July, 2008

Investing in Clean Energy

How the EPA, the U.N. and Global Warming are Fueling the Age of Green Economics

In the wake of the Environmental Protection Agency doing the exact inverse of what its name implies, some uplifting news has finally arisen that indicates the agency might actually have to do some protecting of the environment.

A federal appeals court struck down a Bush administration policy exempting power plants from certain environmental regulations, citing the policy as unlawful.

For some time now, several states--led by California--have been battling the EPA over the right to regulate pollution within their own territory. So far, the states have been handed defeat after defeat.

And while this recent story takes aim at a different issue, it could prove to have bearing on other active pollution-related cases as well.
This case, though, focuses on a rule that would exempt some coal- and oil-fired power plants from regulations requiring strict emissions control technology to help curb mercury emissions.

New Jersey and several other states challenged that EPA plan, and a three-judge panel from the U.S. Court of Appeals agreed, stating that the EPA did not have the power to exempt power plants. After all, they are supposed to be protecting the environment, not aiding in its demise.

According to the plaintiff's attorney, James S. Pew, "This means the EPA is going to have to go back and do a real job of regulating all the toxics coming out of these plants."

Of course, the EPA had no immediate comment.

We'll get to the clean energy investment opportunities resulting from this decision later. Right now, I'd like to build the case for why organizational leadership on climate change will present myriad opportunities for the cleantech sector as a whole.

The U.N. and Climate Change

Just two weeks after U.N. Secretary-General Ban Ki-moon declared solving the world wide water crisis a top priority, he's back to drumming up support for solving another serious issue--climate change.

According to Ban, global warming could cost the world upwards of $20 trillion over two decades "to place the world on a markedly different and sustainable energy trajectory."

Now, a third grader could tell that $20 trillion over 20 years means an average investment of $1 trillion per year. But current U.N. statistics indicate that the global energy industry invests only $300 billion annually in new plants, grid improvement and other new technologies.

Naturally, that leaves a $700 billion pair of shoes to fill every year for the next twenty.

For its part, the cleantech industry brought in over $117 billion in new investment last year, up 35% from the $86.5 billion in 2006.

But where are the additional monies going to come from?

Welcome to the Age of Green Economics

Well, for starters, we'll begin to see not only clean energy dollars, but also efficiency and retrofit dollars pouring into the sector. As outlined earlier, fossil fuel-burning plants are going to have to start blocking their emissions, and not by simply investing in other clean projects. All those dollars should be included in the tally.

Beyond that, Ban believes "We're now on the threshold of another (transformation) -- the age of green economics.

Businesspeople in so many parts of the world are demanding clear and consistent policies on climate change--global policies for a global problem."

He continued, "With the right financial incentives and a global framework, we can steer economic growth in a low-carbon direction."

And he's right. Have you noticed what's going on around you? Here's a sneak peak:

• Cleantech Group: North America and Europe produced stronger than expected growth in Q407, with total cleantech investment across the regions more than doubling year-over-year, from $676 million in Q406 to $1.38 billion in Q407. This brings the level of venture investment in NA and Europe for 2007 to $5.18 billion.

• The WilderHill clean energy index--an index of 48 large U.S. stocks in the renewable energy sector--rose over 58 percent for the year. That compared to an 8 percent gain in 2006 and an anemic 5 percent rise in 2005.

• Investment in clean energy worldwide rose by a third last year to $117 billion, boosted by widespread concerns over global warming, researchers New Energy Finance said on Wednesday--up 35 percent from $86.5 billion in 2006, said New Energy Finance.

• Growing IPOs--like Iberdrola spin-off Iberdrola Renovables IBR (MCE: IBR).

• Trade in the world greenhouse gas credits market rose 80 percent last year as emissions rules became a concern for more companies.

• Global carbon credit trade rose to US$60 billion in 2007, from US$33 billion the previous year, according Point Carbon.

• Installed wind capacity grew 45% in 2007.

• Countries are already claiming carbon neutral status. Even Hawaii said they'll be carbon neutral soon by shifting to solar.

• Philippines to ban incandescent bulbs.

• Cambridge Energy Research Associates: Study Suggests That, Unlike in the '70s, Energy Lessons Will Last.

• Financial Times: Alternative Energy Fuels Long-term Opportunity.

• By 2020, the European Union wants renewable energy to represent 20 per cent of the total energy mix.

• Allianz Global Investors: 71% of investors classify the environmental technology sector as a "buy". Nearly half (49%) say that they will invest in these types of companies within the next year.

