For those who attened my presentation yesterday, thank you for all the great questions.

I'm having trouble uploading the presentation (it's too large for my server.) However, it should soon appear on NREL's presentation's page. As usual, I own most of the stocks mentioned in the presentation (too many to list,) and the Guiness Atkinson Alternative Energy fund (also mentioned) is an advertiser on AltEnergyStocks.com.

Although I had to cut it off because of time, if you have more followup, please leave a comment here.

Also, a note to the woman who asked me about career development opportunities in Colorado for a financial analyst interested in Energy, there were some openings at the Colorado PUC... "Rate Financial Analyst energy/Demand Side Management" looks especially interesting.

The application deadline was May 9, but I got the feeling that there is a dearth of qualified candidates, so it's probably worth inquiring.

Posted by Tom Konrad at 12:03 PM | Permalink | Comments (0)

Investing in clean energy is both an economic and a moral decision.  From an economic perspective, I believe that constrained supplies of fossil fuels (not just Peak Oil, but also Peak Coal and Natural Gas) are leading to a permanent rise in the value of all forms of energy.  From a moral perspective, I know that we and the vast majority of our children are limited to this one planet for generations to come, so we should abuse it as little as possible, so, of all the possible forms of energy to invest in, clean energy (Renewable and Energy Efficiency) is my moral choices.

A Short Walk Down Wall Street

The investing decision does not have to stop there.  In addition to buying stocks we like, we can also sell (short) the stocks we hate.  There's a lot of truth in the caricature that environmentalists are much clearer about what we don't like (cars, mining, coal, pollution) than what we do.  For instance, "organic" is typically defined by the processes which are not used (chemical fertilizers, GMOs, pesticides) rather than those that are.  Smart Growth means "avoiding urban sprawl."  Those of us worried about global climate change want to reduce Greenhouse Gas Emissions.

I may be exaggerating, I also believe there is more than a (sustainable, local, organic) grain of truth in the caricature of the environmentalist as the wild-eyed environmentalist who chains himself to a tree (or runs around naked) in an attempt to stop some blight on the face of the planet.  

Why not embrace the stereotype in our investing?  When even wind turbines can kill birds (if less so than skyscrapers and pollution from coal plants) and solar panels are awfully expensive, it can be hard to agree on the companies or technologies that are truly "green" and which ones are just greenwashing.  Many well-meaning people make the case that we need nuclear power and/or "Clean Coal" to fight global warming, but it's hard to get behind a power source that involves finding someplace underground to store hazardous waste for centuries or millennia at great expense.

If we can't agree on what we like, at least we can agree on what we hate.  So why not short the companies which do the things we hate?

That's a rhetorical question.  Shorting is extremely risky, and should only be done with a careful eye to risk management.  That said, I'm generally bearish on the outlook of the stock market, so in addition to giving some simple rules to help people decide to sell what they already own, here are some ideas for those of you with courage of your convictions wanting to strike a blow for what you believe in.

#5: Meat

It has been claimed that the biggest step you can take to reduce your carbon footprint is to eat less meat.  Some of these claims may be exaggerated, but it's certainly true that the way we currently raise and transport meat, it's extremely energy intensive (not to mention unhealthy for both the animals and ourselves.)

SHORT IDEA: The rush to ethanol (caused by peak oil) is most likely to harm the economics of pork and poultry, so the vegan investor might consider shorting meat products companies such as Tyson Foods (NYSE:TSN), despite their partnership with Conoco-Phillips for Green Diesel.  

#4: Globalization

As well as eating vegetarian, ethical eaters also look at the energy necessary to get their food onto the table, as well as the energy costs of transporting all those Chinese-made gee-gaws.  While the distance of transport is an extremely  poor proxy for the energy needed to get the item there (containerized shipping is so efficient that we're likely to burn more fuel driving to the grocery store and back than we're likely to save by buying local foods while we're there), growing herbs in your own garden is likely to be much more energy efficient than flying them in from South America... especially if it saves you a drive to the grocery store for a singe ingredient.

SHORT IDEAS: Investors might consider shorting country ETFs of highly energy intensive economies with little local energy resources.  China is the first country which comes to mind for me, although the thought of shorting China scares me almost as much as global warming.  A safer anti-globalization short might be airlines (although they seem to be declaring bankruptcy so fast that we may have missed the plane on this one.   Truckers are also feeling the pinch of high gas prices, so if you, like me, feel that there's more where that came from, take a look at long-haul truckers.

#3: Urban Sprawl

Urban sprawl is the unwanted child of our ill conceived love affair with the car, and keeping the brat happy is one of the major factors keeping us together.  The biggest investment many of us will make is a home, so living near where you work is probably more important than your financial investments.  But that doesn't mean you can't strike a blow against sprawl with your brokerage account. 

SHORT IDEAS: Housing developers who slap 'em up cheap in the suburbs and exurbs, and the road construction industry.

#2: Coal & Oil Cos.

I personally loathe the coal industry.  Devastation caused by mining adds injury to the insult of massive carbon emissions.  Some oil companies have been making moves towards biofuels, but it's small potatoes compared to their main business.  Nevertheless, I'd stay away from shorting these two industries no matter how much you hate them... the same rising energy prices that will benefit clean energy will benefit the old fossil fuels.  Although both will have considerably less to sell as time goes on, they should be able to command premium prices.  

Although I can see a scenario where massive carbon regulation actually depresses the price of coal, I don't expect lower coal prices anytime soon.

SHORT IDEA: Don't do it.

