Green Energy: Lots of Choice, Lots of Risk

There is a slew of firms involved in the alternative power game, writes Richard Blackwell

Saturday, January 27, 2007

Has Al Gore got you worried about global warming, but you also think there might be a way to make some money from the soaring interest in environmental issues?

Maybe it's time to look at investing in some individual companies that are on the leading edge of the green energy revolution.

There is a slew of small -- and some not so small -- public companies trading on Canadian exchanges that are involved in the alternative energy game. They're in sectors as far reaching as hydro and wind power, geothermal power, solar energy, tidal and wave power and biofuels. There's even a tiny firm, Peat Resources Ltd., listed on the TSX Venture Exchange that is trying to make money producing and marketing peat as fuel.

But investing in these companies is not for the faint of heart. Because of technological uncertainty, fickle government support programs, and an uncertain energy future, most are clearly for risk-taking investors who want to gamble on the chance for big gains in the future.

MacMurray Whale, an analyst at Sprott Securities Inc. who follows alternative energy stocks, says these investments are not ideal for anyone who is close to retirement, and they should take up only a small portion of any individual's portfolio. Many of the stocks are very volatile, and often they are illiquid.

Still, Mr. Whale said, "if you're young, and you're willing to take a punt, then you can support more risk." There's been a kind of perfect storm of events that have shifted people's focus onto alternative energy businesses, Mr. Whale said. The spike in oil prices after the devastating hurricane that lashed New Orleans was followed by electricity shortages in some regions, and bizarre weather events across the continent.

That's placed global warming at the top of the news agenda, and prompted governments to financially support alternative energy programs, mainly by subsidizing power generated from "green" sources.

The increased use of tradable emission credits -- and the hope that there will soon be a formal trading system for these credits -- has also focused attention on clean power.

Companies in this sector are now finding it easier to line up private financing, Mr. Whale noted. Even national banks and big insurance companies are showing a willingness to pony up money for alternative energy projects.

Individual investors, however, should avoid very early stage companies in the energy game, said David Berkowitz, a partner at Ventures West Management Inc. in Vancouver who runs the firm's alternative energy investment portfolio.

"That's the domain of the venture `capital` guys," he said. "I've seen a lot of investors investing in public market science projects that shouldn't be public."

With an early stage company, "if they have one misstep, the next thing you know it's a penny stock," he said.

Instead, retail investors should focus on public companies that already have customers, and can show some kind of revenue stream, Mr. Berkowitz said. It's a good sign if analysts are tracking a company's financials, rather than vague development "milestones."

And don't be swayed by emotion or a devotion to green causes, he warns. "`People` should be investing in these companies because they think they can be profitable and they're going to grow. It'll be a nice byproduct if they do something good for the environment, but the primary motivation has to be profits."

But how do you choose where to put your money?

There are essentially two kinds of firms in the alternative energy business, and thus two approaches to investing, Mr. Whale said. "You either invest in the companies that are making the power that's more clean, or you look at the companies that are providing them with the technology to do it."

In the first category there are firms such as Canadian Hydro Developers Inc., a Calgary-based, TSX-listed company that owns several wind farms, a dozen small hydroelectric plants, and a biomass plant that generates power from waste wood.

It has several more wind and hydro plants under development across the country.

Another renewable power producer, and one of Mr. Whale's top picks, is Boralex Inc., a TSX-listed company based in Montreal with annual revenue above the $100-million mark.

Boralex has a portfolio of hydro and wood-residue power plants in Quebec and the eastern United States, and a series of wind farms in France. Mr. Whale expects Boralex to submit a bid to Hydro-Québec this year for a major wind project in the province.

The company also owns 23 per cent of Boralex Power Income Fund, a trust that holds a separate group of hydro, gas-fired and wood-residue-fired power plants in eastern North America.

Toronto-based Clean Power Income Fund is another trust with a diversified revenue-generating portfolio of hydro, biomass and wind power plants in Quebec, Ontario, Alberta, B.C. and four U.S. states. Its revenue has been ramping up as more power projects come on stream.

Among companies that produce the technologies that are used by power generators, the pickings include Xantrex Technology Inc., a Vancouver-based TSX-listed company that makes products such as inverters, chargers and converters -- hardware that connects the raw power from wind, solar or other sources to end users or the power grid.

Xantrex also meets Mr. Berkowitz's criteria of having real, measurable revenue -- more than $115-million (U.S.) in the first nine months of 2006 -- along with an established line of products with manufacturing plants in Canada, the United States and Europe.

Arise Technologies Corp. of Kitchener, Ont., is a bit earlier in the revenue ramp-up, with research and development costs rivalling its sales stream. The TSX Venture Exchange-listed firm develops and sells solar cell equipment for homes and offices. It recently signed a deal to help develop a solar research facility on Toronto's waterfront that will generate enough photovoltaic power for 1,000 homes.

