Fuels Of The
Future
How To Profit
N
From Tomorrow’s
Energy Today
N
Roger Conrad’s
UTILITY FORECASTER
Fuels Of The Future
How To Profit From Tomorrow’s Energy Today
By Roger Conrad
Inside
Personal Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
New Energy: Myth And Fact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
New Energy Superstars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Fuel Cell Hope And Hype . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
HONDA
SIEMENS
Tailor Made . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
IBERDROLA
Wired Wonder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
AMERICAN SUPERCONDUCTOR
Wind Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
FPL GROUP
VESTAS WIND SYSTEMS
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report has been carefully compiled from sources believed to be reliable, but its accuracy is not guaranteed.
PERSONAL POWER
In The Beginning
▲ It’s been 120 years since Thomas Alva Edison threw
the switch on the world’s first commercial-scale power
plant, Pearl Street station in New York City. At the time,
most viewed electric energy as nothing more than a
niche product. So-called isolated plants—on-site generation specially designed for industrial facilities—were
considered to be the future of power.
Few believed in the economics of central stations
like Pearl Street, which sold energy to the general public. Among the skeptics was J.P. Morgan, Edison’s mostprominent financial backer, who also owned many of
the patents on his inventions.
In the end, however, Edison’s vision won out. The
unexpected success of Pearl Street triggered a wave of
central station construction across America. In fact, that
process accelerated in the years that followed, going
beyond Edison’s vision. Alternating current (AC)
replaced Edison’s favored direct current (DC) as the primary form of power. Unlike DC, AC could be transported for miles over power lines without losing too much
voltage. That made it possible to construct ever-larger
plants to serve quickly multiplying numbers of people.
The chief apostle of central station economics was
Edison’s chief apprentice and protégé Samuel Insull.
After Morgan succeeded in buying Edison out of the
business in 1893, Insull took his gospel of building bigger and bigger plants national.
The idea was to spread the use of electricity by
bringing down its cost. The bigger his flagship company
Commonwealth Edison became, the more effectively it
spread its costs and lowered its prices, thereby encouraging new demand. Ultimately, Morgan became a convert, competing with and ultimately defeating Insull in
building a near-national energy utility monopoly.
Franklin Roosevelt’s New Deal brought Morgan
down at the height of his power. But the system of regulated, regional utilities that replaced his swashbuckling empire maintained Insull’s principle of maximizing
economies of scale. Fueled by post-World War II
urbanization, power plants and power systems grew
larger and larger. The quest for size reached a peak
with the construction of some 120 nuclear power reactors from the late 1950s to the late ’70s.
FUELS OF THE FUTURE
The proliferation of central stations basically stymied
the development of the isolated plants that had dominated electricity’s earliest years. The giant nuclear
power plants that were supposed to be too cheap to
meter, however, wound up costing far more than even
the industry’s fiercest critics had anticipated.
As utility rates rose to cover the unanticipated
expenses, large industrial users became increasingly
restive. The result was an ’80s revival of interest in
self-generation, particularly cogeneration. By
removing themselves from the grid, companies
hoped to lower their costs and increase the reliability
of their power.
Most of the cogenerators have since abandoned the
business of self-generation. But with environmental
concerns such as global warming because of carbon
emissions mixing with politics, interest in personal
power has continued to grow in recent years, not just
among heavy industry but with consumers as well. At
the same time, new technologies have come to the
fore, ranging from solar panels to increasingly competitive fuel cells, which generate power nearly pollutionfree by separating hydrogen from a fuel and combining
it with oxygen.
For some, the attraction of these distributed energy
sources is simply to become less dependent on an
increasingly overloaded power grid that’s vulnerable to
crippling outages. Power generated from fuel cells and
solar panels won’t be interrupted if an attack, storm or
other event shuts down the broad energy grid.
Risky Business
▲ Distributed power has the potential to help avoid
devastating power price spikes that have plagued the
early years of industry deregulation. And its potential
environmental advantage has much allure as well.
For investors, there’s no shortage of ways to play the
growth of distributed energy. Some projections call for
solar and other distributed power sources to rear a $50
billion market in coming years. Companies that rise to
dominate these new technologies will multiply their
investors’ wealth many times. Unfortunately, there are
many pitfalls for the unwary; most who’ve tried to bet
on the future of distributed power so far have gotten
badly burned.
