We wish to apologize for the lack of posting in the past few days. Tom has been on holidays and I have been very busy with work. We will be back with our normal posting schedule tomorrow.

Best,

Charles

Posted by Charles Morand at 10:47 PM | Permalink | Comments (1)

In the past 24 hours, there have been a flurry of opinions coming out on what a commanding Obama victory would mean for people's portfolios. Alt energy investors certainly have reasons to be cautiously optimistic.

T Boone Pickens, the famous Texas oilman turned clean energy cheerleader, and his Pickens Plan, are likely to have some influence on where President-elect Obama goes with his energy plan and alt energy policies. Pickens has been campaigning for his plan nearly as hard as the candidates have been campaigning for the White House, and his recent rapprochement with the Democratic Party was well-timed to be sure.

If you haven't kept a close eye on what Pickens has been up to, you can catch him tonight on Larry King Live. Some of the things he will talk about could well become areas of focus for the new President, which will be of great interest to alt energy investors.

Posted by Charles Morand at 11:03 AM | Permalink | Comments (0)

I'm not sure whether John Maynard Keynes, the father of Keynesian economics and an ardent proponent of government interventionism during hard economic times, and Rachel Carson, the mother of modern environmentalism and the author whose work is credited for the eventual creation of the EPA, ever met during their lifetimes. But if current voter sentiment holds until November 4, their ideas could soon converge and form the basis of government policy for at least the next four years. Let me explain.

First, John Maynard Keynes. There is no doubt that the deliberate and coordinated nationalization of financial services institutions across the West marks a new low for neoconservative economic thinking. This line of thinking holds that government should play as small a role as possible in the economy, and leave spending decisions to individuals and firms. Proponents of this philosophy argue that the best fiscal move a government can ever make is to return money to its citizens and corporations through tax cuts, who will then spend that money most efficiently. The Keynesian approach, on the other hand, is premised on the idea that it is not only OK but even desirable for governments to step in and directly incur large expenditures in difficult times to jump-start the economy.

Until the credit crisis hit, the Keynesian view had all but disappeared from Washington, and small and unobtrusive government was all the rage. However, in the wake of the economic and financial havoc wrecked by what many view as too much withdrawal of government from the economy, it appears as though its has become politically-acceptable for American lawmakers to overtly push for a more activist state. What form will this take, according to proponents? In old Keynesian fashion, large-scale infrastructure investments to create jobs and kick-start aggregate demand. While it is not especially surprising to hear academics argue for this form of government intervention, it's quite something to see Democratic politicians so emboldened by recent polls that they feel they can safely write about it in op-eds. The current crisis, it appears, has cast serious doubts in the minds of a growing number of voters on the ability of the free market to deliver wealth and well being for everyone, thus setting the political stage for a return to a more interventionist state in America.

Second, Rachel Carson. Obama's environmental credentials are strong to be sure. He has remained steadfast in his support of clean energy as a cornerstone of his broader energy policy, even in the face of overwhelming public support for domestic drilling and falling fossil fuel prices. It is therefore no wonder that in cleantech-addicted Silicon Valley, generally a place where big government is seen as a break on innovation and entrepreneurship, a number of high-profile VCs and their employees are supporting Obama. AltEnergyStocks.com officially endorsed Obama last week specifically for his credentials on alternative energy and energy efficiency. While some of Obama's motivations for being in favor of clean energy have to do with energy independence and economic development, it is fair to say that he is also strongly motivated by his own environmental values and his belief that climate change must be addressed.

What does this all mean for investors? As the macro-economic consequences of the credit crisis continue to spread, I expect an Obama victory to result in some form of an activist government strategy to boost employment and the economy. This activist program will revolve around massive expenditures in large-scale infrastructure projects, and if Obama can help it there will likely be an environmental angle to the program. If what politicians are currently saying is a true indication of what they intend to do, rail transportation is likely to be a major beneficiary. In the first of this two-part series on how investors can play the build-out in clean infrastructure, I present four stocks I came across while doing research on this.

Besides rail transport, the other major area of infrastructure alt energy investors care about is electricity transmission. Given Obama's promises on clean energy and the environment, the amount of press the Pickens Plan is receiving, and the state of America's transmission system, it is not unreasonable to expect that Washington could seize this opportunity to direct massive investments into this area as well. In the second part of this series, I will discuss potential plays on transmission.

Stocks For The Clean Infrastructure Build-out, Part 1 - Rail Transport

When doing research on this topic, I looked for companies that would benefit from investments in the rail infrastructure network, rather than companies linked to running or manufacturing/maintaining trains and cars. A severe economic downturn coupled with lower gasoline prices would reduce demand for rail transport, so this is not an area I'm particularly bullish on for the next year or so. In the long run, however, I believe that the renaissance of North American rail driven by high energy prices, tighter environmental regulation and an increasingly clogged highway network that's running out of space to expand, will be a strong theme to watch for alt energy investors.

