PUW: Progressive Energy Stocks Progress Toward Cleaner Energy

As oil prices closed in on $120 per barrel over the last few weeks, energy funds of all kinds percolated to the top of the PowerShares Momentum TrackerTable. PowerShares WilderHill Progressive Energy (PUW) was one of them. The fund rose five spots on the table last week, bringing it up 17 spots from 10 weeks earlier. If high energy costs continue, and consumers and governments maintain their recent focus on environmental sustainability, PUW could easily erase its losses thus far in 2008 and climb its way to the top of the table.

PUW was designed to complement its more idealistic counterpart, PowerShares WilderHill Clean Energy (PBW). Rather than investing in stocks of entirely clean energy companies as PBW does, PUW invests in stocks of companies that are progressing in that direction. Many of the firms listed in the fund’s portfolio don’t have a particularly “green” reputation, but the WilderHill Progressive Energy Index (which PUW tracks) has determined that they are in fact taking considerable steps toward cleaner and more sustainable energy production and consumption.

While PBW invests in the technologies and businesses that could someday provide truly clean and renewable energy for the world, PUW provides a stake in the technologies and businesses that are serving as imperfect intermediaries, weaning the world off dirty and inefficient forms of energy. The theory is that until solar, wind, thermal and other clean energy sources take the place of coal, natural gas and nuclear, the best bet to reduce pollution in the short term may be to invest in the coal, gas and nuclear firms that are relatively progressive environmentally. Only about 3% of the world’s current energy comes from renewable, zero-carbon-emissions sources, so despite all the hype around alternative energy lately, there’s still a long transition ahead to truly clean energy.

PUW recently had 42 holdings, with an average market capitalization of $3.8 billion. The fund’s holdings can be sorted into the six categories adopted by the WilderHill Progressive Energy Index: alternative energy (biofuels, natural gas, nuclear fuel, methanol and so on), better efficiency (power management, demand reduction), emissions reduction (end-of-pipe pollution control, waste reduction), new energy activity (carbon trading, nanotechnologies, waste-to-energy systems, efficient appliances), low-polluting utilities (hydropower, nuclear power) and conversion and storage (advanced batteries, fuel storage).

Stocks falling into the alternative energy camp have the strongest presence in PUW’s portfolio, taking up almost a third of the fund’s assets. The fund’s six largest holdings fell into that category recently. Top among them are Southwestern Energy (SWN), a natural gas exploration and production firm, and USEC (USU), which supplies low-enriched uranium for about 150 nuclear reactors around the world. Although neither natural gas nor nuclear energy is a genuinely clean source of energy, each offers a cleaner alternative to sources such as coal and oil when used properly. USEC, for instance, is favored in part thanks to its program converting Russian nuclear warheads into power-plant feedstock.

With a nearly 58% return, PBW easily outpaced PUW’s less than 16% gain in 2007, largely due to the astronomical heights reached by shares of many solar energy firms. Clean energy was hot in 2007, as the global economy kept chugging along and global warming took center stage in the mainstream media, and investors felt confident investing in nascent alternative energy firms.

The ecological outlook hasn’t changed since December 31, but our economic situation has shifted considerably. Now that the U.S. stock market has fallen and economies around the world are slowing, investors may be less enthusiastic about investing in the generally high-risk stocks in PBW’s portfolio. Most solar energy firms remain heavily reliant on government subsidies, and politicians may be less likely to dole out funding to such programs as budgets tighten and constituents cope with unemployment and high gas prices. In stark contrast to last year’s stellar gains, PBW was down more than 24% year to date through April 29.

It may be that PUW’s slightly more cautious and pragmatic approach will be more appealing during such an economically uncertain period. After all, even if the most promising approaches to alternative energy turn out to be too costly or otherwise unfeasible, the firms represented in PUW’s portfolio will likely keep on doing what they’ve always done—in progressively cleaner ways.

But while PUW’s holdings might be considered mainstream compared to other alternative energy stocks, most of the companies represented in the fund’s portfolio are small, narrowly focused stocks that are likely to be far more volatile than the giants found in many conventional energy funds. PUW offers a unique and potentially high-growth take on the future of energy, but such an innovative approach is sure to come with high risk—so investors would be wise to keep any stake here moderate.

