Energy Infrastructure - Green Chip Review

How To Invest in the New Energy Paradigm

One of the more interesting themes that emerged from this year's ASPO peak oil conference was the problems of maintaining complex systems, and the role that energy plays in them.

Dr. Jason Bradford, the biology brains behind Farmland LP (more on that here), ticked off a few of the key vulnerabilities of the U.S. food system in his presentation on sustainable agriculture:

Commercial agriculture consumes 10.3 quads (quadrillion BTUs) of primary energy in order to produce 1.4 quads of food energy. The inputs are mainly fossil fuels used in running tractors, producing artificial fertilizers, producing seeds, trucking, refrigeration, processing, freezing and cooking.
Commercial agriculture not only depletes non-renewable resources and degrades soil, air, and water, but it also releases 5 billion pounds of harmful chemicals and massive amounts of greenhouse gas emissions into the environment per year.
Animal waste provides critically important fertilizer to small distributed farms, but in the modern massive feedlots of concentrated animal populations it becomes an environmental hazard. All the feed transported to the feedlots uses petroleum fuels, and the hay is grown using ancient "fossil water" pumped from deep, essentially non-renewable aquifers.
Over the last four decades or so, runoff from commercial agriculture has resulted in massive "dead zones" near our shorelines caused by algae blooms that suck the oxygen out of the water and create anoxic environments where nothing can live. (The dead zone in the Gulf of Mexico has grown to an estimated 8,500 square miles.)
Just three crops comprise 71% of U.S. crop acres: corn, soybean, and wheat.
Monsanto, Pioneer, and Syngenta —all basically chemical companies — dominate the seed industry with patented GMO seeds. Those seeds are finely tuned to the temperature, rainfall, and so on of the recent past, making climate change a major threat to the whole food regime (more on that here).
Likewise, a handful of giant companies now control the vast majority of the food supply system — a stark contrast to the millions of small family farmers who dominated it prior to the 1960s.
Nearly all of the food delivery system uses just-in-time inventory methods, so there is only one to three days' supply at any point in the distribution chain.

In short, Bradford explained, we have built a complex food supply system with very low diversity and strong connectivity. Yet in nature, those characteristics lead to instability. Stable systems are highly diverse with weak connectivity. The very complexity and interconnectedness of our food web is, in itself, a dangerous vulnerability.

Bradford aptly compared our blithe faith in the food supply system to "the hubris of Wile E. Coyote" just before he realizes he's about to plunge into the canyon.

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The Energy-Water Nexus

A presentation by Michael Webber of the University of Texas at Austin emphasized another important interrelationship: We use water for energy, and energy for water.

Nearly all power plants are thermoelectric heat engines — they use heat to produce electricity (the notable exceptions to this are hydro power and solar photovoltaics). Although there are many variations of the process, here's a simple explanation: A source of heat is applied to one side of the engine, which causes the expansion of a gas. The expansion of the gas makes a turbine spin, generating electrical power. The heat is then dumped by the cold side of the engine, which causes the gas to condense again.

Water is typically used to remove the heat on the cold side. Air-cooled plants are also possible, but they are less efficient because they're less cold, and so water-cooled plants are far more common.

It should come as no surprise, then, that the largest user of water in the U.S. is the thermoelectric power sector, accounting for 48% of the total water withdrawal and 39% of freshwater withdrawals.

The first vulnerability of the energy-water relationship is what happens when insufficient (or insufficiently cold) water is available: It forces power plants to scale back, or shut down altogether, which has happened at numerous coal- and nuclear-fired plants around the world over the last few years.

Webber believes that droughts could even close nuclear power plants in the Southeast permanently due to limited water.

On the flip side, Webber noted that roughly 10% of electricity in the U.S. is used for waste and wastewater, including end uses. But in denser, larger states the energy load can be much higher. According to a 2005 study by the California Energy Commission, fully 19% of the state's energy use is related to pumping, treating, transporting, heating, cooling, and recycling water.

The energy-water nexus includes liquid fuels as well as electricity. Net energy researcher David Murphy noted at the conference that the EROWI (energy returned on water invested) is 228 for petroleum diesel, but only 0.024 for corn ethanol, because making it requires massive amounts of water.

Producing liquid fuels from low-grade resources like tar sands and oil shale also requires enormous amounts of water to produce steam and fracture shale. Vince Matthews, the director of the Colorado Geological Survey, expressed his doubts at the conference that his state's shale resources would be developed because of the water dependency. The "head" of the state's water supply is dropping by about 30 feet per year, he said, and has been falling for 20 years. He expects it to hit the aquifer around 2011.

Finally, we must not forget that most of the Middle East is investing heavily in the desalination of seawater to provide adequate fresh water for its burgeoning population (and of course, its indoor ski slopes). Desalination requires over 9,800 kWh per million gallons, according to Webber. I can easily imagine desalination becoming a major factor in the declining oil exports from the Middle East.

On the energy-water nexus, Webber made two important conclusions: first, we need to rethink transportation; and second, water conservation and energy conservation are synonymous.

Peak Credit = Peak Oil

Gail Tverberg, energy analyst and editor of The Oil Drum, discussed the financial side of complexity in her presentation, describing the economy as a highly-networked system of great interdependence: manufacturing depends on international trade; businesses depend on credit, manufactured goods, and electricity; electric utilities depend on credit and on replacements parts, and so on.

There is a systemic risk in highly-networked, interdependent systems she said, like a computer crash: one thing stops working, and everything else stops working. International trade and finance and credit, for example, are closely linked with oil extraction. It's not coincidental that consumer credit peaked in July 2008, just as oil production peaked. . .

Credit enables oil production, and also enables demand for oil, by allowing consumers to buy things made with and from oil. Conversely, shrinking oil supplies limit economic growth, leading to the kind of defaults we saw this past year. When banks cut back on lending, it leads to less supply and less demand.

The net impact of credit on oil is that it provides positive reinforcement for oil extraction when it's growing, and negative reinforcement on the way down. Peak oil equals peak credit, and peak credit equals peak oil.

Therefore, Tverberg concluded, our complex systems' vulnerabilities to peak oil extend far beyond mere fuel supply. Our current model of food production may cease to work. Our current model of transportation may cease to work. Globalization will fail without ample cheap liquid fuels, making re-localization a necessity. And ultimately, without all complex systems we take for granted today, we will likely be forced to accept a much lower standard of living.

Simplify, Simplify

Simon Ratcliffe, an energy advisor for the UK government and an expert on energy and security in Africa and South Africa, offered this graphical depiction of some of the interconnected risks he has studied in those nations:

Source

Just reading a chart like that makes you want to turn away and latch onto a simpler view, doesn't it? Well, keep that in mind and we'll return to it in a moment.

The problem with complex systems of course is that they're. . . well, complex.

Stake Your Claim in the Stimulus Goldmine

With $787 billion in pork now sloshing around Washington D.C., one industry in particular stands to grab the lion's share.

And for the investors that get there first, this moneymaking opportunity is one that may just turn out to be the mother lode.

To learn more about the Stimulus Goldmine that could easily double when all of that pork gets spent click here.

No one can model demand accurately, and no one predicted that oil would hit $147 and $33 in a span of six months last year.

No one has a good model for the feedback loop from GDP to oil demand, oil demand to price, price to supply, and supply to GDP — let alone the influence of new Frankenstein financial instruments and monetary policy.

No one has a good model for how much fossil fuel we'll need to build the renewably-powered infrastructure of the future, let alone how we'll procure it in a scenario of shrinking global supply. (In fact, hardly any models even contemplate the reality of depletion.)

No one seems to recognize that although the population growth curve led the energy curve on the way up, energy will lead population on the way down.

Even the historical data is all from an era of constantly growing energy supply, making it a poor guide to the future.

A quick aside: In a presentation to the World Future Society annual conference this year, David Pearce Snyder, an editor of The Futurist magazine, argued that schools are not equipping students with the necessary skills to deal with complexity, and that new curricula are essential to surviving the modern world. I agree completely.

So how can retail investors navigate this increasingly complex and chaotic world?

My guiding lights here include the likes of E. F. Schumacher, Paul Erlich, Paul Hawken, and Thomas Malthus — they were right, if a little (or a lot) early. And of course Henry David Thoreau, who exhorted us to simplify.

They would tell us to focus on simplicity in our investing strategies: Think locally, not globally. Small and distributed is more resilient (and more beautiful) than big and centralized. Using less energy to accomplish the same thing will succeed over trying to produce more energy. Imitating nature's low-energy, low-impact, non-toxic methods in our industrial activities — a study now known as biomimicry — will succeed over inventing wacky new chemicals that nature has never seen before.

From now on, we should let the K.I.S.S. principle be our guide: Keep It Simple, Stupid.

Until next time,

Chris

P.S. As you may know, Green Chip's Nick Hodge has been making a killing by following a simple investment strategy. By focusing only on cleantech stocks, he's been able to close a winner for his readers every single week this year. In fact, he's even taken several double-digit gains from the very sectors I discussed today: water and energy efficiency. And he thinks his next pick — a tiny Chinese lithium-ion battery play — could be one of his biggest yet!

Editor's Note: This article is Part 4 of a series of Chris's reports from the 2009 ASPO Peak Oil Conference. See also Part 1, Part 2, and Part 3.

Bullish News for Cleantech and the Smart Grid

Welcome to Green Chip Review's Weekend Edition — our insights from the week in everything renewable and cleantech, as well as links to our most-read Green Chip Review and sister publication articles.

It was yet another good week for cleantech, with bullish news coming from both the financial and political realms.

Here's what went down. . .

On Tuesday, the President made the largest single Recovery Act announcement to date, dedicating $3.4 billion to further advancing smart grid development. The money — paid in grants of up to $200 million each — will go to pay for as many as 18 million smart meters across the country.

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That announcement sent many smart grid stocks to one-day, double-digit gains. It also foreshadowed great earnings in the same sector. . .

Seemingly on cue, Enersys (NYSE: ENS), Itron (NASDAQ: ITRI), and American Superconductor (NASDAQ: AMSC) all released positive earnings reports this week. The latter climbed over 20% in one day!

(As an aside, I've closed one of those stocks for profit in the Alternative Energy Speculator, and the other two are still open.)

And the good news didn't stop there, as cleantech continued to prove it can combat recession, create jobs, and stoke portfolios. . .

German solar firm SMA Solar Technology announced it is opening a $22 million factory in Colorado. Fisker Automotive announced plans for spending $528 million to overhaul an automotive manufacturing plant it bought from the now-bankrupt GM as part of a stimulus-funded deal.

In fact, the results of cleantech funding have been so fruitful that Obama signed another spending bill into law this week — a bill that will push another $33.5 billion into everything from solar research to energy efficiency and flood control.

Just hours later, Obama's signing was followed by a Reuters report stating that solar executives from Suntech, Sharp, and BP are "bullish on 2010." According to the report, "Executives cited various forces that could drive growth in 2010, including U.S. stimulus funds for green projects, extended tax incentives and new financing."

Of course, we'll be ready to capitalize on that bullishness as it plays out.

In the meantime, you can catch up on the rest of the week's top-read stories from Green Chip and our sister publications below.

Enjoy your weekend,

Nick

What are Global Acres?: Global Acres & Ecological Footprints
Green Chip Contributing Editor Emily Rutan defines global acres for readers and discusses what our total world ecological footprint means for the planet's biocapacity.

Solar Rights: A Solar Bill of Rights
Green Chip's Jeff Siegel reports on the Solar Power International Conference this week, as the Solar Energy Industries Association details a "Solar Bill of Rights."

Smart Grid Investments: A Smart Grid Recap for Investors
Energy & Capital Editor Nick Hodge discusses smart grid investments by compiling his recent works on the subject.

Super Start-Ups: Get In Now on this $297-billion- a-year Market
Tech giants like Cisco Systems and Google will share billions of gov't stimulus dollars and make tens of billions in profit as the smart grid develops. . . but the real money is in start-up companies. There's still profit to be had in these super start-ups. . . if you act soon.

Solar Energy Stocks: The Truth about Solar
Editor Nick Hodge discusses solar energy stocks, including the rampant misinformation disseminated about the sector.

Veolia Environnement Stock: French Company's Water and Transit Projects Boost the Big Easy
Editor Sam Hopkins reports from New Orleans on the city's continuing Katrina recovery efforts and the French company being paid to finally get the job done.

23 Energy Companies You Should Know About: Share Prices to Pop from Gov't Slush-fund Boost
Knowing how much funding each company gets — and when — will be worth its weight in gold. We'll share with you this little-known list of companies in line to receive big dollars, and how you can profit from their government funding.

Smart Grid Development: $3.4 Billion for Smart Grid Development
Editor Jeff Siegel discusses the government's plans to award $3.4 billion in grants for smart grid development, and billions more in private investment dollars that will also go to the awarded companies.

Our First Peak Oil Recession

One of the most bedeviling problems for oil producers (and oil investors) is knowing when it's too cheap to keep producing, and when it's too expensive to sell.

Last year gave us new boundaries: $147 a barrel was too expensive, and $33 was too cheap. But those aren't terribly useful numbers in the real world.

We now know that $147 was extra-inflated by too much money sloshing into the sector, and $33 was extra-deflated by the fear and confusion that dominated all markets in December of last year. It's likely that tighter regulation of the oil futures market will tamp down the former, and the latter will not be seen again. . . so long as the world banking system continues to beg, borrow, and steal its way to stability and "full faith and credit."

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If you're a Chevron trying to decide if you should plunk down another $5 billion for a big new deepwater platform, or a marginal producer of oil from unconventional sources where the production cost is high, you'll find it hard to commit to new projects with price volatility like that.

One way to get a handle on the question is to look at the supply side costs. As I wrote in March, the current cost of new production in the few places in the world where oil production can still be increased ranges from $60-$75 a barrel, and the average minimum is around $65. The more extreme and marginal projects we'll be eyeing in ten years' time will need closer to $100 a barrel to pay off.

But prices on the demand side of the equation are harder to gauge.

Our First Peak Oil Recession

Several presenters at the Association for the Study of Peak Oil (ASPO) conference two weeks ago used measures of GDP to express the economy's tolerance limit for high oil prices.

David Murphy, a pioneer in net energy (EROI) research at SUNY, noted that major recessions are always associated with petroleum and offered this chart, suggesting that that oil expenditures over 5.5% of GDP lead to major recessions:

Source

Murphy changed the time scale from years to months at the end of the chart to demonstrate how the portion of GDP paying for oil last year spiked and crashed as much in 12 months as it did in 4-5 years during the most recent recessions.

