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January 31, 2007

Poll Question - What alternative energy sector do you think shows the most investment promise?

This poll opened on January 31st, 2007 and closed on February 1st, 2007.

Total voters for this poll: 158

Solar 27% (43 votes)
Ethanol 21% (33 votes)
Fuel Cells/Hydrogen 17% (27 votes)
Wind 11% (18 votes)
Coal-to-Liquids 8% (13 votes)
Geothermal 4% (6 votes)
Other 11% (17 votes)

January 29, 2007

Don't Forget About Wind Power!

Without a doubt, ethanol and solar are the 2 alt energy categories that have attracted the most investor attention in North America in the past few years, and that is because they are the 2 categories that feature the most US-listed stocks. However, despite its comparatively lower profile as an asset class, investors should not forget about wind power!

On January 18th, Emerging Energy Research published a short study on the growth of wind power in China. For 2006, China installed 1,040 MW of new wind capacity, making it the 5th country in the world in terms of new wind capacity. Now some may say that that's nothing to write home about, especially compared to the 2,454 MW of new wind capacity installed in the US in '06. However, one of the things noted by the Emerging Energy Research study is that China went from about 100 MW in 2003 to 2,300 MW in 2006, and that the government now has a target of having 30,000 MW installed by 2020.

The following week, on January 23rd, the American Wind Energy Association released its growth figures for '06. The industry added 27% more wind capacity to its fleet in 2006 as compared to 2005, and is expected to add an extra 27% in '07. Wind power in the US grew by an annual average of 29% between 2000 and 2005. The industry's goal (PDF document) is to expand from 11,603 MW today to 100,000 MW by 2020.

However way you look at these numbers, they spell nothing but solid growth for the firms underpinning this industry. But, as noted at the outset of this post, wind power has not, outside of a few large institutional investors, attracted much attention from North American investors in the recent past, and this despite the fact that the landscapes of some of America's most populous states are littered with wind farms.

The other thing to note is that wind power is much closer than its solar counterpart to being competitive with conventional generation technologies without government support, as demonstrated by another recent Emerging Energy Research study. Under a scenario where carbon emissions would be regulated in the US with an emissions trading system, wind would likely prove competitive on its own.

Now the problem remains: there is a dearth of viable 'pure-play' wind stocks on US markets. But that doesn't mean, in my view, that investors should shy away from an industry with such impressive growth prospects. Those of you who are able to purchase European stocks have a broader spectrum of options, but most of the heavy-hitters are accessible to US investors...although not alway in an optimal form (see below). Here are a few ways to play this:

Utilities

FPL [NYSE:FPL] - with over 3,600 MW of installed wind capacity in 15 states, subsidiary FPL Energy is the US leader in wind power.

Iberdrola [MCE:IBE or OTC:IBDRF] - European leader in wind energy with aggressive plans for international expansion, including in the US and China.

Acciona [MCE:ANA or OTC:ACXIF] - not technically a utility but ranks 3rd in the world for installed wind capacity.

Turbines & Parts

Vestas [CO:WVS or OTC:VWSYF] - over a 3rd of the world's market share for wind turbines.

Gamesa [MCE:GAM or OTC:GCTAF] - about 18% of the world's market share for wind turbines, and involved in wind farm development with exposure to China and the US.

General Electric - [NYSE:GE] - about a 10% market share but revenue from this segment comparatively very small.

American Superconductors - [NASDAQ:AMSC] - maker of wire and power electronic converters with applications in wind generation; has exposure to China.

Now I don't claim to know each and every company out there with exposure to wind, and I am sure there are other interesting ways to play this space. For instance, the Pink Sheets and OTC Board feature a few smaller, high-risk companies with exposure to wind. As always, we welcome input from our readers.

DISCLOSURE: I do not have a position in any of the stocks listed above, and I am not affiliated with any of the organizations discussed in this article.

January 27, 2007

The Week in Cleantech: Jan. 22 to Jan. 26

The Week in Cleantech is a weekly roundup of our favorite clean tech and alt energy blog posts and stories from across the web. If you know of a good piece that you think should be included here, don't hesitate to let us know!

This week, we particularly liked...

On Monday, David Roberts at Gristmill gave us Vinod Khosla's forecast for 2007 (thanks to Tyler at Clean Break for this one).

On Monday, Jack Uldrich at The Motley Fool noted how the solar industry is getting its lobbying act together and going to Washington. Stocks discussed in the article are: BP [NYSE:BP], SunPower [NASDAQ:SPWR], Kyocera [NYSE:KYO], and General Electric [NYSE:GE].

On Monday, Peter Lynch went over what happened on the solar IPO front in 2006: The Year of the Solar IPO Boom.

On Tuesday, Tate Dwinnell at SelfInvestors.com gave us the heads up on some State of the Union trading opportunities. Stocks discussed in this article are: PowerShares Clean Energy ETF [AMEX:PBW] and several of its constituent companies.

On Tuesday, Seth Jayson at The Motley Fool warned us to keep our hands out of the turbine. The main stock discussed is Capstone Turbine [NASDAQ:CPST], but the article as a whole is good in highlighting one of the main problems facing many alt energy companies: high cash burn rates.

On Thursday, Brett Arends at TheStreet.com gave us a list of truly 'alternative' energy stocks that could shine. Stocks discussed in the article are: WFI Industries [TSE:WFI], US Geothermal [OTC BB:UGTH], Fuel Tech [NASDAQ:FTEK], Nova Biosource Fuels [OTC BB:NVBF], and Covanta [NYSE:CVA].

On Friday, Jennifer Kho at Red Herring told us how cleantech, as an asset class, is growing up.

On Friday, Autopia at Wired informed us that Tesla Motors was bringing a bit of California to Michigan.


January 24, 2007

A Night At The Movies

Unsuprisingly, CNBC featured several segments yesterday on alt energy and Bush's State of the Union Address. I picked out 3 that I particularly liked.

1) Rich Asplund, Melvin Securities Equity Analyst; and Garvin Jabusch, Sierra Club Stock Fund Portfolio Manager, discuss the US ethanol industry and make a couple of alt energy stock picks. Neither analyst is particularly bullish on corn-based ethanol but both are on solar. More specifically, they both like Suntech Power [NYSE:STP]. The other pick is Itron [NASDAQ:ITRI] because of its exposure to smart metering technology.

2) A discussion on what tighter fuel efficiency standards will mean for the US auto industry and Big Oil. Unsurprisingly, the Big Three are not at all well positioned to face tougher standards and the Japanese, but most notably Toyota [NYSE:TM], Honda [NYSE:HMC] and Nissan, should gain a competitive edge as a result. Big Oil has nothing to fear with growing demand in China and India and oil at between $50 and $60.

3) Vinod Khosla, founder of Sun Microsystems and successful venture capitalist, on ethanol. Ethanol could, according to Khosla, replace fully 100% of US gasoline consumption in the next 25 years, but cellulosic ethanol is the key (surprise, surprise...). The most "innovative" publicly-traded clean tech company out there, according to Khosla? VeraSun [NYSE:VSE].

The segments are between 4 and 5 minutes long. Nothing ground breaking but interesting nonetheless.

DISCLOSURE: Of the stocks discussed above, I am long Suntech Power.


What has Changed in the Alternative Energy Investment Landscape?

Is the time right to invest in alternative energy? We’ve seen a lot of this before in the 1970s and 1980s. Solar and biomass hot, big regulatory pushes, and then companies and investors lost a lot of money when things changed. We’re still a bit skeptical. We’re also all about not getting pulled in to each and every overpriced hype (read, the ethanol race) – but fundamentals are fundamentals. And they’re hard to ignore and pretty darn impressive. We think the real question today is not “are alternatives a good investment??, but “which ones have legs and make a good investment bet??