Comments

[frflyer]

" Most solar energy firms remain heavily reliant on government subsidies, and politicians may be less likely to dole out funding to such programs as budgets tighten and constituents cope with unemployment and high gas prices."

You must be kidding. Nuclear, and especially oil receive far more in subsidies than solar does. And coal is at least as much. The entire alternative energy proposal now in congress is for $6 billion for one yeard. That's for solar, wind, geothermal etc. Oil gets more than ten time that much all by itself.

www.setamericafree.org...
www.monitor.net/monito...
www.progress.org/2003/...
www.eoearth.org/articl...

And one estimate of all the hidden costs of oil is over $800 billion annually. That includes costs like $100 billion for military protection of oil shipments, health costs, environmental costs. It also adds $300 billion to our trade deficit.

Nuclear has big issues with water, the billions of gallons needed to cool the plants. Droughts in the southeast are threatening shutdowns of reactors, with one in Alabama already having been shut down briefly.

The Argonne National Lab says an airliner crashing into a reactor could cause a complete meltdown, even if the containment building isn't compromised

"The total of all oil-related external or “hidden” costs of $825 billion per year. This
total is nearly twice the figure authorized for the Department of Defense in 2006.
To put the figure in further perspective, it is equivalent to adding $8.35 to the price
of a gallon of gasoline refined from Persian Gulf oil. This would raise that figure to
$10.73, making the cost of filling the gasoline tank of a sedan $214.60, and of an
SUV $321.90."

"Federal subsidies to new nuclear power plants are likely between 4 and 8 cents per kWh (levelized), and could well be the determining factor driving the construction of new nuclear power plants. $9 billion per year in the U.S."

Nuclear doesn't make us energy independent.
""The United States and Russia signed a deal that will boost Russian uranium imports to supply the U.S. nuclear industry, the Commerce Department said Friday….
The new agreement permits Russia to supply 20 percent of US reactor fuel until 2020 and to supply the fuel for new reactors quota-free."

"So if, under a President McCain, we build a bunch of new nuclear reactors -- they could be fueled 100 percent by Russia.
I can almost hear Vladimir Vladimirovich Putin saying, "Excellent." "
from: gristmill.grist.org/st...

We import a bigger percentage of our Uranium than our oil.

Nuclear is costlier and more time consuming than solar or wind to get up and running.

"Estimates of the cost to construct nuclear power plants are as high as $4,000 per kilowatt, as compared to about $1,400 per kilowatt for wind projects."

The nuclear industry isn't accountable for safety.

"The nuclear industry has long enjoyed limited liability for nuclear accidents under the Price-Anderson Act, which ensures that taxpayers, not industry, will pay for damages in the event of a serious accident."

Transporting nuclear waste from all over the country to Yucca Mt. Nevada is potentially dangerous, and expensive.

"Part of our electric rates go to payments to the federal Nuclear Waste Fund, which is intended to fund the construction of the Yucca Mountain repository in Nevada and pay for transportation of waste to the proposed disposal site. To date, Wisconsin customers have paid about $600 million into this fund." That's just one state.

Dismantling old nuclear reactors is expensive.

"Nuclear plant owners are responsible for costs to dismantle retired units, dispose of waste, and decontaminate the site. Each unit has its own decommissioning trust fund, paid for by customers. Wisconsin ratepayers have spent $1.5 billion for the eventual decommissioning of the Point Beach, Kewaunee, and Genoa plants."
That's $500 million each.

www.cleanwisconsin.org...

"David Fleming, creator of the concept of Tradeable Energy Quotas and author of the forthcoming and rather wonderful “Lean Logic”, has just published The Lean Guide to Nuclear Energy, which is a thorough demolition of the case for nuclear power being a solution to peak oil. and climate change. You can down load the pdf. for free here or you can order printed copies here. Like much of David’s writing, it patiently yet assertively builds its arguments, backed up by exhaustive research, to build a case against nuclear power that looks pretty much bulletproof to me." from
www.grinzo.com/energy/.../

transitionculture.org/.../
Link to The Lean Guide to Nuclear Energy"

[frflyer]

What will work is to put our efforts into solar and wind and other clean renewable energy. There will never be any fuel to explore for, mine, transport, store, smelt, modify for safe burning, burn or use for fission, or clean up the mess from.

