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The sun offers much more
energy than we could consume.
Did you know that the sun energy which reaches the earth
within a single day, is sufficient to cover the yearly world
wide requirements of electric power ?
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 Strategy:
Long-term capital appreciation by investing in equity
securities of companies involved in alternative energy or
energy technology sectors.
Surging global energy demand.
Limited production capacity. Rising costs. The environment.
With powerful drivers like these, we believe that an
alternative energy revolution is underway.
The Alternative Energy Fund gives you an opportunity to
participate in a global shift to alternative energy. Under
normal market conditions, the Fund will invest in 40 to 60
stocks of global companies that derive more than 50% of
their revenue from alternative energy or alternative energy
technology.
- Alternative energy
includes but is not limited to power generated through:
solar, wind, hydroelectric, tidal wave, geothermal,
biomass or biofuels.
- Alternative energy
technology includes technologies that enable alternative
energy sources to be tapped. This may include various
manners of energy storage and transportation (e.g., fuel
cells; batteries; flywheels), and technologies that
conserve or enable more efficient use of energy.
The Fund invests in foreign
securities which will involve political, economic and
currency risks, greater volatility, and differences in
accounting methods. The Fund is non-diversified meaning its
assets may be concentrated in fewer individual holdings than
diversified funds. Therefore, the Fund is more exposed to
individual stock volatility than diversified funds. The Fund
also invests in smaller companies, which will involve
additional risks such as limited liquidity and greater
volatility. How to invest
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All forms of alternative energy are set to
become big business, but it’s not a one-way gravy train. I
have explained my caution over the biofuels market – I just
don’t think it adds up, but there could also be problems in
store for the solar panel industry in the next few years as
well. |
Demand is certainly expected to accelerate -
significantly - but there may be trouble keeping up with
demand because of the lack of supply of one of the major
substrates involved. That substrate is polysilicon.
Polysilicon has been used for years to make microchips (hence
the term silicon chip) but it is also used in the
manufacture of photovoltaic cells. Competition for supplies
between the two industries has resulted in a supply crunch,
with it being a couple of years before significant new
production comes on stream.
Indeed, so tight is the supply, some solar panel companies
have even been negotiating equity swaps with suppliers in
order to secure supply of this vital substance.
Semiconductor manufacturers have been getting very concerned
about the amount of their vital substrate being used by the
solar industry; rightly so. The spot price has been soaring
and chip makers are starting to secure longer-term contracts
with suppliers.
This is a major headache for manufacturers. You must
consider this factor before you invest in any solar-panel
play. They are going to have to pay a lot of money for their
vital substrate – if they can get hold of any at all. This
is a real risk and it makes me cautious on the profitability
of solar-panel makers for the next couple of years. Those
margins are likely to be tight.
Polysilicon stocks to watch
The biggest supplier of polysilicon in the world is a
company called Hemlock Semiconductor. The company is 63.25%
owned by Dow Corning Corporation, a 50-50 joint venture
between Dow Chemicals (US: DOW) and Corning (US: GLW). A
further 24.5% is owned by Shin-Etsu Handotai, a wholly-owned
subsidiary of Japan’s Shin-Etsu Chemical, which is listed on
the Tokyo Stock Exchange (4063.T). The remaining 12.25%
stake is owned by Mitsubishi Materials, which has its main
listing in Japan (5711.T) but it also has a secondary
listing in Germany (5711.DE).
At the start of May, Hemlock said it would invest up to $1bn
over the course of the next four years to expand its main
facility in Michigan. This will result in a significant
increase in capacity by 2010; a whopping 90%. This will
bring the company’s annual output of polycrystalline silicon
to around 36,000 metric tons.
“The solar energy industry is growing at a tremendous pace,”
said Marie N Eckstein, Dow Corning’s vice president. “A
readily available supply of polycrystalline silicon is
essential to continued innovation in this promising
alternative-energy industry.”
On Thursday, German group Wacker Chemie (WDN.DE), the
world’s second-largest polysilicon producer, became the
latest materials group to unveil its expansion plans. The
company said that it would start the latest stage of
polysilicon production expansion at its Burghausen site by
an additional 7,000 metric tons to a total of 21,500 metric
tons per year. The first polysilicon from the new site is
expected to be available in the fourth quarter of 2009.
This news prompted Merrill Lynch to raise its price estimate
on Wacker shares to 195 euro from 180 euro, but this is not
much more than the current share price. The broker said that
the expansion plan was “a further positive signal regarding
the long-term demand prospects for the polysilicon industry.
So, as the input costs for polysilicon increase, margins at
solar manufacturers will shrink significantly. The price
look set to continue to rise so, until these new production
facilities come on stream in the next few years, I believe
it will be the manufacturers of polysilicon that are making
hay, rather than the solar panel manufacturers themselves.
However, once these new manufacturing sites come on stream,
solar industry profits look set to soar.
By Garry White for his ‘Garry Writes’ newsletter. To find
out more about his monthly newsletter, Outstanding
Investments, which expands on his views and makes specific
recommendations in the resource, infrastructure and biotech
sectors, click here: Outstanding Investments
Investing in shares can lose you some or all of your
investment. Never risk more than you can afford to lose.
Small company shares can be illiquid and carry higher risk
than other shares. Past performance is no guide to the
future. Consult a financial advisor if unsure.
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