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green@work : Magazine : Back Issues : July/August 2001 : Best Bets

Best Bets
As advances in alternative and renewable energy technologies soar, investors keep a watchful eye and a somewhat bullish attitude on where the players are heading.

 

Hint: For cocktail party small talk, the topic of affordable luxury real estate is out and affordable energy, electricity distribution and price caps are in—at least this quarter. As blackouts and brownouts loom in the western and northeastern states, investors are keen to capitalize on the nation’s pain without investing in the energy equivalent of a “dot-com bomb.”

A few alternative and renewable energy funds are good bets. With dramatic advances in photovoltaic, wind turbine, hydrogen generator and other energy technologies, investor interest in alternative ways to produce vast amounts of energy has soared. These include biomass, geothermal, solar, wind, hydrogen/fuel cells and harnessing ocean currents.

In 1970, the renewable share of U.S. electricity generation was a respectable 11.6 percent, but fell to 9.6 percent of a larger generation total in 2000. The electricity generation of non-hydro renewables was two percent of the national total in 1990, and rose to 2.5 percent in 2000.

A few visionary entrepreneurs aim to help change that. Maurice Schoenwald, co-founder of the small New Alternatives Fund, said he and his son started the mostly small-cap portfolio in September 1982 because, “I was concerned about the nation’s dependence on foreign oil.” Schoenwald also feared that oil threatened the U.S.’s national security. He, his family and neighbors started a portfolio with an initial $100,000 investment in alternative and renewable energy companies. Schoenwald said the fund’s goal is to invest 25 percent or more of assets in companies involved in alternative energy, which he defines as sources that save natural resources and are cleaner than traditional energy sources. He is particularly bullish on electricity co-generation, an alternative to conventional utility-produced electricity and distributed energy. Among the top holdings of the New Alternatives Portfolio are FuelCell Energy, Inc.; Astropower, a solar cell company; and Calpine Corp., a geothermal energy producer.

The Schoenwald family’s vision proved to be prescient. The $53 million fund’s average annual total return for the 19 years since inception was 11.55 percent (as of December 29, 2000) and its total return for the volatile one-year period ending the same date was 44.57 percent (after deducting the 4.75 percent sales charge).

Many environmental leaders are urging substantial investment in renewable forms of energy. Lester Brown, president of Earth Policy Institute, said, “We’ve got to come up with an economic model that will sustain progress rather than self-destruct. Instead of a carbon-based energy system, we’ll have a solar hydrogen-based energy system. Government leaders worldwide can create incentives to move from a throw-away economy to a comprehensive reuse-recycle economy. Unless we move quickly, environmental deterioration could lead to economic decline.”

Several factors are making wind power very attractive to institutional and individual investors. According to renewables investment banker Diana Propper de Callejon of EA Capital, big market drivers are pushing a dramatic increase in wind power. “There is now a significant change—a pull for new technology,” she noted.

Meanwhile, members of the U.S. Congress are deliberating whether to extend a production tax credit (PTC) for investors in wind farms and wind turbine technology, which expires at the year’s end. Several competing bills aim to help generate sorely needed economic development in the Great Plains, considered the “Saudi Arabia” of wind wealth, and northwestern states. In June 2001, the U.S. Department of Energy (DOE) announced that, through the Bonneville Power Administration, it had signed pre-development agreements for seven wind power projects to provide an additional 830 megawatts of generating capacity in the west and northwest. According to the DOE, this initiative will produce enough electricity to meet the needs of nearly 270,000 homes—a 20-percent increase in the nation’s wind power capacity.

In South Dakota, Jim Dehlsen of Dehlsen & Associates is planning the world’s largest wind farm on 200,000 acres, with a potential of 3,000 megawatts of generating capacity. All of these events suggest that windpower is a viable energy sector and is well on its way to becoming the least expensive electricity source. In fact, even with the tax subsidy, wind-generated electricity is selling at between four and six cents-per-kilowatt-hour, which is competitive with the 4.8 to 5.5 cents-per-kilowatt-hour cost of coal. However, without a national energy grid, distribution of energy generated by wind is still a challenge.

Leading Portfolios

Socially responsible investment firms are watching technology trends very closely and evaluating innovators and leaders in renewable energy technology.

“If we could just get the big companies to invest at least one percent of their total assets into renewables, the impact [on a transition to cleaner energy] would be far larger,” said Jeffrey MacDonagh, a research analyst for Kinder, Lydenberg and Domini, the research arm of Domini Social Investments. MacDonagh said that among the largest companies that are making a significant financial commitment to wind energy are Enron Corp. and Florida Power and Light, though this utility is more heavily invested in nuclear power. Overseas, the two largest wind turbine manufacturers, Danish Vestas Wind Systems and NEG Micron, are publicly traded and outperforming their peers.

Among the leading fund investors in alternative and renewable energy companies are the following:

• Portfolio 21, which is managed by the investment firm, Progressive Investment Management, Portland, OR—Portfolio 21 seeks out companies that are incorporating environmental sustainability into their business strategies and applies rigorous environmental screening criteria in their evaluation of company performance. Among Portfolio 21’s top holdings and their percentages as of March 21, 2001, are AstroPower (3.0 percent); Ballard Power Systems (1.7 percent); IMPCO, a leading supplier in the fuel cell industry (0.6 percent); NEG Micon, a Danish company that designs and manufactures wind energy products (1.4 percent); and Vestas, another Danish wind turbine manufacturer (0.3 percent).

• The Green Century Balanced Fund, which seeks capital growth and income from a diversified portfolio of stocks and bonds that meet its standards for corporate environmental responsibility—Green Century Capital Management (GCCM), which manages the fund, was founded, and is wholly-owned, by non-profit environmental advocacy organizations. Among Green Century’s top 10 portfolio holdings and their percentages as of March 31, 2001, are FuelCell Energy Inc. (3.34 percent) and NEG Micon (2.80 percent).

Leslie Christian, president of Progressive Investment Management, noted, “The energy policy that has been put forward is so blatantly reactionary that it has caused people to sit up and take notice. Increasingly, investors are aware of how a company’s major business activities are affecting whether or not we are moving toward a sustainable environment.”

However, worsening market conditions are probably not helping some of these small companies that are trying to raise capital. “A slowdown of the economy is probably one of the biggest threats we face in encouraging investment in renewable energy companies,” said Christian.

Among the venture capital funds that are trying to help are the Commons Capital Fund in Boston, MA, which is open to accredited high net worth investors. Commons Capital LP is affiliated with Investors’ Circle, a network of angel investors seeking to invest in socially and environmentally responsible companies. Bob Barton, CEO of Catalyst Financial in Vermont, is also an influential player in this category who helps governments, municipalities and companies finance enhanced energy efficiency on their work sites. Barton engages in debt and sub-debt energy conservation deals of $1 million or more.

Experts in the finance and environmental arenas are placing bets across the board of new energy technologies, but pure hydrogen and fuel cell technologies appear to be attracting the most interest as the ultimate clean energy source. Even President Bush recently promised $85.7 million in federal grants to encourage academia and the private sector to develop more new fuel technologies and energy-efficient products. If Congress approves, we’ll soon have many more investment options.

Portfolio Performance -


Dianne Saenz is director of communications for Earth Policy Institute, which recently published Eco-Economy: Building an Economy for the Earth, a new book by environmental leader Lester Brown. To learn more, visit www.earth-policy.org.

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