By Jeff Siegel
There's no doubt about it: 2013 was a fantastic year for
alternative energy investors.
The big story this year was Tesla (NASDAQ: TSLA).
A company that we began touting years before the company even went
public, Tesla soared this year, taking the stock from $34.71 in
January to a high of $194.50 a share in September.
Folks, a 460% gain from an electric car company in just nine
months would've been laughable in 2013. Today, it's the one of the
most hyped stories in the world of finance...
And if you listened to me a couple of years ago on this one, this
also turned out to be one of your biggest gains ever.
Of course, while we remain bullish on Tesla as a force (and Elon
Musk as the man behind that force), from an investment standpoint,
we've already taken our winnings off the table. The company will
likely continue to prove to be a great disruptor in the auto
manufacturing space; but from a risk vs. reward scenario, Tesla is
no longer particularly attractive for us.
That being said, if you're looking for a new car, you can't go
wrong with a Model S.
Another big winner for us this year was another company
in which Elon Musk has his hooks: SolarCity (NASDAQ: SCTY).
SolarCity started the year at around $13.00 a share. Just this
month, it a high of $64.50. That's a 396% gain in less than a
There were also a few more solar stocks that crushed it this
year. These include:
All in all, 2013 turned out to be a great year to be an
alternative energy investor.
The question now, however, is how will 2014 pan out for alternative energy bulls?
A Darwinian Smackdown
From 2005 to 2008, a massive alternative energy bubble was
Sure, in that time, we made a fortune... however, once the global
economy imploded, recessions kicked in, and investment dried up,
the alternative energy sector was particularly damaged.
But this turned out to be a good thing, as it enabled a
much-needed Darwinian smackdown to wipe out the laggards and send
the inferior companies packing. What was left was simply a handful
of major players and an urgent quest to make the best mousetrap.
That's where we are now.
The only alternative
energy companies left standing today are those with massive
amounts of capital (or access to massive amounts of capital),
disruptive technologies, and game-changing business models. Going
into 2014, this is where we're focusing our alternative energy
Now before moving on, understand that while there's still an
enormous amount of money to be made in the alternative energy
sector, only a fool would ignore the necessity of diversification
in the energy space.
In other words, while we continue to profit from alternative
energy, we're certainly not turning a blind eye to things like
domestic oil and gas and even coal, which I believe will begin to
rebound in 2014.
But today, our focus is on alternative energy. So here are five
alternative energy stocks on which I am bullish for 2014...
Hannon Armstrong Sustainable Capital, Inc. (NYSE: HASI)
Hannon Armstrong is basically a specialty finance outfit that
offers debt and equity financing for modern energy and sustainable
infrastructure projects. The company has actually been around for
more than 30 years, and since 2000 has provided or arranged nearly
$4 billion of financing.
HASI focuses primarily on infrastructure projects that have high
credit quality obligors, fully contracted revenue streams, and of
course, inherent economic value. Some of these obligors include
U.S., federal, state and local governments, high credit quality
institutions and utilities.
The company is actually the leading provider of financing for
energy efficiency projects for the government.
HASI is broken down into three asset classes:
- Clean Energy – Projects that deploy cleaner
energy sources, such as solar, wind, geothermal, biomass, and
- Energy Efficiency – Projects typically
undertaken by energy services companies that reduce a building's
energy usage or cost through the design and installation of
improvements to building components. These include (but are not
limited to) heating, ventilation, air conditioning systems,
lighting, energy controls, roofs, and windows.
- Sustainable Infrastructure – Projects such as
water or communications infrastructure that reduce energy
consumption and make more efficient use of natural resources.
I suspect these last two will get a nice boost in 2014 from
Washington, now that Ernest Moniz, the new Secretary of Energy,
has made it perfectly clear that his focus will primarily be on
During his first speech as the new Energy Secretary, Moniz said:
“Efficiency is going to be a big focus going forward. I just don't
see the solutions to our biggest energy and environmental
challenges without a very big demand-side response. That's why
it's important to move this way up in our priorities.”
Funding will be needed for these projects, and HASI is pretty
much the big fish in this pond.
Bottom line: This is great timing for Hannon Armstrong. And I'm
personally looking to take a ride on this one.
Here's another interesting thing about HASI: It actually operates
as a REIT.
As energy analyst Tom Konrad
pointed out, by going public and converting to a REIT
structure, HASI is tapping a pool of relatively low-cost capital
from small investors.
