The Initial Public Offering (IPO) of Facebook Inc. has been dominating the news, but I am more interested in another IPO that is developing. One of the largest solar installers in the country, SolarCity, has filed a confidential application to the SEC to create an IPO of its shares. This is an exciting development, and is reflective of a new theme in solar investing that is worth following.

The smart alternative energy money is moving toward solar installation companies, not solar component manufacturers. Considering that there has been much focus on solar bankruptcies in the past year, including Solar Millennium, Evergreen Solar, Solar Trust of America, and the infamous case of Solyndra, this solar IPO looks to be the hallmark of a new trend. And how this IPO turns out should be very telling as to whether or not this trend has legs.

Since the application was just submitted at the end of April, it will take time for the regulators to review the request and for the company to finalize preparations. Because this is a confidential application, details are murky so it is hard to analyze whether shares will be a good investment or not. One promising clue comes from Technology Review, published by MIT. It reports that SolarCity has more than doubled its market share of the residential installation market between 2010 and 2011.

Just the fact that an investment banker is willing to sponsor the IPO, though, is also a good sign. It likely means the bank’s research shows that SolarCity has a sufficiently large market, a competitive edge, a profitable business plan and a management team that can execute. Nevertheless, we will have to wait a few months to see if the IPO is a success.

The feature article of the most recent issue of the Roen Financial Report talks of the advantage solar installation companies have, given the steady drop in photovoltaic component prices (the article names three other companies that should benefit from this trend, and also details two other forward-looking alternative energy investment themes).

Sometime around August of this year, however, when the SolarCity shares will likely go public, investors will see clearly whether solar installers will be the profit centers of the future. Stay tuned to follow developments in this dynamic area.

Historians may look back at the current military era as pivotal to a U.S. shift away from dependency on fossil fuels. In a recent speech, the Secretary of Defense outlined security issues involved with military reliance on fossil fuels. He also laid the framework for major reductions in the use of oil. There is historical evidence for military decisions molding the future of global energy patterns, so this is not an inconsequential decision.

Speaking at the annual meeting of the Environmental Defense Fund, Defense Secretary Leon Panetta made the case for why it is imperative that the military reduce its use of oil. His remarks focused on two areas.

First, he argued that climate change could overwhelm military capability. “Rising sea levels, severe droughts, the melting of the polar caps, the more frequent and devastating natural disasters…” would all raise demand for military responses. Second, Panetta disclosed that the Department of Defense spent about $15 billion on fuel for military operations in 2011, and consumes more than 50 million gallons of fuel each month.

The secretary’s plan calls for more than a billion dollars of investment in energy efficiency and alternative energy technologies directly related to combat readiness, including:

• more efficient aircraft

• hybrid electric drives for ships

• improved generators

• microgrids for combat bases

• combat vehicle energy-efficient programs

He also indicated that the Department of Defense will put another billion dollars toward making domestic military installations more energy-efficient.

A fateful decision by another military leader changed the course of history in a previous era. It is described in Daniel Yergin’s impressive book The Prize: the Epic Quest for Oil, Money & Power. Winston Churchill, First Lord of the British Admiralty at the time, made the difficult decision to switch all war ships away from using dirty and inefficient coal to cleaner, faster, more efficient fuel oil. He executed this switch even though this meant abandoning a reliable, locally controlled energy source in exchange for importing oil from volatile regions in Persia. Churchill knew that mastery of the seas using a modern fleet was absolutely necessary to ward off threats from the German Kaiser in World War 1. This switch to oil was one of the key turning points in shifting the global energy equation that allowed oil to dominate the modern industrial world.

In a similar fashion, the current move by the Department of Defense will lead to large-scale research, development and application of fuel-saving technologies and practices that should lead to spinoffs that will affect the greater society. It is an ironic twist of fate that today’s military decisions could again change the global military landscape, this time to molding a secure future that is less dependent on foreign oil.

