Cleantech's Week in the Sun

Brian Hicks

Written By Brian Hicks

Posted February 25, 2009

There has never been a better time to be a cleantech investor.

Witnessing the scale of the effort being mobilized in Washington right now is nothing short of astonishing to a long-time observer like me.

I have never seen a time that was so favorable for green technology. As I write, the largest annual conference of cleantech investors and businesses is going on in San Francisco, at the Cleantech Forum XXI. With 800 of the world’s leaders in the sector representing over $3 trillion in capital meeting to work on green jobs, renewable energy, climate change and resource scarcity, visions are being laid out and deals are being made.

On the other coast, the PowerShift ’09 conference will get under way on Friday, where 10,000 young people will meet in Washington D.C. to push for bold action on an energy plan that addresses climate change. An array of elected officials and activists will appear at the conference and offer workshops on lobbying and organizing.

On Monday of this week, another major summit meeting was held in D.C., as the Center for American Progress Action Fund and Senate Majority Leader Harry Reid hosted a forum entitled "National Clean Energy Project: Building the New Economy." Featuring comments by President Clinton, Vice President Al Gore, Energy Secretary Steven Chu, Interior Secretary Ken Salazar, House Speaker Nancy Pelosi, Senator Jeff Bingaman, Representative Ed Markey, and energy baron T. Boone Pickens, it made clear that our leaders are deeply committed to a clean energy future, and that they aren’t letting the opposition slow them down.

Pickens and Gore offered some political anecdotes about how some people always resist change, but then appreciate it when it comes. Similarly, at the TED (Technology, Entertainment and Design) conference earlier this month green auto pioneer Shai Agassi (of Better Place) derided arguments against getting transportation off oil as comparable to arguments against "getting off slavery" in 1800s Britain.

Also on Monday of this week, the Supreme Court dismissed an appeal to a lower court ruling that the Environmental Protection Agency acted improperly under the Bush administration in attempting to except coal-fired power plants from the requirements of the Clean Air Act. In essence, the dismissal paves the way for the EPA to regulate the emissions of mercury, lead, arsenic and other pollutants from coal plants.

For his part, the President made it clear in his address to Congress on Tuesday night that carbon will soon come with a price, calling for "market-based carbon" caps and renewable energy.

All of this in just one week. This isn’t just a cleantech wave; it’s a tsunami.


Cleantech Investors Eager but Cautious

The investing community is eager to capitalize on the new wave of political support and stimulus dollars coming to cleantech, but they’re also cautious about the risks of rounding up capital while much of the credit market is still only communicating with the outside world via smoke signals.

At the Cleantech Forum XXI, Chuck McDermott of RockPort Capital quipped "Washington has made the pitch, now you have to figure out the catch." Dispersing hundreds of billions of dollars quickly will be a challenge for the federal government, and rounding up matching capital from the private sector may remain a challenge for investors and businesses.

Energy Secretary Steven Chu is working hard on his end of the deal. One week ago, he announced a reorganization to streamline the government’s process for dispersing and guaranteeing loans for energy and climate change projects. The reforms will simplify the application process, speed up review, defer application fees and amortize up-front costs, and evangelize within the cleantech industry to try to attract and shepherd projects through the process.

Industry is working hard too. Solar darling First Solar (NASDAQ: FSLR) reported yesterday that it had finally broken the $1-a-watt barrier for manufacturing solar panels. At that price, solar can be competitive with coal-fired grid power, and has been long considered a critical milestone in making widespread solar economical. The stock rose 10% on the news.

Damn the Torpedoes!

Despite the enormous enthusiasm for the cleantech sector, the broader market continues to be extremely volatile, and without a real solution for the fundamental problems of insolvent banks and illiquid credit markets, it will likely continue to sell off. With a 12-year-old support level of the Dow now violated, some technical analysts are saying "Look out below!"

The volatility in the energy sector has been particularly crazy, especially with renewable stocks that have been bashed down to pink sheet prices in the widespread selling of the last eight months. Oil has been getting hammered too (although as I have written repeatedly, selling at this point only adds more tension to the price slingshot).

Even the smart grid stocks I mentioned last week were hit hard in the selloff of the four sessions from last Wednesday to Monday, falling 10-15% as a group. But on Thursday, as the market rallied, they gained 6-14% back.

On the whole, most equities are still trading along with the broader market, reacting to the latest news on the bank bailouts, monetary policy and the stimulus package. What the market wants is confidence, and the trade has been mostly about sentiment straight across the board, not fundamentals. For long investors, it has been a nauseating ride.

Does that mean that investing in cleantech, which is still considered a speculative sector, is dangerous?

If you’re a long-term investor, the answer is no.

I say, "Damn the torpedoes, full speed ahead!" Once we swallow the bitter pill of nationalizing the banks and taking the hit to the national balance sheet that apparently everybody but Tim Geithner understands is necessary to restore confidence in the markets, the cleantech and renewable energy sectors are going to absolutely explode.

[Being a stickler for accuracy, I checked and discovered that the actual quote was probably "Damn the torpedoes! Four bells! Captain Crayton, go ahead! Joucett, full speed!" uttered by the first admiral of the US Navy, David Glasgow Farragut at the Battle of Mobile Bay (Alabama) on August 5, 1864. And the "torpedoes" were tethered mines. But I digress.]

For example, one of my favorite geothermal plays, U.S. Geothermal Inc. (AMEX:HTM) was up 40% on the day yesterday to $0.84, and its next resistance level, set just two weeks ago, is $1.07. Two weeks ago, the company signed an interconnection agreement with the Idaho Power Company for its Neal Hot Springs project, where drilling began only last May. Test results indicate that the first 286º F source well could produce five to six megawatts of power. Permits to drill three more wells have been filed, and the project is moving ahead.

Geothermal energy is still just barely on the radar of most investors, even though it’s one of the cheapest, at about five cents per kWh (about half the average price of grid power). It’s also one of the cleanest, and most abundant. According to the US Department of Energy, there is enough recoverable geothermal energy under American soil to meet our annual energy consumption 140,000 times over!

For the last several years, the geothermal industry has been in a land-grab phase, securing leases for the best geothermal sources. Now they’re beginning to develop the projects, and soon the cash will flow. Let these companies prove their profitability for a year or two, and the venture capital will be waiting in line for a piece of the action.

The technology we needed for a renewable energy revolution is now here. We now have solar, wind, and geothermal technology that can go head-to-head with fossil fuels on price. All we need now is willing capital, a smarter and beefier grid, and some vehicle-to-grid technology or other storage systems—all of which we seem certain to have within just a few years. When that happens, the sector is going to take off like a rocket, and never look back.

Until next time,

chris nelder


P.S. Most people know the popular names in solar stocks, but finding the good plays in wind, geothermal, marine energy, smart grids, electric cars and the rest of the cleantech sector is much harder. That’s why we created the Alternative Energy Speculator—to give you a way to capitalize on the burgeoning opportunity in cleantech. Your profits are just a click away.

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