I did not run any numbers or do an extensive amount of due diligence on the firms below, so if you have any information to share please go ahead.

Koppers Holdings (KOP). Financial statements here. At upwards of 45%, Koppers holds the largest market share in the North American railway tie business. Railway ties are the wooden beams that support the rails. Koppers also makes utility poles, and could thus benefit from investments in electricity transmission. One interesting thing about Koppers is that it runs a biomass power plant that burns recycled railway ties and utility poles (I found that out while checking the website. They have a video about it). At a PE of around 6.3x last year's earnings, this stock is trading in cheap territory.

LB Foster (FSTR). Financial statements here. LB Foster's rail division sells rail and other related products to a range of industries including passenger and freight railroads, rail transit, ports and others. One interesting feature of this company is that it also recycles and re-sells used rail. This stock is currently trading at a trailing 12-month PE of around 2.2x, which is very cheap by most measures. I haven't looked closely into this firm so I'm not sure why it would be trading at such a discount to its peers, even in difficult market conditions.

Stella Jones (STLJF.PK or SJ.TO). Financial statements here. At about 20%, this company has the second largest market share in the North American railway tie market after Koppers, and it has been an aggressive consolidator of the fragmented treated wood market. The company also has a 70% market share of the Canadian railway tie market, another jurisdiction where the government is weighing the merits of infrastructure spending as a counter-cyclical measure. Stella Jones is also active in wooden utility poles and could benefit from spending programs in electricity transmission. One of the major negatives with this stock is illiquidity: the largest shareholder owns about 62% of shares outstanding, and volumes tend to be extremely light. At a trailing 12-month PE of around 9.8x, Stella Jones is reasonably priced, although increased debt levels recently on the back of five acquisitions in five years could be a concern.

Global Railway Industries Limited (GRWIF.PK or GBI.TO). Financial statements here. Most of the company's business is in the sale of locomotive and other train components. However, it also sells a range of railway track and signal products. This stock is currently trading at around 10x last year's earnings, so it is the most expensive of the four.

DISCLOSURE: Charles Morand does not have a position in any of the stocks listed above.

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

Posted by Charles Morand at 12:48 PM | Permalink | Comments (0)

Oil prices quietly (at least in the cleantech world), slipped below $80 last week, off some 50% from their highs a few months ago. Did I say 50%? Yes 50%. And gas has slipped, too, as with some variations, natural gas historically trades at a roughly 10:1 price ratio of Barrels to MCF.

It's easy to get caught up in the cleantech hype and forget that only 10 years ago this year oil prices fell two thirds, caught between rising supply from a decade of drilling and nasty Asian flu, triggered in part by, wait, a financial debt crisis, that time in emerging markets. Sound familiar? And oil hit less than $11 per barrel, less than 1/13th of its recent high, with people talking $6.

And it's easy to forget that the half decade following 1998 the not yet named as such cleantech investment sector hyped fuel cells, microturbines and distributed generation on the back of clean cheap natural gas, which was the fuel of the future.

And it's easy to forget that rising commodity prices wiped 99% of those business cases (only a few billion in value, though!) off the map until not a single cleantech venture investor today discusses distributed generation at all. But after a short hiatus, solar and ethanol exits on the back of some huge subsidies came through and cleantech was boomed.

And it's easy to forget that only a couple of years ago we as an industry debated the viability of hybrids and biofuels - because of a breakeven at $40-50/barrel or higher (the oilman's breakeven in Saudi Arabia is maybe $5/bbl)? Breakeven at $40 in biofuels? Corn ethanol maybe, cellulosic, dream on. But the switch from MTBE to ethanol came through on the policy side and unforeseen Chinese demand growth pushed oil prices stratospheric. And the corn ethanol plant owners built hundreds of plants at 5% of the size of average refinery, made hay and traded at tech multiples. Only to get crushed when corn prices, driven up by (gasp!) demand and higher natural gas and oil drove up their feedstock, fertilizer and transport costs and margins down. Welcome to refining, freshman.

And it's easy to forget that the core economic value proposition for solar has the ever present cost escalation analysis - "lock in your power costs, energy prices have risen x% per year, if they continue to do so you'll be paying 2.5x your current power prices in 30 years". And that the solar industry quietly ignores that energy prices will decline, not rise, with economic turmoil. But the ITC and feed in tariffs came through paying more than half the cost and so the party goes on.

It's easy to forget that energy is about commodity prices. And commodity prices are about cycles, supply AND demand. And that demand is GDP growth driven in energy. And that in our global markets GDP growth is more interlinked than ever, making it more, not less subject to cycles.

And that alternative energy is called alternative because it's the most expensive form of energy, meaning it's the swing producer, the type of guys who get killed in cycles (subsidies aside, of course).

And that the big fortunes made in cleantech investing to date have not been made on high risk early stage technology bets, but on 10 or 20 year old technologies who were in the right place at the right time when the policies came in. Or the low cost manufacturers of mature known technologies (think corn ethanol or wind developers and Chinese solar manufacturers) who moved fast when policies moved, making hordes of "that's not a venture" bets. Disruptive technology has never been the winner.

