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August 19, 2011

EVs, Lithium-ion Batteries and Liars Poker

John Petersen

Last week I stumbled across a link that led to a 2010 report from the National Research Council titled "Hidden Costs of Energy, Unpriced Consequences of Energy Production and Use." This free 506-page book takes a life-cycle approach – from fuel extraction to energy production, distribution, and use to disposal of waste products – and attempts to quantify the health, climate and other unpriced damages that arise from the use of various energy sources for electricity, transportation and heat. After studying the NRC's discussion of the unpriced health effects, other nonclimate damages and greenhouse gas emissions of various transportation alternatives, and thinking about what the numbers really mean, I've come to the conclusion that the electric vehicle advocates are playing liars poker with their cost and benefit numbers – emphasizing a couple areas where electric drive is superior and de-emphasizing or completely ignoring a far larger number of areas where electric drive is clearly inferior. The result, of course, is unfounded and wildly optimistic claims of superiority based on four sevens in a ten digit serial number that don't mean a thing if your goal is to evaluate the entire serial number.

The first graph from the introduction summarizes the unpriced health and other nonclimate damages arising from the use of thirteen different vehicle fueling technologies over the entire cycle life of an automobile and quantifies the unpriced mine to junkyard cost per vehicle mile traveled, including well or mine to wheels costs of manufacturing the vehicle and fueling it over its operational life.

8.19.11 Health Damages.png

The thing I found most surprising was the relative consistency of the numbers across all thirteen classes, both for today and for the future, and the fact that many advanced drive train technologies score lower than their conventional cousins because the unpriced costs of manufacturing the vehicle or processing the fuel exceed the claimed operating benefits. When you look at the realities from a cradle to grave perspective there are no clearly superior choices and the values are all clustered within ±15% of a $1.25 average. While I derive some personal satisfaction from the idea that the low cost winners are a Prius-class HEV or an internal combustion engine with a CNG fuel system, and that electric drive is just a smidgen cleaner than a diesel engine burning fuel produced from Fischer Tropsch coal liquifaction, the reality is that none of the advanced technologies are inherently better. They're just more expensive.

The game is simply not worth the candle. It’s certainly not worth the enormous expenditures of public funds that governments worldwide don't have. There’s nothing electric drive can accomplish that CNG and fuel efficiency can’t accomplish cleaner, faster and cheaper.

The second graph from the introduction summarizes the unpriced greenhouse gas damages arising from the use of the thirteen different vehicle fueling technologies over the cycle life of an automobile. While the range of variation around a current average of about 450 grams of CO2 per vehicle mile traveled is a little wider at ±25%, once again it's just not worth getting worked up over inconsequential differences that entail substantial incremental costs.

8.19.11 GHG Damages.png

One of the most intriguing take aways from these two graphs is the inescapable conclusion that the differences today are modest and as technologies mature and improve the differences will become less important, not more. By 2030, plug-ins will have no advantage over internal combustion when it comes to greenhouse gasses and be significantly worse than internal combustion when it comes to health and other nonclimate costs.

Over the years I've suffered endless abuse from commenters who decry my appalling lack of vision when it comes to lithium-ion superstars like Ener1 (HEV), A123 Systems (AONE), Altair Nanotechnologies (ALTI) and Valence Technologies (VLNC) that are certain to drive battery performance to new highs while driving manufacturing costs to new lows and enabling a paradigm shift to electric cars from Tesla Motors (TSLA), Nissan (NSANY.PK), General Motors (GM) and a veritable host of newcomers that are positioning for future IPOs and certain to change the world. While the following graph is a little dated, it shows why the electric pipe dream can’t happen unless some genius in a garage comes up with an entirely new way to store electricity.

8.19.11 Batteries.png

Liars poker can be a fun way to fritter away the hours in Wall Street watering holes like Fraunces Tavern, but it creates enormous risk for investors who hear about four sevens but never hear about the other six characters in the serial number. I've seen this melodrama before. For the period from 2000 through 2003 fuel cell developers like Ballard Power (BLPD) and FuelCell Energy (FCEL) carried nosebleed market capitalizations based solely on dreams. From 2005 through 2007, it was the age of corn ethanol kings like Pacific Ethanol (PEIX). Lithium-ion battery developers have already taken it on the chin and there's no question in my mind that Tesla will be the next domino to fall. Its demise is every bit as predictable and certain as Ener1's was.

It's frequently said that those who do not learn from history are condemned to repeat it. There isn't much I can add.

Disclosure: None. | | Comments (12)

May 10, 2010

Redefining Alternative Energy – Not One Business but 30 Different Businesses

 Bill Paul

For investors to benefit fully from the alternative energy revolution, they must first see it for what it is, namely, some 30 different businesses, separate yet interconnected in their goal to reduce the use of oil, coal and/or natural gas and, with it, the emissions these fossil fuels generate.

While wind and solar dominate the news, analysts’ research reports, and alternative energy ETFs, there are many other prospective long-term winners receiving far less attention.

Some are developing other alternative energy sources, such as geothermal, biomass and biogas, wave and tidal, and algae. Some are developing various forms of energy storage, such as flywheels, fuel cells and ultracapacitors.

Others are making a vast array of energy-saving products, from LED light bulbs to ‘stop-and-start’ motor vehicle systems. Still others are developing components for the coming era of electrified transportation other than lithium-ion batteries, for example, electric bikes and scooters and electric-vehicle recharging equipment (aka, the electric gas pump).

Other companies are involved in alternative energy as consultants and information providers, as investors in green and smart-grid developers, and as renewable energy insurance providers.

To be sure finding technology-based pure-play companies that are still small and undiscovered represents the biggest potential payoff. But especially if you have a low risk tolerance, multinational giants generally associated with other sectors also have the potential to pay off big, given all the money governments are throwing at green energy, energy efficiency, electrified transportation, the smart grid, carbon trading, and more.

Indeed, as much as everyone is looking for the next Cree (CREE) and First Solar (FSLR), over the long-term alternative energy’s biggest winners likely will also include Siemens (SI), General Electric (GE), Microsoft (MSFT) and Apple (AAPL).

For more on all this, investors might want to sign up for a free webinar taking place tomorrow, May 11 at 1 pm EDT. For information, please go to:

http://2greenenergy.com/bill-paul-webinar/

September 24, 2009

Climate Change & Corporate Disclosure: Should Investors Care?

Charles Morand

On Monday morning, I received an e-copy of a new research note by BofA Merrill Lynch arguing that disclosure by publicly-listed companies on the issue of climate change was becoming increasingly "important". The note claimed: "[w]e believe smart investors and companies [...] will recognize the edge they can gain by understanding low carbon trends." I couldn't agree more with that statement.

