Biofuels - Green Chip Review

Algae Biofuel Stocks

I've been waiting for a big piece of news to break before I brought you another article about algae biofuel.

You see, the ongoing recession has put the brakes on technologies that haven't reached scale. It's been tough to get capital for viable energy-producing projects, let alone for continued R&D into an uncommercialized technology.

But while the recession has taken away capital, it has left algae's potential untouched. Just because it's not here now doesn't mean algae won't be highly successful in the future. It has all the characteristics of the perfect feedstock. . . and then some.

(If you aren't aware of the fundamentals of algae by now, make sure you check out our Investing in Algae Biofuel report.)

And some big energy players are taking notice, providing the news I've been waiting for.

Exxon's $600 Million Algae Bet

Before I get to the bold topic above, let me take a second to address Big Oil's growing interest in cleantech. As I noted in Green Chip a few weeks ago, oil companies are increasingly pursuing renewable energy, but in their own unique way.

They're looking for projects with high returns that allow them to exploit their immense industry knowledge and in-place infrastructure. This means pursuing biofuels (because of their liquid fuel infrastructure) and geothermal energy (because of their drilling know-how).

That said, algae is a good place for oil companies to be. And Exxon knows it.

So much so that the company recently announced a $600 million foray into the sector. This is the equivalent of the queen's blessing, the Midas touch. The king of energy is looking for successors.

And they're fairly confident in their selection. According to Dr. Emil Jacobs, Exxon's VP of R&D, "Meeting the world's growing energy demands will require a multitude of technologies and energy sources. We believe that biofuel produced by algae could be a meaningful part of the solution in the future if our efforts result in an economically viable, low net carbon emission transportation fuel."

Michael Dolan, the Senior VP, added to the praise for algae, saying, ". . .algae-based fuels could help meet the world's growing demand for transportation fuel while reducing greenhouse gas emissions."

But as excited as they are about algae's potential, both men offered caveats about the "significant work and years of research that must be completed." The real challenge is being able to create economically viable algae biofuel in large volumes, which will require "significant advances in both science and engineering."

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This announcement certainly brings validity and positive PR to the sector, but there are many companies that have been pursuing and trying to perfect algae biofuel for years.

One such company I've been following is OriginOil, and I recently had a chance to sit down with the CEO for an interview.

An Algae Up-and-Comer

Unlike some companies whose sole goal is to produce large quantities algae biofuel, OriginOil takes a pure technology approach. As was mentioned above, there is still much work to be done before algae is viable on a commercial scale.

The goal of OriginOil is to break down the remaining barriers to algae's development at all levels, from plant growth to oil separation. By perfecting each level of growth and production, the company can set the stage for algal oil production across the globe.

Think of it like a platform, like Microsoft Windows, that will then be adopted by multiple producers of biofuel, just as Windows is adopted by multiple computer-makers.

Of course, I don't need to tell you about the profit implications of being the platform technology for an entire industry. And OriginOil is well on its way to establishing itself as such.

They have a novel, patented process for growing algae that introduces all the inputs — carbon dioxide, water, and nutrients — on a micron level. This allows for instant, even, and thorough absorption.

The vessel they use to grow the algae, called a bioreactor, is also quite unique and advantageous. It's a vertical shaft with specialized lights placed at different heights, allowing algae to be grown at multiple levels rather than just on the surface of an open pond.

They've also developed a proprietary process for harvesting the oil from the algae once grown. Called "Quantum Fracturing," electric pulses are used to break down the algae cells and release the oil before a simple gravitational process is used to separate it. This system could save 90% of the energy used in traditional methods.

As you can see, OriginOil is working on perfecting algal oil from the proverbial soup to nuts, knocking off remaining barriers one by one. Their most recent development is a lighting system that responds continuously to the algae's behavior, improving "energy efficiency and growth rates by ensuring the right types and amounts of light are used at all times as the algae grows to maturity."

Keep an eye out for this company as their technologies become ubiquitous and are adopted by biofuel producers worldwide.

In the meantime, you can check out my interview with CEO of OriginOil Riggs Eckelberry in my new algae biofuel report.

Call it like you see it,

Nick

Jatropha Biofuel

I've never been at such a loss for words... One word, in fact: Jatropha.

It was a few years back at a biofuels conference in Colombia. Between sessions, a Mexican farmer from the southern state of Chiapas and an Israeli drip irrigation pioneer were trying to compare notes about the cultivation of an oil-rich shrub called jatropha. But the language barrier stood in the way of their business.

Even though I spoke both of their languages, I found myself stuck in a vocabulary rut no pocket dictionary could get me out of. I translated around the word, leaving jatropha as the conversational pivot point in each interlocutor's native tongue.

I set immediately to learning about jatropha biofuel that day. As we sweat through the middle months of 2009, the world is learning more about it, too.

What is Jatropha Biofuel?

The jatropha plant (known more commonly in English as physic nut) is abundant, if overlooked. Like so many of the world's plants, jatropha thrives in the biologically diverse climates of Africa, southern North America, and the Caribbean. From its original location Central America—the Mexican farmer's backyard—and the Caribbean islands, seafaring Europeans soon began propagating jatropha along their routes.

India, where the jatropha was introduced by Portuguese traders centuries ago, is now a hotbed for jatropha-based biodiesel. The weedy plant's potential for nuisance is matched only by its utility, as India's national rail operator has found.

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The railroad between Mumbai (Bombay) and Delhi is planted with jatropha along its course, and the locomotives running through the red-blossomed bushes are partly powered by the plant. 15-20% percent of the fuel used on the Mumbai-Delhi line is derived from jatropha extract, proving the usefulness of this obscure bush.

In Australia, where it is considered a major weed, jatropha is called the "bellyache bush." Repulsive as that sounds, jatropha's gastronomic downfall is its energy advantage.

Biofuel feedstocks like corn, soy, and sugar are less than optimal precisely because they are edible.

Food and commodity price speculation led to riots in Mexico and other countries, where corn became the center of a food vs. fuel tug-o-war in 2008. In response, the country's legislature passed a law limiting feedstocks to non-food crops. Now, Mexican president Felipe Calderon is spearheading a drive for research and large-scale production in countries where jatropha can be grown.

Colombia and Mexico have committed $936,000 to a biodiesel processing facility in southern Mexico, mainly devoted to jatropha.

All in all, we can expect billions to flow into jatropha research and ventures in the next few years.

Even now, jatropha is moving quickly from the planning stage to practical inclusion in the world's transportation fuel mix.

From "Bellyache Bush" to Cash Crop

Representatives from Continental Airlines announced that the company's January biofuel test on a Boeing 737-800 delivered an increase of 1.1 percent in fuel efficiency, and a 60 to 80 percent reduction in emissions compared to traditional jet fuel.

A spokesman for the International Air Transport Association said, "The biofuel mix actually ran more efficiently and burned less fuel in total than the conventional (jet-fuel powered) engine." The IATA is aiming for a 10% renewable energy component in total global aviation fuel used by 2017.

Not just Continental but also Boeing and GE Aviation participated in the tests, and encouraging results surely mean more R&D to come.

As for the path to commercial success for individual jatropha biofuels companies, California's Abundant Biofuels has set a 600 billion gallon target for jatropha biodiesel production by 2012. As the hearty plant grows wild, Abundant is working not only to maximize output but also to get maintenance during the growing process down to a bare minimum so that harvesting can be the firm's main research focus.

New World farmers at Jamestown called tobacco "finicky" because it requires painstaking care and massive work crews. Corn is very water-intensive, making it a strain not only on food supply but also on the most precious resource of all.

Jatropha does just fine without human hands to tend it. But it is necessary for more companies and consumers to learn about jatropha so we can see what the real possibilities are.

We'll keep you up to date as we follow jatropha in every step from "bellyache bush" to 21st century cash crop.

Regards,

Sam Hopkins

Brazilian Energy Infrastructure

They have a different sense of "normal" here in Rio. . .

I've been all over this city in the past week, talking to people in business suits and bathing suits about what they think of Brazilian biofuels.

Having come down to Brazil out of the schizoid Baltimore April weather, I'm enthralled with the Southern Hemisphere's autumn sun. It's warm but doesn't burn.

Brazilians tell me they're cold now. I tell them to come stay at my house in January and let me know if they still think the same thing.

Aside from the weather patterns, energy expectations are totally different, too.

From the world-famous beaches of Ipanema and Corcovado to the favelas, shanty towns scattered throughout the hillsides and suburbs, sugar ethanol is a fact of life.

It's not by accident, either. Brazilian sugar ethanol has been developing since 1975 under the government's ProAlcool initiative, which gave the country a head start on the United States and other economic titans.

Now, Brazilian ethanol costs about 2/3 of what petrol costs at the pump, and even with slightly lower fuel economy (about 2 kilometers-per-liter less than regular unleaded), ethanol comes out on top in consumers' minds. As Brazilian policy has generated the market for this biofuel, international auto companies have conformed to ethanol demand with flexfuel vehicles.

So what's the next normal for this top emerging market's clean energy supply?

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Hydro and Wind: a Power "Pas-de-Deux"

Brazil's minister of mines and energy, Edison Lobão, called wind energy the "princess of alternative energy" this week. In fact, I'm hearing enthusiasm for wind energy development in my conversations with government officials, industry heads, and beach bums alike.

And I have an idea who the "prince" of Brazilian renewables may be.

Right near where I am in Copacabana, there's an outcropping where the wind whips around so hard that the beautiful bossa nova music you hear while sitting on the rocks could be your last tune. . . if you decide to take a swim.

That dance of the wind and water extends from the seashores into the depths of the Amazon, where flow-of-stream hydropower is supplanting dam construction as the most environmentally friendly method of bringing electricity to underserved regions.

Lauro Fiuza, head of the Brazilian Wind Energy Association, pointed out this week at the Renewable Energy Finance Forum that hydropower wanes to 50% of capacity in the second half of every year. . .

That's right when wind energy picks up, so Brazil's national bank for development, BNDES, is funding up to 80% of projects to tie hydro and wind in a comprehensive power program.

It's all part of ProInfa, the government's national plan for expanding alternative electricity resources.