In energy, there is no disruptive technology, only disruptive policy that makes some technologies look disruptive after the fact. In energy, the risk is in the scale up, not the R&D, and the end application is so massive, so capital intensive, and so utterly dependent on commodity prices, that you can't invest in it like you invest in IT. It takes longer, 10x as much money, and the ante up to play the game for one project is the size of your largest fund. At scale, there is no capital efficient strategy in energy.

But we are Silicon Valley and we smash open gates with technology, and we know better than those energy dinosaurs in Houston, London, and Abu Dhabi, right? They just don't get it, right? One game changing technology can force the oil companies and power companies to their knees. The one I've found really is new and different. This entrepreneur has discovered something new. And it can be *cheaper* than oil (if you define cheaper right).

Beware Silicon Valley, the great fortunes, wars, and economic crises of the world for 100 years are not technology ones, they were energy made. Half the schools you went to were built by oil money. And the entrepreneurial spirit in this industry was born in the hardscrabble oilfields of Pennsylvania and Texas, and grew up in the far reaches of the globe. And the oil companies those entrepreneurs founded have forgotten more about technology in energy than you even know existed.

Be forewarned, you do not have a comparative advantage here. The oil men invented risk taking, AND risk management. The oil men are bigger, faster, smarter, richer, have more scientists and more entreprenuerial spirit than you, AND they know energy.

So while you fight the good fight to develop technology to change the world, don't forget, be humble, learn what can be learned, build what can be built, and walk softly, because the elephant in this room floats like a butterfly and stings like a bee, and he has yet to take the field.

The little guys whose pension funds are paying you a cushy 10 year guaranteed contract are counting on you to put aside your hubris.

Neal Dikeman is a partner at Jane Capital Partners and the CEO of Carbonflow. He is the Chairman of Cleantech.org and edits Cleantech Blog. He is from Houston, is a Texas Aggie, and believes in both energy and the power of technology to change the world.

Posted by Guest Contributor at 07:25 PM | Permalink | Comments (3)

As most of you will probably know by now, the US Senate voted tonight to pass the $700 billion bailout package for the financial sector. As part of the this new version of the bill full of so-called "sweeteners", or measures meant entice certain individuals to vote in favor, lawmakers included a one-year extension of the Production Tax Credit for wind and an eight-year extension of the Investment Tax Credit for solar.

Now the House must still vote on Friday, so this isn't a done deal just yet. However, although it probably won't get much attention in the general press, the extensions of the PTC and ITC are important measures for alt energy investors, especially if credit conditions don't ameliorate in the next few months. General weaknesses in equity markets coupled with concerns over renewal of these tax credits created nothing short of a perfect storm for many of alt energy stocks.

View the full text of the bill here.

Posted by Charles Morand at 09:48 PM | Permalink | Comments (0)

I believe that investments in clean energy should outperform the market as a whole for two reasons.  First, the inability of fossil fuel supplies to keep up with demand will raise prices and improve the environment for alternatives.  Second, growing awareness of the seriousness of Climate Change will lead to increased regulation of greenhouse gas pollution, which should benefit clean energy relative to conventional energy.

While I am certain that at some point reality will galvanize public opinion and political action on climate change, the sooner the politicians take action, the better for the planet, and the better for our investments.  This is why I and every clean energy/cleantech/greentech investor should care about politics.  Unfortunately, Green is still a partisan issue, with the typical Republican (with a few welcome exceptions) opposing the legislation we need, and strongest leaders on this subject being Democrats, with the party as a whole being supportive.

With the Democratic National Convention in my home town of Denver this week, you can expect a series of articles on Clean Energy and Politics.  After the break, you will find my take-away from a recent hearing help by Colorado state Republicans on the subject of Energy and the Economy. [Note if you're reading this on the feed or email, you'll have to click through to the site to see the full story]

As I attend several convention-related Cleantech events this week, you can expect several short articles on how politics affects the future of Alternative Energy. And, I hope, vice-versa.

Continue reading "Why Clean Energy Investors Need to Care About Politics" »

Posted by Tom Konrad at 09:15 AM | Permalink | Comments (4) | TrackBacks (0)

A few weeks ago, I stumbled upon a presentation that was given by FERC officials on the phenomenon of rapidly rising costs in US power generation (presentation link at the end of this post). The FERC, or Federal Energy Regulatory Commission, is America's energy watchdog.

The presentation begins by noting that across America's major electricity hubs, power prices are up significantly on last year (between 62% in the Midwest and 123% in NYC) and that, unfortunately, this probably isn't an anomaly. In fact, the presentation argues, there may be something secular at play. Two main trends are noted.