#1: Sport Utility Vehicles

I'm convinced that the personal car will never be green.  The most forward thinking car companies, like Toyota, realize this, and are already starting to plan for a day when the personal car is obsolete (at least according to a presentation I saw at a recent conference.)  But it's likely to be too little, too late, especially for companies which seem to believe that an SUV that burns ethanol and gets 22 MPG is the height of greenery.  They may even have to go head-to-head with Wal-Mart.  This is the one short idea here I feel strongly enough about to actually dabble in.  I just took small short positions (actually far out-of the money January 2010 short calls) in Ford (NYSE:F) and General Motors (NYSE:GM.)  Admittedly, these companies have many other problems besides peak oil and global warming, but those are well known, and likely to already be factored in to the stock prices.

SHORT IDEA: If you've ever been tempted to vandalize an SUV, here's a legal option.

DISCLOSURE: Tom Konrad has short positions in F, GM.

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.

Posted by Tom Konrad at 03:04 AM | Permalink | Comments (1)

There were three excellent alternative energy articles in last week's Technology Quarterly from the Economist.

Readers know I'm an avid battery investor, and the Economist's in depth History of the Battery is well worth reading for anyone who wants to gain insight into the promises and challenges awaiting developers and investors. My favorite battery investment, Electro Energy, last profiled here has seen considerable selling, having lost half its price since its peak in early January.  I still like the and own the stock.

There is also a short article about the prospects for Enhanced Geothermal, one of my favorite not-yet-commercial technologies.  I'm also a fan of conventional geothermal, and you can find my geothermal investment ideas here.

Finally, there is a profile of a company with an innovative bag combining solar and LEDs for lighting in emerging countries.  When used in portable and off-grid applications, the high per kWh price of solar is much less important than having any power at all.  One company pursuing this approach to solar in my portfolio is  Carmanah Technologies (CMHXF.pk or CMH.to).

DISCLOSURE: Tom Konrad and/or his clients have positions in all the stocks mentioned here: EEEI, CMHXF.
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.

Posted by Tom Konrad at 03:38 PM | Permalink | Comments (0) | TrackBacks (0)

In the future, I plan to avoid doing lists of ten stocks. I've found the writing to be somewhat repetitious, and I suspect some readers feel the same way.  Look for more threes and fives.

That said, there are more than enough solid companies with strong clean energy arms.  These companies are my favorite investments right now, both because I think that now is a time to play it very safe in the stock market (I'm also increasing my cash reserve), and because these companies allow me to use Cash Covered Puts.

Since I do have several companies I nearly put in this list (I've been deciding which ones to write about as I go along... the list order doesn't mean much of anything.) I thought I'd share those with readers, but without extensive discussion of the pros and cons.  Also in no particular order:

General Cable (NYSE: BGC)

This was another transmission pick, but I chose not to include it because the I had two other transmission picks. Here are other articles where I mention it: Electric Transmission, Blue Chip Stocks, Transmission and Clean Transport.

Greenbrier (NYSE: GBX)

This is another rail pick.  I've also mentioned it here, and the price has fallen considerably since then, making it more attractive.

Owens Corning (NYSE: OC)

Another energy efficiency pick, this stock has been badly hurt by the housing bust.  I'm having trouble figuring out what a "good" price for this one is, so I decided to leave it out of the series.  I've also written about it as an Energy Star Summit pick, an efficient housing play, and as one of my  Blue Chip Stocks.

Honeywell International (NYSE: HON)

This stock didn't make it onto the list because I have not been following it.  Honeywell has historically looked rather expensive to me, although it seems to be getting cheaper.  I've mentioned it as a Performance Contracting stock, as an Energy Star Summit pick, and as one of my  Blue Chip Stocks.

Click here for other articles in this series.

REMINDER: I'm still collecting suggestions for companies to write about in a (shorter) series of articles which will appear in March.  I plan to select the companies from all suggestions submitted with a poll next week.

DISCLOSURE: Tom Konrad and/or his clients have long positions in BGC, GBX, and 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.

Posted by Tom Konrad at 04:15 PM | Permalink | Comments (0) | TrackBacks (0)

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

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

Choosing Technologies

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

Excerpt:

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

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

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

Adding Availability: Avoided Cost of Generation

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

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

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

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

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

Taking Availability into Account

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

What to Take Away

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

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

Posted by Tom Konrad at 04:00 PM | Permalink | Comments (0) | TrackBacks (0)

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

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

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

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

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

Posted by Tom Konrad at 05:15 PM | Permalink | Comments (3) | TrackBacks (0)

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

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

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

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

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

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

Posted by Tom Konrad at 06:49 PM | Permalink | Comments (0) | TrackBacks (0)

While browsing the web this morning, I came across a very interesting section on Peak Oil on Sprott Asset Management's website (best viewed with Explorer). Sprott Asset Management is a Toronto-based boutique investment management company that I consider, for lack of a better term, pretty cool. They have taken some relatively unorthodox commodities bets in the past and have often won them. For instance, they spotted the bull market in uranium very early on and did well as a result (PDF document).

There are many web-based Peak Oil resources out there, so you may wonder why I decided to profile this one in particular. At AltEnergyStocks.com, we view the growing trend toward greater environmental responsibility, the rise of alternative energy and peaks in the production of various fossil fuels not so much as fodder for discussion around the dinner table, but rather as solid bases on which to erect a viable investment thesis. Sprott's Peak Oil page not only features a relevant news section, but also a number of documents outlining their thinking on this issue as well as how they are playing the Peak Oil piece.

Sprott takes a different view than we typically would: they see Peak Oil primarily as a good reason to be long oil, gas, uranium and coal (PDF document). We see it as a good reason to be long alternatives to fossil fuels. To be fair, Sprott has alternative energy on its radar to a greater extent than most conventional fund managers do, but that does not appear to be their main angle at the moment.

This is a great resource for the Peakist who wants to turn Peakism into an investment strategy. My main complaint: they should set up an RSS feed!

