Last week, several branches of the Colorado state government organized a
symposium on "How Colorado Electric/Gas Utilities and Their Customers
Can Benefit from the American Recovery and Reinvestment Act (ARRA)."
I attended, with an ear to how the likely implementation would affect Clean
Energy Stocks.
Overall, Colorado seems to be taking a very organized approach to a
monumental task. According to Colorado
Public Utilities Commission (PUC) Chairman Ron Binz, who officiated at the
conference, they intend to organize proposals into an overall thematic plan for
spending stimulus money. In addition, they are working to eliminate barriers to regulated utilities
participating. In particular, the PUC "will
allow expedited review of applications filed to request financial incentives
including ratemaking treatment."
The symposium was four hours long with no breaks. For readers seeking
some specific information, here is a link to my
notes. What follows are my thoughts on what it may mean for different
clean energy sectors.
Solar seems unlikely to be a big winner from the ARRA. This makes sense
because the point of the bill was to stimulate jobs. Solar, especially Solar
Photovoltaic (PV) panels, are very capital intensive investments, meaning that
few jobs would be created per dollar spent. Solar PV has long been the
poster-boy for green energy, yet its high-tech capital-intensive nature
means PV installations create fewer jobs per dollar invested than most other
clean energy technologies, and many fewer than the most effective, energy
efficiency.
Sitting next to me was a representative of a major solar project developer
whom I’ve known for a couple years. After the panel on electric generation, he commented to me "that was a
total waste of time."
The
prospects for wind seem slightly more hopeful, according to
Brian Greenman, principal at Greenman Financial
Advisors. Brian is another member of the Denver the renewable energy
community whom I’ve known for several years. His firm has established a
niche been providing a wide variety of financial
services to wind project developers across the Great Plains. He says that
there is a real chance that the Department
of Energy loan guarantee program may begin guaranteeing loans; something which
has not occurred for clean energy deals since it was established in the 2005
EPAct. The major hold-up has been uncertainty about the
potentially enormous size of the subsidy cost. Now, new money has been
appropriated, and once new rules are established, this subsidy cost is likely to
either be regularized, or eliminated entirely. The main roadblock stopping
wind projects right now is the inability to obtain financing, a problem
which should resolve more quickly with a functional federal loan guarantee
program allowing wind projects to borrow up to 80% of the capital needed at
rates of less than 0.5% above US treasury bills. Large solar projects
may also be able to qualify for such guarantees, but this is a bigger deal for
wind because of the much larger program size.
The bad
news is that these loan guarantees are unlikely to be available until the last
quarter of the year, even with expedited rule-making.
Smart
Grid
Of the
utilities with existing Smart Grid efforts, all seemed interested in accelerating
roll-out. Black Hills Corporation
(BKH) has
an AMI-roll out using
meters from Elster, currently going on in Pueblo, which they hope to use
ARRA money to accelerate, and to expand to more rural areas where it might not
otherwise be economic for them. The Poudre
Valley Rural Electric Association has a program focused on commercial
customers using a Landis
+ Gyr solution. Xcel
Energy (XEL) has an extensive Smart
Grid pilot program in Boulder Colorado, with seven
partners. The City of Fort Collins has an ongoing Fort
ZED project with a wide variety
of partners.
These
expansions should be good news for the equipment providers, but a look at the
partners brings up one of the perennial headaches of investors interested in the
smart grid: nearly all the companies listed above or in the partnerships are
privately held. While there are publicly traded smart grid companies, the
wide variety of solutions and companies offering them make it difficult for a
public investor be confident that the companies he owns will be the ones which
do well long term. The best solution I have come up with is to own a
little bit of all the smart grid companies I find, with a focus on the
lower-tech solutions such as Demand Response, and established metering companies
which I consider likely to acquire smaller private players. Charles
provided a list of four
smart grid stocks in December, while I took a look at three more (Itron
(ITRI), Echelon (ELON), and EnerNOC(ENOC)) in November. To these, I’d
add General
Electric(GE) and Telvent
(TLVT). I don’t know of any projects by these companies in Colorado, but if
the trends here are any guide, companies which already have existing projects
with utilities can reasonably expect those projects to accelerate.