1
Even the most-successful distributed energy players
won’t have earnings for several years at best. That
makes their stocks virtually impossible to value in any
meaningful way. Instead, Wall Street has adjusted its
prices according to the hype factor. Even companies
that have continued to report steady progress meeting
their business goals have seen their stocks subjected to
wild boom-and-bust cycles. Investors who have been
swayed by hype during the upturns have been all but
wiped out by the inevitable downturns that followed.
Take the example of Avista Energy, a Washington
state-based utility heavily involved in the development
of fuel cells. In early 2000, the stock soared from the
teens to the 80s in a matter of a few weeks. The reason:
Internet message boards announced that Microsoft
Chairman Bill Gates was taking a 5 percent stake in the
company. The news triggered a stampede of buyers for
Avista as well as other fuel cell companies.
Ignored by the frantic buyers was that Avista’s fuel cell
division is only a tiny part of its overall operations. The
bulk of the company’s earnings came from wholesale
and retail sales of electricity and natural gas, which were
rolling up sizeable losses because of spiking power
prices and inadequate risk management. The upshot
wasn’t pretty. In a matter of a couple of months, fuel cell
mania had cooled off. And Avista was trading in the
teens again, wiping out its scores of hype-swayed buyers.
But few seemed to learn from the experience. The
boom-and-bust cycle for fuel cell developers was repeated in 2001. And companies that have faced setbacks in
their business plans have fared even worse. For example,
despite backing from major utility DTE Energy and
General Electric (NYSE: GE), Plug Power’s delays in
rolling out its product have seen its stock sink from a high
of nearly 150 in early 2000 to low single digits by 2002.
Through The Sifter
▲ The purpose of this report is to separate the hope
from the hype of fuel cells and other distributed generation technologies. Chapter One squares the pre-
2
vailing myths surrounding these extremely promising
technologies with the facts. Chapter Two points out
the best opportunities in this rapidly developing
industry for everyone from the most-conservative
investors to speculators.
Most of the picks in this report aren’t currently in the
Utility Forecaster Portfolios. But all are covered every
month in the How They Rate table, along with my
buy/hold/sell recommendations.
I strongly believe several of these companies will
reach for superstar status, either on their own or (perhaps more likely) as part of one of the large, powerful
companies that increasingly dominate the energy business. Either way, these are some of the highest potential stocks on Wall Street. Barring an overall economic
catastrophe, anyone owning a basket of them could
easily double their money in the coming years.
Thus far, rising energy prices and environmental
concerns have set off some gains in selected environmental stocks. Ultimately, however, we should see a
new wave of frenetic buying for the distributed generation companies that survive the current downturn. That
will give us an opportunity to realize some very quick
profits in these stocks. The key to cashing in is to buy
now while prices are still reasonable. The How They
Rate table will give the sell signal when the time
comes. For the most-current advice, see the mostrecent issue of Utility Forecaster, also available at
www.utilityforecaster.com.
Growing Markets
Projected percentage growth of revenue in
distributed generation for 2005-2030
Bio Mass
Other Renewables
Total Energy
Nuclear
87.1 %
243.4 %
27.5 %
11.8%
WWW.UTILITYFORECASTER.COM
NEW ENERGY: MYTH AND FACT
Myth No. 1
▲ Fuel cell power is far cheaper than grid-generated
electricity and will replace it during the next decade.
Fact
▲ This bit of conventional wisdom is at the heart of
the hype surrounding fuel cell technology. But for all
fuel cells’ advantages over grid power, economics
isn’t yet one of them. Nor is it likely to be for some
time to come. In fact, it’s increasingly likely electricity will play a major role in transportation, one of the
areas fuel cells were supposed to ultimately dominate
as oil prices continue to rise.
The concept of fuel cells has been around since
the early 19th century. The basic idea is to combine
hydrogen with oxygen in a chemical reaction, producing electricity and thermal energy or heat with little resulting pollution.
Designs under development use a variety of means
to accomplish this process, with many using platinum. The dominant prototype appears to be the proton exchange membrane (PEM), which basically
extracts hydrogen from readily available fuels such as
natural gas or methane. Under ideal conditions, the
only by-product from the process is water.
Fuel cells have been commercially available since
United Technologies made them for space shuttles in
1966. Unfortunately, costs are still quite high. And
even ambitious plans to cut costs by two-thirds will
leave its fuel cells three times more expensive than
grid power. Those bad economics explain why so
few Californians bought fuel cells in the heart of the
spring 2001 energy crisis.
It’s true that the most-efficient fuel cell designs will
potentially be able to attain efficiency of about 70
percent. In other words, 70 percent of the potential
energy from the fuel used to collect the hydrogen is
converted into either power or heat by the fuel cell.