Energy Costs

Because of gas' prevalence in US power generation, the cost of generating a unit of electricity through gas often sets the unit price in the marketplace across fuels - gas is said to be the marginal fuel. Commodity market watchers and anyone who needs to buy gas on spot or futures markets will have noticed a sharp increase in the price of gas over the past five years. This increase is what is responsible for the vast majority of power price increases currently being experienced by US electricity customers.

Of course, it hasn't helped that the price of coal has been rising as well on the back of a weak US currency and an explosion in demand from India and China. In some parts of the US, such as in the Midwest, coal is the marginal fuel. Tom wrote an interesting piece last year on how to play coal shortages.

Capital Costs

The second factor impacting the cost of power generation is a rapid rise in the cost of many key inputs needed to build a power generation facility. Increases in the price of steel and cement, for instance, have appreciably outpaced inflation as whole over the past few years, as have those for other commodities and even labor (albeit to a much lesser extent).

The result is the chart below, which shows the capital costs of building generation capacity in 2008 as compared to 2003-2004. The caveat with this graph is that accurate data on power plant capital costs is hard to come by given the sensitivity of this information. Nevertheless, the results from these estimates show that while the inflationary environment in power generation capital costs has impacted all fuel sources, wind has been impacted to a lesser extent than competing fuels like coal. While combined cycle and combustion turbine gas remains cheaper than wind, wind has made up some ground on the 2003-2004 period.

The effects of this phenomenon on power prices, however, may not be fully felt for a few more years.

Connecting The Dots

Throw these two factors together (rising capital and fuel costs), and the weighted-average levelized cost of electricity across the system - the levelized cost is the present value of the costs of building and operating a power plant and are used to set prices over the plant's economic life - looks like it could favor wind a few short years down the road.

There are two forces at play improving the economics of wind relative to conventional power generation: (a) growing wind manufacturing capacity currently under construction (this is not apparent at the moment because of the inflationary environment discussed above, but once new manufacturing capacity comes on line and the supply chain loosens up wind costs will decrease) and (b) worsening economics for fossil-fired generation due to increases in capital costs but mostly fuel costs.

Add to this regulation to force fossil generators to internalize the cost of carbon and a growing number state mandates for renewable power, and the picture looks even more positive.

But The Real Winner Is...

Unsurprisingly, the FERC expects there to be a response to rising electricity prices - in other words, demand for power is elastic.

What's the main response likely to be initially? An increase in demand-response (technologies that adjust power consumption based on prices). The FERC estimates that the first round of demand-response (the low-hanging fruit) could come in at about $165/kW, which compares rather favorably to the capital costs of the cheapest option on to the graph above, combustion turbine gas, at between $500 and $1,000/kW. And, like renewable energy, there are no fuel costs.

Somewhat paradoxically, one of the main impediments to demand-response growth could be energy efficiency measures more broadly, or reducing power use at any time instead of only at peak times, which is what demand-response does. Available energy efficiency measures would cost in the order of $0.03/kWh, compared to $0.09/kWh for the fuel alone for a combined cycle gas plant.

Demand-response is likely to be more popular in states where most customers have some exposure to fluctuating daily power prices, whereas energy efficiency measures may gain more ground in states where the pricing is more static for most customers.

It's The Economics, Stupid!

One of the biggest beefs alt energy detractors have with the industry is that "the economics don't make sense without state support." (Of course such detractors generally like to avoid conversing about the mammoth tax breaks the fossil industry receives) This could very well change in the years ahead as the burden of fuel costs on the levelized cost of fossil electricity boosts wind and solar's competitiveness.

However, as shown above, the cheapest kW is the kW saved, and regulators are aware of this. Unlike cars, where the entire vehicle has to be changed to gain access to more efficient technologies, energy efficiency measures in commercial, industrial and residential buildings can be implemented fairly painlessly. Now that the "economics make sense", expect such installations to grow in popularity

Access the FERC presentation here (PDF document).

Posted by Charles Morand at 09:51 PM | Permalink | Comments (3)

Question from a Reader: (links mine, in case you have not read the articles I think he's referring to)

Hi, I'm a very small time investor and I have a strong longterm belief in the alt energy sector. I have one gripe with the sector, though - the fact that it's hard to get in all the way at the bottom, ie: from the birth of companies. I have a feeling that much more growth will happen at that level, and investing in something like ICLN gets me into mature companies that have much less growth potential.
 
Would you be able to write about what a small time investor like me can do to get a better coverage of the market (especially the bottom end of the market) with limited funds. Ex: VC's if there are any publicly traded, or any other instruments I can't think of.
 
Really appreciate it. Oh, and congratulations on an awesome website! It's one of my favorites, and my one stop shop for alt energy news!
 
Thanks
 
S

TK:

This problem is not unique to the energy sector.  In general, early stage companies are very risky, and sometimes dodgy.  Unlike more mature, listed companies, it's difficult to find good analysis, meaning that you have to do most of your own research.  If you're investing just a couple thousand dollars in a company, the work necessary can make it very difficult to earn enough on the ones that do well (and gains can be as spectacular as the losses) to pay for your time.

