Marie Beerens
Fri Mar 3, 7:00 PM ET
Ethanol, solar power and even pig manure are starting to look like good alternatives to today's high energy prices.
That's created lots of opportunities for investors. Alt-energy stocks have taken off, especially after President Bush touted new technologies in his Jan. 31 State of the Union address.
"We've got a number of renewable and emission-free technologies which are on the cusp of becoming commercially viable for the first time," said Brion Tanous, managing director at Merriman Curhan Ford & Co., a San Francisco-based institutional research and investment banking firm.
Companies range from old-economy giants like Archer Daniels Midland that have an alt-energy play, to IPOs that may be close to turning a profit.
There's a renewed buzz about ethanol. It's an alcohol made out of corn, sugar or other organic material. Mixed with gasoline, it reduces how much gas is needed to run cars and trucks.
Agribusiness giant ADM (NYSE:ADM - News) is by far the top U.S. producer of corn-based ethanol, with a 29% market share. ADM has risen 11% since Bush's big speech.
But corn-based ethanol is costly, even with government help. Also, it's relatively polluting.
Many, then, are pinning their hopes on cellulosic ethanol. Microbes help break down wood chips and grass into alcohol. The process promises to be cheaper -- and "much greener than the corn-based technologies," said Alex Farrell of the Energy and Resources Group at the University of California, Berkeley.
"Four to six years is probably the appropriate time for (cellulosic ethanol) to be cost-competitive with corn," said Neil Koheler, CEO of Fresno, Calif.-based Pacific Ethanol (NasdaqNM:PEIX - News).
Pacific's revenue is surging from a low base, mostly due to distribution and higher prices of ethanol. It's not expected to be profitable until 2007, after it starts production. Still, shares have doubled since late January.
Bush last month visited a Johnson Controls factory where the auto parts maker is developing an advanced lithium ion battery -- like those used in laptops. It would let a hybrid car run up to 40 miles and could be recharged via a standard electrical outlet. The hybrids would have a gas tank for longer distances.
Fuel cells, which convert hydrogen into electricity, have long been touted as a green way to power vehicles. The only byproduct: water.
Many experts say fuel cells for cars are two decades away from being viable. But Tanous predicts, "In a decade from now, we're going to have a notable number of fuel cell vehicles on the road."
Quantum Fuel Systems (NasdaqNM:QTWW - News) develops hydrogen fuel systems for vehicles, and also for stationary and hydrogen infrastructure markets.
"This company is well-positioned to benefit prior to the full fuel-cell automotive market being developed," Tanous said.
Distributed Energy Systems (NasdaqNM:DESC - News) makes hydrogen generators and power systems for oil rigs and other remote sites that need on-site power but can't rely on the electric grid.
"That's an example of a market that is thriving today," said Tanous.
But not every firm has much of a market yet.Ballard Power (NasdaqNM:BLDP - News), an auto fuel-cell pure play, is a cautionary tale for investors. The Canadian firm surged 548% from 22.38 in November 1999 to its March 2000 peak of 144.94. But, with no end of losses in sight, Ballard reversed, falling 96% by its final bottom in May 2005.
In contrast, several publicly traded solar power firms already make money. They use thin films made out of photovoltaic cells to turn sunlight into electricity.
It still takes about 10 years to recoup solar panel costs, though that is a lot less than a few years ago. Costs are largely driven by polysilicon, which chipmakers also covet.
The upside of solar's big upfront costs is that they are predictable. And after that, costs are nearly nil.
Robert Stone, alternative energy analyst at Cowen & Co., sees solar getting to parity with grid-supply electricity prices in five to 10 years. Even if solar cost slightly more, he said, "people would rather have the green renewable energy even if they have to pay a little bit more."
SunPower (NasdaqNM:SPWR - News) posted its first profit in the fourth quarter. The California firm uses a unique design, placing all electrical contacts on the back of the solar cell. It lets more sunlight enter, generating more electricity. It focuses on the residential market.
SunPower's stock has surged 140% since its November IPO.
Fast-growing Suntech (NYSE:STP - News) has been profitable for three years. China's top solar cell maker benefits from local low-cost resources. It's up 149% since its Dec. 14 NYSE debut.
Evergreen Solar (NasdaqNM:ESLR - News) uses thinner wafers of silicon, halving its costs. It's still in the red, but Wall Street expects profit in 2007.
Wind power costs less than solar, but it requires remote areas and ways to distribute it. Still, some estimate it could supply up to 20% of U.S. electricity. General Electric, which is making a big green push, said wind turbine (NYSE:GE - News)revenue soared 200% to $2 billion in 2005.
Some firms are turning organic waste like cow and pig manure into methane, a natural gas.
Environmental Power (AMEX:EPG - News) is building the largest U.S. biogas plant to generate natural gas for industry. It's expected to lose money until 2008. |