Steven Kopits, Managing Director of Douglas-Westwood LLC, came to similar conclusions in his presentation. He noted how oil stopped responding to price signals in 2004, with production remaining basically flat even as prices tripled. The global oil supply only expanded by 2% while global GDP grew 17%, causing prices to increase by about 25% per year from 2003 on.

By 2008, when crude expenditures reached 4% of GDP, the U.S. fell into recession. In fact, said Kopits, oil over $80 would have been enough on its own to cause what he called "our first peak oil recession."

Former head of exploration and production for Saudi Aramco Sadad al-Husseini opined similarly in his interview with ASPO, saying that the spending ceiling is between 5% and 6% of global GPD. Accordingly, he thinks alternatives to petroleum like Arctic oil, coal- and gas-to-liquids, and so on may not be economical to develop because their costs are too high.

In essence, OECD countries are simply getting squeezed out of the market as the global drivers of demand shift to the developing world. When the cost of filling the tank on an SUV goes from $60 to $100, it really takes a bite out of consumption in America. But your average resident of, say, India or the Philippines can shrug off a 50-cent increase in the cost of filling the tank on his scooter, because he gets so much more economic value from the transportation.

Stake Your Claim in the Stimulus Goldmine

With $787 billion in pork now sloshing around Washington D.C., one industry in particular stands to grab the lion's share.

And for the investors that get there first, this moneymaking opportunity is one that may just turn out to be the mother lode.

To learn more about the Stimulus Goldmine that could easily double when all of that pork gets spent click here.

Kopits believes that $70 oil is enough to effectively lock out the EU from the oil market, and $75 locks out the U.S. This begins to explain how, as independent oil producer Jeffrey Brown observed in his presentation, the U.S. was outbid by Kenya for oil last year.

On a related note, ASPO analyst Dave Cohen made a convincing argument that economic fundamentals will not support increased oil demand — even from China — for years to come, ensuring that global GDP growth remains weak.

In counterpoint, Matthew Simmons asserted that we don't yet know the economy's tolerance point, and thought it could be as high as $500-$700 a barrel.

This is where I must make my departure from Simmons' camp. The data presented on GDP and price at the conference have forced me to reconsider my longstanding belief that peak oil will bring much higher prices. Although prices 5 to 10 years from now, when we're well past the peak and into decline, remain an open question. . . I now doubt that we'll see oil over $150 anytime soon.

A Narrow Ledge

If these analyses are correct, then we are on what Kopits called "a narrow ledge": Houston needs $75 oil to keep drilling, but the economy goes into recession with oil at $80.

Two editors of "The Oil Drum" generally concurred. Nate Hagens put the boundaries a bit wider at $60 to keep drilling and $80-$100 as the economic pain tolerance point, and Gail Tverberg observed that oil at $75-$80 seems to kick off a recession.

If the stability of oil production relies on oil spending staying within roughly 4% and 5% of GDP, it's going to be dicey. But if the oil price ledge is only $5 wide, then it's not clear to me whether the global GDP can manage to stay on it.

In short, the world may not be able to continue executing the expensive oil projects of the future at all. The tension between the price of new production and the pain tolerance of the global economy may be resolved not by stable prices, but by a failure to bring new supply online.

This is indeed a crisis — but it's also a hint that it's time to focus on how we're going to replace oil.

Take it from Sadad al-Husseini: "The hidden opportunity may be efficiency and conservation."

The investment community has already heard that message. At the ASPO conference this year, I estimate that not one of the roughly 400 attendees represented development capital, while at a typical Cleantech Forum in San Francisco, at least half of the 1,500 or so attendees are with banks, VCs, and big hedge funds. Granted, the ASPO conferences are about information, not deal-making. . . Still, investors seem to prefer theses based on abundance to those based on scarcity.

It only makes sense. If you had a large chunk of capital to deploy in the energy space, would you rather try to balance on a narrow ledge, or jump into a sector that's growing at 30% per year — with no ceiling in sight — and the wind of oil depletion at its back?

Efficiency and conservation may not be as sexy as solar and wind, but for the next several decades they will be the only real way to survive a future of volatile oil and gas prices and declining supply. It takes a long time to rebuild an infrastructure. . . and in the meantime, we're going to have to make do with what we've got.

In the pursuit of investment capital, cleantech clearly has the edge over oil now.

Until next time,

Chris

P.S. Chris continues this article as Part 2 of a series of reports from the 2009 ASPO Peak Oil Conference. See also Part 1.

P.P.S. It's no surprise that the bulk of new efficiency dollars is going to the smart grid. Indeed, CEOs of both GE and Cisco have each said its development will rival the Internet in size, scope. . . and profit. As economic pressures weigh on the development of new oil. . . there's no limit to how high conservation stocks could climb. In fact, this report has all the details on three that could easily double.

High Speed Railroad

Chris Nelder recently wrote a fantastic piece about high speed rail in our sister publication Energy and Capital. I found the article to be on point and completely relevant for Green Chip readers, so I've decided to send it to you today.

I think you'll really enjoy it.

Jeff

_ _ _

"'Boondoggle‘, 'Loss-making whim‘, ‘Monument to bad territorial planning'. . .

Such are the arguments of high speed rail critics, as the United States finally gets on board the passenger rail revolution that is sweeping the world.

But that quote wasn't about the U.S., and it wasn't about today's debate.

It came from an essay by José Blanco López, Spain's minister of transport and public works, which was published in a new pamphlet from SERA, a sustainability activist organization within the government Labour party. He was talking about the two decades of opposition that conservatives had mounted against the country's progress in building a high speed rail system.

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Starting with a line from Madrid to Seville in 1989, Spain pursued an aggressive and determined commitment to high speed rail that, by 2012, will produce the longest system in Europe. This year alone, most of the country's €19 billion development budget will be invested in high speed rail. By 2020, López says, more than 90% of the country's total population will be within 31 miles of a high speed train station.

Here he put his country's achievement in perspective:

Shielded behind overly simple, short sighted cost-benefit analysis, critics complained with those arguments against high speed projects over years, until the success of each one of the new corridors proved them wrong and showed that in troubled economic times, the best investments for a society are the ones which improve equality.

History has proved rail's critics wrong in Spain, as economic development and rider enthusiasm followed it everywhere it went.

Cretinous Shortsightedness

Even so, ever unwilling to learn from the successes of the rest of the world, the U.S. is now starting the same effort at about the same place as Spain was 20 years ago.

The president of the U.S. High Speed Rail Association, Andy Kunz, appeared on Fox Business last Friday to make his pitch. And what argument did the show's overcoiffed co-host raise? "Amtrak has been in the red for years and years and years, and nobody in charge over there seems to be able to turn a profit, despite the fact that everybody I know takes the train from New York to Washington D.C., the Acela. It's just not working though financially," she whined.

After Kunz explained that that the Acela leg (with a maximum speed of only about 100 mph) was in fact profitable, and that the rest of the system needed to be upgraded so that it was equally attractive and profitable and capable of speeds over 200 mph, the host pressed on: "How do you get people to ride it?" Kunz patiently explained his point again, and pointed out that when Europe opened its new high speed lines, they filled up with riders immediately. The hosts then tossed off a quick wisecrack about the Chunnel and muttered about the need for profitability, but assured the audience that "Nobody more than Fox Business wants to see new ventures succeed."

Be that as it may, one wonders why Europe's success would not convince them that high speed rail would be a good thing for this country. A projection from rail proponents FourBillion.com indicates that building the 9,000 miles of high speed corridors identified by the U.S. Department of Transportation would create 4.5 million permanent jobs and 1.6 million construction jobs, save 125 million barrels of oil, eliminate 20 million pounds of CO2 per mile per year, reinvigorate U.S. manufacturing, and generate $23 billion in economic benefits in the Midwest alone — all alongside a long list of intangible side benefits.

Putting aside the cretinous shortsightedness and obstinacy of conservative media, let's take a look at what the rest of the world is doing.

A Global High Speed Rail Explosion

The UK's Labour party is also pursuing an expansion of high speed rail, having commissioned a study on building a new line from London to the West Midlands and extensions to the north. Currently, Britain has only one high speed line, the 69-mile-long "High Speed 1" link from London to the aforementioned Channel Tunnel ("Chunnel") to France. The Tories have offered their own £15.6 billion plan, so it seems likely that Britain will soon have a new high speed project.

France, as I mentioned last year, already has the wonderful 200 mph high speed TGV network, with 1,100 miles of track, more than 400 trains, and the third-highest ranking of rail passengers per year, behind Switzerland and Japan. Personally, I found it to be the most enjoyable travel experience I have ever had.

Bombardier's ZEFIRO 380

This week, the Chinese government awarded a $4 billion contract to build 80 high speed (236 mph maximum) electric train sets for the new 3,700-mile-long high speed train network it is building. Half of the contract went to Bombardier Sifang, a Chinese joint venture with Berlin-based rail giant Bombardier Transportation (TSE: BBD.A). The company will begin delivering the trains in 2012 and finish by 2014— boom, done.

Bombardier is already building 20 sleeper trains for China and another 20 passenger trains, in addition to the 500 high-power electric freight locomotives that it contracted to build for China in 2007.

Russia is taking the plunge into high speed rail as well, spending nearly $1.5 billion to upgrade 401 miles of track between Moscow and downtown St. Petersburg, and buy eight electric Sapsan trains made by German conglomerate Siemens (ETR: SIE) with a top operating speed of 217 mph. Four runs a day will make the trip in less than four hours, compared with an average five hours to make the trip by airplane, including the time wasted getting to and from the airport and running the check-in and security gauntlets.

Meanwhile, Back in the States. . .

Calling the U.S. "a developing country in terms of rail," a Siemens representative told the New York Times last week that his company was a candidate for a proposed high speed link between San Francisco and Los Angeles, along with Bombardier and Japanese bullet train manufacturer Hitachi.

The California line is on the short list of high speed rail priorities prepared by the America 2050 group, ranking it fifth nationally in terms of ridership demand behind four other lines for the Northeast.

High Speed Rail Phasing Map by America 2050. Source.

SCNF, the French company that runs the TGV network, has submitted its own plan to the U.S. Federal Railroad Administration (FRA) for four 220 mph corridors in California, Florida, Texas, and the Chicago-Midwest area. The company believes it could open the first line from Milwaukee to Detroit by 2018 and be in full operation by 2023. The costs would be recouped quickly, according to SNCF, returning triple the $69 billion cost of the Midwest corridor within 15 years in environmental and other benefits.

All Costs Considered

Building America's high speed rail network will be expensive — about that, there is no disagreement. The $8 billion appropriated for high speed rail in the stimulus plan was dwarfed by the $103 billion in applications the FRA received for the funds, and is a small fraction of what the total network will cost. The California run alone will probably cost over $40 billion to construct, and that's after the state's existing commitments to building support networks and light rail links.

On the other hand, as the director of the BART light rail system pointed out this week in his testimony to San Francisco city supervisors with the city's Peak Oil Preparedness Task Force, the U.S. currently spends as much on parking as it does on national defense. I haven't run the numbers, but it seems within reason that if that is the case, spending that money instead on high speed and light rail would cover a very large part of the total cost.

Indeed, all of the cost arguments I have heard against rail are incomplete and wrong.

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The true costs of remaining committed to our current road and air infrastructure are never taken into full account. . . like the health care costs of polluted air; the cost of continuously maintaining roads, bridges and tunnels; the availability of materials (remember, several cities in America literally could not buy asphalt during the oil frenzy of last year, because refiners were cracking every last lighter molecule they could from the crude); the trillions of dollars we are spending on oil imports and defense operations in oil producing regions of the world; the billions' worth of damage that our current ways do to the environment; the insurance costs of keeping up 240 million cars and light trucks; the damage and death that those millions of drivers cause; and so on, ad infinitum.

Rail is cheaper, safer, and better on every single count.

When the boundaries are properly defined, the entire transformation of transportation from liquid fuels to renewable electricity would create millions of permanent jobs, and could probably pay for itself.

But the cost isn't really the point anyway.

The Future: A No-Fly Zone

America still has no energy plan, let alone a plan to address the looming threat of peak oil. With the decline of global oil production starting around 2012 already "baked in," due to a lack of sufficient oil megaprojects, we desperately need to start making tracks toward a high speed rail infrastructure. . . or face a painful future of fuel shortages and economic dislocation (at best).

No part of our transportation system is as vulnerable to volatile fuel prices as the airline industry. It was built on the expectation that oil would rarely cost more than $40 a barrel, and it is completely dead if oil stays over $100 a barrel. Last year's oil price spikes put many smaller carriers out of business and cost the major carriers billions. Then the operators who had the largest hedges against rising prices last year got whacked again as prices plummeted.

For my money, the airline industry may as well be dead. Not just because of the damage that oil price volatility has done and will continue to do — and not just because the experience of air travel has become a painful routine of delays and personal insults — but because it's so inferior in every way to high speed rail travel for distances under 500 miles. The TGV line from Paris and Lyons virtually eliminated air travel between those cities, and the high speed line from Madrid to Barcelona cut air travel in half in the first year of its operation.

Forward-looking investors would be wise to accumulate long positions in some of the major players in high speed rail, which have enjoyed a very nice rally over the last three months, as the next wave of investments in it began to hit the press:

I continue to believe that rail — particularly high speed rail — is the longest safe bet one can possibly make. As I have explained in this column over the last several years, we simply cannot replace enough gasoline- and diesel-burning cars with ones that run on electricity to address the peak oil challenge in the time we have left.

Like compressed natural gas vehicles, PHEVs and EVs are "silver BBs" that will help cushion the blow, but in the long term and for the majority of miles traveled, rail is truly the only answer. Rail is by far the cheapest and most fuel-efficient form of transport, requiring about a third less fuel than air for personal travel, and as little as 3% of the energy for freight.

The serious pursuit of high speed rail would also make a real and significant dent in CO2 emissions, and enable part of the urgent transformation we must accomplish from liquid fuels to renewably generated electricity. As Lord Andrew Adonis, Britain's transport secretary, put it in the SERA publication: "High speed rail is now pretty well a ‘no-brainer' transport strategy for the 21st century."

The rest of the world is already kicking our butts in deploying renewable energy. China is running circles around us in long term resource planning and buying up every hard asset under the sun. And compared with the rest of the developed (and developing) world, we're bringing up the rear in rail.

But it doesn't have to be that way.

It's Go Time

If you've watched any of the new Ken Burns series on America's national parks, you know that protecting the common good has always been a struggle against vested interests and conservatives resistant to change. It took strong-willed men of vision like Teddy Roosevelt, John Muir, and Stephen Mather to override the opposition and do the right thing for the future. We need that kind of leadership now.

