5 ways to harness the awesome power of Mother Nature to your portfolio
No doubt by now you’ve heard about tropical cyclone Ita on the news – one of the biggest storms to hit Australia in over 100 years, second only to Cyclone Yasi in 2011. As a North Queensland resident (though mercifully not a Cape Flattery one), I can say we are again inundated with news coverage, cyclone updates and ‘what to do in the event of x’ advice.
Given the talk up here is of little else, I thought it highly appropriate to write a themed article about renewable energy. Whether you believe in the carbon-centric ‘climate change’ argument or not, I think everyone can agree that one day in the distant future there will simply be no coal or oil left to drive our industries. The companies I have listed here create energy through wind, wave, geothermal and solar energy and are at various stages of commercialisation.
Firstly we have AGL Energy Limited (ASX: AGK), who is predominantly a coal power supplier. However the company does have small gas holdings and a number of wind farms, hydroelectric stations and a couple of solar plants in development. I am personally not comfortable with AGL because a recent attempt to acquire a $1.5billion coal station in NSW shows the focus is still on dirty energy. Nonetheless nearly 40% of AGL’s energy will come from renewables once all plants are completed, plus it has a solid financial position and pays a dividend. Competitor Origin Energy Limited (ASX: ORG) owns sizeable stakes in hydroelectric companies and geothermal explorers in Chile and New Zealand, however a much smaller portion of its production comes from renewable sources.
Infigen Energy Ltd (ASX: IFN) is a purely renewable energy company that operates wind farms in Australia and the US and has a finger dipped in the solar energy pie. Despite owning around 1,600MW of power production the company labours under high debt, and adverse regulatory changes could create problems. However, this fact is already priced into the company which is trading at only 35% of its book value. Infigen could be an excellent buy, and the fact that it is already producing sizeable amounts of power reduces the risks associated with technology development that afflict the next three companies.
Probably the best geothermal power company on the ASX, Geodynamics Limited (ASX: GDY) – located in South Australia’s Cooper Basin – is flush with cash and has the funding to take its Habanero project through to the next stage of development. The company is also looking at opportunities in the Pacific Islands to make returns to shareholders sooner. The withdrawal of Origin Energy as a shareholder may make potential buyers think twice, but if it’s geothermal power you’re after, Geodynamics would be my pick.
Next cab off the ranks is Carnegie Wave Energy Limited (ASX: CWE) which uses the motion of ocean swells to generate power. The technology is more or less fully developed and is undergoing a commercialisation test in Western Australia. The ‘CETO’ wave energy unit is the only ocean-tested unit of its kind that sits fully submerged and generates power and/or desalinated water onshore. Carnegie also has global business and government contacts that should allow for rapid growth if the product is commercially viable.
Finally we have Dyesol Limited (ASX: DYE) whose Dye Solar Cells look to be the next big thing in solar technology, with greater efficiency, greater longevity and lower manufacturing costs. Dyesol has successfully developed a commercially viable product and is fully funded through to manufacturing in 2015.
The risks associated in technology development are many, but by buying technology after the painful development period and just before commercialisation, investors can maximise their returns. This procedure is still highly risky, but without investors willing to take risks, there would be no ingenuity in the market. My money would be on AGL and Infigen to best deliver renewable energy exposure, but the upsides on Dyesol and Carnegie Wave could be enormous if commercialisation succeeds and the market likes what it sees.
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Motley Fool contributor Sean O’Neill owns shares in Dyesol Limited.
No doubt by now you?ve heard about tropical cyclone Ita on the news ? one of the biggest storms to hit Australia in over 100 years, second only to Cyclone Yasi in 2011. As a North Queensland resident (though mercifully not a Cape Flattery one), I can say we are again inundated with news coverage, cyclone updates and ?what to do in the event of x? advice.
Given the talk up here is of little else, I thought it highly appropriate to write a themed article about renewable energy. Whether you believe in the carbon-centric ?climate change? argument or not,…