Regular readers know that I support domestic natural gas as an important fuel source. Natural Gas is critical to achieving a smaller carbon footprint, while at the same time promoting jobs and energy independence in the U.S. Even though all energy choices have environmental impacts, natural gas has a particularly thorny pollution problem. The drilling method used to make domestic wells so productive, hydraulic fracturing or fracing, has many known issues. It also has some large looming questions that need to be resolved. In a positive move, the Obama administration recently decided to directly take on the issues associated with fracing.

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An Executive Order was issued this week to establish a “high-level, interagency working group” to facilitate efforts to “support safe and responsible unconventional domestic natural gas development” (what the President means by ‘unconventional gas’ is shale gas that is extracted using hydraulic fracturing). The goal is to untangle overlapping and complicated federal regulations in order to smooth the way for shale gas development, while still having an eye on environmentally safe practices.

The Executive Order named 13 agencies to be involved in the coordinating effort, including the Departments of the Interior, Health and Human Services, Energy, and the Environmental Protection Agency (EPA). The Order also recognizes states as the primary regulators on non-federal lands, which is where the bulk of shale gas lies.

Overall, industry has responded favorably to the Executive Order. The American Gas Association was “pleased” to see the action, and the Business Roundtable calls it a “solid first step” to “cut through these complications.” On the environmental side, many groups want to encourage natural gas as the best choice among fossil fuels, but are concerned about company practices. For example, the Sierra Club looks forward to engaging with the Interagency Working Group to “provide the support and policy solutions they need to be successful in protecting American families from an industry run amok.”

The problem lies in the fact that the natural gas industry has enjoyed a lack of environmental protections to date. Back in 2005, Congress exempted hydraulic fracturing from federal environmental regulations and laws, including the Safe Drinking Water Act, as a result of efforts by lobbyists and then Vice President Dick Cheney which has come to be called the “Halliburton Rule.” The ensuing unregulated environmental problems are catching up to the industry.

Resolving problems associated with fracing is a must-solve issue, since shale gas is projected to make up almost half of natural gas production in the U.S. in the next 25 years. While there is no perfect way to supply all the energy needed to sate the appetite for power consumption in this country, natural gas appears to be the best alternative to coal and nuclear for base-load electricity in the near future.

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What does this Interagency Working Group mean to investors? If successful, it will allow the natural gas industry to continue to grow in the U.S. Though domestic natural gas producers are attractive as a long-term investment, low natural gas prices, due to an abundant supply, have made it a very competitive field with thin profit margins.

There are two excellent ways to invest in the future of domestic natural gas. First, look at utilities that use natural gas as a power source. Second, invest in companies involved in building and maintaining natural gas power generation. Companies I like in these regards are NextEra Energy (NEE) and MasTec, Inc. (MTZ).

NEE is a large Florida-based utility with over 4.5 million customers that generates more than half of its power from natural gas. Its PE is in a reasonable range, between 13 and 14, and NEE is paying a generous 3.9% dividend. Earnings per share are very healthy at around 5.5. NEE always posts high net profit margin and return on assets when compared to other utilities in its industry. I would consider NEE at a fair price if it trades below $51/share.

MTZ is an infrastructure construction company that is active in natural gas (as well as wind and solar). MTZ has had positive earnings since 2008, and annual sales that have increased each year since 2005. It also has a reasonable PE of around 15, and has acceptable debt levels. MTZ looks well priced where it is currently trading, in the $16-17/share range.

Because of the triple benefit of domestic natural gas – reducing pollution, helping the local economy and increasing energy independence – and because there are abundant natural gas supplies, there is no doubt that the government and industry will do what is necessary to allow markets for natural gas to grow.

IMPORTANT INFORMATION

Individuals involved with the Roen Financial Report and Swiftwood Press LLC do not own or control shares of any companies mentioned in this article. Any advice and/or recommendations made in this article are of a general nature and are not to be considered specific investment advice. Individuals should seek advice from their investment professional before making any important financial decisions. See Terms of Use for more information.

