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Editor's Note: Benjamin Shepherd has been called away to deal with a family emergency. In lieu of his weekly market insights and commentary, we've included a free preview of Bankable Profits, a paid report he recently penned with Peter Staas. Friday Market Wrapup will return to its regularly scheduled format next week. We apologize for any inconvenience. June 5, 2009 Renewable Alternatives China, second only to the United States in terms of power consumption, announced this week that it will spend about 100 billion yuan ($14..6 billion) to more than double its wind power capacity by 2010 over last year. More than 200 billion yuan was allocated to energy saving and carbon reducing projects under China's stimulus plans. That investment will take the country's wind power capacity to 30,000 megawatts from the current 12,000 megawatts, according to the country's deputy director of renewable energy. Further, China expects its investment in alternative and renewable energy sources to exceed 2 trillion yuan by 2020. With that level of investment, China could easily surpass Europe, Japan and the US by 2010 as the world's largest consumer of renewable energy. And that not only needs to happen but that has to happen given China's energy consumption has more than trebled in just over three decades. Much of the country's rapid economic growth is fueled by cheap abundant power and low-cost labor.
On the flip side of that coin is the United States, where environmental and energy independence concerns are the real driving force behind alternative energy investment. As part of our own stimulus efforts, $93 million in funding has been set aside for the development of American wind energy research and development, with $467 million in stimulus funding for geothermal and solar energy projects. And those are just the hard and fast numbers, the ultimate dollar figures will certainly be much higher. According to the United Nations Environment Program, which tracks energy-related spending as part of its mandate, reported that in 2008, investment in renewable energy accounted for 56 percent of the $250 billion invested globally in building new power capacity. That's the first time renewable and alternative energy investment has trumped traditional carbon sources and that's likely to be the continuing trend. Here in the US, wind energy accounted for 42 percent of all new energy generation capacity installed last year. The European Union is targeting to have 20 percent of its energy consumption fueled by renewable sources by 2020 and has been spending billions of dollars towards that goal for almost a decade. The simple fact is, renewable and alternative energy should be a major investment theme for anyone in the markets. One major roadblock that investors run into when it comes to actually putting money to work is the fact that most of the best names are based overseas. And while most US-based brokers have made leaps and bounds towards broadening investment horizons, direct international investment can still be more costly than buying US shares. Another problem with trying to play the broad alternative energy theme based largely on government spending is the fact that there's too much money being spread around. While the big names tend to capture the most cash, contracts can be diffused amongst several firms for any project. To that end, I think funds are the best way to play the theme and there are quite a few exchange-traded funds (ETF) claiming to serve that purpose. But as anyone who reads Louis Rukeyser's Mutual Funds or Louis Rukeyser's Wall Street knows I'm not the ETF industry's biggest fan. Out of curiosity though, I went poking through the green ETFs and found four that I actually like. The first is First Trust Global Wind Energy (NYSE: FAN), which as the name implies, focuses on wind. It has enough daily volume behind it, averaging about 100,000 so that buying and selling isn't a huge issue and its bid/ask spread stays within a reasonable range. Its premium/discount spread also tends to stay within about one percent of net asset value, a huge plus in my book for an ETF. What I find most attractive about it is its portfolio, made up of both pure play wind development companies like Vestas Wind Systems and Japan Wind Development and well as utilities that are actually putting wind power to work such as FPL Group and E.ON. All together it's a great offering with a lot of potential upside.
A slightly more speculative sector in the renewable energy universe is solar. Solar projects tend to be fairly large and more expensive than other forms of renewable energy and so far hasn't gained huge acceptance, though technologies are rapidly improving. And with the pace of R&D spending accelerating, I expect it to become a more utilized technology. To that end, Market Vectors Solar Energy (NYSE: KWT) is a great way to invest in a pure play ETF. Again, it has tight bid/ask and premium/discount spreads and is readily tradable. Nuclear energy is also sure to play a large role in meeting emissions targets and is gaining broader acceptance here in the US, even among the environmentalists who used to oppose it tooth and nail. Three Mile Island and Chernobyl are becoming more distant memories for both policymakers and consumers, making it a much more palatable option. As of now, nuclear power isn't considered a renewable energy source under US policy, though there are proponents in the US Senate Committee on Energy and Natural Resources for changing that. If that change happens, I strongly suspect utilities would make more use of nuclear energy given that it's a proven technology and fairly predictable from a cost perspective. For instance, permits have already been granted for a new reactor in Texas with several other permits in the works in the U.S. Market Vectors Nuclear Energy (NYSE: NLR), like its wind-devoted cousin, is a more diversified play on nuclear power. It holds both the manufacturers of the technology and reactor designers and builders, as well as utilities already utilizing nuclear power. Finally, a way to get exposure to all of the various aspects of alternative energy, though it's a bit light on the nuclear side, is Market Vectors Global Alternative Energy (NYSE: GEX). Alternative and renewable energy is here to stay regardless of your thinking on the global warming issue. So it wouldn't hurt to have a little exposure to what's going to be profitable. | ||
| Friday Market Wrapup is a weekly e-zine written by Ben Shepherd and published by KCI Communications, Inc. Mr. Shepherd is editor of Louis Rukeyser's Wall Street & Louis Rukeyser's Mutual Funds. Mr. Shepherd is also research editor for Personal Finance.
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Friday Market Wrapup - June 5, 2009: Renewable Alternatives
