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October 29, 2007

Q & A with Fund Managers of Guinness Atkinson Alternative Energy Fund

The following interview is provided to us by Guinness Atkinson Funds, a Featured Company Advertiser at Alt Energy Stocks.

Fund managers Tim Guinness, Edward Guinness and Matthew Page discuss the Guinness Atkinson Alternative Energy Fund in a question and answer forum covering topics from the alternative energy market to management style and methodology for selecting stocks and managing the portfolio.

To view the complete Q&A, please see below.


Q. Tim, your experience in managing energy comes from your many years managing more conventional energy investments. What led you to alternative energy?
A. I have been running a conventional energy fund since 1998 and have been following alternative energy stocks as a sub sector within the energy universe since then. Not that I owned much in it, as there was always such good value in the conventional energy sector. I did however buy Gamesa* (the wind company) in that fund shortly after it IPO’d in late 2000 but I sold it quite soon afterwards as I came to conclude its valuation along with all other stocks in the sector to be too high. As the oil price started to rise in 2004 through 2005, valuations and the potential growth of the market started to look better. The debate around climate change was intensifying and energy security was pressing on the minds of politicians. As a result the outlook for alternative energy looked more positive while the bear market that alternative energy had experienced in 2002 and from which it was only beginning to recover made it look like a much better investment proposition. Initially the best value continued to be in the conventional energy space but by May 2005 conventional oil & gas had moved up sharply and alternative stocks began to catch my interest again. I now regard them as two different but complementary ways of playing the ever higher energy price scenarios I believe we are facing as we look forward 10 – 20 years.

*3.15% net assets in GAAEX as of September 30, 2007. Fund holdings and sector allocations are subject to change at any time and are not recommendations to buy or sell any security.

Q. Edward , at the moment most forms of alternative energy are not economically viable without government incentives. How long will it be until alternative energy can stand on its own feet and what is going to get us there?
A. Some forms of alternative energy are economical now. Electricity production from hydro and geothermal sources has been tapped for many years and the technology is fairly mature. Wind power does benefit from subsidies but in specific locations with strong and predictable winds can be economic now. Subsidies for wind projects may not be necessary in 3 - 5 years time. The solar industry is dependent on subsidies and will require subsidies for longer but some industry analysts predict electricity from solar will be at parity with the grid in 5 - 7 years time in remoter locations with good isolation. The subsidies in place allow the industry to grow and technologies to be developed and mature and drive costs down. In predicting parity of course the price level for oil and gas has to be factored in. The higher conventional energy prices rise the sooner parity can be achieved.

Q. Matthew, what percentage of world energy production is from alternative energy and can alternative energy overtake more conventional energy sources?
A. If you exclude hydro, alternative energy makes up around 2.5% of world electricity production capacity of which wind is about 1% and solar 0.1% and various forms of biomass and geothermal make up most of the balance. In the medium term (~25 years) we could see wind and solar each making up 15% and 5% respectively of world electricity production increases of 15X and 50X respectively. Eventually we believe cheap fossil fuels will run out and alternative energy sources should be cheaper sources of electricity and should therefore become the more conventional source of energy.

Q. Tim, in the 1970s alternative energy was the next big thing. And then we didn’t hear much about it for over 30 years. Is it really the next big thing?
A. Consumption of oil has increased 50% since the 1970s and looks set to continue to increase driven largely by the rapid development of the economies of India and China. Cheap oil is becoming harder to find; existing basins are maturing and exploration has had to go further off shore and into deeper waters making exploration and production more expensive. We see a floor in the oil price at $50 and we could easily see it go over $100 in the next five years. If oil, gas and coal prices steadily move higher as we predict and alternative energy technologies continue to develop and become cheaper, there is significant potential growth for the industry for a considerable period of time as the baton of electricity generation is passed from fossil fuels to alternatives. The other significant difference is that a number of the areas of alternative energy – particularly hydro, geothermal, wind, solar and even biofuels – have companies that are already generating revenues and profits. Over 84% of our portfolio is invested in stocks which we anticipate should have positive earnings for 2007. This is a notable change from where the industry was in the 1970s.

Q. Edward, what criteria do you have for inclusion in the Fund? What defines an alternative energy stock?
A. We take a pure-play approach whereby we have a preference for stocks with 50% of revenues or profits should come from alternative energy sources. This excludes us from buying stocks such as General Electric despite the fact that they are one of the largest manufacturers of wind turbines. We define alternative energy to include all forms of energy that are not derived from fossil fuels. We also include companies that are working on technologies to make processes more energy efficient and companies that can generate carbon credits as we think that demand side improvements in the “energy balance” should play a major part in the move beyond our declining fossil fuel reserves. . We also mainly invest in companies with market capitalizations over $100 million.

Q. Matthew, the Guinness Atkinson Alternative Energy Fund is global in nature and only approximately 20% of the Fund is invested in the U.S. Is the U.S. behind the curve in alternative energy?
A. Alternative energy is most developed in countries where government subsidies have been in place for some time. Germany put in place strong incentives in the early part of this decade to encourage demand for solar modules,to encourage installations of wind farms and to support the biofuels industry. Companies in countries with a more progressive alternative energy policy framework therefore developed technology and intellectual property at an earlier state. Other European countries such as Denmark, Spain and Portugal also embraced alternative energy therefore companies tend to be more mature in Europe. However the potential for growth in the U.S. is greater, and once a longer term framework has been put in place, we would expect the U.S. to catch up fast.

Q. Tim, how tied to the price of oil are the alternative energy stocks?
A. Historically the price of alternative energy stocks and the oil price have been fairly tightly correlated. If the oil prices were to fall back to $30 then these stocks could be hit hard. However, looking forward we see a momentum behind the alternative energy industry and the stocks could continue to perform even if the price of oil remains flat. If the oil price continues to rise as we expect then even better.

