12/11/2008 - 22:00

It’s not easy growing green energy

12/11/2008 - 22:00

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AS global carbon emissions continue to rise, the investment world has begun to grapple with growing costs of consuming fossil fuels.

AS global carbon emissions continue to rise, the investment world has begun to grapple with growing costs of consuming fossil fuels.

As the price of oil rose from $US30 to $US147 per barrel, there was the obvious increase in cost at the hip pocket, as petrol and power prices went up, but also the less obvious cost to the planet as, according to most scientific argument, rising emissions from the use of fossil fuels continue to affect global warming.

During 2007, these drivers led to much attention being given to alternative energy supplies, along with 'clean and green' technology companies. Many new companies were formed and many hundreds of millions of dollars have been raised on the local stock market to support and evaluate business models in this general, 'clean and green' business opportunity space.

Unfortunately, most of the money raised for this sector has not yet yielded any return for shareholders. If fact, the alternative energy sector has been a huge sink for shareholders funds, with few companies showing any prospect of delivering a real profit in anything like a reasonable time frame.

Briefcase breaks companies in the sector down into groups, dealing with wind, wave and alternative power generation, geothermal power, clean transport technologies, biofuels, solar technologies, carbon sequestration and greenhouse credit trading and those service and engineering companies operating in the areas of water and power supply, along with waste recycling and garbage processing.

The best performing companies in the sector have been utilities, such as AGL, while Energy Developments is supported by its operating cash flow from established 'green energy' projects. All the technology development companies are short of cash, so it was particularly disappointing to see well-respected fuel cell developer, Ceramic Fuel Cells, suffer the pain of losing some of its precious capital on stock market investments, which was followed swiftly by the departure of its director responsible for the company's audit control.

Ceramic fuel cells, when fully developed, offer a very nice solution to domestic energy requirements, converting methane into electrical energy and heat, so in an ideal world, methane could be captured from compost or a solid waste toilet and converted into power for the house or for sale into the grid, while also heating water for domestic use of house heating purposes.

Carnegie Corporation is working to develop its novel wave power project, which can also be adapted to provide fresh water by osmotic processes. The company is in the middle of a capital raising to continue this work.

Long-established engine technology company, Orbital, has recently been jointed by Advanced Engine Components (ACE) and sibling, Auto Technology (ATJ), both working on low emission technology for existing engine platforms, using natural gas in the case of ACE and improved engine aspiration in the cast of ATJ.

All the biodiesel companies have failed. Feedstock costs rose, while adapting engines to use biodiesel created market resistance.

However, producers in Western Australia received a short-term boost from the closure of Varanus Island gas production, when mining companies ordered large volumes of biodiesel to power remote mine sites. Briefcase believes that biodiesel will have a place in the new energy mix, but technologies to use waste organic matter will need to be established so that these operations do not compete with food production.

Dyesol is working in a promising area, but it is run much like a private proprietary company by its founders; and as a supplier to manufacturers, its ultimate path to profitability and the sustainability of its model are still to be tested.

UXC operates on the periphery of the sector, but its service provision to utilities opens up many opportunities for the application of alternative and more efficient power solutions, as well as profiting from the generation of carbon credits.

The geothermal or 'hot rocks' companies are at least a decade away from generating sustainable profits and will require many hundreds of millions of dollars to get there. Most are woefully under-funded and likely to fold before they travel much further. Even though some are now getting government funding for test work, the only hope here is if their projects are taken up by larger power or utility operations.

The most reliable way to profit from moves into alternative energy, recycling or more efficient use of water, is to look at the service providers to the sector, such as United Group or Transfield Services, both or which build and operate waste water treatment plants and are involved in the power industry in various energy efficient of alternative energy projects.

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- Peter Strachan is the author of subscription-based analyst brief StockAnalysis, further information can be found at Stockanalysis.com.au

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