I recently wrote an article about how waste in the "green" economy is ruining the opportunities for legitimate companies with real solutions to provide realistic answers to the global energy problem. Limited and precious capital is being squandered on the industries that have the least likely chance of really making a difference in our search for an alternative energy solution. Fortunes are being lost on companies like Solyndra and countless other now bankrupt companies focused on wind and solar. The prospects of these companies are so poor, even their supporters admit that 9 out of 10 of these taxpayer funded "investments" will go bankrupt. Worst of all, all this "investment" is highly unlikely to deliver the results desired. Good intentions won't heat our homes, power our cars or light our factories.
Hopefully, the bad apples won't spoil the bunch, and fortunately there are companies that offer real solutions and are perfectly suited for the investor that wants to invest in the alternative energy sector, but wants to avoid the 9 out of 10 chance that their investment will go belly-up. One of these companies is a company most people are familiar with, and whose trucks visit their homes on a weekly basis. That company is Waste Management (WM). What does WM have to do with alternative energy? In my opinion they offer one of the best case studies of how the free market is addressing the energy crisis without much help from the government, and likely to provide the best model for companies to follow if they want to succeed in the alternative energy sector.
The chart below demonstrates just how fanciful the belief in wind and solar truly is. Wind and solar make up less than 1% of US electricity production. Other sources put wind and solar as high as 5%, but even the most optimistic estimates have solar barely registering, and yet these unpromising, problem-plagued energy sources garner a disproportionate amount of government funding. The funding however also produces almost all of the energy company bankruptcies. When is the last time you heard of a fracking, natural gas or major oil company going bankrupt? Success in those proven industries is like shooting fish in a barrel, and yet the government in some cases is openly hostile towards them.
Fortunately, companies with real commercially-viable solutions don't allow the government to stop their progress. They succeed in spite of the failure and resistance from the central planners in Washington. In this video the CEO of WM makes many of the points I've made in previous articles and highlights the characteristics of alternative energy solutions that actually have a solid chance of succeeding. In fact, in the video CNBC's Becky Quick describes what WM is doing as "turning lead into gold." WM literally takes waste and turned it into energy and other valuable products.
WM's landfills create natural gas as a by-product of the decomposition of garbage. WM CEO points out that:
"we use garbage to create more electricity, about twice the amount of electricity as the entire solar industry in the United States...and by the way we are baseload, when the sun doesn't shine we're still producing electricity."
A single company operating under free market principles produces about twice the amount of electricity as the entire solar industry in the United States, and they use garbage instead of taxpayer's dollars. WM is a fantastic case study of the effectiveness of the free market, and proves that a single free market CEO with highly limited resources can do a better job solving our energy problem than all the solar projects selected by the central planners in Washington and their almost limitless resources.
WM is essentially a very low risk way to invest in alternative energy. Unlike many/most of the wind and solar bankruptcies, WM isn't a one-trick pony that places all its bets on a non-commercially-viable long shot. WM's alternative energy is a by product of its already profitable waste business. Its alternative energy business is a profit center within a much larger company. The only reason it is producing the energy is because it makes economic sense within its existing business. Believe it or not, gas is a waste product to a landfill operation and usually simply gets flared off to prevent explosions. WM smartly puts its waste to better use...at a cost savings and/or profit.
WM's solution is attractive because it works well within most of the existing infrastructure. The compressed natural gas or "CNG" powered trucks already exist on the market, as do CNG powered electric generators. The technology is well known, understood and proven. The collection of the gas actually helps with solving a waste management problem. Instead of destroying countless acres of pristine desert and disrupting the usage of endless acres of farmland like wind and solar do, WM actually restores wildlife habitats. Electricity generated from CNG is "baseline" and works seamlessly with the existing electrical system unlike the random nature of wind and solar that are highly disruptive to the existing electrical system.