In four words – broad-based critical mass – Unlike alternative energy of yesteryear, this alternative energy explosion has been slowly building for 10 to 15 years, and is reaching critical mass in multiple markets. Take a couple of examples – the solar market is on pace for a $20 Billion per year number globally within 3 years (SolarBuzz.com), across several major jurisdictions (in the 1980s we were talking less than 5% of that). World ethanol production is on the order of $12 Billion/year. In the US wind capacity production has growing at 25%+ per year for the last 2 years wind generation capacity additions have been second only to gas-fired generation adds in the US mix.

“It’s the global economy, stupid? - Don’t forget, this is global now, and it wasn’t really like that 25 years ago. The US pioneered solar photovoltaics, but Japan and Germany (with China catching up) are the biggest markets today. The US pioneered large scale wind power (remember Altamont Pass?), but 3 of the top 4 wind turbine companies today are European. The US engineered cap and trade in carbon, but Kyoto is a European driven engine. Lots of examples of why it’s not just us anymore. For an investor worried about the legs of the industry, that’s a really big point.

In two words – cost structure – alternative energy is still more expensive than conventional energy - that’s why we call it “alternative?. But the cost curves for each and every alternative energy source have fundamentally changed for the better over the last 10 years (NREL), are moving into striking distance, and continue to improve. This trend is not going to reverse, so it’s just a matter of time.

In three words – carbon, carbon, carbon - The carbon credit trading market, driven by Kyoto protocol was $21.5 Billion in the first 3 quarters of last year (World Bank and IETA) - that’s up from virtually zero three years ago. Now we’re talking real numbers. The US has been left out of this so far, but not for long. California is committed, the Democrats are in control of Congress, and we will likely be seeing a strengthening of some sort of cap and trade system before long.

The bottom line – alternative energy is cool and the consumer cares. Of all this activity, it’s really high gas and electricity prices and climate change that have put alternative energy on the map in the consumers minds. And they care. And they vote. And they blog. And they are buying hybrids, uneconomic hybrids, lots of them. And as the battery technology continues to advance (think lithium ion overtaking nickel metal hydride), they’ll start buying HEVs and Plug-in HEVs in massive quantities. And they are buying green power. And little pieces of paper certifying their green power. In enough quantities for Toyota and Walmart and GE and Google to brand green as part of their core strategies. How’s all that for impact?

And finally, the regulations are here. Don’t kid yourself, alternative energy has ALWAYS been a regulatory driven market. But now the regulations are pretty widespread. Take electric power, for example – it’s not just the federal production tax credit anymore, or just the solar tax credit, or the state solar subsidy programs - 23 US states now have Renewable Portfolio Standards for electricity production (Pew Center) , including Texas, California, Pennsylvania, Arizona, Illinois, etc. That’s up from 1 in 1991. Put another way, if you could swing the electoral votes from just the RPS states, you’d have a landslide presidential victory.

Yes, it’s still possible that if oil and gas prices prices fall back to 1990s levels (we expect them to pull back somewhat, but are scared to make a precise prediction) and we have 5 or 6 normal, cool winters that make the climate change debate disintegrate, then a new political wave will come in (in 30 different western countries), and each and every major alternative energy regulatory program along with all the consumer demand will collapse – in a dozen major nations worldwide. But as the saying goes, that ain’t the way to bet it.

Author Neal Dikeman is a founding partner at Jane Capital Partners LLC, a boutique merchant bank advising strategic investors and startups in cleantech. He is the founding contributor of Cleantech Blog, and a Contributing Editor to AltEnergyStocks.com.

January 23, 2007

State of the Union Address: Alt Energy Sectors and Stocks to Watch

So it came and went, the much anticipated State of the Union Address. While the pundits will inevitably focus the bulk of their attention and commentary on the Iraq question, there were undoubtedly some very interesting nuggets of alt energy info in that speech.

Above all things, one crucial variable has changed from a year ago: Congress is now controlled by the Democrats and already the slew of alt energy and climate change proposals brought forth by various senators leads one to believe that, as far as the federal government is concerned, 07' should see more than just hot air on the alt energy and clean tech fronts.


Sectors Of Focus

OK, so let's dive right into it (see a complete list of 2007 State of the Union Policy Initiatives here):

Automotive and Fuels

By far the category that got the most attention and the clearest targets. Key points are:

- Cut down gasoline consumption by 20% by 2017

- A mandatory Fuels Standard requiring 35 billion gallons of renewable and alternative fuels by 2017 (read: mostly corn-based ethanol for now with coal-to-liquids starting in the latter half of 2010 and cellulosic ethanol in about 2012)

- Tougher fuel economy standards via a "modernization" of CAFE standards

- Research into battery technology for hybrid cars and plug-in hybrids (this is worth noting)

- Focus on cellulosic ethanol (not entirely unexpected but noteworthy nonetheless)

- Doubling the current capacity of the Strategic Petroleum Reserve (SPR) to 1.5 billion barrels by 2027 (hhmmmm...indirectly constraining oil supply in light of the forecasted supply-demand environment of the next 2 decades...that can only mean good things for alt energy!)

Electricity Generation

- More solar and wind (yyaaaawwwnnnnn...)

- Clean coal technology (at least another few years away, but worth trying to spot early movers on the technology development side (rather than on the utility side))

- A renewed focus on nuclear power (this is interesting and something several people have been pushing for - one the best ways to play this from a growth angle is via exposure to uranium miners and exploration companies, but that is for another blog to discuss)

Climate Change

- 1st time, as far as I can tell, that this administration was so emphatic about the need to combat climate change

- The President's strategy "will help confront climate change by stopping the projected growth of carbon dioxide emissions from cars, light trucks, and SUVs within 10 years (read: Bush agreed to saying "climate" and "change" together in the same sentence as a gesture of good will but he is nowhere near ready for federally-mandated greenhouse gas caps and carbon trading, so probably forget '07...but I wouldn't exclude '08)


Stocks To Watch

Here are a few stocks to watch over the near and medium terms. Admittedly, this is not an exhaustive list and I would welcome suggestions from our readers, especially with regards to battery makers.

Fuel Economy

Toyota Motors [NYSE:TM]
Honda Motor Co. [NYSE:HMC]
Borg Warner Inc [NYSE:BWA]
Magna Int'l [NYSE:MGA]
Raser Tech [NYSE:RZ]

Ethanol

Himanshu Pandya beat me to it with a nice and comprehensive post. If you want to make a quick momentum buck, you should be in for a fun ride over the next few days. Beware the hangover!!

Coal-to-Liquids

Rentech [AMEX:RTK]
Syntroleum Corp [NASDAQ:SYNM]
Headwaters Inc. [NYSE:HW]
Sasol [NYSE:SSL]

Batteries for Hybrid and Plug-in Hybrids

Altair Nanotech [NASDAQ:ALTI]
Maxwell Tech [NASDAQ:MXWL]
Energy Conversion Devices (via its Cobasys unit) [NASDAQ:ENER]

Cellulosic Ethanol

No public company with exposure to cellulosic ethanol to speak of...yet


To Conclude This Evening's Broadcast...

No, I did not include every single alt energy company listed on US stock markets, and that is because this speech was very light on details for most alt energy areas except transportation. Transportation is the only category on which we heard some a) new and b) substantive things tonight. Nevertheless, I'm curious to see how the solar sector will do tomorrow. Something tells me we might be in for some interesting action.

Independently of this Address, there is some movement on a number of fronts that will be beneficial to various alt energy sectors, but those initiatives have to be examined independently. Keep checking in for an upcoming review of all of the federal proposals currently on the table.


DISCLOSURE: I do not have a position in any of the stocks discussed above but I do have exposure to the solar and uranium mining sectors.

