Changes are afoot in the New Jersey energy sector, possibly meaning new investment opportunities.
At least one area nuclear reactor is scheduled to go offline in two years. While nuclear generated power has long been the state's primary energy source, in 2015, nuclear energy was supplanted by natural gas for the first time. Together, these two sources of energy account for 90 percent of the power generated in the Garden State.
While at least eight major gas and electric companies compete in New Jersey, with the coming shutdown of a reactor, there will be a power void that must be filled by some other source: perhaps renewable energy. New Jersey holds one of the more aggressive renewable portfolio standards in the U.S., requiring that nearly one quarter of net electricity sales be generated by renewable energy sources, including solar and offshore wind installations, by 2021.
This increasing focus on renewable energy sources statewide parallels a steady drop in production costs nationwide for alternative energy. The cost of generating wind power which ranged from $60 to $100 per mega-watt hour a decade ago in the center of the country, now ranges from $15 to $25 per mega-watt hour, only a fourth of its previous cost.
In fact, wind power has emerged as the cheapest source of energy in middle America, and its total cost presents a striking comparison to the $55 to $65 per mega-watt hour cost for a new natural-gas-fired plant. Similarly, the cost of power generation at large solar facilities has dropped from the $100 to $300 per mega-watt hour range, to a mere $40 to $70 per mega-watt hour now.
Analysts are projecting that by the 2020s, wind and solar will be the cheapest sources of energy generation in some parts of the country. But traditional fossil fuels still will be a significant factor in the overall energy equation, particularly in light of the new administration.
New Jerseyans interested in investing in renewable energy can start by looking in-state. There are some 532 solar companies, of which 80 are manufacturers, 347 install and develop, and 105 provide financing, engineering and legal support, presenting a number of intriguing potential investment opportunities. Of course, not all of these are publically traded companies; many are near infancy, and all deserve careful scrutiny before investing.
Consider infrastructure needed for renewable energy sources, with transmission lines to end-users topping the list. Another potential consideration: companies that sell surplus renewable energy to outside parties. Companies that also may be worthy of consideration are those that provide new software, marketing, third-party financing, and analytics.
Analysts are divided on how and whether new energy policies emanating from the White House will impact energy priorities nationally and worldwide. Many believe that even if there is a redirection toward fossil fuels with less emphasis on renewables, it won't stop the growth of alternative forms of energy. A recent report on the status of renewables compared to traditional fossil fuels notes that the economics comparing renewable energy sources to traditional sources are favorable, and the impact of political changes might be relatively modest.
Whether the political pendulum swings back toward support for fossil fuels or not, growth of alternative energy sources and state level action, such as that in New Jersey, gives these sources a foundation in the overall energy production sector; and by remaining prudent, knowledgeable investors can make that a good thing. Investors should remain vigilant and not short circuit solid research – so they don't get zapped.
Scott F. Mahoney is a private wealth advisor with the Global Wealth Management Division of Morgan Stanley in Morristown. He can be reached at 973-425-8547, or at www.morganstanley.com/fa.com/scott.mahoney. Follow Scott on Twitter: @mahoneyteamms.
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