"Not Many Alternatives for Energy Investors"

Not Many Alternatives for Energy Investors
Saturday October 2, 5:10 pm ET
By Meg Richards, AP Business Writer
Oil Prices May Raise Interest in Alternative Energy Stocks, Though Not Many Firms Profitable

NEW YORK (AP) -- With oil prices soaring, investors may be wondering what options there are among renewable energy stocks. The answer is, not many. Fuel cell companies are floundering, solar startups are far from solid bets and only a handful of companies are turning a profit in wind power.
For small investors who think climbing oil prices are bound to spark greater interest in other sources of power eventually, some of the most interesting plays could be among traditional companies that are exploring alternative energies -- General Electric Co., FPL Group Inc. and BP PLC.

The problem with most companies focused purely on non-petroleum power is they tend to be relatively young, have weak balance sheets and frequently focus on technologies that aren't yet commercially viable. Some of the most attractive investments are overseas, and not readily available to U.S. investors.

"Unfortunately and tragically there are simply not a lot of alternative energy sources being developed," said Stephen Leeb, president of Leeb Capital Management and co-author of "The Oil Factor," which suggests crude prices will likely strike $100 a barrel by the end of the decade, if not sooner.

"It's sad, but that's the reason oil is at nearly $50 per barrel," Leeb said. "If there were a whole universe of alternative energy companies making lots of money, you probably wouldn't have an energy crisis today."

With so much money yet to be made in oil, there hasn't been a great deal of investor interest in renewable sources of power, analysts say.

"It's been an interesting disconnect," said Matthew Patsky, portfolio manager of the Winslow Green Growth fund. "The renewable energy stocks in general went down when oil was falling and went down when oil was rising. You'd think they'd trade with oil ... but it's been a tough market for renewable energy stocks in general, and particularly for the fuel cell companies."

There are high hopes that emission-free hydrogen fuel-cells will replace gas-guzzling cars and start producing power in homes, but this technology is still in the early development stages. Companies like FuelCell Energy Inc., Plug Power Inc. and Ballard Power Systems Inc., a Canadian concern partly owned by auto manufacturers Ford Motor Corp. and DaimlerChrysler AG, remain unprofitable.

In such a speculative market, Patsky's firm chose to invest in Quantum Fuel Systems Technologies Worldwide, Inc., a company focused on designing the hydrogen storage technologies that help power the fuel cells in cars. Toyota Motor Co., which has emerged as a leading manufacturer of hybrid cars, accounts for 44 percent of its sales. General Motors Corp., which owns 11 percent of the company, accounts for the rest.

When it comes to producing electricity for homes and businesses, the most readily deployable alternative to fossil fuel is wind. And as oil prices continue to rise, it's becoming an increasingly attractive option.

"At $10 per barrel for oil, it makes no sense to use wind. But at $50 per barrel, wind makes a lot of sense," Patsky said. "Wind broke to a point of being economical in most parts of this country vis-a-vis the cost of electricity back when oil passed $30 per barrel, and now it's incredibly economical. I don't think there's very many places in the country where there's a cheaper way to produce energy than wind."

The pure wind plays are in Europe, where the largest turbine manufacturer is Vestas Wind Systems, based in Denmark. Its competitors include Gamesa Corporacion Tecnologica S.A., a Spanish company, and GE Energy, the largest U.S.-based player in wind, though it's only a tiny portion of the conglomerate's overall business.

Wind plays a much more substantial role at Florida-based utility FPL, making up about 15 percent of its earnings, and the business segment has grown at a rapid pace over the last several years.

"FPL is such an easy way to play it," Leeb said. "If wind continues to grow, as I think it must, then you end up with a very dynamic growth stock. And if for whatever reason they don't pursue it, you've still got a great utility."

At a certain point, solar power starts looking more economical, as well, though with the demise of AstroPower, Inc. -- the company filed for bankruptcy and sold most of its assets to GE Energy earlier this year -- few opportunities are available. Among recent startups is Evergreen Solar Inc., a Marlboro, Mass.-based developer of solar electricity systems for homes. Traditionally, solar power has been economical in remote locations where it's not practical to run power lines, but while it has served as a decent supplemental source of energy, it has not been a true substitute for fossil fuel.

Among the major energy companies, BP has done the most to develop alternative fuels, investing in solar and wind power as well as financing research into applications for hydrogen. Though many remain skeptical that the world's largest integrated oil concern is really looking "beyond petroleum," the steps it's taken so far have led some socially conscious investors to deem it best in its class.

"BP is legit, it's for real, and it's spending a lot of money ... trying to broaden its reach to be a full-service energy company meeting the needs of the future," Patsky said. "We'd certainly rather see people invest in BP than Exxon Mobil Corp., where management still denies that global warming is happening. BP has made statements that they want to do whatever they can to reduce the contributions that fossil fuels make to global warming ... and that's a big statement for a company to make, to admit its product is part of the problem."