Trends I'm Watching

Electrifying America’s Cars

Trend: Entrepreneurs are rolling out innovative strategies for breaking the oil addiction.

From Earth2Tech, Shai Agassi explains why the U.S. is a good fit for electric car battery swapping and charging stations.

Link: Shai Agassi on How to Electrify America’s Cars « Earth2Tech.

Agassi contends that the clustered populations on the west and east coasts make it easy for the company to effectively deploy battery swapping and charging stations. He also says that because so many Americans have second cars, there is basically “a range-extension mechanism built into the country.” That one long road trip outside of the electric vehicle’s range can be done by that second regular vehicle.

Utility Plans Rooftop Solar Panel Program

Trend: Duke Energy plans to install 16 megawatts of rooftop solar in North Carolina to evaluate distributed generation and gain experience in owning and operating renewable energy resources.

Clean Edge News describes Duke Energy's plan. Excerpts below.

This is a radical change of course for a utility. Electric utilities rely upon centralized electricity generation operations. If this program is successful and becomes widespread, sales of rooftop solar panels would boom.

Link: News - Clean Edge - The Clean-Tech Market Authority.

Duke Energy Carolinas is proposing a $100 million plan to install electricity generating solar panels at up to 850 North Carolina sites including homes, schools, stores and factories.

...the company filed an application with the North Carolina Utilities Commission asking for approval to implement this solar distributed generation program. Distributed generation is energy created close to where it is used, rather than being produced in large power plants and transported to customers over power lines.

If the program is approved by regulators, Duke Energy Carolinas would spend two years installing approximately 20 megawatts of distributed solar generation on rooftops of customer businesses and homes or on ground sites within the company's North Carolina service area.

Solar power has to be converted from direct to alternating current. Once that's done, Duke Energy Carolinas customers will benefit from more than 16 megawatts of power, enough energy to serve more than 2,600 homes.

Duke Energy Carolinas would own and operate the equipment and the power produced by each installation would be used to serve the utility's customers. Customers who agree to place solar panels at their location would be rewarded based on the size of the installation and the amount of energy it produces.

The company plans to recover its $100 million investment through North Carolina's new REPS cost recovery mechanism. The company estimates that, over its life, the program will increase the average customer's bill by no more than 25 cents a month. The average customer uses about 1000 kilowatt-hours of electricity each month.

Solar Energy Gains Momentum

Trend: Incremental improvements in solar energy technology and problems with competing dirty sources of energy increase the likelihood of solar becoming cost competitive soon.

Jim Jubak at MSN Money makes the case for solar energy, as petroleum prices stay high and coal and nuclear plants are cancelled.

Link: High-powered solar stocks - MSN Money.

Solar now looks like it will become cost-competitive in the Southwest before 2013. Consider:

• The spot price of oil (West Texas Intermediate grade) climbed to $131 a barrel on May 29 from $80 on Oct. 1, when the Jefferies report was published. That's a 64% increase. Oil isn't used much to generate electrical power -- some is burned in diesel generators -- but it does set the price for other forms of energy.

• The Henry Hub price of natural gas -- which is burned to produce electricity -- climbed 49% from October to May.

• Between 2000 and 2006, U.S. utilities proposed 150 coal-fired power plants. By the end of 2007, utilities had built 10 of those, 25 were under construction, and a whopping 59 had been canceled or delayed due to everything from increased regulatory scrutiny to worries that global-warming regulations that were no more than a gleam in the eyes of some members of Congress would slap new costs on coal-burning plants. The problem got worse with the January 2008 cancellation of the federal FutureGen clean-coal pilot plant. The utility industry projects it will take 15 years to get this technology from a pilot plant to a commercial plant, and the clock isn't yet ticking. Every coal-fired plant put on hold increases the need for substitute generating capacity. That will keep natural-gas prices dancing upward and make electricity more expensive.

