R-Squared Energy Blog

Pure Energy

A Day Late on the Bloom Box

I wasn’t going to write anything on the Bloom Box, but people keep writing to ask what I think. My initial reactions were “What a lot of hype” and “I have seen this all before.” I also wondered why it is that people keep falling for these kinds of stories.

But fuel cells aren’t my specialty, and as such I won’t weigh in on the relative technical merits of this design over another. I know that fuel cells have been very expensive for many years, and the initial projections I have seen over the Bloom Box are that they will be very expensive.

Lots of people with expertise in fuel cells have weighed in on the matter, though. If you want a more technical assessment, see the National Geographic story:


Bloom Box Launch Is “Big Hype”–Invention Nothing New?

The Bloom Box—an as yet unbuilt in-home “power plant” designed to be about the size of a mini-fridge—could provide cheap, environmentally friendly electricity to U.S. households within ten years, according to Bloom Energy. Or not.

But fuel cell experts say that, based on the information the company made public today, the Bloom Box technology is not revolutionary, nor is it the cheapest or most efficient fuel cell system available.

“It’s a big hype. I’m actually pretty pissed off about it, to be quite honest,” said Nigel Sammes, a ceramic engineer and fuel cell expert at the Colorado School of Mines. “It really is nothing new. Go to any [solid oxide fuel cell] Web site and you’ll see the same stuff.”

Those were my initial feelings as well, and here is why I say we have seen this before. The year was about 2001, and I was younger and a bit more subject to being influenced by massive hype. There was a company called Plug Power (still in existence today; stock symbol PLUG, but they are flirting with getting themselves delisted) and they came out with pretty much the same story.

In fact, if you go back into Google’s news archives on Plug Power, you can see a histogram that shows the news stories on Plug Power spiking in 2000, remaining fairly strong until about 2005, and then falling to lower levels in the past few years.

The buzzwords used to describe Plug Power were the same as those used to describe the Bloom Box. The technology was called revolutionary, disruptive, and a real game-changer. There was a prediction made that most people would have Plug Power’s fuel cells in their homes by 2010 and we would all be locally producing and using our electricity in a refrigerator-sized box.

What happened? Plug Power’s stock soared to $2 billion on the hype at a time when investors would bid up companies that had no earnings but incredibly high growth projections. It just so happens that hype can lead to those growth projections (a hard lesson for me that permanently changed my investing style), and what happened was that reality eventually caught up with the hype.

Plug Power, like Range Fuels from my previous essay, could not deliver on the hype. They couldn’t deliver cheap fuel cells, and so they didn’t get the market penetration many had (unreasonably) expected. Their valuation came crashing back down to earth. Today Plug Power is worth about $70 million, or about 96.5% less than it was when I was following the story.

Bloom Energy looks like both Plug Power and Range Fuels to me. It is a company that is attempting to produce energy cheaper than all those who came before using known technology – and using hype to attract investors. And if Bloom Energy fails to deliver, they will learn just like Range Fuels that hype is a two-edged sword.

March 2, 2010 Posted by | Bloom Energy, hype, investing, range fuels | 3 Comments

Top 10 Sources for U.S. Oil for 2009

It has been two years since I posted the Top 10 oil exporters to the U.S., so I thought I would update that list. In 2007, the U.S. imported just over 10 million barrels per day (bpd) of oil, with our top three suppliers being Canada (1.90 million bpd), Saudi Arabia (1.44 million bpd), and Mexico (1.41). Total oil imported into the U.S. in 2007 averaged 10.0 million bpd. OPEC countries supplied just over half of that – 5.3 million bpd. (All data sourced from the EIA).

Data for 2009 are available through October, so I tabulated the twelve-month period from November 2008 through October 2009. Total petroleum imports were down 7% from 2007 at 9.3 million bpd. Top U.S. suppliers for this time period were Canada (1.94 million bpd), Mexico (1.13 million bpd), and Saudi Arabia (1.09 million bpd).

Top 10 Sources for U.S. Crude Oil in 2009

1. Canada – 1.94 million bpd
2. Mexico – 1.13
3. Saudi Arabia – 1.09
4. Venezuela – 1.01
5. Nigeria – 0.74
6. Angola – 0.48
7. Iraq – 0.47
8. Brazil – 0.30
9. Algeria – 0.28
10. Colombia – 0.25

Observations

Canada remained the top supplier to the U.S., and their total exports to the U.S. actually increased slightly over 2007. Imports from Brazil and Columbia also increased.

OPEC supply was down to 4.6 million bpd, which is lower both in absolute terms and as a percentage of total imports (53.7% in 2007 versus 49.1% in 2009).

Dropping out of the Top 10 from 2007 were Ecuador and Kuwait. Taking their places were Brazil and Columbia.

Even though Mexico regained the 2nd spot from Saudi Arabia, total imports form Mexico fell by 20% over 2007.

The most unusual observation for me was that we actually imported a small amount of oil from China.

The overall theme seems to be that in general suppliers that are closer to the U.S. are gaining market share at the expense of those who have to ship their oil halfway around the world. However, there are a couple of important exceptions to that observation.

Equatorial Guinea did not make the list (15th place), but saw their exports to the U.S. increase by 67% over 2007. This trend could see them move into the Top 10 within a couple of years. Imports from Russia were up 98% over 2007, and they just missed the Top 10 (11th).

My expectation when I update this list again in 2012 is that either overall imports will be up, oil will be over $150/bbl, or both.

January 26, 2010 Posted by | EIA, investing, oil exports, oil production | Comments Off on Top 10 Sources for U.S. Oil for 2009

The Looming Spike in Crude Prices

Lots of very crazy stuff going on behind the scenes that’s been keeping me very distracted, and writing to a minimum. Fortunately, Money Morning sent me a very timely essay this morning on crude prices. This one takes aim at the API. While I have a cordial relationship with the API, like Kent Moors who wrote the article below I think their crude production projects are way too optimistic. Of course I say the same thing about projections from the EIA, IEA, and pretty much any organization that predicts that we are going to have a major increase in production from today’s rates. My position for the past 5 years has been that the top is pretty close to 90 million barrels/day, give or take a few million. Some of these organizations are predicting that we will be able to produce over 100 million bpd, and I just don’t see it.

Anyway, as I previously explained topical Money Morning content will be featured here from time to time. As always, normal caveats apply: I am not an investment advisor; these stories are meant to spur discussion.
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Profit From the Looming Spike in Crude Prices That the U.S. Oil Lobby Doesn’t See Coming

By Kent Moors, Ph.D. Contributing Editor Money Morning

John Felmy has been the chief economist of the American Petroleum Institute (API) for years. He’s well respected. And I appreciate his experience. But the two of us disagree more often these days.

We most recently locked horns at Malone University in Canton, Ohio, last week, where we were debating the future of oil. (Actually, when the invitation was made, I was supposed to debate Sarah Palin. But she pulled out to go on the road and pitch a book she didn’t write.)

Nonetheless, something disturbing emerged from the debate.

