The world’s eighth largest economy is making big energy news this week.
In a brash move, California Governor Arnold Schwarzenegger has vetoed energy legislation passed by the state’s democratic-led legislature in favor of his own executive order.
However, the main provision of the bill still stands: California will have to get 33% of its electricity from renewable energy sources by 2020.
While seemingly transparent, this piece of news carries several hidden profit implications for energy investors.
Requiring Clean Energy Growth
I’ve said it before and I’ll say it again: Cleantech is in the catbird seat.
There is simply no other industry for which governments are orchestrating mandated growth targets. That’s why investing in this sector can be so lucrative.
But nowhere is support for the industry as strong as it is in California.
The energy bill passed by the House in June, for example, would require 20% of our energy come from renewables by 2020.
Now don’t get me wrong. . . that mandate would still mean growth. It’s just not the same caliber of support like that coming from the Golden State.
And that’s a good place for it to be happening.
Not only does California boast the most powerful state economy in the country, the state also has the largest population and is already the biggest alternative energy market.
California isn’t the only state tightening up on energy mandates; about half the states have similar measures of some sort. But if the Senate delays passing a companion energy bill any longer, states could move forward independently by making their growth targets more stringent.
Playing Cleantech Growth for Profit
When you have laws being passed that guarantee growth for a specific sector. . . you can bet related stock gains are taking place.
All it takes is a bit of diligence.
As I told Green Chip readers this week, not only is California taking the lead on renewable energy — they’re also leading the pack with energy efficiency.
Los Angeles recently reduced their year-to-year energy consumption by 318 gigawatt-hours without any impeding changes in day-to-day operations. This was accomplished mainly through new lighting initiatives, some of which cut the energy bills of small businesses by more than 25%.
One of the companies providing those efficient lights was Cree Inc. (NASDAQ: CREE). And just look what’s happened to this stock since lighting efficiency measures have taken root:
That’s a 170% rise in less than a year. And it’s just one in a large group of energy efficiency-related stocks that have done the same thing over the past year — spurred, in part, by the growing cleantech requirements in states like California.
It’s a simple equation, really: If energy efficient lighting is being required by law, it’s probably a good idea to buy leading companies in the energy efficient lighting space.
With respect to clean energy production, California is also offering profit opportunities.
The main reason the Governator vetoed the bill in favor of an executive order was so California could get more clean energy out of state. Apparently, the state is in danger of not meeting its current target of 20% renewables by 2010.
Purchasing clean energy out of state will make the targets much easier to reach. According to the executive order, "resources and facilities located throughout the Western Interconnection" are welcome.
A geothermal plant about to be brought online by Nevada Geothermal (NGLPF.OB) falls squarely in that region. Their 49.5 MW Faulkner 1 geothermal plant should start producing power in the next month. Construction is already complete.
I recommended this stock to readers of the Alternative Energy Trader on June 2, when it was trading for $0.62 per share. Since then — as the plant was nearing completion— the stock has gained 50% and is now trading at $0.92.
But I expect it to go much higher as the plant is commissioned and electricity begins being sold — undoubtedly to California. The stock should be higher than $1.00 in no time.
This is the beauty of the current cleantech market. It’s growing so fast — and in so many places — that we can pick and choose our profit catalysts.
Call it like you see it,
P.S. My colleague, Jeff Siegel, has unearthed another gem that will soar because of this California legislation. It’s the only pure-play wind developer in the country. And they have significant operations in the heart of the Californian electricity market. Click here to learn why this company will explode as new energy laws come on the state’s books.