January 22, 2007

Alt Energy Investing Video

Thanks to Bill Paul (see below) for the heads up on an interesting video on alt energy geared toward an investor audience. The video is available on Consuelo Mack's Wealthtrack website. Click on "Wealthtrack Video on Demand" on the right-hand side and select the clip dated 01/12/07. It should be under "Current Programs" for a little while longer and will then be moved to "Archive Programs".

The video consists of a 25-minute discussion between the anchor and the following 3 guests: Bill Paul, former WSJ reporter and author of the newly-released book "Future Energy: How the New Oil Industry Will Change People, Politics and Portfolios"; Glenn Wattley, Managing Director at West Bay Energy LLC; and Mike Millikin, publisher of the Green Car Congress - a great clean car and alternative fuel info and news clearinghouse.

Breaking News - President Bush Calls for Cut in Gasoline Use and Pushes Renewable Fuel

President Bush, in Tuesday's State of the Union address, will propose a plan to cut U.S. gasoline consumption by 20 percent while bolstering inventory in the Strategic Petroleum Reserve, Republican sources say.

The president's 10-year plan to cut gasoline use includes tightening fuel economy standards on automakers and producing 35 billion gallons of renewable fuel such as ethanol by 2017, according to sources briefed on the speech.

One official said the moves would be equivalent to taking 26 million vehicles off U.S. roads.

Full CNN story.

While this is great to see, it is a complete reversal of previous views held by Bush:

In May of 2001 White House Press Secretary Ari Fleischer was asked if Americans needed to change their lifestyle in order to reduce a world record per capita energy consumption. Mr. Fleisher replied, "That's a big no. The President believes that it's an American way of life, and that it should be the goal of policy makers to protect the American way of life."

The alt energy blogosphere has been abuzz over the past week with predictions of what sectors and stocks could benefit from this gradual turnaround initiated with the 2006 State of the Union Address. Now we're getting an early glimpse at the darling sectors. For anyone who's been following this for a while, not big surprise...except maybe on the fuel efficiency front.

Momentum traders, grab on to your charts! The patient value investors have been building their positions throughout '06 and are taking a back seat smiling right now, waiting for all of the irrational exuberance to make their prescient bets self-fulfilling prophecies.

More on this tomorrow.


January 20, 2007

The Week in Cleantech: Jan. 15 to Jan. 19

The Week in Cleantech is a weekly roundup of our favorite clean tech and alt energy blog posts and stories from across the web. If you know of a good piece that you think should be included here, don't hesitate to let us know!

This week, we particularly liked...

On Wednesday, Himanshu Pandya at Financial Nirvana made some predictions about which alt energy stocks could see some upside from the upcoming State of the Union Address.

On Wednesday, Jim Jubak at TheStreet.com told us how to turn a profit from global warming stocks.

On Wednesday, Dallas Kachan at Inside Greentech published an interview packed with good info about ethanol and biodiesel investing.

On Wednesday, Dan Lewis at AEI wondered if ethanol stocks might be rallying ahead of a broader oil rally.

On Thursday, Neal Dikeman at Cleantech Blog gave us the real story on EEStor and Zenn Motors [TSE:ZNN]

On Thursday, Brett Steenbarger at TraderFeed provided some interesting insight into the relationship between the price of the PowerShares WilderHill Clean Energy ETF [AMEX:PBW] and the price of oil.



January 18, 2007

Ethanol, NAFTA, Tortillas and Walmart?

Author Neal Dikeman is a founding partner at Jane Capital Partners LLC, a boutique merchant bank advising strategic investors and startups in cleantech. He is the founding contributor of Cleantech Blog, and a Contributing Editor to AltEnergyStocks.com.

Quick, what do Ethanol, NAFTA, Mexican Tortillas and Walmart have in common? Don't know? Well here's the story.

I am fascinated by the discussion about ethanol feedstocks issues. There has been a lot of talk about corn production for ethanol either crowding out beef or food production, or driving up the price of food, or failing to supply the demand for ethanol.

I have stated before on Cleantech Blog and other sites that I believe corn is a lot more substitutable than the anti-ethanol and cellulosic ethanol advocates give it credit for. Our take: that the corn price rise from ethanol demand will not be as steep as the worst case, that the industry will find more acreage than expected for corn, and that costs will fall, in part because corn producers (and beef producers) are highly flexible and relatively global. Also that cellulosic processes are a lot harder and will take a lot longer to make economic than expected, and that the end result will be corn ethanol for a long time.

But the subject just keeps rolling - quoting an Inside Greentech interview with David Aslin of 3i:

"Leaving the issue of food substitution out for a moment, as your article pointed out, the sheer acreages that are going to be required are daunting.

There was a dramatic increase in 2006 in corn plantings over the prior year, and the industry forecasts an additional 10 million acres in 2007 in response to the need for fuel. How much of that is going to be available for food if all these ethanol plants being constructed actually come online, and at what price? (Heck, there's way too much corn syrup in U.S. food industry products anyway, so if we take a bit of the excess sugar out of people's food, that won't be a bad thing for the nation's health!)"

At the same time, we have also been saying that corn ethanol is inherently a high cost fuel ($1.50-$2.50/gallon direct cost on a btu basis compared to $0.50-0.60/gallon for gasoline on a direct cost basis - read our blog, and please don't email me arguing the price of crude is over a $1/gallon, it's the COST of finding and producing that crude, not the price the oil companies can sell it at, that matters), with lots of new supply coming on that is going to hurt the economics of US ethanol producers like VeraSun, Aventine, etc.

But this is a whole new angle - the political ramifications of our ethanol industry driving up prices for our neighbors food supply.

One of my friends, the CEO of a fuel cell startup who happens to read Cleantech Blog, emailed me an article today. Basic gist - the Mexican government is concerned that ethanol demand is driving up the price of tortillas! And is trying to decide what to do about it. As they describe the impact:

"Prices for white corn used to make tortillas have been hit the hardest. Although local corn prices are typically volatile around harvest time, which mostly falls in the second half of the year, traders say the farm gate price for white corn saw an unprecedented rise of up to 45 percent in 2006 compared with the year-ago levels in the Mexican market.

Grains traders have forecast tortilla prices to rise between 20 percent and 25 percent during the last quarter of 2006 and the first quarter of 2007. "

My friend's commentary on the subject:

"Even more funny, in the story I heard on NPR, Wal-Mart Mexico is taking advantage of the tortilla price run up to undercut independent tortilla shops. But besides the humor, there may be something here. I think the Mexican government is just out in the lead. I’ve seen at least one piece predicting that additions to ethanol production have been under estimated and that significant corn feedstock shortages will occur in 2008."

Now, nobody's talking NAFTA yet, but one of the things free trade does is globalize commodities. I'm just waiting for the next reverse "giant sucking sound" attack on NAFTA to follow this corn price rise. Or worse, some blogs are bound to start complaining that corn ethanol is racist, and anti-Mexican. To an economist like me, this price rise is just a perfect example of how globalization can even out the impact of something like ethanol demand on corn prices by spreading the effect across multiple markets and multiple commodities (and drive a new energy commodity export business - see our recent blog) - an example of my point that corn ethanol has longer legs than the cellulosic guys would like. But I'm sure that's not how it'll get reported.

Though you do have to admit - our ethanol craze could make Mexican tortillas too expensive to eat? That's kind of funny.

January 17, 2007

Hedging Your Climate Risks

Whether you agree it's because of human activity or not (and, for the record, I do), there's no doubt that the weather has been a little wacky over the past few years, driving a range of events that have had very real repercussions on businesses and the economy. Hurricane Katrina is one obvious example, but there have also been other, more subtle cases.

Many ski resort operators in North America, for instance, were beginning to believe that winter would never arrive on the eastern side of the continent. In the west, we're now being told that cold weather may have jeopardized a large part of California's orange crop.