I still find John a pleasant enough fellow, but the mantra coming from the API, the mouthpiece of the oil industry, is wearing thin. They want us to believe that the oil market is still fine, still humming along, still providing the best energy value. You’ve heard the argument before: Gasoline is cheaper than milk or bottled water.

This time, John tried the latest API version of this sleight of hand: Whatever price you need to pay, oil is still cheap, still plentiful, still the energy of choice.

Sorry folks, the API just doesn’t get it. And what it refuses to get is becoming one of the most important factors investors in the energy sector will need to watch – carefully. This is all about supply and demand. But it’s not the traditional lecture from Econ 101.

This one is going to roll out differently.

Over the next several months, oil will begin losing its balance. As it falls off the wagon, risk will escalate. And that will require greater due diligence by investors. But as the risk increases, so will the number of opportunities. I’ll show you how to profit from them as they surface.

But first, here’s the problem with the API’s approach.

“Suspect” Figures Are Way Off

As John grudgingly admitted in our exchange, the API’s figures are becoming “suspect.” I have a less charitable view. (Unlike John, I don’t work for them.)

The API figures are way off.

They still portray a view of demand (low) and supply (high) that will not continue to square with reality. We have had lower demand for months only because of the financial crisis and the credit crunch. But this has had nothing to do with the oil market as such.

Others are catching on.

The Paris-based International Energy Agency (IEA), for example, has already admitted its supply estimates were too optimistic while its view of demand was too conservative. The IEA revisions have been paralleled in similar moves by the London Centre for Global Energy Studies (CGES), Russia’s Institute for Energy Strategy (IES), and even Washington’s usually impervious Energy Information Administration (EIA).

There’s a reason for this.

Worldwide oil demand, while sluggish, is nonetheless returning more quickly than anticipated. In addition to the usual suspects – China, India, a resurgence in the Far East – OPEC countries are retaining more of their own production to diversify their economies. Russia is facing rising domestic needs at the same time it tries to avoid a significant decline in crude production. Mexico is witnessing a meltdown in its oil sector while its domestic needs also rise. And new major markets are exploding in places like West Africa and South America.

Notice this is not happening in the United States or Europe. These countries are no longer the driving forces in the oil market. The most developed markets are not calling the shots, despite still being over-weighted in the data collected. The IEA finally got that. So did CGES, IES, and even the EIA.

But not the API.

Indeed, the paid spokesperson for the American oil industry continues to see crude oil as the main option. True, it gives lip service these days to alternative and renewable energy. Moreover, given its position as the in-house spokesman for the hydrocarbon sector as a whole, it is also praising the virtues of natural gas as the immediate choice when we transit from crude oil.

Unfortunately, the API still fails to provide an accurate picture. Perhaps in the final analysis, this happens because its clients are the oil producers.

Oil’s (Profitable) Reality

We currently have about 86 million barrels a day in worldwide crude oil demand. That still represents a figure below pre-crisis levels. However, all of the organizations mentioned above (with the exception of the API) are now estimating a rise to around 87.5 million over the next year, with increases accelerating thereafter.

Current global supply, on the other hand, will max out at 91-92 million barrels. That gives us a small cushion – just a few years – before the real fireworks start. Period.

Because new volume coming on line will barely replace declining production from older fields, we have little prospect of avoiding insufficient supply producing a spike in crude oil prices. This is not necessarily a bad development from the investor’s perspective, since a volatile market will provide profit opportunities, especially if the direction in price remains sustainable over any period of time.

The impact on other market sectors, of course, will be less positive.

The key here is to recognize the major benchmarks and triggers, along with early changes in what they tell us. These will not all be moving in the same direction as the unwinding ratchets into high gear. But we will be able to identify when they are changing and, more importantly, how to profit from them.

I’ll be discussing the strategy as it unfolds over the next several months.

I’ll show you, for example, how to spot a real oil-demand rise in the American market before it becomes apparent to everybody else. There are several approaches I will suggest as the market opens up. The best place to start is watching the leading economic indicators.

Actually, six of the 11 stats provided by the Department of Commerce are dependent upon, or reflect, changes in productivity and industrial needs. These are all also energy intensive. That means a rise in energy demand will precede the actual rise in the indicators. This is one of the early triggering mechanisms I use in my analysis and for making my estimates.

I’ll flag them for you as they emerge. And I’ll lay out how they impact the U.S. energy sector and related investments. There are quite different ways of early detection for other global markets, where the demand will be moving in more quickly.

Calls on investment alternatives will be very sensitive to changes in indicators and triggers. That means in energy, we need to stick to the trends. So stay tuned. The recommendations will follow in short order.

Just don’t expect to gain much traction from the API!

[Editor’s Note: Dr. Kent Moors, now a regular contributor to Money Morning, is the executive managing partner of Risk Management Associates International LLP, a full-service global management consulting and executive training firm. He is an internationally recognized expert in global risk management, oil/natural gas policy and finance, cross-border capital flows, emerging market economic and fiscal development, political, financial and market risk assessment, as well as new techniques in energy risk management.

Dr. Moors has been an advisor to the highest levels of the U.S., Russian, Kazakh, Bahamian, Iraqi and Kurdish governments, to the governors of several U.S. states and the premiers of two Canadian provinces, a consultant to private companies, financial institutions and law firms in 25 countries and has appeared more than 1,400 times as a featured television and radio commentator in North America, Europe and Russia. He has appeared on ABC, BBC, Bloomberg TV, CBS, CNN, NBC, Russian RTV, and regularly on Fox Business Network.

Moors next columns will be written from Moscow and London, where he’ll be talking to officials, company executives, traders and bankers. Russia is about to signal a major change in oil and gas development strategy, while recent events in London are signaling a new oil pricing approach.]

December 4, 2009 Posted by | American Petroleum Institute, api, investing, investment, Money Morning, oil prices | 15 Comments

The Future of Energy

I am back in Hawaii, and over the next couple of days I will climb out from under an avalanche of correspondence. I have a couple of essays to get out, including an interview that I conducted with the CEO from an algae company. What he said may surprise you.

Until then, the latest energy-related story from Money Morning. As I previously explained topical Money Morning content will be featured here from time to time. As always, normal caveats apply: I am not an investment advisor. I don’t endorse any specific stocks mentioned in the following story; these stories are meant to spur discussion.

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A Money Morning Interview: The Future of Energy

Renowned Oil Expert Dr. Kent Moors Details Shortages of Oil, the Impact of Higher Prices, the Promise of New Technologies and the Opportunities For Investors Dr. Kent Moors is one of the world’s foremost experts on oil, energy policy, finance, risk management and new technologies. Moors advises the leaders of six oil-producing countries, including the United States, as well as global corporations and banks operating in 25 countries.

Moors is the founder and director of the Energy Policy Research Group, which conducts analyses and makes recommendations on a range of energy-related issues. He is also the president of ASIDA Inc., a worldwide advisor on the oil-and-natural-gas markets.

In an interview with Money Morning Executive Editor William Patalon III this week, Dr. Moors detailed the top current energy challenges in the global economy, and also provided investors with a look at some of the looming new technologies, as well as a future in which China is a dominant global energy player.

