Archive for Energy Investing

Q3 Portfolio Updates

Both my Quick Clean energy Tracking Portfolio and my Ten Green Energy Picks for 2009 have shown strong out performance through Q3.

For a while, I thought I was on to something with the tracking portfolio (like mutual fund managers were smart, or something), but it turned out that they just put higher risk stocks in their top 5 holdings.

I’ll claim some skill for the 10 pick though. I recently published updates fro two of them: The Algonquin Power Income Fund, and New Flyer Industries.

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The Algonquin Power Income Fund

I recommended the Algonquin Power Income Fund as a renewable energy income investment back in January, and as part of my ten clean energy picks for 2009.

Since then, both the stock and the ten picks have been doing well in comparison to the market, but Algonquin has entered into a couple deals, while I look into in a recent update on the Algonquin Power Income Fund.

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The Raser Technologies (RZ) Saga

A month ago, I bought Raser (RZ) in a gamble that one of thier plans to get project financing would pay off quickly. Unfortunately, the one I thought was most likely of these, an application for a DOE grant gaurantee, was rejected last week, so I sold at a slight loss.

I’ll be keeping an eye on Raser (RZ) to see if I can pick it up again at a reduced price… there’s still a chance of a quick win if they get funding elesewhere.

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Portfolio Performance Updates 2009

My Ten Clean Energy Stocks for 2009 has been beating the market and the clean energy sector handily, although the riskier Ten Clean Energy Gambles for 2009 has only been performing in-line with the sector
John Peterson’s cautious approach to the energy storage sector ("Cheap before Cool") has also been performing well.

In tough economic times, it goes to show that playing it conservative pays off, even when the clean energy sector is getting a political boost.

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Renewable Energy Funds

I’ve posted an updated and more in-depth look at clean energy and renewable energy mutual funds. Also of interest may be an article on how actively managed clean and renewable energy funds compare to the passively manged/index variety.

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Renewable Energy (and other) ETFs

I’ve published an updated run-down of Clean Energy Exchange Traded Funds, as well as a look at those clean energy ETFs which have Exchange Traded options on them (and why you might care.)

On the subject of ETFs, I was shocked when I took a closer look at Doubleshort and Ultra ETFs, and this led me to do a couple reshuffles of ETFs in my portfolio.

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Investing in Obama’s Stimulus Plan

Since Obama’s election, my partent Charles and I have been looking at what Obama’s refreshing attitude towards Renewable Energy and Energy Efficiency, combined with the credit crunch, will do for some of our favorite stocks… here are the highlights:

Companies that may benefit from a solar glut

How Oil prices affect Alternative Energy Stocks

Emissions trading stocks under Obama

What might happen to Solar Photovoltaic companies if consumers pull back

Charles and I expect divened paying companies to come back into vogue. He has a few dividend paying alternative energy companies and I have a couple dividend paying energy efficiency companies to consider.

I also revisited my list of Blue Chip Alternative energy companies to see which ones might benefit from the expected stimulus package, while Charles looked at Smart Grid stocks that might benefit from a stimulus package. One technology I’m betting on is Geothermal heat pumps.

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Electricity Transmission & Distribution investing

Electricity transmission is one of my primary investing themes, as a reasonably priced way to benefit from the boom in renewable electricity generation… here is a lit of related articles, the most recent posted yesterday:

  • How should investors react to NIMBYs fighting transmission lines?
  • My top transmission stock pick for 2008 (plus battery and CHP picks)
  • A transmission stock pick from Fortune magazine.
  • HVDC and FACTs
  • Sector overview
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    October Investing Articles Index

    I’ve been writing a lot about how we’ll get around in the face of much higher oil prices. Several articles this month deal with how we can best invest in the eventual solutions.

    October 2nd: Efficienct Transit and Transmission Stocks from Fortune Magazine.

    October 7th: Alternative Energy Mutual Funds and ETFs

    October 14th: Better Ways to Invest in Peak Oil: Bikes and Public Transport

    October 21st: An In-depth look at Geothermal Technology

    October 24th: Presentations from Montrose and the Keiretsu Forum Academy

    October 25th: What we can learn from the Arizona Renewable Energy Assesment

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    Indigestion After the Coal Binge

    Many energy advocates are concerned about the construction of new conventional electricity generation. This is not only due to the harmful effects of mining, using, and disposing of the waste from coal, natural gas, and uranium, but also because there is only so much electricity demand. My Alt Energy Stocks column this week exproles the possibility of utilites building too much conventional generation to need any renewables at all.

