Sunday, August 22, 2010

Notes from "Clean Technology Investing: A Global Perspective"

With recent news of floods in Pakistan, fires in Russia, and glaciers cracking in Greenland, my 45-minute presentation in San Francisco last week seemed timely. The session notes below provide an overview on the topic.
The clean technology market is broad and diverse and includes solutions based on:
  • geothermal - deriving energy from within the earth,
  • wind - using mechanisms such as wind turbines,
  • bio-fuels - based on plants (sugar, corn, algae) and waste,
  • solar which converts the sun's rays to thermal or electrical energy,
  • portable storage such as lithium ion batteries, hydrogen fuel cells and ultra-capacitors,
  • water-driven hydroelectric power using dams, tidal waves, etc.,
  • carbon sequestration - which captures harmful CO2 emissions and
  •  nuclear fission based power.
To illustrate potential uses of clean technologies, I provided the following examples: 1) wind power use at the Nelson Mandela Bay Stadium during the World Cup in South Africa, 2) the 26-hour flight of Solar Impulse, a solar powered light carbon-fiber aircraft, over Switzerland this past July and 3) investigations by Pacific Gas & Electric (PG&E) in California to launch satellites capable of converting the sun's rays into radio waves and beam the energy to receiving stations on the ground. Public equity investment ideas for consideration included Power-One, Inc. (US: PWER) - a provider of power conversion systems; Cosan Limited (US: CZZ)a leading producer of sugar and ethanol, Quimica y Minera de Chile (Chile: SQM/A, US: SQM) a provider of lithium as well as potash and potassium nitrate based fertilizer products and General Cable Corp. (US: BGC) a provider of copper, aluminum and fiber optic wire and cable products.

Yes - addressing global economic instability is a high priority by policy makers, but the need to minimize environmental damage to the planet and reduce dependence on fossil fuels has not disappeared.
Challenges confronting this market include:
  • the impact of the financial crisis (this past week Vestas Wind Systems A/S (Denmark: VWS, US: VWSYF), a provider of wind turbines, said demand was negatively impacted by the credit crisis - the stock dropped 25% for the week),
  • regulatory confusion and
  • achieving grid parity - the point where alternative energy sources are equal to or cheaper than incumbent energy sources. While about 200 "clean tech" companies publicaly trade in the US, significant venture capital investment is supporting innovation in this market. Investors should seek companies with strong business models and the capacity for sustainable performance. The potential to generate free cash flow is a useful indicator in this analysis.

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