If I were President Obama, I would direct the Department of Transportation to immediately begin transforming America's infrastructure to one based on electric rail, regardless of the long-term cost, starting with the highest potential traffic and fuel savings and working our way down the list from there. I would do as the French did when they created the TGV: Declare eminent domain and lay in the high speed rails where they make the most sense. I would restrict federal funding for roads and bridges to critical maintenance projects where rail can't take over the load in time — with not a penny more spent on new car-based infrastructure. I would forbid any subsidies for cars and trucks with a fuel economy of less than 30 mpg. I would move all subsidies for fossil fuels into renewable energy — then double or triple them — to ensure that we can run that new electric infrastructure cleanly. I would bind Congress to my purpose and ride roughshod over the objectors, making it my number-one priority.

I know it may seem hard to believe, with oil holding steady around $70 and gasoline around $3. . . but if you haven't studied the data, then take the word of a guy who has: We're in serious trouble, folks. The Armageddon of transportation is dead ahead and we need to move aggressively and determinedly to head off the peak oil challenge. Rail is hands-down our best and biggest shot.

Until next time,

Chris

Investing in Battery Stocks

One of the most glaring — and accurate — criticisms of solar energy is the simple fact that there's no sunlight at night.

In most cases then, solar is an intermittent source of power. It's a reliable power source during the day, but requires some sort of back-up or reserve power source once the sun sets. . . usually natural gas.

Solving the problem of solar energy for nighttime hours has been the cleantech industry's white whale. But a recent advancement by a Japanese firm may hold the key to a solution.

Have You Heard of the Conference of Parties?

Only a few have. But those in the know are already turning tidy profits.

The Conference of Parties -- better known as COP-15 -- is a clandestine meeting attended by leaders from 192 countries.

Their goal: to map the world's economic trajectory for the next 50 years.

Those familiar with COP-15 are already aligning their portfolios accordingly. Click here to learn what the meeting's all about, how it will alter the investment world, and how you can get ahead of the profit curve.

And the availability of solar energy at night will be the development that takes the industry to the next level, cranking up sales and stock prices alike.

Making the Sun Shine at Night

Last week at the Cutting-edge IT & Electronics Comprehensive Exhibition (CEATEC), Panasonic (NYSE: PC) unveiled a 1.5 kWh battery made by binding together standard lithium-ion battery cells.

This is big news for several reasons.

First, it marks the first time a global electronics stalwart has focused exclusively on advanced batteries for the cleantech industry.

This brings validity to a business that has been marginalized at every turn — labeled as "tree-hugging," "non-profitable," and "government-supported."

Until now, batteries of this kind have been pursued largely by specialized start-ups or cleantech-focused companies.

The entrance of global conglomerates —focused more on profits than altruism— is a strong signal of the level of business maturity cleantech has reached.

Second, the availability of these batteries at the retail level will spur demand for residential cleantech products, like solar panels and small-scale wind turbines. As I said, being able to use solar power when the sun isn't shining is one of the last remaining hurdles before widespread adoption is possible.

For green investors, an onslaught of affordable energy storage would be a boon not just to battery stocks, but to the smart grid, solar, and auto markets, as well. In fact, Panasonic has already been selected to provide batteries for Tesla's upcoming sedan.

Going Bonkers for Batteries

As you can probably tell, batteries are going to be big business, generating hundreds of billions in revenue. In fact, it's been estimated that even if only 1% of energy storage demand is met in the next decade. . . the industry will be worth at least $600 billion.

So it's no surprise that behemoths like Sony, Samsung, and LG have already thrown their hats into this ring.

Uncle Sam knows the importance of batteries, too. . .

$2.4 billion from the stimulus has already gone to fund advanced battery and electric drive projects, including:

$45.1 million to UQM Technologies (AMEX: UQM)
$34.3 million to Exide Technologies (NASDAQ: XIDE)
$118.5 million to Ener1 (NASDAQ: HEV)
$299.2 million to Johnson Controls (NYSE: JCI)

And the recently IPOed A123 Systems (NASDAQ: AONE) was awarded $249.1 million.

Even Warren Buffett has embraced batteries, turning a $1 billion profit in less than a year on an investment in Chinese battery maker BYD (1211.HK).

The Coming Battery Boom

If recent activity is any indication, batteries are in for a long and sustained bull run. Take a look at the performance of this group of battery stocks over the past few months:

And all this is happening before the market is even fully developed. Panasonic's home storage battery, for example, is four years away from hitting shelves.

The 50-200% surge evidenced above was largely hype-driven. I expect gains much higher than that once products are fully developed and sold.

Using dips to get into these stocks now should be an integral part of any cleantech investment strategy.

Call it like you see it,

Nick

P.S. No matter how you slice it, battery development is a key piece of the developing smart grid. The American Society of Civil Engineers estimates $2 trillion will be spent on this endeavor in the next two decades. And in addition to the battery stocks above, I've already generated a few triple-digit winners from this booming sector. This report reveals how to to turn the battery boom into personal profits.

Green Chip's Weekend Edition

Welcome to the Green Chip Review's Weekend Edition — our insights from the week in everything renewable energy and cleantech, as well as links to our most-read Green Chip Review and sister publication articles.

If I had to sum up the week in a one word, it would be emissions.

It began Monday, when Apple became the latest company to renounce membership in the U.S. Chamber of Commerce. Apple joins Exelon, PG&E, and PNM Resources, who quit last month. Nike resigned from the board at the end of last month.

All this because of the Chamber's negative stance — and lobbying against— any progressive climate legislation, namely the regulation of carbon emissions.

It's a big win when you've got major energy and technology players in your corner — especially when climate legislation would impose regulations on some of their businesses.

Seemingly on cue, President Obama ordered federal agencies on Monday to set a goal for cutting emissions within the next 90 days. Every agency will have to "measure, manage, and reduce greenhouse gas emissions toward agency-defined targets."

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I guess higher ups in the business and political world are tired of the U.S. being criticized on an international scale for its action (or lack of action), concerning climate change. In this week's jab, Mexico called us a "stumbling block" to U.N. climate talks.

Other nations and even carbon intensive businesses are taking action. Russia announced this week that it will ban incandescent bulbs after 2014.

And in a surprise move, the Canadian government promised Royal Dutch Shell $823 million to develop carbon capture and storage at its Albert tar sands operation.

I mention all this for one reason: clean technology being used to curb emissions all over the globe.

Recognizing this trend — and acting on it by investing — is already generating wealth across the globe. . . for everyone from residents of developing nations to managers of billion-dollar hedge funds.

And, week after week, the evidence of this happening is mounting.

This week, for example, Reuters reported that solar and wind executives are almost giddy about the projects taking shape as the result of stimulus dollars in the U.S. and China. Efforts in the Middle Kingdom will make it the largest wind market this year, with about 10 GW of new installed capacity.

Solar installation will grow over 250% globally by 2015.

And, it was announced by Geothermal Energy Association this week that U.S. "installed geothermal capacity is set to increase more than threefold in the coming years."

The smart grid, for its part, is making all this possible by improving the grid, reducing demand, communicating with utilities, and generally making it easier for renewable energy integration.

Perhaps that's why the head of the Federal Energy Regulatory Commission was singing smart grid praises this week, saying demand reduction could reduce U.S. electricity consumption by 20%, in addition to facilitating the introduction of more clean power.

"You've got EnerNOC, you've got Comverge, you've got 10 other companies that are out there now doing this on a very robust basis, because they understand that they could make money at it," he said.

Green Chip investors are making money from this ongoing transition as well.

In case you missed our most-read articles from Green Chip and our sister publications, you can check them out below.

Call it like you see it,

Nick

Investing in Combustible Ice: The Role of Flaming Ice as an Energy Solution
Wealth Daily Editor Christian DeHaemer talks about methane clathrate's potential as a future energy source and the compound's effects on climate.

Solar Stocks for 2010: Delivering Next Year's Winners. . . Right Now
Energy & Capital Editor Nick Hodge shares his top solar stocks for 2010.

Profiting with the Smart Grid: These 3 Stocks have Already Tripled
Over the past 10 months, GE, Google, IBM, and Cisco have invested $3 billion in a new technology that Energy Secretary Steven Chu has called an "urgent national priority." We reveal information you can't afford to miss about smart grid stocks.

Green Job Creation: The Latest on Green Job Creation
Editor Jeff Siegel explains the results of a University of California study regarding greenhouse gas emissions, and what it will mean for the state's economy.

Canadian Wind Energy: Plutonic Power and Enbridge: Canadian Energy's Odd Couple
Editor Sam Hopkins reveals the key players behind a massive expansion of Canadian wind energy investment and capacity.

Apple Climate Change: Apples Leaves the U.S. Chamber of Commerce over Climate Change Position
Green Chip's Jeff Siegel talks about Apple's announcement to join the ranks of businesses leaving the Chamber.

You Have 82 Days: That's All the Time Remaining to Buy this Stock Before it Soars 112%
The 8th-largest economy in the world will mandate the use of this company's wind power. . . but there's still time for you to get in on this moneymaker.

DOE Geothermal Research: DOE to research Geothermal Potential in Oil Production
Editor Kyle Haas discusses a joint project between the DOE's Office of Fossil Energy and Office of Energy Efficiency and Renewable Energy for geothermal research.

Update on Solar, Electric Cars & Energy Policy

After all that I have written in this column about the enormous challenges that the future of energy holds, it's good to focus once in a while on the progress that is being made.

So this week I have brewed up a batch of good news soup.

I begin with an update on feed-in tariffs (FiTs). (A feed-in tariff, for those of you who don't know, is an incentive structure to encourage the adoption of renewable energy via government legislation.)

Two weeks ago, I wrote about the superiority of FiTs over our existing incentives for renewable energy and criticized California for its failed approaches. This week, I discovered that in fact California already has a FiT, which the California Public Utility Commission (CPUC) introduced on January 31, 2008.

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The reason nobody talks about it is that it is an ineffective incentive based on the avoided wholesale cost of natural-gas fired generation, plus a greenhouse gas premium — far too low a price to attract much interest. Only 14 megawatts (MW) have been installed under this 500 MW program, according to a study by E3 Analytics.

But a new bill passed by the California legislature in September might improve the FiT. SB 32 would require the CPUC to include "environmental and distributed attributes (values)" in the tariffs, increase the cap on the existing program to 750 MW, raise the maximum project size to 3 MW, and make a number of other changes that should benefit rooftop solar PV projects on commercial buildings like schools, government buildings, and warehouses.

SB 32 is now sitting on Ahhnold's desk — along with about 700 others — with a deadline for him to sign by this Sunday at midnight. Unfortunately, he has threatened a mass veto of the whole lot in his showdown with the Legislature over an overhaul of the state's water system. I certainly hope SB 32 manages to escape that fate. It's not a perfect bill by any means — and it still pays far too little per kilowatt-hour — but it might finally create a successful FiT in the nation's largest power market that can be improved over time.

Three other new FiTs hit the news this week:

The Hawaii PUC decided to offer a 20-year FiT for solar projects up to 5 MW in size for Oahu and 2.72 MW for Maui and Hawaii Island (how they came up with those numbers, I have no idea). The tariff rates are not yet set, but it seems likely that with the most expensive electricity in the nation at 21.3¢/ kWh (EIA 2007 data) and a power generation system that mostly runs on fuel oil, they will be attractive. Hawaii is arguably the most vulnerable state in the nation to the threat of peak oil.

Ontario, Canada, also launched a 20-year FiT that will pay anywhere from C44.3¢/kWh for large ground-mounted PV systems (up to 10 MW) to a whopping C80.2¢/kWh for residential-sized systems (10 kW or less), when the going rate for grid power is typically C5.7 - 7.9¢/kWh. A pricing structure like that could quickly make Ontario the hottest solar PV market in North America. The province is leading the charge to a renewable energy future in Canada, with a commitment to phase out all coal-fired generation by 2014, several gigawatts of solar and wind generation built or in the pipeline, and a deal with Better Place to deploy electric cars.

Last month, India apparently introduced a FiT that embraces a comprehensive list of renewable energy sources and establishes a calculation framework for setting the rates. Depending on how the numbers turn out, India could become the next nation to deploy PV in a big way.

Electric Cars

The future of electric cars got a nice boost last week when the French government announced that it would spend about $2.2 billion to create a network of battery charging stations for electric cars. One million charging stations will be built under the plan by 2015, with 90% of them in private homes and the rest in parking lots and other sites. Additionally, all apartment buildings with parking lots will be required to install the charging stations after 2012, and all office parking lots must install them by 2015. This should result in a total of four million charging points by 2020.

The new charging network will support France's goal of putting two million electric and hybrid cars on the road by 2020. Currently, the country has only a few thousand such vehicles. To jump-start their deployment, the government will give carmaker Renault €125 million to develop of a new battery manufacturing plant and a €150 million loan to build an electric car factory. Another €100 million will be made available for other electric carmakers. Fleet orders for electric vehicles are expected to reach 100,000 units by 2015.

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It's a far more ambitious plan than Cash for Clunkers, and will deliver a lot more bang for French buck.

In partnership with Nissan, Renault is planning to invest €4 billion in electric vehicle technology. Renault also has an agreement with Better Place to build at least 100,000 electric cars for Israel and Denmark by 2016, using the latter's battery switching technology.

The plan comes on the heels of a new commitment by the French government to spend $10 billion on freight transport by rail. If you saw my article last week, you'll know that I believe investing in rail is the smartest strategy governments can pursue to address the peak oil threat.

Though it pales in comparison, the best recent news on electric vehicle deployment in the U.S. was that Nissan will deploy 5,000 of its Leaf EV cars and 12,750 charging stations in Oregon, Arizona, California, Tennessee, and Washington by 2012 under a program sponsored by the Department of Energy. Hopefully, the results will speak for themselves and lead to a much larger rollout of EVs in America.

Energy Monitoring

There was an exciting bit of news on the energy management front this week as well, with an announcement that Google had partnered with Energy Inc. to deliver an energy management solution that doesn't need a smart meter. Homeowners and businesses will be able to use Energy Inc.'s $200 "TED 5000" device, along with Google's PowerMeter software to monitor the energy usage of individual circuits in the building. They will be able to see how much it's costing them at the moment and in aggregate over the month. The data then is made available over the Net using any browser without charge.

Google has been working to integrate PowerMeter into smart meters, including those made by one of our favorite smart grid companies, Itron, Inc. (NASDAQ: ITRI). But its market penetration has been somewhat slowed by competing proprietary monitoring packages and the long, measured roll-out of smart meters across the country's utility networks. Until the majority of consumers have smart meters, the deal with Energy Inc. should help make real-time energy management an everyday reality and help utilities reduce the peak demand loads they have to supply. On the whole, it's a great step forward for the smart grid. (For more on smart grid plays for investors, see "Smart Profits on the Smart Grid.")