It was no coincidence that on that same day the Carbon Disclosure Project (CDP), a non-profit UK-based organization that surveys public companies each year on the state of their climate change awareness, was releasing its latest report at event organized by BofA/ML in NYC.

I am fairly familiar with the CDP, having worked on one of the reports in 2006. In a nutshell, the CDP sends companies a questionnaire covering various topics such as greenhouse gas (GHG) emissions, programs to manage the identified risks of climate change, etc. (you can view a copy of the latest questionnaire here). The responses are then aggregated and made into a publicly-available report.

The CDP purportedly sends the questionnaire on behalf of institutional investors who are asked to sign on to the initiative but have no other obligation. The CDP currently claims to represent 475 institutional investors worth a collective $55 trillion. Not bad!

Putting Your Money Where Your Signature Is?

Despite their best efforts, initiatives like the CDP or the US-based CERES are mostly inconsequential when it comes to where investment dollars ultimately flow. Investors are asked to sign on but are not required to take any further action, such as committing a percentage of assets under management to low-carbon technologies or avoiding investments in companies with poor disclosure or that deny the existence of climate change altogether.

Case in point, the latest Global Trends in Sustainable Energy Investment report found that, in 2008, worldwide investments in "sustainable energy" totaled $155 billion. That's about 0.28% of the $55 trillion in assets under management represented by CDP signatories. A mere 1% commitment annually, or $550 billion for 2008, would substantially accelerate the de-carbonization of our energy supply, probably shrinking the time lines;we're currently looking at in several industries to years rather than decades.  

And that's ok. By-and-large, investors are investors and activists are activists. In certain cases, investors can be activists, either from the left side of the political spectrum with socially-responsible funds or from the right side with products like the Congressional Effect Fund. But overall, most sensible people want investors to be investors.

That's because the function that investors serve by being investors rather than activists is a critical one in a capitalist system - they force discipline and performance on firms and their management teams. By having to compete for capital with other firms in other sectors, clean energy companies have an incentive to crank out better technologies at a lower cost, and that process will have positive implications for all of society in the long run.

The problem with the CDP is that it's really an activist organization parading as an investor group. If the Sierra Club were to go around and ask Fortune 500 companies if they wanted to be hailed as environmental leaders in a glossy new report with absolutely no strings attached, I bet you anything they would get 475 signatures in a matter of days. And so it goes for CDP signatories - institutional investors the world over get to claim that climate change keeps them up at night while not having to deploy a single dime or alter their asset allocation strategies.

Approaching Climate Change Like An Investor

Someone approaching climate change like an investor - that is, as a potential source of investment outperformance (long) or underperformance (short or avoided) - isn't likely to care for activist campaigns aimed at forcing large corporates to disclose information on the matter; in fact, they may prefer less public disclosure to more.

That is because one of the greatest asset an investor can have is an informational advantage. In the case of climate change, those of us who believe that it's real and who think they can put money to work on that basis have a pretty good idea where to look and what to look for - we don't need the SEC to mandate disclosure. Those who think it's one giant hoax couldn't care less - they don't need the SEC to get involved, either. Yet this is where such campaigns are going, according to the BofA/ML report.

I like to think of climate change as an investment theme in terms of three main areas: (1) Physical, (2) Business, and (3) Regulatory. All three areas present investment risks and opportunities.

Opportunity Risk
Physical DESCRIPTION: Companies that stand to gain  from strengthening or repairing the physical infrastructure because of an increased incidence of extreme weather events or a changing climate. Examples include electric grid service companies such as CVTech Group (CVTPF.PK), Quanta Services Inc (PWR) and MasTec Inc. (MTZ)


TIMELINE
: Medium-term   
DESCRIPTION: Companies that stand to be negatively impacted by more frequent and more powerful extreme weather events, or by a changing climate. Examples include ski resort operators, sea-side resort operators and property & casualty insurers.  




TIMELINE
: Long-term
Business DESCRIPTION: Companies that provide technologies and solutions to help reduce the carbon footprint of various industries, be it power generation, transportation or the real estate industry. Renewable energy and energy efficiency are two obvious examples.




TIMELINE
: Immediate     
DESCRIPTION: Companies that make products that increase humanity's carbon footprint and that could fall out of favor with consumers on that basis. Examples include car makers with a large strategic and product focus on SUVs and other needlessly large vehicles.




TIMELINE
: Medium-term
Regulatory DESCRIPTION: Firms that have direct positive exposure to the regulatory the responses to climate change enacted by governments. Examples include firms that operate exchanges or auction/trading platforms for carbon emission credits such as Climate Exchange PLC (CXCHY.PK)  and World Energy (XWES).


TIMELINE
: Near-term
DESCRIPTION: Companies that are in the  regulatory line of fire for carbon emissions. Coal-intensive power utilities are a good example, as are other energy-intensive industries that might have a limited ability to pass costs on to consumers because of high demand elasticity or fierce competition.



TIMELINE
: Near-term 

This categorization provides a high-level framework for thinking about what may be in store for investors as far as climate change goes. However, with the exception of Business/Opportunity and Regulatory/Opportunity, the investment case is not necessarily clear-cut and requires some thinking.

For instance, oil would seem like a perfect candidate for the Business/Risk category were it not for another major and more powerful price driver: peak oil. As for Regulatory/Risk, the European experience thus far has shown how open a cap-and-trade system is to political manipulation, and firms there have been able to withstand the regulatory shock more because of achievements on the lobbying side than on the operational side. That is why I have stressed in the past that understanding emissions trading was more about understanding the rules and the politics than about understanding the commodity.

Nevertheless, these trends are worth following for people who: 1) like investing and 2) think that climate change is not the greatest hoax ever perpetrated on the American people. For instance, CVTech Group (CVTPF.PK), a small Canadian electrical network services company, reported that in fiscal 2008 around 58% of its annual revenue increase (C$23.0 MM) was due unscheduled electricity infrastructure repairs as a result of hurricanes in Texas, Louisiana, North Carolina and South Carolina. In the annual report, management noted: "Since 2005, an increase in the occurrence of hurricanes has resulted in growing demand for our services in these states."

Conclusion

I have nothing against the concept of activist organizations going after corporations with various demands, be they influenced by left- or right-wing thinking; after all, we live in a free, open society and it's everyone's right to do so within the confines of the law.

What I don't like quite as much is hypocrisy and greenwashing. As far as I go, if an institutional investor truly believes that climate change can be a worthwhile investment theme, they should put a couple of analysts on it and figure out how to put money to work. If they don't believe that it is, then they should just go on doing what they do best: manage money.

