Energy Stocks

The Renewables ETF You Need Today

Last week, I wrote about how coal-fired and natural gas-fired power plants are on the way out.

However, natural gas is also widely viewed as the transition fuel to an all-electric future.

So today, let’s take a more detailed dive into the future of natural gas.

Replaced With Renewables

Power plants using natural gas as a fuel are facing fierce competition from renewable energy sources – mostly inexpensive wind and solar farms.

It used to be cheaper to burn coal or natural gas to generate electricity. But not anymore. The costs of solar and wind power are already cheaper than even the lowest-cost natural gas plants. And that’s without any subsidies.

For example, the cost of solar power now averages $29 per megawatt-hour. And the cost of wind generation is as low as $23 per megawatt-hour.

Compare that with a natural gas plant’s $41 per megawatt-hour. And power from a natural gas peaker plant costs $124 per megawatt-hour.

So it’s not surprising that power from renewables makes economic sense.

More states, cities and companies now have renewable energy policies and mandates.

Thirty-seven states now have some form of a clean or renewable energy goal. Most have set yearly targets.

Some states even plan to phase out natural gas altogether. California, New York, Nevada, Washington and New Mexico all have renewable and carbon-free generation standards in place.

There are renewable policies and legislation pending at the federal level too. And, if that legislation is passed, natural gas could see even more competition from renewables.

Today, $20 billion worth of natural gas power plants are being built. As I mentioned in last week’s article, as much as $34 billion in new natural gas infrastructure could become stranded.

How to Profit

I believe the only natural gas companies that could survive the renewable energy transition and continue to profit are natural gas pipeline companies. That’s because they would also be able to move green hydrogen.

And some natural gas transmission and distribution pipeline companies are already planning for that. For example, in a village in northwest England, the natural gas network is blending 20% hydrogen into the village’s natural gas pipeline network.

Most of today’s natural gas appliances can handle a 23% hydrogen blend without any modifications. And as green hydrogen becomes more plentiful, we’ll see hydrogen blending here in the U.S.

Most pipeline companies are structured as master limited partnerships (MLPs). So at tax time, taxpayers with investments in these companies get K-1 forms. But these can be a real challenge.

However, there is a way to invest in midstream energy infrastructure without the hassle of dealing with K-1s. That’s via the Alerian MLP ETF (NYSE: AMLP).

It’s the largest holder of pipeline MLPs. But at tax time, it issues a 1099 form, which is far easier to deal with than a K-1.

The Alerian MLP ETF currently sports a 7.75% dividend yield. And its year-to-date total return is more than 37%.

Many of the companies in the exchange-traded fund (ETF) will benefit as green hydrogen increases in production and use. And investing in the Alerian MLP ETF is a great long-term way to play natural gas and green hydrogen infrastructure.

Good investing,

Dave

P.S. To read last week’s article about natural gas, click here.

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