Posted by Charles Morand at 11:09 AM | Permalink | Comments (0)

So goes the old adage. We thought the following, recently published in The Economist of gas consumption in 2003, fully embodied the true essence of that phrase. Have a good day!

Posted by Brian Gomes at 09:53 AM | Permalink | Comments (2)

An interview with our analyst, Tom Konrad, with Nick Bruse of The Cleantech Show is now available. In it, they discuss various strategies and the outlook for the Cleantech investment space, as well as some of Tom's ideas on industry regulation.

You can download or listen to a podcast of the interview here.

Posted by Brian Gomes at 06:01 PM | Permalink | Comments (0)

Too Many Brownies Before Dinner

"When you feed your kid six brownies before dinner, you can't expect him to eat the salad, no matter how good it is."  So says Leslie Glustrom, a long term renewable energy advocate.  This is her metaphor for why Xcel Energy (NYSE: XEL) has been reluctant to pursue Demand Side Management (DSM) and renewable energy projects in Colorado as they have been in Minnesota.  Because Xcel is currently constructing 500 MW of new coal-fired generation, and they are also interested in a 300-350 MW IGCC plant by 2013, they may have little demand for new renewable generation.

A Gusher of Energy Efficiency

I heard a similar comment from Amory Lovins of the Rocky Mountain Institute last year.  His point was that high prices for energy resulted from both the construction of new generation as well as investments in energy efficiency.   He expects that the new generation resources will come online shortly after what he terms a "gusher of energy efficiency," causing energy prices to collapse.  This echoes the pattern he saw in the 1986 oil price crash, where "It took nine years for President Carter's fuel-efficiency standards to work their way into the fleet, but they were largely responsible for an 87% cut in imports from the Persian Gulf. Then President Reagan came in, right after the second and more severe oil price shock in '79, and started pushing supply again. The combination produced a gusher of efficiency, a glut of energy, and bankrupted many of the energy suppliers the Administration had been trying to help."

Could a similar scenario unfold in today's electric grid?  I have no doubt that the energy efficiency potential is there.  While most electric utilities in the United States project continued growth in demand, in line with population growth, we currently use electricity so inefficiently that there are still many energy efficiency measures available with paybacks measured in months, as opposed to years.  

For instance, 8.8% of US household electricity consumption was used  for lighting in 2001, most of which is used by traditional incandescent bulbs, which use about four times as much electricity as compact fluorescent bulbs (CFLs) and Light Emitting Diodes (LEDs) with similar output.  If inefficient bulbs were to be banned (a move already being pursued in California and elsewhere), it is not unreasonable to think that US household electricity usage would drop by half within a year as old incandescent bulbs wear out, and US total usage could easily fall by 2%.  (US household electricity usage was 43% of total usage in 2005.)  So this one measure, which produces a large net savings, could negate one year's worth of projected demand growth.  Another example would be giving people real-time feedback about their energy usage, which has the potential to reduce household usage by 10-20%, a measure that could probably also pay for itself within a year, depending on how it is implemented, which could in turn reduce total usage by 4-8%.   Both these measures concentrate on household usage, but commercial businesses typically have even greater potential for energy savings (just think of the effect of supermarkets not leaving their doors open constantly on summer days.)

No Room for Renewable Energy?

With all this cheap and easy energy efficiency potential, there should be little need to build new power plants despite increasing population growth.  Yet utilities continue to project strong electricity growth so that they can justify large capital outlays on new coal fired and nuclear generation (on which they can earn a nearly guaranteed return on equity, regardless of whether the power is needed.)

This could potentially be very bad news for renewable energy investors.  If electric demand does not grow, new generation will only be needed to replace old plants as they are retired, and planning and construction of a traditional coal or nuclear plant can take the better part of a decade (a sharp contrast to utility scale wind and solar farms, which can be planned and built in 1-2 years.)

Plugging in to Renewables

If energy efficiency keeps new electricity demand to a minimum, or even reduces it, and our utilities are building new fossil or nuclear generation anyway, it seems like there will be little room for new renewable generation.  Nothing will be gained by not pursuing energy efficiency which is almost always much cleaner and greener than even renewable electricity.  Yet this seems to leave renewable energy locked into a zero-sum game fighting for limited electrical demand with coal and nuclear, which already have a head start in the permitting process.  Unlike renewable generation, which can be built quickly in small increments to match shorter-term, more accurate demand projections, large coal and nuclear plants must be built years ahead of time to meet longer term (and inherently less accurate) demand projections, a fact with the perverse consequence that planning for coal and nuclear often starts sooner, leaving renewable sources of generation squabbling for the crumbs if demand, if any such crumbs are left.

Fortunately, there is a big source of new electricity demand on the horizon.  Energy Security, Peak Oil, and Global Warming concerns are driving the development of electric cars and plug-in hybrids (PHEVs).  GM says that they expect to be selling their plug-in hybrid Chevy Volt as early as 2010 (although this is not yet a clear commitment), while Toyota and Ford may get there sooner.  Tesla has shown that an electric car can be fun, if too pricey for an ordinary Joe.  The most serious worries about large-scale deployment of plug-in hybrids I have read are 1) Battery technology is not quite ready and 2) the electric infrastructure in residential neighborhoods does not have enough capacity to cope with a large number of hybrids plugging in to recharge at night (although they may also be able to help stabilize the grid).  

Investments and Actions

The "Too many brownies before dinner" scenario need not be an all-or-none possibility.  Some parts of the grid will end up having more generation than they can use, while others will have too little.  If you believe excess generation will be more prevalent than not, you would be well advised to avoid investing in renewable electricity companies.  If, on the other hand, you think that we will fail to bring on enough energy efficiency improvements, or less conventional generation will be built than utilities are planning, or Plug-in hybrids will become prevalent within the next decade, your renewable energy investments may still pay off.

