Renewable Energy, Good Business

I am optimistic for the Renewable Energy business in 2003. Our firm, Craigmillar LLC, launched Craigmillar Energy LP on January 2, 2003. This fund is focused on publicly traded global sustainable energy companies. I am confident that these stocks can outperform the market, as represented in the S&P 500 index.

These sustainable energy companies benefit from the ongoing decentralization and de-carbonization of our globally structured, energy sources. They broadly represent power technology, sustainable fuels, hydrogen storage, advanced materials and energy recycling. The inherent value of shifting to sustainable energy is reduced financial risks and expanded energy availability. The overall financial benefits could be enormous. In 2003, global citizens will demand improved energy access and reliability, businesses will generate profits in providing energy sustainability and governments will become more democratic. Major trends of decentralization and de-carbonization of energy sources are reducing political, economic and ecological risks to all constituents. Specifically, we have identified five business areas that will receive greater attention in 2003. The first will be to increase our existing power accessibility, quality and reliability. There are emerging technologies used to improve the delivery of the grid from companies like Intermagnetics General Corporation, American Superconductor Corporation. As we decentralized our generation of energy, the grid becomes more like the Internet, where energy, like information, is a two-way street. Second, de-carbonization of the energy economy will receive more attention. Governments will need to regulate the emissions of CO2 as their constituents become more convinced that we are not seeing a 100-year solar flare! More traditional fossil fuel companies that sequester their emissions for sale or elimination will benefit. Example of companies in this area are Air Products & Chemicals, Praxair Inc. and BP PLC. Third, there will be a greater utilization of renewable power resources. Overseas markets have grown faster than the US as overall policy support is more demand driven. When a utility elects to buy a certain percentage of Renewable Energy, the solar/wind/etc. companies compete on price to secure long term contracts. Supply oriented policies, like tax credits, create less emphasis on competitive technology and system design. Companies in this space include Bekaert ECD Solar Systems and AstroPower. Fourth, the move to distributed (small scale, on-site) power generation allows regions more flexibility and reliability. Energy supply is modular and cost effective. Fuel cell technology is emerging from companies such as, Ballard Power Systems, Proton Energy Systems and Nuvera. Fifth, energy dependence on unstable regions, like the Middle East, Latin America and Africa will add to price volatility. The new Chairman of the Senate Energy Committee, Pete Domenici (R-NM) may open up more US public land for development. To further reduce volatility, there will be continued support for developing renewable technologies and projects. Active states in this pursuit are California, New York, New Jersey, Connecticut, Texas, New Jersey and New Mexico. Renewable Energy is nearing full-scale acceptance. There are more emerging companies and projects leading to a greater installed base of sustainable generation. The universe of these companies has performed better than the market in 2002 and may continue this trend into 2003. I am betting on it. Robert S. Preston has 25 years investment experience with senior positions at AXA, Nomura, Rothschild and Paine Webber and is the founder of Craigmillar LLC. In 1979, he founded American Solar Design, Inc., a company that financed, designed, built and managed solar thermal micro-utilities in Northern California. He can be reached at bob.preston@craigmillar.com
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