Another established solar products firm is Carmanah Technologies Corp. of Victoria. It has a TSX listing, and makes solar-powered, energy-efficient LED lighting systems. The company has found niche markets in providing lighting for signage, bus shelters, and marine navigation.

With interest in alternative energy accelerating, it's going to be very tempting for many more companies to go public in the coming year, Mr. Berkowitz said.

Like those already in the public markets, "these are going to be very volatile plays," he said. Still, "there could be good opportunities for retail investors -- at least those with a tolerance for risk."

Pick of the Crop


The amount of wind power generated in Canada has grown exponentially in the past couple of years as new projects come on stream. Ontario, Quebec and Alberta are the hot spots.

Canadian Hydro Developers Inc. (KHD-TSX) runs five wind farms in Alberta and Ontario (along with 12 small hydro plants and one biomass plant).

Boralex Inc. (BLX-TSX) has 20 power-generating plants in Quebec, the U.S. and France. Currently all its wind power assets are in France, but it plans expansion in Quebec.

Creststreet Power & Income Fund (CRS.UN-TSX) has two wind power projects in Quebec and Nova Scotia, with a total of 47 turbines.

Several public energy companies such as TransAlta Corp., Brookfield Asset Management Inc., Enbridge Inc., TransCanada Corp. and Suncor Energy Inc. have wind divisions, but these make up a small part of their overall portfolios.


A handful of public Canadian companies are involved in making equipment that generates power from the sun, or devices that turn solar power into useful electrical current.

Carmanah Technologies Corp. (CMH-TSX), based in Victoria, makes solar-powered, LED lights for airfield, marine, industrial and transit applications, LED signs, and solar power generating systems.

Xantrex Technology Inc. (XTX-TSX) makes hardware that connects solar and wind generators to electrical equipment or the power grid.

Arise Technologies Corp. (APV-TSX-VEN) sells photovoltaic cell equipment that individuals or companies can use to generate power.


Geothermal power taps hot water and steam trapped below the Earth's surface. The heat is used to power turbines that generate electricity.

Western GeoPower Corp. (WGP-VEN) of Vancouver is developing a power plant at the Geysers geothermal field in California, and is exploring a project in British Columbia.

Nevada Geothermal Power Inc. (NGP-VEN) of Vancouver holds geothermal leases in north-central Nevada.

U.S. Geothermal Inc. (GTH -VEN) is also based in Vancouver, but owns and leases land in Idaho.

Polaris Geothermal Inc. (GEO-TSX) has its main office in Toronto, but it is developing a geothermal project in Nicaragua.

Sierra Geothermal Power Corp. (SRA-VEN) has leases or options on more than 15 potential sites in Nevada and California, and is a partner with Nevada Geothermal in a project in Nevada.

Small Hydro

Increasingly, provincial electricity utilities are willing to buy power from independent producers.

Plutonic Power Corp. (PCC-VEN) has 22 sites for small hydro power projects in south-central British Columbia. It has recently signed purchase agreements with B.C. Hydro.

Boralex Inc. (BLX - TSX) has five hydro power stations in the U.S., two in Quebec and one in France. It also manages hydro stations for its 23-per cent-owned Boralex Power Income Fund (BPT.UN - TSX).

Algonquin Power Income Fund (APF.UN-TSX) has interests in 47 hydroelectric plants, mainly in Canada and the U.S.

Canadian Hydro Developers Inc. (KHD-TSX) has 12 hydroelectric plants in Alberta, Ontario and British Columbia.


There are few public companies in this sector, although ethanol producer GreenField Ethanol (formerly Commercial Alcohols Inc.), one of Canada's biggest producers of ethanol from corn, has said it plans to go public. Ottawa's Iogen Corp., which has developed a process to turn cellulose into ethanol, is also thought to be considering a public issue of shares.

Dynamotive Energy Systems Corp. (DYMTF-OTC Bulletin Board) is based in Vancouver but has plants in Ontario that turn dry cellulose waste into bio-oil fuel.

SunOpta Inc. (SOY-TSX), based in Brampton, Ont., is a public company in the organic food business but it also has a division that is working on producing ethanol from cellulose.


Ballard Power Systems Inc. (BLD-TSX) of Vancouver is Canada's oldest and biggest hydrogen fuel cell firm.

Hydrogenics Corp. (HYG-TSX) of Mississauga makes hydrogen-based fuel cells and systems that generate hydrogen for industrial uses.

VRB Power Systems Inc. (VRB-VEN) of Vancouver makes large-scale power storage units based on a technology that pumps an electrolyte that contains the metal vanadium through a membrane.

Finovera Renewables Ltd. (FRV-VEN) of Vancouver went public at the beginning of this year. It has a number of wind and wave power projects under development in Canada and Ireland.