Energy: Tech Trumps Policy
Elena is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Technology + Reasonable Regulations
At least it isn’t typical in those energy sectors where technology dominates and the marketplace is unfettered by excessive regulation. That’s my experience as an energy consultant and broker. In its August 11th issue, THE ECONOMIST confirms what I have been observing. In essence, THE ECONOMIST salutes America’s current energy boom and contends it has been technologies like “fracking” that gave it momentum. The force of that driver has been so strong and sustained that it didn’t require policies which were “weighty or visionary.”
The technology for fracking, primarily because of the controversy surrounding it, has been high profile for a while. However, there are a number of other technologies which investors should be watching. And there will be many more. The technology path has proved out to the most productive in increasing supply, providing control over price, and reducing environmental impacts.
One development that has been a game-changer, but less well known than fracking, is Energy-from-Waste (EfW). Both through mature and developing technologies, trash which would have been shipped to and stored in landfills for centuries is transformed into energy for electricity. Along with that are the green impacts. A ballpark estimate is that for every ton of solid waste which is carted away and transformed into energy, carbon dioxide emissions are reduced by roughly the same amount. Another economic payoff is that commodities are recycled. This becomes increasingly important as commodity prices continue to rise. That bit of inflation has been a negative factor in many industries.
From the direction of their stock prices, the major EfW players are doing relatively well.
Those who want to invest in this sector can buy an individual stock. They can also check out two ETFs. They are the Global Waste Management ETF (WSTE) and Van Eck’s Market Vectors Environmental Services ETF (EVX).
In terms of individual stocks, Waste Management (NYSE: WM) has defaulted into being the standard bearer. Waste Management’s stock price is at $34+, with a 52-week average of $28.77 to $36.35. Another major player has been Covanta (NYSE: CVA). Its stock price is at 17+, with a 52-week average of 12.87 to 17.56. Those two are getting the most attention from analysts.
Not that everything is rosy. For all, earnings have been flat or declining. They are recession resistant but not recession immune. With less economic activity there is less trash. Waste Management has had low volume growth which contributed to its less than 1% over the past 7 years. The 21st century has had 2 recessions. Also because technology usually requires significant capital investment high debt is common. However trash isn’t going away. Some estimate that human beings in developed economies toss more than 4 pounds daily.
But as Apple investors know, the beauty of being in what might loosely be called a “technology” group is that the company tends to approach many of its challenges through technology. That in turn can produce more breakthroughs which boost the company’s value and could simultaneously cut costs.
For example, one concern about EfW is the rising cost of petroleum based fuel for its vehicles to pick up and transport the trash. Waste Management addresses that through creating its own truck fuel from biomass it develops. Covanta has been listed as one of the top 11 U.S. companies cited for investment in research and development for the Maplecroft Climate Innovation Indexes.
Traditional “Best Practices”
Ironically, what could impede the growth of EfW, including development of new technologies, is the lack of investor confidence. In an April 2012 poll conducted by Covanta during a webinar the company found that 40% of those responding cited just that as a major obstacle. As an energy professional, frequently I encounter “best practices” based on traditional ideas of energy sources, supplier, and price. Even in Connecticut, where electricity has been deregulated, some commercial users still approach what, where, and how to buy with a monopoly mindset. Instead of shopping around, then negotiating terms and conditions based on their own business plans they cave to what’s supposedly standard. They also often miss out on increasing the value of their real estate through small energy efficiency measures which usually could be funded with government money.
Technology has transformed the energy source, supply, and price situation from scary to downright secure, at least in reality. However, the old dark mental models for framing energy in the U.S. can factor out what really is. That will change when the technology story and its implications are understood.
ElenaCahill has no positions in the stocks mentioned above. The Motley Fool owns shares of Covanta Holding and Waste Management. Motley Fool newsletter services recommend Republic Services and Waste Management. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.