However, if you have time on your hands, the place to look for spectacular potential gainers is in penny stocks.  There are especially large gains to be had when a company gets a listing on an exchange, which means that they are now subject to a lot more oversight, and hence many other investors are willing to invest.  One of my most spectacular gainers last year was US Geothermal (HTM), which I bought at $.85 before it got a listing, and it's now trading over $2 (it has been higher.)  Other penny stock investors (I do very little investing in these companies) will doubtless regale you with stories of much more spectacular gains... but they seldom tell you about the losers.  Part of the reason I do so little pink sheet investing is I find that for every US Geothermal, I end up with one or two dogs, so, on average, my pink sheet returns are no better than my returns on listed companies.

For those willing to brave the odds, however, I put together some tips last year about how to start your research on penny stocks by listing some common warning signs.  Also, because these companies are very volatile, you are likely to be able to greatly increase your returns by knowing when to sell.

DISCLOSURE: Tom Konrad owns HTM.

DISCLAIMER: The information and trades provided here and in the comments 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 06:56 PM | Permalink | Comments (4) | TrackBacks (0)

Last night, a recent finance graduate introduced himself to me, telling me he had attended my presentation at the Colorado Renewable Energy Society on July 24th. (the whole presentation is available after the link, scroll down to Jul 24.)  He said he wasn't invested in clean energy because "Investing is about making money... there's nothing moral about it."  

I'm sure I was quite sarcastic when I replied, "That sounds like a finance major."

I believe that finance and economics, as they are currently taught, make people less moral.  I'm not talking about God.  I'm personally agnostic with tendencies towards atheism... for me, morality and religion need not be linked.  Morals, as I define them (and I'm no philosopher), are all our reasons for action which are not purely self-interested.  With this definition, amorality is pure self-interest.  

How Economics Teaches Us to be Amoral

Classical economics assumes that people are self-interested utility maximizers.  In essence, Classical Economics is utilitarian and contains the implicit belief that the collective greatest good for society is achieved when each individual pursues his own personal utility.  This tendency for students of Economics to be more selfish has been shown in multiple studies and widely commented on, although not everyone agrees.  My conviction arises from my own experience.  I remember feeling in college that the economics classes I was taking helped to justify amoral behavior.  This is an attitude I have since come to reject.

While the thesis that everyone pursuing their own self interest would likely lead to the optimal societal result in an efficient market, efficient markets were always a gross oversimplification. The existence of market externalities and non-monetary market barriers in virtually every aspect of life make the case for pure utilitarianism very weak.

Despite popular belief, there is no contradiction to being both a successful investor and strongly devoted to the common good.  Examples abound, from the late John Templeton to George Soros and even Warren Buffett.  Each of these investors have markedly different morals, but without a moral compass, life, and money, both lack meaning.  This is probably why so many wealthy individuals end up giving away a large portion of their fortunes at the ends of their lives.

Investing Should be Moral

The statement that investing should be moral is in a sense a tautology.  The verb "should" always implies a moral judgment, be that moral pure utilitarianism, inspired by a higher power, or simply a judgment of what would lead to the greatest good based on some other moral principle.  We're all moral creatures, and even a pure utilitarian would not invest in a factory which would spew pollution into his own back yard.  In other words, maximizing our wealth is not the same thing as pursuing our own self interest. 

If we cannot accept pure wealth maximization as the goal of investing, we must choose another goal to pursue.  What do you choose?

Tom Konrad

Posted by Tom Konrad at 06:56 PM | Permalink | Comments (0) | TrackBacks (0)

It wasn't long ago that people still believed the price of energy commodities - and crude oil in particular - had a greater impact on alt energy stocks than did general movements in equity markets or even fundamental factors.

The logic went something like this: even though oil and most of the sub-sectors that make up the broad alt energy space (e.g. solar) are not in direct competition with one-another, expensive oil is the number one driver behind governments searching for alternatives to the way we currently meet our energy needs. For a time, this theory may have held true as far as short-term movements in the prices of alt energy stocks went - but is it still the case?

About a quarter of the way through the book Technical Analysis for Dummies, there were no doubts left in my mind that technical analysis wasn't my cup of tea. Nevertheless, I do like data and enjoy looking at charts as far as general trends are concerned. I therefore thought I'd take a look at a few basic charts to see if, at least visually, there appeared to be any relationship between movements in energy markets and movements in alt energy equities.

The analysis I did was not especially sophisticated, but interesting nonetheless. For the market as a whole, I took the S&P 500 as a general indicator of performance for US equities, and the Russell 2000 for small-cap equities. For alt energy, I used the ECO index and the CELS index, both of which underlie popular alt energy ETFs. I picked these two indices because: (a) they are focused on energy technologies and not cleantech more broadly, and (b) they both track US equities.