Policy Progress

Finally, there is the progress on President Obama's clean energy agenda. Secretary of the Interior Ken Salazar recently reviewed his agency's progress at an energy summit in September:

A groundbreaking framework for offshore renewable energy development has been crafted which eliminated red tape between FERC and Interior. The latter also issued the first-ever leases for wind development offshore from New Jersey and Delaware.
$41 million has been devoted to fast-tracking utility-scale solar and other renewable projects on public lands. New Renewable Energy Coordination Offices are being set up in western states to streamline the review and approval process and identify the projects that are ready to go. (For more on that, see "Utility Scale Solar Heating Up.")
Interior has identified 24 "Solar Energy Study Areas" that could host nearly 100,000 MW of utility-scale solar projects. More than 4,500 MW of new capacity from those projects would be in western states, plus another 800 MW of new wind capacity should be ready for construction by the end of 2010.
Over 55 million acres of new offshore leases for oil and gas development have been sold or auctioned since January.
Interior has also worked to set a good example by installing a green roof on its headquarters, quantifying its carbon footprint, and installing energy saving devices and solar panels on its facilities in parks and public lands.

Not a bad list of achievements for only nine months!

America may be pulling up the rear in its efforts to steer the country away from dying liquid fuels and toward the bright green future of an all-electric renewable energy infrastructure. . . but the wheels do seem to be in motion and I remain cautiously optimistic about our prospects. If we can only get our heads on straight about where we are and where we're going, I think we'll make great strides. Hopefully, we will position ourselves a whole lot better to face the decline of oil just three short years from now.

Until next time,

Chris

P.S. My colleague, Nick Hodge, has been profiting from bullish cleantech news at every turn. His new "R-Track" system weighs policy information and news like I've just shared with you. It seeks out the companies involved, and identifies the best publicly-traded ones to invest in. He's closed 41 winners this year, including two yesterday for 40% apiece. If you want to invest in cleantech with a near-certain accuracy and consistency, I suggest you read this report about the system. . . and how you can start using it today.

A Week of Mixed News for Solar

This week was dominated by new worries for the solar industry.

It started on Monday with a bearish report by Barron's. It was an interview with analyst Gordon L. Johnson II, who bashed the industry the entire time, calling for a top-to-bottom oversupply of everything from polysilicon to modules.

He sees falling prices for silicon that would put pressure on supplier margins. And he sees module supply of about 7.1 GW in 2010 severely outpacing his demand forecast of 4.4 GW.

Of course, those are his estimates. With stimulus-funded projects popping up around the globe, it's really anyone's guess how the supply/demand picture will work out. China, for example, announced a project this week that will total 10 GW.

With projects like that being announced frequently. . . the demand picture can change in a hurry.

In a bit of surprising news this week, the New York Times reported that the solar importers could be hit with $70 million in unexpected tariffs from the U.S. Customs agency. They claim "because the panels contain a basic electronic device for safety and energy efficiency, they would be treated as electric generators, subject to a duty of 2.5 percent."

It seems frivolous and the solar industry is already fighting it. We'll have to wait and see how it turns out.

The Most Profitable Energy Transition The World Has Ever Seen!

On November 12, 2008, the International Energy Agency (IEA) officially confirmed that every fossil fuel resource we rely on today will simply not be able to keep pace with demand.

As a result, the IEA stated in very clear terms that renewable energy will soon become the second largest source of energy.

Want to know which renewable energy source will take the lion's share of tomorrow's power generation?

Click here, and see where the experts are putting their money!

Some less-than-good green news from this week: water made headlines several times because of its relationship with energy. First, because of the high amounts used to cool solar thermal systems in the Southwest; later because of the pollution associated with extracting newfound sources of natural gas.

But there was also some good news. . .

The number of cleantech financing deals soared in the third quarter to 112-worth a total of $1.9 billion. That the third quarter of consecutive growth, from $836 million in the first and $1.2 billion in the second.

Also worth noting is a climate/energy bill introduced in the Senate by John Kerry. It's a companion bill to the one passed by the House in June, calling for emissions reductions via cap-and-trade and increases in renewable energy through a renewable portfolio standard.

Finally, even if Congress fails to act, the EPA made clear this week that it will regulate emissions one way or another, using Clean Air Act authority if they have to.

In case you missed our most-read articles from Green Chip and our sister publications, you can check them out below.

Call it like you see it,

Nick

Exelon Climate Change: Exelon Climate Change Decision Further Erodes U.S. Chamber of Commerce Credibility
Editor Jeff Siegel comments on Exelon's announcement this week that it will be leaving the U.S. Chamber of Commerce, following in the footsteps of PG&E just last week. Jeff also covers Nike's resignation from the board of directors on Wednesday.

China Green Business Academy: Chinese Green Academy to Teach Western Execs
Green Chip Editor Sam Hopkins discusses China's plans to draw 2,000 business managers per year to its Institute for Sustainable Communities Environment, Heath and Safety Academy.

Investing in Geothermal Energy: Cashing in on Nevada's Geothermal Jackpot
Energy & Capital Editor Nick Hodge discusses investing in geothermal energy, with special attention paid to Nevada...

The R-Track System: Delivering Investors 32% Every Month
Readers following this system closed 45 winning trades in the last 12 months. . . and we'll tell you about #46.

Water Infrastructure Stocks: Using the "Philly Plan" for Profit
Green Chip's Nick Hodge discusses water infrastructure stocks through the lens of a recently announced $1.6 billion project. . .

Alternative Energy Funding: Where Alternative Energy Companies Can Get the Funding They Need
Green ChipEditor Jeff Siegel comments on the difficulty small alternative energy companies are having raising capital or getting credit, and offers a suggestion for these cash-strapped companies to get the funds they need.

Thomas Friedman Green China: NYTimes Columnist Sums Up China's Green Imperative
Green Chip's Sam Hopkins comments on Friedman's take on China's Green Revolution and offers his own insight.

EPA Could Regulate Greenhouse Gases: the EPA's Carbon Trump Card
Guest Editor Emily Rutan talks about the EPA's trump card when it comes to regulating greenhouse gas emissions.

Alternative Energy Funding

On October 20, 2008, The New York Times ran an article titled "Alternative Energy Suddenly Faces Headwinds."

According to the piece:

"For all the support that the presidential candidates are expressing for renewable energy, alternative energies like wind and solar are facing big new challenges because of the credit freeze...

‘Everyone is in shock about what the new world is going to be,' said V. John White, executive director of the Center for Energy Efficiency and Renewable Technology, a California advocacy group. ‘Surely, renewable energy projects and new technologies are at risk because of their capital intensity.'"

It's been almost a year since that article ran, and I can tell you, small alternative energy companies — both public and private — are still finding it difficult to raise capital or to get credit lines from banks.

Sure, if you're a high-profile electric car company with big backers, like Fisker Automotive, you can get hundreds of millions of dollars in funding rather easily.

Fisker's top investors include Kleiner Perkins Caufield & Byers, a veteran Silicon Valley venture-capital firm of which Al Gore is a partner.

Last week Fisker received a $529 million loan from the US Department of Energy.

But for every Fisker out there getting the capital they need to be successful, there are 25 companies hitting brick walls because banks have literally frozen their credit lines.

In fact, I can't tell you how many times in the past six months I've been approached at a conference by a small alternative energy company seeking funding.

And being a lifelong green energy advocate, it kills me to have to turn them down. By all accounts, many of these companies have great technology, savvy management and a solid business plan to bring their product to market. These companies are the future!

But the one thing they lack is money.

The last straw for me came a few months back, when I spoke to a standing room-only crowd at an alternative energy investment forum.

The excitement and attendance was triple that from two years prior. But all the excitement was dampened by an overriding concern for most of the alternative energy companies in attendance: Funding.

"Jeff, I need just a year's worth of capital... and I can bring this product to market. Guaranteed." That was the general theme I heard time and time again at this conference.

I really was staring at a sort of crisis situation.

The fact is, for quite a few quality alternative energy operations — venture capital had dried up. . . and banks had stopped lending money.

So when I returned to Baltimore I knew I had to do something about it. I wasn't going to stop until I found the solution. After all, this was my life's work. I spent nearly two years writing a book on it. And I wasn't about to sit by and let great ideas and businesses wither on the vine.

You see, whether it's energy independence from Mideast oil or the preservation of natural capital or jobs, the alternative energy sector is just too important to the security and economic stability of this country. Period. End of discussion.

And because of my position and contacts in the renewable energy space, I knew I could be the bridge between companies seeking capital and venture capitalists and angel investors seeking green companies to invest in.

It didn't take me long to find the solution. . .

Introducing Harbor Energy Capital

A few weeks ago I had dinner with John and Ted Venners of Harbor Energy Capital at Kali's Court in historic Fells Point, Baltimore.

Born and raised in the rough and tumble state of South Dakota, John and Ted have spent nearly seven decades combined dealing with energy executives, negotiating energy deals and successfully navigating the Department of Energy and the Washington, D.C. crowd.

In addition, they know how to strategically add to shareholder value, taking their own Wyoming clean coal company to a $1.5 billion market cap.

Now when I first sat down to dinner with them, I didn't know exactly how we could help each other. But I soon found out.

They have a simple, but brilliant idea: Help cash-strapped alternative energy companies get funding from private investors. . . as well as help them get a piece of the federal government's multi-billion dollar stimulus package set aside for green companies.

By the way, if you're ever in Fells Point, go to Kali's Court for dinner and get the crab cakes — giant lump crab held together with little more than a prayer. It's all crab, all the time. Delicious.

Now, after the waitress cleared the table, John and Ted explained to me that they have assembled a team of investment bankers, Wall Street players (including Ayuda Funding, which has loaned over $500 million to various companies in the past 10 years), and federal government grant and loan experts and writers.

The entire goal of the team is to get alternative energy companies the money they need to get their products developed and to the market. In fact, with Ayuda Funding part of the team, bridge financing is immediately available for alternative energy companies.

As I listened to them, I realized they were true D.C. "insiders." Sure, that term has its own negative connotations, but they know exactly who to talk to in order to get the job done. They know how to get that green stimulus money for alternative energy companies.

So needless to say, I knew I had to pass this along to you.

Bottom line: If you have a small alternative energy company — either public or private — and you're still finding it difficult to raise necessary capital or get credit lines from banks, contact Harbor Energy Capital at 703-224-8108; email ccgrillo@harborenergycapital.com.

We have the opportunity today to use capitalism as a catalyst for real change. We can make the world a cleaner, safer place for future generations. And we can also create a new generation of wealth in the process.

A new way of life, and a new generation of wealth. . .

It's not just some random catch phrase.

It's a reality.

Jeff

P.S. John is developing an algae plant on the island of Oahu in Hawaii. As you know, algae can be used as a feedstock for biodiesel. It grows faster than any other feedstock, can be used to capture carbon (it can "eat" carbon and use it to grow), and has a higher oil content than any other biodiesel feedstock

It's early in the game, but the potential is huge.

I was in Oahu in July. . . and that place is paradise. In the future I'm going to take a group of green investors to Oahu to check out the algae production. I'll let you know when I'm planning the trip. In the meantime, check out Harbor Energy Capital's website: www.harborenergycapital.com/

A123 Surges 50% on First Day

Welcome to the Green Chip Review Weekend Edition — our insights from the week in everything renewable energy and cleantech, as well as links to our most-read Green Chip Review and sister publication articles.

The week in Green Chip can be summed up with a single acronym: IPO.

Thursday of this week marked the initial public offering of A123 Systems, the MIT battery spin-off that now trades under the ticker AONE on the NASDAQ.

This was one of the most highly anticipated IPOs I can remember. Even those not remotely concerned with cleantech or sustainability were excited to see it begin trading.

And it showed in the price.

In its first day the stock gained about 50%, surging from its debut price of $13.50 up to $20.00.

It's been the talk of the Street all week. And it's further proof in the pudding of just how far the green movement has come in only a few short years.

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We've gone from hearing things like "electric vehicles are glorified golf carts," to "let me get in on that $380.4 million IPO!"

In less sexy but still important news. . . the G20 agreed to phase out subsidies on oil and other fossil fuels, albeit with no specific time frames.

And the combined Departments of Treasury and Energy awarded $550 million renewable energy grants to help move specific projects forward. That makes over $1 billion from the stimulus allocated to cleantech so far from the two departments.

In case you missed our most-read articles from Green Chip and our sister publications, you can check them out below.

Call it like you see it,

Nick

Copenhagen Climate Conference: Corporate Leaders Group on Climate Change
Editor Sam Hopkins highlights major new developments in the UN emissions reduction talks and the trillions of dollars pushing for change. . .

The Economic Stimulus Package: $11.3 Billion for Renewable Energy
Energy & Capital Editor Nick Hodge relates the idea of a "profit bridge" to companies getting funding through the economic stimulus package. . .

Emerging Europe ETF: Poland Leads the Way to Emerging Europe Profits
Editor Sam Hopkins dissects a top emerging market ETF to come out with a much better play on leading emerging Europe market growth.

The Cleantech Industry: Why Even the Boys at Big Oil are Getting On Board
We explain just how enormous — and completely inevitable — the renewal energy boom really is. . . and why you need to be well-informed if you're interested in making money — and lots of it.

Chesapeake Energy Stock: Buy, Sell or Hold — Chesapeake Energy is on the Rise
Wealth Daily Editor Steve Christ takes a look at natural gas prices and makes the call on shares of Chesapeake Energy.

The Renewable Energy Challenge: Will the U.S. Choose the Path to Profit, or the Freeway to Failure?
Editor Chris Nelder separates the policies on climate and energy that work from the ones that don't, and sees the U.S. lagging far behind the rest of the world. . .

Offshore Wind Power: Cape Wind Ignites U.S. Offshore Market
Green Chip Guest Editor Kyle Haas discusses Cape Wind developments before turning to the broader offshore wind market.

Buffett Offshore Wind: Warren Buffett Bets Big On Offshore Wind
Green Chip's Jeff Siegel covers Warren Buffett and the news that he might pony up $1.6 billion to get a piece of the UK Offshore Wind market.

The Renewable Energy Challenge

With the Copenhagen summit on climate change less than three months away, and governments the world over engaged in intensive discussions and preparations, it feels like we are finally standing at a true crossroads.

One direction leads to a vision of a sustainable future, with adequate energy, food, and water for all without compromising the welfare of future generations.

The other direction is a continuation of the path we're currently on, which the vast preponderance of empirical evidence says is not sustainable, but which continues to be vigorously defended by vested interests.