What they shouldn't do is pretend to see an investment risk or opportunity where they really don't just to appease a handful of vocal stakeholders. Lobbying to get the SEC to force disclosure on climate change is nothing more than window dressing; investors who think this is real already know where to look and what to look for and - surprise, surprise - it's not rocket science!

DISCLOSURE: None

September 20, 2009

Book Review: Investment Opportunities for a Low Carbon World (Cleantech Indexes, Funds and ETFs)

Charles Morand

This is the third installment of my review of the book book "Investment Opportunities for a Low Carbon World". The second installment covered geothermal power and energy efficiency and the first installment covered wind and solar.

This post reviews three interrelated chapters on the world of cleantech and alt energy indices, funds and ETFs. Two of these three chapters are my favorite in the book so far -  they provide very useful information for the novice investor with an interest in alt energy investing but limited time and knowledge for successful stock picking. 

Cleantech and alt energy are challenging sectors to invest for several reasons: (1) pure-plays tend to be risky investments because substantial technology and business risks often exist; (2) when pure-plays are not so risky (i.e. wind power), stocks tend to trade at outrageous multiples, with several years of strong growth already fully priced in; (3) the stocks of non-pure plays with some exposure to alt energy trade, more often than not, based on what happens in other parts of the company, requiring investors to own businesses they might have little interest in or understanding of (e.g. General Electric (GE) and Siemens (S)).        

The alternative to equities is to invest in one of the alternative energy and cleantech ETFs (either long or short) or purchase one of the alt energy mutual funds. I generally believe the latter option to be less desirable than the former, mostly because of high expense ratios and other fees. ETFs, in my view, provide an excellent way for retail investors to gain exposure to the sector - although overpricing and volatility issues still exist, firm-level risk is eliminated and risk is spread over a large number of securities at a relatively low cost.

Measuring the Performance of Environmental Technology Companies

David Harris, FTSE Group

This chapter provides an introduction to cleantech and alt energy stock indices. Early on in the chapter, the author notes:

"Active managers claim they can identify those companies with above market average growth potential, but at this stage in the sector's evolution it is impossible to know which environmental technology companies will be the winners"

While I don't think this assessment applies equally to all sub-sectors of the environmental technology market, this statement still sums up relatively well the landscape for most retail investors and, as mentioned above, provides a strong argument for index-based investing.  

The chapter then moves on to provide a methodology for breaking down the environmental technology sector into sub-sectors, based on the approach used by FTSE in making its Environmental Technology Index Series. It then lists out the main environmental technology indices available and their key characteristics.

Overall, this is a useful chapter for investors in understanding how index makers approach the process of index creation. Since indices form the backbone of ETFs and are the single most critical determinant of ETFs' relative performance, this is a process worth understanding. However, the author could have provided more technical information to increase the chapter's usefulness to investors with an intermediate level of knowledge.

Investment Approaches and Products for Investors

Clare Brook, WHEB Asset Management

This chapter provides a review of the following investment vehicles: socially responsible (SRI)/ethical funds, cleantech mutual funds, private equity cleantech funds and environmental hedge funds.

We learn that the largest holdings in most ethical/SRI funds are often in industries unrelated to environmental tech such as financial services. That is because such funds, unlike cleantech and alt energy mutual funds, do not invest in anything specific - they merely avoid investing in companies and industries that violate pre-determined ethical standards. For cleantech investors, those funds are generally useless.

As far as real cleantech and alt energy mutual funds go, the author discusses the problem of over-valuation mentioned above - in her view, valuations often reflect more a scarcity of investment options in pure-play cleantech stocks than realistic expectations for future growth.

The criteria provided by the author to evaluate different investment options are the most part of this chapter. The one thing that the author stresses across different actively-managed investment products is the quality of the management team, its experience and its track record. I would tend to agree - if someone decides to invest in mutual funds, these factors should arguably weigh more than the expense ratio, as they help put the expense ratio into perspective.

Exchange Traded Funds as an Investment Approach

Lillian Goldthwaite, Friends Provident  

This chapter provides a detailed overview of ETFs and makes the case well for using them in a portfolio. I particularly liked this chapter.

According to the author, some of the main strengths of ETFs are: they are traded on exchanges and can be bought and sold (and priced) throughout the day; they can be sold short, bought on margin and loaned; the portfolio can be viewed in its entirety at all times and the index construction process is transparent; and the process by which institutional investors can acquire and redeem shares by trading in the stocks of companies in the index ensures that no sizable gap emerges between net asset value and portfolio value.

As with the previous chapter, the author provides a checklist of items to research when doing the due diligence on an ETF. The chapter concludes with a list of ETFs in cleantech and alt energy, but also in nuclear energy, carbon emissions, timber and water.

The author does not delve particularly deep into cleantech  per se, keeping the discussion focused instead on ETFs more generally. 

Overall, I found this chapter interesting and quite useful. As is the case with the preceding two, there is less to say about this chapter than there was about the ones on environmental technologies that I reviewed in the first couple of installments, mostly because these chapters are shorter.

The more seasoned investor is unlikely to learn much from this section of the book. But so it goes for such books in general; they are ideally suited for novice investors who want to get started investing into the sector and want a framework to approach the process.

For those interested in cleantech and alt energy ETFs, the following articles might be of interest:

Wind
Solar
General alt energy and cleantech 
Carbon emissions   

DISCLOSURE: None 

* We are always interested in reviewing books and reports in the areas of alternative energy, cleantech or other environmental industries, especially where they add value to the investment decision-making process. If your organization would like a new book or report reviewed, please contact us

September 14, 2009

Book Review: Investment Opportunities for a Low Carbon World (Geothermal + Efficiency)

Charles Morand

Last Thursday, I reviewed two chapters from the recently published book "Investment Opportunities for a Low Carbon World"*. This post reviews two more.

 Geothermal Energy

Alexander Richter, Glitnir Bank (now Íslandsbanki)

Geothermal is one of the most interesting forms of clean power generation there is. As noted by the author, the most convincing argument for geothermal electricity is the fact that it operates at capacity factors in the upper 90s. This makes it the only renewable technology suitable for baseload power with the exception of dam-based (i.e. large-scale) hydro.

However, as the chapter demonstrates, global potential is unevenly distributed, with Asia, North America and Latin America having around three to four times more potential than Europe, Africa and Oceania. Besides a brief review of the global picture, the book focuses largely on the US, which will most likely remain the most active market for a few more years (the US currently accounts for a third of global installed geothermal electric capacity).