Several businesses, from golf courses to gas utilities, can be materially impacted by the vagaries of the weather. If you do believe that climate change is indeed an anthropogenic phenomenon, and thus that we're only beginning to feel its impacts, you also probably believe that businesses will increasingly need to find ways to hedge their exposure to weater-related risks.

That is where Weather Bill comes in. The new company, which was discussed in a Red Herring article yesterday and profiled on CNBC's Closing Bell tonight (video), offers weather hedging contracts for businesses. In a nutshell, if you get hurt by bad weather (e.g. too much rain over your golf course = lower revenues), this triggers a payout and you are compensated for some of your loss. If the sun shines (over your golf course), you loose all of your money.

Insurance majors have been in the business of offering similar products for a while. Various forms of weather risk-hedging mechanisms allowing firms to tap straight into the liquidity of financial markets have also emerged over the past few years. So-called cat bonds are a good example. What Weather Bill will add to this space, as far as I can tell, is accessibility for smaller players who don't necessarily have the means and/or the saavy to effectively play the weather markets, as they are called.

There isn't really an immediate investment angle here, but I thought our readers would enjoy the heads up on some of the business opportunities that are arising in response to climate change.

To conclude this post, Jim Jubak over at TheStreet.com wrote an interesting article entitled "Turn a Profit From Global-Warming Stocks". The title says it all! Have a read.


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January 16, 2007

The Future of Alternative Fuels: Coal-to-Liquids

Last week I wrote a post about the future of ethanol. In it, I promised a sister piece on the future of coal-to-liquids (CTL). This comes a bit later than initially promised…I apologize to those who had been holding their breaths.

I already wrote a post discussing the future of CTL not very long ago. I’m thus not going to repeat myself here, but rather supplement that post with some new info.

CTL In The News

As stated at the outset of the ethanol article, what drove me to write a series of posts on alternative fuels is that big news items on both ethanol and CTL abounded (relatively speaking) during the first week of January.

Firstly, a very insightful piece on China’s CTL industry appeared in Technology Review in early January (I would recommend this if you have about 10 minutes to spare, it’s very interesting).

This was followed, a short while later, by news that 2 US Senators were trying to revive a piece of legislation aimed at boosting production capacity and providing investment tax credits for CTL in the US. The 2 Senators are also apparently keen on forming a “Senate Coal-to-Liquid Fuel Caucus?. This could be the first step to some helpful pork being funneled to that industry, which, admittedly, hasn't been shown much political love since shortly after the oil shock of the late 1970s.

Finally, a few days ago, news came out that a DKRW unit involved in one of the first large-scale CTL projects in the US, Medicine Bow, had found a buyer for 100% of its synthetic fuel output, due to start flowing in late 2010. This project will have an initial capacity of 10,000 bpd, with a potential of up to 35,000 bpd after expansion.

(BTW, If you want to browse a good database of CTL news, I would recommend the Green Car Congress’)

CTL Growth

There are currently no great short-term plays on CTL in the US, for the plain and simple reason that there is no CTL production to speak of in America today. The first significant CTL production is not scheduled to occur until around 2011. The EIA estimates that CTL production should reach 5.7 billion gallons by 2030. Compare that, for instance, to the ethanol industry, with 4 billion gallons of output in 2005 and a projected 14.6 billion gallons in 2030.

Investing in CTL

Potentially, CTL has all the hallmarks of a great transition fuel: coal abounds, the technology to produce CTL has been around for a few decades, it can be made into a very clean-burning alternative to gasoline, and if oil does not dip below the upper 40s/lower 50s for an extended period of time, CTL can compete.

However, as discussed above, there may not be a good way to play this in the US for a few more years. That is why you should take a good hard look at China, because CTL is already happening there, and it will be big time in the foreseeable future. The great thing is, you can invest in a US-listed company with great exposure to the Chinese CTL market: Sasol [NYSE:SSL]. Sasol is currently involved in one of China’s most ambitious CTL projects.


Sure, the company’s share price has been correcting along with the price of oil over the past few weeks, and it could continue to do so in the short run. But there are certainly other things to consider. The Gold Stock Bull made the case for Sasol based on its exposure to CTL technology just before Christmas. Need anything more recent? Some 20,000 Motley Fool CAPS participants were very bullish on Sasol today.

Although Rentech [NYSE:RTK] and Syntroleum [NASDAQ:SYNM] are 2 interesting companies to keep an eye on, Sasol may be on the verge of doing great things for its investors.

I don't think CTL is a panacea, especially not in the long run. However, it will occupy a growing niche in the transportation fuel mix of several large energy consumers like the US, China and India, at least until the feedstock (i.e. coal) starts to run low. The good thing about CTL from a retail investor standpoint is that there hasn't yet been too much unfounded excitement around it, which is a problem that often plagues alt energy stocks. This could, however, change soon. The value investor might thus be able to scoop up a some good prospects, but my sense is that the window is closing.

DISCLOSURE: I don't have a position in any of the stocks discussed above.

DISCLAIMER: I am not a registered investment advisor. The information and trades that I provide here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.


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January 15, 2007

A Climate of Injustice

For this post, a tad bit of shameless promotion for a friend.

My former grad school roommate and good friend Brad Parks, who works at the Millennium Challenge Corporation in DC, co-authored a book on the asymmetry that exists between emerging countries' share of global greenhouse gas emissions and the price those countries will have to pay, not only monetarily but also in terms of health and quality of life, as the effects of climate change materialize.

Brad put a tremendous amount of work into this and the few chapters that I had a chance to read were excellent. If you have an interest in international development and the environment, this is a timely and critical piece of work.


The Book

A Climate of Injustice: Global Inequality, North-South Politics, and Climate Policy
J. Timmons Roberts and Bradley C. Parks
MIT Press, December 2006
$26.00/£16.95 (PAPER)

The global debate over who should take action to address climate change is extremely precarious, as diametrically opposed perceptions of climate justice threaten the prospects for any long-term agreement.

Poor nations fear limits on their efforts to grow economically and meet the needs of their own people, while powerful industrial nations, including the United States, refuse to curtail their own excesses unless developing countries make similar sacrifices. Meanwhile, although industrialized countries are responsible for 60% of the greenhouse gas emissions that contribute to climate change, developing countries suffer the "worst and first" effects of climate-related disasters, including droughts, floods, and storms, because of their geographical locations. In A Climate of Injustice, J. Timmons Roberts and Bradley Parks analyze the role that inequality between rich and poor nations plays in the negotiation of global climate agreements.

Roberts and Parks argue that global inequality dampens cooperative efforts by reinforcing the "structuralist" worldviews and causal beliefs of many poor nations, eroding conditions of generalized trust, and promoting particularistic notions of "fair" solutions. They develop new measures of climate-related inequality, analyzing fatality and homelessness rates from hydrometeorological disasters, patterns of "emissions inequality," and participation in international environmental regimes. Until we recognize that reaching a North-South global climate pact requires addressing larger issues of inequality and striking a global bargain on environment and development, Roberts and Parks argue, the current policy gridlock will remain unresolved.

Reviews

"This is a remarkable book. In applying a wide variety of disciplinary approaches – empirical and theoretical, qualitative and quantitative – the authors provide a thorough and truly global understanding of the structural inequalities and injustice that come with contemporary climate politics and disasters. A rich, sophisticated, and balanced study that moves beyond structural explanations and opens horizons for change."

--Arthur P. J. Mol, Wageningen University, The Netherlands

"Roberts and Parks have written an outstanding book that highlights the deep structures of inequality and mistrust that pervade every aspect of the climate regime. It will be essential reading for anyone who wants to understand why the South is increasingly reluctant to join up with the post-Kyoto process."

--Clark A. Miller, Consortium for Science, Policy & Outcomes, Arizona State University, and editor of Changing the Atmosphere: Expert Knowledge and Environmental Governance

“This book is a significant contribution, both in addressing questions of justice in the climate change debate and in providing new perspectives on the prospects for successful negotiation.��?