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Climate change is the headline purpose that brought us to this point, but choosing the sustainable path has far greater implications. As sustainable business proponent and founder of the carpet company Interface, Ray Anderson, put it in the introduction to his new book, Confessions of a Radical Industrialist:

By survive, I mean business must be steered through a transition from an old and dangerously dysfunctional model to a far better one that will operate in balance and harmony with nature—thrive in a carbon-constrained world, and put down the threats of global climate disruption, species extinction, resource depletion, and environmental degradation. In a word, develop a business model that is sustainable.

The sustainability cause is championed by an unlikely alliance of climate scientists, government agencies, military analysts, environmentalists, and forward-thinking business leaders like Anderson — the Greens — all of whom realize that we are heading for Big Trouble if we keep on going the way we have been.

On the other end of the struggle are the Browns: businesses who would rather fight than switch. The oil and gas industry dominates this faction, but they are by no means alone. All those whose livelihoods depend on our continued use of fossil fuels have found common cause in opposing efforts to curb climate change.

In the past several weeks, two utility companies — Duke Energy, which provides power to five states; and Alstom, a French manufacturer of power plant components —and aluminum giant Alcoa resigned their memberships in the American Coalition for Clean Coal Energy after revelations surfaced of forgeries the group perpetrated as part of its lobbying against climate change legislation.

This week, California utility PG&E made a similar move by leaving the U.S. Chamber of Commerce over the organization's extreme stance on climate change. Three weeks ago, the Chamber called for a "Scopes monkey trial of the 21st century" to put climate change science on trial — a silly idea, since science is intrinsically a process of examination and proof; and strange choice of metaphors, considering that science won the Scopes argument.

Then again, it's not called the U.S. Chamber of Sustainability. Would that we had one!

A House Divided

While those who stand to lose something waste their energy impeding our progress on the march to sustainability, those who stand to gain from it are going gangbusters.

As I discussed two weeks ago in my article "Welcoming China's Energy Revolution, China has made aggressive and well-timed moves in the solar race. In only five years it has gone from being a negligible player to the world's top producer of solar PV cells, according to a new report from the European Commission Joint Research Centre Institute for Energy. Worldwide solar module production increased by 80% in 2008 alone, with Asia and Europe taking the largest share while the U.S. share barely budged.

Source: JRC PV Status Report 2009. "In 2008, China became the global leading producer of solar cells with an annual production of about 2.4 GW, followed by Europe with 1.9 GW, Japan with 1.2 GW and Taiwan with 0.8 GW. It this trend continues, China might have about 32% of the world-wide production capacity by 2012."

It must greatly amuse the Chinese to watch the Greens and Browns in the U.S. waste their energy squabbling over who's going to pay for the transition to a sustainable climate, starving the country of investment in the clean energy solutions of the future while China is busy taking over the global PV market and implementing policies that will soon take it far beyond the U.S. in meeting climate change and renewable energy goals.

Indeed, the U.S. is fighting itself at every turn, offering more incentives that will increase CO2 output than those that would curb it.

Last week, just days before President Obama would warn at the United Nations that the "irreversible catastrophe" of climate change must be avoided, the Environmental Law Institute issued a new report finding that U.S. subsidies to fossil fuels ($72 billion) were over two-and-a-half times as great as those it invests in renewables ($29 billion). Of the latter portion, traditional renewables received only $12 billion, while corn ethanol — a net energy loser — got $17 billion.

The OECD also issued a report last week estimating that eliminating fossil fuel subsidies alone would cut emissions by more than 10% by 2050. I suspect the two reports had something to do with Obama's call on Wednesday of this week to "work with my colleagues at the G-20 to phase out fossil fuel subsidies."

As of this time, however, the madness continues. Pending House legislation sports tens of billions of dollars of incentives for so-called "clean coal" technology, which does not exist commercially, but has no hint of a feed-in tariff (FiT) — the primary impetus behind Europe's stunning renewable energy growth.

As I have written previously, FiTs have been responsible for an explosion of renewable energy in over 37 countries and put them on track to meet their carbon emission reduction goals. But instead of following those examples, the U.S. is fixated on a backward approach to the climate problem: a highly corruptible and ineffectual cap-and-trade mechanism that puts the focus on what comes out of the tailpipe instead of what goes into the engine. (Notable exceptions to this are Gainesville, which has adopted a FiT, and San Antonio, Los Angeles, and Sacramento, which are considering one.)

A new research note from Deutsche Bank points out that under Germany's FiT the share of electricity supplied from renewables grew from 6.3% to 14% and created 300,000 new jobs, but the program's cost only contributed between 3% and 4% to the increase in electricity prices from 2004 to 2006.

Stake Your Claim in the Stimulus Goldmine

With $787 billion in pork now sloshing around Washington D.C., one industry in particular stands to grab the lion's share.

And for the investors that get there first, this moneymaking opportunity is one that may just turn out to be the mother lode.

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Over the same time period, the fraction of renewable energy in the U.S. actually fell from 10.1% to 9.4% while the Browns fought it tooth and nail. Job creation was anemic, electricity prices still rose, and oil imports continued to increase.

A Case Study in Failure: California

As usual, California offers a useful example of how backward the U.S. approach is to formulating energy policy.

A recent showdown occurred over a bill that would raise California's renewable portfolio standard (RPS) from 20% by 2010 to 33% by 2020. Governor Schwarzenegger threatened to veto the bill because of a provision that would require the power to be generated by plants connected to the California grid — an attempt to keep the projects in-state and limit imports — calling it "protectionist." Then he proceeded to issue an executive order to the California Air Resources Board establishing the new 33% RPS by mandate.

The RPS approach, which favors utility-scale projects, has already failed to yield the desired results. California's three big utilities will almost certainly fall short of meeting the existing 2010 goal, with laggard San Diego Gas and Electric currently getting only 10% of its electricity from renewables. (I can also tell you firsthand that the one residential solar project I did in SDG&E territory was a slow-moving absolute nightmare of confusion and paperwork compared to the projects I did in PG&E territory.)

At the same time, an approach that actually works continues to meet resistance.

California's net metering law, which requires utilities to give credits to customers who feed renewable power back to the grid, is currently capped at 2.5% of the total load. A new bill would have raised the cap to 5%, but was stalled when the International Brotherhood of Electrical Workers (IEBW) successfully inserted an amendment that would have permitted only contractors with a general C-10 electrician license to install projects larger than 250 kilowatts, excluding numerous non-union contractors with the solar-specific C-46 license. (The IEBW has attempted the same strategy several times in recent years, impeding the progress of pro-solar policy while gaining nothing for itself.) If the net metering cap is not raised, there is a distinct possibility that PG&E will hit the existing cap and trigger another slump in the long boom-and-bust history of solar.

Time to Choose

If the U.S. were serious about making progress on climate change and renewable energy, it would put aside the jockeying of narrow-minded interest groups and implement long-term policies with proven records of success.

As I see it, the effective policy approaches are stable, transparent, long-term, and simple:

Forget about cap-and-trade and RPS, and incentivize clean energy with a generous and long-lived national FiT modeled on successful programs elsewhere.
Shift all subsidies for brown fuels to green fuels, with priority given to those with the highest net energy (geothermal, solar, and wind), instead of those with the best lobbies (corn ethanol).
Level the playing field between rooftop and utility scale solar by removing net metering caps, allowing utility customers to put as much excess renewable energy onto the grid as they can generate.
Tear down the barriers between states and utilities, and create a national market for renewable energy.

Above all, we should stop framing our decision-making around short-term cost arguments, and accept the fact that all of the energy solutions of the future will cost more than those of the past. The cost of fossil fuels will continue to rise because the best resources have already gone up in smoke, and what remains is progressively more expensive to produce. The cost of renewables will cost more in the short term, but fall as the technologies mature.

Besides, ample research has shown that in the long run — once the true costs of all fuels are recognized, with nothing externalized, and cost-benefit analyses are extended into multi-decade time frames — renewable energy wins hands-down over fossil fuels.

With which would you rather align yourself: a dirty, mature industry going into decline that still claims to need billions in public support. . . or a clean, new industry that's growing at 40% per year, with no limit in sight, and a reasonable expectation of being able to get along without subsidies in 20 years or so?

Beyond renewable energy's long-term benefits — a more resilient economy, jobs created indirectly, better public health, a reduced burden on the national coffers for imported oil (on the order of $400 billion for this year in the U.S.), and other indirect and intangible benefits — there is the straightforward imperative that we begin the urgent transformation toward true sustainability.

The short-term cost argument is tired, and we have already delayed too long. It is time we evaluated our choices in terms of the wealth and welfare of future generations, not just the personal net worth and power of today's kings of industry.

At this crossroads in history, the United States can either seize the opportunity to reinvent itself and secure a prosperous future, or allow an unproductive process of selfish bickering to lead us further down a dead-end street. We can apply our vaunted ingenuity and innovation to the renewable energy challenge, or watch our fortunes continue to slide while the rest of the world kicks our butts.

We do have a choice.

Until next time,

Chris

P.S. As I mentioned. . . The "COP-15" summit is less than three months away. The choices that are made there —with or without the U.S.— will have trillion-dollar consequences. Click here to see how this is already spurring legendary market profits. . . and how you can still position yourself before the crucial December meeting.

Green Chip's Weekend Edition

Welcome to the Green Chip Review Weekend Edition — our insights from the week in everything alternative and cleantech, as well as links to our most-read Green Chip Review and sister publication articles.

As the market reached a 12-month high this week, cleantech stocks were certainly pulling their weight.

Smart grid, solar, and geothermal plays were all making moves this week. Take a look:

While an improvement in key economic indicators is a large reason for the broad rise, there were also some sector-specific headlines that served as cleantech profit catalysts this week.

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Over $800 million in stimulus dollars were allocated this week by the Department of Energy; $454 million will be spent on a "Retrofit Ramp-Up" that will pioneer different models for rolling out energy efficiency plans across the country. Another $354 million is being awarded to 22 states to directly support energy efficiency and conservation activities.

In California, the Governator signed an executive order calling for the state to get 33% of its energy from renewables by 2020. His order also made it easier for clean power to be purchased from out-of-state sources and cut some of the red tape holding back large solar thermal plants.

On the same day, independent researcher iSuppli announced the Golden State as on pace to double solar power in 2009. They also found installations would increase another 68% in 2010, while the global forecast is for a 54% increase.

Perhaps feeling neglected, the wind industry also got a boost this week when the world's largest offshore wind farm went online off the coast of Denmark. The 209 MW Horns Rev 2 wind farm was built by DONG Energy for $694 million and uses 91 Siemens (NYSE: SI) turbines.

And finally, there was even heat building in the geothermal arena this week. U.S. Geothermal (AMEX: HTM) finalized a $7.39 grant from the DoE to further their Raft River Enhanced Geothermal System. And Nevada Geothermal (OTCBB: NGLPF) announced they completed their 49.5 MW Faulkner 1 plant three months ahead of schedule.

Both stocks are enjoying nice uptrends.

Indeed, there was positive news on all fronts this week. I hope that translated into some nice gains for your portfolio.

Call it like you see it,

Nick

P.S. In case you've missed any of the recent top stories from Green Chip Review and our companion publications, we've included them below.

California Renewable Energy: The Governator Gets the Veto Pen
Energy & Capital Editor Nick Hodge discusses California renewable energy as related legislation makes waves in the news.

$100 Billion Up for Grabs: Smart Profits from the Smart Grid

As America's electric infrastructure is on the verge of collapse, there are literally billions of dollars out there for those who are developing and investing in Smart Grid technology right now. We'll tell you about three plays in the Smart Grid and how you can profit from the end of electric infrastructure.

China's Electric Car Market: China in the Spotlight at the Frankfurt Motor Show
Wealth Daily Editor Brian Hicks tells us why China's car market is the Holy Grail of the automotive industry and reveals his stock pick for rare earth metals.

Japan's High Speed Rail: Bullet Train Technology May Hit the U.S. Soon
Sam Hopkins points out why Japan's economic fortunes are tied to the expansion of America's high-speed rail infrastructure.

The Industry that'll Rule the 21st Century: World's Economic Powerhouses Prepare to Cash in with Cleantech Sector
We reveal how you can know exactly what the industry's insiders and doing, and how you can gain a profitable foothold in a market that knows no borders.

Climate Change: The Cost of Inaction
Editor Jeff Siegel considers this piece a must-read for anyone who invests in renewable energy.

Energy Efficiency Stocks: No Need to Freeze the Goldfish
Green Chip Editor Nick Hodge covers energy efficiency stocks after Energy Secretary Chu discussed the topic on national radio. . .

Europe Offshore Wind: Norway-based ScanWind Develops Turbines that Could Cover Significant Percentage of Total EU Electricity Demand
Green Chip Editor Jeff Siegel talks about a report released by The European Wind Energy Association that indicated total installed capacity of offshore wind could cover as much as 17 percent of total EU electricity demand.

The Fortune You Could Find with Cleantech: Why We're Sitting Pretty in Wall Street's Catbird Seat
There's a ton of capital coming into this sector. . . there's unprecedented global support. . . and renewable energy's share of the overall energy mix is expected to grow from 2.5% in 2008 to more than 30% by 2030.

Japan's High Speed Rail

September 2009 will go down as a major inflection point in Japanese history.

The country's voters just overhauled the Diet (legislature) by breaking the Liberal Democratic Party's 50-year grip on power.

New Prime Minister Yukio Hatoyama promises his Democratic Party of Japan will bring economic revival to a "people-oriented society" and align the world's #2 economy more closely with the top dog, the United States.

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What will Japan's growth engine be? Well, it looks like an international campaign to export locomotives, switches, and other components of the national Shinkansen "bullet train" system may be the thing that gets the country's economy back on the rails.

Just this week, leading bullet train operator JR Central touched off a worldwide rail revolution in which Japanese train technology may become as prevalent as Toyota and Honda on the global market.

Japan Knows How to Export Transport

The Financial Times reported on September 14 that JR Central tech execs have been in London, boasting not only individual components of the Shinkansen but the entire system could be marketed to national and local governments worldwide.

"It's the system that supports the Shinkansen and its whole track record we want to sell," JR Central technology division head Tsumotu Morimura told the FT.

That's a break from component sales that have dominated international rail transport transactions for the past several decades. With different geographic and population-based needs, train network development is pretty parochial.

Yet there are already companies like Siemens (NYSE:SI) in Germany and Alstom (Euronext:ALO) in France that have inched into more integrated system sales in places far from their respective headquarters.

Swiss engineering conglomerate ABB (NYSE:ABB) produced switches for the light rail trains that run just down the street from the Green Chip headquarters in Baltimore.

JR Central wants to take on these companies directly, eating away at total global market share by moving into growth markets in North America and the Middle East, where Gulf petrocracies want to increase mobility while limiting their soaring oil usage so they can maximize exports.

