As Renewable Energy Risks Rise, Invest In Natural Gas

2011-6-1

As you would expect, it's every utilities' mandate to "KTLO" as close to 100 percent of the time as possible. And that's not an easy task.

Keeping the lights – and everything else – on and supplied with power is a challenging problem for utilities under normal circumstances. Now that state and local governments want to integrate wind and solar into their energy portfolios, the cost of doing business is rising and making it harder for utility companies to keep the lights on.

It all started with mandates that require more of our energy to come from renewable sources like wind and solar. The obvious benefits are the reduction of greenhouse gases. It also reduces our imports of foreign oil. The downside is the unreliability of these sources for obvious reasons that we'll address soon.

With Congress seemingly stuck in perpetual energy policy gridlock, individual states (37, according to the Pew Center on Global Climate Change) have put renewable or alternative energy mandates in place.

These standards or goals force electric utilities to provide a certain amount of electricity from renewable or alternative sources. This can be anywhere from 20 to 40 percent, depending on the state.

Over the last few years, wind and solar have gotten a big boost as a result. Foreign wind turbine makers like Gamesa Corp Technologica (Nasdaq: GCTAF) and Vestas Wind Systems (Nasdaq: VWDRY) are increasing their presence here.

The only reputable domestic wind turbine company of scale left in the United States is General Electric Company (NYSE: GE).

The Real Problem With Wind and Solar

The biggest problem with wind and solar is their variability. Clouds, night and calm days play havoc with utilities trying to balance supply versus demand.

Just imagine what happens when a cloud passes over a one-megawatt solar farm that's tied into the grid. The cloud acts like a giant switch, turning off 50 to 75 percent of the farm's output, and then turning it back on when it passes by.

So what's the big problem with variability? The current grid isn't designed to handle it.

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