Trends I'm Watching

Dept of Energy Grants $3.4 Billion to the Smart Grid Development

Trend: Smart grid technology, designed to increase energy efficiency, received a boost from $3.4 billion in grants from the Obama administration.

The focus is on smart meter installations, including advanced metering infrastructure, customer systems, electric distribution systems, electric transmission systems, equipment manufacturing, and integrated and/or crosscutting systems. Excerpts below.

Link: DOE Grants Jump-Start the Smart Grid Toward a Still Undefined Future - NYTimes.com.

President Obama traveled to Florida to highlight DOE awards to 100 utilities, equipment manufacturers, cities, systems developers and other recipients. The winners have committed $4.7 billion of their own resources to match the smart grid grants.

The president sketched his vision of a clean-energy future marrying solar panels, advanced storage batteries, plug-in electric hybrid cars, home energy management systems and smart appliances together in a grid studded with new sensors and control devices.

Smart grid technologies will reduce electricity use by more than 4 percent by 2030, saving $20 billion in customer costs that year and cutting greenhouse gas emissions accordingly, the White House said, citing analysis by the Electric Power Research Institute (EPRI). Demands for "peak" power on the hottest summer days could drop by 20 percent. Tens of thousands of new jobs will be created, the administration projects. "We're on the cusp of this new energy future," Obama said at a solar energy center in Arcadia, Fla. "In fact, a lot of it is already taking place."

Investing in the Smart Grid

Trend: Smart grid technologies reduce wasted energy, which is increasingly attractive as the costs and trade-offs of building more power plants become known.

Chris Nelder at Energy & Capital describes how smart grids save energy and why smart grid technology has great potential.

Link: Smart Profits on the Smart Grid

It's not every day that you see an opportunity to get in on the ground floor of a whole new industry, but smart grid technology is just that.

The "smart grid" term has come to encompass a whole array of different technologies, creating some confusion about exactly what it is. It doesn't help that the publicly-traded companies in the sector are mostly young, with cheap stocks regarded as speculative.

What investors should not be confused about is the outlook for this sector, which is nothing short of spectacular.

In many ways, the smart grid is about reducing wasted energy. That's not just good policy; it's also good business. Deploying energy saving technologies usually pays for itself quickly, and always pays for itself in the long term. It also cuts down on greenhouse gas emissions from generating unneeded power.

Smart grid technologies are going to receive a nice boost from the U.S. stimulus package as well. The Senate bill includes $11 billion to improve the electric grid.

Between the cost benefits, the lower emissions, and federal funding, investing in smart grid technologies now is a no-brainer.

Smart metering can give customers immediate feedback on their own energy consumption....Smart meters communicate usage data to the utility electronically....

But that's just the beginning. Smart meters also enable a host of other technologies. Smart appliances can take orders from smart meters about when and how to run, and when not to run. Likewise, smart sockets can control the usage of dumb devices plugged into them. The utility can quickly pinpoint service outages, and restore service more quickly.

Smart meters also allow customers with solar, wind, and micro-hydro systems to sell power back to the grid, thus enabling the deployment of more distributed generation. As plug-in hybrid vehicles become more common, smart meters will be able to use them as distributed storage, drawing down a small part of their battery power by agreement of the vehicles' owners. In time, such "vehicle-to-grid" power technologies could be the "holy grail" of renewable energy, by giving the grid a way to store energy from intermittent sources like wind, then use it later when it's needed.

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.

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.

The Recycling Industry Grows Up

Trend: Recycling has become a major industry and will grow larger as the savings in energy consumption become evident and commodity prices rise.

Progressive Investor at SustainableBusiness.com describes why investing in recycling makes sense now. Excerpts below.

Link: Green Investing, Cleantech Investing, Renewable Energy Investing.

The recycling industry is a sterling example of how grassroot initiatives can spur the creation of bonafide industries.

In 1968, the fledgling industry pulled in $4.6 billion in annual sales; today, revenues are roughly $236 billion [National Recycling Coalition]. The industry provides employment for 1.1 million people, up from just 79,000 in the late 1960s, and 56,000 public and private facilities processing recyclables. Our research partners Cannacord Adams estimate the industry accounts for about 2% of the $12.36 trillion U.S. gross domestic product as of last year.

Industrial recycling has gone far beyond municipal recycling and is where the real action is. Over the past decade and the advent of "corporate environmental responsibility," businesses have come to rely on recycling to lower energy costs, use fewer raw materials, minimize waste streams, and reduce pollution. Now, with a global market, very high costs for virgin materials and overwhelming demand, recycling helps companies achieve competitive advantage and profitability.

Just about every kind of product is recycled - paper, all metals, car parts, and carpet. Decks are commonly made completely of recycled materials. The newest category is electronics.