I'll risk another transportation pun here and say that Japan's got a great track record when it comes to moving transportation products for profit.

Consider the statistics that reflect the status quo:

The United States and Japan are the world's top 2 economies.

Transport machinery is Japan's #1 export.

The U.S. is Japan's #1 export destination.

Japan ranks #2 in the world for rail passengers per year — just behind Switzerland and right ahead of France, another country with high-speed rail.

U.S. travelers don't even crack the top 20 for rail usage. . .

Americans log the most air travel by far — over 1 million passenger-kilometers per year more than second-place China!*

*all of the above from the Economist

While these statistics can't capture the entire market scenario JR Central is looking at, $8 billion in U.S. stimulus fund dollars are stoking interest from international companies that want to make their mark on an American-dedicated high-speed rail network.

U.S. Rail Should Move More People

You see, the U.S. is actually out in front in worldwide rail rankings. Even Russia, which straddles two continents, has only 40% of the track mileage that criss-crosses America from coast to coast. . .

But freight dominates in the States, and everything from track width to right-of-way needs to be re-thought and re-engineered for high-speed rail to bring air travel numbers out of the stratosphere. Even if short trips like Kansas City to St. Louis, or Cincinnati to Cleveland, could be brought down to ground level with fast trains. . . we could put a major dent in airline emissions, car travel to and from airports, and especially the hassle time it takes to get through the whole security routine that comes with air travel.

As I pointed out in a series of articles back in June, there is a rail infrastructure crisis in the United States that many consider inexcusable for the world's #1 economy. . . especially when our nearest GDP competitor has a world-class rail system it wants to share.

October 2 is the deadline for state transportation authorities to apply for stimulus funds to improve local high-speed rail networks, and JR Central will be watching the U.S. process closely.

We'll also be watching as the stimulus-fed infrastructure buildout grows to attract more foreign companies eager to share their success and bring returns to investors.

Regards,

Sam Hopkins

International Editor

By the way. . . Nick Hodge and I are strong believers that good ideas know no boundaries. The U.S. stimulus can't work with tired old thinking, and some of the best projects will be founded on foreign expertise. As Green Chip International readers know, the benefits of border-free thinking can be phenomenal. We're sitting on 453% in one single stock, and more are running at the same time! Learn more here.

Energy Efficiency Stocks

Energy Secretary Steven Chu took to the airwaves this week to talk about our looming energy challenges.

And in what is becoming his typical cautiously optimistic style, he addressed several of the elephants in the energy room.

It's important to pay attention when a guy this high in the food chain gives candid answers to big questions. His answers can provide clarity on the big picture and, if you listen carefully, can even shed light on possible profit opportunities.

Let's take a look at what he had to say. . .

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No Need to Freeze Goldfish

Apart from cleaner energy producing technologies, energy habits also need to be understood and changed. This is often a point of contention in the energy debate — one of those elephants I was referring to.

The problem — as is the case with most issues that have political underpinnings — lies with the interpretation of this idea and the extreme ends of the spectrum. "Changing your energy behavior" has a different meaning for everyone.

For some it means acceptable changes: turning off the lights when you leave a room; conserving water; being more conscious of how you use energy. Others may think they're being asked to give up modern comforts like heating or air conditioning or the use of a vehicle altogether.

In the interview, Chu uses the extreme example of someone thinking that by changing energy behavior, they'll be forced to spend the night in sleeping bags during the winter without heat. In his anecdote, the only result is the accidental freezing of the family goldfish.

In reality, the Secretary doesn't think we'll have to make any changes quite that drastic. Instead, he believes Americans can do what we currently do with half the energy "in a way that doesn't call for the freezing of the goldfish."

And that, he says, is figuring conservatively.

Profiting from the End of New Slavery

Whenever we're talking about changing energy behavior, there are profit implications involved. That's because "changing energy behavior" is political codeword for implementing energy efficiency measures and deploying a smart grid.

Chu uses the framework of energy servants to convey his point. As humans, we need only 2,500 calories of energy per day to thrive.

But here in the States, the advent of cheap energy after the industrial revolution enabled us to become gluttons, routinely using 100 times that amount for our daily needs.

Metaphorically, that means each American goes about life as though we have 100 personal servants — each consuming 2,500 calories — each and every day, as we are excessive in everything from laundering our clothes to cooling our homes to importing our groceries from around the country and world.

The goal is being able to continue our daily routines without interruption while reducing the number of energy slaves we use.

Doing that would not only significantly reduce our demand and solve part of the energy problem, but it would also boost the portfolios of savvy energy investors.

From Theory to Application

Of course, it's easy to talk about such grand-scale changes from an armchair. But it's much more difficult to execute them. . . not just from a scientific standpoint, but from a political one, as well. Hence all the animosity about the current climate-energy bill circling Congress for fear of the proverbial frozen goldfish.

Indeed, it may seem that what Mr. Chu is talking about is outside the realm of our current reality. But that couldn't be further from the truth. The changes he's proposing are already taking effect in a big way. . . albeit with much work left to do.

Take California, for example, where Los Angeles recently reduced their year-to-year energy consumption by 318 gigawatt-hours without any impeding changes in day-to-day operations. This was accomplished mainly through new lighting initiatives, some of which cut the energy bills of small businesses by more than 25%.

Not only are these changes "invisible" to consumers, they're also saving businesses money. This goes against the general fear mongering, which touts unbearable changes at exorbitant costs.

What's more, these changes aren't just good for the dual bottom lines of energy demand and costs; they can also do wonders for our personal bottom lines by simply taking notice and acting on the trend. That's what Green Chip is here for.

In this case, companies are being paid up-front to reduce energy consumption and costs in the long term by simply installing more efficient lighting.

From Application to Profit

One of those companies is Cree Inc. (NASDAQ: CREE). And look what's happened to their share price as efficient lighting initiatives take root around the country:

That's a 170% rise in less than a year. And it's just one in a large group of energy efficiency-related stocks that have done the same thing over the past year — spurred, in part, by the billions allocated to efficiency and smart grid development in the stimulus.

Those billions are still being approved and spent. . . and will continue to be for some time, inciting easy profits along the way. You just need to be alert (or very well-informed), to know where to invest.

To get you started, I suggest taking a look at Itron Inc. (NASDAQ: ITRI), a company I've recommended to readers of the Alternative Energy Speculator and one that will achieve stalwart status in the arena of efficiency.

Itron is Google's exclusive smart meter provider for its PowerMeter venture, which will be rolled out later this year. They're also the exclusive smart meter provider for a growing number of utilities across the country. National Grid (NYSE: NGG), the nation's second-largest utility, announced last week they are also considering using Itron's meters.

The stock has gained over 20% in the last four trading weeks, as Itron's story becomes evident to traders of all brands. And the company will certainly be the beneficiary of numerous efficiency contracts going forward.

Yet, Itron is only one of dozens of stocks that will balloon as Chu's vision becomes reality. To read about other companies profiting from the efficiency trend — and to stay ahead of the investment pack — click here.

Call it like you see it,

Nick

The Week in Cleantech

Welcome to the Green Chip Review Weekend Edition — our insights from the week in everything renewable energy and cleantech, as well as links to our most-read Green Chip Reviews and sister publication articles.

It seems everything went well for cleantech this week except stock prices.

Through the U.S. Energy Information Administration, it was learned that energy production from coal has been in decline for years, and is actually falling faster because of the recession.

According to Reuters:

Coal's share of U.S. power generation has fallen from 49 percent in 2007 to 45 percent this year. . .

Coal-fired generation fell 12.7 percent from June 2008 to June 2009, while gas-fired power remained steady, down only 0.3 percent, according to U.S. Energy Information Administration figures.

Even entrenched coal utilities like American Electric Power are trimming their plans to expand coal-fired plants. . . and Progress Energy is replacing them altogether.

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But you can guess what is gaining share of energy production. . .

Over the first five months of 2009 (the most recent data available), energy production from renewable resources grew 8.7% over the same period a year ago — faster than any other sector. On an individual technology basis, wind grew even faster, increasing production by 32% in the same time.

So cleantech's up and coal is down. . . and that's not even all the good news.

We also learned this week that Khosla Ventures raised more than $1 billion in a single raise for clean technology. It was the largest technology-dedicated fund raise since 2007, leading Reuters to call it, "a sign that skittish investors are hot for climate-change-related projects."

The venture funds' investments will range from improvements on renewable technology, like solar power, to efficiency and biofuels and new battery systems.

Giving this story even more weight is the fact that the California Employees' Retirement System (Calpers) — the largest public pension fund in the country — put money into the raise.

I guess they're tired of getting burned by traditional investments and can see the profit potential in clean technology.

Dallas Kachan, of The Cleantech Group, called it "further vindication that very important sources of capital feel that we are also past the worst in clean technology investment." And speaking of vindication, readers of the Alternative Energy Speculator have been racking up a heckuva track record. You can read what they've been up to here.

Also here in the States, cleantech stimulus money is starting to be released. We've recently seen major funding for batteries and natural gas vehicles. . . and the beginning of $3 billion worth of direct payments began making its way to solar and wind projects.

On the international front, governments are busy preparing for climate talks later this year, called COP-15. State departments are busy preparing their lists of demands while the U.S. and BRIC nations continue jockeying for political position.

China is also bringing pressure to the solar market. Their copious amounts of cheap panels are driving down prices on a global scale and causing inventories to build. This could lead to a solar glut that we'll have to watch closely.

You can catch up on all recent Green Chip coverage below.

Call it like you see it,

Nick

P.S. In case you've missed any of the recent top stories from Green Chip Review and our companion publications, we've included them below.

Investing in Lithium Batteries: Investment Nirvana with Lithium
Green Chip Editor Nick Hodge discusses lithium's coming rise to power in the battery world and how you can get ahead of the profit curve. . .

First Solar Stock: Buy, Sell, or Hold: First Solar and the Power Revolution
Wealth Daily Editor Steve Christ take a look at the solar power sector. Is First Solar a buy, sell or hold? Steve provides the answers.

Indian Energy IPO: A $16 Million Debut to Tap India's Clean Power Transition
Editor Sam Hopkins uncovers new numbers from India that put western "guesstimates" on emerging markets' clean energy progress in serious doubt.

Alternative Energy Growth: Renewables Sail Past Nuclear
Energy and Capital Editor Nick Hodge talks about the EIA's most recent Monthly Energy Review, which shows alternative forms of energy produced more electricity than nuclear for the first time. . . So much for the argument that alternative energy "will never make a dent."

California Energy Efficiency: California Makes Huge Strides In Energy Efficiency Validation
Green Chip Review Editor Jeff Siegel explains how, thanks to proactive initiatives to curb energy use, the city of Los Angeles saw a 318 gigawatt-hour reduction in energy consumption for the 2008/2009 fiscal year.

Energy's Historic Summit: Copenhagen, December 2009
Members of the Saudi Royal Family, high-ranking Israeli officials with ties to the Mossad, former members of the KGB's inner circle. . . all in one room. Learn more on why they're assembling in this new report.

Reading Peak Oil Deniers Is a Waste of Time

Editor's Note:

Today's Green Chip Review comes from contributing editor Chris Nelder, who you may know from previous Green Chip reports, his Energy & Capital letter, and from the book that we co-authored, Investing in Renewable Energy. Enjoy.

— Jeff

We are all sufferers from history, but the paranoid is a double sufferer, since he is afflicted not only by the real world, with the rest of us, but by his fantasies as well.

— Richard Hofstadter

Three bombs were dropped on the peak oil community this week, in what smells like a coordinated attack timed to incite public uncertainty about the validity of the peak oil argument, and question the importance of mitigating climate change and transitioning to renewables.

The peakers are mobilizing a response, an onerous task made necessary only because their critics' bombs received prominent placement in major publications with large readerships, not because their critiques had any serious validity.

I will leave it to the capable hands of authentic petroleum geology experts to debunk the latest critiques. It is in order, however, to give the public a brief look at who these critics are, and their abysmal track records, which I have tracked and debunked since 1996.

Michael Lynch

Michael Lynch made the biggest splash this week with an op-ed that was featured on the front page of the New York Times web site, titled "'Peak Oil" Is a Waste of Energy." Lynch is the former director for Asian energy and security at the Center for International Studies at MIT, and is currently an energy consultant. With a background in political science, Lynch puts his rhetorical skills to work as an avid peak oil denier, despite seeming to live in an alternate universe when it comes to the actual data.

I first came across Lynch on the Energy Resources forum at Yahoo around 2002, which pre-dated the current crop of blogs and web sites devoted to discussion on peak oil. He has carried on a vigorous disinformation campaign against peak oil theory for nearly two decades, sticking to his guns despite all factual evidence to the contrary. At the time I attempted to engage him in rational discussion, but quickly abandoned the effort when I realized that I was dealing with the equivalent of a religious zealot who avoided any argument he might lose, and who clearly enjoyed all the attention he received for his contrarian views (he often referred to his critics' responses as "fan mail").

Lynch's 1283-word screed in the Times was a virtually fact-free, high-handed indictment of the peak oil study that cleverly wove a mix of random historical references (including Stalin and King Canute) with carefully cherry-picked incidents to make the argument that "we can't let the false threat of disappearing oil lead the government to throw money away on harebrained renewable energy schemes or impose unnecessary and expensive conservation measures."

Have You Heard of the Conference of Parties?

Only a few have. But those in the know are already turning tidy profits.

The Conference of Parties -- better known as COP-15 -- is a clandestine meeting attended by leaders from 192 countries.

Their goal: to map the world's economic trajectory for the next 50 years.

It was a politically astute effort, and I'm sure that whoever pays him for his work appreciated it as they fight for their survival against a turning tide of public opinion. Perhaps a few gullible readers even bought it (however, if the reader comments are any indication, few were). Unfortunately, it was as wrong as Lynch has always been.

Consider just a few examples of Lynch's "expert" opinion.

In 1999, Lynch crowed that when IHS Energy's estimate of ultimately recoverable reserves increased 10% over a previous estimate to 1800 billion, it "put a nail in the coffin" of the peak oil debate. He continued to thump the reserve growth issue as the number rose to 2100 billion — where it has stayed, at least for reliable petroleum geologists like Campbell and Laherrère. But that hasn't slowed down Lynch, who apparently now believes that remaining recoverable reserves are not 1200 billion, but 2500 billion, an absurd number based on his belief that the world will somehow achieve a recovery rate of 35%, without venturing to guess how it might be done.

In April 2004, when WTI spot was trading around $37 a barrel, Lynch confidently predicted that oil would fall to $25 by summer. By mid-August, it was trading at $47.

Undaunted, Lynch wrote in September 2004 that one year later, oil would be under $30. In September 2005, it hit $67.