--Dale Jamieson, Professor of Environmental Studies and Philosophy, New York University

The Authors

Timmons Roberts is James Martin 21st Century Professor at the Environmental Change Institute, Oxford University, UK, and Professor of Sociology at the College of William and Mary, US.

Bradley C. Parks is a Development Policy Officer in the Department of Policy and International Relations at the Millennium Challenge Corporation in Washington, DC, and Senior Researcher at The Center for International Policy Research at the College of William and Mary.

January 14, 2007

Energy Conversion Devices (NASDAQ:ENER): Jefferies Vs. Cramer

Two different opinions on Energy Conversion Devices [NASDAQ:ENER] came out last Thursday (Jan. 11).

Analyst Jeffrey W. Bencik at Jefferies & Co said that ENER was one his top 2 picks in the solar industry for '07, opining that despite continued volatility this should be a rewarding year for ENER investors. He believes that attention will "shift from company specific performance to a top down focus on the evolution of solar incentive schemes."

Jim Cramer, on Thursday's Mad Money, said he could not, "in good conscience, recommend that stock with oil at $51, going to $49. So, [he is] going to say no, no, no. Sell, sell, sell."


Cramer argues that ENER will trade based on the price on oil, while Bencik argues that it will trade based on the evolution of solar energy incentive programs, presumably not only in the US but also in places like Europe, Japan and China. I tend to agree with Bencik here.

Oil and solar power are not substitutes, except in very rare cases. Governments will continue to forge ahead with various schemes to promote alternative energy regardless of what happens to the price of oil, and, ultimately, that is what will drive revenue growth in the sector. Profitability will be driven by a combination of revenue, scale and technological developments. ENER is doing well on all 3 grounds.

Alternative energy investors, as a class, are getting much better at pinning down the factors that are truly driving growth in this space, and the days when a drop in the price of oil caused the whole sector to collapse are coming to and end. Just look at how Suntech Power [NYSE:STP] has performed throughout the latest correction in the price of oil (it is up 19% since Nov. 30, 2006).

ENER is currently trading in the mid- to low- 30s: this could be a good entry point.

DISCLOSURE: I am long Suntech Power.

DISCLAIMER: I am not a registered investment advisor. The information and trades that I provide here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

January 11, 2007

Investing in Climate Change

This post was supposed to be about coal-to-liquids (CTL), but I came across interesting info yesterday after opening a former colleague’s mail that I thought would make for a more interesting post. The CTL piece will thus have to wait a bit.

What was in the package was a hard copy of the January/February 2007 edition of CNBC European Business. This edition is dedicated to climate change, but, more importantly, to how some firms are positioning themselves to benefit from the markets that will be created as a result of regulatory and other actions to tackle greenhouse gas emissions.

Of all of the climate change-related pieces in this edition, I would recommend 2 in particular: “The Green Klondike?, discussing London’s Alternative Investment Market (AIM) and its prominence as a center of alt energy activity, and “The Top 50 Low-carbon Pioneers?, which lists 50 firms that could see some upside from efforts to reduce greenhouse gas emissions.

AIM

The visibility of London’s AIM increased significantly post-Sarbanes-Oxley, as many small firms chose to list there instead of the NASDAQ due looser listing requirements and lower costs. It also helped that London was Europe’s principal financial center, with a savvy investor class and plenty of liquidity.

What most people within the alt energy community also know is that the AIM has become, over the past 3 years, a powerhouse of clean tech and alt energy financing. For those interested, New Energy Finance recently released a research note (PDF document) detailing how alt energy companies listed on the AIM have fared so far.

AIM and Investing in Climate Change

Besides being a locus of clean tech activity generally, the AIM also sits at the confluence of 2 converging movements: (a) European efforts to tackle change via market-based means such as emissions trading and (b) growing investor interest in all things alt energy and clean tech. The AIM is therefore becoming a meeting point for firms with solutions to climate change and investors with a strong interest in seeing the solutions these firms have to offer succeed.

The second article that I mentioned initially lists 50 companies that CNBC identifies as having positive exposure to climate change (i.e. that are positioned to benefit as regulations to reduce greenhouse gas emissions are enacted and/or tightened). Of the 50, there are a number of large-cap companies for which, I believe, climate change really won’t be a make or break issue…at least in the foreseeable future. There are also a number of alt energy companies that don’t have a specific focus on climate change per se.

I thus decided to go over the list and pull out, for you, 4 AIM-listed firms with a clear strategic focus on climate change and carbon finance, or emissions trading in carbon credits. These companies can be considered carbon finance pure-plays, and are likely at the fore of a movement likely to grow significantly in the next decade. The companies are:

Climate Exchange plc [LSE:CLE]: Owns the European Climate Exchange, responsible for 80% of exchange-traded volumes of carbon dioxide in Europe, as well as the Chicago Climate Exchange, the only carbon dioxide emissions trading platform currently functioning in the US. Goldman Sachs has a 10% stake in Climate Exchange.


Ecosecurities [LSE:ECO]: Ecosecurities sources, develops and trades carbon dioxide credits. The company finances deals that generate emissions credits, mostly in emerging markets, which can then be sold to mostly developed market companies to meet their compliance obligations.



Camco International [LSE:CAO]: Camco advises companies on how to originate carbon credits in emerging and transiotion economies, with a particular focus on the Russian and Chinese markets as well as Africa and the CEE.

Low Carbon Accelerator [LSE:LCA]: LCA is a private equity fund dedicated to businesses that reduce carbon emissions. Its biggest investor is ABM Amro. No chart.

There are a number of other interesting companies on the list of 50, including good plays on the wind, solar, biofuels and fuel cell markets. The alt energy and clean tech sectors will see some upside related efforts to solve climate change, although climate change is not necessarily the primary driver in this space. The 4 securities listed above have business models that are truly focused on greenhouse gas reduction and emissions trading, and the expertise they are developing will no doubt be worth a lot of money one day, especially as emissions trading extends to North America.

January 09, 2007

The Future of Alternative Fuels: Ethanol

Besides a slew of clean car announcements connected to the North American International Auto Show, the alt energy topic that has made media and blog headlines most often over the past week has been alternative fuels. We are thus going to run a 2-part series on alternative fuels this week as follows: ethanol today and coal-to-liquids tomorrow.

ETHANOL: INVESTOR FRIEND OR FOE?

I’m going to start this post with a statement of opinion: I don’t really like corn-based ethanol (as an investment), I never have, and, as a result, I haven’t followed this space as closely as I probably should have. AltEnergyStocks.com Contributing Editor Neil Dikeman, in a November post, did a great job of outlining key concerns investors should have with ethanol as an asset class. However, whether one likes ethanol or not, it was without a doubt one of the top alt energy stories of 2006, and will remain a biggie in the years ahead.

Industry Growth: Some Numbers

Ethanol is an interesting beast because, from one point-of-view, it’s merely the new-kid-on-the-block of a decades-long US agricultural policy. Let’s face the facts: US farmers are not, without massive subsidies and trade protection, competitive on a global basis. In a free global market, nobody would want US crops because they’re plain too expensive. Luckily, with the help of US tax-payers, the US farm industry has been able to survive, and, in many cases, thrive. But the US agricultural complex has, in the past few years, come under increasingly intense pressure from America’s trading partners, and cracks in the system are unavoidably beginning to show. Ethanol provides a partial route out of these troubles; redirect the expensive corn away from international markets to US-based ethanol processing facilities, put in place the right regulatory framework to boost ethanol demand, and keep the low-cost ethanol producers like Brazil at bay with tariffs. The result? A booming ethanol industry that is fundamentally transforming the economics of corn farming in the US.