Q. Edward, we see the Alternative Energy Fund has a wide range of market caps. How would you characterize the Fund, both in terms of market cap and style?
A. Small to mid cap. Growth at a reasonable value.

Q. Tim, Edward & Matthew, tell us a bit about your management style and methodology for selecting stocks and managing the portfolio.
A. The fund is managed by a team of three fund managers. Tim Guinness is the Lead Manager and Edward Guinness and Matthew Page are Co-Managers. We see a lot of companies as they come through London as well as making company visits and attending conferences around the world. We take a 50/50 top-down/bottom-up approach. We look to identify the sub sectors within the space which we see as having the greatest potential for growth and strong returns. Recently we have preferred wind and solar over fuel cells and biofuels but this is constantly under review. We then screen the universe of 200 stocks we have identified to try and identify good companies that are cheap where sentiment towards them is improving and stock price action is positive. One tool we use is to screen by value, earnings momentum, economic returns vs peers, and a technical indicator. This identifies stocks for us to then do further in depth analysis. We run the portfolio on the basis of units, half units and research positions. Units are high conviction, liquid, large market capitalization stocks and will represent around 3% of NAV. Half units are stocks which either are liquid but our conviction is less strong or our conviction is high but the liquidity of the stock restricts us from buying more. Research positions tend to be smaller less liquid stocks which may not be profitable but are fairly unique and have potential for significant growth given a technological breakthrough or significant contract. Research positions in aggregate account for less than 10% of the NAV.

The information provided herein represents the opinions of Tim Guinness, Edward Guinness, and/or Matthew Page and is not intended to be a forecast of future events, a guarantee of future results, nor investment advice.

The fund's investment objectives, risks, charges and expenses must be considered carefully before investing. The prospectus contains this and other important information about the investment company, and it may be obtained by calling 800-915-6566 or by visiting www.gafunds.com. Read it carefully before investing.

The Fund invests in foreign securities which will involve greater volatility and political, economic and currency risks and difference in accounting methods. The Fund is non-diversified meaning its assets may be concentrated in fewer individual holdings than diversified funds. Therefore, the Fund is more exposed to individual stock volatility than diversified funds. The Fund also invests in smaller companies, which will involve additional risks such as limited liquidity and greater volatility.

Distributed by Quasar Distributors, LLC (10/07).

October 28, 2007

The Arizona Renewable Energy Assessment: An Investor's Perspective

Black and Veatch Corporation (B&V) recently completed and in-depth assessment of renewable energy generation potential [.pdf] for three Arizona utilities (Arizona Public Service (APS), the Salt River Project (SRP), and Tucson Electric Power (TEP)) which must comply with Arizona's Renewable Energy Standard.   Nate Blair, a senior energy analyst (and fellow board member at the Colorado Renewable Energy Society) at the National Renewable Energy Laboratory sent me the link.  Thanks, Nate!

The Renewable Energy Standard requires that APS and TEP generate 15% of their electricity from renewable sources by 2025, and the SRP has adopted a similar goal.  This assessment of the renewable energy potential in Arizona will doubtless be useful for these utilities in their planning for renewable electricity generation, but it is likely to also be useful to investors who hope to profit from the decisions that these utilities and other utilities make in their investment in renewable electricity generation.

Choosing Technologies

The excerpt below shows the technologies B&V felt were worth further investigation by Arizona utilities...  but this can also serve as a guideline for investors who want to know which technologies are more likely to receive investment from such utilities.  


Technologies that are bold and underlined in the list below were recommended for further study in Phase 2 due to their large potential and/or low cost.

RE Technology Options.bmp

In Arizona, the winning technologies are likely to be Biogas, large scale solar, hydroelectric, Wind, Geothermal, and the more conventional forms of Biomass.  Even more interesting perhaps are the technologies that B&V thought worth less consideration: Higher tech methods of converting biomass into electricity, newer forms of Concentrating Solar Power (CSP) such as Power Towers and Compact Lens Fresnel Reflector (CLFR), Residential photovoltaics, Fuel Cells, and Compressed Air energy Storage (CAES).  

The general trend is clear: Established technologies with long track records were broadly preferred over newer technologies.  The only exception to this broad trend is the selection of "Parabolic Dish Engine" (which I usually refer to as Dish-Stirling) and the emphasis of large scale Photovoltaic over small scale residential solar photovoltaic (most likely due to the better economics of larger Solar Photovoltaic installations.)  Even the larger scale photovoltaic options did not make it past the cost screen, because photovoltaic power tends to be more expensive on a per-kWh basis than CSP.

Due to its high cost, grid tied photovoltaic technologies did not make it into the resource assessment.  I thought their reasons for dismissing Concentrating Photovoltaic (CPV) technologies particularly interesting: "Based on Black and Veatch's assumptions, technology advancements in CPV technology will not make that technology competitive with conventional solar parabolic trough technologies for utility scale operations."  This agrees with my assessment of the prospects for CPV in my recent article on solar technologies.  They were more optimistic about the prospects for Dish-Stirling, and also dismissive of CLFR as a demonstration stage technology.

Adding Availability: Avoided Cost of Generation

Because this study was done looking only at a price per kWh, since the utilities were pursuing it in order to achieve their mandated energy production, it makes sense for an investor to include other factors, just as utility planners will in the real world.  As I emphasized last week in my presentation to the Kieretsu Forum, when electricity is generated can have a massive impact on how much it is worth to a utility.

