Alternative and Renewable Sources of Energy Are Bringing a New Source of Investment Profits
An Investment U White Paper Report
From the Investment U Research Team
Twenty-five years ago, President Reagan ripped out solar panels from the White House that his vanquished predecessor, Jimmy Carter, had installed. Reagan said the panels were unsightly and unnecessary. Guess what? They're back. Newer photovoltaic panels - 167 in all - are heating the White House pool and spa as well as domestic hot water.
They were ordered by President George W. Bush, who, of course, shares more in common with Reagan than Carter. But energy policy in the United States is becoming less and less polarized. Both political parties fear the long-term consequences of gasoline at $3 a gallon, bent crude oil at $75 a barrel and soaring electricity rates. These days, people can't seem to get their hands on enough alternative energy. In fact, as this Investment U report shows, renewable, or so called "alternative" energy sources, are in hot demand. And some of the biggest names in the business, from General Electric to Archer Daniels Midland, are in pursuit of the next great energy wave. Energy produced from corn, soybeans, water, wind and the Sun lead the "alternative" list of sources on the grid. They are being plumbed from the cornfields of Nebraska to the gusty reaches of Wyoming's mountains. The Mainstreaming of Alternative Fuels In fact, what was once considered alternative is now mainstream. The advancements in technology and science are fostering a new attitude about alternates to natural gas, oil and coal, which still fuel the vast majority of our nation's energy needs.
The war in Iraq, the never-ending threat of terrorism and increased competition from China and India for oil has given the renewable energy sector a shot in the arm. And the number of investment opportunities in these renewable energy sources could be greater than the energy industry has ever seen. That's simply because the industry is spawning new companies that are producing the technology to bring about fundamental change. To be sure, capital investments in the renewable energy sector increased 25% in just one year, from $48 billion in 2005 to $60 billion this year, according to the research firm New Energy Finance. Some of the biggest corporations are financing new products and methods to harness energy. In addition to GE and Archer Daniels, they include: - Siemens
- Dupont
- Mitsubishi
- Dutch Royal Shell
- Exxon Mobil, and
- Investment banker Goldman Sachs
The biofuels industry has doubled in size in the last year alone. Energy generated by the wind has increased by one-third in the past year. And the solar industry is well on its way to producing more economical photovoltaic panels that require processed silicon. In fact, solar energy appears poised for a technological breakout in the near future. Biofuels… Filling up at Your Local Gas Station, and In Your Alternative Energy Investment Portfolio Biofuels are grabbing all the headlines these days. Willie Nelson began his own biofuels company when he did a little research from his home computer and found that farmers were wasting valuable resources. Bill Gates jumped into the act, plowing $84 million into Pacific Ethanol. Sun Microsystems' founder Vinod Kholsa gave it the thumbs up, as did former Fed Chairman Alan Greenspan. So why are biofuels such a big deal? First of all, biofuel is energy that comes from biomass. That includes living organisms or their byproducts. Ethanol gets the most headlines because it can be burned in internal combustion engines. At the moment, most ethanol comes from corn, which is processed so that part of its byproduct can be blended with petroleum diesel to create a biodiesel blend. Right now, all vehicles can operate on a blend of 10% ethanol and 90% gas. This is called E10. Today, ethanol blends make up 2 percent of all fuels that are sold in the United States, or 1.5 billion gallons, compared to 130 billion gallons of gasoline. That figure is going up because the government recently banned the octane booster MTBE, which was found to have caused pollution in groundwater. Some states, like California, New York and Connecticut, are turning to ethanol to replace MTBE as an "oxygenate." Yes, Corn has its Drawbacks But ethanol manufactured from corn has its drawbacks. It is currently expensive to produce. The energy that goes into making it is greater than the energy coming out. That's due to the high costs of fertilizer and pesticides used in the production and vast tracts of land required to grow it. Taxpayers are subsidizing ethanol to the tune of $2 billion a year, a heavy subsidy that Congress is willing to pay to help farmers and bring needed innovation to the alternative fuels sector. Owing to the rules of supply and demand, ethanol prices are up 20% in just one year. At that sharp rate of increase, it won't be long before consumers lack the will or the finances to pay more. Government Funds A $160 Million Alternative Energy Contest For those interested in alternative energy stocks, the most exciting news is the development of what's called cellulosic ethanol, which produces energy from common plant matter, wheat straw, stalks, even garden wood chips and household waste. Right now, the race is on to figure out how this seemingly endless stream of material can be used to harness energy. The government is so convinced it can, that it's holding a contest to determine which three companies will get funds to build factories that can synthesize the material. That's drawn quite a bit of attention in the ethanol industry. Some 30 companies are racing to come up with the right mix of microorganisms, enzymes and bacteria to turn plant matter into usable energy. They include Iogen Corp., of Canada, which is teaming up with Royal Dutch Shell and Goldman Sacks. Iogen says it could be just years away from producing cellulosic ethanol at $1.35 a gallon. Other contenders include Archer Daniels Midland, Abengoa Bioenergy, a U.S. subsidiary of Abengoa S.A., a Spanish conglomerate, and Dupont. Investors looking to capitalize on this research with ethanol investments should also consider companies that are bringing other products to bear in the race to produce cellulosic ethanol. Those include equipment maker Deer & Co., and Diversa Corp., an enzyme producer. Both are working with Dupont. Cargill, a huge ethanol producer, is working with Abengoa. Cargill has produced a microorganism that it has licensed to Abengoa. Biotech companies are, of course, at the forefront of the ethanol campaign. They include Synthetic