Finally, you can also chose investments which will help promote your preferred scenario.  As I mentioned above, one missing piece of the plug-in hybrid puzzle is the batteries.  Advanced Lithium-Ion (Li+) batteries are widely expected to be adopted in future PHEVs.  (The current generation of the Prius uses (Nickel-Metal Hydride) NiMH batteries.)  Not all Li+ batteries have the unfortunate tendency to catch fire, but the added safety currently comes at the price of reduced energy capacity.  Nevertheless, many companies are working diligently for a better battery, among them publicly traded Electro-Energy (EEEI) and Valence Technologies (VLNC).  The largest public manufacturers of Lithium ion batteries are Sony (SNE) and Sanyo (SANYY.PK), who brought us the aforementioned  burning batteries.  Nevertheless, it would be foolish to rule them out of the race to produce batteries suitable for PHEVs.

You can also invest in companies involved in upgrading the electricity grid, which is a necessity even without the widespread adoption of renewables or PHEVs, if only to enhance our security from terrorism.

Finally, you can also reduce your own energy usage today, making it harder for your utility to justify high demand growth projections by reducing electricity demand growth.  Your utility may already have programs you can participate in which will reduce your contribution to their demand projections.  Personally, I have signed up for 100% of my electricity from Wind, and am also signed up for Xcel's dispatchable demand program, Saver's Switch, which gives them the ability to prevent my A/C from cycling on for short periods during peak demand.  In a graphic example of how energy efficiency can pay for renewable energy, the $25 Xcel pays me annually for participating in Saver's Switch pays for 1/3 of the current extra cost of wind power (until electricity rates rise again, at which point I may end up making money while reducing greenhouse emissions... a true win-win.

DISCLOSURE: Tom Konrad and/or his clients have positions in these companies mentioned here: XEL, EEEI, VLNC.

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.

Posted by Tom Konrad at 05:12 PM | Permalink | Comments (0) | TrackBacks (0)

It's no secret that money is flooding into the alternative energy sector, but not all of this money comes from sophisticated, investors. Unsophisticated investment is a lighting rod for the scam artists. Because there is both an urgent need to deal with the the problems posed by global warming, energy security, and resource depletion, and the new money is rapidly accelerating the advance of technology in renewable energy, new innovations are very plausible.

There are many ways to lose money in alternative energy, even without being taken by a scam. The current emotional climate in the industry makes even the most solid companies' shares gyrate wildly. Even mildly profitable, relatively unexciting picks like LED-maker CREE go on wild rides from $35 in April 06 to $15.25 at the start of February this year, only to shoot back up to over $25 today. A speculative technology startup such as Beacon Power Corp. (NASDAQ:BCON) , on the other hand, is likely to be even more volatile, having dropped almost 80% in a little over a year, and now looking as if it is headed into an upswing (as our own Charles Morand hopes.)

With all the risk already inherent in investing in a booming (or is it bubbling?) emerging industry, shell companies founded just to raise money from unsophisticated investors are at least one risk we can protect ourselves against. Below are a few basic precautions. I plan to illustrate them and how they apply to U.S. Sustainable Energy Corp. (OTCBB:USSE), a company that recently announced a "revolutionary new process" for creating biofuel from soybeans, which was brought to my attention by a comment on an article I had written on Green Diesel.

1. Stick to the exchanges. With a stock market listing comes regulation and oversight. A stock market listing is not a guarantee that a company is for real, but the extra oversight of the exchange means that if you stick to companies listed on the NYSE, the NASDAQ, and the AMEX, you're very unlikely to be buying into a scam. Even stocks which don't trade on an exchange in the United States often trade on exchanges abroad, but not all exchanges are equal. You're much safer with stocks on the London Stock Exchange than on London's Alternative Investment Market. Another quick screen is to check to see if any legitimate mutual funds or ETFs own the company you are interested in (in fact, for new investors looking to create their own alternative energy portfolios, a good starting point is the holdings of the industry mutual funds and ETFs.)

If you use one of these strategies, essentially trusting the regulator or the investment company (mutual fund) to weed out the scams for you, you don't need to worry much more about scams (unless you've ventured onto some of the wilder and woollier exchanges.) But the cautious approach may preclude investing in a technology that you just have to have in your portfolio. In that case, all is not lost, there are several other ways to sniff out scams. You may end up rejecting a few legitimate companies, but given the risks, why take a chance?

USSE: Traded on the bulletin board, with little or no oversight. Even worse, they got their stock market listing as the result of a reverse merger with a shell company, Laforza Automobiles, which means they also avoided the scrutiny that comes as part of an IPO. Recently, legitimate companies have chosen to use reverse mergers simply to avoid the headache of going public under Sarbanes -Oxley, but it is not a good sign, especially with a Bulletin Board stock.

2. Technology. It may sound obvious, but when picking an investment advisor, an investor will be better served by trying to understand how that advisor manages money,and if she/he is any good, rather than just picking the most likeable person who wants to put them in a "balanced portfolio of mutual funds." Unfortunately, many people do exactly the opposite. This same trap lurks in assessing technology, and scammers know that the typical American has a dismal understanding of basic science. Checking the science with an expert in the field, or even a blog/bulletin board search can go a long way to protect you from hoaxes. Countless startups with sound technology have failed because of bad management, soif there is any doubt about the plausibility of a company's technology, it's just not worth the risk.

USSE: Since their technology sounds somewhat akin to Pyrolysis followed by Fischer-Tropsch conversion, I asked Tom McKinnon, professor at the Colorado School of Mines, because I know he does research on pyrolysis chemistry. He responded:

1. The stated feedstock is corn and/or soy which makes it sound like an oil crop process, but the rest of the text doesn't make any reference to vegetable oils.

2. The three products (char, pyrolysis oil, and gas) are more consistent with a pyrolysis processso why did they mention corn and soy. It would be a waste to use oil crops for pyrolysis when you can use low grade biomass as a pyrolysis feed.

