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December 31, 2007

Happy New Year!

The AltEnergyStocks.com team would like to thank all of our readers for a great 2007 and wish you all a happy and prosperous 2008.

Our New Year resolution is to continue delivering top-quality content that we hope you will find valuable.

On behalf of Brian, Tom and myself, Happy New Year!!

December 30, 2007

Ten Alternative Energy Speculations for 2008: Batteries, CHP, and Transmission

This article is a continuation of my Ten Alternative Energy Speculations for 2008, with picks #8, 9, and10 published last Thursday.  If you haven't already, please read the introduction of that article before buying any of the stock picks that follow.  These companies are likely to be highly volatile, and large positions are not appropriate for many investors.   My least risky picks (#8,9, and #10) are part of that same article; my most speculative plays (#1-3) will are here.

#7 Electro Energy, Inc. (NasdaqCM:EEEI) $0.68

Electro Energy has risen 36% in the month and a half since I last wrote about it.  But the reasons to own it are still strong, and the rising share price should actually help the company raise the money they need to ramp up production.  See this article and the one linked to above for my reasons to like this stock.  

More recently, EEEI briefly rose to over $1 because of some excitement generated by their participation in an electric vehicle symposium.  My guess is that year end tax loss selling has brought the stock back down since then.  If I'm right, we can expect it to rebound again the next time they get attention from the press.  In any case, we can expect a lot of volatility.

#6 Capstone Microturbine (NasdaqGM:CPST) $1.62, and

#5 FuelCell Energy Inc. (NasdaqGM:FCEL) $10.30

I'm bullish on both these companies because I'm bullish on distributed generation and Combined Heat and Power (CHP) technologies.  My intuition is that 2008 or 2009 will be the year that distributed generation and CHP grab the attention of Wall Street, the way thin-film PV stole the show in 2007.  Both FuelCell and Capstone stand to benefit.  They may even get a boost from making ethanol production more efficient

Regular readers may be surprised that I am recommending a fuel cell stock, since I call Hydrogen Fuel Cell Vehicles "a politically inspired boondoggle."  But there are more types of fuel cells than hydrogen: molten carbonate or solid oxide fuel cells.  FCEL makes a variant of  molten carbonate fuel cell, called the Direct Fuel Cell (DFC), a different beast than the hydrogen  fuel cells, because it can work without an external mechanism to reform the hydrogen.  

FuelCell's DFCs burn methane rather than hydrogen, and are very tolerant not only of low heat content methane (which is often produced in anaerobic digestion or wastewater treatment.)  Note that on page 10 of this EPA study [.pdf] of combined heat and power installations at wastewater treatment plants, a 300kW fuel cell requires a less expensive fuel treatment pressurization facility than a much smaller microturbine system. This is almost certainly due to the lower need for fuel pressurization.

Biogas can be a particularly tricky fuel given the presence of impurities such as H2S and siloxanes which build up as deposits in combustion chambers.  Microturbines, fuel cells, and internal combustion engines need fuel treatment if siloxanes (which are usually present in waste water treatment plants as a byproduct of deodorants) are present.  Fuel cells and reciprocating engines also require the removal of H2S.  Nevertheless, wastewater treatment facilities combine an abundant source of free fuel (biogas) with a need for heating, and so present excellent opportunities for CHP.

Fuel cells are more efficient (47% fuel to electricity conversion) than comparably sized microturbines (30-35%) or internal combustion generators (about 40%), which not only translates into fuel savings (or higher electricity output), but also leads to only 85% or less CO2 emissions than the less expensive (per kW) or internal combustion generators.  Both microturbines and fuel cells get a large system efficiency boost when the heat is also used; both FuelCell and Capstone claim that their products can reach 80% overall efficiency in a CHP context, while the relatively small size of microturbines and fuel cells are particularly well suited to small scale industrial facilities and commercial buildings.

Rising fuel prices make efficient generation important and new fuel sources such as biogas and other waste gasses (such as the Ford plant using a DFC to make electricity from paint fumes) will present opportunities for both DFCs and microturbines in CHP and distributed generation applications.  While DFCs have the advantage of working well on low energy content gas, microturbines are better suited to many projects due to their smaller size, and more fuel flexibility.  Microturbines are much more tolerant of a wide variety of fuels, and can even handle the H2S in digester gas, as noted above.  Capstone sells versions which can run on liquid fuels such as diesel, propane, and kerosene.  While fuel cells also have this capability, they are less tolerant of impurities, and FuelCell does not currently sell products for these markets.  

One final advantage for microturbines is their ability to ramp up and down quickly, meaning they can used in remote locations with irregular fuel supplies, or when demand for electricity is not constant.   DFCs are less able to ramp up and down because of the need to maintain a high temperature in the fuel cell stacks, so they will only be used when they can be always on, but their ability to supplement biogas with natural gas from the pipeline system still means that they can be used with fuel of variable availability.

FuelCell's DFC and Capstone's microturbines should be able to compete effectively with internal combustion engines in distributed generation applications, since reciprocating engines are too large for many potential projects.  Rising energy prices and tightening emissions limits should allow DFCs to slowly increase their market share in a rapidly growing market.  Incidentally, there has also been a successful test of a fuel cell/microturbine hybrid system [.pdf], with a Capstone turbine generating electricity from the waste heat of a fuel cell.

Capstone finished 2008 with a year-end surge because of new rules which streamline the installation of microturbines in New York City, but could easily continue higher, if I am right about distributed generation taking off.  The new NYC guidelines could easily be one sign of the beginning of this trend.  On the other hand, I wouldn't be surprised to see a small price retreat in January.  It may be wise to wait a couple weeks and see what happens with CPST.

#4 Composite Technology Corp. (OTC BB:CPTC) $1.37

I first recommended CPTC last April in an article about how electricity transmission is essential for renewable energy on a large scale.  At the time I focused on how transmission helps even out the variability of wind power, but transmission is going to be if anything more essential to the development of Concentrating Solar Power (CSP).  While a 100x100 mile square of Southwest Desert theoretically receives enough sun to generate electricity for the entire US, and that electricity could meet both peaking and baseload needs with thermal storage, if the population centers in the East and California are to be served, it will require a massive transmission build out.  

I don't expect Southwest CSP to ever supply all our electricity needs, but I do expect that this abundant, storable electricity will start to be used for more than just the local needs of the desert Southwest within the next decade.  Even this much smaller vision will require a large upgrade to our transmission infrastructure, as will the growing penetration of wind as a percentage of utility resource bases.  CPTC's Aluminum Conductor Composite Core (ACCC) is gaining acceptance in China (which is building out its electric infrastructure much faster than we are building ours.)  I expect the US to follow (although just the China play could be enough to keep the stock rising.)  In the US, I see an opportunity for ACCC with utilities that want to move more power down existing rights of way.  Many utilities need to upgrade their transmission after decades of relative neglect, and the added demands of higher wind penetration and the possibility of long range transmission of CSP power only enhance this need.

Using ACCC instead of traditional (Aluminum Conductor Steel Reinforced) power cables allows the same line to carry higher currents (up to 2x as much) with less sagging in hot weather, and line losses are reduced by as much as a third under all conditions.  For high usage lines, a straight retrofit with ACCC can have good financial returns for a utility based solely on the lower line losses. 

CPTC also has a wind division, which like all turbine manufacturers should, in my opinion, be able to sell all the turbines they can build for the foreseeable future, which should greatly help CPTC with their ongoing operating cash flow as they ramp up production of their D8.2 turbines.  However, they are not profitable, and much of their turbine technology is assembled through patents licensed from other companies, and these revenues are vulnerable to a declining dollar and other foreign currency exchange risks.  CPTC will not become profitable in the near future, and will almost certainly have to return to the capital markets for additional capital.  If their products catch on, it should be easy for them to raise capital on favorable terms; if they don't, we can expect massive dilution.