The recycling industry is benefiting from a confluence of trends:

• High energy prices favor increased recycling. With energy costs reaching permanently high levels, recycling is the avenue of choice. It takes much less energy to make a product from recycled than virgin materials. Example: energy accounts for 20-30% of the cost to make metals such as aluminum and zinc.
• Metal prices are rising sharply from strong demand - partly from growth in India and China - creating strong economic incentives to recycle all kinds of metals. Although metal prices fluctuate, strong continued demand is likely to keep prices high, benefiting recycling.
• Recycling benefits from the attention to climate change for its ability to reduce the energy intensity of manufacturing and methane generated by landfill waste.
• Growing recognition that natural resources are scarce, finite, and increasingly expensive to mine. Example: virgin copper and zinc supplies could be completely exhausted within decades.
• Rising concerns about pollution from discarded electronics

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.

Presentations on Investing in Renewable Energy

Tom Konrad at Alternative Energy Stocks recently did two presentations about investing in renewable energy. You can download the powerpoint files at the link below.

Link: Two Recent Presentations on Investing in Renewable Energy | Alternative Energy Stocks

GE cleaner technology R&D Investment to Reach $1 Billion by Year End

Trend: Cleaner technology is gaining momentum as large companies see big opportunities in reducing pollution and improving energy efficiency.

Some excerpts from an October 23 press release by GE.

Link: GE ecomagination R&D Investment to Reach $1 Billion by Year End, Driving Expansion of Advanced Technology Pipeline : Press Releases : News : GE.

GE announced that it will invest more than $1 billion on cleaner technology research and development (R&D) for 2007, drawing closer to its pledge to invest $1.5 billion annually on ecomagination R&D by 2010. One of four GE ecomagination commitments originally made in 2005, R&D investment has reached a total of more than $2.5 billion since the program’s inception.

Today’s announcement was made by Lorraine Bolsinger while she was onsite at GE’s Global Research Center (GRC) in Niskayuna, NY to host a day-long briefing session on the innovative portfolio of ecomagination products, which are currently being developed at the facility.

Research and development funding for ecomagination is shared between GE’s four GRCs (Schenectady/Niskayuna, NY, Shanghai, Munich and Bangalore) and each of GE’s major businesses. The GRCs serve as dedicated labs for long-term R&D commitments and work to develop a broad technology portfolio to help meet a wide-range of energy and environmental challenges.

GE researchers are working on a broad array of technology initiatives that cut across GE’s business portfolio. These projects include:

• Renewable energy -- exploration of advanced concepts in wind, solar and biomass to improve the economics and availability of these clean, renewable energy sources
• Advanced gasification technologies -- for GE’s Integrated Gasification Combined Cycle (IGCC) System to increase plant efficiency, lower emissions and make these systems carbon capture ready
• Fuel efficiency -- research in composite materials, advanced aerodynamics, turbine alloys and advanced coatings and combustion systems to improve the fuel efficiency and overall performance of present and future generations of aircraft engines and electric power generation systems
• Hybrid systems -- research to support the development of the next generation hybrid locomotive
• Lighting -- several energy efficiency initiatives such as Organic Light Emitting Diodes (OLEDs) to reduce our energy consumption
• Water -- programs to provide more affordable, less energy-intensive solutions to water purification and re-use that enable an increase in the quantity and quality of clean water around the globe.

via Earth2Tech

Energy spike heating up solar shares

Trend: High oil prices are boosting the demand for solar energy — and the stocks of the industry leaders.

In an article on MarketWatch, Timothy Lutts, president of Cabot Heritage, likes the potential growth of four solar energy stocks as the price of oil increases. Excerpts below.

Link: Energy spike heating up solar shares - MarketWatch

The fact is, the solar energy that hits the earth in one minute is sufficient to supply all our energy demands for an entire year; the trick is harnessing that energy. An increasing number of public companies are doing it, however, and as the technology improves rapidly in this industry, and economies of scale kick in, the cost per watt continues to fall.

In some sunny locations, the cost of solar is nearing parity with the cost of traditional fossil-fuel electricity. And it's pollution-free! 

There are over a dozen young stocks to choose from in this space, but the leaders today are First Solar (FSLR), JA Solar (JASO), SunPower (SPWR),and Yingli Green Energy (YGE).

These are growth investments of the first order. Every one of them is growing revenues at a triple-digit rate. (That's proven to be one of our most successful stock-picking criteria through the years.) Every one of them is a profitable company. And every one is being accumulated by institutional investors who want to get their foot in the door of the next big thing. 

Admittedly, these stocks are expensive when looked at from a static valuation perspective. But when you consider the growth potential, these valuations make sense.

First Solar, based in Phoenix, is the leading provider of third-generation "thin-film" solar cells, which means it's far less dependent on increasingly expensive silicon for its products. 

SunPower, based in San Jose, Calif., makes an aesthetically attractive all-black solar cell for both residential and commercial installations and is building new manufacturing plants in Malaysia to increase capacity. 

JA Solar, nominally from the Cayman Islands but actually operating in China, is a specialist. It makes solar cells, but then sells them to other manufacturers who incorporate them into finished power-generating products. 

Yingli Green Energy, also in China, is vertically integrated, and produces complete systems for home, business and industry. 

All four have strong charts today and all four are recommended for growth-oriented investors who know how to manage risk.