What ProAlcool has been to vehicular fuel in Brazil, ProInfa is to power.

And Brazil is committed to leading the Latin America-Caribbean region in renewable energy's contribution to skyrocketing industrial and household demand.

Residential electricity demand in the LAC region is expected to quadruple by 2030, according to Lori Kerr of the Inter-American Development Bank. That includes more rural households coming online and urban households in developing countries being able to afford more electronic equipment by the year (the street markets here are full of Nintendo Wii systems!).

Here's the kicker, though. . . While BNDES and other government support structures are very important to creating concerted national energy strategies, the IADB pegs private investment as the key factor.

80% of the investment required to satisfy Brazil's growing energy needs will come from the private sector! $1.8 trillion is needed in infrastructure development alone by 2030.

That means stock opportunities for international investors who take the trends as seriously as locals do. . .

So we're tracking all the market movements in Green Chip International, especially November's Brazilian wind energy auction — the first the country has ever held, and a huge market-oriented step forward for ProInfa.

You may not be able to get down to Brazil to see all of this with your own eyes, but the view from here is quite promising.

Sign up for GCI to get the first crack at our stock plays on Latin American and Brazilian alternative energy expansion (many of which trade right on Wall Street).

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Boa Tarde do Rio! (Good afternoon from Rio)

Sam Hopkins

International Editor

U.S. Corn Ethanol Outlook

U.S. corn ethanol's on the ropes.

The problems start with water.

That's because domestic corn-based ethanol requires between 3 and 4.2 gallons of water for each gallon of fuel output, depending on whose numbers you trust.

Of course, the domestic ethanol industry gives the more favorable 3-to-1 ratio. Other number crunchers—some of them paid by fossil fuel interests—say the amount of H2O it takes to produce the top American biofuel is too high to justify.

"We're definitely looking at something where the cure may be worse than the disease," said one representative of the industry group Ceres, whose research focus is highlighting the potential economic harm of transitioning to renewable energy.

The real problem, though, is that ethanol is a political "maybe" in an era of decisive and broad government initiatives. Why?

The answer is that, on a worldwide scale, U.S. ethanol is in a sort of confused adolescence. It's not a newborn anymore, but it's still far from full adulthood.

From 6.5 billion gallons in 2007, the U.S. ethanol industry churned out 9 billion gallons of the biofuel in 2008. That's 52% of the world's ethanol production, but still most American motorists aren't able to put ethanol in their tanks.

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Sugar Ethanol Sweetens While Corn Ethanol Sours

On the other end of the ethanol spectrum, nearly 90% of the cars sold in Brazil can run on a flex-fuel mix of sugarcane ethanol and refined petroleum.

From humble beginnings during the 1970s oil shock, sugar ethanol outsold gasoline in Brazil last year. The sweet fuel is not only homegrown, it's also cheaper. That's not the case in most U.S. regions, where filling up with corn ethanol blends only becomes economical at astronomical gasoline prices.

Corn ethanol boosters hope for 15 billion gallons of domestic ethanol production per year by 2015, but that assumes continuous funding access and public enthusiasm...

Both are sorely lacking.

Publicly-listed U.S. ethanol producers are coming into the harsh light of the recession as energy prices plummeted and investor optimism on the domestic market cools.

Just in the past month, Illinois ethanol producer Aventine filed for Chapter 11 bankruptcy protection.

Pacific Ethanol (NASDAQ:PEIX) execs recently told investors (including Bill Gates) that it doesn't expect to make it through April, and more companies are looking shaky. PEIX in fact now trades for under 50 cents a share.

Thing is, a lot of firms like Pacific Ethanol and Aventine enjoyed nice market returns for a while.

But they couldn't hang in tough times.

Between market realities and political positioning, corn ethanol falls through the cracks.

The Regional Water Advantage

American auto makers are inching towards a higher proportion of domestic sales of vehicles that will run on E85 and other blends, but as with so many of Detroit's troubles, it may be a case of too little, too late.

We are seeing movement towards more aggressive competition within the U.S. biofuel industry. As weaker companies fail, it's clear that tacking "ethanol" onto a company's name is not the Midas touch.

Regional competition within the U.S. is also picking up, with water as a key differentiating factor between geographies.

The journal Environmental Science and Technology is showcasing a study this month that Midwestern ethanol production is easier on water resources than biofuel produced in the western U.S.

The University of Minnesota study finds that ethanol produced in California uses 2,100 gallons of water per gallon of ethanol!

Minnesota uses 96 gallons of water in similar processing facilities.

Brazil tops all the U.S. states, with the Brazilian Agricultural Research Cooperation agency rating sugar cane crops as Level 1: Zero Impact.

Climate and government initiatives combine to make Brazil the optimal ethanol environment. Some Southern U.S. states like Louisiana can grow cane in similar conditions, but the damage has been done to the corn-heavy domestic investment landscape and public opinion.

Geography matters when it comes to ethanol investing, and all renewable energy forecasts, for that matter.

That's why we like the Market Vectors Global Alternative Energy ETF (NYSE:GEX), which allows you to take a worldwide approach to your clean energy profits.

GEX is up 24% in the past month.

I'll fill you in with all the latest data and investment opportunities from Brazil next week as I take part in the Renewable Energy Finance Forum.

Regards,

Sam Hopkins

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Brazilian Sugar Ethanol

Brazil's national oil company is sitting on an energy bonanza...

But while Petrobras (NYSE:PBR) has gotten tons of press for its deepwater offshore discoveries in the past two years, 80 billion barrels of undersea hydrocarbon potential doesn't impress the Green Chip Stocks team.

Instead, this spring's 87% investment increase in Petrobras's sugar ethanol operations has us rapt.

Petroleo Brasileiro, as the company is officially named, has played a key role in the country's Pro-Alcohol biofuel promotion program ever since the oil-shocked 70s. With skyrocketing prices and total reliance on foreign supply, the military government decided to develop domestic fuel alternatives.

A generation of dithering in "developed" countries has made Brazil, now a thriving democracy with the world's 10th largest national economy, the envy of economic pacesetters like the U.S. and Japan.

Brazilian government officials and Petrobras execs now have the ears of Department of Energy officials in deciding what it takes to integrate biofuel throughout the energy economy.

And Petrobras is putting its money where its mouth is with a new business plan, spending 2.4 billion dollars to advance production both at home and abroad.

In fact, out of 3.6 billion liters of its output goal for 2013, 1.9 billion will go to foreign markets. That's more than half of the target.

To achieve that by 2013, Petrobras will either build, enhance, or buy 7 ethanol and biodiesel plants.

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The company will spend over half a billion bucks—$530 million—on research and development, showing they're not content to sit on generations-old fuel technology.

Frankly, if they did, we wouldn't lend them any more credence than we did fly-by-night U.S. corn ethanol companies. We stayed away, and they eventually got unwound by the market.

In this case, Brazilian ethanol not only looks promising to its proud parent Petrobras, but also to foreign partners like Portugal's Galp Energia.

Petrobras Recognizes the Peak Oil Reality

Galp is also a collaborator in the Tupi deepwater operation mentioned above, and even though fresh reports in early March say Tupi's oil can be produced profitably at $40 oil, Galp is going for ethanol.

Maybe that's because Galp and Petrobras's other partner in Tupi, Britain's BG Group, know Tupi may peak as soon as 2015...

That's just two years after Tupi's petroleum production is first expected to hit high gear!

As Petrobras straddles the energy peak with one foot in fossil fuel and the other in ethanol, it's not a pure play on clean energy.

However, Petrobras has all the marks of a comprehensive worldwide power player.

Among the foreign markets Petrobras is targeting for over half its 2013 output, the new business plan has Petrobras prioritizing Latin America and Africa. With ties to Galp in Portugal and other former Portuguese colonies like Angola and Mozambique, Petrobras can do a lot of good in developing Africa's clean energy economy.

In richer Japan, Petrobras is engaged in a joint project called Brazil Japan Ethanol (incidentally, there are over 1.4 million Brazilians of Japanese descent).

Japan, with 3 times the GDP of Brazil, is taking baby steps when it comes to ethanol. They're trying to incorporate E3, a 3% ethanol blend, into their gasoline.

Petrobras, meanwhile, is emphasizing "second generation" feedstock, i.e. utilizing waste from the initial sugar-to-ethanol refining process.

Brazil and Petrobras have stayed a step ahead, and we don't expect them to give up that position any time soon.

Regards,

Sam Hopkins

International Editor

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Green Energy Websites

The number of websites claiming to cover the green investment arena has seemingly grown as fast as the sector itself.

Green Chip Stocks, of course was the first online advisory to focus exclusively on cleantech and organics—long before the bandwagon got rolling.

Now though, a Google search of anything cleantech-related will offer hundreds of articles from so-called 'experts'.

But beware, in this market phenomenon known as the Cleantech Revolution, posers abound. And so do misinformation and outright lies.

Be warned. When it comes to cleantech market information, Green Chip was the first on the scene, and continues to offer credible market information to hundreds of thousands of investors week after week.

Others, however, many times do not.

Green Energy Posers: A Case Study

Consider this recent example I discovered. In an effort to alleviate their embarrassment, I'll call this site greenx.com—a supposed online green investment advisory that boasts as its tagline: "Your guide to clean technology investment opportunities in America."

Nice try, guys. But this one's a hack job.

I browsed their site and, from what I can find, there's been only one issue. And they tout only one stock.

If it sounds shady, it probably is...

Their homepage boasts UBRG as their top cleantech stock pick, without even stating the full name of the company or what it does. Allow me to fill you in.

UBRG, better known as Universal Bioenergy, is in fact a cleantech stock. What the site doesn't tell you, however, is that UBRG is listed on the pink sheets and has limited business operations. More of a company with a cleantech name than a cleantech company.

The website goes on to tell you that UBRG is involved in the biodiesel industry. An industry, they say, that could "free America from its dependence on foreign oil."

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To do that, we'd have to produce about 199.29 billion gallons of biodiesel annually. That's a conservative 13,000 thousand (13 million) barrel-per day import rate times 365 days.

We haven't even crossed the 1 billion gallon per year threshold here in the U.S. In fact, we produced about 784.6 million gallons of biodiesel last year, according to the most recent numbers.