I took the following chart from the report, showing per kWh cost of electricity from each type of resource, as well as the near term potential for in GWh/yr for developing that resource (Note that the 10,940 GWh/yr of potential Solar Thermal (also known as Concentrating Solar Power or CSP) power was not limited by the available resource as were the other resources.  B&V chose to limit CSP at that level solely because that was the amount needed for the utilities to comply with their mandates.  

On top of the B&V chart I added (in blue) a qualitative "Availability" scale which ranks how valuable those resources can be to the utility in terms of when the power is produced.  They say, "The model does not assess value (i.e. avoided cost) of the resource as determined by its degree of firmness or time of delivery (e.g. on-peak vs. off-peak.)  In selecting projects, utilities may consider these factors, which may result in a different order of resource/project development. 

Dispatchable power is the most valuable, and intermittent power the least valuable.  Intermittent power can be more or less valuable depending if the power tends to arrive at times of high demand, or at times of low demand. The length and positions of the blue lines are my qualitative understanding of the value of the timing of these sources of power, with higher value options on the left.

 AZ resource.GIF

A national or international investor will also want to adjust B&V's results for Arizona's particular resource availability.  Arizona is blessed with a gigantic resource for CSP, but has less biomass, animal waste for Anaerobic Digestion, Landfill gas (due to the dry climate) and wind than most other states, so each of these resources should be expected to be used more broadly in a national or international context, while CSP will likely be used much less.

Taking Availability into Account

In complying with the Arizona Renewable Energy Standard, these utilities are likely to use somewhat less wind than B&V project, and more CSP and Geothermal, with the other resources fairly in line with what B&V has assessed.  The wild card would be the case in which the standard is increased beyond 15% by 2025, just as Colorado's Renewable Portfolio Standard was raised this spring.  In that case, all the resources in the table above would be used, with some additional large amount of CSP since that is the only resource listed which has a large enough resource base not included in the table.

What to Take Away

If you were surprised by any of these findings, don't dismiss them out of hand.  If you hadn't thought much about one of the lower profile technologies that B&V nevertheless believes Arizona utilities should consider, maybe you should also consider them as an investor.  If you're shocked that Photovoltaics did not make the grade, you can take some consolation in the fact that west facing PV has a very high avoided cost of generation, which does make it economic, especially in congested area of the grid where it is difficult to build cheaper forms of generation.  While solar is the best renewable energy option for most homeowners, utilities have a different perspective.  Making electricity from landfills and manure isn't sexy, but landfill gas and anaerobic digestion are likely to generate more energy than PV for a long time to come, even in a dry state like Arizona with relatively little of either.

DISCLAIMER: The information and trades provided 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.

October 27, 2007

The Week in Cleantech (Sep. 21 to Sep. 27) - More Casulaties In The Wake Of Global Warming Concerns

On Monday, Maria Surma Manka at Green Options told us how Kansas killed coal plants. This is an interesting precedent, and it certainly buttresses the argument that coal will increasingly mean uncertainty and risk in the US power gen industry.

On a related note, on Tuesday, David Ehrlich at Cleantech.com reported on NY's greenhouse gas cap-and-trade plans. This is the first of the RGGI states to flesh out its plan in some detail.

On Tuesday, Jim Fraser at The Energy Blog discussed the timeline for solar power parity with fossil fuels. Does this mean that there is more to the rich valuations we have seen in solar stocks over the past year than mere irrational exuberance? I certainly believe so.

On Tuesday, Katie Fehrenbacher at Earth2Tech provided an update on GE's cleantech activities. Large companies' cleantech initiatives are of interest to cleantech investors for three main reasons: (a) for the risk-averse, purchasing a blue-chip stock with some exposure to cleantech is a safer way to play this space than buying smaller-cap pure-plays; (b) companies like GE bring scale to the game (e.g. wind) and force prices down, which results in a better and more efficient industry overall; (c) large companies will be at the fore of strategic M&A activity in the sector, and watching their maneuvering closely can help identify potential acquisition plays.

On Thursday, Jeff Vail at Energy Intelligence discussed 2015 NYMEX oil futures. He makes an interesting argument but limits it to fossil-fuel alternatives to conventional oil. In areas such as renewable energy and clean cars, there are projects to be shown. And while this is in large part due to various forms of state support, the fact that the market is getting comfortable with relatively high long-run oil prices certainly plays a part.

On Thursday, Environmental Finance informed us that Q3 saw record US clean-tech VC investment. The cleantech VC space has seen several quarters of healthy growth now. Where is that sector headed next? Rob Day at Cleantech Investing wonders the same. As I've said before, public market investors should try to keep a close eye on what's hot on the VC side.

The Week in Cleantech is a weekly roundup of our favorite cleantech 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!

October 24, 2007

Two Recent Presentations on Investing in Renewable Energy

As I mentioned Monday, I did a presentation at a Renewable Energy Expo on Saturday about investing in renewable energy... This is a Powerpoint Recap of my Investing in Renewable Energy 101 article, with some Visual Comparisons and stock picking advice thrown in.  I list a bunch of stocks on a few of the slides, and as usual, many of which I own (see disclosure below.)

You can download my Introduction to Investing In Renewable Energy here.

Yesterday, I also did a 45 minute presentation to private equity investors on ways too look at renewable energy for the private equity investor.  I'm posting them because attendees might be interested in referring back to them.  You can download my presentation on Electricity Generation Comparisons and Metrics here.

Transport IMG_1786.JPG

DISCLOSURE: Tom Konrad and/or his clients have positions in the following stocks mentioned in these presentations: CREE, FSLR, AMAT, LLTC, ITRI, JCI, AA, ELON, COMV, ENOC, PHG, EEEI, MXWL, VLNC, ABB, SI, ITC.