In all, the "Risk Factors" section of their most recent annual report is long and many of the risks (including multiple lawsuits) are not trivial.  Perhaps the most serious risk is the United States' utility industry's resistance to change, which may lead to a complete unwillingness to use ACCC, despite its superior properties.  This is a big if, and I expect to long term inventors returns to be excellent if they persuade utilities to adopt their technology, and miserable if utilities stick to the way they have always done things.

Three more speculative picks available here.

DISCLOSURE: Tom Konrad and/or his clients have long positions in EEEI, FCEL, CPST, and CPTC.

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.

December 28, 2007

The 10 Most Blogged Cleantech Stories of 2007

What were Cleantech bloggers blogging about in 2007?  We don't have to wonder... instead, I asked Brian, AltEnergyStocks.com's web guru, to do a special run of our Cleantech News Algorithm.

The Cleantech News Algorithm automatically by scans nearly 300 cleantech blogs and news sources, selected for their cleantech content. It takes three main criteria into account: 1) what other bloggers are saying about a news item, 2) how users across the Internet prefer a news item (which we call 'social popularity'), and when the item was written.  Normally it gives high priority to fresh news items, but this time Brian tuned it to look at all of 2007.

The result is an eclectic list of 10 items green bloggers found interesting, controversial, or just worth a link.  Part of the fun is that we not only have the articles, but also a list of the blogs that had something to say about them... it's a who's-who of Cleantech blogging.

Do you see yourself here?  If not, you don't have to write a controversial story to get a link on Cleantech News or  next year's top 10.  You can write about the same stories that draw other bloggers' attention... it's rather like a bloggy Family Feud.  (If you write about cleantech or related subjects, and your feed isn't in the list, you can submit it here.)

An Eclectic Look Back at 2007

#10 Part II: The Price of Biofuels
Technology Review's second installment in their look into the state of the art of biofuels (part I is here) brought out the cellulosic skeptics at WSJ.com: Energy Roundup, Earth2Tech, Gristmill, and After Gutenberg.

#9 Is There a Green Business Bubble?
Joel Makower asked on May 18th, 

Is all of this focus on the greening of business merely a fad? When will the bubble burst?

His answer, and the thought provoking reasons he gave for it, drew comments from: Triple Pundit, Mitra - Natural Innovation, Peak Energy, and Environmental Economics & Sustainable Development.

#8 Dean Kamen's Stirling Solution.
Green Wombat's August 2nd article about the inventor's willingness to take a fall and use of Stirling engines to extend the range of electric vehicles and provide power to rural communities caught the attention of Earth2Tech, Peak Energy, After Gutenberg, EcoGeek, and AltEnergyStation.

#7 Algal Biodiesel: Fact or Fiction?  

Robert Rapier questioned another biofuel 2.0 at his R-Squared Energy Blog on May 18th, and his article became a standard counterpoint to the algae optimists in many articles atPeak Energy, Clean Auto Technology, The Oil Drum, Peak Oil Optimist, and Gristmill (where my own Biodiesel's Nightmare article was unfortunately misattributed by the author.)

#6 Is IBM Going Solar?  

When AltEnergyStocks.com's Contributing Editor Neal Dikeman looked into IBM's solar push at Cleantech Blog on July 26th, bloggers at Energy Answers, Triple Pundit, Peak Energy, Global Warming Watch, and GUNTHER Portfolio helped spread the news.

#5 TerraPass customer survey results: indulgence myth pretty much dead  

When TerraBlog from TerraPass boasted about how their customers claimed not to be buying their way out of guilt in a survey on August 22nd, AutoblogGreen and  Triple Pundit were somewhat skeptical, but EcoGeek.org, Environmental Economics, and Green Car Congress just relayed the news.  Gristmill made the best point about this "odd, moralistic, trope."

#4 Start here  

RealClimate did a public service back on May 22nd, when they published a good introduction to climate science for the uninitiated.   Reasic, Climate Progress, The Conscious Earth, Peak Energy, and TerraBlog all found it helpful.

#3 1934 and all that 

RealClimate then topped this in early August.  Climate skeptics were shooting off about an error in US temperature data, so they did everyone a favor on August 10th, and pointed out that it amounted to

A couple of hundredths of degrees in the US rankings and no change in anything that could be considered climatically important.

Climate Progress (twice, no, three times,), Peak Energy, Gristmill (twice), TerraBlog,  and maribo helped debunk the "debunkers."

#2 TreeHugger Acquires Discovery Communications  

TreeHugger gave humourous spin to the site's acquisition by Discovery on August first.  But It's the Environment, Stupid., Practical Environmentalist, AutoblogGreen, Maria Energia, Greenway Communique, The Good Human, and Triple Pundit all took the acquisition of a green webportal by a mainstream media company seriously.

#1 Is the fuel-cell car dead?  

When Tyler Hamilton at Clean Break speculated about Hydrogen fuel-cell leader Ballard's possible deal with Daimler and Ford to shed its automotive division on November 5th,  Peak Energy, After GutenbergClimate Progress, Gristmill and I joined in the speculation about the end of the politically driven fuel cell vehicle boondoggle.  However, Energy Problems and Solutions and  Hydrogen Cars and Vehicles Blog still hold out hope to for the Hydrogen economy.

December 27, 2007

Ten Alternative Energy Speculations for 2008: LEDs and Ultracaps

Investing in Renewable Energy Stocks seldom fails to be exciting, although it can lead to crushing losses as well as mouthwatering gains (Think Ethanol stocks and Thin Film Solar in 2007.)  With this in mind, I usually emphasize that the majority of most investors portfolios should be targeted towards larger, profitable companies, especially those focused on Energy Efficiency rather than the more sexy Renewable Energy technologies.  This is the philosophy behind Alternative Energy Stocks' Blue Chip Portfolio: companies which aren't sexy, but which still are well positioned to take advantage of rising oil prices and increasing efforts to reduce and regulation of Greenhouse Gas Emissions.

That said, a small exposure to even extremely volatile stocks can, if kept small, improve the risk-return profile of a portfolios, so long as those stocks are not overly correlated to the portfolio as a whole. 

Other people just like to gamble.   Given the vertiginous returns we have seen in the alternative energy sector recently (First Solar, NYSE:FSLR is up by a factor of ten in 2007,) it's a safe bet that this Alternative Energy has drawn more than our share of gamblers.

This article is for the gamblers (and a little bit for the cautious diversifiers.)  If you're a gambler, these are the gambles I would be taking.  If you're a cautious diversifier, you can consider using a few of these bets as a way to diversify your portfolio of bonds and energy efficiency companies, just keep it small (no more than a few percent your portfolio.)

In either case, be prepared to have any of these bets go wildly wrong, or succeed well beyond your expectations.  

Some Educated Hunches

Many people who see themselves as cautious diversifiers like to set aside a small part of their portfolio as "play money," which they can use without their normal portfolio discipline, to invest in something that makes them feel good.  I feel this is the wrong approach.  Emotional investing is a sure-fire way to stack the odds against yourself.  Even in risky assets, there are good bets and bad ones.

Especially when it comes to highly risky and emotive companies, I'm a great believer in Behavioral Finance, the theory that investors make the same mistakes over and over again because of the way our emotions are wired.  Roughly, this means that we all tend to invest in the same stocks at the same time because it feels good to do so (which means we buy precisely when the price is irrationally high) and sell the same stocks precisely when they're screaming bargains.

My favorite gambles therefore are stocks I think have the potential to be tomorrows feel-good fad, that is currently being ignored.  I call this gambling because it has very little or nothing to do with the underlying fundamentals, an a lot more to do with wild emotional swings of the retail investor.  While it is gambling, it has more in common with card-counting, than with slot machines.

Ten Gambles for 2008

I personally am more a cautious diversifier than a gambler, but I do have some gambler in me.  All the speculations below are ones I am taking with my own money, and some of them are also positions in client portfolios.  I don't see this as play money, but at the same time, I know that any of these gambles cold turn against us unexpectedly, and I keep the positions accordingly small.  In reverse order of my guess at their riskiness, here is the first installment detailing ten bets I'm currently making, and which I expect to pay off as a whole in 2008 (although individual stocks will undoubtedly be losers.)