However, that level has already been achieved by
advanced power plant turbines—which also produce
electricity and heat—that are being used in new natural gas-fired units across the country.
Seventy percent efficiency would make fuel cells
nearly twice as efficient as conventional coal and
FUELS OF THE FUTURE
nuclear power plants. But although coal and nuclear
plants run on fuels that are stable priced, most fuel
cells are designed to run on natural gas, oil, methane
or other fossil fuels, the prices of which can be
extremely volatile.
Lastly, using a fuel cell requires a far greater expense
of time and money from the user than does simply calling the power company to turn the lights on. This will
remain true even as fuel cells are produced in greater
numbers and production costs are reduced. For most
homeowners, the installation costs will either be unaffordable or not worth the recoverable savings, particularly given that the average American spends less than
seven years in a home.
Fuel cells could become a very profitable niche
market in the next decade. The most-likely buyers
will include those who can’t afford the possibility of
even a brief power outage and those who require
more consistent voltage, such as information technology (IT) companies. Others may turn to fuel cells for
their environmental appeal because they produce little or no pollution.
The point is, however, that they have a very long
way to go. In fact, they probably won’t get there until
many of the current producers have vanished.
Myth No. 2
▲ Solar power will never be competitive with traditional fossil fuels.
Fact
▲ Solar power isn’t flower power anymore. Even leaving aside the potential for massive spikes in oil and
natural gas prices during the next few years—which
would make all renewable fuels more competitive—
there have been tremendous strides made in increasing
the size and efficiency of solar panels and other
devices. And costs have declined sharply as well.
Europe and Japan are still the primary markets for
solar products. But even in the US, consumers and
companies are starting to use the sun for everything
from heating swimming pools to basic lighting. And
although most users aren’t dropping off the grid entirely, they’re cutting their energy costs and increasing reli3
ability. Solar is only going to become more important
in the coming years. And we could be in for an explosion of usage if natural gas and oil prices stay high and
volatile, as I expect they will.
Myth No. 4
▲ Fuel cells don’t require any fossil fuels to run and,
therefore, emit no pollution.
Fact
Myth No. 3
▲ Utilities and other big energy companies are actively
working to block the development of fuel cells and
other forms of distributed generation to ensure the market for grid-generated power.
Fact
▲ Actually, the opposite is true. Utilities have invested
heavily in the success of distributed generation, particularly fuel cell technology. Moreover, aside from major
engineering companies such as General Electric and
Siemens (NYSE: SI), utilities are by far the biggest backers of distributed generation. That’s particularly true in
California, where the state has granted vast incentives
to develop the resources.
It’s true that utilities are interested in distributed generation partly for defense; they’re making sure they
have a piece of what could potentially be a blockbuster technology. But most see a huge profit opportunity from an increasingly valuable niche. In fact, several are counting on distributed energy to generate a
hefty share of their growth in the coming years.
Natural gas and propane companies, for example,
stand to be major winners if fuel cells and microgenerators catch on as consumer products. Both technologies use natural gas that utilities will have to provide,
just as they’re fueling grid-linked gas plants now. The
CEO of one New Jersey utility recently
stated he could double his company’s
sales with a successful sales effort for
fuel cells.
Even big oils have been major backers
of distributed generation, particularly
those based in increasingly green
Europe. Royal Dutch Shell, for example,
has forecast the end of the fossil fuel
age; it plans to spend $1 billion on
renewables during the next five years.
Chevron Corp is a major investor in several new technologies, including a battery maker for electric cars Energy
Conversion Devices. And BP Plc is one
of the leading manufacturers of solar
power devices.
4
▲ With enough money for research, regenerative fuel
cells (RFCs) may become a reality some time in the
next 20 years. But for now, any fuel cell likely to
develop will run on fossil fuels, such as natural gas,
methane or even gasoline.
RFCs essentially recycle the chief by-product of
fuel cells—water—by using the hydrogen in the liquid
to produce electricity and heat. This, in turn, produces more water by-product to power the fuel cell.
NASA is a major researcher of RFCs, as are other
companies interested in space exploration and development. Other “zero-emissions” fuel cell technologies
under study are focusing on extracting hydrogen from
wind or solar sources.
These technologies are certain to attract more interest as fossil fuel prices rise in the coming years. But
there are still enormous technical barriers to cross
before any of them are ready for even a limited commercial launch. Until the problems are solved, the
fuel cell designs that will get the financing and make
it to market will be run at least to some extent on fossil fuels, particularly natural gas and, in rural areas,
propane. That also means there will be some pollution questions, though far less than those faced by
conventional power plants.
