Alternative Energy Stocks to Consider as Long-Term Investors Flee Coal

By Chat Reynders  AUG 15, 2013 3:00 PM

While we are moving to different sources of generating electricity, maybe the most interesting development will be the creation of nearly net zero energy buildings.

 


The Climate Pledge issued by the White House in June put aggressive goals into place, many of which will take years to sort out. One immediately impacted area, however, is the coal industry. President Obama announced that there will be no more public funding for coal plants anywhere in the world, unless they can capture the carbon emissions.

A few pundits predict lingering momentum, with sources such as the US Energy Information Association (EIA) believing that coal has a few more good years left in it. There is also speculation that exports of coal from the Northwest US to China will negate the Pledge, however, the reality is that coal prices along the Pacific Rim are already falling. "At this point," writes Clark Williams-Derry, "early investors in the three remaining Northwest coal terminal projects must be sweating bullets."

The message on Wall Street supports the notion that long-term investors should flee coal. Some utilities are already running, not walking, away. According to the Sierra Club’s "Beyond Coal" campaign, utilities have announced the retirement of over one-sixth of the country’s coal plants since 2010. The city of Los Angeles said recently that it would lower its dependence on coal from 40% to 0% by 2025. The drumbeat is building.

In April, NV Energy (NYSE:NVE), a Nevada-based utility with a terrible record among its coal-powered plants, announced a plan to shutter these plants over the next twelve years. This power generation would be replaced 60% with natural gas and 40% with alternatives such as wind, solar, and geothermal energy.

While regulators are debating this transition, Warren Buffett gave it two thumbs up. MidAmerican Energy, a utility subsidiary of Buffett’s company, Berkshire Hathaway (NYSE:BRK.A), agreed to buy NV Energy in late May. Earlier in the year, MidAmerican announced a settlement in which it agreed to close seven coal-fired boilers and build a large solar installation. MidAmerican already has the distinction of being the largest utility-owner of wind installations and is now building the largest solar plant in the country.

This kind of momentum has opened the door for corporate sustainability efforts; the development of new technologies will swing it open wider. Growing acceptance of solar and the emergence of innovative financing programs for homeowners have created a booming business for photovoltaics. Over the first three months of this year, the use of solar to generate electricity rose by 185% over last year. Coal, meanwhile, has seen its share of the utility market fall by 25% since its peak in 2007.

If we are to believe David Crane, President and CEO of NRG Energy, Inc. (NYSE:NRG), other developments will soon contribute to this decline. Mr. Crane said in this Wall Street Journal article that “all the natural gas industry needs is a gizmo in the basement of your house to convert your natural gas into electricity. I have no doubt that within the next 12 to 24 months, there's going to be a technological breakthrough.”

While we are moving to different sources of generating our electricity, maybe the most interesting development will be the creation of nearly net zero energy buildings (nZEB). The simple fact is that more efficient technologies are allowing us to use less electricity than ever before. The US used less electricity last year than it did in 2005. With added financial incentives, analysts from Lux Research believe that this sector will grow from buildings covering 129 million square feet to 861 million square feet over the next five years and create a materials market worth $16.5 billion.

Companies that help reduce consumption of electricity will be a major part of this movement. For example, Cree (NASDAQ:CREE) is making an impact in the LED space as a manufacturer of LED chips and components that are sold to other manufacturers (such as General Electric (NYSE:GE), which produce finished LED bulbs.The company is an entrenched supplier and is also making a strong push into the residential market. 

All of the specific energy-related securities identified in this article are current recommendations of Reynders, McVeigh Capital Management, LLC (RMCM) on behalf of its advisory clients. The specific securities identified and described do not represent all of the securities purchased, sold, or recommended for RMCM’s advisory clients and the reader should not assume that investments in the securities identified and discussed were or will be profitable. RMCM also currently recommends numerous other securities in various other industries unrelated to energy. The purchase of these energy-related securities only will not create a diversified portfolio. In addition, the securities identified in this article may be past specific recommendations of RMCM. If such securities are past specific recommendations, RMCM shall upon request furnish a list of all recommendations made by RMCM during the twelve months prior to the date of this advertisement. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities provided in this list. Past performance is no guarantee of future results.
No positions in stocks mentioned.