Archive for March, 2007

Inverter Stocks: A Backdoor to Solar and Wind

My column on AltEnergyStocks.com this week is about the companies that make the inverters which transform the DC or wild AC current produced by solar panels and wind turbines (respectively) into the type of AC power used by the grid. It begins:

    Whenever there is a gold rush, the people who make the real money are seldom the gold miners, but rather the suppliers to the miners that come home with the lion’s share of the profits. This is not because there is not an incredible amount of money to be made in mining gold, but because the nature of a gold rush is that too many optimistic miners are encouraged by the early profits of a few to rush to pursue too few opportunities.

    To many, the rush into solar stocks seems to be just that sort of gold rush. The boom in solar IPOs certainly reminds me of the type of feeding frenzy in which incautious investors are likely to get burned. And we are also seeing some other signs of rampant speculation, where investors are buying poorly managed (or even dishonest) companies with almost the same fervor of well managed ones. There’s little doubt that the future is bright for solar power, but picking solar companies that are going to survive and thrive in that bright future is becoming increasingly difficult in an increasingly crowded field.

    In a gold rush like this one it makes more sense to look at the suppliers.

Click here to read the rest of the article.

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Vestas’ new Turbine Blade Plant in Windsor, Colorado

At the Colorado New Energy Summit yesterday, we got an update on Vestas new factory which they will be building in Windsor, Colorado.

Jens Soby at port of Vancouver event

Jens Soby, Vestas’ head of North American operations spoke for about 10 minutes, and here’s some statistics he gave:

    75 acre site.
    200,000 square foot factory.
    35 White-collar jobs
    455 Blue-collar jobs
    $60 million investment by Vestas
    Will start production in early 2008

The reasons he gave for coming to Colorado were:

  • It’s near where windfarms are being built.
  • He’s confident that Colorado politicians are serious about wind.
  • Access to the right sort of community colleges, etc. to train future employees.
  • Had a good feeling about the place as soon as he got off the plane: he felt the wind in his hair.
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    A Blue Chip Alternative Energy Portfolio

    This week, my column for AltEnergyStocks.com is about a safer way to invest in alternative energy: through the established, blue chip companies which are moving into the field. The column begins:

      For many of my older or more cautious clients, investment in small, profitless (or nearly so) startup alternative energy companies is inappropriate. Even a diversified ETF such as the Powershares Wilderhill Clean Energy portfolio (AMEX: PBW) is too volatile due to its heavy exposure to profitless renewable energy companies such as Evergreen Solar (NasdaqGM: ESLR). Because of this, in the last year PBW has been over $24, but as low as $16.24. While such volatility can lead to supercharged profits when you are riding it in the right direction, many investors cannot sleep at night if one of their holdings lose a third of their value in just a couple months (as PBW did last year.)

      Nevertheless, growing awareness of Global Warming, Peak Oil, Gas, and Uranium, and energy security worries are leading to broad interest in alternative energy among people who do not fit the typical aggressive speculator profile of people who can shrug off a 50% loss in a single holding over a short period of time.

      The Blue-Chip Solution

      Fortunately, not all companies involved in alternative energy are risky startups. For an investor who is willing to own stocks which are not pure-play companies, getting an exposure to quality businesses in alternative energy can actually be easier than finding quality companies among the firms whose business is purely devoted to a singe renewable energy technology. In fact, many of the industry leaders are actually divisions of larger conglomerates.

    Click here to read the rest of this column.

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    Colorado News: Doubling of Colorado’s RPS

    Colorado House Bill 1281, which doubles Colorado’s Renewable Portfolio standard (RPS) (as well as the solar set-aside) passed the state Senate on Friday, and is certain to be signed into law by state lawmakers.

    Here’s how the new requirements stack up against the old Amendment 37 requirements (passed by a popular vote in 2004.)

    rps.GIF
    Not exactly a “doubling,” but is there a better way to describe it?

