Clean Tech: Complex Field, Simple Story

I'd like everyone to welcome back John Rubino from I've been a visitor to his site for a while now and it's become clear that he's passionate and knowledgeable about the subject of Clean Tech. So read his article below and ask him any questions you may have. Oh, be sure and check out his book, it's a must read!


Imagine, for a minute, that you’re Barack Obama. You’ve just spent two years running a non-stop, highly-successful presidential campaign. Now, when a normal person would be expect a well-deserved  month on some quiet beach, the world is clamoring for a plan to stop the global economy from imploding. You’re not even moved into the White House and the weight of the world is on your shoulders.

Luckily, in formulating your plan you have a couple of advantages. First, with the federal deficit already projected to top $1 trillion in 2009, no one could care less if your proposals are expensive. Conventional wisdom says they SHOULD be expensive because government spending is the only thing with a positive arc these days. So you’re free to indulge your inner FDR and talk about a “New, New Deal” without fear of right wing ridicule. Second, a new generation of clean technologies is just now coming to market with the potential to solve some festering problems. Solar, wind, smart grid and the rest can replace foreign oil with locally produced (or conserved, same thing) power. They create jobs in the U.S., while depriving rouge oil producers like Russia and Venezuela of the means to make trouble. And they potentially fix global warming.

So your grand economic plan turns out to be something you can sketch out on a napkin: Borrow trillions of dollars and invest it in clean tech. You get jobs, geopolitical advantage, a cleaner environment, and an aura of supreme coolness, all with the stroke of a pen. And that’s exactly what soon-to-be president Obama announced last week, to the apparent joy of the markets: Friday and Monday saw the biggest two-day pop since 1987.
For investors, this sudden clarity in the financial landscape comes at an extraordinarily good time, since clean tech stocks have been absolutely whacked in the general bear market. They’ve popped a bit lately but for the most part are still down more than half from their oil-crisis euphoria highs. They are, in short, an investment thesis with both short and long term appeal. What they’re not is simple. This sector contains many different industries with radically different prospects. Some work today, some will work in a couple of years, and some will never work. So even with a nice stiff government spending tailwind, some clean technologies are more timely than others. Here are three to get you started:

Over the past decade solar cell efficiency (i.e. their ability to turn a given amount of light into electricity) has risen steadily while production costs have fallen. Now the best solar panels, when bolted onto an Arizona or California roof, generate power that’s competitive with the cost of electricity delivered from distant coal fired plants. This "grid parity" will make solar an attractive addition to most sunny-clime homes and businesses over the coming decade, giving the industry all-but-guaranteed double-digit growth. The question for investors is how to play the bleeding edge boom/bust cycle: During the recent oil crisis, solar power demand soared, causing a shortage of polysilicon, the industry’s main raw material. So everyone with any connection to the business built a polysilicon plant, and now there’s a glut. This is sending prices down, which is good for the solar cell makers. At the same time, the credit crunch is slowing demand growth for solar, which will cause a lot of marginal players to fail. AND several new versions of “thin film” solar are hitting the market, with potentially decisive advantages over traditional silicon. It’s messy to say the least. So…buy the leaders, which have strong balances sheets and in-demand technology. That would be First Solar (FSLR), Energy Conversion Devices (ENER), and SunPower (SPWRA), all of which trade on U.S. exchanges, and Q-Cells, which trades on the Frankfurt exchange as QCEG.

Wind turbines have gotten so big and so efficient that they’re competitive with utility scale coal and gas fired plants. Wind farms are going up all over the world, onshore and off, and by-and-large the technology is living up to its billing. The credit crunch is causing some projects to be cancelled, but since the makers of turbines and related gear were facing three-year backlogs at the height of last year’s mania, a slowdown will have little effect, other than to shorten the backlog. The major wind companies will, as a result, continue to generate 25% or so annual growth. Most of the major turbine makers are headquartered in Europe and trade on foreign exchanges. Among them: Vestas Wind Systems (VWE.CO -- Copenhagen), Suzlon Energy (SUZL -- Bombay) and Hansen Transmissions (HSNT -- London).

Smart Grid
One of the Obama plan’s goals is to upgrade today’s aging electrical grid by installing high-capacity lines to ship power from wind farms to cities and adding gear to homes and businesses that let utilities and their customers manage and conserve power. This is known as the smart grid, and the opportunities are absolutely huge, since we’re starting with a really dumb grid. Some leaders in this field: Itron (ITRI), Echelon (ELON), American Superconductor (AMSC).

For Future Reference
Other clean technologies like biofuels, electric cars, and fuel cells are a bit further from the market right now. So don’t allocate much capital to them in the short run, but do follow their progress. Sometime in the next few years amazing news will start to filter out of these niches, both of game-changing technical results and promising stocks.

John Rubino