Seeking Alpha
Long/short equity, tech, ETF investing
Profile| Send Message| ()  

1. GM investment may hit ethanol stocks. General Motors (GM) announced that it has purchased an equity stake in ethanol producer Coskata. GM CEO Rick Wagoner says that Coskata has three competitive advantages over corn-based ethanol producers: (1) Coskata can produce ethanol from renewable sources like garbage and crop waste, (2) those materials are available anywhere in the U.S., a crital advantage as corn-based ethanol cannot be transported from the corn belt to areas of gasoline demand in existing pipelines; and (3) its production requires less electricity and natural gas, and therefore generates less carbon than production of corn-based ethanol and can hit a cost below $1 a gallon. This isn't necessarily a positive catalyst for GM's stock, as it didn't disclose the size of its equity stake, Coskata hasn't begun commercial production, and GM arguably should focus on its core competency of building cars. The implications for ethanol stocks, however, are clearer: this deal will reinforce concerns that corn-based ethanol is not economically or environmentally viable, and points to greater competition for today's ethanol producers. Bottom line: net negative for the (largely corn-based) ethanol "story" stocks, such as Aventine Renewable Energy (AVR), Cosan Ltd. (CZZ), Andersons Inc. (ANDE), Archer-Daniels-Midland Co. (ADM), Pacific Ethanol (PEIX) and VeraSun (VSE) .

2. China's energy price freeze will raise demand for oil. The Chinese government raised gasoline prices by 10% in November. Why? Because Chinese refineries cut production due to rising oil prices combined with caps on the price of their own output. Now, after growing public anxiety about inflation, the Chinese government has announced that it will once again freeze energy prices. Zig zag, zig zag... Keeping energy prices below market rates increases demand for energy and oil, while sudden step increases in the price of gasoline keep the refineries committed to maximum production. The net effect is to raise demand for energy from China's manufacturers, even those that are uncompetitive. What a mess. Unless you own the oil ETFs, that is.

3. A $420 billion solar plan. The current issue of Scientific American features a grand plan for massive U.S. spending on solar energy, in a bid to supply 69% of the country's electricity and 35% of its total energy by 2050. The authors advocate hundreds of square miles of solar farms in the Southwest, the construction of underground caverns to store energy as compressed air, and the creation of a new transmission network to get the power to urban areas in the rest of the country. The cost? $420 billion.

4. Solar stocks at risk. Markos Kaminis says that hype over solar has reached a crescendo, and the solar stocks are ripe for a correction. After the huge run up in 2007, he thinks investors may sell the stocks now that the tax year is over. And econonic weakness in the U.S. is driving down the price of oil, weaking the case for solar energy. The stocks at risk of "a momentary eclipse", he says, are First Solar (FSLR), Trina Solar (TSL), Evergreen Solar (ESLR), JA Solar (JASO), Suntech Power (STP), and LDK Solar (LDK).

5. IBM, the alternative energy stock? A research project by the Pacific Northwest National Laboratory of the Energy Department equipped 112 homes in the Olympic Peninsula, west of Seattle, with digital thermometers and controllers attached to water heaters and clothes dryers. Pulling real time electricity prices from a live marketplace whose software and analytics were designed by IBM (IBM), the homeowners were able to monitor the cost of electicity at different times of day and choose their usage levels. The result: peak load electricity demand was cut by 15%. Perhaps software will provide a greater role in solving energy and climate change problems than green investors realize.

Have you seen any off-the-beaten track news stories that I should include in the next edition of 5 Must-Read Stories in Oil and Alterntive Energy? If so, please leave a comment below. Full disclosure: no position in any stocks mentioned.

Source: 5 Must-Read Stories in Oil and Alternative Energy