3. The pyrolysis gas is not suitable for FT synthesis without a lot of effort (at least that is my recollection, I haven’t gone back and dug into this.)

4. The high energy content of the fuel indicates that it contains very little, if any, oxygen. Typical pyrolysis oils contain phenols and a whole witches' brew of nasty reactive oxygenates.

5. Pyrolysis oils are generally quite unstable and degrade fairly quickly (time scale of weeks). I don't think anyone in their right mind would put pyrolysis oil into an expensive diesel engine, so maybe these guys have some other process.

It's also interesting to note that their "letter of validation" is from a Ph.D. wildlife ecologist and Biologist with an M.S. from a State University. I guess that all the engineers and chemists had something else to do that day, rather than tour the facilities of a company with a revolutionary new process that will help solve both peak oil and global warming.

3. Management. It's worth looking at management's background. Often shysters wrap up one scam, only to start another. Make sure you get biographical data from sources other than the company's website. You will want to make sure that the board of directors includes outside members with both the ability and motivation to oversee management and make sure that they do not make off with the firm's money.

USSE: Checking the company's management and board of directors , we note that the two lists are almost identical, with the exception of an extra member of the board, David Crow, a former (according to the site) senior vice president of "Pratt and Whitney." As the only person who has any chance of resembling an independent director, I looked him up and found him under the emeritus faculty at the University of Connecticut. He does seem to be an expert on gas turbine engineering, which would be useful for the power plant that USSE is planning, but he seems to have no experience which would help him in his duties of overseeing management.

4. Conservatism. Scammers have the incentive to boast about their company's future, solutions to big problems draw more suckers than fixing mundane, everyday problems. They will also gravitate towards business plans that are easy for everyone to understand and that people can see in their everyday lives. Not constrained by actually needing a real product to sell, they will almost invariably come up with a product that will make most people think "Wow, that'd be great." Conversely, you don't have to worry too much about the company that is trying to sell its widget that will make sewage treatment plants 5% more efficient.

USSE: Quote: "Our patent-pending liquid biofuel provides clean, renewable energy at a fraction of the cost of traditional biodiesel. It's also a superior fuel: it produces more energy and doesn't degrade engine performance, among other benefits."

I'm hardly the first person to point out that something smells in the state of Mississippi, but I hope this example will help give my readers the tools to avoid the next revolutionary new technology to teleport in.

DISCLOSURE: Tom Konrad and/or his clients have positions in these stocks mentioned here: CREE, BCON. He is neither long nor short USSE (his broker does not let him short penny stocks.)

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.

Posted by Tom Konrad at 01:03 AM | Permalink | Comments (0) | TrackBacks (0)

Why Invest in Renewable Energy?

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

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

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

Internet Bubble Redux?

To many, this sounds too good to be true.  Many have pointed out the similarities between today's renewable energy boom and the internet bubble of the late 1990s.  The speculation has been intense, especially in ethanol and photovoltaic companies.  And, similar to the internet craze, many of the companies are no-profit startups, and even the established companies with a solid record of profits trade at nosebleed price multiples.  Yet the internet did not go away because the bubble burst; more people are shopping online and more business is moving online than ever before.  Most likely, you are reading this article online... would you have been doing that in 1997?  The forces behind the advance of renewable energy are at least as compelling as those behind the internet.

I believe that we are still in the early stages, but even so, we can learn valuable lessons from that last boom.  One of the most important lessons is that the first mover does not always have the advantage, and often the winners are established companies that see the trend, and get on it in a measured way over time.  But the analogy also has weaknesses.  The internet was characterized by its low barriers to entry and exit, leading to cutthroat competition and me-too sites.  With Renewable Energy companies operate mostly in a heavily regulated, capital intensive sector, a sharp contrast to the internet, which will likely make the boom happen in relative slow motion compared to the internet.  I believe we're much more likely to see a series of mini market bubbles during the ramp-up, than to see a single gigantic bubble, as we saw in the late 1990s.

How To Invest

For mutual fund investors, Renewable Energy focused mutual funds are few and far between.  US investors are limited to the New Alternatives Fund (NALFX) and the Guinness Atkinson Alternative Energy Fund (GAAEX).   The former has a 1.25% expense ratio despite the fact that it also has a front-end load, and while the latter is a no-load fund, its expense ratio is a pricey 1.98%.  Given these high expenses, I strongly prefer the Powershares Wilderhill Clean Energy ETF (PBW) and NASDAQ Clean Edge U.S. Liquid Series ETF (QCLN).  Both of these have expense ratios currently capped at 0.60%, which is high compared to a general energy sector ETF such as XLE (0.24%), but is a much more economical way to invest than the sector mutual funds.

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

Finally, I believe that, given the complex nature of the technologies, and the sparse coverage of many of the companies by industry analysts, there is still considerable room for active management in the sector.  Given the emotional nature of the reasons for investing in Renewable Energy, a good understanding of practical behavioral finance, as well as an understanding of the technologies are likely to be necessities for success in the active management of an alternative energy portfolio.

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.

Posted by Tom Konrad at 09:14 PM | Permalink | Comments (3) | TrackBacks (0)

Last Thursday, General Electric's (NYSE: GE) CEO, Jeffrey Immelt, reported on the progress to date of the company's Ecomagination project.

Ecomagination seeks to position GE as a global environmental technology heavyweight, and Immelt is confident that this initiative will contribute substantially to the eventual emergence of GE's share price from the funk it's been over the past seven years.

The Globe & Mail ran an interesting piece on Ecomagination the following day. Rob Day at Cleantech Investing also briefly touched on on the topic on Monday.

