When oil prices rise, public interest in alternative energy often does too. Tapping into renewable sources of power like wind, solar power and hydrogen, which are inexhaustible but far from inexpensive, seems to make more commercial sense when crude oil costs almost US$48 a barrel.
But the logic is evidently escaping Wall Street. Many companies involved in alternative energy have missed out on the rally that has lifted shares of oil and gas companies.
PHOTO: THE NEW YORK TIMES
Some investors, particularly advocates of what is known as socially responsible investing, expect the cost gap to narrow. They say that producing energy from renewable sources is becoming cheaper, while fossil fuels will become more expensive as supplies dwindle, long after the current pressures that have been pushing prices higher have receded.
Those advocates also say that concerns about pollution and climate change make alternative energy more politically palatable than energy from conventional sources. In many countries, they say, that should help producers benefit from government subsidies and ambitious production targets.
But skeptics closer to the investment mainstream argue that renewable energy will not become commercially viable for many years. In the meantime, they warn, these industries will have to depend on continual new financing and, as a result, are best avoided.
"The overriding issue is that the economics have to work, and for many companies that hasn't been the case," said Wenhua Zhang, an analyst at T. Rowe Price in Baltimore. "These are capital-intensive industries. There are very few of them where you don't have to spend a lot of money."
Alternative energy sources typically require huge infrastructure investment to deliver power to electricity grids, or to cars in the case of hydrogen as a substitute for gasoline.
"Energy is not like other technologies, where you can get started for US$15 million," Zhang said, referring to the dot-coms that proliferated in the late 1990s. "You need half a billion."
Portfolio managers and small investors may be reluctant to dip into their pockets when any payoff may be years away, but some big-name industrial companies that can afford to be patient have been making significant investments in alternative energy. Ford Motor and DaimlerChrysler recently agreed to acquire part of the vehicular fuel-cell business of Ballard Power Systems.
General Electric is one of the world's largest producers of wind turbines and is heavily involved in solar power, too, as are the Japanese companies Matsushita Electric Industrial and Kyocera and the oil producers Royal Dutch/Shell and BP.
"GE is likely to become the largest alternative energy company in the world in a short time," said James Cameron, a founding partner of Climate Change Capital, a venture capital firm in London that specializes in alternative energy. The investments by GE and other multinational companies "are signs that the industry is about to grow up," Cameron said.
He added that pressure on pension plans to invest in socially acceptable ways would bring more money to the sector.
For now, though, many investors remain reluctant to commit capital to companies that will not show profits for a long time, if ever. Yet Charlie Thomas, a manager of environmental funds at Jupiter Asset Management in London, pointed out that some makers of wind turbines were already in the black, including two of his favorites, Vestas Wind Systems of Denmark and Gamesa of Spain.
"Wind is becoming more and more interesting," Thomas said. With oil and gas prices so high, he added, "onshore wind is just about the most efficient source of energy and is providing increasing competition against fossil-fuel energy sources."
But stocks of wind companies have not performed particularly well during the spike in crude prices over the last few months. One reason, Thomas said, is that investors jumped the gun last year, driving prices so high that "alternative energy became a bubble issue." They have spent the last several months digesting last year's gains.
Thomas advised sticking with wind companies, like Vestas and Gamesa, that have large market shares. Vestas has close to one-third of the global wind turbine business. The stock trades at about 16 times his estimate of 2005 earnings.
Gamesa is even cheaper, he said, about 12 times estimated 2005 earnings, after rising 67 percent in the last year, making it one of the best performers among energy companies, alternative and ordinary alike.
"Gamesa has done very well in the last year," Thomas said. "They make good turbines at the right prices." The company's main markets are Spain and Latin America, and sales to China are increasing, he noted.
Timothy O'Brien, manager of the Evergreen Utility and Telecommunications fund, declines to invest directly in wind technology, saying that "an awful lot of money has been poured into this, and the returns have been de minimus." But he does invest in a utility that invests heavily in wind: FPL, the holding company for Florida Power and Light and other companies. It owns wind turbines across the country and around the world and sells the power they generate to local utilities.
"One reason we own it is the wind play," O'Brien said.