WWW.UTILITYFORECASTER.COM
Myth No. 5
Myth No. 6
▲ Development of distributed generation is heavily
dependent on US government funding.
▲ A falling stock price is usually a sign of doom for
distributed generation companies.
Fact
Fact
▲ Since Jimmy Carter was voted out of office in 1980,
distributed generation technology has developed independently of—and often in spite of—the energy policy
of the US government. Even under the Clinton administration, the development of solar power, fuel cells
and other non-grid power sources received relatively
little funding.
The Bush administration’s energy plan has pushed
fuel cell development but only as a very long-term
solution to our energy problems. In fact, the only government organization to consistently support research
in distributed energy is NASA, which remains a major
backer of research, particularly of some of the new
RFC designs.
The good news is that private industry has more
than taken up the slack. Major backers of new energy
technology include big oils like BP Plc and Chevron
Corp and big auto makers such as Ford,
DaimlerChrysler and General Motors. That means
there should be plenty of money to get designs that
work to market, regardless of what does or doesn’t
come out of Washington, DC.
▲ Although there’s a grain of truth here, it doesn’t
always make sense to follow the tape when it comes
to distributed generation companies. It’s true that any
company that depends on the stock market for financing is in trouble once its shares begin to plummet.
That’s because a lower share price makes it more difficult to raise money to expand.
This is what happened to many of the small
telecommunications providers that went belly up in
2000 and 2001. Because they were so loaded down
with debt, they needed a constrant stream of new capital invesetment to survive. Once Wall Street wasn’t
providing funds for growth, they shut down.
The situation with distributed generation companies, however, is far different. For one thing, unlike the
failed fry of the telecom sector, most have taken on little debt. Some are actually posting strong earnings
growth. The bottom line is that they have the cash to
grow, even if investors don’t want to pony up any
more money to help them. Even companies that are
losing money and have debt can survive a market
massacre if they have the right partners to help them
pursue market opportunities and fund research.
In sum, when a quality distributed generation company’s stock falls, it can become more and more
attractive as a buy. The trick is separating those with
low debt, positive earnings and/or deep-pocketed,
committed partners from the fly-by-night junk.
There are no guarantees that a quality stock down
50 percent or more won’t fall another 50 percent. But
given the technology’s potential and the hype-driven
nature of the market, it’s pretty close to a sure thing
that the same stock will be up at least 50 percent during the following year.
FUELS OF THE FUTURE
NEW ENERGY SUPERSTARS
▲ The stocks in this report represent some of the safer
bets on energy technology. All have solid prospects,
though from an investment standpoint, some are safer
or riskier than others.
I’ve divided them into six basic areas. The first profiled are fuel cell makers, easily the most-hyped area of
distributed generation though the furthest from commercial profitability. Most are likely to be extremely
volatile in the coming years. I’ve named some moreconservative plays, however, which could see huge
gains and offer considerably more safety.
The second area is represented by an on-site generation company, which plans and creates energy systems
tailor-made to the needs of their customers. Unlike the
fuel cell companies, this one is making money now
and profits are beginning to accelerate.
The third area discussed is solar power. My favorite
has already found a way to post explosive earnings
growth and there’s a lot more in store.
Then I discuss superconductors, their potential and
the best way to play them, American Superconductor
(NSDQ: AMSC). This technology has the potential to
revolutionize the nation’s electric power grid.
Finally, I discuss the various players in both wind
and nuclear power.
Before buying these stocks, I suggest you do a little
of your own research to get better acquainted with
them. One place to look is the How They Rate table in
Utility Forecaster, which provides monthly coverage
on all of them, along with buy/hold/sell advice. For
those with access to the Internet, I’ve provided Web
site information for each company. Note that telephone numbers for each company are also provided.
I also recommend you check out the service
Nanotech Investor News, written by my colleague
Gregg Early, by going to www.kciinvesting.com. His
6
ideas on nanotech’s role in alternative energy are
always illuminating, and the service is complimentary
to UF readers.
Strength In Numbers
▲ The most-sensible strategy when buying distributed energy stocks is to pick several different companies, rather than putting all your chips on one or two.
That way, if something unexpected happens to one of
the companies, you’ll still cash in on the growth of the
sector. If one thing is certain, a developing industry
will suffer many casualties along the way to growth, no
matter how promising it appears.
