2009 Clean Energy Outlook

I don’t want to do one of those hackneyed ‘things to look out for’ in 2009 lists. So I’m going to keep this simple and list all the cleantech sectors I’m aware of (they grow every day), and how I feel about the potential for each in 2009.

If there is a glaring buy or bust in any of the sectors, I’ll be sure to include it.

Wind Sector

I see a strong wind sector in 2009 based on two conditions:

1. Obama at least hints at a national RPS
2. The recently extended PTC is enough to overcome credit woes and spur spending

Since most major wind companies–even the ones that operate here in the states–are foreign-based, I’d try taking advantage of the wind industry via an ETF. PowerShares Global Wind Energy ETF (NASDAQ: PWND) and First Trust Global Wind ETF (NYSE: FAN) are the only two available, and each will give you exposure to the appropriate companies.

If you’re looking for a sleeper with a bit of risk, check out Composite Technology (OTCBB: CPTC), which makes turbines and wire for transmission.

You could also seek out an infrastructure company that dabbles in wind farm construction like Jacobs Engineering (NYSE: JEC) or Tetra Tech ((NASDAQ: TTEK).

Solar Sector

To be honest, I see a shakeout coming. Hundreds of millions have been poured into start-ups like Nanosolar, AVA Solar, and SoloPower. If these players come to market with disruptive technology, it could put downward pressure on other public thin-film companies.

We’re also looking at a continued decline in selling prices for silicon and panels. And there could well be a supply glut in general.

I don’t like the ETFs here, because you could be gaining exposure to some duds even if the fund is holding a few winners.

Stick with SunPower (NASDAQ: SPWRA) for the domestic market, and look for integrated Chinese players like Yingli (NYSE: YGE).

Water Sector

Like most analysts, I believe 2009 will be the year investors start paying attention to serious mounting water issues.

This industry will also be getting gobs of government cash when the next stimulus is passed.

Stay away from the utilities and look for companies that provide services to the water infrastructure and treatment markets.

There are a lot of good bets here, but Insituform (NASDAQ: INSU), Flowserve (NYSE: FLS), Energy Recovery (NASDAQ: ERII), and Layne Christensen (NASDAQ: LAYN) are looking particularly attractive.

Check out Northwest Pipe (NASDAQ: NWPX) as a materials provider.

Grid/Energy Efficiency Sector

Along with water, this will be one of the hottest sectors of the year.

The coming stimulus will also focus extensively on transmission and energy efficiency project in pursuit of green jobs.

All the standard names apply: Comverge (NASDAQ: COMV), EnerNOC (NASDAQ: ENOC), and Echelon (NASDAQ: ELON) will all be winners.

Also look for construction companies participating in grid projects (some of this is overlap from wind and water construction, which should highlight the importance of these stocks): Itron (NASDAQ: ITRI), Tetra Tech (NASDAQ: TTEK), ABB (NYSE: ABB), Fluor (NYSE: FLR), Eaton (NSYE: ETN), and Caterpillar (NYSE: CAT).

Battery/Storage Sector

This is a weird sector, because it includes batteries for electric vehicles as well as massive energy storage for the grid. And in some cases, with the build-out of the smart grid, electric vehicles may well be used as storage devices for the grid.

It’s best to spread your bets here. I’d be looking at Johnson Controls (NYSE: JCI), American Superconductor (NASDAQ: AMSC), Beacon Power (NASDAQ: BCON), Ener1 (AMEX: HEV), and Energy Conversion Devices (NASDAQ: ENER).

Also, look for possible IPOs in this sector this year, including A123 Systems, the MIT start-up, and Tesla Motors, pioneers in the electric vehicle market.

Geothermal Sector

This is one of the more tricky sectors to predict, as a number of nominal players are pursuing viable projects. Most of them keep their progress under their hats, so it’s hard to say when an important announcement is coming.

I’d stick with Ormat (NYSE: ORA) as the main play here. Not only do they operate some of the largest geothermal plants in the world, but they also supply turbines to a number of smaller players.

If you’re dead-set on playing a smaller company in the space, I’d have to go with U.S. Geothermal (AMEX: HTM), which already has an active plant and is probably closest to bringing another one online.

Carbon Sector

Like wind, most of the major carbon players trade on foreign exchanges. That’s because most of the carbon activity takes place in countries that ratified the Kyoto Protocol, which the U.S. did not do.

Now, president Obama says he’s going to implement a cap-and-trade program in the U.S. When that happens, a carbon bull will ensue.

And you’ll need to be doing two things.

First, you’ll want to short any major coal companies like Peabody (NYSE: BTU), as their product will now be associated with incredibly high liability. You’ll also want to short utilities that operate mainly with coal, like Duke (NYSE: DUK) and Southern (NYSE: SO).

Secondly, you’ll want some type of exposure to carbon prices. You can do this by buying into exchanges that run carbon markets but, again, the all trade across the pond. Companies there include Climate Exchange (LON: CLE) and Trading Emissions (LON: TRE)

A better route is probably to invest in the two recently-created carbon ETFs that track the price of carbon emissions associated with Kyoto. They are the Airshares EU Carbon ETF (NYSE: ASO) and the iPath Global Carbon ETN (NYSE: GRN)

Final Notes

That’s how I see the next year shaping up, as well as a few of my thought on how to profit from it.

Pay close attention to infrastructure of all kinds. I think major water and construction players are in for a great year.

Lastly, really hone in on policy in the upcoming congressional session. A Democratic-led congress and a green-promoting president could offer some surprises in the next legislative session that will impact the market.

To green energy and green profits,

Chris
Clean Energy Sector