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Profitingfrom CleanEnergyA Complete Guide to TradingGreen in Solar, Wind, Ethanol,Fuel Cell, Power Efficiency,Carbon Credit Industries,and More
RICHARD W. ASPLUND
John Wiley & Sons, Inc.
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Profitingfrom CleanEnergy
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Founded in 1807, John Wiley & Sons is the oldest independent publishing company in the United States. With offices in North America, Europe,Australia, and Asia, Wiley is globally committed to developing and marketing print and electronic products and services for our customers’ professional and personal knowledge and understanding.The Wiley Trading series features books by traders who have survivedthe market’s ever-changing temperament and have prospered—some byreinventing systems, others by getting back to basics. Whether a novicetrader, professional, or somewhere in-between, these books will providethe advice and strategies needed to prosper today and well into the future.For a list of available titles, visit our Web site at www.WileyFinance.com.
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Profitingfrom CleanEnergyA Complete Guide to TradingGreen in Solar, Wind, Ethanol,Fuel Cell, Power Efficiency,Carbon Credit Industries,and More
RICHARD W. ASPLUND
John Wiley & Sons, Inc.
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C 2008 by Richard W. Asplund. All rights reserved.Copyright 
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.Published simultaneously in Canada.No part of this publication may be reproduced, stored in a retrieval system, or transmitted inany form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act,without either the prior written permission of the Publisher, or authorization through paymentof the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive,Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the Web at www.copyright.com.Requests to the Publisher for permission should be addressed to the Permissions Department,John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 7486008, or online at http://www.wiley.com/go/permissions.Limit of Liability/Disclaimer of Warranty: While the publisher and author have used theirbest efforts in preparing this book, they make no representations or warranties with respectto the accuracy or completeness of the contents of this book and specifically disclaim anyimplied warranties of merchantability or fitness for a particular purpose. No warranty maybe created or extended by sales representatives or written sales materials. The advice andstrategies contained herein may not be suitable for your situation. You should consult with aprofessional where appropriate. Neither the publisher nor author shall be liable for any lossof profit or any other commercial damages, including but not limited to special, incidental,consequential, or other damages.For general information on our other products and services or for technical support, pleasecontact our Customer Care Department within the United States at (800) 762-2974, outside theUnited States at (317) 572-3993 or fax (317) 572-4002.Wiley also publishes its books in a variety of electronic formats. Some content that appears inprint may not be available in electronic formats. For more information about Wiley products,visit our Web site at www.wiley.com.ISBN 978-0-470-11799-6Printed in the United States of America.10
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To my father, Lauren Asplund
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Contents
AcknowledgmentsIntroductionCHAPTER 1
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Clean Energy Investments andPerformance: The Show Has Just Begun
5
Clean Energy Business Startup
5
Angel Investing
7
Venture Capital
7
Publicly Traded Stocks
8
Clean Energy Stocks Listed Outside the U.S.
10
Large-cap Stocks
11
Global Petroleum Companies
12
Clean Energy Exchange-Traded Funds (ETFs)
14
Green Mutual Funds
15
Global ETFs and Green Mutual Funds
20
Futures and Options
21
Investment Criteria for Publicly Traded Stocks
21
Valuation and Bubbles
22
Clean Energy Stock Performance
23
CHAPTER 2
27
Catalysts for the Clean Energy Industry
Fossil Fuel Negatives: Pollution, CO2 Emissions, Cartels,Price Spikes, and Rising Prices
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Energy Security
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Growing Global Energy Demand
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Greenhouse Gas Emissions and Climate Change
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CONTENTS
Clean Energy Technology Improvements
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Demand for Distributed Power Solutions Due toGrid Unreliability
40
Rising Electricity Prices
41
Could the Clean Energy Movement Fizzle if Oil Prices Plunge?
43
Clean Energy Catalysts: Investment Conclusion
46
CHAPTER 3
The Government Push: Strong Enough toGet Clean Energy to Fossil Fuel Parity?
