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GOOD MONEY: UPDATE ON CLEAN ENERGY SECTOR




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A column written for the East County Magazine
“Your guide to financial planning & socially responsible investing”
 
By Judith L. Seid, CFP ®
President, Blue Summit Wealth Management 
 
March 2, 2012 (San Diego’s East County)--Many of our clients own some stock in clean energy companies and so, given the significant negative performance of this sector over the last couple of years, we’ve had numerous conversations about where these companies are headed and whether or not they still make good investment sense.

 

To give a visual example, one mutual fund that has focused on investments in this sector is the Calvert Global Alternative Energy fund (CGAEX, prospectus here). Over the last year, this fund is beating the PowerShares WilderHill Clean Energy Index by almost 20% this year, but even still has fallen quite a bit:

 
 
 
 
 
 
 
 
 
 
 
  
The whole sector of clean energy has struggled since January 2008 for several reasons:
  • Financing the leap from product development to commercialization is an important stage for any unproven sector. Subsequently, this is exactly the stage that companies struggled for financing of during the credit crunch, leaving many companies cash-strapped and straining to smooth out volatile sales cycles during expansion (read Cnet News report from Sep 2008 here).
  • European governments like Spain, France and Germany have been large supporters to this sector, implementing clean energy mandates ahead of many other countries. Subsequently, these same countries have been hit very hard throughout the downturn and haven’t had as much of an ability to fund projects (read a more complete discussion of recent public policy and clean energy in Foreign Affairs here)
  • The political will to pass the Clean Energy Bill in the U.S. died during the BP oil spill, which lead to a controversial offshore drilling moratorium for several months (Bloomberg story here). Consequently billions of subsidies into this sector were foregone, busting a lot of speculation that had led to over 77% growth in clean energy throughout 2005-20071.
  • Recently, the weakening of the Kyoto Protocol threatens to delay internationally-organized support for implementing clean energy policies.
 
 
 
 
 
 
 
 
 
 
 
 
Amidst all of the downward pressure on the clean energy sector in the last 47 months, some important positive indicators continue to provide support for a positive outlook:
 
  • Let’s not forget that, at the end of the day fossil-based fuels are limited and will eventually run out whereas renewable energy sources are, well, renewable.
  • Technology continues to improve, bringing the cost of energy output from clean methods closer to par with the oil industry (see the Energy Information Administration’s cost comparison of energy sources here).
  • Demands for clean energy continue to surge. Most notably perhaps, the US Department of Defense, one of the largest energy consumers in the world, has increased their clean energy investments by 300%, from $400 million to $1.2 billion, between 2006 and 2009, a figure that’s projected to surpass $10 billion annually by 2030 (read CleanTechnica post here).
  • Venture capital and private investors have been pouring money into this sector (good article on “Post Stimulus Financing”).
  • The value of clean energy stocks, measured by price to earnings ratios, has improved significantly from their 2008 peak and many companies in this space are very attractively priced right now (the Weighted Harmonic Average Stock Price-to-Earnings Ratio of the WiderHill Clean Energy Portfolio was 7.64 as of September 30, 2011, reported here).
 
Feel free to contact us if you’d like to explore how renewable energy investments should fit into your overall financial plan and portfolio.
 
1.Graph of PBW from inception in March of 2005 up to its peak in December 2007, a 77.39% rise:


 
 
 
 
 
 
 
 
 
 
 
 
Works Cited:
Burger, Andrew. “US Military’s Clean Energy Investments Jump 300% from 2006-2009, to Eclipse $10 Billion by 2030.”
Cleantechnica.com, 23 Sep. 2011. Web. 5 Jan. 2012.
LaMonica, Martin. “Credit Crunch Pinching Clean Energy Sector.” News.Cnet.com. CBS Interactive, 18 Sep. 2008. Web. 1 Dec.
2011.
Martin, Christopher, Mark Chediak. “BP Oil Spill Undermines SunPower, Vestas as Energy Bill Trips.” Bloomberg.com.
Bloomberg LP, 16 July. 2010. Web. 15 Dec 2011.
Powershares. “PowerShares WilderHill Clean Energy Portfolio.” Powershares Xchange Traded Funds, 31 Dec. 2011. Web. 15
Jan. 2012.
U.S. Energy Information Administration. Updated Capital Cost Estimates for Electricity Generation Plants. Washington: Nov.
2010. Web. 15 Dec. 2011.
Victor, David G., Kassia Yanosek. The Crisis in Clean Energy.” Foreign Affairs 90.4 (2011): 111-120. Web. 20 Dec. 2011.
Wood, Elisa. “Post-stimulus Financing: Will Renewable Growth Continue?” Renewableenergyworld.com.
RenewableEnergyWorld.com, 15 Aug. 2011. Web. 15 Jan. 2012. 

For more information on Financial Planning & Sustainable Investing, contact Judith at Blue Summit Wealth Management in La Mesa, (619) 698-4330; www.BLUESUMMITWEALTH.com  
 
Securities offered through Pacific West Securities, Inc. (Pacific West) Member FINRA/SIPC. Advisory services provided through Pacific West Financial Consultants, Inc. and Blue Summit Wealth Management, Inc. (Blue Summit), Registered Investment Advisors. Blue Summit and Pacific West are not affiliated.