Political Realities and an Alternative Energy Bill

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Includes: AMSC, AONEQ, CLNE, FSLR, HEV, NLR, NUCL, PEIX, PKN, SPWR, TSLA, VLNCQ, VWDRY, WPRT
by: Clean Energy Intel

Two weeks ago, President Obama made a forthright call for a major push on clean technology - from biofuels to the electric car and clean power generation. I covered these issues in more detail in an article on his speech at the time.

In terms of where we go from here, however, the market has to be convinced that the Republicans will respond at least to some extent in a bi-partisan manner and allow some kind of legislative progress.

My own opinion is that Republicans have their own reasons for seeking legislation in this direction. There may be less acceptance of the climate change agenda amongst Republicans - but they are certainly fully aware of the national security issues on the table.

Nevertheless, there is clearly a backlash against excessive government spending underway. This adds another obstacle in the way of any new legislative agenda. After all, don't even Democrats on Capitol Hill have to listen to voters? No doubt.

This is particularly why I found the following poll so interesting. Just before the President's January 25th State of the Union Address, Gallup conducted a poll of voters asking about their views on what they deemed to be the top eight actions which could be taken by Congress this year. The somewhat surprising results and the specific questions asked are provided below:

Next, I'm going to read a list of actions Congress could take this year. Please say whether you strongly favor, favor, oppose or strongly oppose Congress doing each of the following this year. How about -

Total % Favor Total % Oppose
Pass an energy bill that provides incentives for using solar and other alternative energy sources 83 15
Pass a bill to overhaul the federal tax code 76 14
Speed up the withdrawal of US troops from Afghanistan 72 25
Pass an energy bill that expands drilling and exploration for oil and gas 65 33
Approve a free-trade agreement with South Korea 53 35
Pass stronger gun control laws 49 50
Take steps to deny automatic citizenship to children born in the US whose parents are illegal immigrants 44 54
Pass a bill to give some illegal immigrants living in the US a path to legal status 43 55
Click to enlarge
Source: Gallup, based on polling on Jan 14-16, 2011.

Clearly, the numbers speak for themselves. On alternative energy policy, the vast majority of voters, 85% of those polled, want change. From the wording of the question, it would appear that they would generally support something along the lines of that suggested by the President in his State of the Union Address. Only 15% would oppose such measures.

Interestingly, this even outweighs the 65% of those polled who would support an energy bill expanding drilling and exploration for oil and gas. The strength of these numbers suggests that both Democrats and Republicans should at least attempt to find a bi-partisan solution allowing both initiatives.

Two points seem worth mentioning -

  1. This is of course only a poll. However, a national telephone poll such as this is deemed to offer 95% confidence that the margin of error won't be much worse than +/- 4 percentage points. When the majorities are as big as this you can therefore be sure that you have the general direction right.
  2. These questions are fairly broad. The results therefore obviously don't imply the same level of support for any specific bill. However, they do tell both Democratic and Republican lawmakers that they should seek to put together a bi-partisan bill to do the job.

And in fact, that's the key issue. Republicans will be formulating their varied responses to the President's initiative - both generally and in the various related House and Senate committees. And in doing so they will have a keen eye on both voters generally and their own supporter base. Which is why the following table is also particularly interesting. It breaks down the numbers by political affiliation.

Support for Possible Congressional Actions, by Political Party

(Figures represent total % in favor)

Democrats Independents Republicans
% % %
Pass alternative energy bill 93 82 75
Overhaul federal tax code 74 77 77
Speed up withdrawal from Afghanistan 86 72 61
Pass energy bill to expand oil and gas exploration 52 62 83
Approve a free-trade agreement with South Korea 53 55 50
Pass stronger gun control laws 68 47 30
Deny automatic citizenship rights to children of illegal immigrants 36 44 51
Give some illegal immigrants living in the US a path to legal status 64 39 27
Click to enlarge

Source: Gallup, based on polling on Jan 14-16, 2011.

Clearly, these results are particularly persuasive. Even 75% of Republicans polled support the idea of some form of alternative energy bill. However, 83% of Republicans polled also support a bill to expand oil and gas exploration.

In sounding out their respective supporter bases, Republican lawmakers around the country will be doubt be seeing the groundswell of support for some action. This does suggest that some form of bi-partisan engagement and initiative is a reasonable bet.

Initially, this may not seem to be the case as Republicans attempt to focus their energies on frustrating the EPA's attempts to regulate carbon. However, the Republican's main argument is that the EPA's initiative effectively represents a route around Congress and the legislative process. In which case, the answer is to legislate.

The opportunity may arise in the period ahead for the President to agree to reign in the EPA to some extent in return for a bi-partisan alternative energy bill.

Finally, if you believe that we will see bi-partisan progress on legislation in this arena, there are numerous beneficiaries, depending on what you think the specific pieces of legislation will look like. I discussed some of my own favorites in another article on this issue most recently.

To recap: In solar, the strongest US utility-scale players most likely to benefit are First Solar (NASDAQ:FSLR) and SunPower (SPWRA). In wind – Vestas (OTCPK:VWDRY) and American Superconductor (NASDAQ:AMSC). For nuclear's contribution to a Clean Energy Standard, a straight ETF such as NLR is probably preferable. In biofuels my preference is Pacific Ethanol (NASDAQ:PEIX). For the electric car there are plenty – Tesla (NASDAQ:TSLA), Ener1 (NASDAQ:HEV), Valence (VLNC). I have a particular preference for A123 Systems (AONE). I have written about all of these stocks in more detail over the past couple of months.

Trades that are heavily exposed to political developments are always a bumpy ride. However, this time it could be well worth strapping yourself in and seeing this one out.

Disclosure: I am long AONE, AMSC, FSLR, SPWRA, PEIX, OTCPK:VWDRY.