Case for Alternative Energy / State of USD / Peak Oil
May 24, 2008
– Comments (20) |
RELATED TICKERS: GEX
, PBW
, STP
First let me say that this started out as a pitch writeup for GEX. Then I got to writing and it really turned into a blog. Let me also say that I am not down on oil, but rather that new alternatives should, and proabably will, be looked at in a new macroeconomic light.
---------
Case for alternative energy - Macroeconomics
Alternative energy movements in the past have come and gone. Solar initiative in the 70s and 80s never really took hold, nuclear is still a contentious issue. ... In the United States. Most of Europe has a thriving alternative energy infrastructure. Nuclear power accounts for about 75% of France's electricity, Germany has committed to a 100% renewable energy policy . But what about the United States. Why have we lagged behind? ... The price of oil, obviously. One absolutely cannot discuss the state of alternative energy without discussing the state of oil. Oil is cheap, oil is plentiful. However, I believe the two 'is'es in the previous sentence are turning into 'was'es. So what are the changes?
Oil is plentiful: There is a lot of debate and a lot of disagreement on the topic. But maybe we are approaching Peak Oil. I am not going to going into a lengthy discussion here, far better and smarter CAPS players have discussed it in great detail. My favorite is this one by rudolphsteiner. But the gist is: The amount of output of oil extraction and production will reach some peak and after that will taper in a terminal decline. Have we reached peak oil? I have no idea, but there are a lot of facts to consider on both sides, and no side can be fully discredited.
Oil is cheap: Now here is where things get interesting, sad, nauseating, hopeful depending on your stance. Oil is not cheap, nor do I believe will it ever be cheap again. The price of oil is always rising. It is always hitting new highs. Why? Speculators or Fundamental demand? Both and neither. Here is my take. There is a certain amount of speculation. There always is and there always will be in a commodity run up. Everybody wants a piece of the action. But is that the majority of the price, or is there also fundamental demand. I firmly believe that much of the price is due to fundamental demand. There are so many growing nations and economies that need oil. FourthAxis has an awesome response on bellard's blog regarding increased consumption and the changing of eating habits and what it means for global energy demand (see response 3) . I seriously doubt that even if US consumption waned that it would make a serious dent in global demand.
But I said both and neither, what is the neither? The state of the US Dollar. I started this off by saying that alternative energy has lagged behind in the US because of the price of oil. And that is the key. Oil is priced in USD. It is a very sad and very unfortunate fact that the USD is being debased and devalued by the current government's fiscal policy. The US Dollar Index is on a very steady decline. There is no reason for it to rise in the current environment. FED is printing money and trying to inflate the US out of its current economic dilemma. Again, smarter people than me have blogged about this. The most succinct and coherent blogs on this issue are posted by TMFSinchiruna. And now it is not only the FED that is 'pouring gas on the fire' of high gas prices (remember oil as priced in USD), but the US congress is embarking on a path of higher prices due to an ill-conceived lawsuit against OPEC.
The US consumer is now waking up to the fact that oil prices are high, not speculatively and not artificially, but due to global demand and weakness of the USD. People in are trading in SUVs for smaller cars, most gas-guzzling cars bought even a couple of years ago are selling for less than Blue Book, Ford is retooling it production to target more fuel efficient models, Toyota is selling hybrids in record numbers, etc. A skeptic might say, "So what! The late 70s / early 80s were so much worse than today. There are no long lines, no gas shortages." True. However, I believe that a major difference between the 70s/80s and now is back then, once OPEC turned the spigot back on, oil dropped like a rock. Why? Because the US was the biggest consumer. We had the lion's share of the demand and so the global demand was far less than global production capacity. My opinion is that is no longer the case. Global demand is rising. And I think the US consumer is beginning to change their mind about alternative energy.
Alternative Energy Investments and Technology
The argument and points listed above are nothing new. And for US energy production / independence there is much more to consider, such as coal and natural gas. And again others have discussed these points more eloquently. But I want to focus on renewable alternative energy. Why I believe that the US is ready to make a quantum leap to reneweable alternatives and not simply transition to a natural gas and coal from a primarly oil based energy infrastructure is based on 2 reasons: Over the past decade (or less) the price of Oil has risen exponentially (as the USD has fallen), and the technology readiness level / viability of many renewable alternatives has risen dramatically. With these two macro trends coinciding, I believe alternative renewable energy is ready to take hold in the United States.
