Investors tend to think of the outlook for clean energy stocks and Exchange Traded Funds (ETFs) in terms of which way the political winds are blowing in the climate change debate. In 2009, shortly after President Obama took office, clean energy stocks and ETFs took off on the premise that with Democrats firmly in control of the White House and both chambers of Congress genuine climate change legislation might be enacted. But as President Obama's popularity waned and the politically exaggerated and carbon fuel industry-funded Climategate "controversy" gained traction, the issue of climate change was relegated to the backburner.
As a result, clean energy stocks and ETFs mostly took a pounding in 2009.
But in the summer of 2010, with talk of global warming virtually eliminated from the national discussion and the prospect of climate change legislation wiped away by Republican mid-term election gains a funny thing happened: renewable energy stocks and ETFs stopped dropping and started forming what increasingly looks like important base patterns on their longer-term charts.
You can see this pattern in most of the clean energy Exchange Traded Funds such as First Trust ISE Global Wind Energy Fund (NYSEARCA:FAN); Claymore/MAC Global Solar Energy Index (NYSEARCA:TAN); PowerShares Global Wind Energy Portfolio (NASDAQ:PWND); PowerShares Global Clean Energy Portfolio (NYSEARCA:PBD); Market Vectors Solar Energy Fund (NYSEARCA:KWT); Market Vectors Global Alternative Energy ETF Trust (NYSEARCA:GEX); iShares S&P Global Clean Energy Index Fund (NASDAQ:ICLN); and others. First Trust NASDAQ Clean Edge Green Index (NASDAQ:QCLN) is actually trading close to a 2 1/2-year high, although this particular ETF is weighted far more heavily with semiconducters and other stocks that are suppliers to the clean energy industries.
Virtually all of the renewable energy ETFs show the same pattern: they dropped sharply from their 2008 peaks almost from the moment they were created, had nice advances following the election of President Obama and then faded again when climate change legislation lost its political cache.
But with the political winds blowing strongly against clean energy at the moment the clean energy ETFs have stopped dropping and seem to be trying to base. And when a market sector resists further declines when the news seems to be going against it, it usually pays to ask why.
Department of Defense Says That Renewable Energy Is a National Security Priority
The answer could be that the outlook for the renewable energy sector may be subtly shifting from being a climate change issue to a national security issue. And the catalyst for this shift in discussion is none other than the U.S. military.
Even before the recent turmoil in the Middle East that is threatening secular governments friendly to the U.S. the Department of Defense (DOD) had decided that relying on fossil fuels that in large part are controlled by state-owned oil companies in such an unstable area of the world was bad policy. A series of articles, especially a widely-discussed story on the front page of the October 5, 2010 issue of The New York Times, has directed attention to the fact that the DOD is in the midst of a high-priority program to lessen its dependence on fossil fuels.
Part of the reason is logistical: oil is very difficult and hugely expensive to transport in war zones. A $3 gallon of gas could wind up costing as much as $400 a gallon by the time it gets to the remote location where it's needed when transportation costs are taken into account. Part of the reason is to save lives: Over 1000 people in Iraq and Afghanistan have been killed transporting fuel because fuel convoys are prime targets for terrorist attacks. And part of the reason is that the DOD is the largest consumer of energy of any sector in the U.S. economy, and every $10 increase in the price of oil costs the DOD an additional $1.2 billion.
But another, and perhaps the overriding reason for the DOD's commitment to reduce its dependence on oil is that the U.S. military seems to get what too many politicians don't seem to fathom: an over-reliance on oil is a threat to our national security. From the vantage point of the DOD, when we buy oil from sources in the Middle East we are directly or indirectly funding some of the very governments and terrorist organizations who are killing our soldiers in the field.
This is a simple and logical concept that for some reason has eluded the majority of politicians and, even more surprisingly, most of the conservative intelligencia who profess to be more patriotic and concerned with national security issues than the rest of us.
Fortunately, the DOD doesn't need to seek the approval of politicians or the right wing chattering class to do what it believes needs to be done. As New York Times columnist Thomas L. Friedman put it recently:
"The thing I love most about America is that there's always somebody who doesn't get the word -- and they go out and do the right thing, or invent the new thing, no matter what's going on politically or economically. And what could save America's energy future -- at a time when a fraudulent, anti-science campaign funded largely by Big Oil and Big Coal has blocked Congress from passing any clean energy/climate bill -- is the fact that the Navy and the Marine Corps just didn't get the word. Spearheaded by Ray Mabus, President Barack Obama's Secretary of the Navy and the former U.S. ambassador to Saudi Arabia, the Navy and Marines are building a strategy for 'out-greening' al-Qaida, 'out-greening' the Taliban and 'out-greening' the world's petro-dictators."