DISCLAIMER: The information and trades provided 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.

October 21, 2007

Geothermal: The Other Base Load Power

Last Thursday and Friday I attended the Geopowering the West Investors' Forum in Montrose, CO (hosted by the Delta-Montrose Electric Association, Colorado's most progressive Rural Electric Cooperative.)  I've long been interested in geothermal stocks, and I first started adding them to managed portfolios in 2003.  As a whole, those stocks have more than doubled in the 1-4 years since they were purchased.

Fundamental Advantages of Geothermal Electricity

Why did I make those first purchases?  Geothermal power has some unique advantages over other forms of renewable energy.

  1. Geothermal is base load power.  Utilities have a strong preference towards base load and dispatchable power generation (basically power which is always on or power which they can turn on at will.)  In fact, geothermal plants often have capacity factors 86-95%, well above traditional base load generation such as coal.  So geothermal power is a premium electricity because of its reliability.  Until a recent fire (not caused by the geothermal facility) the plant installed last year at Chena Hot Springs in Alaska, was running at 99.4% availability. 
  2. It is inexpensive.  Depending on the resource, the price of geothermal power is comparable to that of wind power, new coal plants, or biomass.  It is considerably less expensive than solar photovoltaic or nuclear power, or the cost projections for "Clean Coal" otherwise known as Internal Gasification Combined Cycle with carbon capture and sequestration.  Using numbers presented at the conference, a geothermal power plant will cost $3-4 per rated watt, but produce about five times as much electricity as a similarly rated (and more expensive) photoelectric panel because of the much higher capacity factor.
  3. Geothermal has a small environmental footprint.  Where solar and wind farms gather energy over large areas, a geothermal plant gathers heat from the hot rock or fluids below ground by means of one or a few wells.  Because of this, the footprint needs to be only the size of the turbines which actually generate the power, smaller than the footprint of a coal fired plant generating the same amount of power, without the the necessity of coal mining and without significant emissions of carbon dioxide or other pollutants.
  4. In the later life of a geothermal plant, operations produce excellent income streams. While the plants often require refurbishment, with careful management geothermal reservoirs need not degrade over time, and net margins often exceed 60%.

New Developments

Why are people only now starting to talk about geothermal power?

  1. Geothermal electric is not a new industry.  The first geothermal electric power plant was built in the 1920s.  But now we have a maturing industry seeing progress in new technology.  Not only can lower temperature resources now be used, but United Technologies (NYSE: UTX) has recently introduced a low temperature capable generator based on proven water chiller technology.  This has the potential to rapidly increase the speed and lower the cost of project development.
  2. There is a growing awareness of the need for carbon-free sources of power.  The IGCC's and Al Gore's recent win of the Nobel Peace Prize is just one recent sign of this.  
  3. Energy Policy Act of 2005 changed the regulatory environment.  There is a new commitment from national government to simpler lease structures and royalty payments.
  4. Current projects typically developed over a three year period, which is actually quite quick when compared to typical 5 year lead times for coal plants.
  5. There exists an abundance of overlooked resources because of greater temperature reach.  Historical studies assumed that electricity simply could not be generated below 300 F, but new technologies can handle temperatures below 200F, which geometrically increases the number of sites with potential for generation.
  6. Was seen as relatively small potential until the MIT Study which came out this year.  Enhanced (aka Engineered) Geothermal Systems (EGS) hold out the promise that the extractable amount of energy is not limited by the resource size or availability.   There is simply so much heat stored in the Earth's crust, that only extracting a fraction of a percentage of it would allow us to meet our energy needs for the foreseeable future.  While EGS holds out promise, the technologies needed still require significant research.  From an investor's perspective, more concerned with the prospects for the next ten years than the next fifty years, EGS is much more important for the interest it generates in geothermal than it is for investment opportunities.   Nevertheless, in terms of meeting our long term energy needs, I expect Enhanced Geothermal Systems to be a much cheaper and simpler solution than Carbon Sequestration from Coal plants.
  7. Geothermal as oil co-product.  Many existing oil wells also bring up sizeable quantities of water at temperatures sufficient to run small binary cycle turbines.  While this resource at any one oil well is likely to be small (less than a megawatt), aggregating all the wells in a large oil field could produce significant power at low cost given that the costs of exploration and exploratory drilling need not be paid for by the geothermal electricity generated. 

Tricks of the Trade

What does a geothermal investor need to watch out for?

  1. Exploration risks. Prospecting for geothermal resources using remote sensing and surface sampling is useful for defining the drilling target, but does not significantly reduce the risk of not finding a resource sufficient to produce power.  This is in distinct contrast with oil prospecting, where prospecting significantly reduces risk.
  2. Risks to resources currently in use.  Attendees were treated to a Jeep tour through the geothermal history of the town of Ouray.  Over twenty years ago, the city started a series of test wells around the town with the hope of finding enough geothermal hot water for a district heating system, and to keep their Hot Springs Pool open year round.   All did not go as planned, and three of the owners of springs around the city filed lawsuits against the city charging that the city's drilling had reduced their flows.  The parties settled, but the city was forced to discontinue drilling.  While the city of Ouray officials did not admit to decreasing flow rates of other pools, after listening to both sides, I think the owners of the springs had real grievances (and the courts seemed to agree with that assessment.)
  3. Unexpected effects of new technology.  One large potential problem is induced seismicity [MS Word document] when trying to stimulate reservoirs in hot dry rock for EGS.   One reason for an investor to consider geothermal development companies rather than geothermal equipment suppliers is that a company with a known geothermal resource will generally benefit from the evolution of technology, while a technology supplier could easily lose market share to competitors.
  4. A geothermal resource developer must be able to connect to the grid.  No matter how hot the resource nor how close it is to the surface, the developer must be able to connect to the electric grid at a point where there is sufficient available capacity to sell the electricity.  The ability to negotiate a Power Purchase Agreement with a local utility having a respectable credit rating will also enable the developer to gain access to financing on more favorable terms.
  5. Ownership of geothermal resources is legally complex.  As the City of Ouray found in the dispute mentioned above, unless an owner has put a resource in use, they may find that a court of law will not uphold their ownership of that resource.
  6. Many of the future resources to be developed are likely to be "blind."  That is, there is no surface indication of the hot rock below.  Exploration for such resources is likely to be more lengthy and costly than past exploration. 
  7. As with any industry, quality management and personnel will be able to find opportunity in a crisis, while less able teams will be unable to exploit all the opportunities available.
  8. Skill in managing geothermal reservoirs is essential.  Pumping a reservoir too quickly or reinjection of cool fluids in the wrong place can greatly reduce the production from geothermal reservoirs.
  9. Except when the developer plans to use less efficient and more expensive air cooling, the availability of low temperature cooling water in sufficient quantities will be necessary to generate electricity.  