The author does a good job of breaking the geothermal development business model into its main phases (exploration, pre-feasibility, feasibility and design & construction) and explaining the various types of capital flows required at each stage, as companies move from a mining exploration business model (exploration, pre-feasibility, feasibility) to a power generation utility model (design & construction). What's missing, however, is a discussion of the probability of project success at each stage, with risk typically culminating in the feasibility phase with important sums of cash being spent on exploration drilling with no guarantee that the resource will materialize.

The chapter's strength is undeniably its assessment of the current state of the US market. The author uses data from a number of different sources to show the future potential of the market. California is expected to lead the way with Nevada coming in second. Based on a database of where the overall pipeline of US projects was at at the end of 2008, the author estimates that several projects will reach the feasibility and design & construction phases in 2011 and 2012, which should lead to greater demand for capital by the industry.

The chapter also touches on direct use geothermal, although the discussion is far less detailed than that on geothermal electricity. This despite the fact that the author writes: "[t]he biggest potential and prospects for the shorter term are in the direct use of geothermal energy, particularly for heating and other applications that use heat directly."

As with the first two chapters I reviewed, I would have liked a few stock picks, and I believe a sub-section on opportunities in the equipment sector might have been interesting. However, this chapter fulfilled its purpose well; it provided a good introduction to the sector and can serve as reference material for later on. The US data was also very useful.

Energy Efficiency as an Investment Theme

Zoë Knight, Cheviot Asset Management

Energy efficiency is the most straightforward way of cleaning up our electricity supply and, given the right incentives, could also be the cheapest one (up to a point, as efficiency investments eventually run into diminishing marginal returns). We learn that in 16 IEA countries with strong efficiency profiles, efficiency measures resulted in aggregate savings worth US$180 billion in 2005 - not bad!

Incentives is thus exactly what a large part of this chapter focuses on. The author provides a thorough review of European policies and US efficiency targets outlined by the Obama administration to date. In both cases, it appears evident now that a trend toward greater energy efficiency incentives and regulations is well underway.

The author also provides a breakdown of global fuel consumption by category and identifies sectoral investment opportunities that could arise in each category. On the manufacturing side, the greatest opportunities are in machine drives (refrigeration, fans, pumps, compressors and materials processing). For households, hot water and central heating are key areas. 

However, as with other chapters I've reviewed so far, there are no specific stock picks. I did learn, however, that Merrill Lynch created an energy efficiency equity index. However, because all substantive info on the index seems to be accessible only to clients, this won't help retail investors much.

I found the review of US and EU policies very useful, but would have appreciated a greater focus on some of the main technologies that are currently commercially available (with the exception of LED lighting which is well covered), as well as some stock picks.

The author makes the following useful point about large companies with exposure to efficiency (most of the opportunities currently available to investors in this area are large conglomerates): "investors need to identify whether the theme is a large enough driver to warrant stock selection or whether there may be other factors that will drive valuation of the stock [...], outweighing the positive structural drivers from increased investment at a government level into energy efficiency. As with any equity investment, positive long-term structural drivers may differ from short-term trading cyclicality."

DISCLOSURE: None 

* We are always interested in reviewing books and reports in the areas of alternative energy, cleantech or other environmental industries, especially where they add value to the investment decision-making process. If your organization would like a new book or report reviewed, please
contact us

September 10, 2009

Book Review: Investment Opportunities for a Low Carbon World (Wind + Solar)

Charles Morand

Tom and I recently received complimentary copies of a new book called "Investment Opportunities for a Low Carbon World", edited FTSE Group's Director of Responsible Investment Will Oulton*. 

Sep 10-09 book review.bmp

The book is a compendium of articles by 31 different authors broken down into three main categories: (1) environmental and low-carbon technologies; (2) investment approaches, products and markets; and (3) regulation, incentives, investor and company case studies.

While Tom will provide a comprehensive review of the book once he's finished reading it in its entirety, I will instead review a few selected chapters over the course of the next couple of weeks.

I decided on this approach as that is how I generally use such a resource; I select the chapters and authors that I am interested in and I read only what I selected. That said, the majority of chapters in this book were of interest to me and I ended up selecting 19 out of 27 that I'm going to read (I won't be reviewing them all!) Truth be told, reviewing the contents section made me feel like a kid in a candy store and I suspect that most alt energy investing aficionados would feel the same. If I like what I read, I will most likely finish the book.    

This first post provides reviews of Chapters 1 and 2 on the wind and solar sectors.

Wind Power

By Mark Thompson, Tiptree Investments ltd

I tend to consider myself pretty well-versed in all things wind power, and so I was especially eager to read this chapter. Overall, I was very pleasantly surprised.

The author provides a good review of the wind turbine and wind turbine component industries. I especially enjoyed the technical discussion on turbine size and optimizing turbine output, which will become a critical competitive element for turbine makers.

For instance, we learn that because of the relationship between diameter and surface area for a circle, the power of one machine can be increased to match that of several smaller machines by simply lengthening the blades, thus lowering requirements for a range of other components and materials (for instance, two turbines with rotor diameters of 40 meters will have a power output of about 1000 kW, whereas one turbine with a rotor diameter of 80 meters can power 2500 kW.) Because of the mathematics of this, power output increases acheived through longer blades should further improve the economics of wind, so this is definitely a trend worth keeping an eye on.  

We also learn that while the turbine market has been chronically under supplied for the past few years, conferring the incumbents an appreciable amount of market power - the author estimates that the top six makers hold a combined 84% market share -, barriers to entry remain high and very difficult to surmount for would-be suppliers. Concerns over quality, durability, track-record and the strength of the balance sheet to support warranties are all factors that make it very difficult to secure funding for projects using a newcomer's technology. It is fair to say that Thompson is bearish on new market entrants.

Finally, we learn that the trend toward turbine makers internalizing sub-component design and manufacturing is restricting investment opportunities in pure-play supply chain opportunities.

However, what I enjoyed the most about this chapter was the detailed overview of how wind projects are built and what factors make them successful. When it comes to wind power, investment commentators tend to focus on turbines and turbine components, even though very interesting opportunities exist in the project development and operation space. In the author's words: "the development process offers some of the best returns in the sector [...]."

One key point made by the author in that regard is that headline figures about the size of various developers' portfolios are rarely - if ever - comparable given the various developments stages involved in bringing a project into operation. The risk-return profile for pure-play wind power developers is far more driven by the quality of the projects than by the size of the portfolio. However, disclosure tends to be weak in that regard, making it difficult for small investors to gauge the real value of a portfolio.

Overall, I thoroughly enjoyed this chapter. In my view, the information would be most useful to a fundamentally-driven investor looking to really understand how wind power and the wind power industry really work. While the chapter does not answer every question an investor might have, it nonetheless provides the right balance of technical and business information to set someone on the right path. It is a reference to which I will go back.  

