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Why Investors Should Stay Clear of Renewables

By Dian L. Chu | Sat, 22 December 2012 00:00 | 2

People can “go green” all they want. After all, America is still the land of the free. But I just don’t recommend that investors do it.

And that’s not because I’ve got something against the tree-hugger mentality.

I actually consider people’s near-religious passion to improve energy efficiency – and be responsible stewards of our world’s most precious resources – both admirable and noble.

The only problem?

Nobility or admirable pursuits don’t automatically translate into profits. Actually, they seldom do. It’s why most noble causes set up shop in these things called non-profit organizations. (Just saying.)

Why bring any of this up, though? Because it’s Myth-Busting Monday, of course. And it’s time to debunk the stubborn myth that just because we should – and in some cases must – go green, that it’s a smart investment, too.

In reality, green energy’s a terrible investment. And I can prove it with a single chart.

But I’ll throw in more proof for good measure, just so you don’t complain about me slacking off.

Lies, Damn Lies and Al Gore

The tape never lies. And it’s sending a pretty clear signal. Green doesn’t pay. Not anymore, at least.

Case in point: the BNP Paribas Renewable Energy Index (BNPIREPR).

It tracks the price movement of up to 40 of the largest companies in the world in the renewable energy sector. And it’s down almost 90% from its 2007 peak. Ouch.

Oil v Renewable Energy Stocks

The peak for the Index is awfully suspect, too.

You’ll recall that 2007 was the year that former Vice President Al Gore’s career hit a crescendo. He won the Nobel Peace Prize after his book and accompanying documentary, An Inconvenient Truth, became a worldwide hit.

Before you scream “nonsense” because no single man could influence investor behavior so significantly, consider the testimony from Deutsche Bank (DB) Director of Global Asset Management, Kevin Parker. (Hat tip to Steve Goreham over at The Washington Times for digging this up).

“[Al Gore] impressed us all at Deutsche Bank Asset Management. We invited him to an internal meeting in April 2007 during which we discussed the issue of climate change extensively. A few months later, he received the Nobel Peace Prize for his commitment. We then created a fund that invests in companies that position themselves as climate-neutral. Within two months, almost 10 billion dollars flowed into this fund. Can you imagine? 10 billion! There has never been such an overwhelming success.”

Like I said, the peak is suspect. And it was most likely caused by massive amounts of hype and skyrocketing oil prices – not the profit potential for alternative energy.

In other words, the soaring popularity of the green movement blinded investors to the economics. They just assumed green energy was ready to take center stage, especially with oil prices soaring. But then the recession forced reality upon us.

It also forced governments like Spain to slash their green energy subsidies by as much as 90%. So when oil prices soared again, renewable energy companies didn’t.

Long story short, the economics of alternative energy don’t work. Not yet, at least – even with massive amounts of government subsidies.

Heck, the U.S. government’s been subsidizing the industry to high heaven with our tax dollars in recent years. And what do we have to show for it? A graveyard of green-energy companies.

All seven companies listed below were heavily backed by the federal and local government. Now they’re bankrupt, based on data from the National Center for Policy Analysis:

•    Solyndra ($535 million)
•    A123 Systems ($435 million)
•    Beacon Power ($43 million)
•    EnerDel ($118.5 million)
•    Babcock & Brown ($178 million)
•    Solar Trust of America ($2.1 billion)
•    Abound Solar ($400 million)

The Antithesis of Nike… Don’t Do It!

On the surface, green energy sounds like a great investment. In reality, though, it’s too expensive, even with heavy government assistance. And when the economics don’t work, neither do the investments.

Even Mr. Gore is souring on green investments, though he’s still out crusading for the cause.

SEC filings show that his company, Generation Investment, bailed on its eight-figure investment in First Solar(FSLR).

The fund is also reportedly down 57% on its investment in Germany’s SMA Solar over the last year. And it’s hemorrhaging capital with its bet on China’s Suntech Power Holdings Co. (STP), which is off almost 60% in 2012.

Could Mr. Gore soon head for the exits with these investments, too? I’m sure if that happens, we’ll get spoon-fed a line about doing what he says, not what he does.

Sorry. Actions speak louder than words, particularly when it comes to investing. So I’m not going to buy it.

Bottom line: If you’re investing for green, don’t invest in green energy. Despite the myth, there’s no solid opportunity in the sector at this time.

By Louis Basenese of Wall Street Daily

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  • Mel Tisdale on December 24 2012 said:
    All well and good, if short-term profit is your sole motivation. Indeed, if you are of the opinion that climate change is all a hoax, and let's face it, people are fully entitled to hold that view if they are relying on the media for information on the topic. Headlines such as those that were generated by climategate only serve to reinforce the 'hoax' message. What a pity it is that no such 'shock horror' headlines covered the findings of the many separate investigations that exonerated the scientists involved.

    The problem facing us is that all the graphs are pointing north, and increasingly so as time passes. The cool heads of the World Bank, the IMF and, of course, the IPCC, not to mentions even PricewaterhouseCoopers, are all expressing concern on the direction we are headed. The general view is that we are on course for around six degrees Celsius increase over Pre-Industrial Revolution levels by the end of the century. The end of the century is far off, but mid-century isn’t. It is about as far forward as Mrs Thatcher is in the past, though any distance from that woman can only be a good thing. By mid-century we are looking at about four degrees Celsius average rise, with about five degrees overland.

    Be under no illusions, conditions by mid-century will be dire and, as Professor Anderson of the Tyndall Centre recently commented while delivering the annual Cabot lecture, they are already unavoidable. Summer temperatures that killed an estimated 30,000 people in the European heatwave of 2003 will be the norm for many. It doesn’t bear thinking what a heatwave will be like when that is the case. It is doubtful that society will be able to withstand the stress those conditions will cause. There is no doubt that it will not be able to withstand the stress that the temperatures at the end of the century will cause.

    I am the first to acknowledge that climate science is still not fully understood and it may be that the actual temperature rise will not be as much as is the average forecast by the scientific community. But do we have the right to leave the fate of future generations in the hands of luck? It might be that the temperatures caused by climate change are worst case rather than best case. Indeed, we know that the permafrost is melting at an increasing rate. This melting is releasing methane, a potent greenhouse gas, which, of course, serves to increase the temperatures further. If that reaches a runaway feedback condition, then all bets are off. It will be in the lap of the gods where the climate will stabilise in those circumstances.

    By all means take the advice proffered by Dian L. Chu and invest in oil. But be aware that we live in the digital age and future generations will know just how clear the science of climate change is and the warnings of the scientists that are becoming ever more strident on the need to change course. Those future generations are not dim distant ones, they are formed by your children. In fact, if you are in your mid-thirties or younger, you will find your own old age dire. Think about that as you consider whether to invest in any fossil fuel industry, be it oil, coal, gas or even the obscure one of bovine flatulence capture, which is growing rapidly due to the vast amounts of B.S. one hears on the subject of climate change.
  • Melodie Flatt on December 24 2012 said:
    Every investor, as with every consumer, with every investment, answers the question: Your money, or your life.

    There are consequences to your actions ladies and gentlemen. And it is clear you are focused solely on the immediate ones, and not the ones to come.

    Shame on you. I can promise you this: You will be sneered at and thought of solely with disdain by those who come after you. Your reputation will not be thought of as 'brilliant' but as psychopathic. You will be held up as a shining example of the foolishness of humanity and the danger, to us all, of greed.

    And this is a 'prediction' you may be quite certain of.

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