How much did you make?

Geothermal Stocks

Written by Brian Hicks
Posted January 18, 2006

Dear Wealth Daily Reader,

Here's the four-line instant message conversation that put the biggest sh&%-eating grin on my face last Thursday afternoon:

It was no surprise to Green Chip investors when regulators approved the California Solar Initiative on Thursday, January 12th.

We had been waiting this one out for weeks.

And just as expected…the market responded appropriately.

Two of the most successful IPOs of 2005 - both solar companies, jumped before the vote was even announced.

SunPower (SPWR:Nasdaq) was up 5.2% and Suntech (STP:NYSE) was up 3.1%.

Not bad!

Of course by Friday, some of the lesser-known, and less-obvious solar plays were boasting gains that put anything in the single-digits to shame. In fact, not 24 hours after the vote, two of our smaller solar plays were up 18.9% and 22.3%!!!

There's no denying that 2006 will continue to be a monster year for solar. But for many investors, the solar arena is still unfamiliar territory. And unfortunately for them…they'll continue to miss out on the bigger plays.

Don't get me wrong. SunPower, Suntech, Energy Conversion Devices are all performing extremely well. And I'm not downplaying any of these companies. In fact, one of the biggest media darlings is one of our own plays, Evergreen Solar (ESLR:NASDAQ). And I expect to see all these companies continue performing well throughout the year.

Nonetheless, I still believe that the more significant profits in the first half of 2006 are going to come from the smaller solar firms with two things - money and technological advantage.

And those are the solar companies in the Green Chip portfolio that continue to outperform all the others.

Of course, now that the solar revolution is clearly underway, this begs the question - what's next?

The next catalyst for renewable energy momentum

In just two years, dwindling oil supplies and federal tax credits have pushed renewable energy stocks to new heights.

And so far, solar has clearly taken the lead.

In fact, over the course of the next two years, we're going to see innovations in solar technology that will make those huge, roof-mounted solar panels a thing of the past.

From nanotech-based solar spray paints to small, portable off-grid systems you can set up yourself, right in your own backyard - the opportunities for investors are massive.

You can be sure that the companies developing or utilizing this technology will most likely find a home on the Green Chip Stocks portfolio.

But that doesn't mean the opportunities within other segments of the renewable energies markets should be tossed aside in the meantime.

In 2005, geothermal stocks and hybrid plays performed extremely well. And these companies remain on the Green Chip Stocks portfolio because they will continue to perform in 2006. Especially in the wake of new, state-based renewable initiatives that I believe will be the next catalyst for renewable energy momentum.
You see, while the $3.2 billion solar initiative in California is the largest solar energy policy ever enacted in the U.S., it is certainly not the last.

In fact, the success that this initiative will have in respect to lower energy costs, energy independence, energy security and job creation will serve as a case study for a number of states that already plan to follow in California's footsteps.

Lingle's Luau

One of the reasons California has been so proactive within the renewable energies movement is because the state's energy crisis is a ticking time bomb. From maxed out grids causing far-reaching black-outs to some of the highest gas prices in the country, California's traditional energy options have been exhausted.

And that's why the state's new solar program met with little resistance.

Another state that is faced with a crippling energy crisis is Hawaii.

Increases in oil prices since 2002 have cost Hawaii more than $1 billion. And increased energy expenses have cost Hawaiian citizens more than $1,500 per household.

And it's only getting worse.

In fact, Hawaii is the most oil-dependent state in the nation.

So in an effort to reduce the 50th state's oil dependency, Republican Governor, Linda Lingle has introduced the "Energy for Tomorrow" bill.

The bill includes the following:
The creation of a Public Benefits Charge that will be used to directly fund efficiency and distributed renewable energy through a third party.
A 20 percent renewable portfolio standard
A 20 percent renewable fuels standard
The immediate establishment of a world-class renewable hydrogen program
On top of that, the Democratic majority package calls for the requirement of LEED silver certification and funding for energy efficiency in state buildings and photovoltaic systems in schools.

Full implementation could displace 110.5 million barrels of imported oil (saving Hawaiian consumers $6.32 billion).

Sugary Sweet on Hawaii

About a year-and-a-half ago, Hawaiian lawmakers introduced a program that would require most gasoline to contain 10 percent ethanol by April 2, 2006.

The plan was initiated in an effort to reduce Hawaii's dependence on imported oil and create an alternate market for struggling sugar cane growers.

Unfortunately, due to engineering challenges and delays finding financing and land, it looks as if the ethanol producers will miss the April deadline.

Though worried that postponing the deadline would cause investors to question the state's sincerity in supporting ethanol, thereby further delaying the construction of plants, state officials are sticking to the deadline - despite the availability of local sources.

Officials now expect to see local ethanol production a reality by January, 2007. In the meantime, Hawaiian consumers will buy about 3 million gallons of ethanol per month from out-of-state companies. Which, by the way, can be shipped to Hawaii at a price that's either lower or comparable to the current price of gasoline after the federal tax credit.

Hawaii Heats up with Geothermal

Another area of renewable energy that Hawaii has embraced is geothermal.

Following a number of studies, it is believed that large amounts of geothermal energy exist in both Hawaii and Maui. And beyond biomass, geothermal energy is the only large-scale, commercially mature natural alternative to fossil fuels in Hawaii that can provide a steady amount of power 24 hours a day - despite rain or shine.

Moreover, the use of geothermal energy as a source of electrical power generation will greatly reduce the state's dependence on fossil fuels, as a 30-MW geothermal power plant in Hawaii can displace 500,000 barrels of fuel oil per year.

Geothermal power plants operating or under construction in Hawaii right now are poised for massive profits as it is. But with the assistance of a new state-based renewables initiative…like the one Governor Lingle has proposed, get ready to watch these geothermal firms go through the roof.

Fortunately for Green Chip Stocks members, one of our top geothermal plays already has its meat hooks sunk deeply into a number of mouth-watering geothermal wells over there.

A $10,000 Solar Soiree

Of course, it would be a bit anticlimactic of me to disregard the solar potential on the big island too. As it is quite massive!

In fact, just last month, United Solar Ovonic LLC, a wholly owned subsidiary of Energy Conversion Devices, Inc. (ENER:Nasdaq) announced that it had signed an agreement with Actus Lend Lease to supply 7MW of PV products that will be used to pump energy into the Army's power grid in Oahu. The solar network will reduce dependence on fossil fuels by 30 percent for a complex of 7,894 homes, as well as power 11 community centers and maintenance offices.

It is one of the largest solar-powered residential communities in the world.

But with new state-mandated renewable programs, these types of installations could one day become almost commonplace.

You see, Hawaii currently provides residential buyers of photovoltaic systems a tax credit of $1,750. But Democrats want to increase the credit to $5,000. And Governor Lingle wants to raise it to $10,000!!!

This is huge.

Of course it's easy to throw around big numbers during an election year too. But Hawaii's energy crisis is ballooning. And even beyond elections and your typical politicking, I suspect that state officials and regulators will work feverishly to pass these new initiatives.

Hell, when California's $3.2 billion initiative was proposed, many shrugged it off as hype. And we all know how that one turned out.

If you weren't able to exploit last week's vote in California for profits, don't worry. There are plenty more to come. And Hawaii is just the tip of the iceberg too.

I'll keep you posted on new developments as they become available.

You can also join my free Green Chip Review for daily updates in the renewables sector here.

Until next time...

Jeff Siegel
Editor, Green Chip Stocks