REFILE-COLUMN-"Green" energy hasn’t bloomed for investors – yet

June 27, 2013 by  
Filed under Green Energy News


Thu Jun 27, 2013 10:09am EDT

By Conrad de Aenlle

LONG BEACH, Calif., June 26 (Reuters) – The term “green
energy” refers to the benign environmental impact of fuel
sources, such as wind and solar, that President Barack Obama
promoted in a speech on Tuesday. It does not refer to that
industry’s investment returns, which have been awful over the
long haul.

The three U.S. domestic mutual funds that focus on green
energy gained more than 20 percent in the 12 months through
Tuesday. That still left them with five-year losses ranging from
about 50 percent to 80 percent, compared to a decline of just
over 10 percent in Energy Select Sector SPDR, an
exchange-traded fund that holds traditional energy stocks.

But investors continue to be drawn to the niche, sometimes
through private investment vehicles that can be less than
legitimate. The North American Securities Administrators
Association, a financial regulators’ organization, recently
warned of a proliferation in “green energy” investment scams.

“In some cases, the promoters may be operating a fraudulent
shell company and not producing anything,” the warning said.

Over the last few months, the organization reported,
fraudsters were convicted and in some cases sent to prison for
selling stakes in nonexistent oil and gas projects in North
Dakota to two elderly Texas women; stealing more than $10
million in Missouri from thousands of investors in a bogus
energy company and peddling unregistered securities, including
oil futures contracts, in Ohio.

Even when everything is legit and companies do produce
something, it has seldom been profitable. Renewable energy
advocates expect that to change. Hurdles like intense price
competition and comparatively high production costs are being
cleared or dropping away, they contend, and that makes the
stocks promising, albeit risky, assets.

SOLAR STOCK PICKS

Solar energy shares have endured a deep, prolonged slump
because of a “ruinous price war on solar panels” that has helped
drive stocks sharply lower, said Kevin Landis, manager of the
Firsthand Alternative Energy Fund, the best of the
specialist mutual funds over five years. A sign for him that the
pressure is abating is that authorities in China, which rarely
lets companies go bankrupt and where many solar manufacturers
are based, have let some go under. That is expected to bolster
prices.

The survivors will be in much better shape to compete
sensibly with one another, in Landis’ view, especially JA Solar
Holdings Co Ltd and Yingli Green Energy Holding Co Ltd
, along with their American rival SunPower Corp.
All three are in his portfolio.

A holding he favors more than the panel manufacturers is
SolarCity Corp. SolarCity buys panels and installs them
for customers that then buy electricity from the company. That
makes it a de facto utility and a “pure play” on rising solar
power use, Landis said. He expects it to be a major beneficiary
of the ebbing price war.

Landis declined to specify target prices or other criteria
for selling any of the stocks he mentioned and currently holds,
but his record shows him to be strictly a buy-and-hold investor.
His portfolio has an annual turnover rate of 10 percent, which
works out to an average holding period of 10 years for the
nearly six-year-old fund.

SolarCity aims to profit by selling electricity generated by
the panels at moderately lower rates than customers would pay a
conventional utility. So far the company is running at a loss,
but investors have been betting on that plan: The stock has
tripled in 2013. It started the year at $11.93 a share, topped
$50 last month, and closed at $36.01 on Tuesday.

Ormat Technologies Inc, a company involved in
geothermal energy, has gone nowhere over the same time, but it’s
on a list of top stock picks at Morningstar. Stephen Simko, an
energy analyst at the independent research firm, estimates fair
value for Ormat at $27 a share, based on financial results,
conversations with management and commodity price forecasts; it
closed Tuesday at $22.54.

Simko likes geothermal, which derives power from the Earth’s
natural heat. Like the energy production itself, Ormat’s stock
is more stable than those of solar panel makers, he added.

“It trades with less volatility and has a little less risky
profile than solar companies,” he said.

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