One other
trend of note was that the utilities were generally much more interested in the
potential of the smart grid to make their distribution systems more efficient.
For example Xcel’s representative said that their goals, in order of priority,
were improved utility efficiencies, improved asset operations, asset life
extension, recapacitating existing infrastructure, and (lastly) new assets and
services. All of these except the last are upstream improvements which are
unlikely to be seen by the customer. While smart grid applications which
allow residential users to understand our own power consumption may be more
exciting to us, these are unlikely to be the first applications which the
utilities choose to roll out in a big way.
Energy Efficiency stocks are likely to be big winners, simply because of the
amount of money in the stimulus directed towards building retrofits, both for
low income and federal buildings. If anything, however, energy efficiency
can be more difficult to invest in than Smart Grid, because good efficiency
measures tend to have more to do with system integration than with
products. That said, there are a few products which seem likely to get a
boost. First and foremost is insulation, which will be used extensively in
weatherizing homes and businesses. Owens
Corning (OC) gives the best exposure to this sector, since major competitors
Johns-Manville is owned by Berkshire Hathaway (BRKA),
and CertainTeed is owned by
Paris-traded Saint-Gobain, a
more broadly diversified building products group.
Other energy efficiency products which are likely to see a boost from ARRA
funds are ground source heat pumps, which will be likely to feature in
multifamily residential and commercial building retrofits. I profiled
heat pump companies Waterfurnace
Renewable Energy (WFIFF.PK) and LSB
Industries (LXU) in December, in anticipation of the stimulus package.
LED lighting company
Cree, Inc is also well placed to take advantage of energy efficient building
retrofits. Other companies which may benefit are small innovators which
have efficiency improvements targeted towards specific
applications. One such is AltEnergyStocks.com sponsor Power
Efficiency Corp (PEFF.OB),
which sells controllers which improve motor efficiency in variable-load
applications such as escalators and rock crushers.
Despite Geothermal Power’s small contribution to overall electricity
generation, both Xcel Energy and Tri-State Generation and Transmission mentioned
geothermal power as something they were looking to pursue with ARRA funds.
If these plans come to fruition, likely beneficiaries are the industry leader Ormat
(ORA), a vertically integrated geothermal company, which I consider
attractively priced around $25, and Raser
Technologies (RZ). Raser could be particularly well positioned to
benefit from the stimulus because they focus on building and commissioning
geothermal plants much faster than industry incumbents such as Ormat by using
off-the shelf turbines from United
Technologies Corp. (UTX), allowing them to get projects up and running much
faster than their competitors. This should be a particular advantage when
competing for stimulus dollars because of the emphasis on speed in the ARRA, which
requires projects to be completed by 2012.
The Western Area Power Administration (WAPA), a federal agency, was given
both new funding and authority to plan and build new electric transmission in its
territory to deliver power from
renewable sources. They have already begun the planning process, and their
representative was enthusiastic about the process. These projects will
likely be in partnership with private companies, and so several of the transmission
companies we listed in anticipation of the stimulus package are likely to
benefit.
Although batteries were not mentioned directly in this utility-oriented symposium,
two speakers mentioned that they would be interested in using plug-in hybrid
electric vehicles as part of a smart grid pilot project. Both Xcel and
Tri-State mentioned that they had specific Compressed
Air Energy Storage (CAES) projects they would look to fund through the
stimulus package. CAES is the second most cost effective way to store
electricity on a large scale (the first being Thermal
Energy Storage in conjunction with Concentrating Solar Power), but I do not
know of any public companies focused on this technology.
Finally, the symposium did not focus on transportation infrastructure, and so
I have not mentioned rail and transit companies which may also benefit.
See our Clean
Transportation archives for some of our ideas in these sectors.
Tom Konrad, Ph.D.
DISCLOSURE: Tom Konrad is long ITRI, ELON, ENOC, GE, TLVT,
WFIFF, LXU, ORA, RZ and PEFF. PEFF is also an advertiser on
AltEnergyStocks.com.
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