O'Brien also owns three utilities -- Entergy, Exelon and Dominion Resources -- that produce much of their power from nuclear generators bought cheaply in the 1990s. They look to be especially good bargains now, he said, because prices for natural gas, used to produce electricity, have risen so high.
"They bought nuclear plants at what looked like deeply discounted prices at the time," he said of the utilities. "Now they look like extremely advantageous prices. The higher natural-gas prices go, the more money these guys make."
Producers of solar power have further to travel on the path to commercial viability than producers of other alternative energy sources, Thomas said, but he has found a few small companies that he said are successfully occupying niches in the area. They include Carmanah Technologies, a Canadian company that incorporates solar panels into marine lights and bus shelters; Solar Integrated Technologies, a British company that makes solar roofing materials that can be unrolled like mats; and Romag, a British glass maker that BP has contracted to place solar panels into glass panes.
Thomas is less optimistic about companies that make fuel cells, saying that he has cut his investment in the sector in the last year. "Most haven't got earnings at this stage," he said. "Companies that haven't got sustainable earnings, and are just bets on future growth, can suffer."
That is why Zhang is not willing to make such a bet. "Long term, there will be breakthroughs that make these technologies commercially viable," he said, "but so far it's more science fair than reality."
Tropical Storm Gaemi strengthened into a typhoon at 2pm yesterday, and could make landfall in Yilan County tomorrow, the Central Weather Administration (CWA) said yesterday. The agency was scheduled to issue a sea warning at 11:30pm yesterday, and could issue a land warning later today. Gaemi was moving north-northwest at 4kph, carrying maximum sustained winds near its center of up to 118.8kph and gusts of 154.8kph. The circumference is forecast to reach eastern Taiwan tomorrow morning, with the center making landfall in Yilan County later that night before departing from the north coast, CWA weather forecaster Kuan Shin-ping (官欣平) said yesterday. Uncertainty remains and
SEA WARNING LIKELY: The storm, named Gaemi, could become a moderate typhoon on Wednesday or Thursday, with the Taipei City Government preparing for flooding A tropical depression east of the Philippines developed into a tropical storm named Gaemi at 2pm yesterday, and was moving toward eastern Taiwan, the Central Weather Administration (CWA) said. Gaemi could begin to affect Taiwan proper on Tuesday, lasting until Friday, and could develop into a moderate typhoon on Wednesday or Thursday, it said. A sea warning for Gaemi could be issued as early as Tuesday morning, it added. Gaemi, the third tropical storm in the Pacific Ocean this typhoon season, is projected to begin moving northwest today, and be closest to Taiwan on Wednesday or Thursday, the agency said. Today, there would likely
DISRUPTIONS: The high-speed rail is to operate as normal, while several airlines either canceled flights or announced early departures or late arrivals Schools and offices in 15 cities and counties are to be closed today due to Typhoon Gaemi, local governments announced last night. The 15 are: Taipei, New Taipei City, Taoyuan, Tainan, Keelung, Hsinchu and Kaohsiung, as well as Yilan, Hualien, Hsinchu, Miaoli, Chiayi, Pingtung, Penghu and Lienchiang counties. People should brace for torrential rainfall brought by the storm, with its center forecast to make landfall on the east coast between tonight and tomorrow morning, the Central Weather Administration (CWA) said. The agency issued a sea warning for the typhoon at 11:30pm on Monday, followed by a land warning at 11:30am yesterday. As of
CASUALTY: A 70-year-old woman was killed by a falling tree in Kaohsiung as the premier warned all government agencies to remain on high alert for the next 24 hours Schools and offices nationwide are to be closed for a second day today as Typhoon Gaemi crosses over the nation, bringing torrential rain and whipping winds. Gaemi was forecast to make landfall late last night. From Tuesday night, its outer band brought substantial rainfall and strong winds to the nation. As of 6:15pm last night, the typhoon’s center was 20km southeast of Hualien County, Central Weather Administration (CWA) data showed. It was moving at 19kph and had a radius of 250km. As of 3pm yesterday, one woman had died, while 58 people were injured, the Central Emergency Operation Center said. The 70-year-old