Alternative Energy Investments

There’s no more beating around the bush. Alternative energy is here in a big way.

Take, for example, these two snippets from Tuesday’s second Presidential debate regarding alternative energy investments:

John McCain:

We’ve got to stop sending $700 billion a year to countries that don’t want us very — like us very much. We have to have all of the above, alternative fuels, wind, tide, solar, natural gas, clean coal technology. All of these things we can do as Americans and we can take on this mission and we can overcome it. My friends, some of this $700 billion ends up in the hands of terrorist organizations.

Barack Obama:

So we’ve got to deal with that right away. That’s why I’ve called for an investment of $15 billion a year over 10 years. Our goal should be, in 10 year’s time, we are free of dependence on Middle Eastern oil.

And it is absolutely critical that we understand this is not just a challenge, it’s an opportunity, because if we create a new energy economy, we can create five million new jobs, easily, here in the United States.

It can be an engine that drives us into the future the same way the computer was the engine for economic growth over the last couple of decades.

And both of these statements by the candidates were uttered with the same breath used to decry our dangerous dependence on oil.

But it’s not just our potential Presidents that have become believers in all that alternative energy has to offer.

Tucked away in last week’s $700 billion financial bailout bill were tax incentives for renewable energy that include:

• A one-year extension of the production tax credit (PTC) for wind
• An 8-year extension of the investment tax credit (ITC) for solar

Other incentives included tax breaks for purchasing electric automobiles, for making you home more energy efficient, and for installing residential geothermal heat pumps and solar hot water heaters.

What this means is that investors that finance renewable energy project now get 30% of their initial investment in new solar systems and wind farms paid for by the government with rolled back taxes for Big Oil.

In addition, it means homeowners can now take advantage of new green technologies without independently bearing the entire cost.

For alternative energy equity investors, this is very exciting. You see, with the government offering assistance to those who choose to adopt alternative energy, many more people and businesses are going to want to pursue clean technology and energy efficiency projects.

In turn, that will lead to increased sales for alternative energy companies and installers, which will lead to increased revenue and earnings. And that always leads to higher stock valuations.

In fact, I’m already seeing the valuations of some companies increase just because this legislation was passed. So just imagine what will happen once those tax breaks start having a positive impact on the bottom line.

Alternative Energy Investments

To be honest, there are literally hundreds of alternative energy companies worthy of investment.

But given the current market conditions, it would be wrong to recommend going out and buying all of them–though I’d like to.

Instead, let’s take just a few moments to review some of the alternative energy investments that could benefit as a result of this recent bill.

First off, I have to say that most solar stocks have been under significant downward pressure.

The financial crisis is partly to blame, but there are other factors at work here. There is general consensus that solar markets will oversupplied for the next two quarters due to rapid capacity expansion by solar companies.

Basically, solar companies were trying so hard to keep pace with surging demand that they ended up expanding too quickly, which has led to too many available panels.

An oversupply means that prices will fall, and falling prices means lower revenue.

But the extension of the U.S. tax credits should help to bolster solar demand, even if it falls in Spain and Germany.

However, these are tricky times. So not every solar stock is going to be a winner, as has been the case in the past.

I’ve done some calculations that take into account the projected fall in solar prices coupled with certain solar company’s current average selling prices (ASPs).

What I found is that two companies have a distinct low-cost advantage that could help them come out on top.

The first is First Solar (NASDAQ: FSLR), the original big boy of the solar industry. Their thin-film technology is cheaper to produce than most other companies, so they won’t be as hurt if prices fall.

I’d be buying FSLR right now, especially under $140.

The second is Canadian Solar (NASDAQ: CSIQ), which has a unique low-cost for making solar modules called upgraded metallurgical (UMG) silicon.

It involves using recycled scrap silicon instead of purchasing expensive, highly pure silicon. And it allows CSIQ to enjoy better margins than their competitors.

I’d be buying CSIQ right now, while it’s still below $15.

There will be plenty more alternative energy investment opportunities as this market continues to mature and prosper.

We just have to play it slow and smart right now, until the rest of the market is willing to cooperate.

To green energy, and green profits,

Chris