This article is from Progressive Investor, our monthly sustainable investing newsletter. It provides on-going analysis of clean tech investment opportunities: renewable energy, fuel cells, organics, forests and emerging areas on the private and public sides. |
By Rona Fried
When people subscribe to our sustainable investing newsletter, Progressive Investor, many do so to learn how to invest in clean energy companies. After completing our third year of publishing the newsletter, although the field certainly has great prospects for the future, I know how tricky it is to invest in publicly traded clean energy companies. Just because a small solar or wind company is bringing in business doesn?t make it a good investment on the stock market!
To produce the newsletter, we work with a group of environmental investment analysts who run the mutual funds in the field – Portfolio 21, Winslow Green and others. They have tiny investments in alternative energy companies like Ballard Power Systems (BLDP), Fuel Cell Energy (FCEL), Quantum Technologies (QTWW) and Vestas Wind Systems (VWS.CO), but not Evergreen Solar (ESLR), the only US public solar company, because it is too small.
In article after article, we warn readers that the smaller a company is, the more volatile its stock will be. Astropower?s has made investors even more cautious. After earning investors lots of money in its prime, Astropower suddenly tanked!
The morale: If you want to make very small investments in public clean energy companies, fine. Just realize you are making a speculative ?bet.?
Some people invest in the large multinationals that are active in the field as a way to safely get exposure to clean energy in their portfolio. For example, the mutual fund, New Alternatives, invests in Kyocera (KYO) and Sharp (SHCAY.PK) to gain exposure to solar, since they are both leaders in the field.
Many analysts claim this approach isn?t an investment in renewable energy because it represents an insignificant amount of revenue for the company, often about one percent. Others counter that such a big company has the potential to propel the field forward, while the risky clean energy business segment is cushioned and supported by more mature product lines.
For Some, Firm’s Strategy is Key
Let?s look at a couple of the more controversial examples of large companies: General Electric (GE) and Florida Power & Light (FPL).
GE is now the second largest wind turbine manufacturer worldwide and FPL is the largest wind farm developer in the U.S., making up 15% of revenue, but you won?t find either stock in a socially responsible (SRI) mutual fund or individual portfolio. That’s because GE is a major defense contractor and FPL operates nuclear plants – ?no, no?s? in the SRI world.
Confirms Steve Lippman, senior research analyst at Trillium Asset Management, ?We don’t weigh the good stuff against the bad for companies like GE. As a major defense contractor, we don’t look at anything else they do – it doesn’t matter.”
?How could they get into our portfolio?? considers Carsten Henningsen, co-founder of Porfolio 21. ?If FPL stated that renewables are the way to go and gave a deadline (e.g.., by 2050) by which they would be 100% renewable, and if we saw evidence they were translating the words into action, we would probably invest in them.?
Portfolio 21 doesn?t invest in companies that are working on sustainability around the edges – reducing water usage or emissions, for example, but not looking at their overall environmental footprint. They invest in companies they believe are serious about changing their corporate “DNA”.
From Carsten?s point of view, GE’s heavy involvement in wind, and now solar, with its acquisition of Astropower, merely shows that it recognizes that renewable energy makes business sense. The fact that GE continues to be in military contracting and nuclear energy, and continues
to clean up its difficult history in hazardous waste, demonstrates it doesn’t grasp the full picture.
Others Look at Market Impact
On the other hand, Terry Foecke, managing director of Materials Productivity and money manager, invests in both companies. He calculates that ten to fifteen percent of GE?s revenues come from environmentally responsible product lines – and are a growing portion of the business.
Foecke notes that besides wind and solar, GE is integrating energy efficiency and materials conservation throughout their product lines, even in its jet engines and wind turbines. Its power-generation turbines, for example, are super-efficient. Water is one of the five growth areas GE is emphasizing going forward; it is assembling a huge portfolio of product offerings from water treatment to the efficient provision of clean water.
Foecke invests in FPL because its subsidiary, FPL Energy, is the largest U.S. wind farm developer, is making money doing it and considers wind a key part of its portfolio. The few public wind companies are either very small or foreign companies whose business is heavily influenced by public policy.
?I don’t ask how big wind is as a percentage of total revenues for GE and FPL,? he explains. ?I ask how much the company is contributing to the wind power capacity in this country.”
He adds, “We saw how the expiration of the wind tax credit brought the industry to a crawl in the U.S. last year. As government subsidies shift, you need big players involved that have a very low cost of capital to keep the wind farms in place and producing so we can get to the next phase. And that’s what FPL and GE have – huge checkbooks.?
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This article also appeared Rona Fried’s “Investing in Clean Energy” Column in Solar Today. Rona Fried, Ph.D., is president of SustainableBusiness.com, the online community for green business: daily sustainable business and investor news, Green Dream Jobs, Business Connections, and the sustainable investing newsletter, Progressive Investor.
Contact her: rona@sustainablebusiness.com
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