    “A37″ are the old requirements for investor owned utilities (affectionately known as IOUs,) “HB 1281″ are the new requirements for IOUs, and “Co-ops” are the new requirements for Rural Electric Co-ops (which previously had an opt-out, although a few decided not to opt out.)
    The opt-out contained a provision that each Co-op’s members (i.e. customers) vote to opt out, which most of them proceeded to do (one exception is Holy Cross, which chose not to opt out, however, this has led to some contention with Xcel as to whether or not their existing power purchase agreement with Xcel included the renewable energy credits (RECs) associated with Xcel’s generation of electricity from renewables… since both utilities use these RECs to meet their requirements.)

    While the opt-out elections all seem fair and democratic, that is before you realize that all the information most members were getting was coming from their co-op’s management. This is fine with progressive co-ops like Delta-Montrose and Holy Cross, but when it comes to troglodytes such as the management of the Intermountain Rural Electric Association (IREA), it’s a little more Orwellian.

    In the recent House and Senate hearings, IREA was arguing for another opt-out from HB 1281, arguing that IREA’s members had voted against it in the first election, and that it would force IREA to raise rates (despite the fact that the bill specifically states that rural co-ops only have to meet its requirements if they can do so with less than a 1% rate increase (the more stringent requirements for IOUs can be met with an up to 2% rate increase.) In some ways IREA’s failure to get their opt-out into HB 1281 was due to their own maneuverings. In response to IREA’s funding of a global warming skeptic this summer led many of IREA’s members to wonder what else Stan Lewandowski was doing with their money that they did not know about. They founded IREA Voices to try to get a greater say in how their customer-owned utility is run. (If you know anyone who lives in IREA territory (just south of the metro Denver area, make sure they know to vote for the IREA Voices candidate in their district. (Mike Kempe, Mike Daniels, or Jake Meffley, if one appears on the ballot that came with their last IREA bill.) If you don’t live in thier districts, they are funding their campaigns out of their own pocket, plus any donations. Help out if you can!

    It’s ironic that co-ops, which supposedly exist to serve the best interests of their members (as opposed to shareholders) are often the laggards (and in IREA’s case, even deniers) of the environmental effects of our reliance on coal for electricity. I believe that Stan Lewandowski believes he is doing the right thing by trying to keep rates down, and damn everything else, but in the end, the farmers he feels he is serving will be the ones who suffer some of the worst effects of global warming.

    Anyway, it looks like momentum is finally on the side of those of us that realize the magnitude of the disaster facing us, but time is also of the essence, and the faster groups like IREA Voices can catalyze change, the better for all of us.

    So let’s cheer Colorado’s doubling of the Renewable Portfolio Standard, but let that one victory inspire us for the struggles ahead. We’re a long way from the time when we can declare victory and go home.

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    MIT Study: IGCC may not be better for Carbon Sequestration

    There’s a new study out from MIT which questions the received wisdom that IGCC or “Clean Coal” plants “will make it easier and cheaper to capture carbon dioxide, compared with collecting it from the smokestacks of conventional power plants.” The study calls for “large-scale demonstration programs that would, for the first time, capture carbon dioxide from coal plants, transport it, and store it at a large scale.”

    While I disagree with the assertion that “coal… will continue to be a major source of electricity,” the reason I think that coal will not make the cut when the true costs of the associated emissions and environmental damage from mining are taken into account, the reason I believe this is that the costs of carbon capture and sequestration are likely to be much higher in reality than they are in theory, especially when we are attempting to sequester a “volume of compressed carbon dioxide … similar in scale to the amount of oil consumed in the United States,” and so we will no longer be able to use it only in places where it is actually useful, such as in enchanced oil recovery.

    For this reason, I totally concur with the conclusion that we need to start doing large scale CO2 sequestration now, so we can decide if there is any hope of it working before we throw tons more money at cola plants (either conventional pulverized or IGCC) in the hope that some time in the future we’ll figure out some economic way to shove the carbon that we should have left underground in the first place back underground.

    On the bright side, it looks like American Electric Power (NYSE: AEP) is trying large scale carbon capture and sequestration (CCS). I hope they can get it to work at reasonable cost… if CCS could be made to work cheaply, we could start capturing CO2 from biomass power plants, and have carbon-negative electricity.