Consider this quote from a recent Bloomberg article on biofuel demand and feedstock prices:

“The 110 factories now producing ethanol in the U.S. have boosted their annual capacity by 12 percent in the past six months, to 5.3 billion gallons, according to the Renewable Fuels Association in Washington. An additional 6 billion gallons of capacity will be added in the next two years as 79 new plants or expansions of factories are completed, the association said.?

The industry’s capacity will thus grow by 113% by the end of 2008, a significant number.

And then there are those who are disputing these growth forecasts, saying they are gross underestimates. Lester Brown, a known environmental commentator, argues that the Department of Agriculture’s projections that ethanol producers will, as a result of industry growth, consume 60 million tons of corn by 2008 are wrong, and says he instead expects ethanol manufacturers to consume 139 million tons of corn by then, more than double (by the way, the Earth Policy Institute, Lester Brown’s outfit, produced this very cool table of ethanol distilleries in the US by aggregating data from multiple industry sources. I don’t know of any other such resource).

However way you look at it, if the ethanol industry is truly responsible for the current rise in corn demand and associated run in corn prices, it is doubtful US farmers will be able to scale up production enough to keep pace with the kind of refining capacity growth discussed above, and prices should thus spike. The result of this will be that the food-Vs-fuel debate, which was mostly academic only 18 months ago, will intensify, pitting farmers and the ethanol industry against environmentalists and other concerned citizens. Another impact of this will be that high feedstock costs will eat away at producers’ margins, as there will be limits to what the market will tolerate in terms of price increases, especially if oil gets cheaper.

Ethanol: The Politicians’ Favorite Kid

There are early signs that the new Democratic Congress wants to forge ahead with the budding ethanol economy. This article from the Green Car Congress provides details on a proposed piece of legislation that, if adopted, would grant significantly more regulatory certainty to the ethanol industry than to just about any other alternative energy industry in America. A nation-wide renewable fuel standard with a 2030 timeframe is something the wind and solar industries could only ever dream of, and this despite the growing controversy surrounding corn-based ethanol. Besides the concerns outlined above, there also remains the fundamental question of whether or not, on balance, more energy is required to bring a unit of ethanol to market than that unit yields once consumed. A recent MIT study does not provide a conclusive answer to that question.

It has become clear that, among alternative energy sources, ethanol is the political favorite. Like the parent who, for one reason or another, loves a kid more than its siblings, Federal legislators have embraced ethanol, and are giving it visibly more motherly love than its available sister solutions, namely tougher fuel efficiency standards and plug-in hybrid technology. But politicians shouldn’t kid themselves; ethanol, it seems, is not the win-win solution to air pollution, climate change, foreign oil dependence and a dying farming sector that some had hoped. Something tells me that a battle is now brewing, and an anti-ethanol lobby, or at least a put-a-moratorium-on-further-ethanol-growth lobby, could emerge sooner rather than later.

Investing in Ethanol: All is not Lost

I’m not suggesting investors steer clear of ethanol altogether here; I’m merely pointing out that, while some people are hailing the growth in the ethanol industry as the next Klondike, there are some very significant and immediate concerns with corn-based ethanol that will have to be addressed. These concerns could, under a bearish scenario, stunt growth in the sector, or at least threaten the profitability of more vulnerable players.

But all is not lost. In my view, corn-based ethanol is one of those transition technologies that will play a key part in America's energy mix for some time, but that will slowly dwindle into irrelevance as better solutions come on-stream. The best plays on ethanol should therefore do well, for a time. While I’m not familiar enough with any of the top ethanol pure-plays to make an authoritative call, certain larger companies have certainly benefited from the ethanol boon so far. ADM [NYSE:ADM], Monsanto [NYSE:MON], and Syngenta [NYSE:SYT] are all names that come to mind. Seeking Alpha’s Ethanol section is a good resource for the would-be ethanol investor.

You should also keep an eye on firms that are working on cellulosic ethanol. Cellulosic ethanol holds great promises, as evidenced by the fact that Goldman Sachs took, in May 2006, a $30 million position in cellulosic ethanol firm Iogen of Canada. But cellulosic ethanol is at least 5 years away.

In short, I’m sure ethanol, as an asset class, can and will make you money. The ethanol investor will, however, have to be cautious, as the waters ahead are not free of trouble.

(DISCLOSURE: I do not have positions in any of the stocks discussed in this article)

Amazing Pictures of Offshore Wind Farms

One of the stories recently featured on one of my favorite sites, Reddit, was a link to some amazing pictures of offshore wind farms.

Seeing these pictures of wind turbines really made clear to me the reality of offshore wind power, and the size and scope required to harness the power of wind over the ocean.

Summarizing some points from the article:

  • average wind speeds are greater over the ocean than they are over land
  • the world's largest offshore wind farm is Horn’s Reef project located 14 kilometers (or about 9 miles) off the coast of Denmark in the North Sea (which has some of the roughest water in the world)
  • waves at the Horn's Reef project are 8-10 meters (about 25 - 30 feet)
  • the Danish Government has a plan to have wind turbines with a total capacity of 4000 MW in Danish waters by 2030
  • since 2002, the Horn's Reef project has produced enough energy to run 150,000 Danish households

    For this post, pictures are worth more than 1,000 words, so do click over and see the pictures of offshore wind farms for yourself.

  • January 05, 2007

    The Biggest Unheard Boom of 2006 in Cleantech, Smart Metering, and Energy

    Author Neal Dikeman is a founding partner at Jane Capital Partners LLC, a boutique merchant bank advising strategic investors and startups in cleantech. He is the founding contributor of Cleantech Blog, and a Contributing Editor to AltEnergyStocks.com.

    In one of the less talked about cleantech mergers and acquisitions of 2006 (but one I think will have a deep impact on alternative energy and the smart metering and AMI market for years to come), First Data recently acquired Peace Software, an early provider of IT, billing, and CRM software to the deregulated utility sector, in a bid to get into the energy market. First Data [NYSE:FDC] is one of preeminent transaction processing firms in the world, and by acquiring Peace, has made its first foray into energy.

    We have felt for some time that the financial products surrounding payments can be a very major driver for technologies like AMI, BPL and smart metering, and products like green power marketing, RECs, and carbon trading. Bottom line, if you can't measure and charge for it fast and cheap, you can't make and sell innovative electric retailing products. And conversely, if they can, they will.

    I think the hurdles to overcome to get adoption of next generation IT and smart metering in the electric utility sector are hugely underestimated. But by the same token, I think the windfalls both the companies and consumers will see long term from those platforms once they are in, are also hugely underestimated.

    I want to welcome Dean Cooper, Vice President at the newly formed energy & utilities division, First Data Utilities, and get his take on the merger, smart metering and information technology in the energy and power sector, and the future trends in AMI.

    Dean, please give us a bit of background on yourself, and First Data Utilities.
    My role at FDU is Vice President - Asia Pacific, which means I am responsible for business in the APAC region. The majority of this is Australia/New Zealand at this point. Prior to that I was with a venture management firm where we had a portfolio of renewable energy and biotech businesses with the most notable being a lithium battery and power device product that was destined for the NASDAQ IPO market in the go-go nineties. The prior venture was with McKinsey & Co, looking at establishing a global forest products trading system out of New Zealand.

    Your firm, Peace Software, was recently acquired by First Data to form First Data Utilities. What was the rationale for the acquisition?
    First Data Corporation has been involved in outsourcing for 35 years predominantly in the financial services space and credit card processing. They had built a business of some 33,000 people and an $US11bn revenue line (before spinning off Western Union late 2006) and were looking for verticals that mapped to their expertise of high volume, complex transaction processing and settlements with an annuity revenue stream. The energy sector was acknowledged as being ripe for the outsourcing model and expertise that FDC offers as utilities worldwide recognise the criticality of reducing their cost to serve in deregulating markets.

    For an interesting take, check out the FDU backed research project on hottest customer switching markets for electricity. According to this, right now it’s Great Britain and Victoria, at 20% per year.

