by David Fessler, Investment U Senior Analyst
Wednesday, January 11, 2011
It’s no secret that a number of companies – and their shareholders – are cleaning up in the shale oil and gas business. I’ve written about many of them right here.
However, I thought I’d stick my neck out (again) and make a few predictions regarding “green” products and services, and give you my take on them from an investment standpoint.
Last year we saw the demise of Solyndra and Beacon Power here in the United States. So much for the federal government picking winners. A more sound policy would be to incentivize private industry, but let the chips fall where they may.
While they’re falling, could there be some winners in 2012? Let’s see what could happen in the green space this year.
Prediction #1: EV Sales Continue to Accelerate
After a slow start in 2011, electric vehicle sales will continue to make inroads on their gas-guzzling counterparts in 2012. The Nissan LEAF and Chevy Volt have the early lead, but Toyota will be introducing a new line of its popular Prius model. Some will come with a plug and a larger battery, allowing for Volt-like range and performance.
The reality is that, this year, it’s different. Why? Just about every car manufacturer you’ve heard of – and some you probably haven’t – is producing, or has announced, some form of battery electric vehicle (BEV) or plug-in hybrid electric vehicle (PHEV).
It probably won’t be the United States that drives sales, as some politicians are already calling for the third demise of electric vehicles, and the elimination of the $7,500 federal tax credit.
Unlike the United States, other countries are aggressively jumping on the EV bandwagon. Europe is especially interested, as gasoline prices are nearly twice what they are here in the states.
Asia’s not far behind in its push towards electrics, as supplies of gasoline and diesel are expected to become scarce, and more expensive, as demand increases dramatically over the next three to five years.
Prediction #2: Smart Meters… Smart Bet
While not really a green product, smart electric meters are becoming more widely adopted around the world. Here in the United States, many utilities are slowly replacing all their old meters with new smart ones.
The advantages are that they can be read remotely and customers will have the option of programming “smart” appliances to operate when electric costs are lower, thereby saving energy.
Great Britain expects to have all of its meters replaced with smart meter technology by 2018. Smart meters will also spawn information technology companies specifically geared towards developing software to interact with them. Yes, there will probably be “an app for that.”
Prediction #3: Energy Catastrophe Will Strike Again
Three Mile Island… Alaska’s Exxon Valdez spill… Russia’s Chernobyl… BP’s Gulf disaster… Japan’s Fukushima… All of these incidents cite the fragile and sometimes careless attention the world gives to its energy supplies.
What’s next? Iran? North Korea? A terrorist bomb on a pipeline? I don’t know. But I do know this: Whatever happens, it won’t be good for oil prices. Oil traders have their trigger fingers poised to send oil soaring at the slightest hint of a disruption in supply, regardless of the source.
Prediction #4: The Future Lies Offshore
Despite the complete lack of it here in the United States, offshore wind energy is making great strides elsewhere, particularly offshore Europe.
As of June of last year, according to the European Wind Energy Association, there were 1,247 offshore wind turbines located at 49 farms in nine countries. These are fully connected to the grid, and provide a total of 3,294 megawatts (MW) of power.
This year, an additional 1,084 MW are due to be added, primarily in Germany and the United Kingdom.
Here in the United States, Maine, Rhode Island, Massachusetts and Virginia all have active projects in various stages of planning and approval. However, it’s still unclear when actual construction of the first offshore wind facility will start, and where it might be located.
Prediction #5: The United States Won’t Pass a Comprehensive Energy Plan in 2012
This one shouldn’t be too surprising. After all, it’s an election year. Little if anything of substance will happen on the energy front. Much of what happens in 2013 will depend on who gets elected. If Obama gets re-elected, green projects will continue to receive more attention than if he loses.
Oil and gas companies will fare just the opposite. It will be bullish for oil if Obama loses, and somewhat bearish if he wins (everything else being equal, which it won’t be).
There are a lot of intangibles affecting the price of oil right now, and that will continue to be the case for the foreseeable future.
As for Green investing?
Offshore wind? Not yet. EVs? Not enough traction yet (pun intended). Solar? Still too expensive.
Smart meters? Itron, Inc. (Nasdaq: ITRI) comes to mind, but its stock is off 33% over the last year. A better, but much more diverse, bet would be General Electric Company (NYSE: GE), which is actually up 3% in the last year.
In general, most green technologies are in their infancy. As such, they’re niche products and services, and not particularly well suited as investments. Unless, of course, you’re prepared to wait a long time.
The best green investment? Natural gas producers and pipeline transmission companies…
Gas is so cheap, power plants and vehicle manufacturers are switching over to it. The big truck transportation sector could begin a widespread switch to it in a couple of years.
That will give the other green technologies time to mature and become more mainstream. And just maybe the feds will have a comprehensive energy plan by then. Hope springs eternal.