Evidence suggests that coal mining has been around for thousands of years.
In China, coal has been mined — primitively at first — since 3500 BCE, while in the Americas, the Aztecs used coal for fuel.
The Romans and Greeks also used coal for fuel and metalworking.
But it wasn’t until the Industrial Revolution began in the 18th century in Britain that coal became the most important natural resources the world had ever seen.
The use of coal in steamships and locomotives created the fastest international trade to date and ushered us into the globalized economy we have today.
Of course, the 20th century transformed coal power from a godsend to a pariah as concerns grew around the smog and carbon emitted from smoke stacks.
Trillions of dollars have been invested in the coal industry over the last few centuries, and for a long time, coal miners and utilities have benefited on the open market.
Recently, though, coal has become the last thing investors want to buy, as prices for coal stocks of all stripes lose value by the day.
With an increasingly powerful environmental movement that sees coal as a detriment to the air we breathe and global temperature averages, governments throughout the world are working to transition from coal power into renewable fuels and natural gas.
Later this year, from the end of November and into December, world leaders will meet in Paris to negotiate a global climate treaty. The goal of this is to force nations all over the world to develop plans to lower greenhouse gas emissions enough to keep temperatures from rising any more than two degrees Celsius above pre-industrial levels.
Of course, many liken this to driving 100 miles per hour in the fast lane and trying to cut across five lanes of traffic to make it to your exit… not impossible, but drastic and, quite possibly, dangerous.
For a long time, the dangers of transitioning out of coal so quickly were economic. Coal is cheap, and renewable energy, still new, hasn’t been for a while.
But that’s all changing…
Renewables Are Cheap(er)
According to Bloomberg and its energy research team, the cost of solar power is crashing and will continue to do so for a while.
Over the next 25 years, the cost of utility-scale solar will be halved as new research and technology promotes more efficient generation and storage.
Even in China, where coal has fueled decades of economic growth, solar and wind will be cheaper than coal and natural gas:
Over the next 35 years, solar and wind costs will dive lower than fossil fuels on a per-megawatt-hour basis in China and throughout the world. Right now, these renewables are more expensive without subsidies, but with a new climate agreement on the way, don’t be surprised to see even cheaper wind and solar.
Also, as these new forms of energy shed prohibitive costs, the potential for stranding natural gas and coal resources grows.
If solar and wind are less expensive than coal and natural gas for power production, you can kiss any investment in those fuels goodbye. Companies invested in fossil fuels would go bankrupt, and old power plants would be shuttered for good.
While this may give you pause, remember that it will take a long time for this to happen, and it’s important to get invested in the right energy now.
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Solar and Wind Trillions
Between now and the year 2040, economists expect somewhere around $3.7 trillion to be invested in solar.
The renewable resource will dominate the global energy landscape more than any other fuel including nuclear, gas, coal, and wind.
$2.2 trillion of this massive investment will go directly to rooftop solar. Most of that will be in the developing world, as it’s simpler for smaller-scale solar to hit rooftops than for whole countries to build expensive utility projects.
Solar and renewable energy will become the market favorites for many decades as investors look for gains out of this massive cash pile.
Some of these investments are already happening, and a great way for income investors to play this trend is through yieldcos.
A yieldco, like an MLP, is a company created to generate predictable cash flow from long-term operated assets.
As an example, a solar company has four massive utility plants already contracted to provide energy for the next 20 years. The company won’t need any financing for expansion, so it “sells” these assets to its yieldco, and that company manages maintenance and the collection of payment.
For this reason, yieldcos pay great dividends and also have the opportunity for capital gains as the parent companies develop more assets.
One worthwhile yieldco is TerraForm Power, Inc. (NASDAQ: TERP).
The company has a large portfolio of solar and wind assets provided by industry leader SunEdison (NYSE: SUNE), its parent company.
TerraForm trades around $40 per share and pays a 3.3% dividend — not the highest yield you’ll find in the industry, but a nice sum compared to most solar and renewable companies.
Of course, a yieldco is just one way to play this coming bull market. Over the next few months, we’ll be showing you plenty of ways to invest in renewables and make a lot of money.
Good Investing,
Alex Martinelli
With an eye squarely focused on the long-term, Alex Martinelli takes the art of income investing to a higher level within the energy sector. His research has helped hundreds of thousands of individual investors identify well established companies that have a long history of paying out dividends to their shareholders. For more info on Alex, check out his editor’s page.