47
Types of Government Clean Energy Incentives andMandates
48
Renewable Energy Targets Worldwide
50
Government Clean Energy Support Initiatives in theUnited StatesA Post-Kyoto Carbon Emissions Framework
CHAPTER 4
Clean Energy Potential: Double-DigitGrowth for Decades
5357
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Overview of Global and U.S. Energy Flows
62
Overview of U.S. Electricity Generation Sources
65
Fossil Fuel Market Size: Even a Nose Under the Tent IsWorth Billions
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Renewable Energy Forecasts
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CHAPTER 5
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Solar Power: The Sky Is the Limit
Solar Thermal Power
75
Solar Photovoltaic Power
81
Solar Power Industry Growth Rates
89
Demand Generated by Government Incentives and Regulation
91
Solar Power Pricing and Competitiveness
99
Upstream Solar Players: Polysilicon and Wafer Producers
103
Thin Film Threats to Crystalline Silicon Solar Cells
112
Upgraded Metallurgical Silicon (UMGS): A Threat toTraditional Polysilicon Producers?Solar PV Cell and Module Producers
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The Investment Outlook for Solar Cell/Module Manufacturers 122
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Contents
CHAPTER 6
Wind Power: The Dutch Windmill Gets aTechnology Makeover
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Advantages and Disadvantages of Wind Power
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How Do Wind Turbines Work?
128
Technological Developments
129
Oﬀshore Wind
130
Industry Growth Rates and Prospects for Future Growth
131
The Economics of Wind Power
133
Government-Sponsored Incentives
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Wind Industry Issue: Component Shortages
137
Wind Industry Players
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CHAPTER 7
Fuel Cells: Present and Accounted for inSome Applications Already
147
Advantages and Disadvantages of Fuel Cells
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What is a Fuel Cell? Overview of the Technology
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Fuel Cell Industry Analysis: Industry Players
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Fuel Cell Industry Target Markets
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Commercialization Challenges
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CHAPTER 8
Geothermal Power: Dante’s Contributionto Clean Energy
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Advantages and Disadvantages of Geothermal Power
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Geothermal Resources
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The Extraction of Geothermal Energy
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Geothermal Power Plant Systems Under Development
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Geothermal Heat Pumps
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Economics of Geothermal Power
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The Future of Geothermal Energy
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CHAPTER 9
Cleaner Utilities: Teaching an Old DogNew Tricks
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Green Power Marketing Programs
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Renewable Energy Certiﬁcates
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Sources of Renewable Energy
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Methane Gas Extraction
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CONTENTS
Companies Operating in Biomass and Biogas
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Wave and Tide Power
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CHAPTER 10
Power Efficiency: ‘The Cheapest and MostAvailable Source of Energy Is the Energy187We Waste’
Eﬃcient Appliances
189
Eﬃcient Lighting
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Eﬃcient Buildings—Green Buildings
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Companies Involved in Building Eﬃciency
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CHAPTER 11
Smart Meters: Getting Smart on GridEfficiency and Reliability
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Smart Grid
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Demand Response as a Power Eﬃciency Solution
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The Role of Smart Meters
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Demand Response and Advanced Metering
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Beneﬁts of Smart Meters
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Current Smart Meter Usage
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Advanced Metering Costs and Beneﬁts
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Southern California Edison’s Business Case Experience forAdvanced Metering
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Interoperability and Industry Standards
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Global Demand Response
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U.S. Regulators—Generally Positive TowardAdvanced MeteringWhat is Ahead for the Smart Meter Industry?
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Industry Meter Penetration Rates and Upgrade Opportunities 217Smart Meter Industry Growth Rates
218
Electricity Meter Market Shares
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CHAPTER 12
Power Storage and Backup Systems:When the Grid Just Won’t Do
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Types of Direct Electricity Storage Systems
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Types of Power Storage Systems
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Target Market Sizes
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Contents
CHAPTER 13
Clean Transportation: Electric HybridsAre Charged Up and Ready to Go
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The Internal Combustion Engine: Can It Be Saved?
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Alternative Fuels for the Internal Combustion Engine
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Eliminating the Internal Combustion Engine
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Hybrid Gasoline-Electric Vehicles
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Plug-in Electric Hybrid Vehicles (PHEVs)
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Hybrid and Electric Vehicle Players
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All-Electric Vehicles
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Clean Transportation Investment Conclusions
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CHAPTER 14
Ethanol and Biofuels: Long-TermTransportation Solution or Flash in thePan until More Environmentally FriendlyVehicle Technologies Take Over?
Biofuels: What Are They?
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Advantages and Disadvantages
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U.S. Government Support for Ethanol
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Obstacles for the U.S. Ethanol Industry
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Brazilian Competition
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How Far Can Ethanol Go to Replace Gasoline in the U.S.Transportation Fuel Supply?