What's more, UBRG didn't produce one gallon of it!

UBRG's own website says the company "plan[s] to manufacture biodiesel starting in 2009 using our unique compact plant design."

Yet, the site in question (greenx.com) claims Universal Bioenergy is "at the forefront of the green technology revolution."

If by 'forefront' they meant 'doghouse', then they nailed it.

In case you're interested, here is a chart of this website's "top pick" over the past year:

It's gone from five months of no volume and stagnant price to spikes in volume amid a rampant sell-off. I won't say it outright, but I bet somebody had a nice short interest in the stock around the time the 'publicity' began. The term 'pump and dump' comes to mind.

To summarize their view: This must-own stock is at the forefront of the green technology revolution and is involved in an industry that could free American from foreign oil.

But the company produced no biodiesel in 2008 and its price has fallen from $5.00 to below $1.00 in the past four months.

Stay away!

Even the company in question, Universal Bioenergy, has released a statement questioning the "accuracy of information and quality of information" being published by third parties.

Here's an excerpt of the company's release:

After reviewing these materials, the company has found errors in statements concerning the company's status and capabilities. . . Universal recommends investors disregard any information published by third-parties.

Universal is a developmental stage company with limited operating history. To date it has not generated any revenue. Anyone considering purchasing securities of this company should review its filings with the Securities and Exchange Commission.

Stick With the Best - Green Chip Stocks

I guess the point here is to be careful. Anyone with a computer can throw up a website and dish out cleantech investment 'advice,' but only Green Chip has been doing it since the beginning.

So whether it's keeping up with the latest cleantech policy in Washington or learning about the most recent solar technology breakthrough, stick with us.

We'll continue to deliver the facts as we see them, so you can have the best advantage when green investment time comes.

Check out the site. Explore the archives and, by all means, take a look at the product page.

We're confident you'll find everything you need to turn a tidy profit in the cleantech market.

Just be weary of poser sites and misinformation. They seem to multiply by the day.

Call it like you see it,

Nick

Clean Energy Fuels

Editor's Note: There has been a lot of buzz generated for our Alternative Energy Clock, so we wanted to introduce it to all of our readers who haven't had a chance to see it yet.

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Now on to today's Green Chip Review...

Every once in a while, I get a question from a subscriber that I feel all Green Chip Review readers should get a chance to hear the answer to.

Last week, I received such a question.

It comes from Lawrence S. in Massachusetts, and he asks, "In light of the negative political situation in California, what is the foreseeable future for Clean Energy Fuels (NASDAQ: CLNE)?"

Great question, Lawrence. Let's get to it.

Californian Energy Policy

Before we can get into the specifics of Clean Energy Fuels, we must first take a broad look at the general policy climate in California regarding alternative energy, which has obviously been more favorable than the national climate.

It probably goes without saying that California is the most progressive state when it come to clean energy legislation.

According to my colleague, Chris Nelder, who lives in California:

We now have the most aggressive RPS (renewable portfolio standard) in the country. If we were a country of our own, we would rank third in the world for solar energy. We currently have the nation's biggest solar incentive program, the $3.2 billion "Million Solar Roofs" program.

Nelder added that California also enacted the California Global Warming Solutions Act of 2006, which seeks to roll back the state's greenhouse gas emissions to 1990 levels by 2020—a similar model to the Kyoto Protocol.

Since California's RPS was established, the state's investor-owned utilities have negotiated to purchase between 2,945 and 4,433 MW of renewable energy capacity. That's between 9% and14% of all electricity used in the state!

And, just a few weeks ago, the Governator signed a slew of new renewable energy bills into law. Here they are, and what they mean:

AB 1451: Extends the current property tax exemption to 2016, and provides clarifications to make it useful for new construction. Drops the price of utility-scale solar about a penny/kWh, and generally makes everything we are trying to do with energy in the state, from AB 32 to the California Solar Initiative to the Renewable Portfolio Standard, cheaper and easier.

AB 2768: Removes the requirement for time of use rates from SB1, allowing people to maximize the value of their solar systems.

AB 2466: Allows for aggregate account net energy metering for local governments. Will turbocharge municipal solar efforts.

SB 1754: Authorizes the California Alternative Energy and Advanced Transportation Financing Authority to enter into renewable power purchase agreements.

AB 2863: Helps clarify some issues and establishes consumer protection for residential solar power purchase agreements.

Schwarzenegger also vetoed AB 2269, which would have allowed the Los Angeles Department of Water and Power to raid public solar incentive funds—money that was supposed to help residents put solar on their roofs—and instead use it for utility-owned systems.

All that was just a few weeks ago. But California also has some very interesting clean energy initiatives coming up for a vote in the upcoming election.

Future Californian Clean Energy Policy

On Tuesday, November 4^th, Californian voters will have the chance to vote on several clean energy propositions.

Here's a quick rundown of the propositions on the November ballot, along with their implications for the state (I'll get to investment opportunities in a second):

Proposition 1A: Safe, Reliable High-Speed Passenger Train Bond Act—Provides long-distance commuters with a safe, convenient, affordable, and reliable alternative to driving and high gas prices with state costs of about $19.4 billion, assuming 30 years to pay off both principal ($9.95 billion) and interest ($9.5 billion) costs of the bonds. Payments of about $647 million per year, to be offset by passenger fare revenues
Proposition 7: Renewable Energy Generation Initiative Statute—Requires utilities, including government-owned utilities, to generate 20% of their power from renewable energy by 2010, a standard currently applicable only to private electrical corporations. Raises requirement for utilities to 40% by 2020 and 50% by 2025 with an increased state administrative costs of up to $3.4 million annually for the regulatory activities of the California Energy Resources Conservation and Development Commission and the California Public Utilities Commission, paid for by fee revenues
Proposition 10: Alternative Fuel Vehicles and Renewable Energy Bonds Initiative Statute—Provides $3.425 billion to help consumers and others purchase certain high fuel economy or alternative fuel vehicles, including natural gas vehicles, and to fund research into alternative fuel technology with a state cost of about $10 billion over 30 years to pay off both the principal ($5 billion) and interest ($5 billion) costs of the bonds.

With all this background in mind, let's get to the original question, "In light of the negative political situation in California, what is the foreseeable future for Clean Energy Fuels (NASDAQ: CLNE)?"

This is where Proposition 10 comes crucially into play. That bill, as mentioned earlier, would provide $3.425 billion to help consumers purchase mainly natural gas vehicles.

If it passes, Clean Energy Fuels will absolutely soar.

You see, Clean Energy Fuels is already the primary provider of natural gas as a vehicle fuel in California.

Here's their chart for the past year:

It wasn't until early last year that natural gas as a vehicle fuel really came into the spotlight. This was because of an extensive project at the Ports of Los Angeles and Long Beach that aimed to replace the thousands of dirty diesel trucks that operated in the port with clean-burning natural gas vehicles.

The spike in late July came just as the Pickens Plan was announced. That plan calls for shifting a great deal of the natural we use to generate electricity to fuel vehicles. The gap left in electricity supply would be made up using wind energy.

Now, this plan has merit as a bridge to a completely clean energy future. But is also offers massive opportunity for profit.

You can bet that's what the billionaire T. Boone Pickens is after. In fact, he owns more than 47% of Clean Energy Fuels, the company providing most of the natural gas for the ports project.

Undoubtedly, if Proposition 10 passes, Clean Energy Fuels will get a nice bump, setting up T. Boon and other savvy investors for windfall profits.

To that end, Clean Energy Fuels has donated $7.7 million to ensure the measure passes, along with three other companies.

I'd want to buy these shares before the vote on November 4^th.

So that's the story with Clean Energy Fuels as it relates to the current Californian political and policy landscape.

But that certainly isn't the only way T. Boone is making boatloads of profits in the clean energy sector. He has a few initiative that will make him (and the savvy investors that follow him) even more.

I've prepared a full report on the Pickens Plan, and how you can profit from it. Be sure to check it out.

Call it like you see it,

Nick

Clean Energy in China

The clean energy market in China will be worth $186 billion in about two years' time. Clean energy in China will be worth $555 billion—or over half a trillion!—in the next twenty years.

Knowing this, the U.S. government has been leading a clean energy and environment "trade mission" to China.

One of the results of that trade mission was the signing of a 10-year framework that will expand cooperation in areas such as clean electricity production and transmission, as well as efficient transportation.

According to David Bohigian, the U.S. Assistant Commerce Secretary"

The 10-year framework we put in place includes transportation technology, clean energy technology, clean water, clear air, and forestry and wetland protection. What we are doing now in the first year of the plan is to develop deeper relations and really build the trust that will make sure we meet our goals, such as China's five-year plan.

This, of course, is contrary to the popular notion that China is a neophyte in the area of clean energy. The Bush administration actually used China's lack of initiative regarding clean technology as their main reason for not ratifying Kyoto. Now, they're signing decade-long clean technology cooperation agreements with them. Go figure.

But despite the commonly held notion that China is behind the new energy curve, they actually have some very progressive energy policies and targets.

As the second-largest energy consumer behind only the U.S., the emerging Green Dragon is proving to be a hotbed of investment activity for clean technology.

Let's go over some of China's energy aspirations and take a look at how they're proceeding so far.

China's Clean Energy Goals

China, for as quickly as it's developing, is actually doing quite a good job in making sure policy keeps pace with growth.

With such a huge population—1.3 billion and climbing—and a growing thirst for energy, Chinese officials know they need to progress very carefully to ensure they have enough energy to sustain growth.

Yes, China is still heavily dependent on coal. But they're also the world's largest user of hydroelectric power, and they'll continue to dominate that arena upon the completion of the Three Gorges Dam, which is already producing copious amounts of power with more generators still to come online.

But China knows coal is dirty and finite. And they also know that nearly all the good hydroelectric sites have been exploited. So, almost by default, they know they need clean energy in China.

Here's how they're going to get it:

a renewable energy budget of $293 billion for the next 12 years
a 15% renewable energy target for 2020
a $205 billion environmental protection budget through 2010
a new "circular economy law" to take effect Jan. 1 that forces industrial enterprises to adopt water-saving technologies, strengthen management, and install water-saving equipment in new buildings and projects

So let's see what China's done so far.

