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Banking on Alternative Energy: Part I

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I think the brightest ideas in alternative energy are not only a long way off, but they're difficult to invest in, at best.

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Will the last bull on energy please turn out the light? What's that you say…there aren't any? Bulls? No, there aren't any lights. Some of us still think there's a pretty good business to be made providing electricity for the first time to any of over 2 billion humans who have never had a light to turn on. But the biggest spotlight, Wall Street, has been consumed with oil and its alternatives instead.

The tremendous run in traditional energy stocks over the past five years, sparked hopes for a new sector to strike it rich and end our reliance on dirty old fossil fuels. "Alternative Energy" appealed to some of the best intentioned people I know, who have some of the brightest ideas. They were in the enviable spot of not only trying to make a profit but also to make a true difference by improving our environment – the perfect storm of political and financial support swelled.

But the Clean Green Machine had a dirty little secret; it needed those belching dinosaurs in order to keep attracting Wall Street's green cash. These big ideas were being fueled by piles of speculative capital. Perhaps alternative energy's rise was more speculative than investors stopped to realize, however. Consider the entire wind and solar industries made $20 billion in revenues last year, combined. Exxon Mobil (XOM) takes in that same amount of revenue by itself, every two weeks.

But the alternative's sworn enemy was sorely needed. Higher and higher oil prices not only swept capital into those traditional energy companies, but seeded alternative energy's answers to (the fear of) unaffordable oil. The last few months, however, have been brutal and confusing to alternative energy supporters as I predicted in an interview with one of its leading publications (another correct prediction was made here in the 'Ville – that I wasn't asked to come back!). Rightly or wrongly I warned that when oil gets cheap (a very relative term) the risk would be a lot of traders asking - why do we need an alternative? The only noble cause a trader is trying to support is that day's P&L. Wall Street answered that question with a decidedly unclean meltdown sending shares of companies like Pacific Ethanol (70%), Ballard Power (44%), and Evergreen Solar (46%) down from May to October 2006. Crude oil was down less than 20% by comparison.

I think the brightest ideas in alternative energy are not only a long way off, but they're difficult to invest in, at best. Some of the best technology will not even make it to the public markets, because if I'm sitting with XOM and General Electric (GE) looking at more cash than exploration or R&D prospects, I'm likely to try and acquire the best and brightest energy ideas before most of us ever hear about them.

Back at the ranch down here in Texas I also believe that the overwhelming focus on crude oil and gasoline (for those of us who don't look good in green) might also be overlooking a greater energy need which is not nearly as cyclical. Electricity and the infrastructure to deliver it are far clearer to me than crude. But I am uninterested in old utilities or new equipment for the U.S.'s maturing economy. And, I am still interested in the stuff you can't make more of – the siren song of all energy bulls like me. Yet, I think the energy trade, as I've written many times this summer, just got too crowded. So, just what am I looking for? Glad you asked.

Let's go back to those 2 billion people around the world who aren't arguing about oil and gas prices or alternative fuels because they do not even have electricity yet. Is there a better way to bank on this growth? Is there a way to take advantage of natural resource rich countries without trading commodities? Is there a way to play energy without owning energy? Or did I just stand down-wind of too many fumes filling up the jalopy this morning?

Click here for Part II…
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