In March 2006, when oil was hanging around $62, Lynch again forecasted that oil would drop back to $40 before the year was out, possibly even $30, and then remain flat for at least the next two decades Instead, oil climbed as high as $76 a barrel before finishing the year at $61.

In April 2007, Lynch predicted that oil would gradually drop from the current $65 a barrel to the mid-to-low $40s in 2008. In reality, it climbed steadily to $147.

I could go on for days pointing out the errors in Lynch's long history of peak oil denial, but at this point I think his record speaks for itself, and it seems unsporting to continue.

As far as I am aware, Lynch has not offered a detailed model of his own for oil reserves or production. I don't know if that's because he lacks the data and skills to do so, or simply because it would expose him to fact-based criticism. Instead he simply argues that the future will be like the past, relying on rhetorical devices and a sharp eye for weakness to gleefully poke holes in other analysts' arguments. His faith in a continually increasing supply of cheap oil on a finite planet is unflagging, and firmly rooted in the gospel of perfect markets and technological progress. I have never seen him print a single mea culpa for his long, wrong, predictive track record.

I don't know why the Times would choose to print such insouciant invective as Lynch's op-ed, but apparently that's what passes for coverage of the peak oil story today. It has been a painful experience to watch the "Gray Lady" botch and distort the issue for the last six years or so, descending from "All the news that's fit to print" to all the news that's print to fit its world view.

Of course the problem is not that naysayers like Lynch spout nonsense, but that members of the media take him seriously. If we let outlier critics like Lynch lull us into a false sense of security about future oil supply, we won't begin soon enough on the decades-long effort to leave oil before it leaves us — and we will pay for it dearly.

Daniel Yergin and CERA

The other prominent peak oil denier is Daniel Yergin, a writer with a Ph.D. in international relations who co-founded an energy research consultancy called Cambridge Energy Research Associates (CERA). Yergin earned respect for his Pulitzer-winning 1991 book on the history of oil, The Prize, but his credibility has been crumbling since he took up the peak oil debate. Still, Yergin's consultancy has made a pretty living peddling happy talk to the oil industry despite a horrendously bad track record, and he continues to be the first call for media looking for upbeat oil commentary (and they're always looking for that).

Consider Yergin's price predictions for oil. In a column for Forbes on Nov 1, 2004, on a day when oil was trading at $49 a barrel, Yergin gave his usual sunny projection and predicted that one year hence, oil would trade at $38. On Nov. 1, 2005, WTI spot closed at $59.85.

This was no surprise to the peakers over at the Oil Drum, where a lively and generally well-informed discussion on peak oil and energy has tracked the fallacies and poor predictions of CERA, Lynch and other deniers closely since March 2005. In a May 1, 2006 post, Dallas-based independent petroleum geologist Jeffrey Brown proposed that when oil closed above $76, or double Yergin's $38 prediction, that the day be named Daniel Yergin Day in his honor. From that point on, $38 became known as a "Yergin."

We didn't have to wait long. Daniel Yergin Day was reached just 10 weeks later, on July 13, 2006, as oil crossed $76 — two Yergins.

Oil breached three Yergins on April 15, 2008, and four Yergins on July 3, 2008.

A June 21, 2005 CERA gushed "We expect supply to outpace demand growth in the next few years, which would take the pressure off prices around 2007-08 or thereafter and even lead to a period of price weakness," predicting that oil prices would fall to an average of $40.

In fact, oil left $38 a barrel in the dust in mid-June 2004 and never looked back, revisiting the $30s for only the 10 weeks beginning in late Dec 2008 when the global markets for absolutely everything had crashed. We haven't seen $38 oil since February, and oil is now once again pushing two Yergins.

Far from repentant, Yergin's editorial for Foreign Policy this week ("It's Still the One") which was subsequently lauded in the Wall Street Journal blog, actually blamed the peakers for a "belief system" that was "stoking fears of a permanent shortage" for helping to push oil to $147, then mischaracterized the peak oil position as one that we had "'run out' of oil," which it isn't. As Yergin well knows, the peak oil study is one of flow rates.

But price has always been the most difficult part of oil forecasting (I've gotten a few calls wrong myself, but not nearly as badly as CERA has), so we'll put that aside for the moment. Let us turn now to CERA's projections on oil flow rates, where they have taken pains to debunk any notion of a proximate peak in oil production.

In a 2005 report, CERA first said that worldwide liquids capacity would rise from 85.1 mbpd in 2004 to 101.5 mbpd by 2010 (a 16 mbpd increase), then later in the report claimed 17.7 mbpd of gross capacity would be added by 2010. Apparently the authors weren't even sure exactly how optimistic they were.

In fact, just a few months shy of 2010, global capacity probably* (I'll explain that in a moment) remains just below where it topped out last year, around 88 mbpd. The increase since 2004 has been 3 mbpd, not 17.7.

By emphasizing capacity (a theoretical number that is hard to know, given the opacity of information provided by OPEC producers) over actual production volumes (which is regularly reported by EIA, IEA and other agencies) CERA gives itself some wiggle room to claim that prices simply weren't high enough to max out capacity.

This is why most honest analysts of the oil markets look at actual supply, which ranged from 81.6 to 84.6 mbpd in 2004, and from 84.0 to 85.3 mbpd in 2005. In 2006, the maximum monthly production recorded was 85.4 mbpd. The highest production ever recorded was last July at 86.9 mbpd, the same month that oil prices hit their all-time peak at $147 a barrel.

Today, the world consumes about 84 mbpd, of which about 74 mbpd is conventional crude, and the remainder is other liquids such as natural gas liquids, heavy oil, oil synthesized from Canadian tar sands, refinery gains, liquids produced from the conversion of coal and natural gas, and biofuels.

In 2006, CERA projected that capacity could rise from 88.74 mbpd at the time to 110 mbpd by 2015. In 2007 and 2008, CERA continued to assert that capacity would rise steadily into 2015 and beyond, even as global spare capacity shrank to a small margin and kicked off a spectacular run in oil prices. High prices have failed to bring enough supply to market to keep pace with demand since 2004, falsifying the cornucopian claim that they would.

Yet Yergin remains unbowed today, confident that his vision of a 20% increase global oil capacity by next year has only been sidetracked by "aboveground" factors, and that future investment and magical technology will yet bring it to pass...even as the world economy wobbles in a deflationary environment with credit still tight and consumers struggling to cope with rising prices for gasoline and other necessities.

I'll admit that I envy that kind of optimism a bit. Oh, to have such faith, to be so free of reality that I could simultaneously believe that even though the cost of a cutting-edge oil megaproject went from $1 billion in the ‘90s to $10 billion today, and even though capital remains reluctant to commit to long-term projects after oil's recent volatility, and even though the world economy shuddered and fell to its knees when oil hit $147 as supply-induced scarcity set in, and even though global oil discoveries have been in a declining trend for over 40 years now, that somehow the gods of the Almighty Market will provide, and we'll have no sign of a peak for another good 40 or 50 years. Hallelujah!

CERA has decried the combative tone of the peak oil debate, and pretended to a gentle stance while trumpeting its high-priced privileged information, but in fact the group has issued a drumbeat of anti-peak oil invective, repeatedly declined to debate knowledgeable peak oil adherents or attend their conferences, and ignored a $100,000 bet offered last year by friends of the Association for the Study of Peak Oil USA to back up its ridiculous supply prediction with real money. It also routinely ignores any published criticism.

In the debate about the future of oil, CERA has been consistently cowardly. I can understand that, since the unfolding of reality has not been at all to their advantage.

Raymond Learsy

Raymond J. Learsy is another prominent peak oil denier with a high profile column at the Huffington Post, but he doesn't really merit mention alongside the previous two. A Wharton graduate with a previous career in commodities trading and the author of Over A Barrel, Learsy has written a series of anti-peak oil rants which are consistently free of facts but offer just enough in the way of conspiracy allegations and wild speculation to earn him a following of left-wing sycophants who want to believe that the Saudis, or the oil companies, or the speculators, or some other evil-doers are responsible for our energy predicament.

Learsy was quick to capitalize on the stir created by Lynch's screed this week, calling it "a day of deep gloom for the McPeaksters" and celebrating Lynch's "revelations" about the "hierarchy" of peak oil "disinformation" while patting himself on the back for his own brave work in hurling completely unfounded accusations at peakers.

Learsy has long been a font of vituperation, making wild claims unburdened by empirical data about potential oil production, and heaping scorn upon anyone with a different view. Earlier this month, he went so far as to call the International Energy Agency (IEA) "shills for OPEC, the oil speculators and the peak oil pranksters." Apparently Learsy doesn't really care if such allegations are patently silly (peakers are generally opposed to deniers in the oil industry and OPEC, not in the same bed with them, and the IEA serves at the pleasure of the OECD, not OPEC) — as long as they sound good enough to make his credulous readers think that this whole peak oil thing is just a nasty hoax, his job is done.

If you're not yet convinced that Learsy is likely a nut-job, he is also a big fan of the theory that oil may have an abiotic origin, in opposition to all standard petroleum geology theory. The scant Russian "evidence" for the theory has never, so far as I know, been replicated or taken seriously by any Western petroleum geologist. Its main proponent was Thomas Gold, an astrophysicist with several discredited theories to his name who loved to challenge conventional science with his intuitive but unempirical views. It wouldn't surprise me if Learsy has also been taken in by the Gull(ible) Island yarn floating around the net.

I have attempted, along with many others, to straighten Learsy out about some of his blatantly false assertions, but he apparently prefers spewing conjecture to engaging in reasoned and factual debate with anyone. I suppose there will always be an audience for somebody like Learsy, but those who prefer facts over rhetoric will find he's just another waste of time.

The Truth Will Out

In a world where fact-checked information were valued over mere argumentation, where intelligent inquiry and dialogue were preferred to invective-laden diatribes and declarations of fact-free faith, the voices of Lynch, Yergin and Learsy would never be heard, let alone paid large sums of money for "proprietary" information about their foolish dreams.

But we don't live in that world. We live in a world where they are given one-sided top billing in the media at the very same time the oil industry is busing its workers to rallies to protest the climate change bill.

In the real world, those who have made the most careful effort to figure out what the future of energy really looks like, and alert the public to the most serious challenge the world has ever faced, are simply spited, ignored, and marginalized while the media carries on with its game of pretending to offer a "balanced" debate. I should also note that peak adherents are almost universally unpaid for their difficult work, and forced to do it in their spare time. Their only vested interest is in the future of humanity.

There is a bright side to all this, however.

Those who have the good sense to seek out the analysts with a rigorous grasp of the data and a proven track record of successful prediction — like the petroleum geologists who present their findings through the ASPO, the editors and contributors at The Oil Drum, the folks at the Post Carbon Institute and a few others (including, if I may be so bold, me) — have an incredible window of opportunity to place the right bets on the future of energy while the majority of the uncomprehending public remain in a swoon of denialist soma. The risk of peak oil, as I recently wrote, remains badly mispriced.

We who have been fighting to bring the best information about oil to the public against a never-ending tide of misinformation can take heart. Our best days are yet ahead. As Mahatma Gandhi said, "First they ignore you, then they laugh at you, then they fight you, then you win." We've been ignored (1956-1970), laughed at (1971-1995), fought (1991 to the present), and by 2012, we will win this debate when oil begins its inevitable decline. At that point, the media may find the courage to run out and shoot the wounded.

Independent analysts who are not beholden to vested interests in oil and politics can now snatch a fat piece of the consulting services pie from the likes of CERA and Lynch, and help businesses avoid the costly, even deadly mistake of remaining in blithe ignorance and dependent on cheap oil. Among the peaker community are dozens of bona fide independent petroleum experts who are ready, willing, and able to prove their excellent track records and offer solid analysis and tradable insights to those have ears to hear them.

But don't listen to the peak oil deniers. Their arguments are specious and their projections are worthless.

We're past the point where academic quibbles about the timing of the peak and its precise level matter. All of our efforts now should be directed toward preparing ourselves for the decline of oil, minimizing the pain it will bring, and investing heavily in alternatives.

Until next time,

Chris

Indonesia Renewable Energy

Indonesia can't afford to stop paddling to new shores.

It's not all smooth going when it comes to the international renewable energy transition, but commitment is a must. Indonesia is one example of an important country in transition where we're looking at all the positive and negative signals to find investment angles.

Made up of over 17,000 islands in the Indian Ocean, this archipelago nation owes its modern existence to integration and access.

But local observers are worried that Indonesia's progress toward its own presidential renewable energy goals is moving too slow.

Only 64% of Indonesian households have access to electricity, and with Asia-Pacific nations all around it ramping up RE development, Indonesia's economy could end up between islands without an oar.

Indonesia has been Southeast Asia's leading oil producer, but like many of its petroleum peers, production is in steady decline.

The U.S. Department of Energy's international supply statistics show Indonesia with only 1 million barrels per day of output in 2008, compared to 1.6 million bpd in 1992.

Indonesia's oil consumption, though, rocketed from about 700,000 bpd to 1.16 million bpd over the same sixteen years!

That put it in the awkward position of being an OPEC member that actually dipped into net importer status in 2008. Indonesia withdrew its membership that same year, but it likely would have been forced out if it hadn't.

Indonesia has no time to lick its wounds after having to exit the world's most exclusive price club. Estimated average GDP growth of about 4.6% over the next five years means there's no rest for the weary when it comes to finding new energy resources.

35% of the Population Now "Excluded from Development"

President Susilo Bambang Yudhoyono must address the fact that 36% of Indonesians have no electricity, according to economist Terry Lacey in the August 24th edition of the online Asia Sentinel.

Not only is it a question of access to electricity. . . On the heels of two July bombings in the capital city Jakarta, Lacey points out an uncomfortable energy link for this rapidly developing country with the world's largest Muslim population (over 237 million):

"Without electricity, a third of Indonesians are excluded from development, which is a precondition for defeating terrorism."

In the Jakarta Post on August 12, National Development and Planning Agency Director Monty Girianna proffered the government's latest plan while copping to an amazing fact:

Though 91% of Indonesia's 70,000 villages have access to either grid-connected or stand-alone electricity resources, only two-thirds of residences can tap local supplies.

Learn How to Cheat the System...

That's a gaping hole in the country's end-user energy market — a gaping infrastructure hole at best, and a national security powder keg at worst.

Here are a few of the marks President Yudhoyono wants Indonesia to meet over the next few decades, according to Monty Girianna:

2.4 million kiloliters of biofuel from sources like jatropha and palm oil will be produced as soon as 2010, replacing 10% of diesel fuel consumption. That will grow to 20% by 2025.
Bioethanol production should equal 15% of gasoline consumption by 2025. And perhaps above all. . .
95% of households will have electricity by 2025, requiring 1.3 million new connections per year.