Some of these issues are already at work. Although oil prices remain well below the all-time record of $147 a barrel set in July 2008, crude prices have been on the march of late. Just yesterday (Wednesday), in fact, supply concerns pushed oil futures up above $81 a barrel, their highest level in more than a year.

“If you think the run up to July 2008 was a wild ride, you haven’t seen anything yet,” Dr. Moors told Money Morning. “In the next five years, investors who focus on medium- to small-sized producers and oil-field-service companies having a well-developed specialty niche will outperform the overall energy sector.”

Money Morning (Q): In an earlier discussion, you said that the successful energy investor of the future wouldn’t be a person who just goes out and invests in ExxonMobil Corp. (NYSE: XOM). Can you explain?

Dr. Kent Moors: We are entering a period of rising prices. There is still some play left in the large verticals (vertically integrated oil companies, or VIOCs) such as ExxonMobil, but the primary profits will be made with smaller, leaner exploration-and-production (E&P) outfits, field-service companies and specialized producers (unconventional gas producers – shale gas, coal bed methane, tight gas, hydrates – heavy oil and biodiesel).

(MM): How will investors have to play this future? What types of companies should they be looking for, and where should they look?

Moors: The market rapidly approaching will be more volatile with valuation often more difficult to determine than in the past, even with prices increasing. How much of the increases result from actual product margins and how much results from oil becoming a financial asset rather than just a commodity is a major concern. It requires some careful homework. The types of categories mentioned above – smaller producers, new developments in field services and technology (especially those providing ways to decrease wellhead and operational costs, increase productivity, use associated gas, treat and utilize produced water, increase efficiency per barrel … there is a long list here) as well as the specialized producers and providers of their technical needs are the main targets.

(MM): When we look at the U.S. economy, you said that investors would be stunned to discover how much of our oil is produced by small players. In that discussion, in fact, you even described the type of firm that could be the “savior” of the U.S. energy sector, and perhaps even the economy. Could you take a moment to describe that situation and explain what that means for the economy?

Moors: The United States remains one of the top five producers of crude and will shortly ramp up production of natural gas (once the current glut has moved through the system). Sixty percent of crude produced in the U.S. market is at stripper wells providing less than 10 barrels of crude a day, but more than 20 barrels of water, a major byproduct. As America enters an accelerating field maturity curve (and an intensifying decline in well debit – well production), the efficiency of production declines. Therein lies a significant area for innovation and leaner companies. And that spells greater profitability at lower entry prices. Some offshore and Alaskan National Wildlife Refuge (ANWR) production will be done at scale, but that is not where the future of U.S. production will be. It will be the result of greater profitability at existing depleting wells with the new technology rolled out (on the oil side) and unconventional gas production.

(MM): Let’s take a look at the global markets, too. China’s global shopping spree has been well chronicled. As China locks up suppliers and supplies of oil and natural gas, what are the chances there could end up being what’s almost a two-tiered market, where China has access to oil and natural gas at lower prices levels, creating a shortage of non-captive supplies and leading to Western countries having to pay much higher prices?

Moors: Price rises for Westerners will occur anyway, and not just because of China (where a rising energy bubble resulting from the recent acquisitions is a concern). The competition for available energy sources will usually result in those regions prepared to pay more, increasing the overall aggregate price for most others. China, India, a resurgent East Asia, Japan and even regions such as West Africa will occupy important positions moving forward in this regard. Also, rising demand will center in places other than OECD countries. The new oil market emerging can hardly discount the developed countries, but the primary demand spikes are going to come from elsewhere.

(MM): After some significant turmoil in recent years, you said that Russia is finally opening up to foreign investment. Will that last, and what effect will that have on global energy prices?

Moors: To offset a more rapidly declining traditional production base (primarily Western Siberia), Russia must move north of the Arctic Circle, into Eastern Siberia and out on the continental shelf. These moves are technologically sensitive and very expensive. Moscow needs the outside investment and that will remain. However, projects must be carefully structured. Foreigners cannot own 50% of “strategic fields” under new laws or anything on the shelf. This means watch out for the smaller, focused operators and oilfield service companies. They will include companies currently trading on the Alternative Investment Market (AIM) in London: The AIM and London Stock Exchange (LSE) are the sources of the new external investment phase in Russia.

(MM): From a global perspective, which markets show promise? And which ones – either because of overly restrictive investment policies, or because of the risk of nationalization – are markets to be avoided?

Moors: Many markets show promise or telegraph restraint. Let’s look at some of the more noticeably promising markets, organized by energy category:

  • Conventional Oil: Sub-Saharan Africa, Brazil, Kazakhstan, Russian Eastern Siberian and Far East smaller fields.
  • Conventional Natural Gas: Turkmenistan (if recent government overtures to outside investment remain genuine), Uzbekistan, Northwestern Australia (region of the Gorgon project) and New Guinea.
  • Unconventional Oil: Tatarstan (Russia) for bitumen and heavy oil, Alberta for oil sands (assuming an average and multi-year sustainable crude price of $72 [USD] a barrel or above).
  • Unconventional Gas: The United States for shale (especially Marcellus Shale) and coal bed methane (Powder River Basin, Wyoming, also basin into Montana – if that state reduces regulations), Poland, Turkey and Germany for shale, south central Russia and Ukraine for coal bed methane. If Baghdad and Erbil can finalize central Iraqi and regional Kurdish oil legislation – and if security is maintained – Iraq will become a major play in both oil and gas.
  • TO BE AVOIDED: Iran (sanctions and buyback contract frustrations), Mexico (collapsing infrastructure and nationalization), Venezuela (significant technical shortcomings, concerns over productivity assessments, and absence of Western operators).

(MM): If an investor were to divide the energy market into short/intermediate/and long-term segments, what will be the dominant energy plays (oil, natural gas, solar, coal-bed methane, for example) in each of those three time segments? What time periods would you tack onto the short-term, intermediate-term, and long-term segments? And which energy plays will be the real winners?

Moors: To make this easier to see, let’s divide this into short-term, intermediate and long-term segments and look at the key players, issues and technologies in each category.

  • Short-Term (five years out): Here we’ll see an increasing efficiency at existing oil wells; Marcellus Shale natural gas; an extension of large fields into known deeper production layers – for example, BP-led (NYSE ADR: BP) multinational plays such as the Azeri-Chyrag-Guneshli and Shah Deniz deposits offshore Azerbaijan. Other developments to watch are the huge Chevron-led (NYSE: CVX) Tengiz field in Western Kazakhstan, initiatives in the central Gulf of Mexico and all satellite fields operated by other companies.
  • Intermediate-Term (five to 15 years out): All U.S. and Canadian shale plays, Wyoming, Montana, New Mexico and Russian coal bed methane, selected wind power Western U.S. and Baltic Sea region (Denmark, Germany, Poland).
  • Long-Term (20 years or more): All alternative and renewable energy (by this point, crude oil will be too volatile with supply problems and natural gas from whatever source will be the main power source both for conventional applications and for new technologies – fuel cells will obtain most of their price-sensitive hydrogen from natural gas).

