The prices of fossil fuels, particularly oil and natural gas, have risen sharply over the past few years. As a result, alternative sources of energy — used specifically in electricity generation and transportation — are garnering increasing attention. Although they still meet only a small percentage of global energy demand, the more commercially viable alternative energy sources are growing rapidly, presenting investors with the potential for attractive long-term opportunities.

What Do We Mean by Alternative Energy?

The alternative-energy segment of the energy industry covers a broad range of sources. These sources range from wellestablished technologies, such as nuclear energy and hydroelectric power, through high-growth segments such as wind and solar power. They also include less tried and tested alternatives, such as hydrogen-powered, fuel-cell technology for use in both electricity generation and as an alternative to gasoline in the automotive industry. These sources cover the gamut from commercially viable and fully competitive with fossil fuels to those that are at a more experimental stage of development, presenting a bigger risk for investors who want to take advantage of the increasing attractiveness of this sector.

The Most Promising Opportunities
Electricity Generation

Currently, the three most commercially viable sources of alternative energy—in that their cost per kilowatt hour is comparable to that of coal and natural gas—are nuclear, hydroelectric, and wind energy. Due to long lead times and the potential for political considerations to stall the development of nuclear power plants and new dam projects in developed countries, we believe that the best opportunities in the nuclear energy and hydroelectric segments are in rapidly developing countries. In the developing world, countries such as China are keen to diversify their energy supply and face less opposition to such projects.

The third of these commercially viable sources, wind energy, benefits from an improving but established technology and from being a renewable energy source. As a result, this industry has grown rapidly over the past decade, specifically in Europe, where political incentives to develop renewable energy have been particularly strong. We believe that the wind-energy industry is likely to continue to expand rapidly, benefiting from improved turbine technologies that can generate a greater amount of electricity per turbine and reduce the problem that can make power generation intermittent. Newer technologies may also pacify critics who are concerned about noise and the impact on the bird population. In addition, the move toward distributed energy, which is energy supplied on a more local scale, rather than through a national grid, may benefit the wind-energy industry.

Other energy sources that also may ultimately gain from the trend toward distributed energy are the biomass segment, solar power and hydrogen-powered fuel cells. The latter two are still expensive versus traditional fossil fuel sources, with commercial viability resting on improved technologies. In spite of higher costs, both industries are experiencing good growth. With rising interest in alternative and specifically renewable energy sources, there is plenty of funding available for companies seeking to reduce the cost of producing electricity from these types of fuel. Unlike more established industries, such experimental technologies offer attractive potential returns, but also are riskier. ...

(Executive Summary)

Download Identifying the Opportunities in Alternative Energy

PDF format, 1.8MB, 20Pages.

Wells Fargo Special Report.

Prepared by:
Sarah E. Douglass, ASIP
VP, Investment Research Publications
Editorial Review:
Dean A. Junkans, CFA
PCS Chief Investment Officer
Lloyd S. Kurtz, CFA
Senior Investment Manager

Table of Contents
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
I. Alternative Energy:
What Are the Major Sources and Opportunities? . . . . . . . . . . . . . . . . . . .5
Nuclear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Hydro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Wind . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Solar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Hydrogen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Biomass . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
II. Distributed Energy: Increasing the
Attractiveness of Alternatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Energy Storage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Distributed Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
III. How to Invest in the Alternative Energy Market . . . . . . . . . . . . . . . . . . 15
Large Companies in Established
Alternative-Energy Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Small Publicly Listed Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Privately Held Start-Up Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Comments (0)

Name

Email

Comment

smaller | bigger

Add Comment