Global Warming Bubble Stocks

[treefrog]

Whilst there is a lot of input to the general chat global warming thread I thought we should have a thread for traders/investers keeping an eye on this field

I note a number of mentions of stocks in this area but attempting to sort the wheat (stock comment) from the chaff (what temp my a/c is set on) is difficult in such a forum

here's a few comments to get things rolling:

" Wall Street Turns Bearish on Global Warming Stocks as Hysterical Bubble Peaks" Noel Sheppard February 26, 2007 ............2008 is too late?????

"The smartest money in global warming stocks may be scurrying to the exit just when the enthusiasm for alternative-energy companies is at an all-time high."

"Hedge funds, whose managers are among the highest-paid professionals on Wall Street, have turned away from the group, including solar-and wind-power producers, ethanol and biodiesel makers and fuel-cell manufacturers, as their shares trade at a record relative to earnings. "

"Alternative energy is all the rage but that does not mean as an investor you'll be able to make money.'' ........ Stuart Schweitzer, New York-based global strategist at JPMorgan Asset Management, which oversees about $1 trillion.

 

[So_Cynical]

Bubble...what Bubble

Your quotes are all US based and the US is the great reluctant power
when i comes to issues global and warming.

In the US, Oil is king and thats a mind set that wont go away in a hurry

i see almost no evidence of an Aussie GHG/Green/alt energy Bubble
1 or 2 over priced stocks is all.

 

[YChromozome]

Bubble...what Bubble
1 or 2 over priced stocks is all.

I agree. There are companies like CNM which are massively overvalued and a bubble waiting to burst, but generally the others are fine and more importantly have some prospect in making a return (one day).

 

[treefrog]

Bubble...what Bubble

Your quotes are all US based and the US is the great reluctant power
when i comes to issues global and warming.

In the US, Oil is king and thats a mind set that wont go away in a hurry

i see almost no evidence of an Aussie GHG/Green/alt energy Bubble
1 or 2 over priced stocks is all.

not disagreeing with you at all.

so with media hype going exponetial (at least in oz) does that mean we watch for the start of a bubble or assume a bubble is not likely?

 

[reece55]

I think the thing to bare in mind here is to distinguish new emerging technologies (say Geothermal Energy) in the sector as opposed existing technology (say, some of the solar cell entities). Some of the US based entities that have solar based technology that have been around for a while with a history of profits or revenue are trading excessive multiples and other than playing momentum, you want to stay away (just block out the key words "China" and "Sun"). However, there are entities in the sector that have just begun their journey and whilst have had a good run still have plenty of steam yet to run - there is still plenty of money around to invest in the renewable energy sector. Plus, unlike the speculative mining sector, many governments are actually providing grants to assist with funding, many will be eligible for the R&D tax offset in Aus (where you can convert tax losses into cash) and plenty of existing energy companies are willing to JV in to green up.

So, I would say the easy money has been made, but there are still plenty of global warming stocks that will continue to run - after all, we are at the starting point where people are actually globally concerned.

Cheers

 

[YChromozome]

so with media hype going exponetial (at least in oz) does that mean we watch for the start of a bubble or assume a bubble is not likely?

I think you really need to research the stocks and have a good understanding of the electricity market, the capital costs per MW to install various technologies and what the capacity factors are. If you don't you will have a very hard time being able to value a company.

I found the article you quoted from and there was this quote "While SunPower Corp. and Theolia SA are among more than 180 companies whose shares have surged as much as 240 percent this year".

If those stocks surged as much as 240%, then Perth based Carnegie Corporation (ASX:CNM) must be well past bubble proportions and now ballooning. Carnegie closed the year up 1245%.

Carnegie has developed a CETO Wave power device which can produce electricity or desalinated water from wave power. As your article has stated, everyone has jumped on board and is ramping the stock like there is no tomorrow. While most of these holders probably (Hopefully) know CETO can generate Electricity & Desal Water, thats about the extent of their knowledge.

