Business Education Guide

Green Investments
by George St. Onge

Back in the 60's, Kenny Rogers asked "What Condition My Condition Is In?"

In this article I'll discuss the Condition of the Renewable Energy markets.

New Jersey's solar program, once a leader, fell to also-ran status. Solar sales were brisk, rebates were enticing, especially after gasoline sold above $3 for the first time. . .but applicants were left waiting for grant application approvals. . . and then they did some more waiting. What was once a three month wait turned into 14 months for many applicants. Many are still waiting, while solar installers are expected to install1500 megawatts by 2020, as per the RPS (Renewable Portfolio Standard). New Jersey is at less than 50 MW of installed solar now. Governor Corzine's Energy Master Plan has been an ongoing process since October 2006. The final Plan is due by October 2007. There has been a tremendous amount of effort put into the plan by all parties at the table. Hopefully the BPU's Office of Clean Energy will redeem their 2006 miscalculations with a strong plan for the years leading to 2020, when 20% of our energy supply is mandated to be Renewable Energy.

A June 2007, report titled "Green Energy in the US" points out that renewable sources contributed approximately 9.5% to US total electric generation in 2006, generating 385 billion kWh of electricity. Wind was the fastest growing source of power generation in the US during 2006. Electricity generation in the US is dominated by coal. During 2006, 48.9% of the total US electric power was generated at coal-fired plants. The outlook for renewables in the US is dependent on the course of future federal and state legislations. An effective cap and trade system, by placing a price on carbon emission, could enhance the growth of renewable energy by making it more competitive with conventional sources.

The future of power generation in the US is at an interesting cross-road. On the one hand, cheap generation technologies such as coal and natural gas fired plants are well positioned to dominate future power generation if the current legislative and regulatory environments persist. On the other hand, increasing public and political concern about climate change makes it likely that legislative changes to usher in some form of price on carbon emission is imminent. In addition, the US is encouraging RPS measures for wider use of greener power via tax credits.

Legislative leadership in the US Congress, now with a Democratic majority, proposes taking $15 Billion in tax credits from the oil industry (why give tax advantages with oil prices at historical highs) and moving the $15 Billion in tax credits to renewable energy industries such as solar, wind and biodiesel. For example, residential solar installations now have a cap of $2,000 on tax credits. In the future, homeowners may receive the same 30% tax credit as business owners.

Transportation vs Healthcare
The US demand for transportation fuels is the source of many of our problems, consuming around 70% of the 21 million barrel per day supply. Detroit automakers are finally being called upon to increase the MPG of their fleets to 35 by 2020. If SUVs get any bigger we may all be extinct.
Detroit's plea is that they can't compete because of legacy health care costs for their employees and retirees. GM's healthcare costs are $300 a month for 300,000 people. Forty-five million people in this country don't have health insurance. I was just offered a family policy at $900, $1100 or $1500 per month.
If GM decided to have an open enrollment in their healthcare plan at $600 per month I might be a buyer. If GM signed up 300,000 people then their costs for their own employees and retires would be zero. If they announced to Wall Street that they signed up 600,000 people to their health plan, and it was now a profit center their stock would rally. Then they could concentrate on making a car that people want and maybe compete with Toyota. I wonder if after they crushed all their electric cars they also shredded the blueprints......maybe there's a 90's era 256k hard drive in some storage room at GM holding the electric car plans. They may want to consider dusting off those blueprints.

Food for Fuel
Congress may also take a closer look at the farm bill, as powerful interests managed to gain corn ethanol subsidies of billions of dollars over the past few years all in the name of getting off the foreign oil addiction. Under closer scrutiny, the ethanol subsidies are being questioned for their inefficiency, as only 1.25 barrels of oil equivalent energy will result from each barrel of oil expended growing the corn, fertilizing it, harvesting it and then driving it to the ethanol processor. A Return on Energy Invested (ROEI) of 4:1 or 5:1 would be meaningful., not 1.25:1.
The law of unintended consequences gave a swift kick to consumers all over the world because the demand for corn from the ethanol industry skyrocketed, causing corn prices to rally from $2.50 to $4 at the Chicago Board of Trade. (Soybean oil for biodiesel production also moved up sharply.) Now farmers have switched acreage from soybeans and wheat to corn in 2007 to take advantage of strong corn prices. Soybeans and wheat have responded with strong rallies also, because supplies will be less at the end of the crop year. And consumers and producers everywhere are feeling the effect of 60% higher corn prices as corn or by-products of corn go into many other products. The US government announced the monthly Consumer Price Index (CPI) last Friday at 0.7%, which equates to an annual 8.4% inflation rate. If you can survive without Food or Energy, you'll be glad to know that Wall Street rallied the stock market that day because the core rate of the CPI(excluding food and energy) was up only 0.1%.
Finally, the prices for corn, soybeans and wheat all fell quite a bit late this week, so either Congress is taking the subsidy candy jar away or there was some great weather in the Midwest for growing crops. We shall see in the next few months.

Some Renewable Energy Stocks of interest
Sunpower (SPWR) -spun off from the chipmaker Cypress Semiconductor (CY) in November 2005, made a new high this week over $64, after trading $24 a year ago. This stock may be the future heavyweight champion of the renewable energy world, keep an eye on it. GE is the monster in the wind industry at the moment, but it’s such a small percentage of their total revenues that you can only dream of participating in a meaningful way.

HOKU: $8.74 - a supplier of silicon for fabrication into chips that go into PV solar panels announced 2 supply agreements with PV manufacturers this month, one for $800 million and the second for $200 million. The stock closed at $4.60 on 6/13 and traded up to $10.14 on 6/21.

WWAT: $1.14 - NJ based WorldWater, acquired a Concentrating Solar Company this month (mirrors focus the Sun's light onto a pipe that carries liquid, that heats up, creates steam, that turns a turbine and makes electricity.) After trading as low as 14 cents in October 2006, the stock traded as high as $1.28 this month.

UGTH: $2.25 - US Geothermal - I'm expecting big things from this industry....send me an email request and I will forward you a map that shows huge portions of the western US where water temperatures in the ground are over 200 F. I think you may be able to stick a pipe in the ground and get steam (a la Old Faithful) which turns turbines and make electricity. UGTH was 70 cents a year ago and recently traded $2.60

Now if some company figures out a way to not lose 50% of the electricity over the transmission lines then we may have some home runs. And a safer and more secure country.

Until next time......go green.....go renewable energy!

George St.Onge is an investment advisor and solar sales consultant. geosaint@yahoo.com 732-801-6828

bized

How We Can Use
Green Building to Save our Planet