    So if you had to choose the top 2 synergies that First Data was looking for in the acquisition, what would they be?
    The key synergies were to blend the utilities domain expertise of Peace Software with the outsourcing and transaction processing capability of First Data. Whereas Peace contributes the software intellectual property, First Data would add the hosting and application management capability. This is a new business model for the energy markets and moves away from the traditional model of a systems integrator installing and hosting the intellectual property of the software provider, to a model where the one entity (FDU) owns both the IP and the implementation and hosting expertise. This new model is anchored on delivering a lower cost structure for utility companies.

    Not many people know that New Zealand, where Peace originated, was the first major electricity market to deregulate. What impact has that had on Peace's history?
    You’re right - the New Zealand market led the worldwide movement by government to deregulate energy markets to provide greater competition and lower costs for consumers. Our founder, Brian Peace, was a computer science lecturer at Auckland university at the time the New Zealand energy markets deregulated, which inspired his entrepreneurial crusade to build a software product specifically to service the deregulating energy markets worldwide. Resultingly the heritage of Peace was as a dereg software play for large and small utility (electricity, gas, water) companies initially in New Zealand and subsequently in Australia, Canada, USA, and Europe.

    Adding to that, deregulation in some Australian states is now 10 years and running. How has the deregulation changed the investment behavior of the utilities?
    Deregulation in Australia and beyond has altered utility behaviour from initially being dominated by engineers with a focus on the poles and wires (distribution) business to an entity focused more on the consumer, where reducing consumer costs and providing increased consumer choice is a key driver to energy retailer success in a competitive market.The larger utilities that had been operating in Australia since the mid 1800’s and then emerged as leaders in the deregulated market of Victoria in the late 1990s were and still are carrying a higher cost to serve than necessary, due to a legacy of disparate systems that come from M&A.

    This provided a great incentive for “challenger brands? and new entrant retailers to enter the market in the last 3 years with a point of difference around low-cost, green energy, or tailored customer offers.

    How have these entrants fared, and what role (if any) has cleantech information technology played in their bids for market share?
    New entrant brands have appealed to many consumers by the nature of their fresh branding, tailored product offerings, and lower cost structure. In comparison it is more difficult for incumbent utilities to offer a new approach through the inertia of their operations. Information technology plays a key role in a new entrant solution offering a lower operational cost to customers. This begins from the time a customer is acquired through to its energy consumption, billing, and customer management activities. Traditional energy companies would have to integrate this information across a number of disparate systems, yet new entrant retailers are able to work with one technology company to provide a seamlessly integrated solution to manage their business. This has had a dramatic effect on costs and therefore appeal to consumers.

    I'd love to get the FDU take on the future of demand response programs (in both deregulated and regulated markets). What is the state of the art now, both in the programs and the technologies powering them? How is this tying in with the rise of smart metering?
    Demand response is proving to be a very trendy area globally in energy, with Australia being a leading market worldwide on this topic with legislation mandated in Victoria to implement a smart metering program as one means of managing demand response. There are many alternatives to demand response including price incentivisation through pricing monitors installed in households, peaking generation plants, time-based pricing mechanisms such as a smart metering program (such as the telco industry where we pay varying usage rates depending on the time of day – peak/off peak), and suchlike.

    One of the major reasons for demand response is the growing age of electrification that we live in where households consume a lot more power due to home appliances, that the network assets were originally built to accommodate. It is very expensive to replace ageing network assets or build generation plants, (along with the debate over environmentally friendly generation assets) meaning a demand response program may be a better means to the consumption/generation imbalance by focusing more on the consumption part of this equation.

    Can you give us some ideas of the technology changes that will need to happen? What's going to get commoditized, and where are the key technology areas to watch?
    The areas of commodisation are likely to be meter hardware, remote communication, data acquisition, and data management. Because we will be looking at an order of magnitude increase in data volume from smart metering programs you get a sense for the size of the technology challenge. In a situation today where we may have 3 million consumers who have their energy consumption measured on a bi-monthly or quarterly basis. With a smart metering program we would move to 30 minute measurements which would be approximately a 4,000 fold increase in data volumes.

    Already players that are grabbing a foothold in this space include Bayard Capital, run by Cameron O’Reilly for meter hardware along with GE, the comms companies, and all IT vendors for the data component, which is where FDU also fits in.

    Are we going to see the rise of major IT giants in the smart metering sector, like we did in supply chain IT in other areas?
    Good point, we could very well see this happen as the smart metering sector emerges and grows worldwide - smart metering measures consumption on a more granular level (30 minute intervals vs monthly intervals). We are still in the early stages of market trials and legislation worldwide yet already a number of sizeable markets are embarking on smart metering programs such as Australia, New Zealand, Canada, parts of the US, Italy, and Scandinavia. As standards are established for communication, data acquisition, and reporting we will see solutions to these markets develop. As is typical of emerging markets, suppliers are cautious of over-investing until regulators confirm market standards.

    All major energy sector IT giants are poised to invest in the smart metering sector and you will see the leaders emerge once standards are confirmed in the leading markets of Australia, New Zealand, and Canada.

    Have any IT players started this move? I’ve noticed IBM’s name on some press releases in North America.
    Many players are establishing “thought leadership? positions in smart metering. IBM certainly have a large pool of resources dedicated to this space so expect them to feature in most smart metering roll outs.The majority of IT players are also positioning themselves but refraining from significant investments until market standards are set.

    Who are some of the market leaders in this game, and where do FDU's products fit in?
    In the meter hardware hardware frame Bayard Capital have amalgamated a strong set of assets and are the leader at the front end of the value chain. There is no clear leader in the remaining part of the value chain but FDU believes our business model and company heritage for large scale transaction processing globally puts us in good stead to make a compelling over to the market place.

    FDU would therefore be able to continue its meter-to-cash outsourcing business model to include both basic and smart metering worldwide – with the scalability and complexity challenge involved there are not many competitors that would be able to make a similar claim.

    “Meter-to-cash? – I like that phrase, can you elaborate on what that means?
    Essentially it means the process whereby consumption data from the household meter is acquired, through to the billing and exception management process, and on to collections and credit checks. Effectively the engine room of an energy company’s customer management function.

    Obviously, First Data is a financial services and transaction processing giant. Where (and when) do you see the convergence between financial services and areas in energy and electricity retailing like bill payment, smart metering, demand response? I would imagine that improving bill payment is one of the first areas. I know I can't even use my debit card to pay my personal utility bill, because my electricity provider does not accept debit cards from the two major banks in my region - so I use online bill pay. What's your take on what happens next?
    Already the integration and convergence of these facets are underway and working in the market place today. Not being able to pay your electricity bill with a debit card is probably more a deficiency in the system capability of your utility than what the market (and FDU) can deliver on. End to end integration of energy services to consumers is part and parcel of a competitive deregulated marketplace, and part of the new behaviour of utilities in liberalised markets.

    Modern systems and processes certainly can handle “mass customisation? of consumer needs and you will see significant positive change in utilities of the future as they become more consumer focused rather than solely on poles and wires.

    If you had to pick the top 3 differences the consumer will see from all of this, what are they? And when do you see most of us as getting them?
    Top 3? My best Top 3 are probably:
    1. Consolidated billing and convergence;
    2. Responsiveness;
    3. Targeted campaigning and messaging in the same manner cellular and telco’s have been operating.

    Customers in the advanced Australian energy markets are getting these benefits already, so it won’t be long before all global energy markets are experiencing a greater level of service.


    Dean, thanks for the time today. I am really excited about the IT moves in the energy sector, and I think the play FDU is making to combine CIS solutions and financial payments has been a long time in coming.

    You can find more information on FDU at Peace.com.

    TV Time!

    A quick post to give you the heads up on 2 interesting TV segments that you can watch online.