The jury is still out - will Ecomagination be GE's panacea? Investors don't seem to think so thus far, but for my part I can say that I've observed GE's cleantech maneuvering relatively closely over the past 2 years and the company is undoubtedly gaining exposure to some very interesting areas.

To be continued...

Posted by Charles Morand at 09:27 PM | Permalink | Comments (0)

Last week, we alerted you to a report from Germany's Energy Watch Group called “Coal: Resources and Future Production,â€? which predicts peak coal by 2025.  Readers of AltEnergyStocks are doubtless familiar with peak oil, the inevitable fact that as we consume a finite resource (oil reserves) at some point the rate of that consumption must peak, and taper off.  Serious arguments about peak oil center around "when" oil production (and consumption) will peak, not "if."  

The same it true for other finite natural resources, such as natural gas, uranium, and even coal.  The difference with coal is the received wisdom: that the US has two centuries of remaining coal reserves, with the (often unspoken) implication that there is no need to worry about it in our lifetimes.  Other reports have drawn attention to peaking coal supplies before this, and I have no doubt that more will follow.  

How to beat the market

As an advisor seeking superior returns for my clients, I take reports like this seriously.  Dismissing them out of hand because it disagrees with the consensus view is not only close-minded, but a massive missed opportunity.  That's because, in order to achieve superior returns, I must accomplish four things:

1. Have hypotheses that differ from the consensus view.
2. Act (i.e. make investment decisions based) on those hypotheses.
3. Be correct as often as not.
4. Have a mechanism for testing the hypotheses, to enable a change of tactic when a hypothesis is proven wrong.

The first two are easy... but without  numbers 3 and 4, I'd be just another whack-job in the blogosphere losing my own and my client's money.  Here's how my hypothesis looks for peak coal:

1. A hypothesis.  The consensus is too complacent about the supply of coal.  Note that I don't need to pin down a precise date for the peak in coal production (worldwide or in the US), I simply have to identify something I believe the majority of investors have gotten wrong and the direction of the error.  My hypotheses are normally of this form: how the consensus view is incorrect.

2. See "How to prepare your portfolio for Peak Coal" below.

3. You don't have to be right all the time.  One of the great benefits of diversification is that it allows an investor to make mistakes.  None of us is right all the time.  For example, I've been bearish on the market as a whole since 1998... which means I was wrong in 1998 and 1999, right in 2000, 2001, and 2002, and wrong since then.  However, despite the fact that I was wrong about the market for six out of the last nine years, over that time period, I put a large chunk of the money which I otherwise might have allocated to US stocks into foreign currency denominated bonds mostly through close-end funds such as the Aberdeen Global Income Fund (AMEX: FCO), because I expected a general decline in the dollar. Note that is is a vast oversimplification of one choice taken within my managed portfolios over the period, and should be considered educational, not taken as an example of past returns.  Looking at this chart comparing SPY and FCO (I'm using SPY as a simple proxy for the US stock market as a whole) for the last nine years,  you will note that SPY outperformed FCO over the period by about 25%.  However, over that time SPY has had an average yield of around 1.5%, while the yield on FCO has averaged around 7%, over 9 years, that difference amounts to a 35-50% advantage for FCO (depending on the investor's tax rate), for an advantage in total returns for FCO of between 10% and 25%, or 1 to 2% compounded annually.  

Also note that risk (measured in terms of volatility) for FCO has been much lower than that of the market over that time period.  So while I was wrong about the market 2/3 of the time over that period, I was correct about the general decline in the dollar a bit more than half of the time, and the extra income I earned with my risk adverse strategy of investing in bonds rather than stocks left me with a slight advantage over the period.   Through these slight advantages, amounting to only 1-2% per year, a successful investor can dramatically increase his returns over the long term.  Once again, these returns are only an example, showing the long term advantage of acting on the hypothesis that both the US market and the dollar would under perform over the last 9 years.  I still believe both these to be true, and as a result, I and my clients continue to be over-allocated to foreign bonds, and under-allocated to US Stocks (with the exception of alternative energy.)  Nevertheless, past returns are no guarantee of future results, which is why it's important to...

4. Quickly recongnize when you're wrong. Thinking again about my hypothesis the market is overly complacent about coal supplies, how can I know when it is incorrect, either because I was wrong to begin with, or because conditions have changed?  That could happen because coal will continue to be as easy to mine as most investors think, or because they become as worried about coal supplies as the situation warrants.  China, where the most rapid coal depletion is taking place, may indeed recognize the severity of coming shortages, but my hypothesis is primarily about investor in US markets.  Until recently, the Chinese have mostly confined themselves to buying huge chucks of our Treasury and other agency debt, but we see them rushing to secure long term coal contracts in Africa and elsewhere.  Since China is a net coal importer, it is much harder for them to be as complacent about coal reserves as we are in the US.  At the moment, I don't see any worrying at all about coal reserves in the popular press, and reporters typically accept the "200 years of coal" line without question.  When that changes, it will be time to re-evaluate.  As to my simply being wrong in my pessimism, even the normally Pollyanna-ish EIA estimates, coal production in the US will peak in 2060, which implies a peak in world production much sooner, because the US has the lion's share of remaining reserves.  I don't believe that a world peak in coal production even as late as 2050 has yet been acknowledged.  When it is, it will again be time to reevaluate this hypothesis.

What to expect from Peak Coal. 

While I usually only make investments that I expect to pay off in 5-10 years time, and even the earliest predicted peak for world coal production is still 18 years off, the precise date of the peak is not at all important for the purposes of investing.  What is important is when we will see unexpected price rises as demand adjusts to constrained supply.  As an example, the first effects of peak oil are not happening today; instead they happened in the early 70's, when United States production peaked, and Texas could no longer act as the swing producer of oil, leading to a shift of production in the Middle East.  Because of the new investment required, that shift took a number of years, during which time oil stayed at historically high levels, until new production caught up with demand.