Over the long term, I suspect HASI will hit all the right buttons
with investors looking to invest in clean
energy projects, as well as investors looking for some
steady income in the energy space.
Although I doubt HASI will be able to deliver those double-digit
dividends we've seen from some other juicy REITs out there, I do
expect to see a 6%-7% dividend yield in a few more quarters.
All in all, I like HASI as a way to play the continued boom in
modern energy integration and energy efficiency.
Pattern Energy Group (NASDAQ: PEGI)
It’s only been public for about a month now. And despite its
successful (yet somewhat quiet) debut, Pattern Energy Group
(NASDAQ: PEGI) seems to be slowly appealing to income-oriented
investors looking for a piece of the renewable energy market...
Pattern Energy Group is an independent power company that owns
and operates eight wind power projects in Canada, the United
States, and Chile. Total owned capacity is just over one gigawatt.
Each wind project the company owns is contracted to sell nearly
all of its output on a long-term, fixed-price power purchase
agreement. Pattern also has two new projects in development. One
is in Chile, a 115-megawatt project expected to start commercial
operations in April 2014. The contract for this one runs through
2034. And the second project soon to go online is in Ontario. This
one is a 270-megawatt project with a power purchase agreement
locked in through 2034.
Overall, the weighted average remaining on contract life is about
Management is quite conservative, and risks are minimal, as this
is not a turbine manufacturer, but rather a developer operating
primarily in wind-friendly regions.
Even with dirt-cheap natural gas, demand for wind — in the right
places — remains strong.
Net profit for the first six months of 2013 grew from $6.44
million one year prior to $29.14 million, while revenue rose 62%
to $102.54 million. Pattern has about $2 billion in assets and
about $1.4 billion in liabilities. And for income-oriented
investors, the company expects to offer a yield of approximately
For the 12 months ending December 31, 2014, management expects to
generate $55.4 million for distribution and $217.7 adjusted
All in all, I actually like Pattern based on historical data and
management’s ability to keep growth steady, but not overly risky.
Whether or not that will be enough in today’s market is still
Broader market action and, of course, any potential loss of
government support in Canada, the U.S., and/or Chile could chip
away at this thing pretty quick. Even though power purchase
agreements are already locked in, the market doesn’t typically
distinguish these types of things when it comes to renewable
energy. This isn’t necessarily a criticism, but rather a reality
that investors should not ignore.
As well, while I love the target dividend of 6.25% dividend, I
don’t know how much room that leaves for growth...
If you’re considering Pattern as a potential investment, I
wouldn’t expect much in the way of dividend growth in 2014.
Greenbriar Capital Corp. (TSX-V: GRB)
Last year, we closed out a position in Western Wind Energy
Corporation (TSX-V: WND) with a 33.3% gain. We actually closed it
out because a company called Brookfield Renewable Energy Partners
ended up acquiring this very successful wind farm developer.
Now those of you who know me know that I'm not much of a fan of
generic wind energy stocks — but I do love a quality power
generation play, whether its wind, solar, gas, or coal...
And this is exactly what WND was: a quality power generation
We originally picked up WND because it had zero debt, very
lucrative power purchase agreements in place with the major
utilities, and a management team that is probably one of the best
I've ever seen in the energy space.
In fact, this company, which was started with only a few hundred
thousand dollars, became a multi-million-dollar operation that
grew its share price, on average, 20% each and every year since
2000. Only a top-notch management team can make something like
this happen, particularly in the highly competitive and often
times uncertain wind energy space.
So when I heard that the former CEO of WND had launched a new
venture, I immediately got him on the phone... and I'm glad I did.
His name is Jeff Ciachurski, and he's one of the smartest and
most aggressive CEOs I've ever met. Following his departure from
WND, he immediately seized his next operation, another power
development company that's jumping on a wealth of new solar and
Now, I know some of you are either unfamiliar with or are simply
uninterested in solar and wind plays. But the bottom line is that
Ciachurski is one of the only guys I know who consistently makes
money in this space. And it is for that reason that I'm bullish on
The company is called Greenbriar Capital Corp. (TSX-V: GRB) (PINK
SHEETS: GEBRF), and in the short time since Ciachurski moved from
WND to GRB, the company has already announced a 100-MW solar deal
in Puerto Rico and an 80-MW wind project in Utah.