Here is a short list of interesting companies involved in geothermal power production and some reasons you may want to consider them for investment.

  1. Ormat (NYSE:ORA).  Ormat is the granddaddy of geothermal stocks.  A vertically integrated company, they not only explore and develop their own resources, they also will contract to manage resources for other developers (such as US Geothermal's Raft River project).  Their long history and current profitability gives them the safest pure-play geothermal stock available.  They are experts with binary cycle turbines and reservoir management, as well as applying their binary cycle technology to waste heat recovery as well as a concentrating solar power experiment.
  2. United Technologies (NYSE: UTX) is not really a geothermal company at all, but I include them because of their recent innovation in producing low temperature binary cycle turbines on an assembly line basis, using an adaptation of their industrial chiller technology, for which they recently won a R&D 100 award.  While this may never become a significant part of UTX's bottom line, it is likely to change the economics of geothermal development for the better.  I also expect to see the PureCycle turbine applied to a myriad of waste heat applications, quite possibly more than to geothermal.
  3. Raser Technologies, (NYSEArca:RZ), Nevada Geothermal (OTC BB: NGLPF.OB, NGP.V) , US Geothermal (OTCBB: UGTH, GTH.TO), Sierra Geothermal (OTC: SRAGF, SRA.V), Polaris Geothermal (PGTHF.PK), and Western GeoPower Corp (WGPWF.PK, WGP.V) are geothermal developers.  I find it very difficult to determine which will succeed and which will fail, and so prefer to own a little of each, buying when I feel the stocks are relatively inexpensive from a technical analysis standpoint.  Raser is not a pure geothermal developer; they also develop high performance electric motor technology which is interesting to me, but the synergies are far from obvious.)   

Geothermal has long been an underappreciated renewable energy technology.  That seems to be changing, which will be an excellent thing both for our hope of moving to a less carbon-intensive economy, and for early investors in the sector.

DISCLOSURE: Tom Konrad and/or his clients have positions in the following stocks mentioned here: ORA, RZ, NGLPF, UGTH.

DISCLAIMER: The information and trades provided 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.


October 18, 2007

The Week in Cleantech (Oct. 14 to Oct. 20) - High Energy Prices: More Support Ahead For Alt Energy?

On Sunday, Rob Day at Cleantech Investing (now part of Greentech Media) reflected on CEO turnover in the cleantech industry for us. This is an interesting piece and a good reminder for public market investors that the management team is a key success factor for any company. The ability to execute effectively on a business plan is more than half of the equation - a good idea or technology alone won't get you very far.

On Monday, Mike Millikin at the Green Car Congress us told us about a new web-based resource for carbon capture and storage (CCS). CCS is sure to get an increasing degree of attention over the next few years, and this website could provide a great source of information for anyone interested in how regulation is shaping up around this issue. One caveat: the site is still under construction.

On Tuesday, Carl T. Delfeld at Seeking Alpha wondered whether China's environmental mess represented an investment opportunity. I'm not sure that this piece is entirely factually accurate, but the broader thesis is certainly valid. I would go one step further than the author: if you really want to play China's environmental mess - and there is a play here - look for individual firms with strong exposure to China. Two examples that come to mind are: Fuel Tech (NASDAQ:FTEK) and American Superconductor (NASDAQ:AMSC).

On Tuesday, Rafael Coven at The Cleantech Group discussed the ups (mostly) and downs of cleantech in Q3 2007. An interesting look at the cleantech space and why it can be expected to perform well even in times of market uncertainty.

On Tuesday, Mark Gongloff at the WSJ's Energy Roundup informed us that the White House was very concerned about high energy prices. Can the alternative energy industry expect another big boost from US legislators soon? Going back to the article discussed immediately above, unwavering government support is, in my view, one the most fundamental pieces of the equation with regards to why cleantech stocks will do well over the coming years. Government is a dirty word in many business and financial circles, but the cleantech investor who ignores this critical factor is missing a huge chunk of the picture.

On Wednesday, Peter Fairley at Technology Review told us how to fix the power grid. Some of the investments that have worked out the best for me so far have been in seemingly "unsexy" areas that nonetheless showed strong potential. Large-scale electricity storage is undoubtedly one of these areas and definitely worth keeping an eye on.

The Week in Cleantech is a weekly roundup of our favorite cleantech 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!

October 15, 2007

Ethanol Report

The following is a Special Information Supplement provided to us by Guinness Atkinson Funds, a Featured Company Advertiser at Alt Energy Stocks.