Clean Energy in China*

Under this umbrella category, I'll cover the major clean energy industries in China, their current and projected growth rates and capacities, and any relevant investment opportunities in each.

Wind Energy in China

From 2000 to 2007, the capacity of wind energy in China grew from 346 megawatts (MW) to 5,912 MW. That's a total growth of 1,609% and a compounded annual growth rate (CAGR) of 50%!

Take a look:

Between 2007 and 2012, the Chinese wind industry is expected to grow even faster, from 5,912 MW to 51,200 MW. That comes out to a surging 54% CAGR in for the next five short years. Check it out:

Here are the largest wind companies currently operating in China, along with their 2007 revenue from wind installations in that country:

Goldwind Science and Technology (SHE: 002202), $928 million
Vestas Wind Systems (CPH: VWS), $641 million
Sinovel Windtec Co., $601 million
Gamesa Corporacion (MCE: GAM), $467 million
GE Energy (NYSE: GE), $293 million

Also ramping up wind business in China are Suzlon Energy (NSE: SUZLON), Dongfang Electric (HK: 1072), and Acciona (MCE: ANA).

Solar Power in China

Solar energy in China has been nearly as prosperous.

From 2000 to 2007, solar capacity in China grew from 19 MW to 100 MW. That's a growth of 426% and a CAGR of 26.8%. Check it out:

From 2007 to 2012, the Chinese solar industry is expected to grow even more, from 100 MW to 462 MW in five years— a growth of 362% and a CAGR of 35.8%. Take a look:

Of course, this doesn't take into consideration the massive amount of solar panels coming out of China that are used in other countries.

Other than Germany, China is the only other dominant producer of solar cells and modules. In fact, with their low production costs, China is expected to begin supplying an increased portion of European and U.S. solar materials.

Companies to watch here include Yingli (NYSE: YGE), Renesola (NYSE: SOL), Solarfun (NASDAQ: SOLF), JA Solar (NASDAQ: JASO), and Suntech Power (NYSE: STP).

Biofuel in China

By 2012, ethanol production in China will grow to 1.24 billion gallons. That's up from just 51.4 million gallons in 2000, or an increase of 231%.

Biodiesel production, for its part, will grow from 207.1 million gallons in 2007 to 2.5 billion gallons in 2012, an increase of 1,108%!

Companies to watch in the Chinese biofuel sector include China Sun Bio-Chem (SIN: C86), Asia Bio-Chem Corp. (CVE: ABC), New Oriental Energy & Chemical (NASDAQ: NOEC), China Clean Energy (OTCBB: CCGY), and Gushan Environmental (NYSE: GU).

Investing in Chinese Clean Energy

Indeed, the clean energy boom in China is just getting started.

For the past few years, China has been slowly building its portfolio of clean energy technologies.

Now, with a global pullback in stocks, the time is approaching to start adding these future gems to your portfolio.

China's appetite for energy is only going to surge upward, along with their booming population.

That fact, combined with China's rapid economic growth, the high price of oil, and concerns over energy security, make a perfect recipe for vast renewable energy market growth.

Not only will China be using their growing energy expertise to satiate its own demand, but it will also be exporting its technology to Europe and the U.S., as evidence by the already signed 10-year cooperation agreement.

Even though the global economy is in a downturn, prosperity will return to China. Getting in now, before the major growth kicks in, will surely prove to be a boon to any investor's portfolio.

With that in mind, Green Chip International is devoting a portion of its portfolio exclusively to clean energy opportunities in China.

You'll get in-depth research like this, along with up-to-the minute buy and sell recommendations. Take a few minutes to look over everything Green Chip International has to offer.

You can get a free book just for checking it out!

Call it like you see it,

Nick

*Statistics from GlobalData

Investing in Renewable Fuels

We've been talking about cellulosic ethanol as a way of investing in renewable fuels for over a year now.

By now, anyone who follows the ethanol industry even semi-closely knows that cellulosic ethanol is the future of renewable transportation fuels.

But for all the talk and ballyhoo, a commercial plant has yet to be opened here in the U.S., though there are at least two under construction. Many claim to be the first, but here's what I found.

The first was announced in November 2006, is being built by the Broin Companies in Iowa, and will produce 125-million gallons per year (GPY) from corn fiber and corn stover.

The second (which is the one usually cited as first) was announced in July 2007, is being built by Range Fuels in Georgia, and will ultimately produce 100-million GPY from wood and wood waste.

Those are commercial scale plants. There are already numerous pilot and demonstration plants in place and producing cellulosic ethanol, but scaling up has proven to be an issue.

Renewable Fuels: What in the Cell is the Hold Up?

Ok, I'm going to give a semester-long science lesson in just a few minutes, so bear with me. It is vital to understand the scientific fundamentals of the renewable fuel industry before we get to the investment angles.

In order to produce cellulosic ethanol, the cellulose must first be extracted from the feedstock. This has proven exceedingly difficult because the carbohydrate polymers (cellulose and hemicellulose) are firmly bound to the lignin, which is a complex compound, mostly derived from wood, and a vital part of plants' cell walls.

This can be done one of two ways.

In the first method, called cellulolysis, the feedstock is first pretreated to separate the cellulose from the lignin.

The cellulose molecules, which are long chains of sugar molecules, are then broken down into individual sugars. This is done with either a chemical acid reaction or an enzymatic reaction.

The chemical process, used by Bluefire Ethanol (OTCBB: BFRE), attacks the cellulose with acid in the presence of heat and pressure. The reaction produces individual sugar molecules, which can then be neutralized and fermented into ethanol.

The other option uses Mother Nature as its driving force. It uses bacterial enzymes, like the ones in the stomachs of ruminants. These specialized enzymes break the cellulose down into individual glucose molecules, which are then fermented into ethanol.

This has become the heart of the cellulosic ethanol industry: engineering the best enzymes to break down the cellulose into usable sugar.

It all comes down to which company can get the most usable sugars from its feedstocks. And the race is still wide open.

Here's the problem: the traditional fermentation process uses standard baker's yeast, which produces ethanol from hexoses, a 6-carbon sugar. But because of the complexities of the carbohydrates in cellulosic feedstocks, many of the sugars derived are 5-carbon sugars, which are harder to break down and ferment.

In fact, up to 30% of the total fermentable sugars derived from corn stover are 5-carbon sugars. And that's much more than optimal.

So it's vital to find enzymes and yeast that can digest and ferment both types of sugars to make the process more efficient and economical. Whichever company does that wins - plain and simple.

Investing in Cellulosic Ethanol Companies

Well, we already know that Bluefire (OTCBB: BFRE) is one of the only games in town on the chemical process side. That stock has been volatile lately, only popping on good news or the rare occasion that a grant is accepted. If you can handle the risk, don't pay more than $3.00 for this stock.

On the enzymatic side, there are numerous players, both in enzyme manufacturing and ethanol production:

Verenium (NASDAQ: VRNM) looks to be one of the early winners there. They had a nice pop back in July after a joint announcement with BP (NYSE: BP), but have since sold off. Again, if you can handle the risk, under $2.00 is buying territory for that company.
If you trade internationally, you'll want to take a look at NOVOZYMES (CPH: NZYM). This Danish company is to the cellulosic ethanol industry what Vestas (CPH: VWS) is to the wind industry. . . a juggernaut.
Many of the other emerging leaders in cellulosic production (meaning they own the production assets and license the enzymes) are privately held. Those companies include Iogen, Coskata, Range Fuels, POET, Mascoma, ZeaChem, American Energy Enterprises, KL Process Design Group, and SunEthanol.
If you're interested in a non-pure play, Dupont (NYSE: DD) has established a joint venture with Danisco (CPH: DCO) subsidiary Genencor to invest $210 million over the next three years to commercialize cellulosic ethanol.
Abengoa (MCE: ABG), a Spanish company, has built a pilot plant in Nebraska and has a $300 million plan to build a commercial facility in Kansas.
For another risky play, check out Cleantech Biofuels (OTCBB: CLTH), which is working with Hazen Research to start building the precommercial stages of a solid waste-to-ethanol project facility in Golden, Colorado.
Lastly, SunOpta (NASDAQ: STKL) has been rebounding nicely after some rough times earlier this year. Though a small part of its business, SunOpta provides a pretreatment technology called "steam explosion" that allows cellulose to be more easily converted into sugars. Their process was used in each of the first three demonstration plants worldwide.

Indeed, investing in cellulosic ethanol is a wait-and-see game right now. It's probably worth picking up shares of companies involved on the enzyme side of things before venturing into the producers.

Ultimately, it could be an established corn-based ethanol company like VeraSun or Pacific Ethanol, that licenses enzymes and retools their current facilities, which emerges as the winner.

One thing's for sure. If there is ever solid news from one of these companies, or the investment climate improves, the Alternative Energy Speculator will be all over it. Check it out—the worst you can do is walk away with a free book.

Call it like you see it,

Nick

U.S. Biofuels Market

The Bush administration is standing strong on its intensive ethanol push. So why is a top American company shifting its emphasis to Brazil? The answer is that there are too many political question marks in the developing U.S. biofuels market.

Let's look at what went down in Washington this week. None other than Dubya's successor, Texas Governor Rick Perry, had filed a request with the Environmental Protection Agency to halve ethanol requirements because he says they are causing severe economic harm to his state's ranchers and food producers.

Livestock ranchers and farmers are hog wild at the dizzying swings in corn prices. The commodity spot price for the grain dropped off a cliff in July alone after more than doubling since last August. Those who utilize corn as a primary feed blame the price jump on the sevenfold increase in ethanol's contribution to the national fuel supply.

Under law, the EPA can change mandates if the damage is seen to be severe.

But the feds rebuffed Texas, sticking to the Renewable Fuels Standard that sets the following targets for ethanol as part of the nation's gasoline mix:

7.5 billion gallons of renewable fuel (ethanol and biodiesel) per year by 2012, and
36 billion gallons by 2022

Responding sharply to the administration's intransigence on Thursday, Governor Perry said, "Any government mandate that artificially props up a single industry to the detriment of millions of Americans is bad public policy."