When first considering GRB's operations, it looked like just
another version of WND — which, quite frankly, would be
enough of a reason for me to buy some. My hunch was confirmed last
summer after Ciachurski admitted that GRB is, in fact, a
continuation of a strategy he had with Western Wind.
But this one ups the ante.
GRB only has a small amount of outstanding shares, about 11
million. And about 6 million are held by insiders. Compare that to
Western Wind, a highly successful and profitable stock, that had
about 71 million outstanding shares. As Ciachurski noted, with GRB
you're not splitting the pie with as many people. I love that!
Long term, assuming this plays out the same way WND played out,
this could easily be a $5 stock by the end of 2014.
Investors are always talking about getting in on the ground floor
of something big... well, that's exactly what this opportunity is.
U.S. Geothermal (AMEX: HTM)
In the past, I've discussed a geothermal technology known as
Enhanced Geothermal Systems (EGS).
EGS is the holy grail for the geothermal industry. It's basically
for geothermal. But because you're simply talking about heat with
EGS — and not a dedicated spot holding a finite resource —
geothermal power plants can be set up practically anywhere.
You can't do that with wind or nuclear.
And the best part is that with EGS, you can produce electricity
more cheaply than nearly anything else produced today.
On top of that, this resource is nearly exhaustible. In fact, an
MIT report found that accessible geothermal resources in the
United States are 130,000 times greater than the country's total
annual energy consumption.
We learned this year that the first demonstration EGS projects
actually sent juice to the grid. The development on EGS has been
slow, but it's also been steady.
One of the earliest companies involved in EGS testing was U.S.
Geothermal (AMEX: HTM).
If you're familiar with some of my past recommendations, HTM is a
stock that I've played on numerous occasions. Our early coverage
resulted in gains well over 200%, and over the years we've issued
continued coverage — in both good times and bad.
I did actually jump out of the geothermal space for a bit, but
I'm now back in... and once again, it's with U.S. Geothermal.
U.S. Geothermal is a geothermal power producer that operates
three geothermal power plants in the U.S. and is currently
developing a new project in Guatemala.
EBITDA for the first six months of 2013 was $5.18 million,
compared to -$2.85 million one year prior. Net income for the
first six months was $0.27 million, compared to a net loss of
$4.24 million. Cash and cash equivalents for the first six months
of 2013 increased $35.37 million, compared to an increase of $1.99
million one year prior.
Full-year 2013 guidance for operating revenues is between $25.9
million and $26.8 million, and EBITDA estimates are between $12.5
million and $13.7 million.
Overall, HTM is a high-risk, long-term play on geothermal in the
United States (although the company is active outside the U.S.,
too). But after years of bouncing around, the stock is finally
starting to stabilize, and the company is finally starting to show
some success for its many years of hard work.
Bear in mind geothermal is one of the slowest growing sectors in
the clean energy space. Take a look:
So don't expect the same kind of meteoric expansion we've
witnessed in the solar and wind industries.
When it comes to this space, I think you get the most bang for
your geothermal buck in 2014 with U.S. Geothermal.
New Solar IPO
SunEdison (NYSE: SUNE),
formerly known as MEME Electronic Materials, announced this year
that it would be splitting off its semiconductor business in a new
IPO and use the proceeds to fund the construction of solar farms.
The stock soared more than 20% on the news before coming back
down to reality, but such an IPO could turn out to be a big deal
for solar investors...
The bottom line is that SUNE generates revenue through
semiconductor and solar materials and project development. It's
the latter that keeps the company in business.
In 2010, about 42% of revenues came from the company's
semiconductor segment, and just under 24% came from project
development. In 2012, project development boasted about 56% of
revenues, while its semiconductor segment's contribution fell to
Also worth noting is that in 2010, solar materials accounted for
about 35% of revenues. That figure fell to less than 12% in 2012.
Earlier this year, SunEdison also bought a solar company called
EchoFirst in an effort to expand further into the residential
This company actually offers combined solar electric and solar
thermal leases for consumers. Essentially, this allows the
consumer to use solar not just for electricity, but for hot water,
This is a pretty big deal, as about 30% to 40% of average utility
costs can come from hot water heaters.
We'll continue to follow the development of this IPO going
To a new way of life and a
new generation of wealth...
Jeff Siegel is Editor of Energy and Capital, where this article was first published.