    Firstly (and thanks to Mark Reid for this one), Ian Cheshire, CEO of B&Q, Europe's largest home improvement company, on his company's decision to begin producing and selling wind and solar equipment. The segment is about 23 mins long. The interesting thing about this is to hear the CEO of a major global company discuss how he and B&Q see demand for clean products evolve over the next few years. It's a good reminder that it's not only small start-ups that are looking hard at this space. You can view the interview with Ian Cheshire on BBC's Business Hardtalk here (I'm not sure how long the link will be valid for).

    The second thing I saw yesterday is a segment on RailPower Tech [TSE:P], a company on which I wrote a couple of days ago. RailPower was discussed on Stars & Dogs, an evening show on the Canadian business channel Report on Business Television (ROB TV). To view it, go to ROB TV's Thursday page and scroll down to Stars & Dogs at 6:00 PM ET. This link will be good for a week. The part on RailPower is about 10 minutes in, after the 1st commercial break. Bad news for RailPower shareholders: the anchors call it a "dog", citing liquidity and execution problems.

    Happy viewing!

    January 03, 2007

    What’s Going On With Beacon Power and RailPower Tech?

    Two diametrically-opposed stories for this post: Beacon Power [NASDAQ: BCON] and RailPower Tech [TSE:P]. The latter is up 134% on its week-ago closing price, while the former is down nearly 22% over the same period.

    Beacon Power Corp

    I wrote about Beacon Power a little while ago. The recent drop in share price is due in large part to the fact that Beacon announced, last Friday (Dec. 29), a glitch at one of its testing facilities in Massachusetts. This was followed by an analyst at Merriman Curhan Ford downgrading the company from Buy to Hold. Almost immediately, the stock began experiencing strong downward momentum on high volumes. 2.44 million shares changed hands today – compare that to a 3-month average of around 426,000.


    I poked around but was unable to find much substantive info that would allow me to properly appraise the problem. Maybe some of you have info that you could share with the rest of us?

    So far, Beacon’s tests in California and NY have gone well. As I told a reader who asked about this earlier, I think it is a tad early to panic and I haven’t dumped any of my stocks yet. Nonetheless, I wouldn’t buy any until I know more about the exact impact this problem will have on the company’s plans to begin generating revenue from its flywheel-based grid regulation system. Beacon hopes to begin offering its grid regulation services on a commercial basis in the 2nd half of ’07.

    The company’s technology appears to have been well received by California's regulators, and, as I mentioned in my last post about them, this could be a 5-year affair saddled with volatility. Overall, however, I still buy their story, and I think the increasingly rapid deployment of renewable energy in California and other US states will create strong demand for Beacon’s applications. Anyone who's experienced rolling blackouts or brownouts in the past few years knows that grid regulation will be a big deal going forward.

    RailPower Tech

    The RailPower story is, as indicated initially, completely different. RailPower makes diesel-powered hybrid locomotives that are overall markedly more efficient and less polluting than conventional locomotives.

    This is a stock that had been trading consistently above $4 on the TSE since the 2nd half of 2004. 2006 was nothing short of a misery year for RailPower; it went from a 52-week high of $6.67 to a low of $0.45 a few weeks ago. The stock began slowly rebounding in mid-December after the company announced it had managed to get out of a money-loosing contract that would have cost it around $17 million (C$20 million).


    The real action began, however, on Dec. 27, when the stock closed 17% higher than its day-before closing price, and volumes reached 1.4 million shares. Volumes have averaged 4 million shares since Dec. 27, compared with a 3-month average of around 1 million. As mentioned in the intro, the stock gained 134% between Dec. 27 and today. I should mention that RailPower was actually down 5.75% today, probably on profit taking.

    Other than the contract cancellation, I couldn’t find anything else that would account for this very sudden return to favor of RailPower. This is a company which I have been watching from afar for about a year, without ever really looking into it seriously. There was nothing about RailPower that made it stand out from the cleantech crowd, as far as I could tell; it has a really cool technology but is having a hard time turning it into strong sales and operating cash flows. I suspect, however, that it may only be a matter of time. If any of our readers have good insight about this company, it would be interesting to hear it.

    (DISCLOSURE: I am long Beacon Power)

    2006 & Alt Energy Investing: 6 Key Points to Remember from a Great Year

    It is customary, at the dawn of a new year, to reflect back on the past year’s highlights. This exercise is generally conducted immediately before the new year, so you could say I’m a little late. However, this time around, instead of creating my own list of key things to remember from 2006, I decided to see what the heavy hitters in the alt energy and clean tech spaces had to say.

    I picked 3 sources that I read religiously and that all published such a list for '06. They are: Clean Break, Cleantech Blog and Red Herring. Two blogs and a formal media outlet.

    Here are the main 6 points I took from reading all 3:

    1) 2006 was a great year for alt energy and clean tech, on a number of fronts. Nothing too groundbreaking here. Nevertheless, to get an idea of the scale, consider the following numbers from New Energy Finance (PDF document): the broad alt energy sector is estimated to have achieved a record $100 billion in financing in 2006. Of particular interest to retail investors is that fact that public market financing (i.e. alt energy and clean tech stocks) grew by a whooping 141% on 2005. Bubble or not bubble, that is the question.

    2) Of all alt energy technologies, solar drew by far the most attention in 2006. Some of the highest profile alt energy plays of the year were solar firms. Think of Suntech Power [NYSE:STP], Sunpower Corp [NASDA:SPWR], as well as the multitude of non-pure plays that have exposure to this technology.

    However, the rapid increase in the demand for solar power led to a silicon shortage that threatens to eat away at margins in the sector. Credit Suisse initiated coverage of First Solar [NASDAQ:FSLR] in late December with an Outperform rating. One of the things they are particularly bullish on is the fact that the company’s technology, thin-film solar, requires only a fraction of the silicon-intensive semiconductor material used by its peers. Next to actual demand for solar technology, silicon became, in 2006, the 500-lb gorilla in the solar room…at least in the short and medium-term.

    3) 2006 was also definitely the year of biofuels, more specifically ethanol in North America. The current supply-demand gap is not expected to be filled in the near future; the best ethanol plays should thus start to make money from their ethanol operations soon. This leads us to…

    4) The alt energy space is still not viable without government support. Ethanol, in particular, got a huge boost from the Energy Policy Act of 2005. The Cleantech Blog reminds us that ethanol is just as much about placating the farming lobby as it is about weaning America off foreign oil or protecting the environment. The same held for Canada in 2006. It is imperative that alt energy investors be constantly reminded of the extent to which the viability of many of those firms rests of government support.

    5) Climate change is increasingly on the radar screen of politicians. The scientific consensus underpinning action on climate change is strengthening by the day, Al Gore is making movies that do very well at the box office, and I was out playing soccer in the park today…I live in Toronto, I should be playing hockey!

    Jokes aside, climate is getting bigger and bigger, and we have commented in the past on the importance of keeping an eye on this increasingly material investment issue.

    6) Batteries are in, hydrogen and fuel cells are out. There was a lot of hype in 2006 around electric cars and, more importantly, plug-in hybrids. This is occurring at the confluence of 2 movements: a) battery technology is improving rapidly and b) hydrogen is no easier to produce, transport and store then it was when Ballard’s [NASDAQ:BLDP OR TSE:BLD] share price collapsed a few years back. While there’s no denying the advances made in battery tech, I still think hydrogen and fuel cells hold a great future…the problem is, this may not happen for another decade. In the short-term, all things battery are hot, and not only for automotive. Think of it this way: there are loads of things that use batteries, and in almost all cases those batteries can be made better.

    These do, I believe, a pretty good job of summing up 2006, and are also all things to keep watching in 2007. I wish you all a great year with your alt energy stocks!



    « December 2006 | Main | February 2007 »

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