Could something similar happen with coal?  If any country is likely to be a driving force for world demand, sending prices up for everyone, that country is likely to be China, which is by far the largest producer of coal, but has only half the reserves of the US (according to the EWG report.)  How many times have we heard that the US is the "Saudi Arabia of Coal"?  If it is, the China is the "United States of Coal."  I think a price spike in coal available for worldwide trade is the most likely investable event for peak coal in the near future.

Here are some effects I would expect from such a price spike.

1. Coal prices in current coal importers would skyrocket.
2. Coal prices in areas with easy access to ports would also rise dramatically.
3. Transportation links such as rail from coal producing regions to ports, ports, and bulk shipping would also benefit.
4. The price of electricity in regions relying on coal fired power (other than mine-mouth plants) would increase several cents per kWh.

How to prepare your portfolio for Peak Coal.

1. Companies owning or discovering new coal reserves in coal importing regions will benefit dramatically.  (I'm far from an expert on coal companies, so I have no specific recommendations here.  I also avoid investment in coal because of the effects of mountaintop removal and global warming.)
2. Coal mining companies with easy access to ports will also benefit dramatically. 
3. Rail lines with connections to large port facilities would benefit, as well as the port operators.  (Again, I'm no expert.)
4. Construction companies able to quickly build rail lines and expand port facilities will also benefit. (I don't know much, do I?)
5. Shipping companies who own large ore/coal carriers will benefit.  Shipyards which produce these ships likewise. 
6. Companies that use coal for purposes other than electricity generation will be hurt.  Avoid coal-to-liquids companies such as Sasol [NYSE:SSL], Rentech [NYSE:RTK] and Syntroleum [NASDAQ:SYNM].  I wouldn't advise shorting these, unless you are a lot better than I am at anticipating price changes in energy markets: they'll all profit from Peak Oil, perhaps long before they are clobbered by Peak Coal.
7. Alternatives to coal based electricity will also benefit.  Because coal plants supply base-load power, the first beneficiaries will be Nuclear power and Geothermal, both of which are also inherently base-load power sources.  The easiest way to invest in Nuclear today is by buying uranium miners an processors.  I'm personally not a big fan of this approach, but you'll find a lot of other people's uranium picks over at Seeking Alpha.  Warning: there is a lot of talk about Peak Uranium as well.  Since I have decided to stay away from Nuclear because of the proliferation and hazardous waste effects, I have not made an attempt to figure out how serious this will be for miners.  This brings up another general point about investing: you don't have to have a hypothesis about everything... nor should you.  It is much better to have a few good ideas than a stack of half-thought out ideas.
8. Geothermal is an under-appreciated renewable form of electricity generation.  Ormat Technologies (NYSE:ORA) is the premier geothermal company, and should be the centerpiece of a geothermal portfolio.
9. Concentrating Solar Power CSP can be combined with thermal storage to produce base load power (or even peaking power.)  North American companies are only now starting to discover CSP, wit the exception of FPL (NYSE:FPL), which owns most of the original CSP plants built in the United States in the 1970s and '80s.  European Conergy AG (an engineering firm) and Iberdrola SA (a utility) are actively pursuing CSP.   I'm also watching an Australian company called Enviromission (EVOMY.PK), which is developing Solar Chimney projects, which can easily be a source of base load power, and are remarkably low-tech (which leads to very low running costs.)
10. Biomass, such as wood waste and trash incineration  is a good source of small amounts of base load power.  Boralex (TSX: BLX)) and The Boralex Power Income Fund (TSX: BPT.UN) have experience with biomass.  Another option I like are forestry and paper companies, especially ones committed to sustainability such as Catalyst (TSX: CTL) and Domtar (NYSE:UFS.)  Waste Management, Inc. (NYSE: WMI) has a variety of power generation projects fueled by the trash it collects.
11. Power storage technologies such as Compressed Air Energy Storage and Flow Batteries which can allow intermittent sources of energy such as wind to meet base load power needs. One flow battery company I like is VRB Power (Toronto Venture: VRB.)
12. Hydropower based utilities, such as Idacorp (NYSE:IDA) will increase their cost advantage over coal, and their dispatchable nature will become even more valuable as a balance for intermittent wind.  Some may also have valuable opportunities to take advantage of pumped hydro power storage.

Given the uncertainties about the timing and effects of the early stages of peak coal, I find it fortunate that a lot of the things I'm doing to prepare my managed portfolios for carbon regulation are the precise things I should be doing to prepare for rising coal prices.  I have little doubt that serious regulation of CO₂ emissions is on its way, and quite likely sooner and much more comprehensively than most investors are prepared for.  But that's a hypothesis for another day.

Links:

Energy Watch Group report

Discussion at The Oil Drum

EIA Coal data

Discussion of the EIA's most recent Energy Outlook at The Cost of Energy

DISCLOSURE: Tom Konrad and/or his clients have positions in FCO, ORA, FPL, Iberdrola, BPT.UN, CTL, UFS, WMI, VRB, and IDA.

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.

Posted by Tom Konrad at 06:20 PM | Permalink | Comments (0) | TrackBacks (0)

Things got a little tougher for the Bush White House yesterday, when the Supreme Court effectively slapped it on the wrist for its position on climate change by ordering the EPA to justify its lack of action on the climate file with substantive arguments (i.e. the Court buys the IPCC's story rather than Bush's).

Things Just Keep On Piling

This ruling adds to a long list of recent events that render it increasingly difficult for climate nay-sayers to hold the fort.