Genomics, which was founded by Craig Venter, the biologist who led the private effort to decode the human genome. Scientists and researchers say their goal is not only to produce ethanol from plentiful supplies of waste matter. It is also their hope to make it more efficient, thereby raising the level of ethanol in one's tank from 10% to 15%. Most objective analysts say that achievement is 10 years away. Wind Energy Taken by Storm Generating energy from wind has become so profitable that some farmers are erecting windmills and selling the energy back to the local or municipal grid. In fact, wind farms were the second largest source of new power generation last year, after natural gas, says the Energy Information Association. Even Atlantic City, N.J. has gotten in on the sure bet of profiting from wind. It had Community Energy Inc. build five 380-foot tall turbines to produce energy for local casinos and homes. Last year more than 2,400 megawatts of wind generation - enough to power 650,000 homes - went online. That brings the total U.S. output to 10,000 megawatts, or enough for 2.5 million homes. That number is expected to triple by 2020, according to the American Wind Energy Association The top five state producers of wind energy are California, Texas, Iowa, Minnesota and Oklahoma. A Windmill in Every Backyard? Of course, wind energy projects are not without controversy. Some residents complain that giant windmills are an eyesore. Others contend that they send noxious farm odors into bedroom communities. But overall, wind is a big plus. It is the ultimate renewable source of energy. In fact, it actually reduces greenhouse gasses that are believed to produce global warming. That's simply because windmills remove energy directly from the atmosphere without producing emissions like carbon dioxide, methane and mercury. Last year alone, wind power kept 16 million tons of carbon dioxide out of the air. The resource also offers an "energy security benefit" by cutting down on imports of natural gas that is used to generate electricity. It also has the added benefit of creating manufacturing jobs and helping farmers better utilize their land. Despite the recent run-up in energy stocks, wind remains a solid long-term alternative energy investment. The government is expected to extend the federal wind production tax credit that's brought about billions of investment dollars. Some of the biggest states have also shored up financial incentives to manufacturers. Investors hoping to get in on the alternative energy boom in wind should consider General Electric and Mitsubishi, which produce turbines. Other companies in the business include: - Siemens
- Gamesa
- Enerytech
- Vestas, and
- AES Corp., an electric power producer.
Earlier this year AES bought SeaWest Holdings, a privately held wind energy company, for $60 million. The investment deal expands AES's reach to 13 states. Of course, "Wall Street's New Love Affair" with wind, as Business Week put it, has also brought new levels of financing. Goldman Sachs recently bought Horizon Wind Energy, and other brokerage firms and banks are beefing up their wind energy portfolios. A Solar Panel with Every Roof Five years from now, home builders in California will be required by law to offer solar energy systems to consumers. And if the state gets its way, most homebuyers will opt in. That's why the state is plowing an initial $3 billion into the program. Why is the state going to such lengths to promote solar? In a word, it must. The state has a huge energy deficit, with regular blackouts from Los Angeles to San Diego during peak months. Energy prices are among the highest in the nation. And pollution from natural gas to power electricity is on the rise. California is not alone. It is among more than a dozen states in the sun-drenched southwest and even the Great Lakes and Mid Atlantic regions that are investing heavily in solar. While solar energy has great promise, it remains one of the least economic alternative fuels. Its costs of about 25 cents a kilowatt is more than double the price of any other fuel source. That may explain why solar energy provides less than one percent of the electricity that's available to the nation's hungry power grid. But the escalating price of oil and international tension with oil producers like Venezuela and Iran have reignited interest in solar, which has evolved slowly since President Carter installed first-generation solar panels on the White House. The Bush administration proposed a record amount - $148 million - for research on solar energy. That's a 78% increase over current levels. And Congress has passed legislation giving federal tax credits for home solar system, the first such tax break in 20 years. Watch Your Alternative Energy Investments by Watching the Price of Silicon
The answer to solar is almost certainly the very substance that revolutionized the computer chip industry - silicon. It is the key substance in photovoltaic cells that convert sunlight directly into electricity. Sunlight forces the photovoltaic cells to dislodge electrons, which creates an electrical current. But without silicon, there is no PV cell. Most people utilize some form of PV cell without thinking about it. They're imbedded in most calculators and wristwatches that people use. They're also used in the production of satellites.
Photovoltaic cells are still an expensive means to produce energy. But the fact is, the cost of PV has dropped by 90% since the days of the Carter administration, and it's expected to drop further. Moreover, companies like Sun Power of California and SunTech of China, which is listed on the New York Stock exchange, are moving swiftly to produce more economical PV units. Others include Evergreen Solar and Silicon Solar. Understand Alternative Energy, But Only Invest In Profits In short, research and development spending in alternative energy is rich. And government subsidization is on the rise. But the fact remains: Alternative energy, by nature, is years away from mainstream maturity. So while speculative (high) returns for investors exist, speculative risk exists, as well. Alternative energy producers must turn a profit before their stocks make a legitimate, long-term advance. Until then, it's best to place your investable cash into companies with exceptional earning power… today. Here are 11 businesses significantly increasing their revenues. Good investing, The Investment U Research Team Related Articles: View the complete Alternative Energy Investing white paper in .PDF format Investment Reports Archives
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