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The Future of Ethanol: Cellulosic-Based Ethanol
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Ethanol Company Investment Analysis
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U.S. Ethanol Industry Market Shares
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Ethanol Investment Conclusions
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Companies Supporting the U.S. Ethanol Industry
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CHAPTER 15
Ethanol
Trading Biofuel Markets:Feedstock Frenzy
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Corn
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Sugar
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Soybean Oil
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Palm Oil
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CONTENTS
Big Coal—Meet Your New Partners:Cleaner Coal Technology andCarbon Capture
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Global Coal Usage
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U.S. Coal Companies
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Cleaner Coal Technologies
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Cleaner Burning Coal
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Coal-Fired Power Plant Pollution Controls
290
Coal Gasiﬁcation and CO2 Sequestration
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Algae-Based CO2 Absorption
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Coal-to-Liquid Transportation Fuel
294
Clean Coal Investment Conclusions
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CHAPTER 17
Carbon Trading: Poised to Become theWorld’s Largest Commodity Market?
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Trading European CO2 Allowances
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Causes of Price Movements
300
European Cap-and-Trade CO2 EmissionsBackground Explanation
302
Chicago Climate Exchange
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CHAPTER 18
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Investment Conclusions
Appendix
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Notes
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Index
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Acknowledgments
would like to thank Mike Artz for his help in the preparation of thisbook. I would like to thank my wife, Deanna Asplund, who helped withher perspectives and her long-suffering task of editing and proofreading. I would particularly like to thank my father, Lauren Asplund, who wasextremely helpful in the preparation of this book.
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Introduction
DEFINING “CLEAN ENERGY”This book uses the term clean energy in order to adopt a broad definitionfor the topic. Other choices such as renewable energy or alternative energy are more limited and typically do not include some of the subsectorssuch as power efficiency and cleaner fossil fuels, among others, that arecovered by this book.The focus of this book is a bit more limited than the field of cleantech.Cleantech typically includes all the categories that fall under clean energy,but also includes the categories of clean water, environmental cleanup(air, water, and soil), recycling, and even broader areas such as removing toxic materials from everyday products. There are interesting investment opportunities in these areas, but they are beyond the scope ofthis book.There is some controversy about whether nuclear power should be regarded as “clean energy.” Nuclear power does not emit any greenhousegases and in that regard it is clean. However, this book does not considernuclear power to be clean because the nuclear waste produced by nuclearpower is one of the most dangerous substances on earth. There is also thepossibility of a nuclear leak and the release of large quantities of nuclearradiation into the air. Nuclear power has the potential to be a bigger environmental threat than coal and will not be covered in this book as cleanenergy.
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Clean Energy as a Collection of IndustriesClean energy is not a single industry but instead involves a wide variety ofvery different industries. Some of the broad subsectors under clean energyinclude solar power, wind power, fuel cells, geothermal power, wave/tidepower, biomass, biofuels, cleaner coal, and power efficiency. Each subsector needs to be addressed separately as to its drivers, technologies, competition, and profit model. This book is therefore organized along the lines ofthose subsectors.One of the interesting things about the clean energy sector is that eventhough there is a broad array of technologies and applications that are under development, no one technology stands out as the silver bullet that willsolve all of our energy problems. Instead, a wide variety of technologiesare likely to become successful within specific areas of application, thuspresenting us with a broad set of potentially successful investment opportunities in the clean energy space.This book attempts to cover a large amount of ground in a relativelyshort space. There are some interesting clean energy subsectors or technologies that have been left out of the book simply because there are noeasy ways to invest in those areas. This book tries to mention all U.S.-listedpublicly traded companies with market caps above $100 million now operating in the clean energy space. However, new clean energy companiesemerge everyday and smaller companies become bigger companies. If areader would like to make a suggestion or comment about a U.S. or nonU.S. company to cover in future editions of Profiting from Clean Energy,please use this book’s companion Web site at www.ProfitingFromCleanEnergy.com to submit your suggestion or comment online.
TICKER SYMBOLS AND FINDING COMPANYINFORMATIONThis book provides the ticker symbol when a publicly traded companyis mentioned. This allows the reader to quickly look up the companyon a stock Web site if desired. In the case of non-U.S. stocks, the exchange is identified where the stock is listed. For example, London-tradedClipper Windpower Plc would be identified as: (London: CWP LN). The“LN” portion of the ticker symbol is the way that Bloomberg identifiesthe stock’s listing country. There are quite a few non-U.S. companies thatare mentioned in this book. Web sites that carry information on non-U.S.stocks include Google Finance (finance.google.com), MarketWatch (marketwatch.com), Bloomberg (Bloomberg.com), and many others.
