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Gas prices make alternative fuel stocks skyrocket

Monday, September 12, 2005

NEW YORK -- Alternative energy has long been dismissed as too expensive to be practical, but with oil hovering around $65 a barrel, solar energy and fuel cells are starting to look positively affordable. As a result, alternative fuel companies' stock has soared this summer alongside oil prices.

While equipping your house with solar panels will almost certainly pay off in time, alternative energy stocks are riskier. Many are money-losing companies. All have uncertain futures.

"This is an emerging growth space that's been emerging for a long time," said Jack Robinson, president of Winslow Management Co., a 21-year-old investment firm focused on green investing. "There are companies that are much riskier than others."

Most alternative energy stocks are thinly traded. Several of the companies don't have a lot of cash.

"They are still consuming a lot of cash; there's a risk of them not being able to consume their way to success," said Timothy Woodward, managing director at Nth Power, a venture capital firm specializing in energy technologies.

"Many of these companies have to go back to the public markets on a fairly regular basis to support their operations," he said. "If they can't do a financing, they run the risk of having to shut the doors."

Recently, the financing hasn't been a problem.

Hurricane Katrina has shut an estimated 5 percent of the nation's oil refining capacity, which will send gasoline prices even higher.

For 2005, energy expenditures in the United States are expected to be $1.08 trillion, approximately 24 percent above the 2004 level, the Energy Information Administration, a division of the U.S. Energy Department, reported Friday. It said energy costs will represent 8.7 of the nation's annual gross domestic product this year, the highest percentage since 1985.

That's good news for Spire Corp., which makes solar cell manufacturing equipment. The company makes a profit and has solid sales, but it still received a letter from the Nasdaq Listing Qualifications Panel in April saying that Spire was no longer in compliance with the exchange's $10 million stockholders' equity requirement. That put it in danger of delisting from the exchange, which would make it harder for the company to raise cash.

Since June, however, Spire's stock has doubled. It's now in compliance with listings requirements, said Roger Little, Spire's CEO. "The issue's gone away," he said. A Nasdaq spokeswoman did not return calls for this report.

Why did the stock double?

"Because energy is so hot and there aren't that many players you can invest in," Little said. "There aren't many places to invest in solar energy, and we've done pretty well."

Another solar winner is Evergreen Solar Inc. which has attracted big-name attention. Dr. Gerald L. Wilson, the dean of the school of engineering at Massachusetts Institute of Technology, is on the board. Fidelity Investments owns almost 12 percent of the company, according to Evergreen's most recent SEC filing.

Still, Evergreen is not yet profitable and its stock has had a rocky ride. A chart in its proxy lays it out: $100 invested in Evergreen when it went public in 2000 would have sunk to $23 by December 2004, far below $100 invested in the overall Nasdaq, which would have dipped to $66.47.

Woodward, who is chairman of Evergreen's board, says profitability for solar energy companies "is right around the corner. Or, it's in a timeframe individual investors can live with."

But the financials are more worrisome at some of the more advanced wind energy and fuel cell companies, he said.

"The potential is there, but the demand is not as big" as it is for solar energy, he said. The cost to make the products often exceeds the price customers are willing to pay for them.

"Those companies, you're making an investment in the future, so the volume is there when there will be enough demand to help them come down the cost curve," he said.

Winslow's Robinson suggests that investors who are interested in clean energy for environmental reasons may want to consider buying an exchange traded fund called PowerShares WilderHill Clean Energy, which trades under ticker symbol PBW. The fund invests at least 80 percent of its total assets in common stocks of clean energy and conservation companies.

The fund is an alternative to trying to pick clean energy's winners, he said, "which is tough to do, even for professionals."


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