Written by Matthew Page, Co-manager of the Alternative Energy Fund

Excerpt from Ethanol Report:

Ethanol: Fuel for thought.
The sun, rich mid-America farmland, water and a little patience. These simple, wholesome ingredients combine to form what has been dubbed an energy savior: ethanol. Ethanol seems almost a miraculous solution to our energy problems. But is it? Can ethanol replace gasoline as the transportation fuel of choice in the U.S.? Or is it more of a contributory element in reducing dependence on oil? And what impact does growing corn for fuel have on the global food supply? The only thing growing faster than ethanol production are the predictions for future ethanol production and usage. In this report we provide background information on ethanol--what it is, its history, supply and demand and its economics--and examine the prospects for ethanol going forward.

Click here to access the entire Ethanol Report (PDF)

The information provided herein represents the opinion of Matthew Page and is not intended to be a forecast of future events, a guarantee of future results, nor investment advice.

The Fund’s investment objectives, risks, charges and expenses must be considered carefully before investing. The prospectus contains this and other important information about the Fund and it may be obtained by calling (800) 915-6565 or visiting the Fund’s website at www.gafunds.com. Please read it carefully before investing.

The Fund invests in foreign securities which will involve political, economic and currency risks, greater volatility and differences in accounting methods. The Fund is non-diversified meaning its assets may be concentrated in fewer individual holdings than diversified funds. Therefore, the Fund is more exposed to individual stock volatility than diversified funds. The Fund also invests in smaller companies, which will involve additional risks such as limited liquidity and greater volatility.

Distributed by Quasar Distributors, LLC, (10/07).

October 14, 2007

Investing in Mode-Shifting: Preparing for a Peak Oil World

Technology cannot save us

Technology will not save us from peak oil, but the invisible hand of economics will.  It's easy to get excited about all the amazing new vehicles the world's car-makers are promising usEven if we believe manufacturers' hype, the Cadillac SRX your neighbor bought last week will be on the road for at least a couple decades, and all the fuel saved by your next plug-in hybrid will not make up for the amount it guzzles.

I, and many others, believe that the Western World will soon have to cope with much less oil than we are accustomed to, without the ability to increase the efficiency of our vehicle fleet significantly in the near term.  Since the oil supply available will not be increased significantly at any price, the result will be demand destruction: people will drive less.  Even alternative fuels are limited by available feedstocks, and can only moderate the crisis.  Yes, Americans have shrugged off $3 gas and are still driving like it's 1999, but when supply is constrained, the question becomes not: "Will $5 gas make people drive less?" but: "What price will gas have to reach to force people to drive less?"

I frankly don't know what price it will take to reduce oil consumption significantly, but I do know that whatever that price is, that is how much it will cost when we are confronted with reduced supply.  There's little doubt in my mind that fuel prices will be high, and headed higher.

Mode Shifting will save us

When it comes to drastically reducing oil use, the only short-term option is mode shifting: Carpooling, Biking, Public Transport, and Walking.  Westerners, and especially North Americans are typically very resistant to mode shifting because our cities are designed for cars.  Public transit is slow and unpleasant, and walking or biking are seen as downright dangerous.  Ironically, even before oil prices rise, mode shifting has gigantic societal benefits in terms of cost, health, and safety [.pdf], and can be encouraged with market based fixes such as congestion pricing, parking cash outs, and Pay as You Drive auto insurance.

But it will be painful

In some places, these fixes are happening, but in far too many they are not or are too slow.  This is because of  a classic chicken-and-egg problem: public transit mostly slow and uncomfortable because most people who vote drive cars, while most people drive cars because public transit is slow and inconvenient.  There certainly are exceptions, and far sighted cities like my own Denver are engaged in rapid build-outs of public transportation.  When the majority of voters are forced out of their cars by higher fuel prices, the public will demand a massive increase in such investments everywhere, but not until the realization slowly dawns that gasoline prices are high and rising, and public transportation and biking and walking is not just for the poor.  It can also be a virtuous cycle: Where levels of biking and walking are higher, bicycle and pedestrian safety is greater.

The sooner we realize that we are not going to be able to cling to our cars forever, the sooner we can start readying our cities for the transition, and the less painful that transition will be.  It also means that investors with the foresight to invest in mode-shifting industries today will be able to benefit from the trend sooner.

Sectors to Consider

It is possible to invest directly in some of the market fixing strategies that encourage public transit, but the companies involved tend to be small and private (or both.)  I prefer established companies which already have profitable businesses that will simply become more profitable when people take up new modes of transport.  The three sectors which have drawn my attention are manufactures of bicycles, light rail, and busses, and component makers for each. 

I plan to write about specific companies which will benefit from mode-shifting in future articles here.  Until then, you can follow the links above for some sector company listings.

DISCLAIMER: The information and trades provided 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.

October 07, 2007

Investing In Renewable Energy 101

UPDATE 3/4/2011: An up-to date article on selecting green mutual funds and ETFs can be found here.
Why Invest in Renewable Energy?

Given all the attention that renewable energy is getting in the news over the last couple years, investing in renewable energy has become a hot topic.  People are drawn to renewable energy for one of several reasons:

  1. To fight Global Warming
  2. To prepare for Peak Oil.
  3. To improve Energy Security and local economies.
  4. To cash in on the above trends.

The beauty of investing in renewable energy companies is that these goals are not mutually exclusive.  With one investment, the investor can feel good about what his money is doing for three reasons, while putting his money in what is proving to be a spectacular growth story.

