Why Wind Is A Better Buy Than Solar (Part 2)

This is Part 2 of a two-part interview with JPMorgan Chase analyst Christopher Blansett, who is advising JPMorgan clients to stay away from solar stocks and invest in wind energy in the next two years. TheStreet spoke with Blansett about the significant change in the JPMorgan thematic approach to renewable energy investing. In Part 1 of the interview, the JPMorgan analyst laid out the case for wind. In Part 2, Blansett goes into the reasons why he has become more skeptical about the solar outlook.

TheStreet: The solar industry is striving for grid parity. Is inexpensive solar foreseeable?

Blansett: Unless feed-in tariffs expand meaningfully and on a global basis, I don't see a positive outlook for solar in the immediate future. And even a feed-in tariff (FIT) in the U.S., for example, wouldn't fix the core issue of solar being uncompetitive from a price perspective. If you look at the feed-in tariff in Germany, it makes solar eight times more expensive. Just going to a FIT doesn't fix the problem.

Spain and Germany have realized that they put subsidies in place that they will be paying for, for a long time. In the U.S., I think it is fair to say we don't have the social willpower to subsidize solar at over 100% of the cost of electricity, which is what Europe does.

All the talk about grid parity is overdone. There were assumptions being made about the price of natural gas and the incremental cost of electricity production on the conventional side that have not panned out yet and, as a result, are not supporting more support for expensive renewable energy. Ultimately, utilities and utility commissions think about one thing, pricing, and it is only when and if we have more expensive natural gas that both solar and wind become much more attractive.

You tell me where you think natural gas prices are going in the next five years and I'll tell you whether solar will exist in five years. The common wisdom five years ago was that natural gas would become much more expensive and reset the viewpoint on fossil fuels driving the cost of electricity. What happens to natural gas prices in the next five years will have the single largest impact on the outlook for renewable energy.

TheStreet: One ongoing issue for solar is its intermittent generation of energy and potential problems integrating intermittent energy with the grid. Wind suffers from the same intermittency issue, so isn't it as big a headwind for more adoption of wind energy?

Blansett: There is also a lot of talk about wind not blowing at optimal times for the grid, being early morning or late evening biased, but at these penetration levels, it is not detrimental. We would need quite a lot of wind power before the grid would need to be concerned. Some individual states are already over 10% of wind and they are able to deal with it. They had to adjust their operating procedures but only at an incremental cost over the conventional cost of electricity.