They have no clue the capital costs, any comparison to competitive technologies, the scale, wouldn't know what the capacity factor is or how a large scale plant will be funded. Being a Western Australian company they are getting lots of WA press, and I'm sure there are plently of cashed up miners parking their money on this. In one case, a Mum & Dad was also parking the kids school fees. (Head across to HotCopper - its a laugh a minute)

Seapower Pacific, the owners released an independent report and the economics of CETO don't look all that impressive, but that doesn't worry CNM shareholders - economic or commercial viability, what is that? As your quote says "Alternative energy ``is all the rage,'' said Stuart Schweitzer, New York-based global strategist at JPMorgan Asset Management, which oversees about $1 trillion. ``That does not mean that as an investor you'll be able to make money.''

Over in HotCopper you ask them who is going to fund this expensive technology? (Provided they don't burn so much cash getting to a commercial stage) - The Government off course. So in a National Electricity Market, where the lowest bid price gets to supply the power, the Government is just going to bankrupt the existing produces and say all power needs to come from CETO? There was a big fuss when Wind came into the market, and Wind is cheaper than CETO.

What happens if a cheaper form of zero emissions generation comes out such as Hot Hock Geothermal?

They also keep re-illiterating CETO provides Zero Emissions Water and Electricity - and asks What else can provide this? Err, maybe a Windfarm and a desal plant, maybe a Hot Rock Geothermal and desal plant. Check the economics, its probably also cheaper to do this.

So as you can imagine, it is quite easy to get caught up in the hype and I'm sure some people will get burnt. As I say, research the company, understand and costs, the scales and if or how they will competitively fit into the National Electricity Market. Also understand what other technologies exist.

As Stuart Schweitzer says [just because they are all the rage and green "That does not mean that as an investor you'll be able to make money.'' You need to be commercially viable too.

 

[Smurf1976]

IMO energy in general is where fortunes will be made and lost over the coming years.

I won't repeat here what I've posted in other threads but I think the first thing you need to do as an investor (as opposed to chart based trader) is sort the viable technologies from the duds.

Ethanol and biodiesel both come to mind immediately as not only potentially dud investments, but an outright farce. With present technology, all they amount to is the inefficient conversion of one already limited resource (eg wheat, stocks of which are declining) into another (eg ethanol, biodiesel). Neither of these technologies adds to energy supply in any major way and they ain't green either.

However, for purely political reasons there's money to be made in biofuels for some. Investing in it is a bet on politics rather than alternative energy however and IMO that better suits a trader than an investor.

As for all the various technologies that have electricity as their output, in general they are financially viable only as an inflation hedge. You build hydro, solar, geothermal in 2008 $ and then it keeps running for decades with very little ongoing cost (wind is an exception to this as maintenance costs are substantial, also biomass has large ongoing costs).

If you look at any of the older renewable energy schemes (which in practice are nearly all hydro) then you'll find that costs today aren't much different to the cost when it commenced operation. As long as energy prices rise, it's a good investment.

I'll give an example. It's a hydro scheme but the principle applies to most renewables. It was built 1963 to 1973 at a cost of $121 million at that time. Today it generates about $81 million worth of energy per annum with an ongoing operation cost of around $3 million - a $78 million per annum return on the original $121 million investment.

But it can go wrong in a low inflation environment. Another scheme built 1983 - 1994 at a cost of $400 million. It generates $20 million worth of energy per annum less about $1 million ongoing costs. That's less than bank interest. It's not working financially because general inflation was high during construction but energy prices have, in real terms, generally crashed.

And the big problem with renewables is that, since the cost is largely of a capital nature, you can't simply cease operation to avoid losing money. You're financially committed for the life of the scheme, which could be a century, no matter what happens to the value of energy. The same applies to brown coal and to an extent nuclear although the lifetimes are shorter. This situation is one reason private investors tend to go for gas-fired power - fuel is most of the cost and any loss can thus be promptly stopped.

The economics of brown coal and nuclear power, in terms of being mostly capital rather than ongoing cost, are similar to renewables. Brown coal and nuclear plants built in the 80's and 90's are financially not much better than the hydro scheme referred to above - it's hard for anything to compete when black coal and gas stays unexpectedly cheap (though that's changing now).

All that said, don't forget there's still money to be made extracting the remaining oil and gas etc since despite all the hype, demand is going up not down whilst production, for oil especially, fails to keep pace.

Disclosure: Smurf holds a long term portfolio of over 30 energy-related stocks involved in a diverse range of energy sources and energy services.