Those looking primarily for stock picks, however, will be disappointed. The lack of stock picks is probably the chapter's weakest point, especially given that the book is purportedly about investment opportunities. Having said that, investment ideas abound on the Internet these days and books focused too heavily on providing stock picks at the expense of more general information risk having very short shelf-lives.

Solar Power          

By Matthias Fawer, Bank Sarasin

Writing a book or a book chapter on solar power, especially solar PV, is always a risky endeavor as the information could be outdated 12 months after publication. I thus salute the effort of those who undertake to do it, but in my view this sector is best left to specialist consultancies and sell-side analysts because they can easily update their analysis when conditions change, something that happens frequently in the world of solar PV.

Matthias Fawer's chapter does, in a lot of ways, read like a sell-side report. It covers three broad sub-sectors of solar: (1) solar photovoltaic; (b) solar thermal; and (c) solar collectors. Other than for solar thermal, the way in which the chapter is written assumes the reader already has a fair bit of solar knowledge. For instance, unlike your typical generalist piece on solar PV, few if any details are provided on what the main solar PV cell technologies are, how they compare in terms of price and performance and which company makes them.

The advantage of this approach is that it allows the author to jump straight into industry-level dynamics and not waste precious space explaining what many people already know. For instance, we learn fairly early on that Bank Sarasin sees silicon cell production appreciably outpacing module production until about 2012, potentially providing module makers with a margin expansion opportunity. We also learn that the plant engineering firms that had done so well when every cell manufacturer and their grandmother was adding production capacity during 2007 and 2008 could underperform in the next few years.

Of course the drawback from not providing a lot of technical background is that it makes the chapter a lot less useful for the novice solar investor, or even for the investor who knows a little bit but does not follow the industry closely. The author does, however, provide a ranking of the "strategic positioning" of 27 solar PV firms based on a proprietary model, with his top pick being Q-Cells (QCLSF.PK) from Germany.

The section on solar thermal, also known as concentrating solar power (CSP), contains more basic information on the technology, and provides an overall very good introduction to the sector. Unfortunately, there is a dearth of CSP investment options, and this sector is thus effectively off-limit to most retail investors.

The section I liked the most in the chapter was the one on solar collectors for building and water heating, an industry I knew about but had never researched. I learned, much to my amazement, that by the end of 2008 there was 142 GW of solar collector capacity installed worldwide, versus 12 GW of solar PV and 1.3 GW of CSP.

China is by far the largest market for solar collectors and, unlike in other industries, it absorbs, according to the author, 90% of its own production. Fawer expects annual growth to be about 25% until 2011 and to settle at 18% between 2011 and 2020. However, the much larger installed base currently means that the absolute level of new installations could be quite massive. Although the section on solar collector does not provide stock picks, it most definitely poked my interest and convinced me to look further into this.

Overall, while I was a bit underwhelmed by the solar PV section, I found the CSP section useful and the section on solar collectors very interesting. A greater technical focus would have strengthened the chapter given how technologically complex solar is, and more stock picks would have been appreciated. However, I will definitely go back to the chapter when I do research on solar collectors and even CSP.

DISCLOSURE: None

* We are always interested in reviewing books and reports in the areas of alternative energy, cleantech or other environmental industries, especially where they add value to the investment decision-making process. If your organization would like a new book or report reviewed, please contact us    

March 25, 2009

How Likely Is A Big Rally For Alt Energy Stocks?

Last week, Jefferies & Co. held its Global Clean Technology Conference. Unsurprisingly, the tone wasn't as optimistic as in previous years, with cash and funding worries top of mind. Nearly two months ago, I discussed some tangible signs pointing to looming problems in the industry. However, despite all the gloom, it seems as though several firms (and investors!) are expecting the American Reinvestment and Recovery Act (ARRA) to provide the industry with a lifeline. But will this really be the case?

For one thing, the major environmental spending programs in the ARRA are relatively targeted (i.e. smart grid, storage, clean transportation) and, although a broad range of companies could benefit from measures such as an extension of the production tax credit, direct government cash payouts will not be forthcoming for all. What's more, it now looks like Obama's plan for a cap-and-trade system, which would have provided a major boost for clean power, will be scrapped. This is something I discussed a little while ago: while I do believe a cap-and-trade program will one day be part of the the US environmental regulatory landscape, it's a very tough sell at best - and political suicide at worst - in the midst of an economic slump that is leaving millions of unemployed in its wake. Whether environmentalists like it or not, the general public still sees greenhouse gas regulation as a negative-sum affair.

Can the ARRA single-handedly prevent the sector from going through a massive shake-out that will see many of the smaller firms wiped out or taken over? That's highly unlikely. Like any industry, alt energy's lifeblood is financing, and no legislation can fully make up for dysfunctional capital markets. At this point in the game, with many world governments having declared their unconditional support for clean energy, there's still one key ingredient missing: it's the banks, stupid! (At least according to Vestas' CEO in the interview below)

Given the slow pace at which normal credit conditions are returning and enduring doubts about the viability of many banks, I don't expect a broad-based rally in alt energy/cleantech stocks on the back of the ARRA this year. While certain select stocks will most certainly do well, the potential beneficiaries of the ARRA have by now mostly been identified. Those who expect a rapid return to the days when cleantech stocks outperformed just by virtue of being cleantech stocks are in for a nasty surprise; a general rally in equities, if it does occur in 2009, might pull the good (i.e. operating profits, free cash flows, high current ratios and low total debt levels) alt energy firms up but will leave the sketchy ones behind. This is a new era, and investors are a lot more risk-conscious than they used to be.

December 11, 2008

Solar Stocks As the Best Play On The Cleantech Revolution? (Part I)

I just got around to reading a new report by Merrill Lynch (link at the end of this article) identifying cleantech as "The Sixth Revolution" (the other five being: Industrial Revolution; Age of Steam & Railways; Age of Steel, Electricity and Heavy Engineering; Age of Oil, the Automobile and Mass Production; and Age of Info and Telecommunications). Periodically, sell-side firms will release free cleantech/alt energy reports, which lay out their macro theses but stop short of providing stock picks to non-clients.

I don't generally pay these reports too much attention as I find they rarely - if ever - present new information or look at things in a different way (i.e. they are packed with existing and sometimes dated data and are quite predictable in their orientation). This isn't surprising, as their clients don't pay them to give away all of the goodies. This one, however, was quite interesting. The author, Steven Milunovich, is Merrill's "cleantech strategist." He comes from a technology equity research background and uses his knowledge of tech's historical development path, along with theories of disruptive technologies, to predict how cleantech might evolve.