    Utilities often say that they will have trouble meeting future demand… this was the justification for the coal plants (now mostly replaced by nuclear) planned by TXU. But these projections massively underestimate the potential of imporved energy efficiency which most studies put at about 1.2% acheivable savings per year, but I believe could be much higher with changes to the regulatory landscape.

    To read the entire article, click here.

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    Modern Portfolio Theory and Electricity Generation Planning

    I mentioned on Saturday that I had gotten some ideas which I planned to use in testimony before the Colorado Public Utilities Commission Least Cost Plan.

    Yesterday, I ran my ideas by my friend Morey Wolfson, who is currently serving as head of the utilities program at the Govenor’s Energy Office. Like many members of the local energy advocacy community, Morey was recently tapped by Governor Ritter to help jumpstart Colorado’s New Energy Economy.

    I hit the jackpot by talking to Morey, because he turned me on to the work of Shimon Awerbuch, who has been thinking along these lines for years. I’ve just read the first couple pages of his working paper Applying Portfolio Theory to EU Electricity Planning and Policy Making and I’m confident that he’s done a lot of the hard work for me. Here’s one great quote:

      Least Cost procedures are roughly analogous to trying to identify yesterday’s single best performing stock and investing in it exclusively for the next 30 years. Clearly, modern finance theory offers better tools.

    Dick Kelley, are you listening? I have a hunch Ron Binz will be….

    So what’s the big deal?

    I almost forgot to say why this is such a big deal: According to Awerbuch and me, renewable energy and energy efficiency projects deserve a lower discount rate than conventional generation when projects are being evaluated, due to the fact that their costs have low (or even negative, in the case of solar) correlation with electricity prices in general. To use the stock valuation metaphor again, renewable resources are like low and negative beta stocks: the benefits in reduced risk to your portfolio justify paying a higher price for the same level of earnings or dividends.

    What this means when evaluating utility projects is that the typically relatively high up-front costs of renewable energy resources do not have to be justified solely by their lower operating costs, but it gives a methodology for taking into account the benefits of reduced risk. This is something that renewable energy advocates have been arguing for a long time. The relatively new part is this gives us a way to quantify those benefits, and utility commissions are very fond of numbers to back up thier decisions.

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    The Psychology of Energy Efficiency

    Efficiency is unquestionably the largest, cheapest, and cleanest wedge among the many we need decarbonize our energy economy.  Energy efficiency tends to cost just 1 to 3 cents per kWh saved, far less than even coal-fired generation.   Every renewable technology, from wind to solar, to biomass, has trade-offs.  At the very least, we have to decide if the energy we are using for one purpose is not better used for something else.

    Energy efficiency is the exception to this rule: you can not use a kilowatt-hour or a BTU over and over again.  Given these advantages over generation, it’s amazing that energy efficiency is nevertheless so extremely cheap.  Given an even moderately efficient [pun intended] market, you would expect that all the cheap energy efficiency measures would long ago have been taken until the marginal price of the next efficiency measure was above the marginal price of added electricity generation.

    So why hasn’t it? 

    Why is TXU trying to build a half dozen coal fired power plants in the face of broad opposition from the community when, for a fraction of the cost, they could instead pay to help people insulate their homes, change to more efficient air conditioners, and replace energy efficient lighting and save as much power as they plan to generate with the coal plants without any cost for fuel and harm to the environment from mining and emissions?

    For that matter, why don’t TXU’s customers (and the rest of us) take these steps ourselves, when the internal return on investment is many time what we can rationally hope to achieve in the financial markets, and in many cases is even higher than the interest borrowers with the worst credit ratings pay on their credit cards.  (Like most financial advisors, I hate debt, especially credit card debt, but even if you’re drowning in $30,000 of credit card debt at 25% APR, it still makes sense for you to buy a pack of CFL’s at $3 each on that high-interest credit card, and replace every incandescent light bulb in your house that you use more than 2 hours a day.)

    Here’s a blog which does a good job outlining the usual answers: lack of financing, perverse incentives, and disinterest on the part of people for whom energy is only a tiny part of the budget (all of which are true.)  He goes on to outline perscriptions that will undoubtably help to break down the barriers to the adoption of many Energy Efficiency measures.

    I see other barriers that lie behind these.  Not just a failure of normal market forces, but conceptual problems.   While energy in general is a fuzzy concept to most people, using less energy is even less tangible.  You just can’t drop energy efficiency on your foot.  You’re not even at risk of electricution from it.

