Alternative Energy Stocks

| January 18, 2008 | 0 Comments

Lisa had just left her Yoga class which she described as a Zen-like experience.  We were meeting for lunch at a small café in downtown San Francisco.  “I love the experience.  I always feel more rejuvenated after a class,” she said.  “Understanding what your body can and can’t do is difficult.  The hardest part is achieving balance.”

Lisa is not the only one trying to achieve balance.  The operators of our power grid are constantly striving to balance the supply and demand of electricity.  When they’re not successful, everyone knows about it. . . . we have blackouts.

You see, energy can’t easily be stored in large quantities.

Every time we turn on a TV or run a washing machine, the power company needs to send more energy to the grid.  Traditionally, coal or natural gas power plants generate the electricity we use.  Not only is this infrastructure difficult and expensive to build, but it also pollutes the environment.

Carbon dioxide, arsenic, greenhouse gasses, the list of pollutants is extensive and nasty.
>But on a hot day nobody cares.

When temperatures soar, power grid operators really sweat.  You see, more and more people turn on air conditioners which demand huge amounts of electricity.  On really hot days the demand often exceeds what power plants can provide.  People in the industry call this “Peak Power”.

When electricity demand peaks above supply, power grid operators start paying through the nose.  Oftentimes they pay as much as ten times the normal price of electricity.  It’s all basic economics.  More demand and less supply . . . prices go up.

Some power plants have been built to address this very problem.  These “peaking plants” are typically gas-fired generators that sit unused most of the year.  They’re available for those 5 or 10 days a year when demand spikes.

Now bear with me for a moment.

Many of you know that as an investment banker I worked with alternative energy companies.  I met companies producing biodiesel, cellulosic ethanol, solar power, fuel cells, and things you’ve never dreamed of!  I have seen hundreds of technologies and met with thousands of businessmen and women.

A year or so ago I participated in one of the most exciting IPOs ever.  It was a company that made electricity out of nothing.  They delivered to the power grid hundreds of megawatts of electricity without burning coal, oil, or gas.  They didn’t rely on solar power, tides, wind, or magic.  No, they didn’t use nuclear energy either.

I was on the inside and got to see it all.

As part of the deal team, we conducted extensive diligence on a company called EnerNOC (ENOC).  We learned everything we could about how the business operated.  What fascinated me most was how the technology worked.

The company had truly found a better way.

Quite simply, EnerNOC uses technology to reduce demand.  To explain, lets go back to our example.  With everyone turning on air conditioners power demand starts peaking.  The power grid operators recognize this and call EnerNOC.

Instead of starting up another power plant burning fossil fuels, EnerNOC uses its technology to change the way systems use electricity.  It cycles air conditioners differently, it reduces lighting, it lowers temperatures on water heaters.

They basically do lots of little things to save electricity.  Because their biggest customers are industrial and commercial buildings, these little changes add up to huge amounts of power.  Importantly, most people never even know that this is happening.

And the best part is, EnerNOC gets paid to do this.

Keep in mind most new power plants are about 500 megawatts in size and can cost between $2 and $3 billion to build.  EnerNOC can supply more than 600 megawatts of power to the grid.  And they can do it cheaply, without pollution.

The alternative energy industry is an exciting one. It will no doubt play a huge role in our future, especially as oil gets more and more expensive.

Early stage companies like EnerNOC can change the way our energy infrastructure operates.  Best of all, they can make money doing it. Investing in early stage companies like these provide great opportunities for long term growth.

This may be a good time to establish positions in EnerNOC as it has pulled back with the market.  Going forward, I see substantial demand for these types of service providers.

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The Dynamic Wealth Report works with a number of staff writers and guest experts who specialize in everything from penny stocks to ETFs to options trading. These guest analysts post under the 'staff writer' moniker for ease of use.

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