In his view, once the current funding storm has passed, cleantech will enter a secular growth phase that will last many years, and that he calls nothing short of a revolution. While he likes energy efficiency applications like smart-grid, he points out that, somewhat paradoxically, greater energy efficiency will lead to higher absolute levels of energy consumption. This perspective, based on the Jevons Paradox, states that as efficiency increases and the energy intensity of a unit of output decreases, energy costs also decrease across the system, eventually boosting absolute demand because the increase in throughput outpaces efficiency gains. According to Milunovich, the "counterintuitive conclusion is that the ultimate goal of cleantech should be to provide essentially limitless energy that can be wasted."

Where does he think this energy should come from? Well, a variety of places, but he is particularly bullish on solar, for two reasons: (1) solar is by far the most abundant energy source on Earth, and (2) solar is on the steepest price-performance improvement curve. Interestingly, the author is also bullish on solar because he views the structure of the electricity market as eventually moving from vertical to horizontal, much like technology pre-1990s was dominated by large, vertically-integrated firms (e.g. IBM), only to be overtaken in the 1990s by small firms working on disruptive technologies. He thus sees a much greater role for distributed generation in the future, and it is therefore logical he should like solar given the degree to which solar can be deployed through the building stock as a load-abatement measure.

Here are a few interesting quotes:

"In our view, practical peak oil is real, so oil prices should eventually move back up."

"[U]pgrading transmission adds 30-40% to the cost of renewable energy."

"Energy storage is the holy grail of cleantech and a difficult problem."

"Huber and Mills point out that more than 85% of the growth in US energy demand since 1980 has been met by electricity."

"[O]ur early take is that increasing electrification of the economy will continue with solar the most promising approach."

"DOE's Pacific Northwest National Lab estimates that plug-ins would have to constitute over 80% of the coutnry's 220 million passenger vehicles before new base load plants would be needed."

Find the press release here, and the actual report here (PDF document).

 

Charles Morand                

November 06, 2007

Alt Energy Stocks Analyst Tom Konrad On PBS's WealthTrack

Alt Energy Stocks Analyst Tom Konrad will join a televised roundtable discussion with EnergyTechStocks' Managing Editor Bill Paul and Ardour Global Indexes' Joseph LaCorte this Friday. The discussion will center around the topic of investing in alternative energy. The program, entitled WealthTrack with Consuelo Mack, will air on PBS between November 9th and 12th, after which it will be available for online viewing here.  You can find a listing of stations carrying the show with airtimes at the end of this article.

Bill Paul may be familiar to our readers because of the series of articles he wrote following an interview with Tom in August. Topics ranged from utility scale batteries (currently getting a great deal of attention because of AES recent purchases), batteries for vehicles, Tom's ambivalence about biofuels and his enthusiasm for transmission, top picks in the energy efficiency space, why forestry companies are a good way to play cellulosic ethanol (because wood will be the feedstock of choice for cellulosic plants such as Range Fuels' in Georgia), and why Alcoa is green.

Joseph LaCorte, while perhaps less well known to our readers, is also a significant player in alternative energy investing sector. The Global Alternative Energy ETF (NYSE: GEX) is based on the index Mr. LaCorte manages, and is currently Tom's favorite Alternative energy ETF, at least for people not yet ready to manage an individual stock portfolio.

All and all, this promises to be a very insightful discussion and is a must-see for serious alternative energy investors.

Continue reading "Alt Energy Stocks Analyst Tom Konrad On PBS's WealthTrack" »

November 05, 2007

Deutsche Bank On Investing In Climate Change

I recently got around to reading Deutsche Asset Management's (DeAM) note on investing in climate change (PDF document). There is very little original work in this paper. Most of the tables and figures are derived from existing studies by the likes of McKinsey, the IPCC and New Energy Finance, to name a few. The paper synthesizes publicly-available information on cleantech and climate change trends into a broad investment thesis.

DeAM sees investment opportunities as falling in two main categories: Adaptation (e.g. water management, disaster control, infrastructure) and Mitigation (renewable energy, clean power gen, energy efficiency). They identify four key drivers of growth in target sectors: (1) government policies and regulations; (2) carbon prices; (3) environmental action by corporations; and (4) low-carbon technologies and services. The authors do acknowledge the high degree of interrelatedness between these four components.

The report then goes on to outline the methodology employed to create a climate change-themed equity portfolio using the MSCI World as the underlying index. The list of potential constituents and their respective weights in the portfolio are, of course, not provided. It is also unclear who provided the research into companies' climate change risk/return profiles based on factors like positioning in the cleantech sector and regulatory exposure. Based on my own direct experience with this sort of work, I can almost guarantee that was not Deutsche's equity analysts.

This report comes a little late in the game. There have been plenty of good, free climate change investment reports released by the sell-side over the past two years, and there is very little substantive insight left to be provided through this route. As a marketing exercise, this is also of limited usefulness for the exact same reason.


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!

September 12, 2007

Power Purchase Agreements Webinar

Greentech Media is hosting a one-hour webinar at 12:00 PM ET Wednesday, September 19th, entitled "The Advance of the Solar PPA: When an Organization is Ready for a Power Purchase Agreement."

PPAs are an interesting new area of activity in alternative energy, and definitely something worth understanding for the alt energy investor. For further details and registration, visit Greentech Media's special section for this event.

August 21, 2007

Q2 2007 Renewable Energy Country Attractiveness Indices

Ernst & Young recently released its Q2 2007 Renewable Energy Country Attractiveness Indices . As part of this initiative, E&Y typically publishes three forward-looking indices that rank countries based on their alternative energy investment friendliness. The indices are: the All-renewable Index, the Long-term Wind Index and the Near-term Wind Index (2-year time horizon).





This edition of the Renewable Energy Country Attractiveness Indices report also contains a short discussion on supply-chain gluts in the alternative energy space. We have already discussed some of the potential investment opportunities related to this in the wind sector. The authors note:

"Given current rates of industry growth of 20% to 30% and manufacturers’ focus on profitability, supply chain constraints are likely to continue in the medium term notwithstanding new future entrants from China, South Korea, India, and possibly Japan."

The report discusses some of the biggest deals to have taken place in the past few months (e.g. Suzlon’s acquisition of REpower in June 2007 valued at €1.35b) and opines that "mergers and acquisition (M&A) activity is likely to filter down the supply chain, placing a premium for key players such as gearbox and bearing manufacturers." Industry consolidation clearly is, at this stage in the game, the 500-lb pound gorilla in the alternative energy room. Watch for consolidation plays not only in gearbox manufacturers but also in the North American Independent Power Producers sector.

Happy reading!