How To Invest

For mutual fund investors, Renewable Energy focused mutual funds have been few and far between, but the recent growth of interest in the sector has lead to a plethora of new offerings.  US investors can choose from load funds such as the  New Alternatives Fund (NALFX) and Calvert Global Alternative Energy Fund (CGAEX) and the no-load Guinness Atkinson Alternative Energy Fund (GAAEX).   Unfortunately, the load funds have expense ratios in excess of 1.25%, and the Guinness Atkinson fund's ratio is 1.98%.   Given these high expenses, I strongly prefer the industry ETFs.

The Powershares Wilderhill Clean Energy ETF (PBW) and NASDAQ Clean Edge U.S. Liquid Series ETF (QCLN) have expense ratios currently capped at 0.60%, high compared to a general energy sector ETF such as XLE (0.24%), but is a much more economical way to invest than the sector mutual funds.  Unfortunately, both of these ETFs track US-based indices, and so provide little international diversification.  The new Market Vectors Global Alternative Energy ETF (GEX), neatly solves this problem with a portfolio similar to the more diverse mutual funds, and an expense ratio of only 0.5%, which easily makes it my favorite fund in the space.  Also recently launched, the Powershares Global Clean Energy Portfolio (PBD) has broader diversification into a greater number of small cap companies, but given its expense ratio of 0.75%, an investor with over $5,000 to put into the sector could closely replicate PBD by splitting his allocation 50-50 between GEX and PBW or QCLN.

Given the relatively high expenses of the sector ETFs, I believe it makes sense for investors who are looking to invest $25,000 or more in the sector for a period of years to build their own ETF from individual stocks gleaned from the holdings of the above ETFs and mutual funds.  This also opens the possibility of focusing on established companies which are early movers into the renewable energy arena, a strategy which is less likely to lead to spectacular gains, but which also gives some protection against spectacular dot-com bust style losses.  Investors seeking a greater international exposure could mix GEX with a smaller portfolio of domestic companies.

UPDATE: 6/29/08 There are now also Solar and Wind ETFs (click for discussion)

Picking Individual Stocks

Given the complex nature of the technologies, and the sparse coverage of many of the companies by industry analysts, there is still considerable room for active management in the sector.  Many investors buy Renewable Energy stocks for emotional reasons, so an understanding of practical behavioral finance may lead to excellent buying opportunities in quality companies.

Many development stage renewable energy companies have declined considerably in the recent market correction triggered by the fallout from the US subprime mortgage market.  If market uncertainty continues, investors who bought these companies in response to excitement about their growth prospects will likely lose their nerve.  An understanding of the business models and technologies in the industry should provide the knowledgeable investor with the tool to differentiate the undervalued quality companies from the cheap trinkets that have been finally recognized for what they are.  


This article was first published in UK-based The Price Report, issue 13, published by Tim Price, Chief Investment Officer for Global Strategies at UBP in London.  He added his own editorial note:

The one caveat to the renewable energy company, fund and ETF story is that these investments are invariably denominated in US dollars. As a longer term dollar bear, I believe it makes sense to hedge this currency risk where possible. It is an inevitable by-product of commodity investing in that pretty much all commodities are denominated in dollars. Sterling-based investors who share my currency views would be advised to mitigate this dollar risk, either by limiting their overall portfolio exposure to dollar assets, by hedging their foreign currency risk through sales of currency forward contracts where achievable, or by finding a local currency version of these funds – again where possible.

I agree with Mr. Price that the dollar will continue to be a weak currency for the near future, which is one of the reasons I prefer GEX to PBW and QCLN, because it contains fewer US-based companies.  However, it is important to note that the currency risk involved in buying a stock has very little to do with the currency in which it is traded, but rather with the currencies in which it does business.  A company's earnings (and hence its long term stock price) will correlate with its profits, and so a company's share price should only suffer from a declining dollar if it has more dollar based revenues than dollar based expenses.  A company with dollar based expenses and revenues mostly in foreign currency (e.g. a US-based exporter) should actually benefit from a declining dollar.  

For this reason, people seeking to reduce dollar exposure should look for a portfolio of global businesses; the country of listing is much less important than the nature of the businesses.  


I also disagree that commodity business inevitably have dollar based commodity risk.  Globally traded commodities have long been an excellent hedge against currency risk, because, unlike currencies, they represent something of intrinsic value, and hence are usually the best hedge against all currencies.  A glance at the above chart comparing the PowerShares DB US Dollar Index Bullish (UUP) to the Dow Jones AIG Commodity index (^DJC) shows how this index has been an excellent hedge against the US dollar.

DISCLOSURE: Tom Konrad and/or his clients do not have positions in any securities mentioned, but GAAEX is an advertiser on AltEnergyStocks.

DISCLAIMER: The information and trades provided 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.

October 06, 2007

The Week in Cleantech (Sep. 30 to Oct. 6) - A Good Week for EE, A Bad One for Biofuels

On Sunday, Sebastian Blanco at AutoBlog Green informed us that European biodiesel producers were intent on stopping the "US biofuel invasion". I have long argued that the drive to ramp up biofuel production in the US was more about placating the farming lobby than it was about global warming or weaning America off foreign oil. It follows, then, that just like agriculture, generous biofuel subsidies are going to lead to frictions in the international trading system. The same is true, by the way, for Europe. To be continued...

On Monday, Eli Hoffman at Seeking Alpha reported that the end of the ethanol boom could be in sight. Call this a bad week for US biofuels investors. Those with a subscription to the WSJ can read more about this here.

On Tuesday, David Ehrlich at Inside Greentech (now part of the Cleantech Group) informed us that Comverge (NASDAQ:COMV) had acquired Public Energy Solutions. Consolidation is looming upon the cleantech industry, and I am happy to see that at least some of it is being driven by pure-plays. Energy Efficiency holds a lot of potential and Comverge is definitely a firm to keep an eye on. EnerNOC (NASDAQ:ENOC), Comverge's competitor, also got busy last week.