What about the price decline we're witnessing now? Well, the wheels for Texas's protest were already in motion by late April, well before the time corn dove back down in the past month. Plus, many market observers and worried politicians think we're locked in a long-term uptrend as long as ethanol decouples corn from traditional grain demand sources.

ADM Making Biofuel Moves in Brazil

Archer Daniels Midland Company (NYSE:ADM), the top grain processor in the world, is kicking off a major project in Brazil's sugar-based ethanol industry after suffering a 58 cent-per-share profit drop on Wall Street this week.

London's Financial Times reported that ADM has found the U.S. market to be more of a hindrance than a help when it comes to turning biofuels into bucks.

Executive VP John Rice said that a combination of higher input costs from corn, labor, and even steel for facilities are slamming ADM's balance sheet, which helps explain the new focus on Brazil.

"We don't see the margin out there right now and finding capital is also very tough."

In the U.S., where a phalanx of lobbyists and legislators have created one of the heartiest subsidy regimes in the developed world, finding capital is very tough?

For Pete's sake, ADM alone spent $330,000 on lobbying in the second quarter of this year alone...

And that got them and other players like Monsanto, Deere, and Dupont a nice chunk of future income from the $300 billion farm bill this year.

The point is that biofuel isn't just big business, it's big politics.

John McCain is against subsidies for ethanol and all other farm subsidies, but Barack Obama knows that in his home state of Illinois and throughout the central states there are entire towns—and potentially millions of voters—banking on biofuels.

As for ADM balancing Brazil and domestic U.S. production, CEO Patricia Woertz says investment in sugar ethanol directly and through partners is of strong interest to the company. She also played off a possible win for Brazil at the World Trade Organization that would call foul on U.S. corn subsidies.

Perhaps ADM would be better served by developing the best technology rather than spending tons on propping up sources like corn that are proven to be inefficient.

BP is working both ends, saying this week that along with Verenium Corp., they're developing cellulosic ethanol technology that would use plant waste instead of straight grain feedstock.

We're keeping an eye on the entire international biofuels scene here at Green Chip Stocks and Green Chip International, and not throwing the baby out with the bathwater. There is a good chance that winning biofuels will come out of this period of investment and experimentation.

We'll let you know about the best opportunities for investment as they emerge.

Regards,

Sam Hopkins

Food, Energy & the WTO

You may have heard that the latest round of World Trade Organization talks just collapsed. The main sticking point was agriculture. Yet energy is easily on par with farm goods at the top of everyone's economic worries.

So what's the WTO doing on energy, and biofuels in particular?

China and India helped scuttle this round of WTO talks, dubbed the Doha round after the capital of Qatar where it originated back in 2001. The Middle Kingdom wants to keep up its Great Wall of tariffs to fortify domestic agriculture and avoid shortfalls in staples like rice and wheat. That's the same tune we've heard from developed countries and other emerging markets like India and Brazil.

But the flipside of one country gaining market access is, well, that country allowing market access. In 2001, China gained admission to the WTO by lowering major trade barriers, and in return it got to unload its cheap goods on the West.

Now, domestic protectionism and rising food prices are pushing China, India, and Brazil to demand less free flow in agricultural goods, even while they want trinkets and cars to move without obstacles. Of course, it takes more than one party to cause an impasse, and the U.S. trade representative Susan Schwab told reporters that China's desired increases could have put new tariffs on soybeans in 8 out of the next 10 years.

Too bad, because agreements on farm goods were a necessary first step in getting to real debate on the food-fuel question.

Brazil is even threatening a "blockbuster" WTO case against the United States over our propping-up of corn ethanol against superior Brazilian sugarcane fuel. The U.S. is the world's largest ethanol producer, but Brazil is the largest exporter even with American resistance. Under the framework of the Doha round, this dispute was supposed to be settled. Now all bets are off, and all grievances are back out in the open.

You see, the interplay between food and fuel isn't just about riots when tortillas get too expensive (Mexico) or petrol is so dear that truckers block highways in protest (Spain).

A breakthrough on the U.S. corn subsidy would net billions for Brazilian ethanol market movers like national oil company Petrobras (NYSE:PBR), and it's not accidental that the government-backed company is being supported in international trade talks by friendly federal negotiators.

Brazilian trade hawks also have nature on their side.

Brazilian Ethanol for the U.S.? Better, Not the Best

Floods in the Midwest this summer caused bottlenecks in ethanol shipments to the coasts, prompting calls to remove the 54-cent-per-gallon ethanol import tariff for the sake of our own energy security.

The U.S. already lost a 2005 WTO case brought by Brazil which charged that American cotton subsidies hurt producers in other countries by depressing prices. As important as cotton is to the world economy, trade distortions in fuel markets have more impact mentally and at market. The U.S. will have to acknowledge its domestic crutch as a major point of inefficiency in global trade.

Trade chiefs all around the world are scrambling to rescue the Doha round now, and the world press is touting the stand of China, India and Brazil as the dawn of a new era where the U.S. and European Union can't simply impose their will on meeker members of the WTO.

I'm personally fine with a new world order emerging, but it has to be a real world where global problems can be addressed with minimal bellyaching and much more political maturity than we've seen. Rioters don't know about hushed trade discussions in their capitals, and ministers are often too far removed from the man on the street to notice anything but demonstrations. By the time sparks fly, it's too late.

And without ongoing dialogue about food and fuel issues in the WTO, a real worldwide solution will only come piecemeal and slowly.

Regards,

Sam Hopkins

P.S. - We're not waiting around for trade czars to get it together at the WTO. There are bilateral and internal measures already in place that push winning solutions to food and fuel crises—often both at the same time through seed science. The Green Chip International portfolio is doing biofuels right, and profiting. Learn more today. http://www.angelnexus.com/o/web/7135

Investing in Algae Biofuel

When the price of oil rises just one dollar, the Pentagon's fuel expenses climb an astounding $130 million.

So the $50 rise in oil prices over the past six months has taken over a half billion dollar toll on the U.S. government. And that's on your dime.

Obviously the massive machinery needed to transport troops and equipment by air, land and sea is the reason for the military's high fuel use. But just how much does the Defense Department—the government's largest consumer of petroleum products—spend on fuel?

According to Lt. Col. Brian Maka, "we anticipate over the next three months that the increase in fuel costs for the department [will be] $1.2 billion." With a fuel bill like that, you can bet the Pentagon is going to use its huge R&D resources to look for alternative fuels, including algae biofuels.

In fact, back in February, the National Renewable Energy Laboratory (NREL) and the Air Force Office of Scientific Research (AFOSR) held a joint summit with outside experts to to discuss a variety of issues related to algae biofuel production for jet fuel.

I know more than a few of you are interested in investing in algae biofuel, so let's take some time to explore the basic economies, capacities and companies associated with algae biofuel production.

Problems with Current Fuels and Biofuels

In order to determine the benefits of algal oil, we first have to identify some of the problems that it could solve. Many of these issues are well-known, but they're certainly worthy of repitition.

The most obvious is a shortage of petroleum reserves and supplies increasingly being attributed to peak oil. And then there's the rapidly rising price of petroleum, which has gone up 90% in the past year—and is constantly breaking new highs.

What's more, the U.S. has a serious energy security problem. We consume 20.7 million barrels per day (bpd), while importing 12.4 million bpd—leaving us 60% dependent on petroleum imports.

And while crop-based biofuels initially offered a glimpse of relief, their contribution to rising fuel prices (even though drought, lower yields and higher demand are the main causes) has led first generation biofuels to essentially be labeled the fourth member of the Axis of Evil.

But what most don't realize is that rising food prices also hurt crop-based biofuels producers, who obviously have to pay higher prices for their feedstocks like corn and soy oil. Soy oil prices, one of biodiesel refiners' favorite feedstocks, have risen more than 35% in the past six months.

So more and more, the industry is realizing that crop-based biodiesel is not the most promising avenue, what with unstable prices and their limited capacity. NREL, for example, deemed that the entire U.S. soybean crop could only provide about 2.5 billion gallons per year (bgy) of biodiesel. And worldwide production of biodiesel from all oilseed crops can only yield 13 bgy.

That's less than a drop in the bucket when you consider U.S. diesel demand alone is 60 bgy. So at the end of the day it's a food vs. fuel issue, not on a cost basis—food prices are going to rise anyway—but on an availability basis.

Benefits of Algae Biofuels

Significant production of algae biofuels could solve a great deal of those problems.

That's because algae, or microalgae, has a much higher productivity potential than crop-based biofuels.

Here's a chart showing various feedstocks and their potential oil yield per acre. (note: g/m2/day is the harvest rate of the algae and % TAG is the percentage of triglycerides

These high yields can be attributed to algae's high growth rate, which is often monitored in hours instead of days, and has inputs of only land, sunlight, water, carbon dioxide (potential for carbon credits) and nutrients.

And while deriving fuel oil from algae has been cost prohibitive in the past, oil on its way to $150 per barrel or higher certainly makes it an attractive alternative.

Plus, the algae growth cycle can actually be used as a carbon sequestration mechanism because carbon dioxide is the primary input required by algae to grow. In fact, if the U.S. were to derive all its diesel from algae (60 bgy), the growth of that algae could displace 56% of U.S. power plant emissions.

Growing algae is also very water efficient. Producing enough to make 60 bgy of biodiesel could require as little as 16 trillion gallons of water. To put that in perspective, we use 4,000 trillion gallons of water per year to grow corn in the U.S.

The best part is, algae can grow in brackish, saline and wastewater, further reducing the amount of freshwater needed to grow it. And the nutrients in wastewater actually feed the algae, making it possible to cultivate at any one of the 5,100 wastewater treatment facilities nationwide.

And the benefits go on.

No one country (or host of hostile countries) has a monopoly on algae production or the algae production equipment.
Algae can grow in temperatures ranging from below freezing to 158 degrees Fahrenheit
It is not in direct competition with food crops
There are a multitude of algae biofuel value-added byproducts like syngas, high-protein animal feeds, agricultural fertilizers, biopolymers (plastic), glycerin and even ethanol and jet fuel.

Investing in Algae Biofuel Companies

There have been limited investment opportunities so far in the algae biofuel arena despite all its promise and potential. So far, it's been sort of a throw it at the wall and see what sticks kind of strategy.