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www.ProfitingFromCleanEnergy.comWe encourage readers to visit this book’s free companion Web site atwww.ProfitingFromCleanEnergy.com. On the Web site, you will find an online response form to provide us with feedback or ask questions. Feedbackfrom readers is very welcome. On the Web site, there are additional resource links for further research, an industry conference list, and more.The Web site also has a video section with links to video clips of topicsrelated to clean energy, including tours of solar power plants, wind farms,geothermal plants, and ethanol refineries, as well as demonstrations of allelectric vehicles, solar-powered vehicles and aircraft, algae biorefineries,and more.At www.ProfitingFromCleanEnergy.com, readers can also sign up forour free email newsletter to receive updates for this book and to receivenews on the clean energy industry. By signing up for our email list, youcan join our community of investors who have a passion for the cleanenergy industry.
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CHAPTER 1
Clean EnergyInvestments andPerformanceThe Show Has Just Begun
here are many different ways to profit from the clean energy sector. These profit opportunities, broadly defined, range from startinga business to investing in private or public companies to trading inthe clean energy markets. The decision on how to participate depends inpart on one’s investment goals and experience. For example, an individualinvestor with little experience and little time to spare may opt to invest in agreen mutual fund or an exchange-traded fund, thus taking a broad and diversified investment approach to the sector. A more experienced investormay decide to pick some particular stocks in the sector to add to his or herportfolio. An experienced trader may approach the sector from the standpoint of going long or short clean energy stocks or trading the biofuel orcarbon credit markets. This chapter covers the various ways in which it ispossible to profit from the clean energy sector.
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CLEAN ENERGY BUSINESS STARTUPThere are many entrepreneurial opportunities in the clean energy industry.An entrepreneur can start a business from scratch, launch a startup business with licensed technology acquired in the U.S. or overseas, or buy anestablished business.There are a variety of ways to investigate specific ideas for a cleanenergy business startup. For example, Shell Springboard offers an interesting program that sponsors research and grants prize money for contests5
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PROFITING FROM CLEAN ENERGY
involving the best business ideas for tackling climate change. On their Website at www.shellspringboard.com, Shell Springboard has a report, “Opportunities for Innovation: The Business Opportunities for SMEs [small- andmedium-sized enterprises] in Tackling the Causes of Climate Change.”1This report makes interesting reading for anyone thinking about startingup a business related to the environment and climate change. The report iswritten for the market in the United Kingdom, but is equally applicable tothe U.S. market. The report concludes that the biggest markets for smalland medium-sized enterprises in the climate change sector in the UnitedKingdom in 2010 will be very substantial and fall in the following primarycategories:
r Building regulations for commercial and industrial use (£950 millionBritish pounds or about U.S. $1.9 million)
r Renewable electricity (£800 million or about U.S. $1.6 billion)r Renewable road transport fuels (£500 million or about U.S. $1.0 billion)r Domestic energy efficiency (£400 million or about U.S. $800 million)r Building regulations for domestic use (£275 million or about U.S. $550million)The clean energy industry is a new high-growth industry in which thebusiness opportunities are restricted only by one’s imagination. The bestadvice is for an entrepreneur thinking about getting into the clean energyindustry is to leverage one’s personal strengths and existing knowledgebase. For example, an electrical contractor that specializes in servicingresidential and commercial customers could add a wind or solar distributorship to his or her product offering, thus offering customers wind andsolar power solutions as well as existing services. A swimming pool company could add solar thermal heating systems for its customers, perhapspartnering with a local contractor. A building contractor might add a rangeof “green building” services to his or her product offerings.A finance company or bank could add a financing program for residential solar, wind, geothermal, or efficiency projects. Farmers or land speculators could watch for opportunities to buy farmland at attractive prices,particularly marginal land that is not good for growing high-value cropssuch as corn or wheat, but that will still be able to grow biofuel crops ofthe future such as switchgrass. Entrepreneurs who live in rural areas couldlook for new products and services to sell to the booming U.S. agricultureindustry. People who specialize in sales and marketing can partner withexisting product or service providers to roll out large marketing programsfor clean energy products and services.The U.S. National Renewable Energy Laboratory (NREL) has a program designed to “move NREL-developed technologies and expertise
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into commercially viable products and businesses” (see www.nrel.gov/technologytransfer/). The NREL is looking for companies that want to license and commercialize NREL-developed technologies. There are similartechnology licensing opportunities in government and academia that anentrepreneur can tap for business startup ideas.There is also an expanding range of new employment or consultingopportunities in the fast-growing clean energy space. There is a list of employment opportunities available in the clean energy industry, for example, at http://www.sustainablebusiness.com/jobs/, or simply do your ownWeb search on the phrase “clean energy jobs,” “clean energy consulting,”or a similar set of keywords. The solar power industry is currently hiring aggressively in the United States and one solar job listing site is at theAmerican Solar Energy Society (see www.ases.org/jobs.htm). This book’scompanion Web site at www.ProfitingFromCleanEnergy.com has a morecomplete listing of clean energy employment Web sites.
