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Hint:
For cocktail party small talk, the topic of affordable luxury real
estate is out and affordable energy, electricity distribution and
price caps are in—at least this quarter. As blackouts and brownouts
loom in the western and northeastern states, investors are keen
to capitalize on the nation’s pain without investing in the
energy equivalent of a “dot-com bomb.”
A few alternative and renewable energy funds are good bets. With
dramatic advances in photovoltaic, wind turbine, hydrogen generator
and other energy technologies, investor interest in alternative
ways to produce vast amounts of energy has soared. These include
biomass, geothermal, solar, wind, hydrogen/fuel cells and harnessing
ocean currents.
In 1970, the renewable share of U.S. electricity generation was
a respectable 11.6 percent, but fell to 9.6 percent of a larger
generation total in 2000. The electricity generation of non-hydro
renewables was two percent of the national total in 1990, and rose
to 2.5 percent in 2000.
A few visionary entrepreneurs aim to help change that. Maurice Schoenwald,
co-founder of the small New Alternatives Fund, said he and his son
started the mostly small-cap portfolio in September 1982 because,
“I was concerned about the nation’s dependence on foreign
oil.” Schoenwald also feared that oil threatened the U.S.’s
national security. He, his family and neighbors started a portfolio
with an initial $100,000 investment in alternative and renewable
energy companies. Schoenwald said the fund’s goal is to invest
25 percent or more of assets in companies involved in alternative
energy, which he defines as sources that save natural resources
and are cleaner than traditional energy sources. He is particularly
bullish on electricity co-generation, an alternative to conventional
utility-produced electricity and distributed energy. Among the top
holdings of the New Alternatives Portfolio are FuelCell Energy,
Inc.; Astropower, a solar cell company; and Calpine Corp., a geothermal
energy producer.
The Schoenwald family’s vision proved to be prescient. The
$53 million fund’s average annual total return for the 19 years
since inception was 11.55 percent (as of December 29, 2000) and
its total return for the volatile one-year period ending the same
date was 44.57 percent (after deducting the 4.75 percent sales charge).
Many environmental leaders are urging substantial investment in
renewable forms of energy. Lester Brown, president of Earth Policy
Institute, said, “We’ve got to come up with an economic
model that will sustain progress rather than self-destruct. Instead
of a carbon-based energy system, we’ll have a solar hydrogen-based
energy system. Government leaders worldwide can create incentives
to move from a throw-away economy to a comprehensive reuse-recycle
economy. Unless we move quickly, environmental deterioration could
lead to economic decline.”
Several factors are making wind power very attractive to institutional
and individual investors. According to renewables investment banker
Diana Propper de Callejon of EA Capital, big market drivers are
pushing a dramatic increase in wind power. “There is now a
significant change—a pull for new technology,” she noted.
Meanwhile, members of the U.S. Congress are deliberating whether
to extend a production tax credit (PTC) for investors in wind farms
and wind turbine technology, which expires at the year’s end.
Several competing bills aim to help generate sorely needed economic
development in the Great Plains, considered the “Saudi Arabia”
of wind wealth, and northwestern states. In June 2001, the U.S.
Department of Energy (DOE) announced that, through the Bonneville
Power Administration, it had signed pre-development agreements for
seven wind power projects to provide an additional 830 megawatts
of generating capacity in the west and northwest. According to the
DOE, this initiative will produce enough electricity to meet the
needs of nearly 270,000 homes—a 20-percent increase in the
nation’s wind power capacity.
In South Dakota, Jim Dehlsen of Dehlsen & Associates is planning
the world’s largest wind farm on 200,000 acres, with a potential
of 3,000 megawatts of generating capacity. All of these events suggest
that windpower is a viable energy sector and is well on its way
to becoming the least expensive electricity source. In fact, even
with the tax subsidy, wind-generated electricity is selling at between
four and six cents-per-kilowatt-hour, which is competitive with
the 4.8 to 5.5 cents-per-kilowatt-hour cost of coal. However, without
a national energy grid, distribution of energy generated by wind
is still a challenge.
Leading Portfolios
Socially responsible investment firms are watching technology trends
very closely and evaluating innovators and leaders in renewable
energy technology.
“If we could just get the big companies to invest at least
one percent of their total assets into renewables, the impact [on
a transition to cleaner energy] would be far larger,” said
Jeffrey MacDonagh, a research analyst for Kinder, Lydenberg and
Domini, the research arm of Domini Social Investments. MacDonagh
said that among the largest companies that are making a significant
financial commitment to wind energy are Enron Corp. and Florida
Power and Light, though this utility is more heavily invested in
nuclear power. Overseas, the two largest wind turbine manufacturers,
Danish Vestas Wind Systems and NEG Micron, are publicly traded and
outperforming their peers.
Among the leading fund investors in alternative and renewable energy
companies are the following:
• Portfolio 21, which is managed by the investment firm, Progressive
Investment Management, Portland, OR—Portfolio 21 seeks out
companies that are incorporating environmental sustainability into
their business strategies and applies rigorous environmental screening
criteria in their evaluation of company performance. Among Portfolio
21’s top holdings and their percentages as of March 21, 2001,
are AstroPower (3.0 percent); Ballard Power Systems (1.7 percent);
IMPCO, a leading supplier in the fuel cell industry (0.6 percent);
NEG Micon, a Danish company that designs and manufactures wind energy
products (1.4 percent); and Vestas, another Danish wind turbine
manufacturer (0.3 percent).
• The Green Century Balanced Fund, which seeks capital growth
and income from a diversified portfolio of stocks and bonds that
meet its standards for corporate environmental responsibility—Green
Century Capital Management (GCCM), which manages the fund, was founded,
and is wholly-owned, by non-profit environmental advocacy organizations.
Among Green Century’s top 10 portfolio holdings and their percentages
as of March 31, 2001, are FuelCell Energy Inc. (3.34 percent) and
NEG Micon (2.80 percent).
Leslie Christian, president of Progressive Investment Management,
noted, “The energy policy that has been put forward is so blatantly
reactionary that it has caused people to sit up and take notice.
Increasingly, investors are aware of how a company’s major
business activities are affecting whether or not we are moving toward
a sustainable environment.”
However, worsening market conditions are probably not helping some
of these small companies that are trying to raise capital. “A
slowdown of the economy is probably one of the biggest threats we
face in encouraging investment in renewable energy companies,”
said Christian.
Among the venture capital funds that are trying to help are the
Commons Capital Fund in Boston, MA, which is open to accredited
high net worth investors. Commons Capital LP is affiliated with
Investors’ Circle, a network of angel investors seeking to
invest in socially and environmentally responsible companies. Bob
Barton, CEO of Catalyst Financial in Vermont, is also an influential
player in this category who helps governments, municipalities and
companies finance enhanced energy efficiency on their work sites.
Barton engages in debt and sub-debt energy conservation deals of
$1 million or more.
Experts in the finance and environmental arenas are placing bets
across the board of new energy technologies, but pure hydrogen and
fuel cell technologies appear to be attracting the most interest
as the ultimate clean energy source. Even President Bush recently
promised $85.7 million in federal grants to encourage academia and
the private sector to develop more new fuel technologies and energy-efficient
products. If Congress approves, we’ll soon have many more investment
options.
Portfolio
Performance -
Dianne Saenz is director of communications for Earth Policy Institute,
which recently published Eco-Economy: Building an Economy for the
Earth, a new book by environmental leader Lester Brown. To learn more,
visit www.earth-policy.org. |