This is so because of the fair amount of companies pursuing the technology, each keeping their methods and processes under lock and key.

Here's a list of some companies dabbling in algae growth, harvesting and algae biofuel production:

GreenShift Corporation (GERS.OB)
Nanoforce Inc. (NNFC.PK)
Valcent Products Inc. (OTCBB: VCTPF)
Green Star Products (Pink Sheets: GSPI)
OriginOil, Inc. (OTCBB: OOIL)
PetroSun Inc. (Pink Sheets: PSUD)

But don't let the presence of all these tiny companies fool you. This is a legitimate technology also being pursued by the big boys, like Royal Dutch Shell (LSE: RDSA).

If I had to place a bet right now, I'd lean toward OriginOil or Valcent, but that's based purely on proven work and technology development to date.

This is still a nascent industry that's receiving gobs of money in the venture capital realm. When the dust settles, it could be a tiny start-up company (like the one springing up from major research institutions around the country) that find a winning solution.

One thing is for sure, this is exactly the kind of opportunity we love at the Alternative Energy Speculator: new technology with an enormous upside.

As this scenario unfolds, you can be sure those readers will get first crack at any companies capable of bringing algae based fuel to market in a scalable fashion.

So sign up today to make sure you don't miss it, and you'll be taking other alternative energy related profits in the process.

Call it like you see it,

Nick

UN Biofuels Food Fight

Dear Friend,

Sam Hopkins originally wrote the following article for Green Chip International premium subscribers, but the second I read it I told Sam he hit the nail right on the head and we had to get it to a wider audience.

The long and short of it is that renewable energy investment can be dizzying. As Sam tells here, politicians are now assailing biofuels as a "hazardous distortion" of the international food trade and even as a "crime against humanity."

But real insight and advantage comes from looking at the big picture and investing with the world in mind.

Sam's going to be over in Europe very soon, visiting companies and exploring new technologies. He'll tell Green Chip International subscribers about them all, with emphasis on ideas that will be lucrative for years—not just until the political breeze changes direction.

Regards,

Jeff Siegel

A Biofuels Food Fight at the UN

If knee-jerk reactions could power cars and planes, the world's politicians could replace fossil fuels in a matter of months.

At the beginning of June, the United Nations World Food Summit turned into a tag-team tirade against biofuels.

At home, leaders like Egypt's Hosni Mubarak and Mexico's Felipe Calderon are dealing with riots over skyrocketing food prices—increases that many market observers blame on interest in growing crops for fuel rather than human consumption.

I don't need to remind you, but last year around this time you could pick up any major newspaper and read about the wonder and promising riches of ethanol and biodiesel.

Now, politics is turning heads of state against ethanol and other fuels, even though most countries have no better alternative proposals.

At Green Chip Stocks and Green Chip International, we've always promoted the order of operations that will get us off of fossil fuel addiction...

First, reduce consumption.
Second, start investing in solutions to fill lower energy needs.
Third, bring those ideas to market and let technologies and efficient methods compete.

What happened instead was a frenzy to plant as much corn (or sugar, or palm trees) as possible while speculators bid up prices on the world's commodity exchanges.

That market mania—not biofuels being a rotten proposition—is what got us riots.

Biofuels are especially not a bad idea where they are maximally efficient, like in Brazil.

That's where we've recommended Cosan (NYSE:CZZ) instead of chasing corn-based opportunities from North America that produce far less fuel per acre than Brazilian sugar-based ethanol.

Corn is also more water intensive and has far less of a track record than Brazil's national Pro-Alcohol program.

"I am not in favor of producing ethanol from corn," Brazil's President Luiz Inacio Lula da Silva told the gathering of the UN's Food and Agriculture Organization.

He also called blaming biofuels for high food prices an "oversimplification," which we agree with completely.

The resistance of countries with heavy farm subsidies (like the U.S.) to importing more efficient biofuel supplies from Brazil not only hinders fuel progress, it also runs completely against the core tenets of free trade and comparative advantage.

So that's why we're sticking with Cosan and eschewing more speculative, wasteful fuel companies. We are very bullish on household electricity resources like wind energy and solar, and of course technologies to reduce consumption.

But we will never sway in the breeze like political leaders or fickle speculators. Green Chip International is about investing in long-term solutions, and that's how you get real long-term profits.

Kind regards,

Sam Hopkins

P.S. We're coming out with two new GCI recommendations in the next week, based on Europe's booming renewable energy industry and my upcoming trip to see progress across the pond, first-hand. Don't miss these winning plays and my on-location reports throughout July. Sign up for GCI today.

Green Lifestyle

The energy crisis the world now faces isn't just about money.

It's not only a pain in the wallet but a pain in the neck to navigate your way through irksome traffic and hostile lines at the pump.

And, in my experience over the past several months, the changes afoot in the way we fuel up are becoming more healthy, not only from an environmental or economic standpoint...

They're better for the soul, too.

A Sigh of Energy Relief

My life as a motorist may have come to an end unceremoniously, when someone plowed into my Jeep overnight back in September of last year.

But in the preceding months I found myself cursing my commute more and more.

Not because the trek to work was long, mind you, but because it was very short.

I didn't do the calculations exactly, but I'm almost positive I was burning more gas getting up into the parking garage than I was gliding down the slight hill towards the Chesapeake Bay here in Baltimore.

It was ridiculous, and I wanted a way out that wouldn't involve me taking a huge financial hit or getting any ribs cracked.

That late-night hit-and-run was a blessing in many ways.

I paid off repair debt accrued over the year prior as I complied with state inspections ("Why couldn't my deft demolisher have done me that favor before I got a new exhaust system," I thought).

I also handed in my parking pass and got familiar with the bus system, and I'm building a bike with the help of fine folks at a local collective called Velocipede.

Every time I glance up from my magazine or iPod and see the price of unleaded as my bus goes past a gas station, I shake my head in disbelief.

And I immediately feel a real sense of liberation.

I certainly don't expect the diesel truckers of this nation, or most commuters, or anyone for whom driving is an inescapable part of life, to share my glee right now.

But I do expect that as citizens and consumers we are all biting our fingernails at what the flow of American life will be like in five, ten... or even just one year from now.

It's not just something to ruminate on, or a hypothetical situation.

What People Assume

The International Energy Agency came out Thursday with an announcement that significant downward revisions are likely to be made this year after an extensive survey of the top 400 oil fields in the world is completed.

Before, the IEA just looked at demand from you and me and our countries, and calculated where they thought prices might be heading or how much oil would be slurped up given economic conditions.

Now, they're finally looking at what's underground.

IEA Chief Economist Fatih Birol said that the outcome of his agency's new approach may be that "the oil investment required may be much, much higher than what people assume."

"This is a dangerous situation," he continued.

As someone who's extricated himself from the oil economy in the most direct way, I say it's an advantageous situation.

Travel by mass transit can get me almost anywhere in the world (including to Europe this summer for a renewable energy company research trip that I expect to net several more winners for Green Chip International).

And the advantages are clear to green investors, whether you've ditched driving or not.

Heck, if you've made the adjustment to hybrids or plug-ins, you can keep the car and still pad your pocket!

What it comes down to is this...

Oil broke $130 a barrel this week, and all signs point to $150 from here.

Renewable energy stocks are also pushing higher, and oilmen like T. Boone Pickens are doing what would have been mind-boggling ten years ago—pushing their own billions into clean power.

It may only be for filthy lucre, but the energy transition will come with different combinations of motivation, whether it's one guy who's sick of commuting or another who wants to make billions.

More and more, those personal and financial choices are coming together, and that's what we're all about.

Until next time,

Sam Hopkins

Russian Renewable Energy

You may know that Russia is the kingpin of the international natural gas trade.

But did you know that with over 10 million residents still off the grid and leaders aiming to maximize gas exports, Russian renewable energy could be a huge boon to the country?

Now we have to convince the Russians—starting with their new president.

Russian Renewable Energy: The OECD Plan

The Organization for Economic Cooperation and Development, is a grouping of the most prosperous nations on the planet. The OECD is a useful reference point to measure relative wealth, social progress, and increasingly it is a barometer for movement towards clean energy standards.

In 2003, OECD researchers prepared a 120-page report called Renewables in Russia: From Opportunity to Reality.

At the time, senior U.S. diplomat William Ramsay told the International Energy Agency, "Russia is the sleeping giant of renewable energy potential."

It may be a giant, but Russia isn't sleeping.

Neither is the Moscow leadership, which is now being shuffled.

Russia's President-elect Dimitri Medvedev takes power May 7, assuming the role of his mentor Vladimir Putin, who in a parliamentary shuffle will become the country's prime minister.

Putin has concentrated on wrangling Russia's traditional energy away from the Oligarchs who bought fossil fuel stakes from Boris Yeltsin's government at super-cheap prices, back in the early-mid 1990s.

Putin's stewardship of Russian oil and gas through national monopolies is credited by Russians and outsiders alike with sparking impressive 7.3% annual economic growth on average from 2003-2007.

But in order to maximize output of natural gas (Russia is the largest exporter and holds the world's biggest reserves), coal (Russia ranks #2 in recoverable reserves) and oil (the country's output often surpasses Saudi Arabia's), renewable energy should be exploited to the fullest extent for domestic use.

And aside from the hydrocarbons, Russian experts say there's plenty of wind, solar, geothermal, and hydroelectric potential there, too.

270 Million Metric Tons of Coal Equivalent

The OECD report cites Russian energy researchers estimates that the amount of economically recoverable comes to over 270 million tonnes (metric) of coal equivalent.

That's just below the 314 million tonnes of raw coal actually produced there, and due to the fact that fossil fuel prices have skyrocketed since the original report in 2003, we can assume that "economically recoverable" renewable potential has shot up when seen through the prism of fossil fuel.

What's more, OECD figures point out the irony of an actual energy deficit in East Siberia and the Russian Far East, incredibly energy-rich regions that end up exporting so much they are not even self-sufficient.

In some of these regions, where poverty is widespread, half of regional budgets are spent on fuel, leaving little to spread around sorely needed services and infrastructure.