June 07, 2007

The Economist is Cleaning Up

The Economist ran, in its edition for the past week, a series of very interesting articles on the topic of business and climate change called "Cleaning Up: A Survey of Business and Climate Change". To access the articles, go to the Economist's page for that edition and scroll down to the section called A survey of business and climate change (right side of the page).

Some of the more interesting articles, from my point of view:

1) Emissions trading

2) The wind and solar industries

3) Clean coal

Happy reading!

June 01, 2007

Annual Alternative Energy Market Survey

The Distributed Energy Financial Group LLC (DEFG) and Market Strategies Inc. (MSI) released, on Wednesday, the results of their Third Annual Alternative Energy Market Survey. This report is based on a online survey of 450 "industry leaders".

Unsurprisingly, survey participants remain very bullish on revenue growth in the sector, expecting aggregate revenues to grow by 87% in 2007. That growth, several agree, will continue to be driven in part by strong support by various levels of governments.

Some other interesting bits information from the survey:

- While energy is forecasted to continue being a main driver for industry growth, demand management and energy efficiency are now seen as appreciably contributing to that growth as well. This is because technologies such as smart metering provide tangible and immediate economic benefits to customers.

- Some good opportunities for growth now appear to lay with governments and the residential segment (see point above)

- Wind, solar and biofuels are forecasted to remain strong to 2012 - no big surprise here

- Tax credits are perceived to be the most powerful tool governments can use to foster expansion in alternative energy


May 22, 2007

Q1 2007 Renewable Energy & Biofuels Country Attractiveness Indices

Q1 2007 Renewable Energy Country Attractiveness Indices

Ernst & Young recently released its Q1 2007 Renewable Energy Country Attractiveness Indices, a series of indices that rank countries on their attractiveness with regards to alternative energy growth and development. These indices provide good yardsticks for investors who want to know which markets offer the best near and long term alt energy growth prospects.

The report presents three main indices, whose names are fairly self-explanatory:

(1) The All Renewables Index


(2) The Long-term Wind Index (>2 years)


(3) The Near-term Wind Index (<2 years)


The report is a quick and interesting read. There were no particularly significant developments over the course of the period. China continues its ascent on the attractiveness scale, which should come as no surprise to industry followers. Environmental Finance provides a brief summary of E&Y's findings, along with some interesting forecasts.


Biofuels Country Attractiveness Indices

For Q1 2007, E&Y also introduces a new group of indices, the Biofuels Country Attractiveness Indices. E&Y describes these indices as follows:

"The [...] Biofuels Country Attractiveness Indices rank the attractiveness of the top 15 global markets for investment in biologically derived renewable fuels incorporating both ethanol, and biodiesel. The Q1 2007 edition includes individual scores for bioethanol, biodiesel, and infrastructure, plus a combined score making up the All Biofuels Index."

The top 15 stack up as follows on the All Biofuels Index:

May 16, 2007

Cashing In On Global Warming

Just as I was attending a debate this morning that touched, partly, on the desirability of implementing an emissions trading system to control greenhouse gas emissions, I received an email from Market Watch informing me that they were running a special report on climate change and cleantech investing.

The report features a very interesting collection of articles indeed. If you have about 1/2 hour to spare, I would recommend going through all of them. The following topics are covered:

a) Global warning and the insurance industry

b) Al Gore and David Blood's investment venture

c) The weather derivatives market (as we have pointed out before, this is an area that is sure to see some healthy growth in the years ahead)

d) Carbon finance and emissions trading (the article opines that carbon trading could represent one of the biggest earners for energy desks within a few years)

e) Whether or not the current popularity of alt energy stocks is just a fad.

f) A look at cleantech funds and ETFs from a personal finance perspective.

Nothing particularly groundbreaking for anyone who follows this space closely, but it's always interesting, in my view, to keep up with cleantech investing reports in the popular press.

One thing I've noticed - such reports are becoming increasingly sophisticated, and I think the public at large is getting a much better understanding of the opportunities and pitfalls associated with cleantech investing. What's the implication of this? It should become a lot more difficult, in the years ahead, to find cheaply-priced cleantech gems.

March 20, 2007

Solar Power on Wallstrip

TheStreet.com is running a video segment on solar power as part of its Wallstrip series. The segment's date is 03/20/2007.

If you're a long-term solar follower you definitely won't learn too much here. Nevertheless, the vid does a good job of outlining governmental efforts to boost the growth of solar in the US. Short and interesting.

The segment is especially positive on: FirstSolar [NASDAQ:FSLR] and Trina Solar [NYSE:TSL].

Positive on: Canadian Solar [NASDAQ:CSIQ], Ascent Solar [NASDAQ:ASTI] and Suntech Power [NYSE:STP].

Negative on: Sunpower Corp [NASDAQ:SPWR].


February 11, 2007

"Reduce Overweight In Energy Stocks", Warns CIBC World Markets

Many of our Canadian readers will have heard about this already, but better later than never.

CIBC World Markets, the corporate banking arm of Canadian bank CIBC, made "a significant realignment in [its] equity portfolio this month by reducing [its] position in energy stocks from a 4.5-percentage-point overweight to a 3-percentage-point overweight", citing increasing risks linked to efforts by North American governments to reduce energy consumption and limit greenhouse gas emissions.

CIBC WM made the announcement in its latest Canadian Portfolio Strategy Outlook report (PDF document), released on Monday Feb. 5.

I decided to discuss this research note here for 2 reasons: (a) even though the report is called "Canadian Portfolio Strategy Outlook", the discussion on the short-term investment risks and opportunities linked to current efforts to combat climate change applies as much to the Canadian context as it does the US context; and (b) this is the 1st time, as far as I can tell, that a major North American financial institution not only acknowledges the investment risks associated with climate change, but also translates that acknowledgment into a realignment of its portfolio.

Here are a few more interesting excerpts from the report:

"As with so much of North American environmental legislation, the state of California, representing the world’s 12th largest energy market, is once again taking the lead. The state’s tough new legislation is targeting a reduction to 2000 emission levels by decade-end and an eventual 25% reduction to the Kyoto-benchmark 1990 level by 2020.

At the federal level, a bipartisan bill sponsored by Senators McCain, Lieberman and Obama seeks to establish a national cap and trade system for regulating greenhouse gas emission in the US economy, another sign that the issue has now crossed party lines"


"From mandating greater ethanol content in gasoline to raising minimum fuel mileage standards, governments are waging a war on carbon. We expect the rest of North America will likely adopt cap and trade systems for GHG emissions along the lines recently introduced in California.

Utilities and oil sand producers would be adversely affected. We have dropped our overweight in utilities and reduced our overweight in oil sands although the latter are still likely to be aggressively pursued by global energy giants."