Take the case of Plug Power, for example. The
company initially anticipated bringing a flood of
commercially viable fuel cells to market for sale as
home generators by 2002. Its chief marketing and
financial backer was none other than General
Electric, which had been at the front of every electric
industry innovation since the building of Thomas
Edison’s Pearl Street station.
But instead of instant success, the company suffered
design problems that forced it back to the drawing
board. Research and development expenses mounted.
Finally, Plug was forced to restructure its operations,
including firing several top executives, while dramatically delaying its rollout and reducing its expectations
of future sales and profits. GE’s backing has kept Plug
in business, but with others now catching up, its ultimate success is far less certain. The stock has crashed
more than 90 percent from its highs.
The case of Plug shows that disaster can strike even
the most-promising and seemingly ironclad distributed
generation providers. Diversification is your only insurance against such a company-specific disaster. Buy a
basket of the stocks in this report for diversification.
WWW.UTILITYFORECASTER.COM
FUEL CELL HOPE AND HYPE
Honda
▲ Japanese-based automaker Honda has long had a reputation for high quality in
the US at an affordable price, stemming from the company’s dramatic entry into this
country with fuel-efficient cars when oil prices were peaking in the ’70s. The company is now gearing up for another cutting-edge move as a major developer of fuel cell
technology. The company is increasingly developing its own array of power systems,
which it plans to roll out in coming years. Honda is already a leader in Asia, along
with rival Toyota. Honda is also likely to get a kick in coming years from the recovery of the Japanese market and economy. And its auto fleet in the US remains a
favorite for high quality and affordability. It’s also a leader in hybrid car technology
and is likely to be a major player in electric vehicles as well. Honda isn’t covered in
Utility Forecaster on a regular basis but it’s one I continue to watch.
Honda
Price Per
Share
42
$42
41
40
40
39
38
38
37
36
36
35
34
34
33
32
32
8-06
9-06
10-06
11-06
12-06
08/06
1-07
2-07
3-07
4-07
5-07
6-07
’07
7-07
08/07
Source: Bloomberg
NYSE: HMC
automotive
honda.com
202-661-4400
Products:
Web site:
Phone:
Siemens
▲ Another solid bet is Siemens, the General Electric of Germany, which dominates a wide range of technology-based industries. The main difference is that
Siemens is still relatively cheap, despite a big run this year. The company is one
of the world’s foremost builders of alternative power plants, from fuel-cell-fired
electric plants to waste-fed plants. For example, the company has secured a deal
to build a thermo-powered generating plant that will help solve the power
crunch for Brazil’s leading industrial region. It’s also emerging as a leader in
wind turbine technology.
Despite the recent sluggish global economy, Siemens has remained strong and
projects growth for this year and beyond. And through a series of job cuts and
restructuring, the company adjusted well to slowed global demand in 2002. But
despite its powerful prospects, Siemens sells for barely twice book value—far
below chief competitors. Buy Siemens below 112.
FUELS OF THE FUTURE
Siemens
Price Per
Share
175
$175
165
155
150
145
135
125
125
115
105
100
95
85
75
75
8-06
9-06
08/06
10-06
11-06
12-06
1-07
’07
2-07
3-07
4-07
5-07
6-07
7-07
08/07
Source: Bloomberg
Products:
Web site:
Phone:
NYSE: SI
diversified energy
siemens.com
49-89-636-33032
7
TAILOR MADE
Iberdrola
Iberdrola
Price Per
Share
65
$65
60
55
55
50
45
45
40
35
8-06
35
9-06
10-06
11-06
12-06
08/06
1-07
2-07
3-07
4-07
5-07
6-07
’07
7-07
08/07
Source: Bloomberg
OTC: IBDRF
diversified energy
iberdrola.es
349445-1411
Products:
Web site:
Phone:
▲ Serving as one of Spain’s most-entrenched energy companies, Iberdrola generates, distributes, trades and markets electricity both at home in its country of incorporation and abroad in Latin American markets. The company has fossil fuel and
nuclear plants, and it has diversified into the engineering and telecommunications
markets as well.
Emerging from the privatization and deregulation process in Spain, Iberdrola has
been expanding on a global scale through a series of acquisitions and divestitures.
That’s pushed up sales almost 31 percent a year since the mid-’90s.
The company’s EnergyWorks unit sets up stand-alone generators to fulfill power
needs of individual companies or localized communities. It has partnered with
RWE to strengthen both companies’ capabilities in Europe as well as energy-starved
markets in the Americas from the US to Brazil.
The stock gives you a healthy dividend to boot. Buy Iberdrola for income and
growth up to USD60.