Moors: Here’s the bottom line. Looking forward, successful energy investors will be those who: (1) weigh volatility as well as opportunities; (2) understand the rapidly changing supply/demand balance; (3) hedge within a focused time-frame; (4) watch the development of new technology to improve production, processing or transport; and (5) have a flexible approach to the market.

October 29, 2009 Posted by | investing, investment, Money Morning, oil prices, shale gas | 9 Comments

Brazil Flexing Its Muscles

A couple of years ago I was thinking about the possible fates of various nations in a world in which depleting oil reserves begin to have a very strong impact on oil prices. I had visions of $100+ oil and eventually $5-10 gasoline, which would place a crushing burden on the U.S. economy.

Of course higher prices will motivate people to conserve (and will contribute to recession), and then you may find yourself in a situation in which the supply/demand balance once again tips toward excess supply (as we found ourselves in as oil approached $150/bbl). Prices fall. The economy starts to recover. What happens then? Prices rise, putting the brakes on recovery. This is what I postulated in The Long Recession. Today I saw that someone else had weighed in with the same general thesis:

Oil prices mean perpetual recession

“The US has experienced six recessions since 1972. At least five of these were associated with oil prices. In every case, when oil consumption in the US reached 4% percent of GDP, the U.S. went into recession. Right now, 4% of GDP is US$80 a barrel oil. So my current view is that if the oil price exceeds US$80, then expect the U.S. to fall back into recession,” wrote Steven Kopits, managing director for U.K.-based energy-consulting and -research firm Douglas-Westwood LLC in New York.

Long recession, perpetual recession – the idea is the same. If demand starts bumping back up against supply because economies are heating back up, it will be very tough to dig out of a recession for very long for countries that rely heavily on oil imports. Maybe we aren’t there yet. Maybe we have another cycle to go. But I see this as a very plausible scenario.

One country that I have long felt is very well-equipped to thrive as oil prices go higher is Brazil. In fact, as I was preparing to buy Petrobras last year, I debated whether to instead buy into a closed end Brazil fund called iShares MSCI Brazil Index (EWZ). My reasoning was that as oil prices climb, the Brazilian economy stands to benefit in multiple ways.

There is of course the obvious in that Brazil has very large oil reserves relative to their population size, and their oil production is on the rise. It therefore stands to see cash flow into the country increase as they begin to export oil. I would expect to see consumer spending rise, benefiting many sectors in the country. For countries that wish to replace oil with alternative energy, Brazil is a key provider there as well. There is probably nobody better at efficiently producing ethanol from sugarcane. Their location in the tropics also means they have good solar insolation, improving the prospects for solar power (as well as for biomass, since they also get ample rain). All in all, they are abundantly blessed with fossil and renewable energy.

I saw another story today from MarketWatch that emphasized some of these very points and reminded me why I selected Brazil as a country with a bright outlook as oil production worldwide depletes:

Brazil’s JBS shows a nation on the march

SAN FRANCISCO (MarketWatch) — The Brazilians are coming and they are buying, securing a firm foothold in weakened corners of U.S. agriculture. JBS S.A., the world’s biggest beef producer, just added Pilgrim’s Pride to its empire, speeding the Texas-based chicken producer’s exit from bankruptcy with an $800 million cash payment that will give JBS 64% of the company’s new stock.

JBS is not the only Brazilian outfit feeling its protein these days. The country’s economy is on a tear, much of it fueled by resurgent commodities. It posted surprisingly strong 1.9% GDP growth in the second quarter, making it the first Latin-American nation to emerge from the global recession.

Petrobras (PBR), Brazil’s state-controlled oil company, is in the thick of it. Over the past few weeks, it announced several major new deepwater oilfield discoveries, prompting talk that it might swap some of its bulging reserves for up to $25 billion worth of new shares in the company.

The new found oil wealth augments Brazil’s already booming sugar cane-based ethanol exports and vast hydroelectric supplies. Together, they have put the country in the enviable position of becoming a net energy exporter.

The article goes on to say that the Brazilian stock market is up 60% for the year.

So far, my decision to buy PBR over EWZ has proven to be the correct one. In the not quite 10 months since I bought it, the PBR is up 160%. The return from EWZ has been nothing to sneeze at though, up 117% over the exact same time period. This reiterates my belief that Brazil will be a safe haven in an oil-induced financial storm.

September 17, 2009 Posted by | Brazil, Brazilian ethanol, EWZ, investing, investment, PBR, Petrobras, recession, sugarcane ethanol | 14 Comments

Rentech Making Waves

The following story posed a bit of a dilemma for me. In my new role, there will be potential conflicts of interest in some of the stories I may post, and until I elaborate on what I am doing, I am trying to avoid posting anything that might fall into that category.

When I first saw this story earlier today – and in fact received the press release from Rentech (RTK) – my first thought was that this sort of fell into that category. Why? Two reasons. First, Rentech’s Senior Vice President and Chief Technology Officer Harold Wright is my former manager and a friend. Second, in my new role I have interests that are of the same nature as some of Rentech’s. That means that we could be allies or we could be competitors, but I can’t say I am a disinterested party. So I finally decided that I should simply declare this, and post the story, which is really a culmination of several Rentech developments.

Having said that, Rentech has really been generating a lot of buzz lately. They are currently operating the only fully-integrated synthetic transportation fuels production facility in the U.S., and in partnership with ClearFuels Technology Inc., they are building a “20 ton-per-day biomass gasifier designed to produce syngas from bagasse, virgin wood waste and other cellulosic feedstocks at Rentech’s Product Demonstration Unit (PDU) in Colorado. The gasifier will be integrated with Rentech’s Fischer-Tropsch Process and UOP’s upgrading technology to produce renewable drop-in synthetic jet and diesel fuel at demonstration scale.”

Rentech also recently announced their Rialto Project, designed to “produce approximately 600 barrels per day of pure renewable synthetic fuels and export approximately 35 megawatts of renewable electric power.” They will use Rentech-SilvaGas biomass gasification technology, and green waste as the feedstock.

Today’s press release announced an off-take agreement with several airlines. You can read the press release below. Rentech stock was up 86% today on the news. They also announced a profit last week of $0.22 a share (triple analysts’ expectations), and were up 56% on that news.

I have strongly voiced my views that I believe the future belongs to gasification. Keep an eye on Rentech’s developments in this area.

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Rentech to Supply Renewable Synthetic Fuels to Eight Airlines for Ground Service Equipment Operations at Los Angeles International Airport

Initial Purchasers Include Alaska Airlines, American Airlines, Continental Airlines, Delta Air Lines, Southwest Airlines, United Airlines, UPS Airlines and US Airways, with Potential for Additional Purchasers

LOS ANGELES (August 18, 2009) – Rentech, Inc. (NYSE AMEX: RTK) announced today that it has signed an unprecedented multi-year agreement to supply eight airlines with up to 1.5 million gallons per year of renewable synthetic diesel (RenDiesel®) for ground service equipment operations at Los Angeles International Airport (LAX) beginning in late 2012, when the plant that will produce the fuel is scheduled to go into service.