• Electricity prices per kilowatt-hour for residential customers climbed 3% from October to May for the U.S. as a whole. In the Pacific region, the likely market for power generated from solar installations in the Southwest, the price of electricity climbed about 9%.

• Hundreds of nuclear reactors are in the pipeline around the world, and about 30 are actually under construction, but it's taking longer and costing more than expected to build them. Finland's Olkiluoto 3 reactor, the first of a new generation of European pressurized-water reactors from French company Areva (ARVCF), was supposed to start producing electricity in 2009. The project is about two years behind schedule, however. Areva and its client, Finnish utility TVO, are arguing over $2.4 billion in cost overruns.

Demand Responsive Energy Systems

Trend: Designers of demand-responsive energy systems are using the mainframe-PC model for creating solutions.

Joel Makower at Two Steps Forward describes the leading edge of energy systems. Excerpts below.

Link: Joel Makower: Two Steps Forward: Office Buildings As Peaker Plants.

...the trajectory of energy technology mirrors that of information technology. Consider: the first computer systems consisted of a central computer hardwired to a lot of "dumb" terminals — so called because their principal purpose was to draw information from a big, smart mainframe. Then PCs came along and were able to do useful things themselves, as well as to talk to mainframes and to other PCs. Now, of course, everything talks to everything else — our computers with a billion other computers, as well as with our televisions, phones, and, soon, our cars, refrigerators, and wristwatches — and can do so wirelessly.

Energy systems are developing along similar lines. Most of us still live in systems where a central "mainframe" power plant feeds energy to "dumb" terminals — our homes and businesses. Increasingly, some homes and businesses are becoming smarter, as we install solar and other renewable systems to generate power, selling excess energy back to the grid. In the not-too-distant future, major appliances like refrigerators and heating and air conditioning systems will be "talking" to the electric grid, making adjustments or perhaps powering up or down during the course of the day in response to shifting energy demands and rates. Our plug-in electric vehicles and hybrids will store electricity in their increasingly more powerful batteries, and will sell extra power back to the grid when needed. We'll be able to make energy transactions from our vehicles, PCs, PDAs, and cell phones. And much of this will take place wirelessly.

All of these activities require switches, routers, microprocessors, and software — the essential ingredients of computing networks and the Internet — meaning that companies like IBM, Intel, Cisco, and Microsoft will be increasingly in the energy business.

So, where do buildings come in? Consider that electric utilities maintain "peaker plants" — power plants that are turned on during times of high "peak" demand for electricity. In many cases, peaker plants are older, dirties plants that have been replaced by cleaner, more efficient ones, but kept around "just in case" electricity demands require that they be turned on; some peaker plants are used for only a few hours a year. Suffice to say, peaker plants are subobtimal — imagine keeping an old gas-guzzler in your garage and keeping insurance paid up for a vehicle to be used just a few days a year when relatives are in town — and are often the subject of citizen opposition — whether to build new ones or keep old ones operating.

T. Boone Pickens Building the World’s Largest Wind Farm

Trend: As oil prices stay high, investment in alternative energy becomes more viable.

Earth2Tech describes T. Boone Pickens latest initiative. Excerpts below.

Link: T. Boone Pickens: Kicking Off the World’s Largest Wind Farm « Earth2Tech.

Our favorite oil-baron-turned-wind-power-wildcatter, T. Boone Pickens, will make the first down payment this month on 500 wind turbines for his plan to build the world’s largest wind farm in Texas, says the Guardian. Over the next four years, Pickens plans to build 2,700 wind turbines that would supply 4,000 megawatts — enough to power 1 million homes.

The state leads the nation in wind power and is building a booming industry off of the renewable energy technology. Texas not only has large stretches of windswept rural plains, but it has the kind of regulatory atmosphere that can fast-track wind projects.

The farmers who own that windswept land can also make significant money off the farms. A New York Times story mentioned a farmer that makes $500 a month for each wind turbine on his property. Pickens tells the Guardian he’s paying $10,000 and $20,000 in annual royalties for every turbine farmers allowed on their land.

