One year ago, Japan's earthquake and tsunami disasters sent ripples throughout the world. The resulting nuclear failure at its Fukushima power plant caused a variety of nations to rethink how they power their populations. Both Germany and Switzerland pledge to end the use of nuclear power in their nations by 2020 and 2034, respectively. To that end, both have taken up the mantle of renewable and alternative energy sources as way to meet their electricity demands. Germany recently unveiled its plans on how to implement that shift and the dollar amounts are staggering. For investors, this could be exactly the catalysts needed to spark renewables swing into the mainstream.
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Billions of Dollars
Since March of 2011, the German government has been reviewing the role of nuclear power in the country's electricity mix. As the Fukushima Daiichi nuclear complex continues to malfunction, Germany ultimately made the ambitious decision regarding the fate of its nuclear power plants: the nation will close down all of its nuclear power plants by 2022.
In order to replace the seventeen nuclear reactors that supplied about a fifth of its electricity with renewables, German will have to undertake a massive public works project. Just how big? Chancellor Merkel has plans to construct an offshore wind farm, roughly the size of Manhattan and erect a grid whose lines could stretch from London to Baghdad. In order to get the 25,000 MW or about 25 nuclear power plants worth of generating capacity, Germany will require about 5,000 turbines and 2,800 miles of new high voltage power lines in order to connect the turbines with the electric grid. In addition, upgrades to storage and frequency regulation must be made in order to get the "choppy" renewable power into the grid correctly. Overall, the program will cost around $263 billion to build.
So far, Germany has already built the world's biggest renewable generation complex. The nation had a capacity of 53.8 gigawatts worth of wind and solar generators at the end of 2011. While the project is certainly ambitious, Germany has had a history of innovation in renewables and was the first major economy to provide incentives for clean energy. The nation pioneered the idea of offering feed-in tariffs that guarantee above-market prices for solar power back in 2004. If there's any nation that seriously implements a major shift towards renewable energy, its Germany's high tech and high engineered economy. (For related reading, see The Basics Of Tariffs And Trade Barriers.)
Playing the Major Shifts
Germany's decision to revamp how it powers itself could finally be the real spark to spur renewables as a viable energy generator. Nations like Sweden, Austria and Slovenia have been following what Germany's example and have begun the planning stages of their own renewable shift. For investors, that could mean a big boost to stocks within the sector. The PowerShares Global Clean Energy (ARCA:PBD) tracks 95 different global renewable and alternative energy based holdings including Suntech Power (NYSE:STP) and smart meter maker Elster (NYSE:ELT). The fund's expense ratio is 0.75% and good be a great broad way to play the shift. Likewise, the iShares S&P Global Clean Energy Index (Nasdaq:ICLN) makes a good choice as well.
Known for its high tech industrial giants, Germany's homegrown companies will see much of the business from its renewable roll-out. German utility E.ON (OTCBB:EONGY.PK) is planning on spending 7 billion euros on new renewable projects over the new five years. Getting a major chunk of that is Siemens (NYSE:SI). The company will provide 80 of its wind turbines to E.ON's Amrumbank West wind farm. The nation's largest construction firm, Hochtief AG has recently purchased four ships in order to build wind farms at sea. These two firms along with the Market Vectors Germany Small-Cap ETF (ARCA:GERJ) and its 30% stake in industrial firms, make ideal choices to play Germany's shift towards renewables.
The Bottom Line
Japan's Fukushima nuclear disaster set in motion a sweeping change in how nations power themselves. Germany's stance to ban nuclear energy and replace that capacity with renewables is certainly ambitious. However, it could be the spark needed to ignite alternative energy stocks. The previous picks, along with the wind-based First Trust Global Wind Energy ETF (ARCA:FAN), make ideal selections to play that monumental shift. (For more, see Earning Forecasts: A Primer.)
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At the time of writing, Aaron Levitt did not own shares in any of the companies mentioned in this article.