I have a sequel to my article on the competitive landscape of the corn ethanol industry up today on Alt Energy Stocks. In it, I discuss insights I gained from a talk by Mark Wong, President and CEO of Renwable Agricultural Energy, a private corn ethanol producer.
Archive for June, 2007
Here’s an article by Davis Freeberg it because it confirms my thoughts about stockpicking… if you find out about a company because of an ad, you’re probably best staying away. A healthy dose of suspicion is worth it’s weight in gold.
No AltEnergyStocks column this week… I’m trying to dig myself out after coming back from vacation. But I did catch up with my Economist reading… they now have an audio version (free to subscribers) which is great for long drives.
But the folks at Alt Energy Stocks published a general overview of how to get into renewable energy investing I wrote last week.
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.
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.
This week’s AltEnergy Stocks column is about the recent, and well deserved attention the LED stocks are getting, especially one of my long-time facorites, Cree, Inc. (A stock I and many of my clients own a lot of.)
I think (and hope) that this is the beginning of a new trend of the market starting to recognize that Energy Efficiency technologies, such as LEDs are the first step to reducing our carbon footprint. If you think so too, I have a few suggestions in the column of stocks that might benefit (as well as Cree, which may have a lot farther to run.)
10. Free T-Shirt from Schweser (They were handing them out as we left the testing site.)
9. Got to use my short-cut for multi-stage dividend discount
model valuation problems. (I admit, I’m a math geek.)
8. Time to catch up on my reading.
7. Going vacation to Glacier National Park in 9 days (after the Colorado
Renewable Energy Conference)
6. More time to blog.
5. New ideas for articles.
4. I got some ideas on good arguments I intend to use that renewable energy
projects deserve to be evaluated at a lower discount rate in the next Least Cost
Plan at the Colorado Public Utilities Commission.
3. Don’t need to study for the next one ’til 2008.
2. Ethanol (not the type they put in cars.)
1. I think I passed (actual results don’t come out until August).