ANGEL INVESTINGIn “angel investing,” an individual investor invests his or her cash directlyin an early-stage company run by other people. Angel investing is certainlynot for the faint of heart and it is difficult to find reliable companies inwhich to invest. However, there are angel networks and clubs that canhelp an interested person learn how to do angel investing and how to findgood investments. Industry associations can also be a good place for finding early-stage companies that need seed money. For example, someoneinterested in investing directly in an ethanol plant can check on the Renewable Fuels Association Web site, which has a page listing companiesinvolved in the design and construction of ethanol plants that may haveprojects open to investment.2
VENTURE CAPITALA venture capital (VC) fund pools money from institutional and high-networth investors, invests that money in startup or early stage companies,takes an active role in helping to build the company, and then finds an exitstrategy such as a sale to a larger company or going public through an initialpublic offering (IPO). Venture capital funds try to target annual returns of20 percent or more.Venture capital investment is pouring into the clean energy and cleantech industries. According to Cleantech Network, North American and
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European venture capital investment in the cleantech industry in 2006 rose+45% yr/yr to $3.6 billion, after more than doubling in 2005 to $1.7 billion.3The Cleantech Network is a venture capital investment network with over8,000 investors, 6,000 companies, and 3,500 professional services organizations that specialize in cleantech, according to the company’s Web site. TheWeb site provides a wealth of information on venture capital investment inthe cleantech industry. The group also holds conferences to discuss cleantech investing and to bring together investors and companies.There are several advantages to investing in a VC fund as opposed totrying to invest one’s money directly in a company as an angel investor.First, VC funds are highly knowledgeable in the industries in which theyspecialize and they are constantly scouring the industry at the ground levelfor attractive investment opportunities with their extensive networking capabilities. Second, VC funds know how to structure investments so thatthere are attractive risk-reward parameters and incentives for the project.Third, VC funds provide key expertise in building a business and providingit with ongoing support. Fourth, a VC fund knows how to exit a portfoliocompany by selling the firm or doing an IPO, thus capturing the returns fortheir investors.Unfortunately, it is difficult for the average individual investor to getinto the venture capital game. Venture capital funds typically only takeinvestment funds from institutions and high-net-worth investors that canqualify for the SEC’s definition of an “accredited” investor. For an individual investor, the securities law currently requires an “accredited investor”to have a net worth of at least $1 million or have an annual income of atleast $200,000 for the last two years. In addition, an investor in a VC fund istypically required to put up a large minimum investment that can go as highas six figures and the investment is then typically locked up for a periodof years.
PUBLICLY TRADED STOCKSThe easiest way to invest in the clean energy sector is simply to buy publicly traded stocks. The advantage is that an investor can scale the size ofthe investment, spread the money around in various companies, and easilyenter and exit positions (assuming there is trading liquidity in the stock).Disadvantages include (1) the stock market is fairly efficient and it is noteasy to pick stocks that will have long-term appreciation; and (2) an investor’s portfolio is not diversified unless a variety of stocks are chosen tospread out the risk.
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There is a perception that publicly traded clean energy companies areall small companies that are burning large amounts of cash and depend ongovernment grant support for their survival. This was true back in the late1990s, but there are now numerous publicly traded clean energy companiesoperating on a global scale that are highly profitable, that are producingearnings growth rates exceeding 20 percent, and that have market capitalizations of over $2.5 billion. There have recently been a large number ofIPOs in the sector, which has added depth to the clean energy stock sectorand even encouraged institutional investors to dip their toes into the water.The global solar industry, for example, is particularly well developedand has a wide range of publicly traded stocks from which to choose.The combined market capitalization of the 12 largest U.S.-listed pure-playsolar companies was a hefty $20 billion as of mid-2007. The combined market cap