After last week’s blackout, alternative energy sources are generating a buzz. Consumers are looking for options and investors are wondering how they can get in on the power rush.
WARREN BUFFET started betting on alternative energy long before the blackout. So did the managers of funds devoted to renewable sources. In fact, some are even likening the opportunities to the dot-com boom — which could be an encouraging or disturbing analogy depending on your outlook. That’s why we investigated the landscape and asked some of the experts, how viable are these options? And is it really possible for investors to turn green energy into green?
From the sizzle that cooks French fries to the energy that heats a home and cools another, a growing portion of America’s energy is coming from renewable sources.
Americans will use 15 percent more energy per year by the next decade. And after last week’s blackout in the Northeast, investors are taking a harder look at renewable sources like wind turbines.
“As the wind makes the blade turn it then creates power in a generator that is housed on top of this tower,” said FPL Energy’s David Giordano on a recent tour of a wind generation site. “And that power is sent through power lines onto the utility grid that ultimately gets distributed to retail customers.”
Some energy customers are setting up their own alternative sources — with the help of financial incentives to make them competitive with plugging into the grid.
“It’s not about saving money or return on investment right now,” said George Cole, who has installed solar power equipment on his suburban Boston home. “It’s about showing that there are energy alternatives. Without the incentive we wouldn’t have been able to do this: not this year not next. The incentive was just absolutely crucial to us.”
Renewable energy only accounts for 6.5% of the country’s total consumption today. And analysts don’t see that number growing by much.
But between government incentives and rising costs of fossil fuels, there’s green for investors within the alternative energy sector. David Kurzman follows the group for H.C. Wainwright, a research firm in South Hamilton, Mass.
“It’s still early for alternative energy companies,” he said. “Investors need to be choosy which companies they are willing to invest in.”
Kurzman says companies must have four main characteristics to qualify as power plays in his portfolio: A clear path to profitability, good strategic partners, a commercially available product and finally, enough cash to execute their business plan.
In order to raise that cash, some alternative-energy companies have looked to Wall Street. But just because they were able to put their symbol on the ticker, doesn’t necessarily make them suitable investments.
“A lot of these companies that are public are not yet profitable in the alternative-energy space,” said Wainwright.” I have characterized this group for many years now as public venture capital. And even without profits, Evergreen Solar has seen its stock rise this year.”
It’s the same story for investors in fuel cell maker Medis Technologies. They’ve seen their stock price double in the past 6 months.
The company hopes to put tiny power packs in PDAs for the government but has yet to move into the black. That’s why analysts warn that, with this sector’s combination of promise and uncertainty, striking oil is tricky.
“From a strict valuation standpoint,” sad Kurzman, “it perhaps is early for most retail investors. For institutional investors with a long-term horizons, with a stomach for viability, this could potentially be a good area for investment.”
(Coming up: the front runners in solar, wind, and fuel cell energy, and those companies’ promise in terms of generating power and returns for investors.)