There are many reasons to be bullish on alternative energy as an investment. The advantages of wind, solar and other renewables over their fossil fuel counterparts are many, including:

• Enhancing energy independence by not relying on imported fossil fuels
• Reduced green house gas emissions and other pollutants
• Diminished risk of toxic spills
• Low equipment maintenance costs

Another advantage, of course, is that after the initial capital costs, electricity from wind and solar is produced without fuel expenditures. So as technologies improve and upfront costs continue to drop, rates should become more and more competitive. In fact, for a short while this week at the European Energy Exchange, rates for electricity actually went to zero!

The European Energy Exchange (EEX) is a place where utilities can sell electricity to industry and other end users. Users buy the power one day in advance, so it is essentially a short-term futures market. The EEX operates in a similar fashion to the APX Power Market in the U.S.

Here is what happened: electric prices for night demand are fixed within a range between 2 and 4 euro cents per kilowatt hour. On the night of April 1, it fluctuated between €0.02 and €0.03. Demand was just below 35 gigawatts, and rose to 50 gigawatts by noon. Despite this increased demand, there was a rapid increase in wind and solar power during the course of the day. So for a short time in the afternoon, electricity prices fell to zero. Average peak electricity prices for the day, between the hours of 8 am and 8 pm, were 1.893 euro cents per kilowatt hour. This was lower than the average price for the whole 24 hour period, which was 2.41 euro cents.

So even though demand was greater during the day, the increased solar gain and wind velocities were more than enough to make up for the rising demand.

Though this was only a short-term phenomenon, capital costs for renewable energy are getting lower, and will no doubt continue to do so. For example, Solarbuzz calculates that costs for commercial and industrial solar installations dropped 7% in the past year. Also, Photon reports that the cost for solar modules on the German spot market fell over 45% in the last 12 months.

Considering that Europe is far ahead of other industrialized nations in renewable energy installations, having eclectic costs go to zero may be a sign of the future for other regions of the world who commit to alternative energy. This is just one more reason we are bullish on alternative energy companies for the long-term investor.

An article from the Roen Financial Report has been chosen as one of the 100 best submissions on a top financial websites. Seeking Alpha, one of the most useful investor communities, is billed as “the premier website for actionable stock market opinion and analysis, and vibrant, intelligent finance discussion.” Seeking Alpha is a web powerhouse with 1 million registered users. Over 320,000 articles have been submitted to Seeking Alpha from over 5,300 contributors, so getting listed as a top article is quite an honor.

Titled “What Is Driving Oil Prices and How Can Investors Benefit?” the article explains how oil prices have become less about supply and demand of oil itself, and more of a proxy for the world economy through the stock market. Oil as a retail commodity has become oil as a retail investment. This in turn has ramifications for alternative energy projects, which live or die on the price of fossil fuels.

If you are not yet on Seeking Alpha, I highly recommend it. The site has a strong focus on alternative energy companies, and is filled with valuable information from experts in many fields.

One of the biggest stories in solar involves complaints by U.S. companies of unfair trade practices by China. The grievances point to dumping of solar products due to massive subsidies from the Chinese government. As a result, the U.S. Department of Commerce has made a preliminary determination that China has indeed been dumping solar cells into the U.S. market at “less than fair value” and has decided to impose tariffs. If this preliminary determination holds, and there is every reason to think that it will, Commerce may increase tariffs on Chinese solar manufacturers this spring and summer.

According to the Los Angeles Times, duties of between 2.9% and 4.73% will be imposed. Due to limited information from the Chinese government, no one knows what the true levels of subsidies are. However, analysts believe it to be at least double digits.

Though tariffs are an important step, many experts think that duties at this level are too low to make much of a difference. The stock market seems to agree, as seen in the chart below.