Most inspiring about WM's approach is that with or without government assistance they are going to build out its CNG fueling station infrastructure. This is truly a market driven solution to at least part of our energy problem. Don't get me wrong, I'm not a fan of government involvement in picking and choosing winners in the alternative energy industry, but if the government is going to be spending taxpayer money on these projects it should incorporate some form of risk management. The lowest risk projects with the highest probability of gain should get the funding. WM fits that bill, and would have been a far better investment of taxpayer dollars than Solyndra or any of the other wind and solar failures. We are pouring money into companies with a 9 out of 10 chance of failure, while WM is having difficulty building out its CNG infrastructure to meet existing and growing demand. Clearly something is broken in the system, and that problem is that politics, not the free market, dictates where our tax dollars are being allocated.
As a case-in-point, Tesla (TSLA) has sold less than 5,000 cars, and buyers get a $7,500 tax credit which helps TSLA fund the build-out of its fueling station infrastructure. WM on the other hand currently has 20,000 to 22,000 trucks that could potentially use its CNG, and that doesn't include non-WM buses and taxis that also run on CNG. The existing government funding programs totally ignore existing demand and real solutions, and instead focus on projects that have little or no hope of affecting real change. What good will a nationwide network of TSLA fueling stations be if the majority of its cars are sold in California for travel within California? I seriously doubt that some cattle farmer in North Dakota will ever buy a TSLA or need a TSLA fueling station, but I'm pretty confident a WM truck will be picking up his trash. Even supporters of electric cars like former GM CEO Bob Lutz admits the electric car is a car of the future and still has significant technological and infrastructure hurdles to clear. I've heard these claims my entire life and am still holding my breath for the flying car that transforms into a submarine.
While WM was able to produce enough energy in 2011 to power 1.17 million homes, and personifies the "reduce, recycle, reuse" ethos, WM is still a waste management company, and not an alternative energy company, and should be valued as such. Al Gore's investment portfolio shies away from the higher risk pure "green" long-shots, and instead invests in the lower risk "green" companies like Amazon (AMZN) and Qualcomm (QCOM). An investment in WM for its "green" appeal backed by a solid viable business would fit well with Mr Gore's approach of finding a solid company and then thinking up a way to explain how it is "green." Mr Gore essentially buys solid companies for his portfolio, and then markets the "green appeal" as the value he adds. I think Mr Gore would have an easier time explaining why WM, a garbage company, is more "green" than Paychex (PAYX) or the Chinese travel agency CTrip. WM provides the "feel good" aspect of investing in a "green", "socially conscious" company without the fear of waking up one morning to see the FBI raiding its headquarters after it goes bankrupt and fails to repay a government loan.
In conclusion, firms like WM are the companies that are most likely to offer real solutions to our energy problem. WM's alternative energy is made from existing, widely understood and proven technology. It works well within most of the existing infrastructure, and America doesn't need to reinvent the wheel to make it work. Best of all it doesn't require taxpayer dollars and is largely protected from the political risks that haunt wind and solar. This is a true market driven alternative energy solution, unlike wind and solar that are misguided environmental policy masquerading as energy policy. If investors want a low risk way to invest in an alternative energy company that actually offers a commercially viable alternative energy solution, one that offers results instead of the best of intentions, WM may be a company worth considering. That being said however I would consider WM a "green" company in the same way Al Gore's investment company selects "green" companies. WM's real value is in its waste management business, and it should be valued as such. How much value an individual investor puts on the "green" appeal and the good feelings one may get from investing in a "social conscious" company is totally up to the individual. I don't know how to value good feelings, so I'll have to leave it up to the reader to decide if WM deserves a position in their "green" portfolio. I simply like it because it is doing what the government doesn't seem able to do, and provides a great example of the success of the free-market at its best.
Disclaimer: This article is not an investment recommendation. Any analysis presented in this article is illustrative in nature, is based on an incomplete set of information and has limitations to its accuracy, and is not meant to be relied upon for investment decisions. Please consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author's best judgment as of the date of publication, and are subject to change without notice.