WIRED WONDER
American Superconductor
Price Per
Share
American Superconductor
25
$15
23
21
19
17
10
15
13
11
9
7
5
5
8-06
9-06
10-06
08/06
11-06
12-06
1-07
’07
2-07
3-07
4-07
5-07
6-07
7-07
08/07
Source: Bloomberg
Products:
Web site:
Phone:
8
NSDQ: AMSC
superconductors
amsuper.com
508-836-4200
▲ More than a half century old in some regions, the US’ high-voltage network
will need billions of dollars in new investment to meet the task of delivering
electricity where needed in the years ahead. One of the surest beneficiaries is
American Superconductor, a leading developer of superconductor wire and
power storage devices.
Superconductors are materials that carry large quantities of electricity with zero
resistance when cooled to very low temperatures. Theoretically, a power transmission system using them instead of traditional copper wire would dramatically cut its
load loss while smoothing out power flows, thereby radically reducing the costs of
running an electric system.
The problem has been the astronomical cost of producing superconductor materials. But after recent advances, American Superconductor is ready to roll out a long
line of potentially revolutionary products. The company has produced the world’s first
5,000-horsepower superconductor electric motor for industrial users, with less than
half the electrical losses of a conventional motor. Its superconductor storage devices
and wires are being tested by several major electric utilities. And the company’s consortium has won a contract to supply the US Navy with ship propulsion motors.
As a developmental company, American Superconductor won’t post real earnings
for at least several years. That’s likely to keep its stock quite volatile. American
Superconductor is a buy for aggressive investors below 18.
WWW.UTILITYFORECASTER.COM
WIND POWER
FPL Group
▲ Clean, more efficient than ever, not dependent on fossil fuels and aided by
government, wind power’s use is growing rapidly across the country. When it
comes to developing wind power, FPL Group has a major advantage over its
would-be competitors.
First and foremost is its regulated utility operation in south Florida, which provides some of the steadiest cash flows in the business to use to expand. Second,
its unregulated power business that develops wind power is run exceptionally
conservatively. New plants are always built and bought with long-term contracts
in hand or else are quickly secured. The company always works to be a low-cost
producer, and financing is done conservatively as well.
In sum, FPL is focusing is expansion on the steady and sure, rather than the
quest for a big move. That should keep it expanding even as the utility industry
works its way back to health. FPL Group is a buy under 62.
FPL Group
Price Per
Share
70
$70
65
65
55
50
45
40
35
65
60
55
50
45
40
35
8-06
9-06
10-06
11-06
12-06
08/06
1-07
2-07
3-07
4-07
5-07
6-07
’07
7-07
08/07
Source: Bloomberg
NYSE: FPL
Products:
Web site:
Phone:
energy
fplgroup.com
888.218.4392
Vestas Wind Systems
▲ The cost of wind energy has fallen 80 percent since the early ’80s. Now competitive with coal and much cheaper than either natural gas- or oil-generated electricity, it’s enjoying a worldwide surge.
The British government has mandated utilities generate 10 percent of their
power from wind farms and “green” energy sources by 2010. Germany’s plans call
for 20 percent by 2015. Australia, Canada, China, Finland, France, Ireland, Japan,
the Netherlands, Spain and Taiwan are also pushing wind. Finally, a growing number of US states are mandating US utilities derive more power from renewables,
and they’re turning to wind.
With a 32.6 percent market share, Denmark’s Vestas Wind Systems is the world’s
largest developer of windmills and the most-prominent pure play on wind power’s
growth. The company is profitable and growing sales rapidly. The balance sheet is
strong, with debt at less than 18 percent of assets, and it has a huge backlog of orders
from all over the world.
Vestas does face intensifying competition from global giants like General Electric
and Siemens. But with its market leadership, the wind sector’s growth and the
potential for a takeover, there should be plenty of growth to go around. Vestas systems is pricey, but those who already bought should hold. It’s a buy for speculators up to 50.
Vestas Wind
Price Per
Share
80
$80
70
60
60
50
40
40
30
20
20
8-06
9-06
10-06
08/06
11-06
12-06
1-07
2-07
3-07
4-07
5-07
6-07
’07
08/07
Source: Bloomberg
OTC: VWSYF
Products:
Web site:
Phone:
wind mills
vestas.com
4597-300000
Disclaimer: The information contained in this premium is current as of 08/01/07. For the most up-to-date advice and pricing, go to
www.utilityforecaster.com or check your latest Utility Forecaster issue.
FUELS OF THE FUTURE
7-07
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