OCEAN CITY – Solar energy and wind power are the industries that usually lead off any discussion of clean-tech investments. But for now at least, Steven Milunovich, an Alternative Energy Analyst with BofA Merrill Lynch Global Research, is cautious about solar companies.
Electricity generated from the sun costs more than twice as much as power from traditional sources, though Milunovich expects solar to achieve "grid parity" — prices in line with those of electricity from fossil-fuel-fired and nuclear plants — by around 2015. Meanwhile, there’s considerable uncertainty in the solar market, largely because solar projects are especially dependent on tax credits and other government subsidies.
Pinched by the recession, some countries (notably Germany, which has had a robust incentive program) appear poised to curb their backing of the industry. And solar is still recovering from a spike in popularity from 2005 to 2008 that led to oversupply (principally by a flood of cheaply produced, heavily subsidized panels from China), price competition and squeezed margins.
Wind power looks promising but faces near-term uncertainty. America’s wind power capacity surged 39% last year, and the Department of Energy’s National Renewable Energy Laboratory has suggested that the U.S. could realistically produce 20% of its electricity from wind turbines in the not-too-distant future.
The catch is transmission — how to move all that energy from places like the North Sea and remote areas of West Texas to where it’s needed. That will require local and federal authorities to invest billions of dollars in infrastructure, mainly in the form of many thousands of miles of transmission lines.
The other exciting clean-tech sector now is a catchall known as "efficiency," which involves everything from relatively simple ways to reduce energy use to the development of a "smart grid" to replace the current patchwork electricity distribution system.
Because clean-tech markets are still in considerable flux, it can be difficult for individual investors to identify leaders in this latest technological revolution. But there are several new investments that offer broad exposure to alternative energy companies and can help diversify portfolio exposure to traditional energy stocks.
And diversification is essential, says Milunovich, because at this early stage, no one knows for certain which parts of this young industry, or which companies, are most likely to prosper.
(A Merrill Lynch Wealth Management Advisor. She can be reached at 410-213-8520.)