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To print article, click Print on your browser's File menu. Go back Posted 9/25/2003 |
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Related Sites Alternative Fuels Data Center |
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Street Patrol 5 big-payoff bets on alternative energy Prices for companies that develop fuel cells, microturbines and the like have doubled, even tripled, since last spring. But that's just the beginning if one of these long-odds technologies finds a mass market. By Robert Walberg The ingredients are in place for a sustained rally in alternative energy stocks: an antiquated electrical grid, an increasing desire to decrease U.S. dependency on foreign oil and a presidential election in which the environment will be a major issue. As you can see from the table below, the group has already enjoyed a sizable rally off its spring lows. Valuations during this rally have in many cases grown extreme. However, the alternative energy sector is not a value play. Its a speculative play on growth. Most of these companies are still in the development stage. Although some are already turning out viable hydrogen converters and fuel cell energy storage devices, mass production is at least a couple of years in the future.
Like the Internet sector back in the mid-1990s, an investment in this group is a high-risk, potentially high-reward bet on Americas future.
The gee-whiz stuff Before I describe my favorites, lets spend a moment getting familiar with the technologies. Fuel cells convert hydrogen into an electric current, quietly producing power through a cleaner, more environmentally friendly process than the traditional burning of fossil fuel. Fuel cells can be viewed as a replacement to traditional lead or acid batteries. Unlike batteries, however, they do not run out of juice or require recharging. Fuel cells produce only negligible harmful emissions, mainly water vapor. Proton exchange membrane fuel cells and fuel cell systems can be powered with hydrocarbon fuels such as natural gas, methanol and gasoline. The most significant advantages are the environmental benefits and the promise of reducing dependency on foreign oil. The primary focus of fuel-cell research has been development of automobile engines. FreedomCAR -- a cooperative research effort between the Department of Energy and U.S. automakers Ford While the technology isnt expected to be commercially viable for another five to seven years, its impossible to deny the momentum behind this dramatic change in how future automobiles are likely to be powered. Residential and commercial power supply fuel-cell systems are also a major focus of development. Plug Power A few other alternatives Flywheels are also seen as a potential replacement for lead-acid batteries to be used in hybrid and environmentally friendly automobiles. And Active Power Flywheels store kinetic energy in a spinning mass, traditionally a steel wheel. They have been a part of automotive design since Henry Ford's era and are still used to regulate power supply variations in modern cars. In automobiles, flywheels serve as an energy storage device that smooth the power flow from the choppy, explosive bursts of the internal combustion engine. New flywheel technology is being utilized to supply electric power on a backup basis. A short-term backup power storage device is known as an uninterruptible power supply, or UPS. It is in this role that the promise of flywheel technology has the greatest near-term potential for mass commercialization. However, as with fuel cells, one of the biggest hurdles for modern flywheels is the high manufacturing cost. Other potential applications for flywheel technology include: Microturbines utilize technology similar to that of jet engines. Fuel is injected into a combustion chamber; the air/fuel explosion drives a turbine as fast as 100,000 rpm, and that powers a generator, which produces electricity. Most are fueled by natural gas. While traditional diesel generators will continue to make up the bulk of onsite power source revenues, the advantages offered by microturbines (environmentally friendly design, low generation/maintenance costs, remote operability) make them a natural replacement technology. Capstone Turbine Finally, wind, biomass and solar energy producers will also benefit from increased political and investor attention. There are many companies that stand to gain. A few pure plays include Capstone for biomass and highly speculative microcap Evergreen Solar A sample portfolio To be sure, there are numerous risks involved with investments in development stage companies. Many of these companies have yet to produce a profit, and they may not for years to come. However, that doesnt mean the profit potential is lost on some of the large industrial companies that have tentatively moved into the space, such as Caterpillar These companies already have small groups working on alternative-energy products and will be quick to expand their presence once commercialization becomes viable. They will gain share and put pressure on margins. Nevertheless, current political and economic forces suggest that the alternative energy sector is poised for tremendous long-term growth -- and for aggressive, risk-tolerant investors, the time to add a little exposure is now. Listed below is a cross-section of stocks in the alternative energy sector that are worthwhile candidates for further study as investments. Ill check back in a few months to update you on their performance.
Editor's Note: At the time of publication, Robert Walberg did not own or control shares in any of the stocks mentioned in this column. |
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