Wednesday, 28 January 2015
Last updated 7 hours ago
Feb 24 2006 | 12:00am ET
By Deirdre Brennan
President George Bush went on a widely-publicized energy tour this week, visiting three states to discuss his new energy initiative, which includes commitments to increase investment in clean technologies and alternative energies. Democrats blasted the tour as a “publicity stunt,” noting that only one day before the president’s tour of the The National Renewable Research Center in Colorado, a government grant for the facility that had been cut last month was partially restored.
Luis Miranda, spokesman for the Democratic National Committee, said the move to restore the funding was merely “a last minute effort to avoid embarrassment.”
David Kurzman, managing partner of New York-based hedge fund firm Kurzman Clean Tech, which focuses on clean technologies in the public equity space, believes that the president’s words have increased awareness about alternative energies and have had an effect on financial markets, though he is cautious about the long-term impact of current government policies.
“[The president’s tour] has had a short-term effect because it is putting increased awareness of renewable energies at the forefront, but all he is doing really is adding fuel to an already incentive led-boom in renewables,” Kurzman said.
Over the last few years, a series of state and federal statutes that have created incentives for people to install what were previously uneconomic technologies such as solar panels, wind power and fuel cells. These incentives, which include tax breaks and subsidies, have corresponded closely with a time of high oil and gas prices.
“The timing has been fortuitous for the alternative energy stocks, and now we have President Bush throwing in his two cents to increase the excitement in the sector,” Kurzman said.
The two areas Kurzman believes will see the most growth are the solar energy sector and the ethanol industry.
On Monday, Bush said that he plans to increase funding for research to turn agricultural products into fuel by 65% and to increase the budget for solar energy research by 78%. These increases would bring the government totals to $146.6 million for bio fuel research and $148.4 million for solar power.
“We have had a number of new IPOs such as SunPower and SunTech – and now secondaries are being announced for energy conversion devices,” Kurzman said. “This is all coming at a time when capacity expansion is growing in the mid-double digit rates, 35-40% per year, just trying to keep up with demand.”
Solar panel manufacturer SunPower went public in November at $18 a share. Mid-day Thursday shares stood at $37.84. Its competitor, SunTech, went public in December at $15 a share, since then more than doubling to $36.35 a share mid-day Thursday.
As for the ethanol industry, Kurzman credits government policy for having a significant impact on growth. He points to the $0.52 tax subsidy for ethanol blenders, which are ethanol fuels that are mixed with gasoline as an oxygenate allowing engines to run more smoothly.
“That tax credit has made it very profitable. I’d almost say wildly profitable, so now you have financial investors, not just traditional energy investors going in to build ethanol plants,” Kurzman said. “So we should see a rapid growth in ethanol capacity and production for the next few years.”
Kurzman points to other reasons why ethanol is being pushed by the government and should be attractive to consumers. The ethanol blenders are replacing MTBE (methyl tertiary butyl ether), which is a known carcinogen that has been found in the water supply. Also, ethanol is derived from corn, which is grown in abundance in the U.S.
“Politically speaking, it has become important because this is something that we can produce here in the United States with U.S. jobs and U.S.-grown corn, so there is a real sense of trying to take back and empower the U.S. consumer.”
Despite Kurzman’s optimism on the future of ethanol and solar energy, he warns that investors need to be very careful when choosing clean tech stocks.
“I’m encouraging folks not to get too excited because most of these technologies are borderline profitable or not at all profitable,” he said. According to Kurzman, fuel cell technologies are not yet profitable, nor does he think they will be anytime soon because there is no hydrogen infrastructure with which to fuel them. “So, it doesn’t matter how much the president pumps his fist in the air, those technologies are still probably a couple of years away at best,” he said.
Meanwhile, Kurzman would like to see the government take a more proactive, long-term position to increase the use of alternative energies. “The markets hate uncertainly, we need to develop set a rules and guidelines that don’t have expiration dates, that aren’t just renewable portfolio standards with no teeth,” Kurzman said. “We need to put in the right kinds of checks and balances and we are starting to do some of that in the current laws that are coming out, but a lot more needs to be done.”
Jan 23 2015 | 1:00pm ET
In our new section, FINtech Focus, we will profile one of these firms each week. While fintech is a broad category, we will be focusing on firms that specifically cater to the alternative investment industry. Read more…