    The pernicious consequence of systems of measurement is always that things we can’t measure go unnoticed.  If you have a hammer, everything looks like a nail, but even more insidiously, things that will never look like nails no matter how hard you squint dissappear from your vision altogether.  It is this psychological quirk that makes energy efficiency go unnoticed.

    What image comes to your mind when I say “wind power”?  If you’re anything like me, you probably had a image of a forest of giant wind turbine blades turning gracefully on the horizon like ballet dancers.  Or, you might be like my wife, who would also have an image of a wind farm, but thinks they are ugly (although not so ugly as the haze from a distant coal plant) despite recognizing their necessity.  She wishes they were painted to camouflage them into the background.   Whatever your attitude towards wind power, you probably saw an image.

     Now try “energy efficiency.”  It’s a lot trickier, isn’t it?  I think about energy efficiency all the time, the way a teenage boy thinks about sex (okay, maybe not quite that much), and even I can’t settle on an image.  My mind flashes from the act of replacing an incandescent bulb with a compact fluorescent lightbulb (CFL) to an industrial scale combined heat and power facility, to closing the blinds at night to keep the heat in.

    Not only is energy efficiency hard to picture, it’s also hard to measure.  To compute the energy savings from any activity, you have to establish a baseline: how much energy would you have used if you had not changed your methods.   Even in the simplest case of replacing a CFL, we don’t really know that the bulb we replace would really have stayed in the socket until the CFL breaks: A CFL can easily last 10 years, and by that time, we may be replacing all our bulbs with LEDs.  And that does not even begin to account for the effects on our HVAC systems.

    Is your mind spinning?  That’s my point.  It can be so hard to get our minds around all the impacts of energy efficiency that, for most people, the most people, it may actually be rational to waste a little energy in order to avoid the headache that trying to get their mind around efficiency may entail.

    The problem is, that decades of conserving brain power has left us as a society that wastes energy egregiously.

    My prescriptions, designed to make thinking about efficiency easier:

    1. Measure energy use at every opportunity.  Many Prius drivers report that the real-time MPG gauge on the dash causes them to change their driving habits to grive more efficiently.  Getting a Kill-a-Watt energy meter makes us think more about our next electronics purchase.   Getting to know your electric meter can also motivate you to track down wasted energy.  A radical idea: on new homes, the electric meter should be inside, along with the circuit breakers.  New meters can be read (and even turned on and off) remotely, so there is no reason any longer to have them on the side of the house where we never see them. 
    2. Another thing we need to measure is when we use our electricity, not just how much.  Wholesale electricity prices can vary from a few cents per kWh to 30 cents or more during peak consumption.  As we move to a grid based on renewable energy supplies, most of which are intermittent and non-dispatchable, we need to get used to paying the real-time price of the energy we’re using.  Wide-spread adoption of time of use metering will drive the invention and adoption of appliances that can adapt themselves to changing prices.  There are direct, immediate benefits to the system by shaving peak loads, but the real benefits will come when people adopt new ways of doing things and new devices that will cause our appliances to run and our devices to charge when electricity is plentiful, and runonly the most essential uses of electricity when it is scarce.   Xcel is currently doing a pilot study on Time of Use Pricing in Colorado.  The preliminary result are that the right pricing scheme encourages customers to change their energy use much more than they had anticipated… but it still would not be “economic” to change out meters for more sophitocated models capable of handling this sort of billing.  Their definition of “economic” almost certainly does not include the benefits of the creativity which realistic pricing would unleash. 
    3. Allowing utilities to profit from selling less rather than more.  This concept, known as decoupling, is covered well here.  It’s important to remove (or even reverse) the incentive of utilites to sell us more electrons when we really want them to help us use less.

    Finally, I do call this blog EE/RE Investing, so here are the sectors that I see benefiting from these recommendations as they are adopted:

    1. Companies selling advanced metering devices, and control systems that adapt to changing electric rates.
    2. Companies that sell building management systems.
    3. Energy storage technologies, such as as advanced batteries, flow batteries, and compressed air energy storage.
    4. Broadband over power lines technology, to handle the increased flow of information.

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    Canadian RE picks

    There’s a good rundown of public Candian Renewable energy companies in the Globe and Mail today by Richard Blackwell.  They mention all of my favorite Canadian companies, and even one I had not yet heard about.logo

    One note, there are several Canadian Income Trusts listed.  These are currently very volatile because of changes in thier tax status.  The extra volatility will undoubtedly lead to some excellent buying opportunities, but they are much more volatile than your standard income investor is probably ready for.  Where once I might have bought them for my more conservative clients, now I’m looking at them for my more aggressive clients.

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