As the following shows, we convert to clean energy with current technology.

www.setamericafree.org...
A Blueprint For U.S. Energy Security

And PV solar is within a few years of achieving grid parity. In fact, Nanosolar is probably already there.
"Nanosolar’s founder and chief executive, Martin Roscheisen, claims to be the first solar panel manufacturer to be able to profitably sell solar panels for less than $1 a watt. That is the price at which solar energy becomes less expensive than coal.
With a $1-per-watt panel,” he said, “it is possible to build $2-per-watt systems.
According to the Energy Department, building a new coal plant costs about $2.1 a watt, plus the cost of fuel and emissions, he said."
from www.grinzo.com/energy/.../

Scientific American A Solar Grand Plan
www.sciam.com/article....
How solar thermal and concentrating solar plants in the southwest could power the whole country, using less land than now used for coal mining, 1% of our deserts.

The argument against solar and wind that rests on the supposed problem of intermittency or unsteadiness of their availability hasn't seemed to stopped the Danes.

"There are areas in Denmark and Germany who use more than 40 percent of their electricity from wind. From what I have read, they are less concerned about the intermittency than we are in the United States even though we aren't at 1 pecent yet. Why? Because we are told by the fossil fuel guys, hey, can't use wind, can't use solar, what about the intermittency. If wind gets up to 40 percent of the electricity we use and solar gets up to 40 of the electricity we use, the other percents of electricity we need can be made up from the fossil fuel plants that are still there. If they are run less at full power, they can last a long time. That can be your electricity `battery.'"

gristmill.grist.org/st.../...

Denmark gets 20% of it's energy from wind.

And it isn't stopping Abu Dubai

"Abu Dhabi is not content to just sell you the oil that fuels your SUV; now its going to sell you sunshine to keep your lights on and power your electric car when the internal combustion engine goes the way of the buggy whip. Masdar, the oil-rich emirate’s $15 billion renewable energy venture, and Spanish technology company Sener on Wednesday announced a joint venture called Torresol Energy to build large-scale solar power plants in Australia, Europe, the Middle East, North Africa and the United States." (specifically, the very same southwest where the SciAm article recommends that Americans build solar plants)

"The irony is too rich to leave unsaid: A leading oil producer invests billions in carbon-free energy while a leading consumer of fossil fuels - the United States - continues to subsidize Big Oil while offering only tepid support for green technology. It is inevitable that climate change will foster the rise of renewable energy - the only question is which countries and companies will profit from the new energy economics. It is entirely possible that the U.S. will trade energy dependence of one kind - on Middle East oil - for another - on Middle East and European solar technology - in the era of global warming. It’s no coincidence that most of the solar energy companies with contracts to build utility-scale power plants in California and the Southwest have overseas roots - Ausra hails from Australia, BrightSource was founded by American-Israeli pioneer Arnold Goldman, Solel is based in Israel and Abengoa is headquartered in Spain."

With as much public money as we spent over 35 years to build the high speed information highway, we could solve the energy problem in a simillar time frame.

[EnergyFinancier]

Frflyer is right--solar and wind energy producers receive few subisidies and tax credits compared to the amount given to the oil and gas industry, and even biofuels producers. Nonetheless, investment and development has grown in the past few years, and that growth is certain to continue.<br><... you'd like to learn more about renewable energy finance and the future of the renewables market, you should check out the Renewable Energy Finance Forum-Wall Street, held June 18-19 in New York City.<br><br&... brings together financiers, investors, and renewable energy project developers to network and share ideas about the future of the renewable energy industry. One of the official REFF sessions will feature representatives from the American Council on Renewable Energy, the Institute for Sustainable Energy Policies, New Energy Finance, the Stella Group, and Lazard Freres & Co discussing the economic and policy factors fueling (and constraining) the renewable energy market.<br><b... more information, visit REFFWallStreet.com.

[Zenfar]

Good article. Thanks for going into the major holdings. Nothing wrong with cleaning up the existing sources and investing in alternative sources as well. An all in approach. Solar and wind should receive equal or greater subsidies but if existing source can be improved all the better. I am more of a no subsidies guy, at a minimum half of the ethanol subsidy should go to solar/wind now, ask Nancy why this isn't happening...