The initial purchasers under the agreement with Aircraft Service International Group (ASIG), the entity that provides fueling services to many airlines that operate at LAX, are Alaska Airlines, American Airlines, Continental Airlines, Delta Air Lines, Southwest Airlines, United Airlines, UPS Airlines and US Airways. Additional airline purchasers of RenDiesel® can be added under the agreement with ASIG.

The agreement is the first of its kind to supply renewable synthetic fuels to multiple domestic airlines. The renewable RenDiesel® fuel to be supplied to the airlines would be produced from green waste at Rentech’s proposed Rialto Renewable Energy Center (Rialto Project). The renewable diesel fuel will have a carbon footprint of near zero. RenDiesel® exceeds all applicable fuels standards, is biodegradable and is virtually free of particulates, sulfur and aromatics. RenDiesel® is compatible with existing engines and pipelines, providing an immediate solution to the transportation sector’s requirements to meet targets established by California’s Low Carbon Fuel Standard.

D. Hunt Ramsbottom, President and Chief Executive Officer of Rentech said, “This commercial purchase contract among Rentech, ASIG and the airlines validates the growing demand for synthetic fuels produced by the Rentech Process. The low-emissions profile and near-zero carbon footprint of our renewable RenDiesel will guarantee that the LAX ground service vehicles using this fuel will be among the cleanest and greenest of their kind.” Mr. Ramsbottom continued, “We expect this agreement to serve as a model for future supply relationships at other airports and for other fuels, including Rentech’s synthetic jet fuel, which was recently approved for commercial airline use.”

Glenn F. Tilton, Air Transport Association of America (ATA) Board Chairman and UAL Corporation Chairman, President and Chief Executive Officer, said, “We are proud to take part in this innovative, collective endeavor that, over time, will further reduce greenhouse gas emissions and improve local air quality through the use of greener fuels.” Mr. Tilton continued, “This transaction promises to be the first of many such green fuel purchase agreements by the commercial aviation industry. It exemplifies the ongoing commitment of airlines and energy suppliers to diversify our fuel sources while contributing to a cleaner environment and adding new jobs to the economy.”

ASIG is thrilled to have been instrumental in reaching this landmark deal with the airlines and Rentech, reinforcing our strong commitment to our airline customers and environmental stewardship,” said ASIG President Keith P. Ryan. “We are proud to be on the forefront of this innovative effort to advance aviation environmental progress.”

Gina Marie Lindsey, Executive Director of Los Angeles World Airports (LAWA), commented, “This collaborative effort is yet another environmentally friendly initiative that we and the airlines are pursuing at Los Angeles-area airports. It shows what we can accomplish by working together toward a common and necessary goal.”

Rentech is developing a commercial-scale facility in Rialto, California, to produce renewable electric power and the cleanest diesel in California, each with a carbon footprint near zero. The project is currently designed to produce approximately 600 barrels per day of renewable, ultra-clean synthetic fuels and 35 megawatts of renewable electricity (enough to power approximately. 30,000 homes), primarily from urban woody green waste, such as yard clippings. The facility is expected to come online in 2012.

August 19, 2009 Posted by | biomass gasification, btl, investing, Rentech | 57 Comments

U.S. Ramping Up Wind Power Programs Even As Concerns Surface About Possible Declines In U.S. Wind Strength

Once again at DFW Airport, about to make my way back to Europe. So I will be offline for just a bit, but wanted to post the latest from Money Morning, which as I recently explained will be featured here whenever they have topical material to offer. As always, normal caveats apply: I am not an investment advisor. I don’t endorse any specific stocks mentioned in the following story nor the ad at the end of the story.

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U.S. Ramping Up Wind Power Programs Even As Concerns Surface About Possible Declines In U.S. Wind Strength

By William Patalon III – Executive Editor

Money Morning/The Money Map Report

Just as the United States is boosting its reliance on wind power, a new academic study set for release in August says that U.S. wind forces may be getting weaker.

Eugene S. Takle, a professor of atmospheric science at Iowa State University, and the director of the school’s “climate science initiative,” says the research study concluded that U.S. wind strength has potentially declined by 15% to 30% during the past 30 years – an average decline of as much as 1% a year.

While conducting the study – which will appear in the Journal of Geophysical Research – researchers reviewed wind data taken at airports around the United States, and then based their findings on two sets of figures: One set from 1973-2000, and the other from 1973-2005.

The study concluded that three factors could be contributing to the declines in U.S. wind strength: Land-use changes, a changing climate and changes in the kind of instruments used to measure the wind, Takle told MarketWatch.com.

“If there have been trees growing or new buildings constructed near airports, it could impact the speed of winds on airports,” Takle said. However, it is also “[basic] meteorology that the wind is driven by differences in temperature between the poles and the equator, and those differences have been narrowed by climate change.”

Tough Timing

The findings come at time when the United States is making a serious push to increase the amount of electricity that’s generated by wind turbines grouped into so-called wind-power “farms.” Attempts to harness the wind are part of a broader national – or even global – commitment to “green” energy sources as a way of reducing dependence on oil and other fossil fuels for power generation.

Other power sources include solar, geothermal, hydroelectric and nuclear for commercial electricity production, while automakers are looking at new types of batteries and such innovations as power-storing “fuel cells” as alternatives to the conventional internal combustion engines that power most of the world’s cars and trucks.

The objectives are twofold. By decreasing the U.S. reliance on foreign oil, the country is hedging against the time when global supplies of the “black gold” begin to dry up, an eventuality that will propel the prices of crude and gasoline skyward. Diversifying away from oil and, perhaps, even coal is also a way of reversing – or at least slowing – environmentally ruinous (and politically controversial) global warming.

President Barack Obama is attempting to use the ongoing financial crisis to create a sense of urgency about America’s energy future, a challenge that no prior administration has yet been able to meet.

About one-third of President Obama’s $800 billion-plus stimulus package will go to infrastructure, with $30 billion allocated for U.S. roads and highways and another $10 billion earmarked for railways and mass-transit systems.

President Obama has also proposed spending $150 billion “over the next 10 years to catalyze private efforts to build a clean energy future.” The administration also proposes to increase the amount of electricity that comes from renewable resources from 10% in 2012 to 25% by 2025, Wall Street 24/7 reported in early January.

Creating the power is only part of the problem. Delivering it will be a challenge, too, especially given the country’s aging power grid. Upgrading that aging equipment is expected to cost more than $880 billion, according to a November 2008 report from the Brattle Group.

An Energy Boon For Entrepreneur T. Boone?

In many cases, those federal outlays will serve only as seed capital. It will likely fall to innovators in the U.S. private sector to really energize the alternative-power market.

One key player is legendary oilman and venture capitalist T. Boone Pickens, who has unveiled a plan to cut U.S. dependence on foreign oil through the power of alternatives such as wind and natural gas, Money Morning reported last July.

We’re paying $700 billion a year for foreign oil. It’s breaking us as a nation,” Pickens said at the time. Former U.S. President Richard M. Nixon “said in 1970 that we were importing 20% of our oil and that by 1980 it would be 0%. That didn’t happen. It went to 42% in 1991 with the Gulf War. It’s just under 70% now. Where do you think we’re going to be in 10 years when our economy is busted and we’re importing 80% of our oil?”