This is so much incredible technology coming available. Solar Electric (Photovoltaics), Solar Thermal (my personal favorite), Wind Power, Wave Power, Biogas / Biodiesel / Ethanol. I just want so talk a little about each:
Solar Electric is really making huge leaps in becoming close to 'grid-parity'. As far as manufactures there are tons of companies that I think are game changing and some that will not be around much longer. My personal favorite PV manufacture is Suntech Power Holdings (STP). They are one of the biggest manufactures of the standard polysilicon based panels. They have a huge production capacity, pricing power, have secured polysilicon contracts for many years, have huge contracts with the Chinese government, and their panels will be covering nearly every Olympic building in Beijing to be seen all over the world (very good press). First Solar, not so much. Not only is their stock horrendously expensive, but one of the main ingredients of their thin panels is Tellurium, an exceedingly rare and expensive element. And it is becoming increasing rarer.
Solar Thermal is such an awesome technology, because it is so beautifully simple. You have a crapload of parabolic mirrors (nothing fancy or special about the mirrors, very low tech) sitting in the desert to focus the heat up to a collector. The fluid in the collector is moved by the thermal gradient, this spins a turbine which turns a shaft, and voila! electricity. It is so simple. There is so much of AZ, NV, NM, CA and UT that is desert and gets so much consistent sunshine. There have been a few solar-thermal initiatives started, and there are more growing everyday. klemenv has mentioned Schott. My personal favorite is eSolar, because of the pre-fab modularity concept. You just make an array of these in parallel as space will allow, hook them together and you have a power station in the desert. Neither company is public as far as I know, but I have a feeling we will be seeing a lot more of this technology.
Wind. I love wind technology. When I first moved to CA, I loved seeing all of the wind turbines on the hills surrounding San Jose. Wind is plentiful and consistent in many parts of the country, and free. T. Boone Pickens has just made a major wind play. My favorite in the group is Vestas Wind Systems. Sure GE makes wind turbines too, but GE has its fingers in a lot of pies and a whole hand in financials. Vestas is a huge Danish turbine manufacturer and they have turbines all over the globe. They trade on the CPH. You can go through a market maker (which I don't like), or you can get exposure through some ETFs (see below).
Biofuels and Ethanol: First let me say that corn ethanol is one of the most inane projects in existence. Use food crops to create a near net zero energy efficiency process, and create / contribute to a global food shortage... Nice. There are so much more effective (but not as politically porkish) alternatives. StockSpreasheet has a really good blog about this. Camistocks points out the huge energy density and ease of conversion in hemp, which I heartily agree with. However, one that I love Jatropha. I saw this in Popluar Science a few years ago. It is a tough, hearty little seed that grows in rough climates like Mexico and Africa, and the oil content is 35-40% in the seeds and 50-60% in the kernel and is fairly easily extracted. BP is undergoing a Jathropa joint venture. There is much more interest being garnered in cellulosic ethanol in general.
The point is that there are a lot of alternatives, and I believe that the US consumer is becoming increasingly aware of these. I think (and I also hope) that this will turn into political will.
Besides individual companies and stocks, there are several ETFs that invest in alternative energy companies. My two favorites are PBW and GEX. Of these two GEX is my top favorite.
The reason I like GEX the best is its diversification. I think it is a little more diversified across these technologies. And its top holding is Vestas Wind System (which I am a huge fan on). So if you want to make a play for Vestas and get some alternative energy exposure, I would recommend GEX. My one complaint with GEX is that its top PV holding is FSLR, which I do not like. I would rather see STP right behind Vestas.
PBW is very PV top-heavy. Before buying PBW I would recommend just buying STP instead. My feeling is that STP is the 'best in class' PV producer.
Wow, I didn't really mean to go on this long. I just kind of got on a roll.
Please, if you have any clarifications, suggestions, rebuttals, differences of opinion I would love to hear them.
Terms & Conditions
RSS Headlines
Fool UK