#10 and #9: Cree, Inc. (NasdaqGS:CREE) $23.50, and Lighting Science Group (LSGP.OB) $0.32.

[Note: Ticker has been changed to LSCG.OB with a 20 for 1 reverse stock split.]

I've been invested in both of these for a long time, and last wrote about these LED stocks in June.  I sold half the holdings of many of my managed accounts  soon after that article when CREE was around $27-$30, about double the price at which I'd bought them.  Smaller positions in Lighting Science Group have followed a similar pattern, mostly due to buyout speculation in LED stocks, with only modest gains over the last year as speculation has died down.

Yet the fundamental reasons to be bullish about LEDs are stronger than ever.  This Christmas season was the Season of LEDs in more ways than one.  In my personal experience, I went to Target on December 15 to get another string to add to the ones I'd bought last spring, and found that they were totally sold out (although conventional lights were well in stock.)  I left empty handed, but I expect that Philips (NYSE:PHG - another holding), will report LED sales well above expectations this quarter.

Also, while solar stocks may suffer with tax incentives removed from the recently signed Energy Bill, the bill did contain a "Ban the Bulb" provision, phasing out incandescent lights by 2014.  Lighting Science saw a 20% jump the day it was signed, but it's still way down from its highs last summer, and Cree didn't budge.  It's true that most incandescent bulbs will probably be replaced with CFLs, but LEDs work better in several sorts of applications: they are dimmable, work better at low temperatures (such as in freezers), and are more tolerant of vibration.  Thus, the new law provides a practically guaranteed, large market.

I'll be surprised if both these stocks don't see significant run-ups sometime in 2008, and Lighting Science could easily see one soon after the New Year, due to the publicity they'll be getting in Time Square on New Year's Eve.  Most likely, we'll have to wait a little longer than that, but even without a run-up or buyout, I see these two as good long-term bets.

For hard-core speculators, one LED penny stock that you might look at is Cyberlux (CYBL.OB.)  Cyberlux was brought to my attention by a reader the last time I wrote about LEDs.  I looked into it again last week, but decided not to invest because of the large overhang of convertible debt.  In my analysis, it will be virtually impossible for long-term shareholders to profit because of the expected dilution due to the convertibles.  That does not mean that short term traders might not make a killing (or lose their shirts.)  For more on Cyberlux, go to this message board (run by the reader who brought the stock to my attention.)  There's a lot of information there, although I don't know if its accurate.

#8 Maxwell Technologies (NasdaqGM: MXWL) $8.10

Maxwell is a developer of ultracapacitors, which are currently used in wind turbines, utility power quality applications, and other industrial applications.  Wind should continue to see strong growth throughout the world, which should continue to help turbine component suppliers.

They also have the potential to be an important component for energy storage in Hybrid Electric and Electric vehicles.  Maxwell has recently announced a partnership with China's Tianjin Lishen Battery to manufacture hybrid powerpacks, which will combine the speed, long cycle life, and low temperature performance of ultracapacitors with the large energy storage capacity of lithium-ion batteries.  Readers and anyone who has seen one of my presentations already knows that I see energy storage as the best way to take advantage of the adoption of hybrid, plug-in-hybrid and electric vehicles.

The downside here is that Maxwell is currently in a large patent-infringement suit with private ultracapacitor company NessCap.  I find patent-infringement suits to be very unpredictable.  Maxwell filed the initial complaint in October 2006, and NessCap countersued in December.  A large negative earnings surprise last June and subsequent analyst downgrades further depressed the stock, possibly aggravated by tax-loss selling.  I see a good chance of a quick rebound in 2008, especially if the courts start ruling in favor of Maxwell, or the two companies reach a settlement. While negative ruling would hurt, they would be unlikely to destroy the company.

Maxwell's top-line revenue has been flat for over a year, so a large part of the recent price drop has likely been due to investor fatigue.  Nevertheless, insiders have been buying the stock on the open market, which I find reassuring with regard to internal confidence at the company.  Any significant uptick in sales volumes would likely bring with it a strong increase in the stock price.

Picks 4-7 are here, and Picks #1-3 are available here.

I decided to split this article into parts because the stocks I'm picking seem to be rising even as I write... I was clearly not the only person who has been thinking along these lines over Christmas...

Here's what has already happened to picks #8,9, and 10 on December 26, as I was writing:.

Cree jumps on American Technology Research Comments (up 10.7%); Lighting Science up 25%; Maxwell Technologies up 6%.

DISCLOSURE: Tom Konrad and/or his clients have long positions in CREE, LSGP, PHG, MXWL, and a short position in FSLR.

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.

December 23, 2007

The Twelve Alternative Energy Months of 2007

For the holiday season, we at Alternative Energy Stocks are taking the opportunity to wrap up the year with musical review...

In the twelve months of 2007, Alternative Energy Stocks gave to me, 
Twelve(ish) transportation fuels compared
Ten (and a Bonus) Insights into Greenhouse Gas Regulation,
Ten Thouseand Cellulosic Miles per Acre
Nine Solar applications
Eight Barriers to Energy Efficiency
Seven new developments in Geothermal Power
Six weaknesses of number-crunching money managers
Five Sustainable Companies for Gifts
Four Ways to Avoid Being a Sucker
Three Dictators to Bribe with Renewable Energy
Two Independent Power Producers,
And Cleantech News and Email Updates

Happy holidays, and thanks to all our readers and commenters for a wonderful year!

December 21, 2007

The Week In Cleantech December 17 to December 21st, 2007: Two Political Baby-Steps, One Double-Cross

Over the Weekend,

Craig Mackintosh at Celsias struck a note of cautious optimism about the outcome of the UN Climate Change Conference in Bali.

Jim Fraser at the Energy Blog transmitted the findings of a study of interconnected wind as baseload power.

On Monday,

The Biopact team reported on as study the potential for bio-based bulk chemicals to cut the consumption of non-renewable energy and greenhouse gas emissions.

On Tuesday, 

Rachel Barron at Greentech Media splashed the news of PG&E's agreement to purchase wave power from Finavera Renewables (Toronto: FNV, Pink Sheets: FNVRF).

Konrad Imielinski at GoG2G attributed the sharp rise in hard-hit ethanol stocks to the immanent passage of the Energy Bill. 

On Wednesday,

Craig Rubens, at earth2tech, published a great FAQ about thin film solar.

Oliver Lewis, at Celsias, filled us in on what was in (and out of) the Energy bill.    In: Biofuels, 35MPG CAFE standards, efficiency incentives.  Out: Renewable Energy incentives, taxes on oil firms.

David Roberts, at Gristmill, dissected the EPA's use of the above bill's passage as a flimsy excuse to deny California's application for a waiver from federal fuel economy standards. California will contest the ruling.

On Thursday,

Clean Edge summarized the Energy Information Administration's new Annual Energy Outlook.  Once again, the EIA is raising projections for oil prices, but they still think prices will fall back and that the US will be able to increase our production in the short term and decrease our imports over the next decade.  

On Friday,

Karla Harby at the New York Academy of Sciences briefed us on how flywheels can address changing power demands.

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!

DISCLOSURE: Tom Konrad and/or his clients have positions in FNVRF.

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.

December 20, 2007

Jim Rogers: An Energy Efficiency Stock Pick

The same Fortune interview with Jim Rogers, which I referenced yesterday also contains an excerpt from his new book, A Bull in China.  In it, he goes over a few stock picks, including one I thought worth bringing to the attention of investors interested in profiting from rising CAFE standards and other increases in vehicle efficiency:  Jim says:

ChinaBull.jpg

Aluminum Corp. of China (Chalco) (NYSE: ACH). Three year trend: profits up 86.7%, revenues up 88.8%.

Chalco is the largest producer of primary aluminum in the world's fastest-growing aluminum market.  Established in 1999 out of state-owned firms, this No. 2 aluminum manufacturer in the world is reported to be planning aggressive acquisitions, including a possible takeover bid for Alcoa. While some new plants are being built, others in China have been closing due to the high electricity costs.  But world demand for this commodity continues to grow.