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    SRI Mutual Funds: Robin Hood or Robber Baron?

    My Competition

    A couple weeks ago I got into a discussion with Marc Gunther about socially responsible (SRI – the “I” is Investing) mutual funds and how I feel that they charge too much for the services they provide.  This is of course rather self-serving, since socially responsible mutual funds and alternative energy mutual funds are my most direct competitors for business… there really are very few independent investment advisors who will manage portfolios of individual securities for accounts under $1M… almost everyone uses mutual funds.  So in the socially/environmentally  responsible realm, my real competition is advisors using socially responsible and alternative energy mutual funds, and/or people who manage their own portfolios with these funds.

    There’s a certain amount of Robin Hood, when it comes to SRI funds: they do charge high (compared even to the mutual fund industry) fees, but they also engage in valuable social research, and even in advocacy for social change.  I don’t dispute that these are valuable services, but I wonder if the funds investors are getting good value for their money.  After all, despite my Robin Hood metaphor, the people paying the fees are not the fabulously wealthy, they actually tend to be smaller investors… perhaps it would be better if the research and advocacy were done by nonprofit groups, and the socially responsible mutual funds just followed the nonprofit’s lead as to where they invest.

    Using Nonprofits for SRI Research

    The question is, what reliable data is published by nonprofits that we can use to better inform the social aspects of our investing decisions.  So I set out on an Internet quest, to see what I could dig up (putting aside for the moment everything I know from my own research, which consists of keeping up with environmental and energy news as well as changes in alternative energy technology.)  I limited my search to just climate change (who’s helping, who is causing the problem) and thought I’d Google around and see what I could find. 

    The National Resources Defense Council publishes reports bench marking the 100 largest electric power producers for air emissions.  Using their data, I thought I’d see if I could pick out some of the best electric utilities.  Among investor owned utilities with more than 20 million MWh of generation, the lowest emitters per MWh generated (2005 data) are: PG&E (NYSE: PCG), Exelon (NYSE: EXC), Entergy (NYSE: ETR), PSEG (NYSE: PEG), and FPL (NYSE: FPL).

    Looking over this list, I note a heavy reliance on nuclear power, which I have to say does not make me happy when I’m looking for environmentally responsible companies.  RadWaste.org  has a list of US Nuclear Utilities, and guess what: they’re all on the list!  It’s surprisingly hard to find good data on how much power each utility gets from nuclear… unsurprisingly, perhaps, utilities are not vying with each other for nuclear leadership (with the exception of Exelon, which claims to produce about 20% of the US’s nuclear power on their site.

      So what would be environmentally responsible?  How about a lot of wind generation, and, even better, am emphasis on energy efficiency and demand side management programs?  So I went over to The American Council for an Energy Efficient Economy (ACEEE) and noted that of the companies in my list, PG&E won their award for best practices for their upstream residential lighting program.

    It’s not that easy

    And now it’s two hours later, and I have to come to the conclusion that I was wrong… there really is no nonprofit that compiles the necessary information in an easy to use way to help an investor use objective criteria to understand the social positions of companies, so the research that these mutual funds do is hard to replicate (although not hard to copy: simply get a copy of their prospectus and mimic their holdings in your discount brokerage account.)   However, copying their portfolio does not lessen the value of the research that went into it… it just is a way of making use of their research without paying for it.

    But does it need to be that expensive?

    Is the price they charge for their service a reasonable one?  Considering they typically charge 0.5% to 1% of assets more than a typical low cost mutual fund, it still seems high to me.  Just to pick on one fund at random: the Citizen’s Value Fund (MYPVX), which has an annual expense ratio of 1.29% and assets under management of $45.68M, compared to the CMG Large Cap Value find (CLCPX) which I chose because it was another large cap value fund with similar assets under management ($39.59M) and an annual expense ratio of 0.5%.

