From the beginning of 2007 to July 2008, oil prices began a triple-digit trek. In that time period, alternative energy soared, but mainly in two segments: solar and uranium. Wind turbine companies like Vestas Wind Systems performed, but it was First Solar (FSLR) that rose from $28/share to more than $280/share. Some of the uranium juniors rose 500% or more. Why did alternative energy do so well? While crude oil is one of the cheapest forms of energy, there comes a point when cheap oil isn't so cheap, and other alternatives become economical. That's when a little alternative energy should find a home in your diversified, growth investment objective.
It's doubtful you haven't noticed at the pump lately, but gasoline and crude prices have been rising since October. The International Energy Agency's (IEA) Executive Director, Nobuo Tanaka, at the World Future Energy Summit in Abu Dhabi last week mentioned “we could see a tighter market" asking producers to "show more flexibility". Tanaka stated that the IEA's analysis showed conditions were becoming very similar to conditions in 2008 when oil soared. I'm guessing he may have been speaking about miles driven. Looking at the latest November report from the Highway Administration, we're only 33,000 miles away from the 2007 highs, and we're already well above the cumulative miles driven in November (YTD) that had been reached in 2008.
Source: U.S. Department of Transportation.
The one positive effect from higher energy prices is that it encourages the progress of alternative energy. It creates the funding, innovation, and utilization of new technologies. The January 2011 Detroit Auto Show specifically featured alternative energy cars like the Nissan's electric LEAF and Ford's new all-electric Focus, as well as the hybrids that help bridge the petrol to electronic gap like Chevrolet's Volt (car of the year) and Toyota's Prius.
If there's one thing in energy I've learned from Jim Puplava, a guy who's read more than 80 books on Peak Oil, it's that there's no magic bullet to replace the availability and cheapness of oil (at least, with present technology). As oil's price climbs due to natural economics (more Chinese importing and OPEC exporting less when nations are unable to be labeled as "net" exporters like Indonesia in 2008), a shotgun approach towards alternative energy is the approach many countries are taking. Some emphasize nuclear or cleaner technology over others, but most countries have a diversified approach utilizing geothermal, wind, nuclear, and solar power. If you want to talk about following the trades of "BIG" money, try structuring an alternative energy portfolio the way multi-trillion budget countries do and use a shotgun until technology emphasizes a clearer choice.
On the charts, I like two of these forms of alternative energy most of all: uranium and solar.
The spot price on uranium per pound has been on the rise again since the U.S. dollar peaked in June of last year. A clear uptrend is in place after a 2-year base developed between and /lb. Where sellers will begin to make their presence known is anyone's best guess, but the Fibonacci retracement levels from the 2007 highs points towards near the 38.2% level and at the halfway mark. At the current spot price of , those numbers look attractive.
Source: Bloomberg
The Market Vectors Uranium+Nuclear ETF (NLR) has already had a decent run since last summer. The short-term looks a little toppy as momentum indicators are rolling over near recent highs, but the long-term trend channel looks well established with a significant breakout in November 2010 above the 2009 highs (labeled below). NLR is up 41.6% since the summer 2010 low. Many of the junior, uranium explorer companies have shown even better performance; however, only for those investors with a riskier, more aggressive penchant for the group.
The other alternative to nuclear is clean energy solar. Solar companies that aren't dependant upon state subsidies (see Evergreen Solar plant shut down article) look the most attractive to me right now. In addition, the Chinese aren't as much of a stickler for NIMBY (Not in my back yard) as you see in the states for solar facility development. While Germany may be looking to cut some subsidies (see article), China announced last week it plans to extend its "Golden Sun" subsidies after the project was expected to expire in 2012, aiming to build another 1 GW worth of solar projects.
"By the end of November 2011, the Ministry of Finance has approved 120 projects with combined capacity of 272MW as eligible for the Golden Sun program, the report said. According to Wu (China Renewable Energy Association's Solar Power Committee Chair), China's PV installed capacity will reach 5GW by 2015 and 20GW by 2020." Govt to Extend Golden Sun Project beyond 2012
Looking at the charts, they look attractive to me across the board. Looking at the daily performance yesterday in the market, the Semiconductors were among the strongest industry group. Within the top 12 performers, solar names were strongly represented as shown below:
Here are some of the interesting charts within the group (as always - be sure to click for a larger images):
First Solar Inc.
Solarfun Power holdings Co.
JA Solar Holdings
Canadian Solar Inc. (power development projects primarily in China)
Also, PowerShares WilderHill Clean Energy (PBW) ETF gives a good breakdown of various alternative energy companies. Their top ten holdings are listed below as of Oct 31, 2010:
Source: Yahoo! Finance
Here's a look at their chart on a weekly and daily basis:
Weekly
Daily
If it's possible for 0 oil in 2011 and higher, I like alternative energy – specifically solar and uranium. The risks to this trade are whether China joins Spain, Germany, and the U.S. in cutting subsidies. So far, the administration has stated otherwise by extending subsidies and approving new projects. There's a risk to a short-term pullback in uranium as the commodity asset group has been under heavy selling pressure without any substantial move higher in the U.S. dollar (read: profit taking and panic selling by latecomers). There's also a short-term risk to solar companies should the Nasdaq continue to show weakness that developed last week.
Even if the U.S. dollar doesn't break down to new lows in 2011, oil demand stands to rise if the global economy continues to strengthen as Tanaka warned to the United Arab Emirates. The question is whether OPEC is able, or even wants, to increase supply. The question for economists then becomes: at what price level will oil stem growth as it did in 2008. Is it 0 oil? Is it 5 oil? Is it the 2008 high near 7? San Diegans are paying .79 for regular gas and .99 already in January at select stations (mostly Shell and Mobile).
The State of the Union address is tonight. Presidents normally talk about the progress each administration is taking towards moving the U.S. away from foreign oil dependency and towards alternative solutions. Taking a look at the First Lady's Box of invited guests, two show up as solar-friendly. Gary and Robert Allen of Rochester Hills, MI manufacturing solar shingles as a business and Mikayla Nelson of Billings, MT who led her Science Bowl team to 1st place with her solar car. While I applaud our executive branch's efforts to encourage technological development on energy solutions divergent from our foreign dependencies, one can definitely get discouraged after watching Jon Stewart's daily show on an energy-independent future showing previous State of the Union promises (see here). We're Eight Presidents in on the alternative energy theme and still as dependent on foreign oil as ever, if not more.