As petroleum becomes increasingly expensive, there will be an increasing push to improve vehicle efficiency.  One of the simplest and most cost effective ways to do this is to incorporate more aluminum, as I argued in this article about Alcoa (NYSE:AA.)  

I've long been leery about investing in Chinese firms, because I have serious doubts about Chinese commitment to shareholder rights and disclosure, although these may be improving.  Nevertheless, my respect for Jim Rogers has peaked my interest, both in the stock and in his latest book.

DISCLOSURE: Tom Konrad  and his clients have positions in any of the securities mentioned here: AA.

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.

 

December 19, 2007

Jim Rogers: What Peak Oil Will Do for Cotton

The most recent issue of Fortune has an excellent interview with Jim Rogers, of Investment Biker and Adventure Capitalist fame, as well as an excerpt from is new book, A Bull in China.  Jim saw the start of the current commodities supercycle early (peak oil is just one driving force for this cycle), but it still has a long way to run, in my opinion, as well as Jim's.   Almost everything has some dependence on energy prices, because of either the embodied energy, or because if the embodied energy of substitutes.   As Jim says in the interview,

Cotton is a good way to buy oil-- hear me out.  Much apparel has been made from synthetics.  Synthetics come from oil.  So many textile makers are converting back to natural fibers because oil is at an all-time high.  So if you want to buy oil, buy sugar [because it is easy to turn into ethanol], or buy cotton.  What I'm buying right now is agriculture.

I hadn't thought of this cotton-oil connection before, and it's drawing these connections before others do that makes a great investor.  Incidentally, cotton and oil are also connected more directly via the use of oil to make pesticides and fertilizer, and indirectly when land formerly used to grow cotton is shifted to grain production because of rising ethanol prices, but I think the substitution effect Jim talks about is likely to be strongest.

Tomorrow I'll share with you one of Jim's stock picks that I think fits well into an Alternative Energy portfolio.

December 18, 2007

How Infrared Imaging can Sell Energy Efficiency

Energy Efficiency breaks the laws of economics.  Despite the fact that it's considerably cheaper then traditional energy sources, as well as providing substantial benefits in terms of comfort, economic growth, safety, and the environment, barriers arising from misplaced incentives and the attitudes, awareness, perceptions, and general level of knowledge all conspire to prevent people from taking steps which would otherwise be extremely rewarding.

The key to better implementation of Energy Efficiency programs are programs to raise people's interest or awareness.  For instance, there is the example of how Woodstock Hydro found that their customers' electricity usage dropped 15% and were more satisfied with their service when they were given real time information about their electricity usage as part of a Pay-as-you-go program.

A Sioux Center Success Story

Another example of how information and awareness motivated people to be more energy efficient was told to me at the 2007 Energy Star Summit by Ron Horstman, the former Municipal Utilities Energy Efficiency coordinator of Sioux Center, Iowa.  Sioux Center achieved almost universal residential participation in that city's energy efficiency program by using infrared images to make aware of their homes' energy use personal.  This is his (lightly edited) description of the outreach efforts:

In 1986, the City of Sioux Center was engaged in a comprehensive community-wide energy management program.  One of the overall goals of this program was to use energy efficiency as an economic development tool.  Because Sioux Center imported over 98% of the energy it used, every dollar spent on energy left the community.  If even a small percentage of that money were retained in the community, it would have a noticeable impact on the economy.

One of the first steps and goals was to raise the energy awareness level of the entire community and to get their attention so that the programs would have high levels of participation and would produce significant results. 

Infrared Photos Raise Awareness and Interest

We chose to use infrared Thermography technology [see last week's article on an IR Imaging Stock] to raise the energy awareness level of everyone in the community.  We took an infrared photo from the street side of every home and business in the community and enclosed the photo with each owner's utility bill, along with an invitation to call my office for an explanation or interpretation of what the infrared photo depicted. 

I was inundated with calls.  The photos touched everyone on a personal level.  Residents and business owners saw their buildings in a new way, and they wanted to know what it meant.  When a customer called for more information, I would pull up my copy of their infrared photo and explain the prominent thermal features.  I used the conversation to tell them that their home or business was a prime candidate for a class "A" energy audit.  People signed up for energy audits right and left and I conducted these audits as quickly as possible.   

The utility had decided to offer these quality audits at a discounted price with the goal of educating each and every customer who decided to have the audit done.  We only charged $10 for an audit valued at approximately $250.  The information provided in each audit gave the building owners the information needed to allow them to make sound energy management decisions.  The audit results sheet provided a list of energy efficiency measures each owner could implement, the cost of installation for each measure, the first-year savings of each measure, and the simple payback in years.  This results sheet provided each recipient with a multi-year road map to energy efficiency.  I conducted audits on 28% of the homes and businesses in the community. 

Greatly Improved Participation in Future Programs

This one program built a great deal of credibility with our customers.  Homeowners and business owners implemented the recommended energy efficiency measures from the audits and began to realize the savings.  After that successful program, we initiated many other energy efficiency programs.  All of the programs were successful to different degrees.  The most important factor was the level of participation we were able to achieve with each program.  One program in particular - the voluntary load management program - achieved 98% participation.  The average utility implementing a load management program was only able to realize participation rates between 10 and 30%.  Our credibility with our customers spurred our success. 

Economic Benefits

After several years of conducting energy efficiency programs, I conducted and economic analysis to determine the impact these programs were having on the community.  The numbers were astounding!  The energy consumption per capita had been reduced by 38%, with millions of dollars retained in the community.   Businesses were growing and expanding, jobs were being created, amenities such as parks, recreation facilities, and cultural opportunities were increasing, and industries moved to the community for its quality of life. 

Societal Benefits

To re-emphasize Ron's point about increased quality of life, this article about a more recent program in Sioux Center highlights the retrofit of the city's fire station. In addition to a less than 12 year payback, the firemen reported being more comfortable (which likely helped the city with retention), increased use of the facility's classroom, and volunteer firemen spent more time in the facility readying the equipment for their next call, which contributed to the safety of everyone in the region.  According to Ron, the firemen's new pride in their facility was felt throughout the community.

Infrared Imaging StockView of the Thermal Mapping website

I'm still reluctant to buy FLIR at the current prices (even more so since a reader pointed out the P/E I was using was off by a factor of 2.)  Nevertheless, stories like these leave me more convinced that infrared imagery must have a large role to play in promoting adoption of demand-side management.  It may come with more communities publishing energy use maps, like Haringey in the UK, or with Eco-Brokers selling energy efficient homes contrasting IR images of their home with IR images of other nearby homes on the market, or with utility programs like that in Sioux Center using infrared images to make energy use personal.

DISCLOSURE: Tom Konrad  and his clients do not have positions in any of the securities mentioned here.

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.

 

December 16, 2007

CSP: The New Baseload Kid On The Block?

Regular readers know I'm a big fan of wind power, especially in North America. I like the fact that the technology and business model are well understood, that most wind projects have good forward revenue visibility, and that wind is close to being competitive with conventional power generation without subsidies. Wind combines the best of both worlds: stable cash-flows and rapid growth.

Over the past few months, concentrating solar power (CSP), a form of energy that is about as ancient as humanity, has begun appearing in the media and across the blogosphere with increasing frequency. What's the hype all about? CSP has all that wind does plus one important characteristic: it's ability to store energy makes it viable as a source of baseload power. This gives CSP a big edge over wind and solar, for which variability and thus reliability are important concerns. It's no wonder, then, that we like CSP at AltEnergyStocks.com.

A New Study

On Tuesday, Emerging Energy Research (EER) released a study on CSP (this is a link to the press release's PDF - the actual study must be purchased). EER argued that CSP is now the fastest growing utility-scale alternative energy source after wind, and expects US$20 billion to be poured into the sector over the next 5 years.

The 2 hottest markets at the moment, according to the study, are the Southern US and Spain. These 2 markets alone will install about 7,500 MW of CSP between now and 2020, while other southern European nations will install about 3,200 MW over the same time period.

