3 Green Energy Money Pits
Dec 7th 2011 12:21PM
Updated Dec 7th 2011 2:28PM
Green energy is a hot topic whether you agree with its benefits or not. High-profile bankruptcies like Solyndra's put a black eye on the whole sector while subsidies for inefficient technologies make people question government support for the clean energy market.
There are opportunities for investors in clean energy, but for today, I would like to point out three investments I would avoid.
This week, fellow Fool and Million Dollar Portfolio analyst David Meier said he thought Solazyme (NAS: SZYM) was the best green energy stock there is on the market. He touted the mass scale that Solazyme had planned and how their fuels could be a great alternative to fossil fuels. It sounded a lot like an argument I've heard over and over about another alternative fuel: corn-based ethanol.
I would love to believe in alternative fuels that Solazyme, Amyris (NAS: AMRS) , or Rentech (ASE: RTK) are developing, but I see way too many barriers in the way, barriers that we originally saw with corn-based ethanol.
The first problem is scale. Right now none of the companies mentioned above makes fuel in any sort of scale, having only proven their technologies in labs or pilot plants. But moving to a large scale means sourcing more fuel and building larger plants. When it became time for corn ethanol to make that jump, the increased demand for corn resulted in higher prices and any advantage ethanol had evaporated.
The company also had just $1.9 million in product revenue in the most recent quarter and reported a $14.1 million loss. It may look safe with $250.6 million in cash and equivalents but as another green company, A123 Systems (NAS: AONE) , found out that cash burns up quickly if your plans don't come together perfectly.
That doesn't mean that Solazyme in particular doesn't have a place in the market. It's developing a lucrative business making products for skin and personal care ingredients. That may be the future, I just don't see it in fuel, and I don't see success on the scale Solazyme envisions.
I love the growing electric car market. Companies like Tesla Motors (NAS: TSLA) have made us rethink the automobile and how it is built. But some of the worst investments in the industry are being made in the battery space.
A123 Systems in particular has played a good hand far too strongly and is now facing mounting losses and disappointing sales from its most important customer, Fisker. And things are even worse at Ener1, which may not survive much longer.
The problem isn't technological or in the products themselves. By all indications, A123 makes a fine battery. The problem was how fast A123 and the electric vehicle market envisioned itself ruling the world.
When EVs first came onto the scene, analysts had a field day predicting how many EVs would be on the road in the near future. One Berkley study predicted 64% of U.S. light-vehicle sales would be EVs by 2030, and Zpryme predicted sales would be 203,200 vehicles in 2016 alone. When faced with those predictions, management and investors got big eyes and loaded their plates with as much capacity as possible. But like grandma always warned me, our eyes were bigger than our stomachs, and the market hasn't come close to eating up the growing supply of batteries.
I'm dogging one of my own investments here, First Solar (NAS: FSLR) , but outside of that one success story, it's hard to find anyone who has made any real progress in thin-film solar. Ascent Solar and Energy Conversion Devices at least made it to the public markets before running into problems, and likely an eventual bankruptcy. Solyndra, which was based on thin-film technology, was a colossal failure, and the CIGS technology it used has failed to live up to industry expectations.
But the biggest reason thin-film solar is a money pit is that there are too many higher-efficiency modules on the market at attractive prices making thin-film uncompetitive. Thin-film solar is lower efficiency requiring more land, and other installation costs versus competitors. For a look at how important these balance of system costs are becoming, check out my article about these costs here.
There are still success stories out there
Not all green energy is created equal, and understanding the advantages and disadvantages of each is half the battle. For good investment opportunities, I would look at SunPower, which is on the flip side of thin-film's weak competitive position. I also like Clean Energy Fuels (NAS: CLNE) , which is helping build the infrastructure for a natural gas fleet of vehicles. With ample supplies of both solar energy and natural gas domestically, these two are leveraging proven fuel sources into green power that will drive us into the future.
At the time this article was published Fool contributor Travis Hoium owns shares of First Solar. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.The Motley Fool owns shares of Amyris, Solazyme, and First Solar. Motley Fool newsletter services have recommended buying shares of First Solar and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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