For energy, I used the Dow Jones-AIG Commodities Index (DJ-AIGCI), which is far from a perfect proxy for energy prices. The DJ-AIGCI tracks a broad basket of commodities, which tends to tame the impact of any one component. I used this index nonetheless because I wasn't trying to achieve anything too fancy, and because the data was readily available and usable in the way I needed it, which isn't the case for an energy-focused index like the DJ-AIG Energy sub-index (DJ-AIGEN) (made up of crude oil, heating oil, natural gas and unleaded gasoline).

The first chart I looked at is a three-year chart. For one year and under, the DJ-AIG tracks the DJ-AIGEN fairly closely, but for three years the picture is a little different. The main thing missing from this graph is a big spike in the energy sub-index in late 2005 followed by a large fall throughout 2006 and until the begging of 2007. The ECO peaked in mid-2006, months after the energy sub-index had begun to fall, and seemed to track the S&P 500 and Russell 2000 fairly closely until mid-2007, when it began to pull apart and seemed to be trending up with energy as broader equity markets were flattening out and begging to fall.

The thing that struck me most about this chart is the ability of a deep-seated correction to wipe months of gains. Take the S&P 500. If your portfolio had been tracking the index perfectly starting in early July, 2005, you would've been up about 25% by the same time two years later, which isn't bad for taking no more risk than the market as a whole and not having spent any time or resources picking stocks. However, hang on for another year and you'd be almost right back to where you started. This comes back to the concept of managing risk, which I discussed in a previous article. Without attempting to actively time the market, which can be challenging at best and futile at worst, it is probably reasonable to occasionally take some money off the table to protect gains.

The second chart I looked at is a one-year chart. As mentioned above, the DJ-AIGCI index followed the DJ-AIGEN fairly closely within a one-year timeframe, so I am more confident in this one. From this chart we see that ECO and CELS pulled away from the equity indices and seemed to follow energy prices during November '07, even peaking in December as the credit crisis was begging to take its toll on equity markets. But soon after, movements in ECO and CELS began following the equity indices fairly closely, dipping as energy prices peaked in early March and again in late June.

The final chart is a three-month chart. This chart makes it relatively clear that ECO and CELS are more in line in equity markets than with energy, as evidenced by the fact that they joined in to the small rally of the past few days as oil prices fell.

Of course, nothing conclusive can be drawn from this small exercise, and since I am a bottom-up stock picker I only partially care about what makes the market move in the near-term. My primary interest in doing this was to see if, should we enter into a period of energy price correction, I should keep my eyes open for promising companies that may trade at a discount due to non-fundamental factors (i.e. supply and demand in the market).

From this brief analysis it seems as though I might be better off with continued troubles in equity markets as a whole for finding alt energy bargains.

DISCLOSURE: The author does have not a position in any financial products tracking the indices discussed here

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

Posted by Charles Morand at 08:36 PM | Permalink | Comments (1)

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.

UPDATE: It's still not on NREL's page, but I uploaded it on another server here.

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)

UPDATE 2/23/09: Here are in depth looks at available Clean Energy ETFs and Clean Energy Mutual Funds.

UPDATE: An updated version of this article is available here. A discussion of Wind ETFs and Solar ETFs is here, as well as an updated look at Renewable Energy mutual funds and ETFs.

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,��? 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.

Posted by Charles Morand at 10:56 PM | Permalink | Comments (3)

Someone recently sent me a link to a Motley Fool piece entitled "10 Stocks to Last the Decade, Revisited". It appeared on Feb. 2 so some of you may have already read it. For those who have not, I thought it might be an interesting read because so many parallels can be drawn between the tech euphoria of the '90s and the cleantech euphoria of today.

In a nutshell, the author looks back at a summer of 2000 Fortune article in which 10 stocks were identified as sure winners for the next decade based on how hot they and their industries had been in the recent past. I don't want to take anything substantive away from The Fool so I'll let you read the article (it's short).

As you'll see, if Fortune had been your portfolio manager back in 2000 and had kept insisting on a buy-and-hold strategy to this day (provided you hadn't fired it yet)...well...you might not be completely broke as there are still 3 years to go to the decade, but let's just say that you'd be missing out on a pretty fun party.

Cleantech Will Revolutionize The World, But...

There is very little doubt in my mind that cleantech and alt energy will continue to gain prominence the world over and that, as investment categories, they will continue to offer very attractive opportunities.

After all, those who claimed back in the early 1990s that information technologies and the internet would revolutionize the way we organize our lives and do business couldn't have been more right. Tech impacts modern economies more than ever before and very few people even remember how they coped before the Crackberry.

Nonetheless, North America is awash with stories of people who got burned when the tech bubble burst. Valuations in the sector got driven to preposterous heights on the belief that these technologies were going to fundamentally reshape society. The belief was entirely right; the investment approach (i.e. fully thematic with no regards for business fundamentals) was highly risky.

Many cleantech and alt energy firms are not yet profitable, and, of those that are, profitability often depends on government support. These securities are thus not particularly well positioned to weather a massive shock to financial markets, such as a lengthy correction. Overall, cleantech and alt energy remain very volatile asset classes.