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The chart graphs the average price change of the top 4 Chinese solar companies as compared to the top 4 American companies over the past week. The Chinese companies are Suntech Power Holdings, LDK Solar, Yingli Green Energy Hold. Co. YGE and Trina Solar. The U.S. companies are First Solar, Inc. FSLR, MEMC Electronic Materials, Inc. WFR, SunPower and Advanced Technologies Inc. GT.

These Chinese solar stocks spiked 8.1% at the news, as investors felt relief that tariffs were not harsher. Correspondingly, American solar companies went down 2.8% pointing to continued tough competition from China. The next day, however, Chinese companies lost all the ground they gained, and US companies continued to fall. This could be a “sell on the news” phenomenon, but future weeks will show a clearer picture.

Could this turn into a trade war? Very possibly, since China has argued that U.S. government investments in solar amount to the same type of subsidies. Escalating tariffs on both sides would hurt U.S. solar purchasers much worse than their Chinese counterparts, since the trade imbalance on solar components is hugely skewed toward US being a net importer.

This could slow the drop in the price of solar components, a trend that has accelerated U.S. installation activities. This in turn may hurt companies such as Ameresco Inc. (AMRC), which to date has posted strong earnings and growing sales. The ultimate winners, though, should be some of the U.S. solar manufacturers mentioned above, as their product will become more competitive in the growing domestic market. In particular, I like GTAT, which has an attractive price/earnings ratio and excellent earnings growth. 

We usually don’t like the idea of mixing politics and business, but this cannot be ignored. There is a stark contrast in viewpoints the presumptive Republican and Democratic Presidential nominees are taking toward alternative energy. President Obama is making alternative energy one of the central tenets of his domestic agenda. Governor Romney, on the other hand, is more likely to let alternative energy initiatives take the back burner. If you are hedging your investments based on America’s energy future, this election matters.

President Obama’s most recent weekly address focused on the promise of energy innovations to create jobs, lower pollution and decrease dependency on foreign oil. The fact that he chose this topic is significant. Considering the monumental immediate challenges the President faces on a daily basis—a sluggish domestic economy, fighting a foreign war, rising oil prices—competing interests that demand the President’s attention are legion.

While Obama supports increasing domestic energy production, he clearly laid out his position on alternative energy:

The recent spike in gas prices has been another painful reminder of why we have to invest in this technology. As usual, politicians have been rolling out their three-point plans for two-dollar gas: drill, drill, and drill some more….But you and I both know that with only 2% of the world’s oil reserves, we can’t just drill our way to lower gas prices – not when we consume 20 percent of the world’s oil. We need an all-of-the-above strategy that relies less on foreign oil and more on American-made energy – solar, wind, natural gas, biofuels, and more.”

In the weekly address the President also called for Congress to end the $4 billion in subsidies to U.S. oil companies. And in the budget he recently presented to Congress, Obama proposed over three quarters of a billion dollars to be earmarked toward alternative energy.

Contrast this to Governor Romney, who plainly will not be a cheerleader for alternative energy. Romney’s energy platform first and foremost highlights oil and gas development, including streamlining permitting; accounting for regulatory costs in environmental laws; streamlining nuclear sitting; opening America’s energy reserves for development; supporting pipeline construction; and preventing over regulation of shale gas development. At the very bottom of his energy plank, support for alternative energy is muted if not derisive:

…we should not be in the business of steering investment toward particular politically favored approaches. That is a recipe for both time and money wasted on projects that do not bring us dividends. The failure of windmills and solar plants to become economically viable or make a significant contribution to our energy supply is a prime example.

And in a speech last week Romney exclaimed:

What is (Obama’s) energy policy? It is apparently to make it hard to get coal out of the ground with more regulations, hard to take advantage of our oil resources, makes it harder to get the gas out of the ground. And as a result while he’s happy with wind and solar – we all like wind and solar – but you can’t drive a car with a windmill on it. My plan is that we’re going to finally get America energy secure by taking advantage of our coal, our oil, our gas and bringing in that Keystone pipeline from Canada.”