And for anybody out there who thinks that this is some sort of pipe-dream, Navy Secretary Mabus has some news for you. In an interview on National Public Radio on December 3, 2010, Secretary Mabus noted that the Navy has a long history of innovation and forward-thinking when it comes to utilizing new sources of energy.
The Navy has shifted from sails to coal to oil to nuclear energy as a means of powering its vessels over the years, Mabus noted. "Every single time there were nay-sayers who said 'you're trading a proven method of transportation for one that hasn't been proven', and every time they were wrong."
Who Controls The Oil?
In a recent issue of Gold and Energy Advisor, Editor James DiGeorgia notes that of the world's five largest oil companies only one -- Exxon Mobil (NYSE:XOM) -- is not owned by a government. Of the top 25 oil companies in the world, 18 are partially or completely state-owned.
"Just look at the list of nations with nationalized oil industries," says DiGeorgia. "Saudi Arabia, Iran, Venezuela, China, Mexico, Kuwait, Algeria, Malaysia, United Arab Emirates, Nigeria, Qatar, Iraq, Libya, Egypt, Indonesia -- the list goes on. Several other nations owns most of their industries, such as Russia. The West's oil supply is dominated by governments that are increasingly hostile to us. Shouldn't we be concerned that thugs like Hugo Chavez and Mahmoud Ahmandinejad can throttle our nation's energy supplies just by throwing a switch?"
And unlike most observers who view the turmoil in Egypt as a mainly secular event with the outlawed Muslim Brotherhood as a peripheral player in the events that have rocked that country, DiGeorgia is not so sure that there is not a darker undertone to what's transpired.
"The goal of the Muslim Brotherhood is to overthrow every moderate government in the Middle East, including key U.S. allies like Saudi Arabia, Kuwait, Dubai, Yemen, United Arab Emirates, Jordan, etc. and install radical Islamic theocracies in their place that will resemble the governments in Iran and the Taliban government that fell as a result of the U.S. invasion of Afghanistan," Di Georgia says. He boldly predicts that oil will surpass its record high of $145 a barrel this year.
The U.S. Military Could Re-Ignite Interest in the Clean Energy Sector
Obviously, nobody knows for certain if and when events in the Middle East will deteriorate to the point where is begins to restrict our access to oil. But the Department of Defense has no intention of waiting around with its fingers crossed and hoping for the best. While politicians twiddle their thumbs and pander to lobbyists and campaign contributors, the DOD has decided that encouraging the development of new renewable energy-based products and technologies is a major priority and that could be a compelling reason to look at clean energy stocks and ETFs from a different perspective even in a political environment where they don't seem to have much going for them at the moment.
The DOD is pushing to make military bases less dependent on fossil fuels. Its stated goal is to utilize renewable energy sources for 50 percent of its power needs by 2020.
The DOD is also actively seeking proposals and ideas from private sector companies to create renewable energy products that can help its fighting forces perform their tasks more safely and that will lessen its overall dependence on fossil fuels. And in the months to come there's a high probability that a growing number of companies could wind up with Army, Navy, Marine and Air Force contracts for innovative military products that could also eventually translate into viable commercial products.
Some of the companies that seem to be making inroads developing products for military applications are huge public-traded companies like Boeing (NYSE:BA), which is developing a solar-powered spy plane that can fly non-stop for 5 years, and Lockheed Martin (NYSE:LMT), which has received a Navy contract to develop an Ocean Thermal Energy Conversion technology that utilizes temperature differences between warm surface waters and deeper, colder waters to generate power. Some of the companies are private, such as Smith Electric Vehicles, which recently announced the sale of all-electric trucks to the Marine Corps. The effect could be especially dramatic on smaller companies that manage to create renewable energy products for military use, such as ZBB Energy (ZBB) and WindTamer Corporation (WNDT.OB), which are both developing mobile renewable energy systems for military use that could provide power at remote locations and reduce the need for those dangerous fuel convoys.
If President Obama really wants to make sure the U.S. has a vibrant, competitive renewable energy industry he ought to re-frame the debate in terms of clean energy's important to our national security. That's an argument even the most skeptical oil industry-funded politician would have a difficult time refuting.
The argument makes sense. And that may be way, even with climate change legislation flat on its back, clean energy stocks and ETFs might be one of the surprise winning sectors of 2011.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: I have a long position in WNDT.OB