Solar Thermal Power

Trend: The most promising mechanism for large scale solar power generation is solar thermal power.

The Oil Drum provides an optimistic view of solar thermal power /concentrating solar power as a cost/effective, clean source of energy in the near future.

Link: The Oil Drum | Concentrating On The Important Things - Solar Thermal Power.

Solar thermal power is often referred to as concentrating solar power, or CSP.

Concentrating Solar Power (CSP) systems use lenses or mirrors combined with tracking systems to focus sunlight which is then used to generate electricity. The primary mechanisms for concentrating sunlight are the parabolic trough, the solar power tower (not to be confused with solar updraft towers) and the parabolic dish. The high temperatures produced by CSP systems can also be used to provide heat and steam for a variety of applications (cogeneration). CSP technologies require direct sunlight (insolation) to function and are of limited use in locations with significant cloud cover.

Solar thermal power plants have been in commercial use in southern California since 1985. An area of desert around 250 km by 250 km covered with CSP power generation could supply all the world's current electricity demand.

Solar thermal plants can be built in their entirety within a few years - much faster than many conventional power projects. Solar thermal plants are built almost entirely with modular, commodity materials (and thus have short development and construction times) and do not encounter the sort of opposition on environmental grounds that traditional forms of power generation like coal and nuclear face.

Operational plants include :

* US (California) - 354 MW FPL's Solar Energy Generating Systems (SEGS) plant, using parabolic troughs
* US (Arizona) - 1 MW Acciona Energy's Saguaro Solar Generating Station using parabolic troughs
* Spain (Seville) - 11 MW Abengoa's PS10 solar tower
* Australia (NSW) - 35 MW Liddell Power Station using fresnel reflectors
* US (Nevada) - 64 MW Acciona Energy's Nevada Solar One plant (not to be confused with the Solar One / Solar Two experimental plants) using parabolic troughs

Plug-In Hybrids and the Power Grid

Trend: Widespread adoption of plug-in hybrid vehicles will require signficant investment in the electric power generation and distribution infrastructure.

Brad Allenby at GreenBiz News raises some tough questions about plug-in hybrids increasing the demand for electricity at a time that the power infrastructure doesn't have much excess capacity.

Link: GreenBiz News | Are Plug-In Hybrids a Path to Salvation? Be Careful What You Wish For

The hysteria over climate change, combined with the success of hybrid automotive technologies, is generating huge pressure for plug-in hybrid vehicles, which require no petroleum at all -- locally, at least. Such vehicles are seen, and presented by their proponents, as "emissions free," "carbon neutral," "important moral statements" and otherwise worthy of falling in love with. Embracing this technology with wide-ranging policy measures may work, but it is just as likely, especially given the lack of systems understanding and analysis, that we will find ourselves facing corn ethanol déjà vu.

There's no question that plug-in technology is cool. Despite the technology issues -- most notably finding batteries appropriate to automotive power demands and usage, figuring out viable combinations of on-board power, rapid recharge and in-depth charging infrastructure -- the idea of using clean electricity to phase out one of the most obvious and intractable uses of fossil fuel, without having to do the difficult job of weaning people off cars completely, seems too appealing to pass up.

Natural Gas Opportunities

Trend: Natural gas demand should increase significantly in 2008 and beyond — as a clean-burning fuel for generating electricity.

Jim Jubak at MSN Money is recommending North American natural-gas stocks, instead of the shares of oil companies, for purchase in 2008. Excerpts below from his article describe why natural gas demand will be increasing soon.

In 2007, a natural gas ETF (UNG) was introduced, which is a new way to invest in natural gas.

Link: 5 power plays for natural-gas stocks - MSN Money.

The North American Electric Reliability Corp. calculates that more than 10,000 megawatts of power-generating capacity need to be added annually in the U.S. to keep up with projected growth in demand for electricity. Average peak demand for electricity in the U.S. is projected to grow 2% per year over the next 10 years.