In the US, c consortium of southwestern electric utilities recently put out a Request For Proposals for what would be the largest CSP facility in either Nevada or Arizona. On the federal side, the DOE recently announced a $5.2 million investment in CSP.

Much potential also exists in North Africa and the Middle East. As a matter of fact, it has been argued that the Maghreb region could help meet a significant portion of Europe's electricity needs cleanly and renewably through CSP. This could also be an attractive means for Israel and other middle eastern nations to generate the power needed to de-salinize large amounts of sea water.

The Competitive Landscape

Two main types of players are currently hustling it out in this space, according to EER. First, CSP pure-plays (for lack of a better term...) that are seeking to leverage their technological advantages. Second, established electric utilities with good access to prime sites and plenty of capital. Here we find the usual suspects: Iberdrola (IBDRY.PK) (which is looking to partially spin-off its renewables unit), FPL (NYSE:FPL) and Acciona (ACXIF.PK) Looking out a few years, I wouldn't be surprised if once credit markets are back on their feet the latter looked to gobble-up some of the former. For a list of the biggest players in the US, Spain and the rest of the world, have a look at the table at the bottom of the press release.

For those looking for more background into the technology itself and how investors should think about the market, Tom wrote a useful piece this past September comparing CSP and solar PV.


DISCLOSURE: The author does not have a position in any of the firms discussed in this article.

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.

December 14, 2007

The Week in Cleantech (Dec. 9 to Dec. 15) - No Christmas This Year For Renewable Energy

On Tuesday, Dan Lewis warned us not to hold our breath for offshore wind (I really like the boat pic). As prime on-shore wind areas are exhausted over the next decade, especially in Europe, many people have their sight set on the ocean as the next wind frontier. However, technical and cost hurdles may not make this a viable proposition for a few more years yet. One factor that could help: the cost and availability of wind turbines. But that's showing little sign of improvement. 

On Wednesday, Mike Millikin at Green Car Congress told us that a federal court had rejected challenge to California's vehicle GHG regulations. This could provide a significant boost to the clean car market in California and in other jurisdictions following its lead

On Wednesday, Stephanie I. Cohen at Market Watch wondered whether the solar industry could live without the federal tax credit. The conclusion: sure, but solar development will slow and will be restricted to a few states with strong incentive programs. Does that also apply to wind? Industry actors certainly seem to think so, although wind appears to be in a stronger position to compete against thermal generation at the higher end of the cost spectrum without subsidies. 

On Wednesday, Rachel Barron at Greentech Media told us that Shell was shedding solar. This is probably good news for company shareholders. While Shell is technically an 'energy' company, it is neither a specialist in power generation nor manufacturing. The company's efforts in next-generation biofuels, given its extensive expertise in all areas of the liquid fuel value chain, could yield much more interesting results. 

On Thursday, Renewable Energy Access informed us that Senate had voted down renewable energy's tax title. It's probably no surprise that, despite giving renewables the cold shoulder, US law makers still managed to funnel pork ethanol's way. Given the state of financial markets at the moment, this doesn't come at a particularly opportune time for alt energy investors. Nevertheless, it is probably safe to assume this is just a temporary set back, and I am quite certain that something will materialize at the federal level for the sector before too long. Nationally and globally, there are definitely industries that are doing worse than this one. 

On Friday, Jim Fraser at The Energy Blog relayed Ausra's announcement of the first US manufacturing plant for solar thermal power systems, and reviewed the background on Ausra and their innovative CLFR technology.

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!

Climate Legislation: Who wins? Who loses?

Most Americans now agree that something needs to be done to reduce our greenhouse gas emissions. Hopefully most Americans now appreciate that this is not a small, but even more so, not a simple problem. I am a big believer that the playing field for our low carbon future should start level, and the market should be structured to allow our major power and energy companies a chance to lead the way, instead of simply dishing out punishment for our combined historical choices.

Carrots and sticks work well together, but sticks alone are not going to solve our global carbon problem. I think it is also important to ensure that our carbon legislation does not result in a higher cost to consumers in middle America, just because the MidWest happens to have been historically coal fired, than the cost to those of us living on the coasts. Jim Rogers of Duke Energy puts this much more eloquently than I do.

Duke Energy (NYSE:DUK), one of the largest power companies in the US, has been a long supporter of energy efficiency, and known for being forward looking when it comes to a low carbon future, smart metering, and advanced energy technologies, despite having a generation fleet that is 70% coal fired. Cleantech Blog is delighted to welcome Jim Rogers, CEO of Duke Energy, to give us his thoughts on the devil in the details from their perspective. It is heartening to see a major power company take on the carbon issue full force, and like Duke has done, push energy efficiency in a big way.

- Neal Dikeman, Cleantechblog.com

By Jim Rogers
Chairman, President and CEO of Duke Energy

As we debate our differences on how to address the challenge of global climate change, surely we can agree on the end-goal – a secure, sustainable and affordable supply of energy now, and for future generations.

Most Americans also agree that we must act now – and begin building a bridge to an energy-efficient, low-carbon economy.

As the third-largest coal consumer in the United States, and one of the largest greenhouse-gas emitters, Duke Energy has a responsibility to be part of the solution. That means looking at not only how climate change affects our business today, but also the implications for the future.

We support federal legislation to address global climate change by putting a cap-and-trade system in place. The U.S. Senate is in the process of vetting a cap-and-trade bill introduced by Senators Lieberman and Warner in October. This bill is well-intended, contains some good points and appears to have bipartisan support.

But on closer examination, questions arise. Who really stands to gain, and who stands to lose? What are the real costs to average Americans?

You would expect the bridge to a low-carbon economy to have a cost, just as you might pay a toll to cross any bridge. But should some of us have to pay twice? With the Lieberman/Warner approach, that’s exactly what would happen.

Lieberman/Warner proposes to auction a large number of emissions allowances to the highest bidder. In effect, an auction becomes a carbon tax, levied on consumers in the 25 states that depend on coal for electric power – primarily the Midwest, the Great Plains and the Southeast.

Electric power customers in those regions would have to pay for the auctioned allowances up front, and then pay again later to upgrade power plants, or build new ones, as carbon-control technologies become available.

A better approach is to allocate allowances at no cost to generators who emit greenhouse gases – and reduce the number of allowances over time, while new carbon-control technologies are being developed and put in place.

Some say that an auction is the only way to take action to reduce emissions, but history tells us otherwise. Allowances were not auctioned under the 1990 Clean Air Act Amendments; nearly 97 percent of them were allocated at no cost. Since then, new technologies to reduce sulfur dioxide and nitrogen oxide emissions have been developed and implemented. Those environmental controls have reduced emissions by more than 40 percent since 1990, and they continue to decrease, without dramatic rate hikes. In fact, the nation’s average electric rates have declined.

In contrast, some estimates put the Lieberman/Warner bill’s cost to the average family at more than $1,000 per year, while emissions traders would stand to profit greatly from a volatile market for carbon allowances. According to Bloomberg, the Lieberman/Warner bill would create a potential $300 billion annual carbon-trading market by 2020.

So the question comes down to this – are we interested in protecting consumers or enriching emissions traders?

Customers who live in the Midwest, the Great Plains and the Southeast did not choose to get a large portion of their electricity from coal – it was a matter of economics, geography and geology. They should not be punished for decisions made decades ago, in good faith, using the best and lowest-cost technology of the time, with regulatory approval – and long before anyone knew about the impact of carbon emissions on climate change.

And before we dismiss coal as a viable energy source for the future, consider this: The U.S. is sitting on more than 250 years of coal reserves, more than any other nation in the world. This rich natural resource has untapped potential for ensuring our country’s energy security. The challenge is primarily technological – to find smarter and cleaner ways to use it, such as carbon capture and storage. Until those technologies are available, we must continue to use our existing coal resources and protect the interests of consumers who rely on coal.

The goal for carbon legislation should not be to punish utilities for building coal plants to keep the lights on in the past. It should be to create the incentives to put new clean technologies in place for the future – not just clean coal, but also nuclear and renewable energy, natural gas and the “fifth fuel” – energy efficiency.

