Tom Konrad: Investing In Clean Energy

July 24, 2009

A renewable energy expert discusses the latest news and trends on the alternative energy scene.
  • Clean tech and Internet similarities
  • Exxon's leap into biofuels
  • The smart-grid free lunch

 

From biofuels to peak oil, from wind power to solar "picks and shovels," we've been talking quite a bit about alternative and renewable energy on Hard Assets Investor lately. That's why we decided to get the lowdown on the latest developments in clean energy from Alt Energy Stocks' Tom Konrad, Ph.D., CFA.

As a writer, consultant and financial analyst, Tom Konrad is one of the investment community's best-known experts in renewable energy and energy efficiency. He's a prolific writer, both for Alt Energy Stocks and elsewhere, and armed with a Ph.D. in mathematics, Konrad brings his signature academic perspective to the often hype-filled alt-energy space.

Recently, HAI associate editor Lara Crigger spoke with Konrad about clean energy, including the similarities between clean tech and the Internet, Exxon's leap into biofuels, and the smart- grid free lunch.

 

Lara Crigger, associate editor, HardAssetsInvestor.com (Crigger): Last week, BusinessWeek discussed whether the clean-energy economy could become the "next Internet." What's your take?

Tom Konrad, financial analyst, Alt Energy Stocks (Konrad): I think the resemblance to the Internet is somewhat superficial. I mean, certainly clean energy will dominate investment headlines for quite awhile. But clean tech investment tends to be extremely capital intensive. Internet investment is very capital-light; you can start up a company in a garage. You just can't do that with clean tech.

So I think the properties of the clean energy boom are going to be much different. It will be slower. The real drivers of clean tech are very long-term economic drivers, whereas the driver of the Internet was technology, a cheaper way to do things.

But clean energy, generally speaking, is driven by several things: rising fossil fuel prices, climate change and its political reactions, and the realization that as fossil fuel prices rise, clean energy will someday be a cheaper way to do things. Because there are several drivers, the boom should be longer and more sustained.

Crigger: So we won't see a few wild years followed by a huge bubble burst, like with Internet.

Konrad: I don't think so. Certainly, we could see another stock price burst. In the recent bust, clean tech stocks took a bigger hit than others, mainly because they have high betas. Investor attitudes come and go, and we'll see busts along the way. But I think the proportion of speculation and investor enthusiasm compared to reality was higher for the Internet than it is for clean energy, so the relative volatility will be lower.

At the same time, there's a lot of hype. In fact, there may be more of that in clean tech, because it's hard to put together something real.

Crigger: Speaking of hype, are there certain sectors or technologies that investors should be wary of?

Konrad: They should be wary of anything that's really exciting. Personally, I tend to push the least exciting ones, like energy efficiency. Only maybe 1% of the companies in energy efficiency are hype, because it's just so boring.

If you were a hypemonger, you'd do solar. Solar's got a great story, but everybody knows it. And when everybody knows it, that's when you have to watch out.

I think algae is another one to be wary of, especially now. It's the flavor of the moment, but it's a very immature technology. I wrote an article recently about advanced biofuels, in which I detailed each of the three public algae companies, and they really have no particular distinction or advantage over the private ones. Why should these three out of dozens survive? Why should any of them survive?

Crigger: What about Exxon's recent announcement of a $600 million deal to develop algae biofuel? Will this be the trigger that sets off the algae industry?

Konrad: Well, it's a step along the way. Long term, I have a lot of faith in algae. It's the one biofuel feedstock that has the potential to displace a large fraction of our liquid fuel needs. But we're talking 10 years, most likely, before anything is commercially available. That's beyond the range of a stock market investor.

It's one of these things that, because the story is good, people are all excited about it. But there isn't anything that's going to save us from the drivers of climate change. Peak oil is going to happen. And algae is not going to displace oil, because it's going to be very expensive. Look, there's no free lunch. It's all going to be hard work.

 

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