Thursday, January 15, 2009

Geothermal Stock Review

Geothermal offers abundant energy with minimal environmental impact and it is located right beneath our feet. Geothermal systems use the Earth's stable ground temperature to heat in winter and cool in summer. Geothermal, (also know as Geoexchange) has been recognized by both the Environmental Protection Agency and the US Department of Energy as the "most efficient and environmentally friendly way to heat and cool a building." The downside of geothermal has always been the large up-front cost associated with the ground loop.

Obama's massive energy overhaul of federal buildings may justify the the up-front cost given the savings provided by geothermal in the long term. In addition, a new federal tax credit for geothermal systems was passed in 2008 (10% for commercial installations, $2000 for residential), which serves as an additional stimulus for the growing private sector market.

This is an opportune time to consider geothermal investments. Here are 4 geothermal companies located in North America.

Geothermal Heat Pump Stock Picks

Waterfurnace Renewable Energy (WFIFF.PK): Waterfurnace manufactures heat pumps for both residential and commercial buildings. According to their third quarter financial statements, the company is in good shape from a liquidity perspective. They eliminated an unused line of credit in the quarter, paid off the balance of outstanding bonds they had used to build their facilities and their current assets exceed total liabilities. Their cash flow from operations is growing. Waterfurnace paid a dividend of over 3%.

LSB Industries, Inc. (LXU): Their climate control division, which includes heat pumps and air handling systems, accounts for about 41% of sales. LSB has a strong balance sheet and their current assets exceed total liabilities. Both Waterfurnace, LSB boast strong balance sheets and inexpensive valuations. They are likely to receive a boost from the stimulus package.

Nevada Geothermal Power (NGLPF.OB): Although Nevada Geothermal is currently unprofitable, their Blue Mountain geothermal project has sufficient financing to take it to production, which the company expects near the end of 2009. As the expectation of revenue draws nearer, expect the stock price to appreciate.

Raser Technologies, Inc. (RZ): Raser is an energy technology company focused on geothermal power development and technology licensing. It has an innovative business model for developing geothermal power plants. Using United Technologies's modular PureCycle turbines, they can start development of a geothermal site with only a 10MW plant, and then expand rapidly. They are currently commissioning their first project, consisting of 50 PureCycle units in Utah. Having recently raised $20M in new equity capital, Raser appears to be adequately funded in 2009. This should be long enough for them to start earning revenues.

Geothermal's simplicity comes with low operating cost and low environmental impact, it has a long life expectancy and requires very little maintenance. It is a system that pays for itself in a short number of years. Geothermal is an efficient means of reducing our reliance of fossil fuels and the noxious emissions that come with them.

Wednesday, January 14, 2009

Energy Efficiency Stock Review: The Smart Grid

President Obama has promised to propel the US economy into the 21st Century by providing a massive push for Green initiatives like energy efficiency. The US will need to build more high-voltage transmission lines that can move renewable energy from isolated areas to cities. The introduction of smart grid technology is an efficiency initiative that will enable the US to save massive amounts of power. The utility industry estimates smart meters alone can cut electricity consumption by 20-30% during peak hours.

As reported in CNNMoney.com, "in 1950, 20% of the nation's economic output was directly dependent on electricity. Now that number is 60% and rising fast, said Jesse Berst, editor of smartgridnews.com, an industry Web site. In an era of energy scarcity and global warming concerns, he said building a better grid is essential for economic growth. Berst, a former tech analyst, says the investments made in smart-grid technology over the next couple of decades will dwarf those that fueled the tech boom."

On January 8, US President-elect Barack Obama renewed the call for investment "to begin work on a new 'smart' electric grid to replace the nation's old, fragmented and inefficient system."

Making this work will require considerable investment. The utility industry estimates it would cost about $50 billion to equip every home in the country with a smart meter. Melissa McHenry, a spokeswoman for American Electric Power, one of the country's largest utilities, says an investment of $60 billion would enable the country to transport enough energy to offset 20% of its current total electricity use with renewable power.

The Brattle Group, a think tank, estimates the nation will need to spend up to $1.5 trillion on its electricity system over the next 20 years. Brattle estimates a smart grid could cost about $900 billion over the next two decades. That includes money for computers, meters and software to digitize the grid. An investment in cleaner energy could put the figure at $2 trillion, and would include building new power plants, transmission lines, and focus on conservation.

With all that investment, electric grid stocks and more specifically smart grid stocks represent significant opportunities. Here is a list of electric grid stocks in industries that should benefit from Obama's recovery program.

Grid Stocks
The ABB Group (ABB): Involved in a number of areas related to transmission and distribution systems. The company makes cables, transformers and various other products related to power electronics and management.

Allegheny Technologies, Inc. (ATI): Producer of products with grid applications, among them are a number of specialty alloys and metals for transformers and efficient grids.

Composite Technology Corporation (CPTC.OB): Commercializing an innovative transmission cable solution.

General Cable (BGC): Makers of a range of cables, including transmission and distribution cables of different voltages and underground cables.

MasTec Inc. (MTZ): A subcontractor to the utilities and communication industries, building, installing and maintaining electricity transmission infrastructure.

Quanta Services (PWR): A contractor to the power transmission and distribution industry, with services including infrastructure design, installation and maintenance.

Resin Systems (RS.TO): Makers of composite utility poles for electricity transmission and distribution. Although wood, concrete and steel still dominate, as in other applications, composites have great potential.

Siemens (SI): Makers of a range of products for the power transmission and distribution sector, including switchgear, transformer and substations.

Valmont Industries (VMI): Makers of transmission and distribution poles from concrete, steel or a mix of the two.

Smart Grid Stocks

Expanding transmission capacity is only part of the challenge, making the transmission infrastructure digital makes it smarter and more efficient and this is a major priority of the Obama recovery plan. Here are some smart stocks that should benefit from Obama's planned spending.

EnerNOC (ENOC): Designs, among other things, demand response solutions for grid operators and utilities.

Itron (ITRI): Leading maker of smart meters, the key tool on the consumer end of a smart grid.

Comverge (COMV): Maker of smart meters and works with utilities to design smart grid solutions revolving around demand response.

RuggedCom (RUGGF.PK): Designs critical systems for building a smart transmission and distribution including communication applications for electric utility substations and communication equipment embedded at various points of the grid.

Energy efficiency is a priority for the Obama administration and with the inauguration of the 44th President of the United States in less than a week, American electric grid companies make attractive buys, providing they have a strong balance sheet.

Next: Lighting Stock Review / Geothermal Stock Review