Pickens wants to create what he calls a “bridge to the future” that will help cut slash the U.S. reliance on imported foreign oil by focusing on two specific alternatives:

  • Cars that burn natural gas instead of gasoline.
  • And electricity generated by wind power.

There’s a smooth and elegant logic to his strategy: By constructing electric-generating wind-power farms, the United States can free up natural gas supplies that currently generate 22% of the nation’s electricity. That natural gas can then be used to power cleaner-burning cars and trucks, thereby reducing our dependence on imported oil while also reducing the damage to the environment. This will also buy time for the development of other, even-greener, alternative sources of energy.

Pickens’ Wind Power Project

According to Pickens, wind power could eventually fulfill as much as 20% of the United States’ energy needs. Calling the Great Plains region of the United States the “Saudi Arabia of wind,” Pickens last summer launched plans for a $10 billion alternative energy project in the Texas panhandle that has the potential to one day become the world’s largest wind-power farm.

Picken’s Mesa Power LLP plans to purchase 667 wind turbines from U.S. industrial giant General Electric Co. (NYSE: GE). Each turbine can produce 1.5 megawatts of electricity – enough to provide the ongoing power needs of 360 to 600 U.S. homes, according to Money Morning calculations based on statistics provided by Oregon Power Solutions Inc., a Baker City, OR consulting firm.

The first phase of the Pickens project, already under construction, will produce 1,000 megawatts of electricity, enough energy to power 300,000 homes. GE will begin delivering the turbines in 2010, and current plans call for the project to start producing power in 2011.

Ultimately, Mesa Power plans to have enough turbines to produce 4,000 megawatts of energy. Overall, the “Pampa Wind Mill” project is expected to cost $10 billion and be completed in 2014.

Pickens has launched a “Pickens Plan” Web site, which is urges the country’s “energy army” to lobby Congress for funding and a commitment to green-energy projects.

Other Players Showing Interest

An Irish company – its interest in the U.S. alternative energy market piqued by the green-technology money included in the Obama administration’s stimulus package – on Monday acquired three Illinois wind farms located within 100 miles of Chicago, The Chicago Tribune reported.

Plans call for the Dublin-based Mainstream Renewable Power to invest $1.69 billion over four years to develop the wind farms. The purchase price was not disclosed.

“The U.S. market is of strategic importance to Mainstream, and the scale of the opportunity is strongly reflected in President Obama’s economic stimulus package, which includes $56 billion in grants and tax breaks for U.S. clean energy projects over the next 10 years and a budget of $15 billion a year to fund renewable energy programs,” Mainstream co-founder and Chief Executive Officer Eddie O’Connor said in a statement. “The administration’s goal of generating 25% of the nation’s electricity from renewable energy sources by 2025 will help revitalize the U.S. economy and protect consumers.”

The farms have the potential to generate 787 megawatts of electricity by 2013, The Tribune said. The most advanced is the 120-megawatt Shady Oaks project in Lee County. When finished next year, it should be able to generate enough electricity to power about 30,000 homes, Mainstream said.

The other two wind-power farms are the 467-megawatt Green River project, also in Lee County, and a 200-megawatt project set for Boone County. Construction on the Green River project will begin next year, while the Boone County project is still in is development stages.

This is Mainstream’s second North American deal in three months; it earlier announced a Canadian wind farm project. It has also announced plans to build a wind farm in Chile.

Founded a year ago, Mainstream was created to build and operate wind-energy, solar-thermal and ocean-current power plants in partnerships with government agencies, electric utilities, developers and investors in North and South America, Europe, and South Africa. Barclays Capital (NYSE ADR: BCS) has a 14.6% stake in Mainstream.

Going Global

As Mainstream’s proposed forays into South America, Europe and Africa demonstrate, the push to harness the wind isn’t limited to the United States.
As of the end of last year, worldwide wind-powered generators were capable of generating 121.2 gigawatts (GW) of electricity. Wind power produces about 1.5% of the world’s electricity and its use is surging: The amount of electricity generated by wind power doubled between 2005 and 2008 alone.

Several countries have already embraced wind power in a major way: As of last year, it accounted for 19% of electricity production in Denmark, 11% in both Spain and Portugal and an estimated 7% in both Germany and Ireland. As of this May, 80 nations around the world were using wind power on a commercial basis.

Not surprisingly, China is making a big push to commercialize wind power and by last year was already the world’s sixth-largest user of wind-generated electricity. The country’s largest manufacturer of wind turbines – Xinjiang Goldwind Science & Technology Co. Ltd. – went public last year, raising nearly $250 million. It has about 33% of China’s wind-power-equipment market, according to KGI Securities Co. Ltd., a Taiwan investment-banking and brokerage firm.

“As China’s wind power sector takes off, we think Goldwind is well positioned to become a major beneficiary, thanks to its strong brand and first mover advantage,” KGI wrote in a research report.

Not a Complete Answer

Although wind power has substantial promise, it’s not an infallible energy solution, and has some serious limitations – as the U.S. wind-power study shows. For one thing, although an estimated 72 terawatts of wind power on Earth can be potentially commercially viable – an amount that’s six times the estimated 15 terawatts of total power usage on earth – not all the wind energy flowing past any given point can be recovered.

Accoridng to a science axiom known as Betz’s Law – named for the German physicist, Albert Betz, who discovered the rule in 1919 – no turbine can capture more than 59.3% of the potential energy in wind.

And there are other challenges, some of which are caused by the natural lay of the land in a given location. In the United States, for instance, where there are now concerns about diminishing wind strength, some coastal areas may retain wind strength because of the greater temperature differences between the land and the ocean.

Given the growing importance of wind power, more study will be required.

Concludes the study: “Given the importance of the wind-energy industry to meeting federal and state mandates for increased use of renewable energy supplies and the impact of changing wind regimes on a variety of other industries and physical processes, further research on wind climate variability and evolution is required.”

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June 22, 2009 Posted by | guest post, investing, Money Morning, T. Boone Pickens, wind power | 25 Comments

Mulva on Replacing Oil

My former CEO Jim Mulva spoke today at the National Summit in Detroit, and had some newsworthy comments. Bloomberg reported on his talk:

Conoco Chief Says Replacing Oil May Take a Century

June 16 (Bloomberg) — ConocoPhillips, the third-largest U.S. oil company, said it may take a century for the nation to replace fossil fuels with alternative energy sources.

I don’t know of too many people who think we have a century’s worth of oil left. Natural gas and coal? I also seriously doubt we have that much of either of those, especially allowing for economic growth. What I think this means – in any case – is that we have some potentially difficult times in front of us. However, Mulva went on to give his prescription for preempting some of those difficulties:

The country will need to develop its own oil and natural- gas deposits and continue importing petroleum while developing alternative supplies in the decades ahead, ConocoPhillips Chief Executive Officer Jim Mulva said today at the National Summit economic conference in Detroit. At the same time, he said, the nation will need to address climate change.