The most significant such events are:

(a) one of the top Republican politicians in the land signing into law one of the most stringent set of greenhouse gas reduction targets in the world;

(b) a group of large and well-respected American companies banding together to demand action on climate change;

(c) Wall Street writing report after report on how to capitalize on climate-driven opportunities and protect from climate risks;

(d) the top climate scientists in the world effectively settling the scientific debate for most folks outside of the conspiracy theory community;

(e) a record private equity deal in the utilities industry being made partially contingent on abandoning plans to build a whole slew of coal power plants on grounds that the potential regulatory risk is too great.

These are only a few of the items to have hit the North American climate change newswire in the recent past. I would be remiss if I didn't also mention new and ongoing regulatory initiatives at the state and regional levels in the East and in the West.

Tobacco All Over Again?

Besides their successes on the political side, those in favor of action on climate change got, with this ruling, the biggest push they could have ever hoped for to forge ahead with their battle on the legal side - a battle some have compared to the infamous tobacco lawsuits.

While I wouldn't go as far as to say that successful tobacco-style lawsuits (and payouts) are right around the corner for climate change, this certainly sets an interesting precedent as the Court pretty much sided with most of the scientific community on the causes and potential impacts - a slap in the face of the so-called "skeptics" (of whom the Bush White House can be said to be a part of) who were basing their arguments on purported scientific uncertainties.

What's The Big Deal For Investors?

If the TXU deal was no wake-up call for you as an investor, hopefully this triggers some red lights. Climate change is no longer some abstract debate between environmentalists and conservative ideologues - it has now spread from the realms of science and politics into that of investing, and certain companies (and their stocks) could get hit hard in the medium term.

As I've argued here before, those with sufficient foresight to position themselves appropriately for this should do well. I think it is also becoming increasingly evident that those who choose the old ostrich approach could receive unpleasant news in the not-too-distant-future.

Posted by Charles Morand at 09:12 PM | Permalink | Comments (0) | TrackBacks (0)

Garey Vasey, Ph.D. at Risk Center brings us a cautionary warning from the U.K. Financial Services Authority about the increasing risks of commodity investing, largely due to greater investor interest (at all levels from individuals to banks to hedgefunds) without enough true experience in this sector.

I feel this same lesson applies to Renewable Energy investing. The higher these stocks rise on a tide of investor enthusiasm (as opposed to earnings fundamentals), the greater the potential for a fall.

Among his other points, he says:

The best and most knowledgeable energy trading talent was picked off early in this cycle and unfortunately this expertise was always thin. It is a serious issue that many investors are totally unaware of this lack of experience and more importantly perhaps, would not know what energy experience is if they saw it on display because they don't really understand what they are investing in!

This is even more true in Renewable Energy, with its typically higher fixed costs. We can see the lack of understanding among investors in renewable energy in the rapid run-ups (and crashes) of Renewable sectors such as corn-based ethanol, while economical renewables such as geothermal and wind get relatively little attention.

Dr. Vasey's article is here. It's worth a read, and emphasizes the need to understand the what you are investing in.  As a reader of Alt Energy Stocks, you've made a good start!

Posted by Tom Konrad at 11:52 PM | Permalink | Comments (0)

I caught this one a little late, but thought it might still be useful.

The Globe & Mail, Canada's main national newspaper, is running, in its investment section, a segment on investing in climate change.

I didn't find all of it useful, but there are some interesting nuggets of information that are worth sharing.

More specifically, I enjoyed the piece on cleantech ETFs called "Go clean, invest green". It discusses The PowerShares WilderHill Clean Energy Portfolio [AMEX:PBW], the PowerShares WilderHill Progressive Energy Portfolio [AMEX:PUW], the PowerShares Cleantech Portfolio [AMEX:PZD] and the Claymore/LGA Green ETF [AMEX:GRN].

I also liked the piece entitled "Liquid assets" on investing in water. One key omission by the author, however, is the PowerShares Water Resources ETF [AMEX:PHO].

Unfortunately, the links provided above will probably only work until the end of February, after which you will have to fetch the segment in the Archives section under Issue #47.

DISCLOSURE: The author does not hold any positions in any of the securities discussed above.

Posted by Charles Morand at 10:36 PM | Permalink | Comments (2)

I attended Al Gore's An Inconvenient Truth lecture in Toronto tonight.

I assume many of you have seen the movie so I'm not going to go into the details of the presentation, which is essentially the same as the movie give-or-take a couple of slides. Instead, I'm going to share with you some of the thoughts I had as I was listening to the former VP.

Firstly, I bought this whole climate change thing a long time ago and I've seen the movie, so substantively I got very little out of this. As with the movie, I thought Gore spent a disproportionate amount of time going over the evidence proving that climate change is actually occurring, and not enough on discussing how, in practical terms, we can solve the climate problem.

This brings me to my second main thought. One of the most fundamental drivers behind my confidence that cleantech and alt energy represent very attractive investment stories in the long run is the fact that they offer plenty of opportunities to have the cake and eat it too. Climate change and the environment are increasingly on the radar of politicians, and that’s only going to intensify as various ecological services (e.g. climate control, fresh water, etc.) get scarcer. This means that politicians will be pressured to take action, and that this action will create tremendous opportunities in a number of fields.

What I think is the main missing link in Gore’s crusade is a stronger focus on how embracing cleantech will not only help humanity solve its environmental problems, but also how it will help create value fro investors and generate economic growth. I think it is high time that pundits and politicians move away from a constant focus on the downsides (environmentally as much as economically) to a focus on the opportunities related to climate change.

As I’ve said before, this isn’t about changing the size of the pie, it’s about altering its composition. My humble advice to Al Gore (and to all of you out there who do this sort of stuff): re-weight the content of your presentation to focus on the value creation angle of climate change, and show investors and the public at large that not only is this nothing to be afraid of, but, that, if the regulatory and incentive frameworks put in place to deal with climate change are constructed adequately, many investors and companies will stand to make lots of money. This is not, in my view, a negative-sum game, and that's the point that needs to be driven home.