Renewable Portfolio Standard

How's 225% Sound to You?

Written by Brian Hicks
Posted December 11, 2007

A renewable portfolio standard (RPS) is a policy that mandates a certain percentage of produced electricity come from renewable resources.

The energy bill currently being debated in Congress would ensure that utilities generate 15% of their electricity renewably by 2020. And while it's unclear whether or not that provision would make it into the final version of the bill--President Bush has indicated he will veto it anyway if it does--some states have already adopted such a measure.

In fact, certain states have adopted policies that dwarf the modest one causing so much tension in the Senate. California, where I'm currently attending the greenXchange Global Marketplace Conference, has an RPS ensuring that 20% of its energy comes from renewables by 2010.

That, coupled with other green initiatives, means that California will have reduced their statewide emissions 17% from 1990 levels by 2010. To put that in perspective, countries that signed on to Kyoto have to reduce their emissions a collective average of 5% from 1990 levels by 2012.

And New Mexico will get 20% of its energy the same way by 2020. That state is home to Governor Bill Richardson, one of the most outspoken presidential candidates when it comes to the energy issue.

In his keynote address at the conference yesterday, he called the current energy bill "shameful and pathetic", arguing that much more needs to be done by way of adopting renewable energy technologies.

He added, "Flirting with $100 oil isn't flirting at all. It's a serious relationship--an affair." And nearly "1/3 of the trade deficit goes to pay for $100 oil."

But I digress.

Even without a national plan-though it would be nice-28 states and the District of Columbia have already instituted some form of RPS (three of those states have voluntary targets, whatever that means). Those states make up over half of the US population and account for well over half of the domestic electricity sales. So you can see where this issue is headed.

The consensus, at least at this conference, is that we will have a national RPS in the next two to three years, no matter who wins the White House in 2008. There also seems to be widespread belief among the financial professionals and politicians here that we'll have a federally mandated cap-and-trade system for carbon emissions in that same time.

According to David Abel, Chairman of VerdiXchange and host of the conference, "We need to shift how we connect the green dots. The solutions are in the marketplace, we just need to scale them up."

That's exactly what Yaniv Tepper of the Angeleno Group, a California-based private equity firm with over $200 million tied up in clean-tech companies, thinks is going to happen. His firm, which used to never even look at renewable energy companies, now believes there is windfall profit potential due to:

  • High oil and gas prices
  • Aging electric infrastructure
  • Increased environmental restrictions and corporate mandates, and
  • A push toward energy independence

A litany of others in the venture capital and private equity world feel the same way. One after another they paraded to the podium using phrases like "high growth rates", "increased initial public offerings (IPOs) and mergers and acquisitions" and, my favorite, "We finally figured out how to make money off this stuff."

If there were any remaining doubt about the financial viability or profit potential of the kind of companies Green Chip recommends, it should all now be abated. These are, after all, the same men who made fortunes in oil and gas companies and the dot-com boom of the 1990s.

And I couldn't get any greater pleasure than when I saw lists of some of the companies these fund managers are investing in pop up on their PowerPoint slides. Many were companies we've already recommended to our Green Chip Stocks subscribers.

Companies like Ormat Technologies Inc. (NYSE: ORA), which has climbed well over 225% since late 2004, and which we've been in since early 2005. Take a look at a chart for Ormat Technologies:

ormat technologies (NYSE: ORA)

And there others that are still too nascent to mention here, but that I imagine will have similar charts in a similar timespan. So unless you have millions of dollars in disposable income that you are willing to invest in endowment funds, hedge funds, public-private partnerships or venture capital start-ups, I suggest you consider joining Green Chip Stocks.

Because, let's face it, national renewable portfolio standard or not, there is money being made hand over fist. And not just here in the States, but around the globe as well. In fact, British Energy Secretary John Hutton said this week that England could be entirely powered by offshore wind turbines by 2020.

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Until next time,

nick hodge