On the issue of climate change, Mulva thinks legislation is likely, but doesn’t want to see U.S. producers punished while foreign producers are left unscathed:

The U.S. needs policy that encourages investments in all types of energy and avoids hurting the economy by making the nation less competitive than countries with cheaper energy, Mulva said. Proposed climate legislation in Congress threatens to drive U.S. refiners out of business by imposing higher carbon costs on domestic fuel than on imports, he said.

That last bit is very important. If we do get climate legislation, we need to make sure that we aren’t providing a competitive advantage to countries who don’t care about emissions – while putting our domestic producers out of business. This was a major theme in Jeff Rubin’s book Why Your World Is About to Get a Whole Lot Smaller. Rubin argued that if we put a price on carbon emissions in the U.S. we can apply a carbon tariff on imports to level the playing field. Rubin argues that this will encourage efficiency from foreign producers of all things that are energy intensive, and it will ensure that the legislation doesn’t put U.S. firms out of business. (I reviewed Rubin’s book here).

Mulva went on to suggest that oil prices had gotten ahead of themselves. That story from Reuters:

Conoco CEO: oil prices ahead of fundamentals

“We have felt that an oil price between $70 and $80 (a barrel) is a good balance to promote investment, continue to replace reserves and keep production up, as well as a balance with respect to the cost to the consumer,” he told Reuters.

But Mulva also acknowledged the price run-up — expectations of a recovery drove crude prices to $73 a barrel last week, more than double their winter lows — was “stronger than we would have expected” and was “a little bit ahead of the actual supply and demand situation and inventory levels.”

I think “expectations” is the key word here. We do seem to have a little bit of a glut of oil (and natural gas) right now. In that respect, prices seem to be too high. But take this story from Fortune, where a majority of analysts believe that prices long-term are headed much higher:

Why oil is on the rise again

NEW YORK (Fortune) — Ask a group of oil analysts about the recent surge in crude costs and here’s the consensus answer you’ll get: Prices have run up too far, too fast and they aren’t supported by the fundamentals.

Ask them about where prices will be two years from now, however, and the majority will offer this prediction: A lot higher.

So if I am an investor – and I think oil prices will be “a lot higher” in two years – I am going to invest in oil and/or oil company stocks regardless of what the supply/demand situation looks like today. And when enough people do that, you have pressure on oil prices today, which is why I think we are back to $70 oil.

Full Disclosure:
I own shares of ConocoPhillips and Petrobras.

June 16, 2009 Posted by | carbon tax, climate change, ConocoPhillips, COP, global warming, investing, Jeff Rubin, Jim Mulva | 11 Comments

Time to Switch to Natural Gas?

A couple of articles, both at Seeking Alpha, got me to thinking about whether it might be time to trade in my Petrobras (PBR) stock for something in the natural gas sector. From the first of the two articles:

Natural Gas Should Get a Boost from China’s New Demand

China has been developing natural gas vehicles for many years, recently the number of vehicles running on nat gas has risen dramatically. For example, the government of Xi’an in western China, a medium size with 8M population, has decided to mandate all city buses and taxis using natural gas. The government website reported 5000 buses and 20000 taxis was using nat gas in 2008, and is expected to grow in coming years.

That wasn’t the most interesting bit for me. This was:

With natural gas price at historic low $3.74, investors should take advantage and invest in ETF such as (UNG), or producers such as Chesapeake Energy Group (CHK), Devon Energy Corp (DVN) and XTO Energy (XTO).

I haven’t been following natural gas prices closely, and would have expected them to be on the rise like oil prices. Speaking of which, the other article was about Petrobras, and it argued that the price is poised to rise further if oil prices continue to climb:

Petrobras Ready to Benefit from Next Oil Price Spike

During the credit crunch, there were concerns Petrobras would have trouble obtaining financing to exploit Tupi. The stock dropped from over $70 to a low of under $15 in November of 2008. However, the stock has recovered nicely as credit crunch worries have subsided and financing deals have been reached with China and others. Recently PBR traded above $43/share. The PE=11.7 and the dividend yield is a scant 0.70%. But this isn’t a dividend story. Unlike US majors XOM, CVX, and COP, Petrobras is a story about strongly increasing production in an age of peak oil. That will certainly lead to increasing profits and a stock that will outperform its peers.

To me, this explains why PBR is trading at $43 a share. But I bought PBR at $17.50 in November – having just barely missed the bottom – and it has risen sharply with oil prices. But I think the upside at this point is limited unless oil prices continue to climb. In fact, I would have sold it already if I wasn’t trying to wait long enough to benefit from the long term capital gains tax rate.

And while I think there is some upside left to PBR, natural gas stocks should go sharply higher if natural gas prices start to respond to higher oil prices. (Historically, this correlation has not been very good, but the two have correlated well in the past few years). We are also entering the low demand time of year for natural gas, and prices also reflect that. But if your outlook is a bit longer than past this summer, natural gas is looking like a real bargain to me. In fact, natural gas stocks remind me of PBR back in November…

June 10, 2009 Posted by | CNG, investing, natural gas, PBR, Petrobras | 22 Comments

Is the Dark Cloud Over Solar Energy Beginning to Break?

Sitting in DFW Airport, about to make my way back to Europe. I will be offline for a day or so. This seems like a good time for the latest from Money Morning, which as I explained last week will be featured here once a week or so. As always, normal caveats apply: I am not an investment advisor. I don’t endorse any specific stocks mentioned in the following story nor the ad at the end of the story. Personally, I have looked into investing in solar a couple of times, but the stocks always seem extremely pricey. But then that’s also why I never invested in Google. 🙂

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Is the Dark Cloud Over Solar Energy Beginning to Break?

By Jason Simpkins
Managing Editor
Money Morning

By sucking the air out of energy prices and sapping private investment, the financial crisis submarined solar energy last fall. But a silver lining has emerged around the dark cloud that has blanketed the sector for so long.

Oil prices have recovered, climbing over $60 a barrel, the recent stock market rally has lured many investors back off the sidelines, and President Barack Obama’s clean energy agenda has breathed some life back into the browbeaten sector.

Now, solar energy stocks – some that lost more than two-thirds of their value last year – have come roaring back.

After topping $300 a share last spring, shares of First Solar Inc. (Nasdaq: FSLR) plummeted to just $85.28 a share in November. But since then the company has bounced back, soaring 125% to Friday’s close of $191.72 a share. Shares of Trina Solar Ltd. (NYSE: TSL) hit $52 last summer before bottoming out at $5.61 in November. That stock is up more than 260% since Nov. 21.

Global economic growth is far from guaranteed at this early stage, but there’s good reason to believe that when a recovery does get underway, solar stocks will be shooting for the moon.

California’s Gold Standard

While many other solar energy companies have collapsed under the weight of the economic downturn, a small upstart out of California has managed to greatly expand its business.

That company is BrightSource Energy, which last week agreed to what the company’s Chief Executive Officer, John Woolard, called the “the largest solar deal in the world.”

Pacific Gas and Electric Co. agreed to purchase 1,310 megawatts (MW) of solar thermal power from BrightSource Energy for a sum that analysts’ believe tops $3 billion.