I admittedly have a fight in this game: I fully support a responsible transition away from our dependency on foreign oil and toward an energy future that has a much larger mix of solar, wind and other renew ables. Having said that, I am not a purist. Since everyone I know drives, and heats their houses, I believe domestic oil production is important. I am especially supportive of utilizing domestic natural gas, which if done properly, is a much preferable alternative to coal-fired power plants and diesel-powered truck fleets.

Even though the President has limited power to directly implement energy policy nation-wide, what a president chooses to focus on can make a huge difference on long-term energy usage patterns. If you think Obama is going to get reelected this fall, long-term investors will want to look at high quality alternative energy companies such as Covanta  and PowerSecure . If you believe Romney will get the job, consider hedging your bets toward big oil, such as Exxon Mobil or Chevron Corporation.

IMPORTANT INFORMATION

Individuals involved with the Roen Financial Report and Swiftwood Press LLC do not own or control shares of any companies mentioned in this article. Any advice and/or recommendations made in this article are of a general nature and are not to be considered specific investment advice. Individuals should seek advice from their investment professional before making any important financial decisions. See Terms of Use for more information.

With all the hits that solar companies have taken lately, an investor can get discouraged about the prospects of this renewable energy source. A fresh report from the U.S. Department of Energy (DOE), however, counters this gloomy outlook. The SunShot Vision Study details a robust solar future where 14% America’s electricity is generated by solar by 2030, and more than a quarter, or 1,448 terawatts, comes from solar by 2050. They use a fairly conservative evaluation method, but even if these estimates are overinflated, this still represents a substantial build-out for solar in the coming years.

Projected portion of solar demand as a percentage of total electric demand. Broken down by concentrated solar power (CSP), utility scale photovoltaic, and rooftop photovoltaic.

The principal reason for the massive expansion in solar is a continued price reduction in components and installation. In fact, the DOE estimates that the cost of solar technologies should decline about 75% by 2020. The chart below, taken from the report, shows that at the same time that the price of photovoltaic modules have dropped exponentially, global shipments have increased exponentially (note that the chart is on a logarithmic scale on both axes). As prices continue to drop, solar looks more and more attractive as an alternative to other electric generating sources such as coal, natural gas, nuclear and wind.

Source: SunShot Vision Study. February 2012. Page 75.

Which solar manufactures are positioning themselves to take advantage of this growing market? A good example is Panasonic. According to Bloomberg, Panasonic is planning some strategic acquisitions in Europe and the U.S. worth around $125 million. Although most people know Panasonic for its consumer electronic products, it is also Japan’s largest solar panel maker. The goal of the acquisitions is to allow Panasonic to gain a foothold in retailing solar panels to the U.S. and Europe, possibly in shopping malls and supermarkets.

Panasonic as a stock is a risky call at this point. It has had four straight quarters of negative earnings, and sales are 17% lower than they were last year. Still, Panasonic’s stock price has taken a huge dip, testing levels that have not been seen since 1986 (see blue line on chart below). It is worth keeping an eye on this stock for a buying opportunity if prices drop much further. 

IMPORTANT INFORMATION

Individuals involved with the Roen Financial Report and Swiftwood Press LLC do not own or control shares of any companies mentioned in this article. Any advice and/or recommendations made in this article are of a general nature and are not to be considered specific investment advice. Individuals should seek advice from their investment professional before making any important financial decisions. See Terms of Use for more information.

The Roen Financial Report would like to introduce an exciting new feature to its website. The home page now includes a dynamic chart that tracks the return of companies that make up the six vital alternative energy industries. Updated daily, the chart posts returns of alternative energy companies involved with Energy Efficiency, Environmental Services, Fuel Alternatives, Smart Grid, Solar and Wind. Editorial commentary on why industries are trending one way or another is also included with the chart. This valuable information can help investors see emerging trends in specific alternative energy sectors in order to make better investment decisions.