Under the Lieberman/Warner approach, electric power customers in half of our states will carry a disproportionate share of the burden. We need to pass climate legislation that is fair to all consumers and protects the economic interests of all states and regions. Our climate is at stake, and so is our economy. By allocating most allowances, following the precedent set by the successful Clean Air Act, we believe both can be protected.

Jim Rogers is the CEO of Duke Energy, writing as a guest columnist on Cleantech Blog. AltEnergyStocks.com wishes to thank Jim Rogers and Neil Dikeman at Cleantech Blog for letting us republish this piece.

December 13, 2007

Competition In Environmental Markets Heats Up

Close followers of the environmental finance space have known it for a while; Climate Exchange (CXCHF.PK or CLE.L) is sitting on a potential gold mine. The market for environmental commodities, but especially carbon emissions, is slated to grow significantly over the next 5 to 7 years. It was therefore only a matter of time before competition sprung up, both from small players trying to leverage their technological platforms and from the big guys.

The big guys came out swinging this week, with NYMEX announcing a partnership with JP Morgan and Morgan Stanley, among others, to set up a platform to trade various environmental contracts, including European carbon credits. The partnership, called The Green Exchange, will also look to cooperate with the brokers who currently drive most of the volume in the EU ETS (around 70% of European carbon trades are conducted OTC). NYMEX officials had hinted at this a few months ago, so there is no big surprise here. The surprise really lays with the scale of the partnership, and I think it's now fair to say that this may not bode well for Climate Exchange.

The timing of this announcement is also interesting. At a time when certain world leaders are doing all that they can to emasculate multi-lateral efforts to tackle global warming, big finance just sent a powerful reminder that this is no negative sum game, and that a growing tranche of the business community could profit from a well-designed program to cut greenhouse gas emissions. Hopefully our leaders heed the call.

December 12, 2007

FLIR: A Red-hot Energy Efficiency Stock

On Monday, I wrote that I wouldn't buy a house without an energy audit.  For now, I'm in the minority, but I don't expect that to last.  Each of these trends is likely to lead to more homes getting energy audits:

  1. Rising energy costs: as energy prices rise, knowing what to do to improve your home's energy efficiency will become more valuable.
  2. Weak real estate market.  Now that the boom is past us, new home builders need to put more effort into providing and advertising a quality product in order to attract buyers and stay in business.  One relatively easy way for a new home builder to differentiate his product from existing homes is to make them energy efficient.  By advertising such efforts, new home builders will raise the general awareness of the importance of good insulation and proper sealing in homes, both new and old.
  3. Expected Greenhouse Gas Regulations.  The consensus among scientist is that man made climate change is unequivocally happening, and that we must take immediate action to avert its worst effects.  Politicians are likely to seize on improved energy efficiency as a cost-free way to reduce carbon emissions (which they are.)

Energy auditors will benefit from all these trends, and the industry is entering into a period of rapid expansion.  The makers of the tools they use will benefit as well.  

Tools of the Trade

What tools do energy auditors use?  Blower doors, flow meters (although some just use plastic trash bags), digital pressure gauges, combustion analyzer, Hand held smoke, low-e coating detectors, Kill-a-Watt appliance testers and, the tool only a tiny fraction of the attendees had but most want: Infrared (IR) Cameras (beginning to replace infrared thermometers.)

Among these, infrared imaging seems like the most exciting investment opportunity.  (Note: I am not talking about the images you can take using a filter and a standard digital camera... they go much farther into the infrared spectrum, and allow fine detection of temperature differences.)   

Not only are IR cameras in an early stage of adoption among energy auditors, as prices fall, I expect a host of other applications to emerge.    Indeed, there are already a host of applications for IR cameras, most of which have been recently made possible by the advent of uncooled IR cameras.  Until recently, in order to image in the infrared, the imaging chip had to be cooled to below the temperature of the image subject.  In practice, this meant that IR cameras had to be cooled with liquid nitrogen, which made them too awkward for use in mass markets.

Energy auditors and building inspectors can use them to locate leaks, do fault detection in HVAC equipment, as well as diagnose insulation problems.  

When it comes to energy efficiency, quick diagnostics of mechanical problems are key, and not just in home energy use.  There are a host of applications, including veterinary, electrical, and automotive.  The utility industry uses infrared cameras to diagnose problems at substations and transmission lines to avoid close-up inspections in high voltage areas.  

Another application which will be interesting to those of us who expect increased efforts to reduce Greenhouse Gas (GHG) emissions is the ability of specially tuned IR cameras to see volatile organic compounds (including potent GHGs such as methane) as they leak into the atmosphere.

IR Imaging Companies

The only public company with a large presence in IR imaging is FLIR Systems (NasdaqGS: FLIR), which also sells their cameras and night vision equipment to the military and other government bodies such as homeland security and law enforcement.   The largest competitor in the home inspection market is Fluke, a privately owned general instrumentation company.  

FLIR seems to have a strong lead in consumer awareness.  Most of the searches I did researching this article eventually led me to FLIR cameras.  I also know that FLIR actively markets to the home inspection industry: I sat in on a presentation at the 2007 Energy Star Summit, and no other IR camera manufacturers were present.

In addition, their GasFindIR video camera seems to be the leading tool for the gas leak detection application mentioned above.  

Valuation

FLIR is growing at about 20-25% a year, with most analysts expecting this growth to continue.  The stock price has doubled in the last year.  It has a trailing P/E of only 18, still quite low for a growth stock.  If I were a growth investor, I'd see this as a red-hot opportunity.  Correction: FLIR's P/E at the time of writing was 36, a typical growth stock valuation.  The error arose because I got the number from Yahoo!, where it had been confused because of a stock split. I like to think I would have been more careful valuing a stock I intended to buy.   

I'm always reluctant to buy after a stock has doubled in less than a year, and company insiders have been selling the stock, which also make me cautious.  I'll be keeping my eye on this one, knowing that FLIR may never come down to a price at which I'm ready to buy.  I have a feeling that a year from now I'll be telling stories about "The one that go away."

DISCLOSURE: Tom Konrad  and his clients do not have positions in FLIR.

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.

December 09, 2007

DIY Energy Audit, and Energy Star Summit Stocks

Last week, I attended the 2007 Energy Star Summit to keep up with what is going on in home energy efficiency, and, with luck, find a new public company or two to recommend.  

After several workshops for home energy raters, I came away with an idea for an article to help people concerned about home safety and efficiency look for new places to live.  Because it was off-topic for Alternative Energy Stocks, I offered it to my friend Preston at Jetson Green, and he has published it here.

Back on the subject of financial (As opposed to real-estate) investments, I did find and interesting industry (thermal imaging,) with a least one public company, and will write an article about it later this week.  

Also in attendance were representatives of several companies I have been watching for a while.  I've often recommended Owens Corning (NYSE: OC), because of their insulation business.  Trane (NYSE:TT, formerly American Standard), and Honeywell International (NYSE: HON) both came up in my article about performance contracting stocks, although they are also interesting because of their energy efficient products, controls (Honeywell) and plumbing fixtures (Trane).  See this article as to why plumbing is an interesting efficiency investment.

Another efficient home-appliance play is Whirlpool (NYSE: WHR), which was cited by Energy & Environmental Building Association certified trainer Mark La Liberte as having redesigned their new products to be 85-90% recycled.  While it pays to be skeptical of such claims, given many companies' propensity for greenwashing, so I pay attention when an industry professional gives an unprompted endorsement.

Link to my article on searching for an energy-efficient resale home or rental.

DISCLOSURE: Tom Konrad  and/or his clients have positions in these companies mentioned here: OC.

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.

December 06, 2007

The Value of Energy Efficiency

I've begun acting as a consultant to the Colorado Energy Efficiency Business Coalition (CEEBC) in a rulemaking docket for Demand Side Management (DSM) case before the Colorado Public Utilities Commission (PUC).  In the 2007 Legislative session, the Colorado legislature passed enabling legislation calling for utility-wide Demand Side Management programs for natural gas utilities.  To date, all DSM in Colorado has been focused on low income customers. 

