Epiphanies in Sin City

Written by Brian Hicks
Posted April 12, 2006

It was a little after 4:00 a.m. on Tuesday morning in Las Vegas. The first round of sessions at the Power-Gen Renewable Energy & Fuels Conference didn't start for another five hours and I was too pumped to attempt another 'go-around' at some quality REM sleep. So I decided to head down to the 24-hour Starbucks cart in the casino to get primed for a full day of renewable rhetoric.

As is typical with any casino, there was a sea of slobbering zombies, chain-smoking in front of the hypnotic bells and strobes of $0.25 slots and video poker machines. Glimmers of hope occasionally moved their bloodshot eyes from the spinning bananas and cherries when the sound of 20 or 30 quarters landed in the bottom of their empty plastic cups. But those didn't last long. The house always wins -- and the poor slobs who mortgage their lives for cups of change and free steak buffets return like junkies to the crack houses.

Am I being dramatic? Probably. But there's no denying Darwin in this setting. In the casinos, it doesn't take a rocket scientist to separate the losers from the winners. And the same holds true in today's energy markets as well.

Where we've been, where we're going

Last year, before most investors even knew that silicon was a key component of PV manufacturing, I told you about the coming silicon shortage -- and more importantly, how it would impact the PV market. This is also when I told you about a company called Evergreen Solar (ESLR:Nasdaq) -- a PV manufacturer that utilizes a technology which allows for a 50% reduction in silicon for its production process. And although the company has slipped a bit in recent weeks, we still managed gains in excess of 70%. I do hope you were one of the many Wealth Daily readers who grabbed a piece of this one.

If not, perhaps you were able to tap the ethanol market back in 2005, when I told you that the industry was about to explode beyond our wildest expectations. A year later, after the President endorsed the industry during his 'Addicted To Oil' rant, ethanol stocks doubled and tripled!!! And Green Chip Stocks members cleaned up. Though segregate ethanol markets are about to stage a repeat of what we saw in February and March. I'll have more on that later.

But today, beyond my brief bit of chest-pounding, I want to tell you about where you'll get the biggest bang for your renewable buck in 2007.

Why am I looking so far ahead? Because this is how we got the goods on 2006 profits. Profits that not more than four months into the year have already surpassed what we saw in 2005.

In 2006, the ethanol industry will most likely take the lion's share of renewable momentum. Though there's also some serious potential on the horizon for solar this summer. You can read more about this at Green Chip Stocks. Because like I said, today's Green Chip Review is about tomorrow!

Loud and Clear!

One of the great things about conferences in Vegas is that the atmosphere provides a loosening of the tie and a willingness to conduct business over Budweisers and bourbon. Though the latter tends to be less frequent. Nonetheless, most of my day today was spent sitting around a small table getting the goods on the stuff that isn't loud enough for Wall Street ears to hear...but definitely amplified enough to tell me where we'll be finding our next blockbuster renewable markets. This was the real deal, folks. No strategically outlined dog and pony shows, no Power Point presentations overloaded with charts and graphs that come and go too fast to validate any of it and no overzealous engineers and chemists speaking a language that might as well be ancient Greek. Sorry guys, not everyone went to M.I.T.

No, today was nothing more than just a few guys, sitting around a coffee-stained table, talking about the one market that continues to make us rich. I can think of no better way to spend an afternoon.

Over the next few weeks I'm going to introduce you to three segments of the renewable energies market that are potential gold mines for 2007. And I'm telling you about them now, so when the opportunities do present themselves, we'll be ready to pounce.

A new approach to a 'not-so-new' idea

While hybrid technology is nothing new, there is a new approach to building hybrid momentum that could produce some significant results in the very near future.

Many of you are probably familiar with today's popular hybrid models. The Toyota Prius and the Honda Insight, especially. But what you may not be too familiar with is the latest in Plug-In Hybrid Electric Vehicles (PHEV). (And if you are, don't worry -- this is more about gaining PHEV market share than merely the technology itself).

PHEVs essentially use the same technology as the hybrid vehicles you can find on today's highways, but have a more powerful battery that can be recharged in a standard home outlet. That's right. When you get home, you just plug it in and let it charge. The battery packs are sufficient enough to power the vehicle from 20 to 60 miles on just one battery charge alone. And being that roughly 50% of the cars on American roads are driven 25 miles or less every day - that 20 to 60 mile range is perfect. Think about it. If you travel 25 miles a day or less, a 25-mile range battery could completely eliminate gasoline use in your daily commute. Multiply that by the millions of Americans who also maintain the same daily commute and you've got yourself one hell of a reduction in foreign oil dependence.

