On Monday I attended the next generation energy conference in New York sponsored by investment bank Merriman Curhan Ford. The conference coincided with its release of a next generation energy index (NGE.X). Many funds in which I invest put money into these alternative energy companies, so I thought I’d learn a little more.
It is evident that oil at $70 – even if it proves to be a passing phase – is something to be worried about for the long term. From Main Street to Wall Street, everyone is eager and anxious to find alternatives, put money into them and watch as the US shows off its traditional advantage – technological innovation and entrepreneurship.
The key to investing in this space is to find the innovators and then diversify as much as possible. Don’t throw it all into the next great fuel cell technology, or solar power technology, or oil to gas innovation but find the companies at the cutting edge of each technology. Merriman Curhan Ford identified five technologies for its index: fuel cells, solar power, alternative fuels, energy storage and other supporting technologies.
Several fuel cell companies were at the conference. Medis Technologies is a leader in this field. Its offerings include a power pack – a disposable, portable, auxiliary power source capable of providing power to operate and charge many advanced portable electronic devices.
This becomes increasingly important with the growth of electronic devices. The power pack can be used with cellphones, PDAs, Blackberrys, as well as military devices. According to Medis: “A key distinguishing feature between fuel cells and rechargeable batteries is that a fuel cell transforms its fuel directly into electrical power and produces power as long as the fuel is supplied. Batteries are energy storage devices that release power until the chemical reactant stored in the battery is depleted. Once the chemical reactant is depleted, the battery must be recharged or discarded.”
A second play on this technology is FuelCell Energy. FuelCell develops and manufactures electric generators based on its Direct FuelCell technology. “FuelCell Energy’s products are called Direct FuelCells,” the company says, “because unlike other fuel cell technologies Direct FuelCells can use hydrocarbon fuels without the need to first create hydrogen in an external fuel processor.” The company’s products are more commercial and can be used in hospitals, schools, server farms and other commercial and industrial applications.
I will also be watching Hydrogenics, a company whose shares recently benefited from an order from General Motors for its fuel cell testing services.
I’ve written about solar power several times in the recent past. I would be happy to e-mail them to anyone who requests them, or you can find it on the FTWealth, where you will also find my handy list of all the two-letter words allowed in Scrabble.
Another interesting sector in alternative energy is the one focused on businesses that have technology for turning liquids into gas. Companies using the Fischer-Tropsch process can turn biomass into usable fuels. As the cost of turning oil into usable energy increases, alternatives are already proving themselves cheaper. Eventually this will be a depressant on the price of oil but for now we can only bet on the horses and watch as they race to the finish line. Two companies in this field are Syntroleum (SYNM) and Rentech (RTK).
The supply and demand equation for oil is pretty clear: demand will continue to go up in the long run faster than supply. In the short term, Opec can continue to increase production and governments can draw down on inventories.
I am not worried about future oil shocks because, as with any commodity that gets too expensive, alternatives will be developed. US oil companies are already under pressure to put their enormous profits to work in alternative fuel production. They will look to the micro- and small cap innovators that own the patents and the facilities to produce energy cheaply. The entire sector, however, is extremely speculative and volatile. It has a place in your portfolio but make sure it is diversified.