On Wednesday, EERE News reported on plans by eight utilities to boost their investments in energy efficiency over the coming years. See story immediately above for my thoughts on this space.

On Thursday, Tom Lydon at Seeking Alpha argued that green ETFs were growing strong. Although I currently have no exposure to them, I am a big fan of ETFs as a cheap and convenient way for investors to play certainly themes like cleantech or global warming. The proliferation of cleantech ETFs over the past 12 months provides investors with ample choice as well as the ability to focus on sub-themes (e.g. North American alternative energy).

On Friday, Jim Fraser at The Energy Blog told us that TECO was canceling a planned IGCC power plant because of uncertainty around carbon capture regulation. This piece of news is certainly reminiscent of the recent decision by TXU's new owners to cancel the construction of several coal-fired plants in Texas. While this seems to support mine and others' belief that there are material risks on the regulatory horizon for power gen firms with large exposure to coal, I view the current lack of clear policy direction as negative for everyone. It appears to me as though most companies and investors are now ready to move on this, but are finding themselves waiting for the Federal government to make up its mind. Sounds familiar?

October 04, 2007

The Business Of Climate Change, Part II

A few weeks ago, a reader sent me a link to the second edition of Lehman Brothers' The Business of Climate Change report (PDF document). I unfortunately only got around to reading through it tonight.

Over the past two years, several of the big sell-side shops have published reports discussing the major investment opportunities and risks related to global warming. This one is a tad different from other such reports. The discussion is far more academic (rather than focused around actionable information) and the authors do not provide a list of potential outperformers organized by sector.

Nevertheless, the latter bit features short discussions of the impact of global warming-related trends (e.g. regulation, stakeholder expectations, etc.) on the following industries: autos, aviation, building materials, capital goods and engineering & construction, chemicals, consumer and retail, integrated oil, mining and metals, real estate, renewables, technology, telecom, and utilities. There are also some insightful discussions on carbon emissions trading and the state of the debate around global warming regulation.

Overall, there are some good nuggets of information for people interested in playing global warming as an investment theme, although long-time followers of this space may find the report a bit basic.

Happy reading!

Global Resource Corporation and Mobilestream Oil

This is the text of an email I received from a reader of my article on Global Resource Corporation (GBRC.PK).  He has reason to suspect that things are much worse than just the weak governance issues I uncovered.

I have been posting on Investors Hub as a result of family members being stung for a substantial purchase of Mobilestream Oil (MSRM.pk), now being converted to Global Resource stock. A poster gave me the link to your interesting article about Global and your problems contact Jeff Andrews.

I am trying to contact Mr Andrews at present, in an attempt to get some explanations about how and why my family members were pressured into buying Mobilestream Oil stock by a firm calling itself Aston Rowe of Dubai. 

My family members had no prior intention of buying anything, but fell for it. I am now trying to retrieve the situation and have emailed Jeff Andrews for confirmation that the substantial amounts of Mobilestream stock are validly issued and what the role of this agency "Aston Rowe" was. Aston Rowe have now faded from the scene. 

I am concerned that the whole deal was a total boiler room fraud. If not, how did Mobilestream come to use such a suspect agency as Aston Rowe, who show up on the internet as a suspected boiler room. Mobilestream's agent Olde Monmouth have the details of my family members' purchase and have been writing to them re the proposed conversion to Global stock. 

I am perplexed as to the relationship between Mobilestream/Global and this shady operator calling itself Aston Rowe.  I would really like some explanations from them but haven't much hope of success. My relations were taken for $81,000 and my argument is that this type of deal is voidable for misrepresentation and fraud....see my Investors Hub post if you are interested.

Fog On the Tyne 

Sheffield, UK

He sent me his real name but I have replaced it with his investor's hub pseudonym to protect his privacy.  If you have had a similar experience, please help other investors with the comments on this entry, or by joining the discussion on Investors Hub.

DISCLOSURE: Tom Konrad and/or his clients do not currently have positions (long or short) in GBRC or MSRM.

DISCLAIMER: The information and trades provided 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.

October 02, 2007

Cash in on the efficient transit and transmission building booms

This week's Fortune contains an article titled Cash in on the Rebuilding Boom in which the author, Katie Benner picks several companies she feels will benefit from upgrading the United States' aging infrastructure.  She picked Granite Construction (NYSE: GVA), for their road, bridge, and mass transit construction business,  Greenbrier (NYSE: GBX) for their railcar leasing operations, General Cable (NYSE: BGC) for their wire and cable business, and Wesco (NYSE: WCC) for their business distributing electrical supplies and equipment. 

I agree that our nation's infrastructure is in need of a massive upgrade and repair.  However, given my expectation of continued increases in the price of gasoline, I avoid investing in roads and bridges, although mass transit picks would be great, so long as they do not also have large road building businesses.  I've already said why I like General Cable, but Greenbrier and Wesco also are very interesting.  I particularly liked her characterization of Wesco:

Because Wesco deals in building supplies, its stock was hammered amid the general worries about the housing slump. But it has limited exposure to the weak residential market.

It's not often that you can buy a company like Wesco, which is set to benefit from the renewable energy boom which trades at a P/E of 10.  My clients and I don't own any yet, but I expect to buy after a little more due diligence.  Greenbrier is also on my watch list, since I see a growing role for rail transport (although it will be constrained by the difficulty in building new lines.).  However, at a P/E of 20, I'll wait and see what happens to GBX's stock price for a while.

DISCLOSURE: Tom Konrad and/or his clients have positions in the following stocks mentioned here: BGC.

DISCLAIMER: The information and trades provided 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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