But it gets better. Because today's PHEVs are being manufactured with flex fuel engines, the economic, environmental and security benefits are magnified, while also benefiting American agriculture.

Of course, the important question is, will U.S. consumers buy these things if given the opportunity?

Well, with an 'electric' equivalent gallon of gas costing $0.70 to $0.80 at prevailing electric rates versus the national average gasoline price, it's hard to see how any consumer paying $2.50 a gallon wouldn't embrace this option. And this doesn't even take into consideration the environmental benefits the PHEVs offer either.

Now some of you may have heard the argument that PHEVs just replace air pollution from automobiles with air pollution from power plants. But the fact is, in almost every possible power generation mix, plug-ins reduce greenhouse gases and other pollutants. Moreover, as opposed to emissions from millions of cars, emissions from power plants are concentrated in one location which tends to be situated further away from critically-endangered air sheds. Plus, it's just easier to control emissions from a few smokestacks than millions of tail pipes.

It's also important to note that in recent years, many power plants have been modified to lower emissions while many of the older plants have been retired. This has already resulted in a 25% decrease in emissions from U.S. power plants over the last 25 years. And now that zero-emission sources, like wind and solar are increasingly being added to the mix, this current level of power plant emissions will decrease even further. This kind of continued reduction clearly trumps conventional vehicle emissions.

But even beyond the environmental benefits, as with anything, this really does come down to money. And the argument has also been made that the cost of electricity is going up too. Well, that's certainly true. But not at the rate of oil prices. And that, my friends is only going to continue to get worse.

If you come, they will build it

As I mentioned, just on gas savings alone, the potential for PHEVs could be massive. But as PHEVs are still the infants of hybrids, automakers are going to need more than a 'could be' to be convinced to build them.

Fortunately for PHEV advocates, a national coalition of some of the biggest cities in the U.S. (Plug-In Partners) is taking a very aggressive (and smart) approach to creating a viable PHEV market. Instead of running to Uncle Sam for an additional piece of the subsidy pie (Which, I might add is still necessary for many renewable segments to become competitive. And this isn't a bad thing now that peak oil and pissed off Middle East extremists have backed the western world into a corner), the coalition is engaging in a nationwide campaign to urge automakers to accelerate development of flex-fuel plug-in hybrids. And not by whining, bitching and moaning either. No, these guys aren't coming to the table with lists of demands that make for excellent shredding materials in the accounting offices of the major automakers. These guys are coming to the table with a market.

The Plug-In Partners actively solicit 'soft' orders or expressions of interest in purchasing plug-ins from government agencies and businesses. For example, an Austin-area pest control company has pledged to buy up to 150 light weight plug-in trucks, once they are produced. And this is just one company, in one city. The fact is, plug-in hybrids make economic sense for a number of companies and government agencies. From mass transit to trash trucks for waste disposal firms to shipping companies -- the economic benefits for PHEV utilization are simply undeniable. And once auto makers can validate a tangible market for PHEVs, mark my words -- they'll make it happen. In fact, they've already taken the first R&D baby steps.

Currently, Fed Ex is testing a PHEV manufactured by Dodge in New York. This particular model is called the Dodge Sprinter Van. And there's also a plug-in version of the Ford Explorer, which can run 60 miles in all-electric mode, and runs on E85 as well. Toyota's brought its Prius to the party too, with a 30-mile all-electric capacity.

The point of all this is simple. Plug-in hybrids represent a real, near-term solution to our over-reliance on foreign oil imports and energy prices that escalate the cost of nearly everything. The infrastructure is already in place. The PHEV is nothing more than a modified modern-day hybrid. And with the ability to plug it into a standard home outlet, there's no need to build high voltage stations to fill it up.

Now -- where's the opportunity for investors?

Well, there's more than just one. But the most immediate opportunity will be found in advanced battery technology. Light weight and powerful -- the companies that are able to meet this requirement at a competitive cost will grab us by our short hairs and take us for one of the most profitable rides we'll see in this industry. Don't get me wrong...the battery 'angle' is nothing new. We've certainly hit on this in the past in relation to conventional hybrids. But the wolves are starving, and the demand for PHEVs that we'll see next year will be the dinner bell catalyst that will define the dominant player in this Darwinian arena.

For more on PHEVs and the battery companies that'll take the lion's share of this market, visit Green Chip Stocks.

Until next time,

Jeff Siegel
Managing Editor, Green Chip Stocks