Energy alternatives spark investor interest

Scorned by most investors in years past, alternative-energy companies have become one of the fastest emerging sectors on Wall Street.

A bevy of these firms, deriving power from the sun, wind, and other sources, have tried to jolt the market.

Fueling interest is the growing belief that alternative energy will play a key role in powering US homes and businesses in the future - one accented by California's energy crisis.

But, analysts warn, alternative-energy stocks can be as volatile as those of any other young, growth-oriented companies. "This is a buy-and-hold area, and the ride will be bumpy going out," says Walter Nasdeo, a vice president at Bluestone Capital Securities. "But if you have the stomach to weather the bumps … over the course of the life of the investment, the returns could be substantial."

Many of the newly public alternative-energy firms have the same problems that have dragged down many of their publicly traded counterparts in the Internet and other growth sectors.

For example, the seven most-significant alternative-energy firms to go public since last June posted losses as of their latest filings with the Securities and Exchange Commission. And four of those seven were trading below their initial offering prices through Friday. (See chart below.)

The difference between alternative-energy companies and dotcoms, analysts say, is what they have to offer. "Having your light switched off involuntarily is a lot more compelling fundamental than buying groceries on the Internet," says Sam Brothwell, senior energy-technology analyst at Merrill Lynch.

While the sector has enjoyed a good amount of success, only a handful of alternative-energy-related funds have been put together in the US. Among them: The New Alternatives Fund (800-423-8383) shot up 51.8 percent last year, and the Green Century Balanced Fund (800-934-7336) was up 14.8 percent in 2000, according to Lipper Analytical Services in New York.

Such funds are more prominent in Europe, where about 20 exist, say analysts. Also, Toronto-based Sentry Select Capital Corp., (416-861-8729) recently established what it says is Canada's first and only alternative-energy fund.

Alternative-energy technology comes in many forms, the most familiar of which are solar energy and wind power. Less known are fuel cells, which act like batteries, but produce electricity from the electrochemical reaction of hydrogen and oxygen. Another type is micro-turbines, which have only one moving part and produce virtually pollution-free energy by burning natural gas. Flywheels, on the other hand, store energy produced by major power plants, which can then be tapped for future needs.

These technologies are seen as not just producing cleaner energy, but also energy that is more reliable than that of conventional sources.

Any doubts about the need for an uninterruptible power supply have largely been erased by the energy crisis in California, where rolling blackouts have wreaked havoc with companies, resulting in millions of dollars in losses. "It's validated the hypothesis that these new energy-technology companies and their products are clearly one of the solutions to a market that needs power desperately," says Ali Agha, a principal with Banc of America Securities.

Take Capstone Turbine, which announced an agreement Jan. 31 to sell an unspecified number of 30-kilowatt micro-turbines to the Association of California Water Agencies, which provides 90 percent of the water delivered to cities, farms, and businesses in the state. "We're trying to make it possible for our members to have access to their own independent power generation," says Mat Maucieri, an ACWA spokesman.

Those are encouraging words for an industry that has suffered for taking years to reduce the high costs that rendered their products unaffordable to most customers. Being able to achieve widespread use remains the most nagging question facing alternative-energy firms today.

"The biggest challenge that they have is to execute," says Jackson Robinson, president of Winslow Management Co., which manages the $85.9 million Green Century Balanced Fund. "What they've got to be able to do is to be able to commercialize their products, so they are economically competitive, and then deliver."

But it's not easy. Capstone, for example, did not market its turbines until 1998, 10 years after the company's inception.

Winslow estimates that wind energy is by far the most widely sold alternative energy technology, grabbing 74 percent of the $5.5 billion "green" industry market last year.

A distant second was solar energy, with a 12 percent market share, while fuel cells, flywheels, and geothermal heat pumps made up the remaining 13 percent.

(c) Copyright 2001. The Christian Science Publishing Society