    Looking at these numbers, we see that this smallish Citizens Fund is charging its customers approximately $360,000 a year for their social research and advocacy.  That seems like enough to me to keep three well-paid analysts happy, and certainly enough money to run a nonprofit with a dozen underpaid but dedicated interns to keep track of which large cap value companies are socially responsible under a wide variety of criteria.

    MYPVX is just one of a couple hundred SRI funds… many of which doubltess share research into which companies are being responsible, using their criteria. There is no doubt in my mind that this reasearch is valuable, and that their assets have an effect on the behaviour of companies in the market. Is it worth it? You decide every time you invest.

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    A Demand Response IPO

    I have written another article for AltEnergyStocks.com on the IPO of a company specializing in Demand Response.

    Another way of thinking of Demand Response as “dispatchable demand.” In general, the electic utility matches supply and demand of electricity by controlling supply and trying to keep it in sync with demand from customers. But the other side of this coin is to allow customers to respond to price signals from the utility to allow them to choose to use electricity when it is easier and cheaper for the utility to supply. I see the widespread use of demand response (along with energy storage) as essential if we are going to meet our energy needs with intermittent resources such as solar and wind.

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    How Your Money Made the TXU deal happen

    Most of the readers of this blog are not investors in the Texas Pacific Group or KKR, but you did have a role in making the private equity deal that has everyone in the environmental community (not to mention the private equity world) talking.

    Here’s what you did: You didn’t invest in TXU Corporation (NYSE:TXU). As any regular reader of this blog knows, I’m a big proponent of putting your money where your mouth is, especially when it comes to staying away from companies whose operations would increase the severity of climate change. And, until a couple weeks ago, TXU with their 11 planned pulverized coal plants was public enemy #1 when it came to future carbon emissions.

    My readers, socially responsible mutual funds, other like minded people, and other investors who were worried about carbon risk stayed away from TXU in droves, and because of that, the stock was lower (how much we’ll never know,) which made it easier for Texas Pacific and KKR to offer a 25% premium, which in turn should be enough to entice current TXU investors to give up their stock in the buyout.

    It’s easy to see this deal is a back room affair between a bunch of filthy rich folks, TXU management, and the leaders of a couple national environmental groups, with the little guys (like the New York Times, who originally saw the merger as a private equity endorsement of TXU’s high-carbon generation strategy left in the dark.

    The greatest risk for those of us fighting climate change is despair. Climate change is a giant problem, but we can make big changes if we all pitch in to help. To all of you who did your little part to make the deal happen (even if there are still some doubts as to the final results), I want to say,

    “Thanks, and keep up the good work.”

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    Don’t Bogart That Volt!

    The winner is in for my Best Energy Efficiency Headlines contest.

    Runners up are:

    Preston from Jetson Green for “A Killowatt Saved is a Killowatt Earned”

    and

    Chris Baskind, with “Don’t Bogart that Volt”, (I really like this one, but I used it on a couple people, and they said “Huh?” Apparently you either have to be an ex-hippie, slang-o-phile, or old movie fan to get the reference.)

    and the winner is…. [drumroll]
    Read the rest of this entry »

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    Change Winds Blow for Renewable Energy Income Trusts

    I just published anoter article for AltEnergyStocks.com, where I talk about the current shakeup in the Canadian Income Trust world, and how it is effecting the ones that have renewable energy generation assets in particular. It begins,

    Renewable energy is still very much in its infancy, which means that companies in the space are either profitless or high-multiple startups, or divisions of much larger companies (GE Wind (NYSE:GE), or utilities such as FPL Group (NYSE:FPL) and Xcel (NYSE:XEL) which get much of their power from conventional generation.) This presents a dilemma for investors who understand the compelling drivers for the sector, but whose risk tolerance or financial needs indicate an income-based investing strategy.

    A few Canadian Income Trusts have historically gone some way towards filling this niche. These include the Boralex Power income trust (BPT-UN.TO / BLXJF.PK), Algonquin Power (APF-UN.TO/AGQNF.PK), and the Clean Power Income Fund (CLE-UN.TO/CEANF.PK).

    Click here to read the whole article.

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