Industry returns are shown over several time periods – daily, weekly, monthly and quarterly. Figures for each of the industries are derived from compiling stock data for individual companies that fall under each specific industry category.

Clicking on one of the industries will bring you to a list of the individual companies that make up the return data. So for example, the returns of the Solar industry are averaged from stocks such as First Solar  and Mas Tec (MTZ), companies that are key players in this category. Larger multinational corporations that have a hand in solar, such as General Electric and Siemens are also included in the index, even though we recognize this is not the only industry these companies operate in. Companies are being added to each category so that all of the plus or minus 300 alternative energy companies will be included in the coming month.

Subscribers also get exclusive access to profile pages for each of the companies tracked. These individual profiles include crucial information for investors, including details on what area of alternative energy the company operates in, key financial data, and interactive charting. Most importantly, each company profile includes a Fair Value Meter, a proprietary measure of how we believe the company’s stock is priced in today’s market.

We hope you enjoy this significant new addition to our website.

Individuals involved with the Roen Financial Report and Swiftwood Press LLC owned or controlled shares of Mastec Inc. Any advice and/or recommendations made in this article are of a general nature and are not to be considered specific investment advice. Individuals should seek advice from their investment professional before making any important financial decisions. See Terms of Use for more information

Energy investors should take interest in President Obama’s proposed budget for fiscal year 2013. Love him or hate him, the President has again showcased his strong-felt vision of energy policy in the U.S. – namely a shift away from big oil and toward alternative energy sources. He’s putting his money (that is, your money) where his mouth is, as a careful read of the budget shows.

The chart above shows selected energy related areas within the President’s budget plan. As in previous budgets, solar is the big winner, with $310 million to go towards the U.S. Department of Energy’s SunShot program. One important SunShot initiative is to streamline rooftop solar installations, which would benefit not only solar panel makers but installers as well. Our recent post shows how companies like Ameresco Inc. (AMRC) could be a good play on this investment story.

A new initiative, which aims to increase efficiency in manufacturing, is slated to receive $290 million. This is touted as a way to both save energy and create good jobs by “speeding ideas from the drawing board to the manufacturing floor.” Companies like Autodesk, which specializes in computer aided design to streamline manufacturing processes, should benefit from this new focus from the feds. Though a bit pricey at its current trading range in the high 30s, this high quality company has steadily increased sales and earnings per share since 2010.

The inclusion of natural gas in the budget is of key importance to this domestic fuel industry. Although the $12 million allocation is comparatively small, the budget addresses environmental issues related to hydraulic fracturing, or fracing, head on.  This is a must-solve issue if this abundant domestic fossil fuel source is to be successfully developed. The environmental, economic and geopolitical benefits of U.S. natural gas are too numerous to ignore, and the Executive Office is signaling that it is serious about growing this fuel source.

How will all these programs get paid for? One of the main sources is reducing or eliminating subsidies for U.S. oil companies.  Though it doesn’t mention specific programs, the budget proposes to appeal over $4 billion in annual financial support to fossil fuel producers. Contrast this to the expenditures outlined in the chart above, which total $772 million (less than a billion dollars). This adds up to less than one fifth of the fossil fuel subsidy referred to in the budget. Considering that in the past 12 months the top 10 U.S. oil and gas companies alone made a net profit of over $111 billion, this seems like a very reasonable adjustment.

Why does this matter if, as Republicans are quick to point out, the proposed budget is dead on arrival?  Recent history shows that even through the crippling budget negotiations of 2010 and 2011, Obama’s main renewable energy initiatives survived. For the most part clean energy is a white hat issue that, in the end, most politicians can get behind.

It remains to be seen how this will all play out in the circus that is our U.S. Congress, but I will be following developments closely for my readers.