That Good, Clean (Potentially Wealthy) Feeling

Investing in “clean energy” or “alternative energy” companies offers us the best of all possible worlds: the chance to make money and do some good for the environment. Two extremely satisfying feelings instead of one. Nice.

The difficulty in evaluating these companies is you almost need to be an expert in both technology and economics. Energy investing used to be fairly straightforward. Global demand for petroleum kept rising, and you looked for companies that were particularly adept at exploration and production and/or marketing. Fortunately, it seemed oil companies usually figured out how to make money whether the economy was booming or glooming.

Clean energy, or alternative energy, is different. You have to learn about strange concepts like “cellulosic biomass” and “microbial oils”. It’s kind of a combination of having to know about global energy demand, agri-business, and high-tech all at once. But they never said making money was going to be easy. Well, maybe your real estate agent did in 2005.

Investment choices in this brave new energy world are numerous. You can participate by investing in major energy companies such as Chevron (NYSE:CVX); food processing conglomerates like Archer Daniels Midland (NYSE: ADM); or even companies such as electronics and engineering giant Siemens AG (NYSE:SI).  But you can also find smaller companies with terrific innovations in the production of alternative fuels.

Keeping up with this fast-moving industry is not easy, either. Every week there are scores of interesting developments announced. Recent ones involve diverse subjects such as agricultural waste, grass, oilseeds, saltwater plants and sugar. They should rename this industry, Fuels Made From Almost Anything You Can Think Of.

Verenium Corporation, a leader in the development and commercialization of cellulosic ethanol as a transportation fuel, announced on Oct. 5 that it intends to offer shares of its common stock in an underwritten public offering. Verenium’s technology can produce ethanol from a wide variety of non-food feedstocks, including agricultural waste and wood products.

VIASPACE Inc. (OTC Bulletin Board: VSPC) which grows Giant King Grass as a biomass energy crop, announced plans to produce pellets made from this grass to generate electricity in coal-fired power plants, in a process that reduces carbon dioxide emissions from the power plants.  The power plants can be adapted for a reasonable cost to replace part of their coal usage with the biomass pellets. According to the Environmental Protection Agency (E.P.A), power plants, refineries and large factories account for 70% of greenhouse gas emissions.

Bunge Limited (NYSE: BG), a supplier of raw materials and services to the biofuels industry, declared a regular quarterly cash dividend of $0.21 per common share. Bunge originates and processes oilseeds, grains and other agricultural commodities worldwide.

Boeing (NYSE: BA) announced it will be part of a study on the sustainability of saltwater-based plants as possible sources of jet fuel. These plants, known as halophytes, thrive in arid land and can be grown in sea water. Early testing results suggest that halophytes could deliver high crop yields per unit of land. The Masdar Institute of Science and Technology in Abu Dhabi will lead the study.

BP PLC (NYSE:BP) signed a Joint Development Agreement with Martek Biosciences Corp. to develop technology for use in producing microbial oils for biofuels applications.  This combines Martek’s advancements in microbial oils technology with BP’s considerable experience in the production and commercialization of a number of different types of biofuels. BP will invest $10 million in the first phase of the project. The goal is to get to the proof-of-concept stage for commercially viable biodiesel production through fermentation, the conversion of sugars to biodiesel.

With some of these alternative energy projects, you almost have to look at them the same way those steely-eyed venture capitalists look at early stage ventures: Sure the technology’s exciting, but can you make it pay?

Despite the world’s insatiable need for energy, not all of these projects, and companies, will be able to prosper. A few of the keys to success are: the cost of the feedstock used to produce the fuel, how widely available that feedstock is, how much energy is used in the production process, and the cost of transporting both the feedstock and the resulting fuel.