Now I'm sure there are plenty of traders out there who will be able to successfully turn the volatility into strong gains; I've done quite well trading in and out of a few alt energy stocks even though that's not a style that I favor. But in the medium and long terms, if you really want to be sure to pick the winners (and there will be some big winners), you should always keep a healthy focus on good ol' business and financial fundamentals like top-line growth, margin improvements, debt, and the ability to remain at the cutting edge of technological developments.

Remember, the belief is correct, but is the investment strategy appropriate?

Posted by Charles Morand at 12:07 AM | Permalink | Comments (0)

Ernst & Young's Renewable Energy Group just released the Q4 '06 update for its Renewable Energy Country Attractiveness Indices (the document is not yet available on the website, but it should be soon).

In the words of Ernst & Young," the Country Attractiveness Indices provide scores for national renewable energy markets, renewable energy infrastructures and their suitability for individual technologies." These indices thus provide useful information for investors wanting to assess the desirability of company exposure to certain markets.

There are 3 indices (their names pretty much says what they are about): (a) the All Renewables Index, (b) the Long-term Wind Index, and (c) the Near-term Wind Index (this last index has a 2-year time horizon, and is useful in trying to assess near-term opportunities).

There are no huge surprises to report on for Q4 2006. The US retains the top spot in all 3 indices, which is good news for many of our readers.

One interesting thing I thought I would highlight is a short discussion in the Near-term Wind Index section on how certain Canadian provinces, most notably Quebec and British Columbia, have aggressive wind targets for 2007 that could create nice near-term opportunities. More specifically, Quebec is expected to put out RFPs for 2,000 MW of wind during the year...now that's no joke.

Other interesting excerpts from the report:

"The US retains pole position in the All Renewables Index as investors take a long-term view that political support has now turned firmly in favour of renewable energy. Wind, biofuels and solar are now key growth areas as the Bush Administration seeks to lower the country’s dependence on foreign oil."

Of China, which ranked 6th on the All Renewables Index: "Its position in the Indices recognises the potential in terms of market size and growth potential, but also recognises that this is a complex market and that the requirement for local partnering and presence is a barrier to some investors."

"Renewables in India are becoming a major part of the country’s energy mix, and its position in the All Renewables Index [tied in 2nd place with Spain] is largely a result of a political environment that is friendly to foreigners and even friendlier to an Indian-based renewables industry. Renewables contributed some 7% of India’s electricity in 2006, generated from around 9.1GW of renewable capacity – two-thirds of which come from wind power and around 1GW from bioenergy power generation."

Posted by Charles Morand at 09:34 AM | Permalink | Comments (0)

Just a heads up that Forbes is running, on its website, a short slide show entitled "Betting On Green Stocks".

The magazine "queried some of the top-performing investment newsletter editors who cover green stocks for a few of their favorite current ideas."

Stocks discussed are: First Solar [Nasdaq:FSLR], SunPower [Nasdaq:SPWR], Medis Technologies [Nasdaq: MDTL], Suntech Power Holdings [NYSE:STP], and Fording Canadian Coal Trust [NYSE:FDG].

Posted by Charles Morand at 10:43 PM | Permalink | Comments (0)

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

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

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

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

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

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

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

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

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

Posted by Neal Dikeman at 04:12 PM | Permalink | Comments (2)

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

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

Full CNN story.

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

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

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

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

More on this tomorrow.

Posted by Brian Gomes at 03:00 PM | Permalink

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

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

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

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

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

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

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

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

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

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

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

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

Posted by Charles Morand at 12:00 AM | Permalink | Comments (2)

Firstly, apologies to our readers for the lack of posting over the past week; like those of you who celebrate Christmas, we have been busy spending time with loved ones, eating plenty of food and catching up on things we had been putting off for a while. We will be back to our normal posting schedule next week.

Now, on with it. I want to dedicate this final post for 2006 to caution and cool-headedness. While 2006 certainly was one of the most prolific years yet for alternative energy and clean tech enthusiasts, investing in this asset class remains an overall very risky enterprise, and it is paramount that our readers be reminded of this.

A Few Outside Perspectives

Consider this passage from an email I received from one of our readers about a week ago: “I think some of the best of these companies will be very profitable in the years ahead, particularly considering "peak-oil" and global warming. One thing you could do that would be beneficial is to differentiate between those companies that are profitable and those that are not, because frankly there are a lot of hype-only companies in the alt energy space.�?

And therein lies the rub. Besides a few token examples like Suntech Power [NYSE:STP], most alt energy and clean tech companies have no earnings and high cash burn rates, making them questionable propositions when subjected to conventional valuation approaches. Most of these investments thus range from risky to highly speculative, and it is still too early in the game, in many cases, to separate the great prospects form the mediocre ones (though you should be able to spot the real stinkers).

