Clean Energy Looks Lucrative: Study

Even politicians are finally embracing the environment as top issue, report from Sprott Securities notes

Wednesday, January 17, 2007

Rising power prices, the need to build more electricity generation and serious concerns for the environment are creating huge investment opportunities in the clean-energy market, according to a report from Sprott Securities Inc.

The situation has become so pressing that politicians in Canada and the U.S. are embracing the environment as a top campaign issue as both countries nudge closer to elections.

"I don't think we've ever seen these (market) drivers converge as we're seeing now," said MacMurray Whale, alternative energy analyst at Sprott and author of the report, Power, Politics and Technology.

"Energy security, high energy prices and issues of the environment - they're all being dealt with at the same time. Politicians are looking around and looking at the potential of technology. They're saying, 'How can we fix this? I need a tool to fix this.' At the same time, you have the cost of these technologies coming down."

Whale said the problems aren't new, and neither are the technologies. What has changed is that the public - and investors - are becoming more aware of them in a way that is beginning to alter the psychology of the market.

This has also led to a significant shifting of the political climate. Whale's report points out that leading candidates for the 2008 U.S. election are expected to make the environment a key issue. In Canada, the Stephen Harper government is re-branding itself as an environmental custodian that embraces sustainable development.

For example, Environment Minister John Baird and Natural Resources Minister Gary Lunn are expected to announce today new funding for clean-energy technologies. Other similarly themed announcements are expected over the next couple of weeks, sources say.

Other events over the year that, according to Whale, drew attention to alternative energy technologies include:

  • The United Kingdom's release of the Nicholas Stern review, which argued that the economy could avoid a devastating blow to global gross domestic product if countries prudently invested a small amount of GDP today to fight climate change.
  • Awareness of global warming went mainstream in the U.S. after a destructive hurricane season in 2005 and with the release of Al Gore's An Inconvenient Truth and Chris Paine's Who Killed The Electric Car?
  • California Governor Arnold Schwarzenegger grabbed headlines creating legislation that will establish a carbon cap and trade system, part of a goal to reduce greenhouse gas emissions in California by 25 per cent by 2020. That state also introduced a new clean-fuel standard, on top of programs that support solar energy and energy efficiency.

We believe these themes will not just increase the deployment of wind turbines, run-of-river hydro, solar panels and biomass plants, but that investor interest will also increase," Whale wrote. "This should drive valuations higher, reflecting the growth prospects for both facility developers and technology suppliers."

Sprott highlights several companies that show the most promise, including power electronics maker Xantrex Technology Inc., solar LED innovator Carmanah Technologies Inc. and flow battery pioneer VRB Power Systems Inc. All are British Columbia-based companies.

On the power developer side, Boralex Inc. was singled out for its "very strong position" as Quebec proceeds with plans to develop 2,000 megawatts of wind power in the province.