New coal-fired plants were supposed to supply much of that electricity, and proposals for plants have been steaming ahead.

Legislators could slap plants with rules to reduce greenhouse-gas emissions, for example. These could require expensive new equipment or retrofits of recently built plants. In some cases, plants might simply be unable to meet new standards.

This uncertainty hits utilities where it counts the most: in their ability to raise capital to build plants.

All this has utility companies searching for alternatives to coal-fired power plants. Energy from renewable sources such as wind and solar will fill some -- but just some -- of the gap.

The Best Energy Efficiency Stocks

Trend: Energy efficiency is the most promising path for saving energy and investing in the current environment.

Tom Konrad at Alternative Energy Stocks describes an energy efficiency portfolio that is heavily weighted towards engineering, industrial, and utility companies with truly international operations, insulating them from a likely US recession and declining dollar.  They're also uniformly profitable, often with low price to earnings ratios, and relatively high dividend yields.

Link: Alternative Energy Stocks

Without direct government support, the sectors likely to suffer the least are the ones which are already economic.  Top of the list is Energy Efficiency, which might actually gain from a cut in subsidies for renewable energy, as green House Gas production efforts shift away from Renewable.  Among renewable energy technologies, Geothermal, small Hydro, and Wind are already cost competitive with fossil competitors in the best locations.  Biomass and Biodiesel are also cost competitive when using waste as feedstock.

Most of the best companies in Energy Efficiency (especially when it comes to energy Efficient Buildings) tend to be systems integrators, large companies with strong energy efficiency arms.  These companies have an added advantage for a risk-adverse investor: built-in diversification.  This brings me back to a way even the most cautious stock market investor can participate in the Alternative energy Boom: By buying the companies in my Blue Chip Alternative Energy Portfolio: large, profitable companies that stand to gain from increasing energy prices and carbon regulation.

Investing in Green ETFs

Trend: As the price of oil rises (and oil tankers crash and spill), clean energy gains momentum.

Matthew D. McCall at Seeking Alpha analyzes the holdings of PBD, GEX, PBW, QCLN, and PZD and picks the best investment.

Link: The Best Green ETF - Seeking Alpha

There are at least six ETFs that track indices linked to alternative energy. The PowerShares family of ETFs have four options for investors, which can be very confusing. Market Vectors and First Trust have also thrown their hat into the ring. With all six made up of different stocks it is important to research each ETF before putting your hard earned money into one of them. Below is our breakdown of the possibilities.

The PowerShares Global Clean Energy ETF (PBD) invests on companies that focus on green and renewable energy sources around the globe. Of the 83 holdings, only 26% comes from the US – a good thing. The top holding JA Solar (JASO) accounts for 4% and the entire top 10 makes up 37% of the ETF. The index which the ETF is based on has a 5-year annual return of 34%, the best of the group.

Targeting the same area as PBD is the Market Vectors Global Alternative Energy ETF (GEX). The major difference is that GEX invests in a mere 30 stocks and its top 10 holdings total 69%. The performance of GEX will rely heavily on its to holdings and offer increased reward along with higher risk. The ETF has 30% in the US and its number one holding is Vesta Wind Systems (14%).

PowerShares Wilderhill Clean Energy ETF (PBW) has the same strategy as PBD, except it only invests in stocks traded on a US exchange. There are ADR's in the ETF, however the restriction limits PBW from being one of my top choices. There are a number of attractive green companies not traded in the US.

The First Trust NASDAQ Clean EDGE ETF (QCLN) and PowerShares Cleantech ETF (PZD) focus on the "cleantech" sector and are composed of a large amount of solar stocks. Recent blockbuster earnings from First Solar (FSLR), the top holding in both ETFs, have helped the performance of both. PZD and QCLN have a little international exposure, but are limited to stocks traded in the US.

In the end, if one "Green" ETF had to be chosen it would be PBD due to its international exposure and diversity through a large number of holdings.