BrightSource had already agreed to transmit 900 MW of solar power to PG&E in a deal that analysts valued at $2 billion to $3 billion. The terms of the new deal, which expands upon the original 900MW agreement, will build on top of that figure.

BrightSource plans to build seven solar power plants in the Mojave desert of California that will use mirrors to direct sunlight onto a group of centralized water towers to create steam that will, in turn, power turbines. PG&E estimates that the amount of energy produced by the plants will be sufficient enough to power 530,000 homes.

Earlier this year, BrightSource signed a similar 1,300 MW agreement with Southern California Edison Co. – an indication that, despite economic hardship, the solar energy business is still hot.

But a lot of BrightSource’s recent activity has to do with California’s newly adopted state energy policy. In 2006, California passed a law that required electrical utilities to get 20% of their power from renewable sources by 2010.

However, on November 17, 2008, California Gov. Arnold Schwarzenegger took the state’s green energy mandate further by signing Executive Order S-14-08, which requires that utilities generate 33% of their power through renewable sources by 2020.

Indeed, the state of California has led the country in adopting renewable sources of energy, particularly solar.

Renewable energy accounts for 13.5% of the state’s energy consumption, and for the past three years, the California Energy Commission has been managing $400 million targeted for solar on new residential building construction. That includes an ambitious “Million Solar Roof” initiative that will create 3,000 megawatts of installed photovoltaic capacity by 2018.

But California is more than an energy pioneer. It’s an early indication of where U.S. energy policy is headed.

If President Barack Obama’s administration has its way, mandates similar to those issued in California will be employed across the country over the next 10 years. In fact, they already are.

Solar Shift

Obama announced Tuesday that he is making California’s standard for vehicle fuel efficiency and greenhouse gas emissions the new national standard.

Under Obama’s new proposals, vehicles would be 30% cleaner and more fuel efficient by 2016. And that’s just the beginning.

The President’s budget incorporated $646 billion in revenue from capping global-warming pollution, while allocating $150 billion to renewable energy investment over the next 10 years, making his green-funding initiative the largest such effort in U.S. history.

Among other things, Obama’s recent stimulus package provides a tax credit of up to 30% for home solar installations.

The Obama administration also advocates a policy that would require 25% of U.S. electricity demand be met by renewable energy by 2025. The President has the support of the Democrat-led Congress. U.S. Sen. Jeff Bingaman, (D – N.M.), Chair of the Senate Energy and Natural Resources Committee, is working on legislation that aims to make 20% of U.S. energy demand renewable by 2021.

While a renewable energy policy was largely neglected by the administration of George W. Bush, Obama’s effort can hardly be described as partisan. It is more representative of a shift in political ideology that arose when gas prices soared above $4 per gallon last summer.

A recent Gallup Poll showed that the majority of Americans support higher fuel efficiency standards such as those Obama announced Tuesday. In March, 80% of Americans said they favored higher fuel efficiency standards for automobiles.

Currently, just 28 states have renewable energy goals, but with the Obama administration’s effort and a shift in public opinion, it won’t be long before all 50 are enacting their alternative energy mandates.

According to a study by Allianz Global Investors, 78% of investors think green technology could be the “next great American industry,” and 97% of investors believe the development of alternative fuel sources will remain important even if oil prices remain relatively low.

And statistics bear that out. Venture capitalists invested $4.1 billion in alternative energy projects in 2008 – a 54% increase from the year prior, according to a report by PricewaterhousCoopers. What’s more, 45% of that money went to solar projects, compared to 23% in 2007.

“Alternative energy’s rise isn’t going to be smooth, but it’s going to be one of the great new growth industries,” Steven Berexa, managing director of research for RCM Informed, an Allianz subsidiary, told Kiplinger’s Personal Finance magazine.

A Global Industry

In addition to the United States, solar energy is gaining traction around the world.

After subsidizing 2,400 MW of solar projects last year, the Spanish government will subsidize an additional 500 MW this year. Japan aims to create more than 100,000 new jobs in its solar industry as part of an effort to jumpstart its flailing economy. Proposals for solar energy plants are also being considered in the Middle East and northern Africa.

Even BrightSource’s Woolard has attributed some of his company’s success to its overseas operations.

PG&E looked hard at what we’d done,” Woolard told The San Francisco Chronicle. “They looked at the results from our plant in Israel, and that built a lot of confidence that we were meeting milestones and delivering.”

Most recently, Australia announced plans to build a solar power station that will rival BrightSource’s Southern California operation. The network is expected to produce about 1,000 MW of energy, but won’t be operational until at least 2015.

We don’t want to be clean energy followers worldwide, we want to be clean energy leaders worldwide,” Prime Minister Kevin Rudd told the Financial Times.

The Australian government hopes renewable energy will account for 20% of the country’s power grid by 2020. Rudd said the government intends to spend about $1 billion (A$1.4 billion) of the $3.6 billion (A$4.7 billion) it has pledged to clean energy initiatives over the next decade.

Like in the United States, the Australian government hopes its alternative energy initiative will be a catalyst for private investment. John Connor, head of the Sydney-based Climate Institute, told the FT that Australia’s clean energy plan will drive an estimated $15.5 billion (A$20 billion) in private investment.

Another country with an ambitious solar agenda is China. A country with notoriously high greenhouse gas emissions, China installed about 50MW of solar capacity last year, more than double the 20 MW in 2007, Renewable Energy World reported.

Beijing plans to expand the installed capacity to 1,800 MW by 2020, as the demand for new solar modules in China could be as high as 232 MW each year from now until 2012.

China is also a good place to find promising solar companies. LDK Solar Co. Ltd. (NYSE ADR: LDK), Yingli Green Energy Holding Co. Ltd. (NYSE ADR:YGE), and JA Solar Holdings Co. Ltd. (NYSE ADR: JASO) have all been beaten down by the market, but could post a strong rebound when China’s solar initiative takes full flight.

Many analysts also like the aforementioned First Solar and Trina Solar Ltd., which stand a better shot of withstanding the recession because of their size and experience.

[Editor’s Note: This story is sponsored by Money Morning Investment Director Keith Fitz-Gerald, who is the editor of the new Geiger Index trading service. As the whipsaw trading patterns investors have endured this year have shown, the ongoing global financial crisis has changed the investment game forever. Uncertainty is now the norm and that new reality alone has created a whole set of new rules that will help determine who profits and who loses. Investors who ignore this “New Reality” will struggle, and will find their financial forays to be frustrating and unrewarding. But investors who embrace this change will not only survive – they will thrive. With the Geiger Index, Fitz-Gerald has already isolated these new rules and has unlocked the key to what he refers to as “Golden Age of Wealth Creation” The Geiger Index system allows Fitz-Gerald to predict the price movements of broad indexes, or of individual stocks, with a high degree of certainty. And it’s particularly well suited to the kind of market we’re all facing right now. Check out our latest report on these new rules, and on this new market environment.]

May 27, 2009 Posted by | guest post, investing, Money Morning, solar power | 17 Comments