The alternative energy industry has surged onto the scene over the past few years, growing from a tiny market segment to a ubiquitous industry.
Once on the sidelines, cleantech is now a marketing and social magnet. Companies and factories are going green. So are homes and individuals. Cars are now eco-friendly.
The use of renewable energy is not only doubling and tripling, it's being forced to grow by the government. Well over half the states have laws that mandate the use of renewable energy must expand several times over. A bill currently circling Congress would do the same for the entire country, as well as put a cap on carbon emissions.
Of course, the adoption of the smart grid and energy efficiency is marching right in step.
And I'm not just talking about the U.S. I'm talking about the entire world. Even countries you've never heard of have renewable energy targets.
With so much happening so quickly, I figured it was time to offer a Green Report Card of sorts. I'll cover relevant sectors and include a grade based on past and expected future performance.
Solar Energy: B+
Solar has become the mascot for cleantech, and it's not hard to see why. The industry has grown 1,000% since the turn of the century, churning out monster gains for savvy investors the entire time.
Green Chip investors that got in early on solar gems like First Solar (NASDAQ: FSLR), Sunpower (NASDAQ: SPWRA), and Suntech (NYSE: STP), reaped several hundred percentage points in just a few years' time:
Now, the tipping point is being reached. Europe has had attractive solar incentives for years. The U.S. recently extended tax breaks several years for solar via the recent stimulus. And China is enacting a subsidy that will cover half the cost of new systems. They had just 100 MW of solar capacity installed at the end of 2008. That's expected to grow to 2,000 by 2011, thanks to the subsidy.
All of this combined is why solar will grow another 1,500% globally by 2020, generating even more profits than before. Check out the solar outlook chart from industry research group GlobalData:
Wind Energy: A-
For all the attention given to solar, wind energy is more widely used. At the end of 2008 there were 121,013 installed megawatts of wind power compared to solar's 14,730 MW.
And in the next decade, the use of wind energy will grow 360% — all the way to 557,000 megawatts! Here's the outlook chart for wind energy growth:
You can probably guess that, just like the solar industry, wind also sparked numerous stock winners. Some especially savvy Green Chip investors could've even walked away with gains in the coveted 1,000% range:
Geothermal Energy B-
Geothermal is, by far, the most overlooked cleantech sector. In many ways, geothermal energy is better than wind and solar because it can provide a constant uninterrupted supply, known as baseload power.
But testing to find the most adequate sites, coupled with drilling and plant construction, has proven very costly, causing widespread adoption to be delayed. Global geothermal capacity grew only 28% from 2000 to 2008.
With renewed focus from the Obama administration, new plans are springing up along with new funding. Despite the sector's slow growth over the past decade, it's forecast to grow 205% by 2020:
Even though the historic growth numbers aren't on par with solar and wind, Green Chip investors have still taken multiple hundred percent winners or better from the sector.
That will continue as geothermal growth accelerates.
Biodiesel C+
Biofuel has been the most misunderstood cleantech sector.
A few years ago, corn ethanol burst onto the scene as a potential energy savior. But drastic inefficiencies, high energy inputs, and rising grain prices led to the collapse of the industry and the ostracising of ethanol.
Despite the continued push toward cellulosic and the great work being done with sugar-based ethanol, the industry is still very much a black sheep. But the biodiesel industry is faring better.
In fact, through 2008, it was the fastest growing cleantech sector on the market, as production capacity grew more than 1,600%.
Green Chip investors have also seen monster biofuel gains in the past. And while there hasn't been much excitement lately, the retooling of the industry and the advent of the algae era are once again causing a stir.
A recent industry report found that biofuel sales could reach $247 billion by 2020, up from just $76 billion in 2010. That outcome is based on what the report calls three "key waves" of biofuel development:
Fuels based on waste greases will reach market in 2010
Jatropha-based fuels will begin having a significant impact on the market in 2014. Jatropha are plants native to Latin America that produced oil used to make biofuels in other countries
Algae-based biodiesel will achieve commercial availability in 2012, Pike Research predicts, and will have a larger market impact beginning in 2016
Here is the outlook chart for the biodiesel industry:
Smart Grid & Efficiency A-
This is the glue holding the cleantech industry together.
It involves everything from building new transmission lines for wind energy, to installing smart meters in homes to monitor power use in real time, and everything that has to do with electricity in between.
From software and hardware to transformers and batteries, this market is shaping up to be absolutely huge. The American Society of Civil Engineers estimates that over $2 trillion will be spent on our electric infrastructure by 2030.
This has led to a bevy of interest from investors and businesses alike. Corporate stalwarts like GE, Cisco, IBM, and others fighting to be players in the smart grid industry. And some specialized companies have already doubled and tripled in price.
Passing the Tipping Point
The tipping point for cleantech is right now.
The spring has been coiling for the past few years, yet it seems it took a recession to release it. Now, global governments are pouring money into alternative energy not only to combat recession, but also to secure their energy futures.
Combined, well over $200 billion has been allocated to further the cleantech cause under the guise of "stimuli."
Carbon emissions are being capped and taxed. Mandatory renewable energy growth targets are being established. And those placing wise bets are reaping the rewards.
The writing is on the wall. This recession is just an intermission. And the second act will be much more riveting. . . and the gains even bigger.
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