Blue Chips Are Going 'Green'

"Unfortunately and tragically, there are simply not a lot of alternative energy sources being developed..."

Published: 11-Oct-2004

N>With oil prices soaring, investors may be wondering what options there are among renewable energy stocks.

The short answer is, not many. Fuel cell companies are floundering, solar startups are far from solid bets, and only a handful of companies are turning a profit in wind power. For individual investors who think climbing oil prices are bound to spark greater interest in other sources of power eventually, some of the most interesting plays could be among traditional companies that are exploring alternative energies: General Electric, FPL Group and BP.

The problem with most companies focused purely on nonpetroleum power is that they tend to be relatively young, have weak balance sheets and frequently focus on technologies that aren't yet commercially viable.

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

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

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

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

In such a speculative market, one company that is drawing attention is Quantum Fuel Systems Technologies Worldwide, a company focused on designing the hydrogen storage technologies that help power the fuel cells in cars. Toyota Motor, which has emerged as a leading manufacturer of hybrid cars, accounts for 44 percent of its sales. General Motors, which owns 11 percent of the company, accounts for the rest.

When it comes to producing electricity for homes and businesses, the most readily deployable alternative to fossil fuel is wind.

"At $10 per barrel for oil, it makes no sense to use wind. But at $50 per barrel, wind makes a lot of sense," said Michael Patsky, portfolio manager of the Winslow Green Growth fund.

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

Wind plays a more substantial role at FPL, a Florida-based utility, making up about 15 percent of its earnings, and the business segment has grown rapidly in recent years.

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

At a certain point, solar power starts looking more economical, as well, though with the demise of AstroPower, - the company filed for bankruptcy and sold most of its assets to GE Energy this year - few opportunities are available.

Among recent startups is Evergreen Solar, a Massachusetts-based developer of solar electricity systems for homes. Traditionally, solar power has been economical in remote locations where it is not practical to run power lines. But while it has served as a decent supplemental source of energy, it has not been a true substitute for fossil fuel.

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

"BP is legit, it's for real, and it's spending a lot of money," Patsky said. "We'd certainly rather see people invest in BP than Exxon Mobil, where management still denies that global warming is happening."

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