"The 1.5-percentagepoint
(see quote above) weighting cut is in view of both lower-than-expected crude demand growth in OECD countries and the increasing likelihood of some form of cap and trade system in North America regulating greenhouse gas emissions."


"Within [...] the materials group, we favor the agricultural fertilizer group, where valuations have soared as increased government support for ethanol production bolsters corn acreage and forecasts of future fertilizer demand."


February 01, 2007

Climatic Consequences

Allow me to introduce this post by saying that I wholeheartedly welcome the firming of a new trend in North America: namely viewing climate change as a value creation, rather than as a value destruction, proposition.

For the better part of the past decade, the climate change debate has been dominated by the the views of a small-yet-powerful collection of business actors with a lot to loose from seeing governments regulate greenhouse gases (GHG). This group, with its tremendous political influence, did everything that it could to stymie meaningful debate on the climate question, tirelessly arguing that moving to limit GHG emissions would equate to nothing short of economic suicide.

Fortunately, this era is coming to an end, and an increasing number of investors are now seeing climate change as a way to cash in on some new business opportunities being created across a number of sectors. Naysayers, I have this to say to you: fixing the climate is not about reducing the size of the pie, it's about altering its composition.

Now, with this in mind, let's move on to the meat of this piece: a new report by Citi entitled Climatic Consequences: Investment Implications of a Changing Climate (PDF document). I read this report last week and would definitely recommend it to folks who are having a hard time seeing where upside can arise from efforts to tackle GHG.

The report identifies 3 broad sets of "implications" related to climate change that can create business opportunities for certain companies:

Physical Implications: Select US natural gas exploration and production companies, farm equipment suppliers, agricultural biotechnology companies, and select US property insurers.

Regulatory Implications: Select electric utilities, engineering and construction firms, capital goods companies, natural gas suppliers, select automobile companies, food processors, fertilizer suppliers, wind and solar power companies, and companies focused on building energy efficiency.

Behavioral Implications: “Climate consultants? offering services that promote efficient energy usage, and companies that facilitate carbon trading.

The report lists 74 stocks, and briefly explains why each company is well-positioned to benefit from climate change.

This is a very instructive piece if you have limited knowledge of certain key clean tech areas such as clean coal, solar and wind, ethanol, etc., but especially of how these areas could see growing upside from efforts to combat climate change. The report does a good job of providing very useful information in an easy to understand, no non-sense format.

Citi does, however, warn of a few caveats:

"The key risk to our climatic consequences theme is that governments, regulatory organizations, and/or corporations no longer feel compelled to take near-term steps to respond to the perceived threat of global climate change.

In addition, part of our analysis is based on the assumption that restrictions on the emissions of various greenhouse gases will be tightened within a number of countries in future years, which may not happen for a variety of reasons, including political and economic considerations at a national and local level.

We further note that our analysis does not consider stock-specific metrics such as valuation, EPS, and P/E ratios, or balance sheets, market capitalization, and liquidity. Accordingly, when making decisions, investors should view thematic analysis as only one input. Further, since this analysis employs a longer-term methodology, the conclusions of a fundamental analysis may be different."

Have a good read!!


CNBC on Climate Change

Just a quick note to inform our readers that CNBC's On The Money (OTC) will feature a segment tonight on climate change and investment opportunities related to it. OTC airs at 7:00 pm EST.

We will provide a recap of this discussion later tonight.

UPDATE: I watched CNBC last night at 7pm and the segment did not air. I am not sure if I misheard the date of the segment, or if it was postponed by CNBC for some reason. If I do see or learn of the segment, I will be happy to post on it. If anyone has any information on the segment, please let me know about it.

January 24, 2007

A Night At The Movies

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

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

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

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

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

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


January 22, 2007

Alt Energy Investing Video

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

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

January 05, 2007

TV Time!

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

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

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

Happy viewing!

December 08, 2006

Event Alert: State and Federal Green House Gas Regulation

The American Council On Renewable Energy (ACORE), the Renewable Energy Resources Committee of the American Bar Association (SEER Section) and the Renewable Energy Committee of the Energy Bar Association are organizing a teleconference on the state of play with climate change regulations across the US.

The teleconference is entitled State and Federal Green House Gas Regulation: Current Status, Outlook, and Implications for Renewable Energy (click on the link for details). The good thing about it is that it's only $20 to participate and free if you are a student.

(DISCLOSURE: We are not affiliated with, or otherwise have financial interests in, any of the organizations mentioned above)

November 20, 2006

How to Invest in Clean Cars

A new report by Merril Lynch and the World Resources Institute (WRI), entitled “Alternatives for the clean car evolution��?, provides good background on regulatory and other forces driving the trend toward cleaner cars, as well as 3 ways to play this trend.

The report first looks at air quality-related issues and lists 3 things to watch out for in the near term: (1) legal issues surrounding the classification of CO2 as a pollutant in the Clean Air Act, (2) whether governments, especially in Europe but eventually in the US, include road transport in their plans to fight climate change, and (3) California, as it often sets national trends on environmental regulation issues (see this post from the Cleantech Blog for some background on California’s newly adopted climate change legislation).

The authors then discuss regulatory developments around biofuels/ethanol, customer demand trends, and finally take a superficial look at the exposure of the Big Three, Toyota, Honda and Nissan to clean powertrain technologies (i.e. fuel cells, biofuels/ethanol, diesel, hybrid). What's their conclusion? The shift away from conventional automotive technologies to the 'clean car' will occur gradually, bearing more resemblance to an evolution than to a revolution.

Three Stock Picks in Clean Car Evolution
Merrill and the WRI conclude with three stock picks they believe are good plays on the “clean car evolution��?:

1) BorgWarner (NYSE:BWA) – the authors estimate that up to 70% of company sales are derived from technologies and applications that increase fuel efficiency and/or reduce emissions.

2) Valeo (EPA:FR) – the report calls Valeo “a direct play on fuel economy��? and notes that around 35% of revenues are generated from sales of fuel economy products.

3) Magna International (NYSE:MGA or TSE:MG.A/TSE:MG.B) – the company’s hydroforming business, the authors note, is a key technology in creating lighter and stronger cars, and Magna should thus see some upside from the push for greater fuel economy.

This report contains some very good material for those who want to learn more about the factors driving one of the most critical set of changes to have impacted the auto industry in the past few decades. What I like about it is that it provides a fair and thorough assessment of the situation without giving in to the over-optimism that often plagues clean tech investing commentary. For more info on this report, you can contact the WRI. I would also suggest looking at this list of reports by the WRI’s Capital Markets Research team – they have put out some insightful pieces over the past few years.


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