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Invest in Europe's alternative energy leaders
If you want to invest in alternative power, you'll want to head east. European companies like Iberdrola, Sunways and Conergy are leading the way.
By Jim Jubak
For a country projected to import 68% of its petroleum by 2025, according to the U.S. Energy Information Administration, the United States is doing shockingly little to develop alternatives to oil and natural gas.
It's big news in the United States when Willie Nelson opens one truck stop to sell biodiesel. Efforts to build offshore wind farms are trapped in the doldrums while residents of the Hamptons, Martha's Vineyard and Nantucket worry that the windmills 10 miles out to sea will spoil their views. And it takes the shutdown of the U.S. oil and gas industry on the Gulf Coast to get President Bush to suggest that Americans might try to drive less.
Europe is where the action is. In 2003, Germany passed Japan to become the world's largest market for photovoltaics, the silicon cells that turn sunlight into electricity. Spanish utility Iberdrola (IBDRF, news, msgs) is now the world's largest owner of wind farms. Alternative energy companies, including U.S. companies such as Ocean Power Technology and Renova Energy, head to European stock exchanges -- especially the London Stock Exchange's AIM market -- when they want to raise cash. Renova Energy has raised $16 million in two London offerings for its Wyoming plant that turns corn into the fuel ethanol.
Go east
U.S. investors should follow the same path. If you want to invest in alternative energy, go east. And that's even more true now that the Russian shutdown of the flow of natural gas to Europe on the New Year's weekend has led European leaders to a panicked search for solutions to their own energy dependency. (Russia is the source of about 25% of Europe's natural gas.) Efforts to shut down existing nuclear plants in Germany and Spain and to cut back subsidies for alternative-energy production are likely to go down to defeat in the wake of Russia's power play. (The immediate crisis was quickly ended when Russia agreed to resume gas shipments to the Ukrainian pipeline that supplies such of Western Europe. For more on the reasons for the shutdown and its long-term effects, see my Jan. 4 column, "Russian roulette? Not with these 5 stocks.")
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Unfortunately for U.S. investors, very few -- well, maybe none, in all honesty -- of these stocks are household names. Most aren't followed by U.S. stock analysts and it's just plain tough to get information on many of these companies. What follows is my take on this sector and my pick for three stocks that offer a good combination of potential return and available information.
Let's start with a big guy, Spanish utility Iberdrola. Spain has been one of the most aggressive countries in Europe in its pursuit of alternative energy sources. By 2010, the government projects, 29% of Spain's power needs will come from renewable energy sources such as hydro and wind power. (I know this is just a plan, but according to the European Commission, Spain is one of just four countries in the European Union that is on track to meet its target. The others are Germany, at 12.5% by 2010, Denmark at 29%, and Finland at 31.5%). The Spanish government has pushed that target with a combination of rate premiums for electricity generated by alternative sources, tax incentives and, in common with other European governments, a cap on carbon emissions. These incentives have been so successful that Germany's Commerzbank projects that Spain is on the verge of a boom in solar-power generation like that which pushed Germany to the top of the photovoltaic heap in 2003.
Iberdrola gets about 70% of its power from a combination of wind, hydro and nuclear sources. About a third of the company's power comes from seven fully or partially owned nuclear plants. It's that nuclear exposure that makes the recent Russian gas shut-off especially important for Iberdrola. The Spanish government has called for a national forum to review the country's nuclear policy. But with the Russian shut-off demonstrating how dependent Europe's economies are on imported oil and natural gas, a shutdown of any Spanish nuclear plant becomes extremely unlikely.
As a stock with a market capitalization of roughly $24 billion, Iberdrola draws research coverage from big-name international investment houses such as Deutsche Bank and Morgan Stanley. The stock even trades as an unsponsored ADR on the over-the-counter market under the symbol IBDRF. Its Reuters code is IBE.MC and its Bloomberg code is IBE SM. Any broker -- full service or discount -- with a decent international desk should be able to buy and sell this stock for you. The company's Web site is here.
Conergy (CEYHF, news, msgs) is the largest photovoltaic-system integrator and wholesaler in Europe. Sales, which include the company's wind, biomass and solar thermal units, climbed an average of 97% a year from 2002 to 2004. Commerzbank forecasts that the company will grow sales by 48% a year from 2004 to 2008. Hamburg-based Conergy calls Germany -- Europe's biggest market for photovoltaic systems -- its home market, but Conergy moved into Spain starting in 2001 and is now the market leader in what is likely to be the next big boom market in Europe for solar power. Deutsche Bank forecasts that, in fiscal 2006, the company will increase sales growth outside of Germany to 25% to 30%, up from the 15% growth in fiscal 2005.
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