Now, targets can be great press, but detailed initiatives do a lot more to draw investment and optimism.

That being said, stringing all those unserved or underserved island homes together is an infrastructure challenge that few other countries have faced.

But in Indonesia's environs, there are countries like Australia and China that are moving quickly to develop products and protocols that can help Indonesia achieve its goals.

Asia-Pacific Energy Forecast

Business Monitor International's Q3 2009 Indonesia Power Report says that thermal (coal) power accounted for 78.5% of the Asia-Pacific region's power supply as of year-end '08.

Yet, despite growth of 25.7% between 2008 and 2013, coal's share of the APAC energy market is actually projected to drop by that year.

Why is coal coming down even though millions more regional residences are coming online and promising to further drain total capacity?

The answer is that renewable energy initiatives across Asia are promoting energy-efficient appliances and promoting policies that make clean energy competitive with fossil fuels.

We've told you recently about India's 20 GW by 2020 solar capacity goal and the coming 2000% bump in the Japanese solar power market. Those require concerted nationwide efforts that involve cleantech industries and old-guard utilities that are adjusting to a renewable energy reality.

Indonesia's national utility, PLN, is drawing heat for its inability to incorporate generation projects, like rooftop solar, which will fall below 10 MW of production.

That could cripple the presidential decree to push clean energy to 30% of consumption by 2035 — up from only 5% today.

Instead of OPEC membership and innovation-driven energy abundance through cleantech, Indonesia could be facing energy poverty.

National Council on Climate Change Vice Chairman Armi Susandi says that far from erstwhile OPEC membership, the country's oil supplies will be close to gone in 17 years. Indonesia is the #3 liquified natural gas exporter in the world, and Susandi posits that natgas capacity could last up to 40 years, but when you factor in LNG export commitments, that's an increasingly lopsided generation scenario that no country should want to bet the house on.

Indonesia needs to bring into balance its vast renewable resources (including 33,000 MW of geothermal potential), with environmental protection laws, local preferences, and international norms.

None of that is easy, but right now Indonesia is falling behind Asian neighbors like Malaysia and Vietnam that have much smaller populations. Every second of waiting is another second slipping back from the Asian energy elite.

Regards,

Sam Hopkins

P.S. If you haven't heard of "COP-15," you soon will. On December 7th, world leaders will assemble behind closed doors in a secured Copenhagan location... in what could be the most high-powered, most secretive meeting of the century.

Members of the Saudi Royal Family, high-ranking Israeli officials with ties to the Mossad. . . even former members of the KGB's inner circle.

The purpose of this unprecedented summit? You might suspect it's over arms, oil reserves, or even precious metals. . .

But it's nothing like that at all. In fact, this meeting will determine how we go about our daily lives:

Which cars we'll be able to drive. . .
How many hours we can run hot water in our homes. . .
How much we pay in electricity bills each month... and to whom we'll end up writing out the checks.

Now, to those vaguely familiar, this meeting carries the very non-threatening moniker, Conference of Parties.

But to insiders — and those who know what's really going on behind those closed doors — it's known as COP-15. . . read more

Clean Energy ETF

The S&P 500 just broke the 1,000 mark for the first time since November. With a price-to-earnings ratio of 65, the broadest U.S. benchmark is now about 225% over last year's premium of 20.

That's too top-heavy for many skittish investors out there, especially since we've been inching higher and higher on low trading volume. But as you'll read here, a sell-off this month may mean a late-summer buying opportunity for long-term cleantech ETF bulls.

Market Maxims: Do They Hold True Today?

There are a lot of should's in the investing world. . . and over time, market maxims develop from what were once mere observations.

For example, oil should move in the opposite direction of the dollar. Economic weakness depresses fuel demand and increases interest in dollar-denominated assets, like Treasuries. We saw that play out during last autumn's downturn, when the Power Shares U.S. Dollar Index Bullish ETF (NYSE:UUP) rose by as much as 17% while the S&P 500 dropped by 47%. At the same time, the United States Oil Fund ETF (NYSE:USO) swooned even further to a 76% loss from August to February.

How about the trading tenet that says oil and renewable energy should move in the same direction?

That's largely held true, as well. The chart below compares two top renewable energy ETFs over the past six months to ETFs that represent oil (USO), the greenback (UUP), and gold, represented here by the SPDR Gold Trust ETF (NYSE:GLD).

The green funds highlighted here are the Power Shares Cleantech Portfolio (NYSE:PZD) and First Trust NASDAQ Clean Edge Green ETF (NASDAQ:QCLN):

From a chaotic cluster when everything broke into positive territory back in the spring, we see summertime separation of these energy ETFs from the S&P, and especially from those havens of gold and the greenback.

There's only one reason President Obama is forking over billions for renewable energy.

And it's making insiders an absolute fortune!

Click here to find out what's really behind the push for renewable energy.

Cleantech ETFs Have the Energy Advantage

Now oil could pull back and take QCLN and PZD with it. As it stands, though, QCLN is beating the United States Oil Fund and PZD, too.

Though the difference in recent performance among those three is slight, this is where serious investors parse trends and prevailing market logic to hone longer-term strategy. . .

And there's no better way to do that than by looking at the components of two index-based ETFs with similar goals.

The First Trust NASDAQ Clean Edge ETF (QCLN) is made up of 88% U.S.-based companies. It's NASDAQ-listed, making it preferable to many tech investors. QCLN's primary holdings bear out its tech credentials with top holdings, like integrated circuit producer Linear Technology (NASDAQ:LLTC), LED leader Cree (NASDAQ:CREE), and meter-maker Itron (NASDAQ:ITRI).

For my money, though, I like the platter of international offerings that make up the Power Shares Cleantech Portfolio (PZD), an NYSE listing heavy on energy infrastructure stocks. Only 54% of PZD's holdings are based in the United States — that leaves room for meaty ADRs, like Germany's Siemens AG (NYSE:SI), which operates in over 190 countries.

Government stimulus packages and legislation to mitigate the causes and effects of climate change seem parochial, as they each cater to national concerns. Yet, when viewed from above, the entire globe will soon be awash in targeted funds for renewable energy conversion.

It is here that PZD has the potential to achieve separation from USO and from oil in general.

Kevin Parker, global head of Deutsche Asset Management, says that $45 trillion of cumulative investment is set to rain down on cleantech companies to reduce carbon emissions by 50% from 2005 levels by the year 2050.

This $45 trillion dwarfs even the $26.3 trillion that the International Energy Agency proposes for energy-supply infrastructure spending in the coming decades, and it makes China's half-trillion dollar clean energy stimulus this year look miniscule.

From a technical standpoint, the energy ETFs highlighted above are right at chart resistance that could lead to profit-taking and a share price drop.

Don't fret, though. . . the Power Shares Cleantech Portfolio ETF (NYSE:PZD) will be ready to pounce on at support around $19, down from its current plateau.

Between now and 2050, there's plenty of money to be made. . . and plenty of idols will be smashed. Look at this toppy market as an opportunity in the making.

Regards,

Sam Hopkins

P.S. My colleague, Nick Hodge, and I are international clean energy bulls who have taken lessons from some of the best traders in the game. We may move in and out of a stock four or five times. . . profiting in all instances. Investing in long-term green trends doesn't mean "buy and hold" come what may; it means making smart money and recognizing pullbacks as chances to add shares for gains on the next upswing. You can learn more about GCI and our winning strategy (55% average gains on our last 11 trades since November!), right here.

Renewable Energy Finance

The following is derived from an update I sent to readers of the Alternative Energy Speculator upon my return from the Renewable Energy Finance Forum Wall Street, minus the premium stock information.

"It's never been better and it's never been worse."

That was the line ACORE President Michael Eckhart used to open the sixth annual Renewable Energy Finance Forum Wall Street.

ACORE is the American Council on Renewable Energy, a well-respected member-based organization that has been pushing renewable energy in DC for nearly a decade.

It was the perfect line to convey the current market climate.

The REFF Wall Street

Whenever I return from a conference, I always like to pass on what I've learned.

This is my third year attending the REFF, and it's grown to be one of my favorite cleantech events. Not because I learn about public companies—there are only a few there, and the conference is about finance—but because I walk away with a clear picture of the internal state of the industry from top to bottom.

Ormat (NYSE: ORA) and SunPower (NASDAQ: SPWRA) were there, but only to talk about access to capital from the public perspective. It's really all about where we are now, where we need to be, and where the hell all the money is going to come from to get us there.

Here's what I learned.

The Best of Times

There's a new, clean energy focused administration. Finally.

Green sentiment is growing to a boil both at the consumer and corporate level, with even behemoths like Wal-Mart greening their supply chain and giants like GE, Google, and IBM leveraging their know-how to get in on the action. This thing is real. We knew that.

The American Recovery and Reinvestment Act (the stimulus) has dedicated $56 billion to clean energy and efficiency via grants and tax benefits, and offered clear tax policy guidance for the industry.

There is meaningful and significant energy and climate legislation in front of Congress (passed the House since writing). For possibly the first time ever, the energy bill at hand seriously considers its environmental implications.

Indeed, for those of us with skin in this game, much ground has been covered in just a short time. It wasn't long ago when we were distraught over whether or not the investment tax credit (ITC) and production tax credit (PTC) would be extended.

Forget Gold.

Silver's got the spotlight now.

And in our new report, we reveal the one silver stock that returned
investors annual gains of 852%... over 9 straight years!

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Now, as was noted at the forum, that seems like ancient history. And we have much bigger issues than whether or not we're going to get tax break extensions.

Yes, the congressional majority and president are on our side. Yes, the stimulus money is going to help out in a big way. Yes, it looks as though the social sentiment is finally starting to shift.

But more importantly, with banks still unwilling to lend, where, exactly, is the money coming from to build the next solar plant? To get the financing for the next wind farm?

And for Green Chip investors, how is that going to affect the valuations of stocks?

The Worst of Times

Financial crisis. Recession. Withdrawal of lending. Loss of tax equity. Slow closing of deals. Stimulus money not being spent yet.

For all the things going for us, there are an equal amount going against.

For starters, banks are unwilling to lend until the government releases detailed guidelines about how the stimulus money is to be spent, because included in that money are loan guarantees.

The rules for those loans are still being written, and the financing structures and mechanisms still being devised. And the banks aren't willing to lend until all that's figured out.

So you can see the stalemate emerging. The banking industry is counting on government guidance before it lends to clean energy energy projects. This is because the government has thrown so much money out there that it's now a de facto lender, and its actions must be taken into account by banks when financing projects.

Neil Auerbach of Hudson Clean Energy Partners had the following questions, just to name a few:

Do grant proceeds count as equity?
Will grant proceeds serve as security?
Can project developers use both grants and loan guarantees for construction financing?
Can one JV partner in a clean energy project apply for a loan guarantee and not the other?

And his sentiment was echoed by top brass from numerous other global banks. They had many other questions like these revolving around senior debt, subordinated debt, tax equity and how the government's stimulus spending rules will affect lending practices.

So here's the concern. The procurement and construction timeline for cleantech projects can be long: 4-6 months for rooftop solar, 6-10 months for utility scale solar, and 9-15 months for wind.

The rate of new projects has already slowed dramatically because of current capital restrictions. Is the industry going to be able to survive the wait while the government hashes out lending details? How long can the industry tread water while capital continues to be choked off?

With several government officials in attendance, there were more than a few calls to speed the process or risk dying on the vine.

Cautious Optimism

From Under Secretary of Energy Kristina Johnson to Senior Advisor to the Secretary for the Recovery Act Matt Rogers (the man in charge of spending energy stimulus dollars), bureaucrats in attendance recognized the need for urgency and assured they are doing their best to speed the spending of stimulus funds.

By all accounts, Q4 2009 is looking like the release of government rules for treasury regulations and DoE loan guarantees from the stimulus. Financing and procurement for clean energy projects can resume in a big way at that time, provided the rules meet the needs of all parties. Q1 2010 to Q3 2010 is looking like the construction period for the resultant projects with operation seen in Q4 2010.

It's fair to say that a significant clean energy stock recovery will not happen until the capital begins flowing and investors see increasing revenue on the horizon.

From there, I went on to tell members of The Speculator how we're going to combat the conditions facing the clean energy market.

For starters, we're locking in easy gains. This helps keep our total portfolio buoyant while freeing up cash for the next play. We've closed 27 winning positions so far this year by using broad market volatility to pick-off familiar stocks.

We're also building positions in less capital intensive industries that can expand without access to large amounts of capital.

And the smart grid fits right in this sweet spot because most of the solutions are software driven. Companies that pursue demand response, like Comverge (NASDAQ: COMV) and EnerNOC (NASDAQ: ENOC) can make innovations with the click of a mouse, not with construction of a new turbine or panel production facility.

Perhaps that's why smart grid stocks have been on such an aggressive path recently:

It's certainly why I've been intensively covering them for the past month or so.

If you haven't taken a position in the smart grid yet, this report will show you how to get started. Not only will these stocks prosper while capital remains tight, but the sector is also slated to receive a good chunk of stimulus dollars when they start flowing.

It's a win-win.

Call it like you see it,

Nick

Rail Infrastructure Crisis

On June 22, America and the world saw a tragic reminder of just how esssential infrastructure maintenance is. When two Red Line DC Metro trains collided on June 22, killing nine passengers and severely injuring many others, the response was an understandable, "How could this happen?"

(On a more personal note, a friend who commutes to work via the Red Line shared the following insight):

"Thank God the accident involved two trains heading into town that were sparsely populated. If it had been two rush hour direction trains, fatalities would have easily exceeded 100."

While investigations into the incident itself are continuing, Maryland Congressman and House Majority Leader Steny Hoyer knows that moving millions of people a day on outdated infrastructure is an ongoing gamble with stakes far too high to fudge.

So Hoyer has just proposed an additional $3 billion in Metro transit improvements.

That's a positive move, but it's too much of a response to problems that have been allowed to develop. Forward-thinking investment is what systems like DC's need, before disaster strikes.

$13 billion are set to pour into America's high-speed and commuter rail systems before 2014, including $8 billion in 2009 alone.

That money will be put to best use by investing in companies that make efficiency and safety their top priority. And since the U.S. is playing catch-up to countries like France and Japan that already have high-speed rail, there's a world's worth of examples and listed firms to choose from.

In our new report, High-Speed Rail: Getting Back on Track, we detail the potential economic benefits of advanced nationwide rail infrastructure as well as highlighting the very real costs of underinvestment and inaction.

The only international companies that deserve our public dollars are ones who will get the job done right.

And when it comes to where you should invest, the same tough standards apply.

You can check out the report here.

Until next time,

Sam