Alternative Energy Investments

Alternative Energy Investments: Finally Getting The Green Light in 2008

by David Fessler, Advisory Panelist, Investment U
September 26, 2008: Issue #861

As Wall Street sits like a deer in headlights waiting for Congress to resolve the credit crisis, projects in new alternative energy investments have all but stopped.

Not having credit facilities to fund projects is one issue, but there was an even bigger roadblock: The energy tax credits for the manufacturing, production and use of alternative energy systems and devices are due to expire at the end of 2008.

And up until a few days ago, it looked as though that might just happen, which would be a giant step in the wrong direction with regards to U.S. energy independence.

But nearly lost amongst all the “bailout” hubbub of Congressional hearings this week was a key piece of legislation that passed by a 93-2 vote in the U.S. Senate on Tuesday.

I’m talking about H.R. 6049, entitled the “Renewable Energy and Job Creation Act of 2008.”

This historic bill rolls out roughly $18 billion in tax incentives and credits specifically targeted at renewable energy projects, property and alternative energy investments.

Alternative Energy Investments – A Green Ripple Effect

Barry Cinnamon, CEO of Akeena Solar (NYSE: AKNS), had this to say with regards to the Senate’s action towards alternative energy investments: “We know with certainty that the extension of these credits sends out a green ripple effect: Solar projects on hold can now move forward. America will create new green-collar jobs – over 214,000 in California alone – and businesses and homeowners can count on lower energy bills in a time of economic hardship.”

For months, Cinnamon, other CEOs and investors in solar, wind and other renewable energy sectors have been sitting on the sidelines – waiting for Congress to pass this legislation. And in addition to the obvious job-creation effects, it’s just what the country needs to begin weaning itself off of foreign oil.

The bill’s provisions, which extend existing credits and creates some new ones, effectively offset as much as 30% of the cost of new alternative energy investments, paving the way for green energy sources and projects.

While the House of Representatives still has to approve this version of the bill, once they do, the President has indicated he would quickly sign it into law.

Here are some of the bill’s highlights:

Tax credits for wind generation facilities would be extended through 2010.
Tax credits for solar, geothermal, marine (tidal) and biomass, municipal solid waste, trash combustion and hydro power plants would last through 2011.
Residential energy efficient property tax credits would run through 2014, and the bill allows for up to $4,000 of solar energy tax credits for homeowners who install such systems.

Major Incentives for Automakers… And Homeowners

Here’s one incentive bound to get automakers excited: A new tax credit for the production – and purchase – of plug-in electric vehicles.

It’s been estimated that existing hybrid vehicles can be converted to true plug-in hybrids for an additional $3,000 to $5,000, and this credit might just be the catalyst that gets big automakers moving.

Felix Kramer, co-founder of CalCars.org – an organization which promotes plug-in hybrid electric vehicles – thinks it will happen: “This will have an enormous impact, and could conceivably entirely remove the cost increment that carmakers say is the cause of their reluctance to build plug-in vehicles.”

And car buyers come out big, too. If you purchase a plug-in car or truck, your credit could be as much as $7,500.

Other provisions of the bill provide tax credits for installing non-hydrogen alternative fuel refueling stations. Biofuels, anyone?

One provision even allows you to deduct your bicycle commuting expenses from your gross income. Being a cyclist, I’m particularly fond of that one.

The previous legislation was primarily focused on residential and manufacturing credits for solar. While they’re still included, the new bill goes a lot further, allowing utilities to take advantages of the credits, too, and in the case of solar, extends them for up to eight years.

Alternative Energy Investments – A Wave of Green Power

This will likely jumpstart a wave of green power plant construction projects and the bill includes $800 million in bonds to help fund these types of alternative energy investments. However, existing green-power producers win as well, as the bill extends production tax credits for another year for wind power and for two years for solar, biomass and hydropower.

Thinking about installing solar panels on your home’s roof? Now might just be a good time to get started, as the bill extends solar investment tax credits for homeowners to eight years, and removes the existing $2,000 cap on the credits.
And if you live in the Midwest where the wind is nearly constant, you might want to consider your own wind-driven power plant. The bill includes a $4,000 credit for homeowners who install small wind generators for power generation.

Of course, there’s always the issue of how tax credits will be paid for. It was initially envisioned as a tax on oil and gas producers, but that might have killed the bill. Instead the IRS is delaying certain tax deductions for these producers, which has a net effect of having them pay for it anyway.

Three Easy Ways To Profit Through Alternative Energy

All three of these exchange traded funds should be big movers in the remainder of 2008 and 2009 as alternative energy companies begin to gear up production as a result of this exciting legislation. Clearly wind and solar companies will be big beneficiaries of this bill.

Last week, we talked about the Market Vectors Global Alternative Energy ETF (NYSE:GEX) as a way to play the entire alternative energy space.
However, if you want to focus specifically on wind power, there’s the First Trust ISE Global Wind Energy Index Fund (NYSE: FAN).
For the solar buffs, there’s an ETF made up entirely of solar companies, the Claymore/MAC Global Solar Index (NYSE: TAN).

Good investing,

Dave

Today’s Investment U Crib Sheet

Exchange Traded Funds or ETFs are a great way to profit from an entire industry or sector, And they come with lots of stock-like benefits…

Flexibility
ETFs trade instantly throughout the day on the New York Stock Exchange (NYSE) or the American (AMEX). They trade just like stocks. The fact that they can be bought or sold at any time is an advantage over traditional open-end mutual funds, which only allow purchases and sales at the end of the day. Now you know what price you are paying.
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When ETFs were first introduced in 1993, there was only one – the S&P Depositary Receipt (AMEX: SPY), or “Spider,” as traders call it today. Volume was under 100,000 shares a day. Now, all sorts of index tracking ETFs abound – like Spiders, Diamonds, Vipers and iShares. All trading tens of millions of shares a day.
Low Cost and Dependability
ETFs are index funds, and as such, they usually cost less to run than standard mutual funds. In fact, investing in ETFs allows you to create your own well-diversified portfolio without sales loads, redemption fees and other restrictions common to mutual funds.

Moreover, you know what you are getting. No need to worry about an uncertain money manager. You can become your own money manager by choosing which sector you want to invest in.
Choice
The ETF universe is rapidly expanding. Today, there are hundreds of ETFs covering almost every sector imaginable, both here and abroad.

And for some more ideas on Alternative Energy investments…

Just last week, Louis Basenese gave us a look at some wind power companies set to profit, and why wind power could be the answer to our country’s oil addiction.
And as our resident energy and infrastructure expert, Dave keeps his eye on the sectors and companies that are able to take advantage of the market’s movement best. Which is why he recently gave us the two best places for our money right now – the infrastructure and energy sectors.

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