Crucially, the legislation allows for non-energy benefits, such as increased comfort, economic multiplier effects (i.e. jobs), and reduced volatility of energy costs be included in the evaluation of the benefits of programs.  Since financial benefits are a relatively small part of net benefit, this allows the implementation of a large number of DSM programs with large net benefit, but which might have only small financial benefits.  The Commission will effectively decide whether those programs will be implemented in this rulemaking.  The utilities in question, led by Xcel Energy (NYSE: XEL), are currently only willing to include minor, easily quantified non-energy benefits, such as water savings in an energy-efficient dishwasher.

A Seemingly Easy Decision

Suppose you have the following choice for your home or business:

A. Spend $1000 to get improved indoor air quality, fewer drafts and hot or cold spots, quieter operation of equipment, less condensation on windows and walls (and associated mold growth), less noise from outside the building, a reduction in greenhouse gas emissions, an increase in the local economy, less air pollution, increased national energy security, and $15 per month for ten years.

B. Spend $750 and save $15 a month on your utility bill for ten years.  You might or might not get some of the benefits in A, but they will be smaller than the benefits you would have gotten with A (except for the cash.)

C. Keep the money.

D. Spend $350 and save $7.50 a month on your utility bill for ten years.  Like B, you may get some small, unknown fraction of the other benefits in A.

Utilities Chose C.

Until a few years ago, electricity regulators and legislators were choosing C on behalf of their customers, by meeting increasing demand for energy with new power generation.  They are now starting to realize that the cash-only internal rate or returns for options A and B are quite attractive.  (These returns are 11% and 19%, respectively, similar to buying a CD with that interest rate.)  Because the non-financial benefits of A are difficult to quantify, most regulators only consider the cash, and pick option B.

Option B is a traditional DSM program, which bases the decisions on which actions to take solely on the financial impact.  It is also essentially what Xcel Energy (NYSE: XEL) is arguing for in the utilities commission docket, despite their widely announced proposed doubling of their DSM target.  What Xcel does not mention is that the current DSM program (choice D, in the above analogy), was the result of a settlement agreement made with environmental groups who had opposed a massive coal-fired power plant in a previous PUC docket.  In my personal opinion, the environmental groups got very little for their concession of not opposing the 750 MW Comanche 3 power plant (now under construction), but at the time, they faced a Public Utilities Commission hostile to environmental concerns, and they may have been lucky to get as much as they did.  I seriously doubt any would have agreed to the settlement in today's political climate.

"A" Excellent Choice

Fortunately, legislators and regulators are awakening to the advantages of A.   The New York State Energy Research and Development Authority (NYSERDA) has been conducting a continuing evaluation of their ongoing Energy $mart DSM program, which means that they chose A, and then went on to quantify the non-cash benefits.  Because of the controversy about valuing emissions, the environmental benefits were not included in this study, but they used a series of questions similar to the poll above, and some advanced statistical analysis, to figure out what people would actually be willing to pay for the other benefits.

What they found was that the net present value of all benefits from the Energy $mart program were worth approximately twice as much as they would seem to be worth when measured on a traditional, cash-only basis (called "Scenario 1 TMET" in the study.)  And this does not include the environmental benefits listed in A, nor energy security.  In other words, people would be willing to pay well over twice as much for the benefits in option A, as they would be willing to pay for the cash alone.

Conclusion

Studying non-energy benefits is still an inexact science, and one of the things CEEBC is pushing for in the PUC docket is to make sure that we do our own study of non-energy benefits in Colorado, so we can better understand what we are getting (besides an excellent financial return) for our money.  That understanding should lead to more DSM programs, because the results will be better and higher valued as people begin to recognize the true worth of energy efficiency.  This has already benefited the companies, such as Energy Service Contractors, and providers of energy efficient products and the controls which enable them as more and more individuals, businesses, and utilities (gently prodded by the regulators), begin to choose A.

DISCLOSURE: Tom Konrad  and/or his clients have positions in these companies mentioned here: XEL.  (They're actually not bad, as utilities go, although they have been much more active on the renewable energy and energy efficiency front in Minnesota than they have been in Colorado.  This is, in my opinion, mainly the result to the proactive stance of regulators.)

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.

New Email Service & Cleantech News

Email Updates: Finally!

A quick note to inform our readers that AltEnergyStocks.com has recently implemented an email service for the blog part of the website. To receive email updates when new articles are posted, simply scroll down to 'Subscribe to this Blog' on the right-hand side on the homepage and enter your email address in the appropriate field.

We will not share your email address with any third party, nor will we use it to send you anything more than updates. This is something many of you have asked about in the past so we are thrilled to finally be able to bring it to you.

Cleantech News: You Won't Find Anything Like It

I also want to take this opportunity to remind our readers of our great Cleantech News (CTN) service. CTN continually scans our extensive and growing list of cleantech feeds and ranks articles based on a number of criteria including how recent they are and how much they are being linked or referred to by other sites.

This is a great way to keep abreast of what is happening in the global cleantech blogoshpere, and to get of sense of what people are talking about and linking to. Unfortunately, given the potential volume, we will not be implementing an email update service for CTN. You can, however, register for it in your RSS reader.

December 02, 2007

Ten Insights into Carbon Policy and Its Implications

On November 27, I attended the National Renewable Energy Laboratory's (NREL) Fifth Energy Analysis Forum, hosted by NREL's Strategic Energy Analysis & Applications Center.  The forum focused on carbon policy design, the implications for Renewable Energy and Energy Efficiency.  As a stock analyst focused on that sector, I am extremely lucky to have NREL as a local resource: the quality and the level of the experts at NREL and the ones they bring in is probably not matched anywhere in the country, and conferences like these provide priceless insights into what these Energy Analysts are thinking.  

Why should investors care what analyst think about the best form of carbon regulation, when it will be the politicians who eventually implement it?  Because these are the very experts politicians will call on when designing their legislation.  While interest groups will also undoubtedly have a large say in regulation, they are unlikely to come up with new ideas which help shape future regulation.  The new ideas will come from the 50 or so analysts that gathered in Lakewood last Tuesday, and the regulations based on these ideas will be critical to the business plans of the companies we invest in.

This is a link to my notes.  I will likely find many investment ideas there, only some of which will make it into articles.  For those with the time and interest, I expect they will be a valuable resource.  For the other 99% of readers, here are ten interesting, intriguing, or just plain surprising ideas that pop out for me.

From Howard Gruenspecht, Deputy Administrator: Energy Information Administration

INSIGHT #1: "Clean Coal" is a Solution to a Political Problem

Integrated Gasification Combined Cycle with Carbon Capture and Sequestration (IGCC w/ CCS or "Clean Coal") is popular with legislators because it is a solution to a political problem, not because the technology is ready or because analysts expect it to be the most economical solution. Nuclear power is likely to be cheaper, and it is an existing technology. 

INSIGHT #2: Electricity Generation may be a Better Use of Biomass than Liquid Fuels

If the goal is to reduce net carbon emissions, burning biomass for electricity (either by cofiring in coal power plants, or in dedicated biomass generation stations) is more effective than using the same biomass to produce liquid fuels, such as cellulosic ethanol.  TK note: I believe that many investors in companies developing methods to produce cellulosic ethanol are underestimating the competition for available feedstock from biomass based electricity generation.

From Joe Kruger, Policy Director National Commission on Energy Policy

INSIGHT #3: Electricity Generators May Get Windfall Profits

Allocation of Emission Credits is likely to create windfall profits for existing generators except in carefully designed auctions.

From Eric Smith, EPA Climate Economics Branch.

INSIGHT #4: EPA May Have to Regulate More than Tailpipes

Because of the Massachusetts vs. EPA lawsuit, the EPA must now regulate Greenhouse Gas (GHG) emissions from automobile tailpipes.  The EPA is now studying GHG, and if the EPA concludes that GHG represent an endangerment to the public, the EPA will be forced to regulate GHG emissions from many more sources than just vehicles.