Folks, those are just recent headlines. As I've said before, the numbers are only going to get bigger as more projects and technologies are pursued. And all of those projects are going to create. . .

Green Collar Jobs

The energy bill signed into law last December authorized $125 million for green collar job training programs. And while that may be just a drop in the bucket, it shows where America's manufacturing jobs are headed.

According to Bob Baugh, Executive Director of the AFL-CIO Industrial Union Council, green collar jobs present "an opportunity to restore some of the 3 million jobs in manufacturing we've lost in the last seven years."

But green collar jobs are an article for another day. For now, let me reveal one of the investment opportunities related to the aforementioned EPA ruling.

A company called Evergreen Energy, Inc. (NYSE: EE ), has developed a process, dubbed K-Fuel, that uses heat and pressure to physically and chemically transform high moisture and low-Btu coals, such as sub-bituminous coal and lignite, into lower-emission fuel.

It reduces emissions of mercury, sulfur dioxide, nitrous oxides and carbon dioxide. And a recent month-long test of the fuel produced a near 82% drop in mercury emissions form a western Pennsylvania coal plant.

Now, don't get me wrong. I'm not jumping on the coal bandwagon. But I believe it will be part of our energy future, so we might as well do everything we can to make it as clean as possible.

The western Pennsylvania plant burned 75% Ohio bituminous coal blended with 25% Wyoming coal treated with the K-Fuel proprietary process.

Those results came out February 7th. Take a look at what the stock was doing just a week before the announcement:

 

 

You can bet someone had a leg up on the results of the test. Nonetheless, I suspect this one will get a continued bounce as news of their test results spread and new orders start pouring in.

Even if coal isn't your idea of a green investment, there are still plenty of ways to profit from the cleantech revolution. A number of highly profitable opportunities are emerging in the water, renewable and alternative energy sectors. Let's take a look...

The Year in Charts: Cleantech Stocks Clean House

Let's start with a basic market overview. The Wilderhill Clean Energy Index (^ECO) out performed the Dow Jones Industrial Average (^DJIA ) by about 50% for the year. Take a look at the chart:

 

 

But the Dow wasn't only the major index that was outperformed by so-called alternative investments. The NASDAQ Clean Edge US Index (^CLEN) outshone the S&P 500 Index (^SPX ) in similar fashion, as evidenced by the following chart:

 

And I'm not done yet. Even alternative ETFs outperformed many of Wall Street's favorite investment sectors. The PowerShares Cleantech ETF (AMEX: PZD ) made investing in oil and gas look silly as it topped the AMEX Oil Index (^XOI) by some 14%. Take a look:



And if you stack the oil and gas industry index up against the renewables indices mentioned earlier, it looks even worse. In each of those cases, indices connected to the cleantech sector outperformed their fossil counterparts by well over 40%.

It appears that all the hype surrounding high oil translated into even higher gains for those looking to hedge against not only high energy prices, but against rising social concern over emissions and foreign sources as well.

And individual stocks in the clean space shone as well, compared to their often media-soaked opposites. All year we've heard about Suncor Energy Inc. (NYSE: SU ) and how it's the pure play to dominate Canadian oil sands action.

But what about First Solar, Inc. (NYSE: FSLR ), which made Suncor look deader than a bag of hammers? You can see who came out on top in the following chart:

 

While you could've made 50% or so by playing Suncor, you might have pulled in the 800% that First Solar delivered in just one year!

Or the 386%, 220% and 150% Green Chip Stocks delivered on WorldWater & Solar Technologies Corp. (OTC: WWAT ), US Geothermal Inc. (OTC: UGTH ) and Raser Technologies, Inc. (NYSE: RZ ), respectively.

Take a look at just those first two (black and blue) when compared to the PHLX Gold and Silver Index (^XAU):

I'd say there's a clear winner there as well. And that's with gold trading up at $840 per ounce.

Being a subscriber to Green Chip Stocks enables investors to take advantage of those gains. Because, day after trading day, we're realizing the returns of the companies benefiting from serious world energy and climate issues.

Don't be fooled by the mainstream media, oil and gas tycoons or the nostalgic view of how to get rich on The Street. Today's money is being made in clean and renewable energy. The charts above illustrate that, plain as day.

Come along for the ride in 2008, as the energy crisis heats up and we get a change of political leadership.

Until next time,

Nick

P.S. Green Chip Stocks' Jeff Siegel earned his readers a 26.9% average return in 2007. Learn how you can join Green Chip Stocks for just $79.

You can download the PDF version here: Investing in Clean Energy

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