Scott Rothbort over at TheStreet.com, in a December 13 article entitled When 'Buy What You Know' Doesn't Pay, goes as far saying: “This entire asset class gets the great-product, bad-investment nod. We can use light, water, wind, steam or bovine excrement to generate energy for all I care. But even if Earth, Wind and Fire were to sing for us, it is highly unlikely that a stand-alone company is going to make you a dime in the alternative energy sector.�? While I couldn’t disagree more with Rothbort, his commentary on this topic is one of those bluntly-worded hype killers that are sometimes necessary to bring folks back to reality.

One of my favorite websites, The Motley Fool, has published a number of pieces over the past 12 months that, as 2006 comes to a close, serve as good reminders that investing in alt energy and clean tech is a risky business. On December 20, FuelCell Energy [NASDAQ: FCEL]. On November 15, Ballard Power [NASDAQ: BLDP or TSE:BLD] . On October 27, Plug Power [NASDAQ: PLUG]. And on January 17, Hoku Scientific [NASDAQ: HOKU].

Why Alt Energy Pessimists Are Wrong

The main reason why clean tech and alt energy bashers are dead wrong is that, for this asset class, the past is no indication of the future. Anyone who bothers to read the news on a daily basis knows that a big trend is afoot, and that this trend will only intensify in the years ahead. Natural resources and ecological services such as clean air are getting scarcer, and this scarcity will soon prove more of a break on economic growth and societal development than any other set of constraints we face.

Let’s forget about peak oil – let’s just say that it’s too contentious a concept and let’s leave it out for now. Think about the looming global water shortage, air pollution in Chinese cities, climate change, loss of forest cover in many parts of the world, and the decline in global fish stocks, to name a few.

Think also of non-environmental trends impacting demand for alt energy, and ask yourself whether you see these trends softening or hardening in the years ahead. Think of terrorism and the impact that it has had and will continue to have on the geopolitics of energy. Any signs of this ameliorating? Think of the emergence of India and China and of their effect on commodity prices.

You would have to be a heck of an optimist to believe that alt energy and clean tech companies won’t ever make you a dime. Demand for the solutions they offer will only grow moving forward because: (a) the problems enumerated above will have to be solved sooner rather than later and (b) people are not, overall, in favor of giving up economic growth and setting the clock back on 4 centuries of economic and social development. Most realistic folks out there are buying the clean tech argument because it’s grounded in common sense. But that certainly doesn’t mean you should be careless with your money!

The Future Will Be Bright For Alternative Energy And Clean Technology Stocks

Need proof that investors are picking up on these trends? Consider these numbers from specialist alt energy information provider New Energy Finance. If you’ve never done so before, you should also browse through recent press releases by the Cleantech Venture Network, an outfit that tracks VC investments in the broad clean tech space.

The Motley Fool also had nice things to say about alt energy on a number of occasions this past year, and published a piece entitled Searching for an Energy Revolution that contains some very useful material.

Is there an unhealthy amount of hype surrounding clean tech and alt energy? Sometimes. Is the whole asset class going to make you piles of cash? No way! Is investing in clean tech and alt energy risky? You bet! Will there be many companies that go belly-up? Certainly! If you do your homework, and, as a result, pick your investment choices wisely, will you make money? Not a doubt in my mind! Is this asset class, at this stage of its evolution, suitable for more cautious investors? Probably not…although keep in mind that many non-pure plays have material exposure to this space. Just think of GE [NYSE:GE], Sasol [NYSE:SSL], FPL [NYSE:FPL], ADM [NYSE:ADM], and Iberdrola [MCE:IBE], to name a few.

The alt energy investor must be patient and keep a cool head. At the end of the day, it’s up to you to determine your own risk profile, do your homework and hedge your bets somehow. But it is my humble opinion that those who decide to ignore alt energy and clean tech companies altogether will, on day, be wishing they hadn’t.

Happy New Year and see you in 2007!

(DISCLOSURE: I am long Suntech Power. I have no affiliation with any of the organizations discussed above.)

Posted by Charles Morand at 03:05 PM | Permalink | Comments (2)

A quick post to inform our readers that the Energy Information Administration has just published an 'early release' version of its 2007 Annual Energy Outlook.

Topics covered include:

Energy Trends to 2030
Economic Growth
Energy Prices
Energy Consumption
Energy Intensity
Electricity Generation
Energy Production and Imports
Carbon Dioxide Emissions

Along with this table outlining a range of energy-related projections to 2030 (PDF document), including revisions from 2006 projections.

Posted by Charles Morand at 10:56 PM | Permalink | Comments (0)

What are the implications of the Democrats' electoral victory for the clean tech industry? That probably won't become clear for a few more months. In the meantime, Red Herring, one of my favorite technology magazines, just published this short piece on the topic: "U.S. election a mixed bag for Cleantech".

The early conclusion of industry insiders interviewed for the article is the same as ours - namely that the defeat of Proposition 87 won't be a signficant event in the long-run...and that the future looks overall bright.

Happy reading!

Posted by Charles Morand at 11:22 AM | Permalink | Comments (2) | TrackBacks (0)