From Rich Cowart, Regulatory Assistance Project

INSIGHT #5: It's Better to Allocate Credits to Electricity Distributors than Producers

Greenhouse Gasses need not be regulated at power generators, and other approaches may lead to more efficient reductions.  Mr. Cowart was introduced as "Father of the Load-based Cap," in which GHG emissions are distributed to power distributors on behalf of their customers.  Carbon regulation can occur anywhere from the mine/wellhead when a fossil fuel is first taken from the ground, to the final consumer.  Where this regulation takes place matters because different actors have different abilities to change the way power is consumed.  Mr. Cowart argues effectively that for the electricity and natural gas sectors, energy distribution companies are best placed to work with consumers to reduce overall energy use.

BONUS INSIGHT (my own): China Can Build Coal Plants, But We Can Cap Their Emissions

Worries about the number of coal plants built in China and other developing countries might be best dealt with by applying carbon regulation at the mine mouth.  China is now a net coal importer.  Given that, the rest of the world does not need China's acquiescence to regulate carbon emissions: the coal exporters of the world could form an Organization of Coal Exporting Countries (OCEC), which would effectively be able to limit the total amount of coal burned around the globe.  The United States, which I have previously called the "Saudi Arabia of Coal," could play the role of the swing producer, much as Saudi Arabia has traditionally played in OPEC.

From Karl S. Michael, NYSERDA 

From Karl S. Michael, NYSERDA 

INSIGHT #6: Reggie Never Asked, "Where are GHGs best Regulated?"

The Northeast Regional Greenhouse Gas Initiative (RGGI, or "Reggie") will be an emissions cap on power plants because the question was never asked: are power plants the right place to regulate Greenhouse Gasses?  Future climate regulations should ask this question up front.

Todd Litman, Victoria Transport Policy Institute.  I've long been a fan of Todd Litman.  Among other things, his comprehensive economic analysis was very influential in providing the ideas for my recent articles Investing in Mode-shifting, and my current love affair with commuter rail stocks.

INSIGHT #7: A Carectomy is Better than a Better Car

Regulations designed to solve a single problem often end up making others much worse.  For instance, an increase in CAFE standards will make vehicles more efficient, lowering fuel costs.  Driving will rise somewhat because it is less expensive, but this will only reduce the fuel savings by a small amount.  However, the increased distances driven will increase accidents, congestion, parking costs, road costs, and other indirect costs to society, and these costs are likely to swamp the savings from better fuel economy.  Society would be better served by policies which reduce driving, rather than increase it.

INSIGHT #8: Put the Car back into "A La Carte."

The current pricing system for driving is like the "all you can eat buffet."  It encourages people to over-consume (drive too much) because the marginal cost of driving (fuel and maintenance) is only a small fraction of the average cost of driving, which consists mainly of fixed costs such as vehicle ownership and parking costs.   Since most of the costs to society of driving are correlated to the number of miles driven (road safety, road maintenance, pollution), this leads to much higher costs to society for increased driving than to the individual.  The all-you-can-eat pricing model is also unfair to the poor, because it makes it impossible for many to drive at all, when an a-la-carte pricing model would allow them to drive small amounts for essential trips.

Mark Meliana, NREL Hydrogen Technologies Program, speaking of California's Low Carbon Fuel Standard (LCFS), on which he worked until recently being hired by NREL.

INSIGHT #9: Some Fuels are Better than Others

The California LCFS incorporates "Drive Train Efficiency" for different fuels, which reflects the quality of the energy in various transportation fuels.  A Btu of electricity is worth a lot more than a Btu of gasoline, because electric motors are inherently more efficient (by a factor of 5) than gasoline engines.  This is completely independent of vehicle aerodynamics, and drive train design, factors which will also effect efficiency.  Diesel engines are inherently 1.28 times as efficient (on a Btu basis) than gasoline engines, while hydrogen is 2.13x as efficient, and electric motors are 5 times as efficient as gasoline engines.  This is why an electric vehicle powered by electricity from a coal plant is still much less carbon intensive than a gasoline powered vehicle.  These numbers are the inverse of the factor "eta" in the LCFS.

John Sheehan, Live Fuels (formerly of NRELs Biofuels division.)  Incidentally, I had the opportunity to hear John speak (PDF 100 KB, (Powerpoint 4.5 MB) over a year ago while he was still at NREL.  At that time, he was constrained in expressing his opinion about conventional biofuels... this time he didn't pull any punches.

INSIGHT #10: Water is the 800 Pound Gorilla

Narrowly defined incentives in biofuel policy are likely to lead to more boondoggles as we have seen in the domestic corn ethanol and biodiesel industries (see notes for specifics.) Water use is "the 800 pound gorilla" we need to be talking about when considering which biofuels we can sustainably produce.

Final Thoughts: For analysts, it's clear that a narrow focus, be it in biofuels, transportation policy, or allocation of GHG allowances, will lead to more perverse effects.  For investors, we need to be aware that the perverse effects of bad policy will eventually fail to sustain an unsustainable model, as investors have recently learned about corn ethanol. On the other hand, shorter term investors may be able to profit handsomely from regulatory windfalls, a trend we have also seen in corn ethanol.

Will likely policies which will be designed to encourage IGCC and a focus on cheaper driving rather than more efficient transport in the future follow this same pattern?  They may, and it is likely to lead to substantial costs to society and investors who jump on the trends at the wrong time.   

In contrast, good policies will allow investors to do well by doing good, and profit as companies solve societal problems, rather than reaping transient rewards at the taxpayer's expense.  These good policies include load-based rather than generation based carbon caps, which will allow energy efficiency companies to more easily reduce consumers' electric bills and make profits for their shareholders.   Likewise, transport policies which provide viable alternatives to driving and incentives to use those alternatives will allow investors in alternative transit to profit while reducing commuting costs, traffic fatalities, congestion, pollution, and greenhouse gas emissions.

We all like making money in the market.  Good energy analysts, like the ones at this forum, are working to provide us the opportunity not only to make money, but to solve societal and environmental problems at the same time. For that, we're all lucky to have them.

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.

December 01, 2007

The Week in Cleantech (Nov. 25 to Dec. 1) - Don't Mess With Texas!

Many of our readers may know about this already, but earlier this week I came across The Energy Challenge, a series of articles by New York Times writers on energy and environment issues. This is a great resource for alt energy investors and aficionados.

On Monday, David Biello at Scientific American discussed the state of the science for us. This is likely nothing new for many of our readers but serves as a good reminder of why I believe the cleantech space will be so strong in the next few decades.

On Wednesday, Rebecca Smith and Kevin J. Delaney at the WSJ described Google's electricity initiative for us. Most MBA students will probably tell you that this sounds a lot like unrelated diversification for Google, and that they wouldn't favor it from a shareholder's standpoint given the value-destruction history of such endeavors. On the plus side for alt energy investors, this means there is a new strategic investor out there with deep pockets and the desire to do deals. I'm certainly going to keep an eye on their next few moves.

On Wednesday, Graham Jesmer at Renewable Energy Access argued that wind power was helping Texas move past oil. While California, with its plethora of dot-com-venture-capitalists-reborn-as-green-warriors (YouTube clip), tends to be the darling of cleantech enthusiasts, Texas I would argue is at the fore of where the real action is. Jurisdictions like Texas will do more than Vinod Khosla ever will to actually bring down the cost of clean power gen through fostering industry scale. In fact, Texas could be the place that tips the economics of power gen in favor of wind sans subsidies...mind you, China might be able to help with that.

On Friday, Daniel Englander at Greentech Media unveiled the 2008 Greentech Market Taxonomy for us. This is a neat way of thinking about opportunities in that very broad space (i.e. cleantech or greentech...I have no preference), and the author hopes folks can build on his model to push the analysis further. For public market investors, there are probably many ways to augment this framework. For example, a table of where most of the financing is coming from (i.e. public Vs. private) for each sector would be a good starting point. For power gen, a comparison of costs of production on a per MW basis. And you could go 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!


« November 2007 | Main | January 2008 »

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