors and consumers alike. In early 2008, the price of a barrel of West Texas intermediate oil was valued at over $140; by the end of the year the price had fallen to $30 a barrel. Speculators worldwide and demand from China
drove the market up. Inevitably, the slowing economy and extended leverage from a crowded trade drove it rapidly down.
The following rebound was not as dramatic, but experienced an equally respectable rise to over $113 by early 2011. The plummet from these lofty levels in late 2015 didn’t find support until it approached a price of under $30 again. As a result of this dilemma, producers intentionally tightened supplies to support a more sustainable rebound, evolving to where we are today around $70 a barrel. OPEC recently agreed to equalize a more
controlled pricing target in the mid-to-upper $60s by increasing supply to respond to demand levels.
Higher prices result in new supplies arriving into the market diminishing the emphasis of OPEC on the world market stage. The United States has become a more significant player in this universe. Our current production, much from fracking, has returned to the levels of the 1970s: around 10.7 million barrels a day. The United States has actually been exporting oil, upsetting the established order that was enjoyed by Russia and OPEC.
As prices for petroleum continue to rise, the economies of scale offer compelling price competitiveness for alternative energy. Alternative energy is described as renewable sources that are able to be replenished by the environment for conversion into energy needs. This industry has evolved into multiple layers for consumer selection within their geographic regions.
One of the most popular choices is solar power. This is the process of converting the sun’s heat into photovoltaic cells, which capture photons into electricity. The efficiency conversion is approximately at a 22% rate. The price of solar panels has dropped considerably in recent years as a result of new manufacturing and processing capabilities, allowing homeowners to recapture their cost within a few short years. This cost is dependent on the geographic location of an installation.
Homeowners and businesses are using this energy production and are also taking advantage of tax incentives. The downside to this choice is an initial high-cost, storage in the form of batteries, and an inconsistent power source due to weather conditions. Regardless, installations are slowly becoming more prevalent.
Wind power harnesses the natural force of wind speed from lakes and mountain locations using turbines to convert mechanical rotational energy into electricity. Wind power is expected to provide approximately 20% of the global electricity production by 2030. Traveling through certain rural areas, you may witness wind farms that are capable of producing and exporting electricity beyond their own community. Wind farms have been criticized for their noise pollution, annual maintenance costs, disruption of the ecosystem and visual aesthetics. However, wind energy can add diversification to a renewable energy portfolio.
Geothermal is considered one of the most efficient alternative sources of energy besides fossil fuels and has grown by 3.1% within the last year.
Capturing the natural source of heat under the earth’s surface is considered dependable and sustainable, superseding the deficiencies of wind and solar energy. Heat exchangers and heat pumps are used in the heating and cooling conversions and are more efficient, requiring less maintenance compared to the other options. After the initial high cost of locating a positive drilling site and the equipment required for transferring the heat source, future investments are minimal.
There are a multitude of entrepreneurs, physicists and inventors addressing our future energy needs. According to a Bloomberg New Energy Finance report, by 2030 renewable energy sources will support over 65% of the 7.7 trillion dollars in power Investments. Technology and the human spirit have created solutions that have changed the landscape of this sector. We will have the fortune to be given a variety of choices for our energy consumption in the near future beyond what is currently available.
A prime example is our opportunity to select a vehicle that isn’t powered solely by petroleum but also electricity, hydrogen fuel cells, nuclear or natural gas. Many alternatives were absent only a few decades ago. Investments in each of these areas are offered in the form of ETFs and mutual funds.
Are these long term investments viable? Consider this: Only our imaginations can ponder the advancements our future generations will contribute to responsibly sustaining or energy sources worldwide.
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Mitchell Thomas is an international equity analyst/portfolio manager/head trader for Karpus Investment Management, an independent, registered investment advisor that manages assets for individuals, corporations and trustees. Offices are located at 183 Sully’s Trail, Pittsford, NY 14534, (585) 586-4680.