So the task for international renewable energy investors is to find the companies capitalizing on the renewable energy progress Russia has made to date, and the ones pushing Medvedev and Putin forward with cooperation and market-based incentives.

Denmark's Vestas, the world's largest wind turbine manufacturer, is one of the companies nudging Moscow.

Interestingly, it's not in the far reaches of Siberia but the isolated Kaliningrad region (formerly East Prussia) on the Baltic Sea where Russian-Danish cooperation has taken hold.

There are already around two dozen wind turbines operating both onshore and off the region's coast, and Vestas has the jump as Copenhagen and Moscow officials frame this market opportunity in terms of binational energy assistance.

After all, it doesn't hurt Denmark to make friends with the Russian gas giant.

From a green standpoint, though, we're keeping an eye on developments in Russia. In fact we have contacts on the ground there who say recognition of clean energy is spreading from Europe into Russia's big cities, meaning there are more market opportunities on the way.

You'll hear first when the time to capitalize on Russian renewables is here.

Regards,

Sam Hopkins

Colombia Biofuels

As usual, Congress is missing the point.

This week, Democrats are vowing to indefinitely stall the free trade agreement with Colombia to gain leverage on presidential economic power, and Republicans are lamenting what may be the end of the FTA era.

But more than anything, it's really the end of the oil age, and stimulation of biofuel production in South America's northern reaches is pivotal for U.S. economic health and regional influence.

Colombia's Biofuel Production Hurdles

In spring 2007, I sat just feet away from the Colombian Minister of Mines and Energy, Hernan Martinez as he addressed the Biofuels Americas conference in the coastal city of Cartagena.

The minister's take on the dual challenges of energy security and safety from Colombia's drug scourge opened my eyes.

As a country plagued by the narcotics trade, Colombia's agricultural industry is essentially held hostage by narcoterrorism.

As Minister Martinez spoke, he emphasized the importance of biofuel development in the face of the drug thugs who control much of the country's cultivable land.

Martinez did not qualify the enemy of Colombia's progress with a prefix. He called narcoterrorism simply "terrorismo."

For Colombians, al-Qaeda is not the most immediate threat. Though global trouble figures heavily in oil prices and each nation's subsequent desire for energy independence, the interplay between agriculture, jobs, fuel, and international standing is intricate in Colombia.

It is "especially important for our country," Martinez told us, to use biofuel development as a counterbalance to the "cultivation of illicit crops."

Martinez, a businessman who used to work with Exxon, was echoed in his comments by Jorge Cardenas, head of the Colombian industry group Fedebiocombustibles (biocombustibles means "biofuels" in Spanish).

Cardenas said that 300,000 people would eventually be employed directly and indirectly by the Colombian biofuel industry, many of them agricultural types whose livelihoods are currently too easily swayed towards the unsavory reliance on illicit substances cultivation.

Colombian Biofuels: Will They Reach the Energy Market?

Colombia has already put laws on the books that stipulate that Colombian gasoline must be 10% ethanol by 2009, heading up to 25% by 2025.

This will be sugar-based ethanol, coming from more than 30 cane-processing plants in 17 provinces.

Biodiesel options are also being considered, mainly from the African palm tree which grows well in Colombia's climate.

Unfortunately, the Office of the United States Trade Representative, the executive agency in charge of drafting and promoting the Colombia FTA and others, doesn't even include energy in its executive summary, let alone biofuels.

Even with 300,000 jobs at stake in a country that sorely needs them, the deadlock over the Colombia FTA may go down as yet another in a series of missed opportunities to use new energy sources to fuel more than just cars.

Regards,

Sam Hopkins, Green Chip International

PS. The Green Chip International portfolio is already positioned to take full advantage of the South American biofuels boom. The company in our portfolio is primed to sell sugar-based ethanol to other South American countries as well as to the U.S. To get access to the company and all of the other winning international renewables companies in the portfolio, click here.

Cleantech's Correlation to Oil Prices

In the early days of what is now called the "cleantech industry," it was assumed that the price of oil would be the main indicator of the value of new technologies. In other words, as the price of oil fluctuated up and down, so would the perceived value of clean energy companies.

And so it went for the next few years. Whenever oil prices spiked, the stock prices of cleantech companies followed soon after.

It makes sense--at least initially. Oil was one of the cheapest energy resources on the planet, dwarfed by the cost of renewable energy technologies at the time.

So when oil prices went up, newer energy sources became all the more competitive. Simple.

The mistake, however, was using "energy" as a blanket category.

Now, with a more developed cleantech sector that is highly fragmented, is oil still the main indicator of the value of clean energy?

Oil Prices and Clean Energy

I'll take the copout and say to some extent.

This is because oil, as ubiquitous as it is, isn't a synonym for energy. For example, oil gets us to work, but it doesn't keep the lights on in the building.

By that metric, the price of oil can be used as a barometer for the value of biofuels, but not for the value of electricity-producing technologies like solar and geothermal.

Yet that doesn't seem to be the case either, because we've seen a meteoric rise in oil prices lately--68.5% just in 2007--but biofuel stocks haven't basked in the same glory. In fact, they've recently been in a downtrend.

So where does the notion that oil's price indicates the viability of other energy industries stem from?

Frankly, from a simpler time in the world's energy history. A time when the price of oil was even used to determine the economic viability of coal-fired power plants. A time when the dollar was still strong. A time free of the mortgage and credit crisis. And a time when cleantech was still nascent.

A Maturing Cleantech Industry

Before world markets entered this time of disarray, oil prices rose for a reason--like supply constraints or geopolitical tensions. Now we see oil rising for reasons like a weak dollar.

This simple observation lets us know that oil's price is currently experiencing a disconnect with its primary fundamentals. Those who sell oil have to charge a higher price to offset the ongoing devaluation of our domestic currency.

But, more importantly, many cleantech sectors have now graduated from nascence to adolescence. And as adolescents, they have indicators of their own, beyond the price of oil.

Solar's viability, for example, is contingent upon cost per watt, which depends on silicon prices and the technologies that are used to produce modules. Wind's feasibility, meanwhile, relies on the terrain and wind speeds of a proposed site.

What this all boils down to is the maturation of a new energy industry--one that is not subject to the arbitrary whims of floor traders.

We now have a renewables industry ready to take the training wheels off. Biofuels, wind power and solar each surpassed $20 billion in revenue last year. And each will at least double that total again in the next decade.

Plus, we're now seeing certain types of renewable energy capable of providing base-load power in some areas through major achievements in battery and advanced electronic technologies.

But despite the growing maturity of the cleantech industry, the perceived value of oil will still be used--to some extent--as a broad economic indicator for the entire energy sector. This can be attributed to oil's long-time reign as energy king.

Those in the know, however, realize that oil's days are numbered. Because no matter how many times oil breaks intraday price trading records, its prices, as well as its overall production, will peak eventually.

Ultimately, it will be oil's availability, not its price, that will have bearing on the deployment of clean technologies.

In the meantime, the value of renewables will rise for a litany of other reasons besides the price of oil. And those that have the insight to invest in cleantech will profit handsomely.

Until next time,

Nick

www.greenchipstocks.com

Clean Energy Technology

Bill Gates knows that Microsoft is an international company, and he knows he needs Congress's help. But as he meets with D.C. insiders this week, Gates is emphasizing more work visas for infotech geniuses, overlooking the key to Silicon Valley's continuing prosperity—clean energy technology.

The fever is spreading worldwide. From Berlin to Bangalore, and from Buenos Aires to Boston, the engineers of the internet boom of the late 90s are retooling their workshops to work on solutions to today's clean energy quandaries.

At the same time, many of the world's brightest dream of working for companies like Google in their comfortable California compounds, so they seek H-1B visas, given for six years to proven experts from foreign countries, who are in turn drafted into American companies that are hungry for high-tech talent.

As Gates puts it, "Traditionally, the U.S. — because it's so attractive — has had this huge advantage that other countries bemoan. … Now, they celebrate the fact that we're kicking them out after giving them the world's best education." With 60% of the students in the nation's leading computer science schools foreign-born, Gates has part of the picture figured out.

But the Silicon Valley lobbying group TechNet also put its yearly suggestions to Congress this week, with members like Cisco and Intel CEOs as well as financial heavy-hitters from JP Morgan listing clean energy technology as a top concern in this period of $110 oil.

Though the immigration issue was also on TechNet's wish list, green technology won the first spot.

In its "2008 Innovation Policy Agenda," TechNet asks Congress for a major national push with a Green Technologies Initiative.

TechNet's Green Technologies Initiative

Promote and highlight new technologies and innovation as a critical part of the solution to national security, economic competitiveness and global energy and environmental challenges and encourage a national commitment for investment in and adoption of innovative green technologies. In addition, encourage public policies, best practices and initiatives to spur the development and adoption of new technologies to enhance energy efficiency, encourage use of renewable energy and protect the environment.

Oftentimes, we find that some of the most arduous hills in the race for fossil-free energy are the very same ones that computer geeks have become experts at climbing.

The truth is, Silicon Valley is already solving energy problems.

In wind energy, for example, storage capacity is a huge issue, as we still have a long way to evolve in building efficient turbine units and grid mechanisms that can meter out capacity like locks on a canal.

It's a good thing then, that today's household devices use the smallest power generation and storage systems ever known to man.

Solar cells present another problem, as they're largely dependent on the supply of silicon, which of course puts solar energy in direct competition with the computer chip industry.

Thank God companies like AMD and Intel have been making smaller and more powerful microprocessors as a matter of course for 40 years now, cutting back on material use while enabling tiny chips to manage major energy applications.

So when Bill Gates asks for looser H-1B limits (now around 100,000 a year including exemptions), he should think of computer comrades of his own like Shai Agassi, the Israeli tech wizard who left the head of software development at German tech giant SAP to found Project Better Place.

Project Better Place is the nerve center of an ambitious and heavily-funded scheme to get 100,000 electric cars on the road in Israel by the end of 2011. The project is being subsidized and promoted by the Israeli government, but can you guess where it's headquartered?

Silicon Valley.

Twin International Bull Markets in IT and Clean Energy

There are already tens of thousands of IT professionals from foreign countries working in northern California and elsewhere in the United States.

