Where to Invest in Renewable Energy’s New World Order

by David Fessler, Investment U’s Energy and Infrastructure Expert
Friday, October 29, 2010: Issue #1377

A few years ago, America was the world’s dominant technology innovator in the renewable energy sector.

As solar and wind manufacturers popped up all over the country, experts crowed that cost parity for renewable energy sources was imminent.

And for investors, the United States was the place for the renewable energy sector.

Today, though, a report from Ernst & Young shows that America has lost its spot at the top of the renewable energy ladder. It’s now #2 in the organization’s Renewable Energy Attractiveness Index.

The index scores countries based on factors such as their renewable energy infrastructure, their market for renewable energy and their suitability for specific renewable technologies.

So why has the United States lost its top spot? Who’s grabbed it from us? And where can you still invest in order to make money from this area?

Four Decades of Abject Failure

It’s no surprise to see that China has taken over as Ernst & Young’s “most attractive” nation for renewable energy.

It’s also no surprise as to how it’s overtaken Uncle Sam: The failure of the U.S. government to pass meaningful federal energy legislation.

Would you believe that the Senate’s proposed energy bill contains no Federal Renewable Energy Standard (RES) provisions? Nor does the House version.

The streak of failure goes much further back than the Obama Administration. Seven previous Presidents, and the Congresses that served with them, never managed to put together a national energy plan either.

Yet a string of Oval Office residents have boldly promised to get us off foreign oil, move us towards energy independence, and increase the use of renewable energy sources. But all they’ve been able to produce is four decades worth of hot air. (One of the funniest mockeries of this failure was in this segment of The Daily Show.)

The Blame Game: Sluggish Economy… Sleepy Government

But there are other factors at work when it comes to failed renewable energy initiatives…

  • The U.S. Economy: With unemployment remaining high, it means decreased demand for consumer goods. In turn, that results in reduced manufacturing activity and lower overall demand for electricity. With the unemployed driving less, too, fossil fuel prices have remained relatively low.
  • Grant Program: The Department of Energy’s grant program for renewable energy is set to expire at the end of this year. That adds another nail in the coffin to the lack of incentives for renewable energy projects.

But the difference couldn’t be more marked in China…

China and Britain Rev Up Their Renewable Engines

With the Chinese economy humming along at just under 10% growth per year, China’s renewable energy sector is booming right along with it.

The country boasts more than 80 wind turbine makers and 50-plus solar manufacturers. China’s renewable energy manufacturing industry is big business and its market for renewable energy has become so large that many Western manufacturers and wind farm developers are growing their presence in the country.

With China’s mentality geared towards renewable energy, it’s no wonder that it topped Ernst & Young’s index.

And it’s not the only country making progress.

In the United Kingdom, the coalition government recently unveiled the Green Investment Bank to help finance renewable energy projects. That’s important, as the U.K. faces a possible gap in energy supply if it doesn’t act quickly to bridge it via alternative sources.

So where does that leave the United States – and investors?

Rise Up for Renewable Energy (Just Don’t Ask Us to Pay More)

According to a Financial Times/Harris survey in mid September, the United States and five European countries (including France and Spain) voted overwhelmingly in favor of greater renewable energy.

The figures on wind energy were particularly revealing, with 87% of Americans, 77% of French and 90% of Spanish citizens saying that they want its usage increased.

But there are a couple of problems:

  • Cost: On average, citizens in those countries, plus those in Britain and Italy, don’t want to pay more than about 5% over current electrical rates.
  • Demand & Financing: Wind farm developers are finding it difficult to borrow money in the face of slack demand and near record low natural gas prices.

However…

The Biggest Renewable Energy Opportunities Are Yet to Come

Higher prices for oil and natural gas, plus greater electricity demand from America’s electric vehicle adoption, will increase attention on renewable energy. Particularly since there’s also huge resistance to building more coal-fired power plants, while nuclear plants face a 10-year permit process (with none currently under construction).

We need to focus on companies that stand to benefit from the push towards a lower-carbon existence. But picking the right companies is crucial.

Take the wind industry, for example. A power generation firm like Danish-based Vestas Wind Systems (Nasdaq: VWDRY.PK) should prosper, as it’s well diversified and sells its turbines in every corner of the globe, including China.

On the other hand, Clipper Windpower (Nasdaq: CRPWF.PK), a British wind turbine manufacturer and wind farm developer, isn’t as diversified, since it does the bulk of its business in the United States and Mexico.

The bottom line here is that while America might have lost the top spot to China in the Renewable Energy Attractiveness Index, investment opportunities in the sector still remain.

And that’s where my Peak Energy Strategist comes in. I specifically zero in on the energy and infrastructure sectors, identifying the global winners in energy infrastructure, renewable energy, the Smart Grid and more.

There’s plenty of profit potential in these areas and I’ll be adding more stocks to the portfolio between now and the end of the year. Don’t miss out – find out how to get on board The Peak Energy Strategist.

Good investing,

David Fessler