Let me start by saying that I’m not terribly impressed by the majority of alternative energy investments. For now, and for at least the next 10 to 20 years, I don’t see alternative energy making tremendous inroads in meeting current levels of demand. Barring tinkering with energy costs by governments, in terms of subsidies, it doesn’t seem that things like solar are cost competitive with existing energy sources, predominately carbon-based. I feel this is true in all of the developed markets, generally speaking.
However, it well be a different situation if one looks at emerging markets. I think that in large part, this is due to the fact that there’s no existing “old” infrastructure to compete with newer technologies. As a result, EMs are able to skip steps, so to speak, and move forward to “state of the art” technology. As an example, cell phones seem to have become ubiquitous throughout the third world, as it is typically much easier to sprinkle cell towers over the countryside, than string endless miles of telephone lines. Its starting to appear that a similar situation is developing with electrical generation, and solar power. The December 24th on-line issue of the New York Times had a very interesting article on how small scale solar power is changing the life for impoverished Kenyans. A small Chinese-made solar power system costing roughly $80 not only provides enough power to recharge a cell phone, but provide sufficient power to burn 4 light bulbs, saving the family mentioned in the article $15/month on kerosene and battery costs, as well as $20/month on travel that it used to take to get to the closest town that had facilities for charging cell phones. (Cell phones are used extensively in Third World countries for transferring money among the poor, bypassing the more traditional banking structure).
From an investor’s standpoint, a couple of things leaped out. First, and most obvious, would be investing in the manufacturers of such small scale solar units. Of course, the questions arise, such as, how many of these firms are publicly traded? For those (if any) ARE publicly traded, how certain is it that these firms will thrive, and not succumb to their competitors?
The second thing that struck me is that, from a macro perspective, single country, or regional ETFs might well be attractive investments, as the frontier economies develop at a pace that is increasingly rapid. Unfortunately, there doesn’t appear to be much in the way of single country ETFs for Africa, although AFK (Van Eck’s Market Vectors Africa), with a 31% weighting to South Africa, and the balance spread among various African nations such as Nigeria, Kenya, Morocco, and Zambia. It should be noted that AFK is thinly traded, and is small in size at $29M AUM.
The link to the article is here:
Sources: New York Times, Online Edition
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.