When he acts as the mouthpiece of the nation's technology elite, Bill Gates has to address the fact that we are now in the throes of twin bull markets in energy and energy technology, and that the trends driving future profits are international in nature.

Here's a perfect example: This month, the San Francisco-based Cleantech Forum awarded its "Cleantech Leader of the Year" award to Persian Gulf monarchy Abu Dhabi's Masdar clean energy initiative, a city-scale zero-emissions plan being carried out in the desert with the help of MIT and other American tech stalwarts.

To advance the IT industry, clean energy technology must be a central element to any proposal, and cross-border endeavors like Project Better Place and Masdar should be strongly encouraged.

With proper planning we'll get competitive technologies and more profit possibilities with clean energy etfs and stocks as green energy technology moves forward.

Regards,

Sam Hopkins
Green Chip International

Green Energy Stocks

Our last mention of solar was an article about building integrated photovoltaics (BIPV) that ran in early February.

But with a recent sell-off occurring throughout the entire sector, I thought a broader snapshot of green energy stocks was required to unearth some bargains and to see where the industry is headed.

A Close Look at Three Green Energy Stocks

The best place to start is probably with the stock that garners the most attention from Wall Street: First Solar, Inc. (NASDAQ: FSLR). In the last three months the stock has seen highs of $281 and lows of $165—a 41% discrepancy.

That 41% sell-off occurred in the four weeks spanning late December to late January. First Solar then traded flat for two weeks before regaining some steam. And since the first week in February the stock has actually gained 25%.

But if you pull the chart out to six months, you'll see the stock is still on a strong uptrend, going from $103.75 to $207.50 for a 100% gain. Take a look:

All of a sudden solar doesn't look so bad. But that's just a façade put on by a stock that gets the most investor and PR love. If you dig deeper you'll see many great companies that, despite good gains from September to late December, have actually traded flat or lost value in the past six months.

The first such case is Suntech Power Holdings Co., Ltd. (NYSE: STP):

And the second is SunPower Corporation (NASDAQ: SPWR):

What this presents is a serious buying opportunity. Suntech recently catapulted to the third largest manufacturer of solar cells in the world—based output numbers for 2007—taking over Japan's Kyocera. And SunPower's cells boast the highest efficiency of any widely available on the market.

Of course, there is a negative as well. SunPower and Suntech use silicon, which is currently in short supply, as a raw material. First Solar does not.

This has led, in my opinion, to a case of investor jitters that is reflected in the recent undervaluation of these companies.

But folks, the silicon supply crunch is a short-term issue that shouldn't and won't be reflected in long-term stock price. New silicon suppliers are coming online and existing suppliers are ramping up production. The shortage, by most estimates, won't outlast 2009 and won't drastically affect output until it's over.

As for the other metrics commonly used evaluate solar companies, including driving down costs, SunPower and Suntech are right on par. Both companies have the executive expertise and manufacturing know-how to lower cost per watt and continue the journey toward grid parity.

If you can stomach the volatility inherent in this type of market, it may be worth taking a look a these two companies. When the solar energy tax credits get passed—and they eventually will—buying these companies at current levels will prove to be a smart investment.

Plus, the solar industry is still expected to enjoy at least 25% annual growth rates through 2012.

More Green Energy Stocks

I told you some time ago that forestry companies would start to see some investment dollars flow their way for the development of cellulosic ethanol. And while we have seen scant evidence of that occurring, the most relevant news in this arena came just last week, when Chevron Corporation (NYSE: CVX) and Weyerhaeuser Company (NYSE: WY) announced the creation of a joint venture to develop ethanol from wood-based feedstocks.

The aim of the 50-50 venture, called Catchlight Energy LLC, is to research and develop cellulosic ethanol and to produce it economically viable way.

We're continuing to see a transition toward cellulosic ethanol as demand for the corn-based variety has perpetually driven up prices for its feedstock. Those rising prices have led to increased food costs and to hard times for livestock ranchers who must purchase the grain to feed their animals.

There's no word yet if Chevron and Weyerhaeuser will take their venture public but, either way, there are plenty of ways to invest in the cellulosic ethanol boom.

Some stalwart corn-based manufacturers are actively researching ways to enter the cellulosic market through university partnerships. And a handful of other smaller companies have been receiving Department of Energy grants to bring cellulosic up to a commercial level with a variety of feedstocks.

Another Emerging Green Energy Play

Enzyme companies are also emerging as a way to play the green industry because one of the keys to driving down cost is finding an enzyme that can digest multiple types of sugars efficiently.

To date, no such enzyme has been discovered, but I have my eye on a few companies that are getting very close.

If you're interested in these types of speculative renewable energy plays, my new service Alternative Energy Speculator may be just for you. That service, coming out later this month, will take aim at delivering hefty profits from the renewable energy sector for those who have the stomach for a little more risk than we're usually willing to take.

The payoff will be huge, so keep an eye out for that service to debut in the coming weeks.

Until next time,

Nick

Cellulosic Ethanol Companies

The ethanol boom has come and gone. But if you think the opportunity to profit from biofuels has come and gone as well, you're sorely mistaken.

You see, corn-based ethanol turned out to be a bust for many reasons. Its feedstock was in direct competition with food sources, its lifecycle carbon reduction was constantly in question and the energy return on energy invested (EROEI) turned out to be less than desirable--meaning the net energy produced was hardly more than the energy used to produce it.

Of course, with all the heavy capital expenditures that went into developing a corn-based ethanol market, we'll continue to see that product produced. Especially since federal mandates require a certain amount of ethanol to be present in the nation's gas tanks.

In fact, right now there are 139 ethanol biorefineries operating in the US with a capacity of 7.9 billion gallons per year (bgy). Also right now, there are 62 plants under construction and seven expansions underway that will bring an additional 5.57 bgy online.

That gives the US a total projected capacity of over 13.5 bgy.

But the recent energy bill signed into law on December 19, 2007 calls for the blending of 36 bgy of domestic alternative fuels to be blended into our nation's fuel supply by 2022.

Basic math tells me there is a 22.5 bgy discrepancy. Sounds like an opportunity, right?

Cellulosic Ethanol Production

According to JP Morgan Analyst Marc Levinson, ". . . there is no prospect of producing this much [36 bgy] biofuel from corn in the United States."

That's why the Energy Bill also mandates the production of cellulosic ethanol, a fuel that can be made from the cellulose of many plants, rather than competing with corn. It's the stuff Bush is referring in to when he talks so enthusiastically about switchgrass--though it can be made from many sources.

The Energy Bill requires that 3% of ethanol be derived from cellulosic sources by 2012, and 44% by 2022. That means, by my estimates, we'll need to produce 405 million gallons of cellulosic ethanol in 2012 and 15.84 billion gallons in 2022.

I'd consider that a heck of an opportunity, especially since construction only recently began on the first cellulosic pilot plants in the nation. This is truly a ground floor opportunity.

According to consultants McKinsey & Co., "If the 2022 mandate is met, it could let corn ethanol producers reach a production ceiling that does not threaten food prices, while providing them and cellulosic producers revenues of about $50 to $70 billion."

Of course, I believe the cellulosic industry will be the biggest beneficiary. But, until recently, the industry was shrouded in doubt about whether or not it was profitable, how much it actually reduced lifecycle carbon emissions, and even it could be produced on a mass scale.

Now, reports are coming out that ease all those fears.

Bill Caeser, an analyst from McKinsey & Co. says cellulosic ethanol can become commercially available by 2015. And POET, a private ethanol company, hopes to be making commercial amounts of it by mid-2012.

Caeser also said cellulosic could boost the percentage of energy from ethanol in US transportation fuel to about 16% by 2022, up from current levels of about 3% from ethanol made from corn. That could save the United States 1.5 million barrels of oil per day.

You see, ethanol does not contain as much energy per gallon as gasoline, so its contribution to energy supplies is often measured in energy content rather than volume. Some have even said that it takes a gallon of gasoline to make a gallon of biofuel.

But a new study from plant scientist Ken Vogel found cellulosic ethanol actually has positive net energy yield. In a study for the federal government's Agricultural Research Service in Nebraska, Vogel calculated all the energy that went in to producing cellulosic ethanol.

According to Vogel, the study included, "the energy used to make the tractors, the energy used to make the seed to plant the field, the energy used to produce the herbicide, the energy used to produce the fertilizer, [and] the energy used in the harvesting process."

His results?

For every unit of energy used to grow the feedstock, Vogel says he could get almost 5.5 units worth of ethanol. That's even more efficient than making ethanol from corn.

And cellulosic ethanol emits far less carbon dioxide, the main greenhouse gas, than corn-based ethanol. Cellulosic emits 80% less carbon dioxide than regular gasoline, while corn-based ethanol emits only 20 % less.

With so many benefits, there's got to be an investment opportunity.

Cellulosic Ethanol Companies

While investors in corn-based ethanol companies may have done well early on, there hasn't been anything positive to say about the long-term for some time now. Take a look at the following charts from ethanol frontrunners Pacific Ethanol Inc (NASDAQ: PEIX) and VeraSun Energy Corporation (NYSE: VSE):

But the publicly traded cellulosic ethanol companies should prove to fair better. And not just production companies, but chemical companies as well.

In fact, cellulosic ethanol could create a $3 billion to $5 billion industry in enzymes and fermentation organisms, which help break down the tough bits of the plants into fuel.

Companies in the cellulosic sector include Verenium Corporation (NASDAQ: VRNM) and Bluefire Ethanol Fuels Inc. (OTC: BFRE). Both of those companies have received federal funding and should prove to be a good bet going forward.

It would also be wise to look at paper and pulp companies like Domtar Corp. (NYSE: UFS), that could start selling their byproducts as cellulosic ethanol feedstocks.

Beyond the few limited options thus far, I'll be covering every advancement in this industry in the pages of the Green Chip Review.

Until next time,

Nick

PS. After writing this article, an announcement was made that the DOE awarded $114 million in grants to build four small-scale biorefineries. The companies that received those grants were: Pacific Ethanol (NASDAQ: PEIX), Lignol Energy Corporation (TORONTO: LEC), ICM Inc. and Stora Enso North America.