"Perfect Storm" sinking Alternative Energy Stocks
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A perfect storm has gathered to sink alternative energy and biofuel companies. Crude oil has fallen along with economic growth around the world, resulting in the exchange traded fund for the industry, United States Oil (NYSEMKT: USO), being down 15.17% for 2012. Over the same period, United States Natural Gas (NYSEMKT: UNG), the exchange traded fund for natural gas, is off by 24.96%. The exchange traded fund for coal, Market Vectors Coal, has plunged 27.27% for 2012. Due to the drought in the Midwest of the United States, the exchange traded fund for corn, Teucruim Corn (NYSEMKT: CORN), has risen 24.97% for the last month of market action.
For alternative energy companies and biofuel entities to prosper, fossil fuels such as oil, coal and natural gas have to be at high prices. For biofuel companies in the ethanol sector to be economically viable, corn also has to be at a low price. That is not happening. As a result, PowerShares WilderHill Clean Energy, an alternative energy exchange traded fund, has fallen 48.23% over the last 52 weeks. The exchange traded fund for biofuels, Elements MLCX Biofuels Index, is trading more than 26% below its high for the last year.
Just the greater supply of natural gas alone has been enough to destroy the alternative energy sector, according to an article in Wired magazine, "Clean Tech Meltdown," by Juliet Eilperin. In her excellent piece in Wired, Eilperin writes that, "Perhaps the biggest force working against not just Solyndra but clean energy in general is this: Because natural gas has gotten so cheap, there is no longer a financial incentive to go with renewables. Technological advances in natural gas extraction from shale – including the controversial practice of hydraulic fracturing, or fracking – have opened up reserves so massive that the US has surpassed Russia as the world’s largest natural gas supplier.”
But the declining price of oil and coal along with the rising cost of corn has transormed a deadly blow from cheaper natural gas into a lethal combination that has pounded many green tech concerns. BioFuel Energy Corp (NASDAQ: BIOF), which produces and sells ethanol and its co-products, is trading around $3 a share, down from its 52 week high of almost $25. The facilities of BioFuel Energy each require approximately 41 million bushels of corn per year in to produce 110 million gallons of ethanol yearly. A bushel of corn, now around $7.50, is about three times as much as it was in 2005. As BioFuel Energy Corp only has a market cap of around $100 million, the increase in its corn bill alone is more than the company is worth: small wonder that the share price is down 77.35% for 2012.
It is no better for solar and wind power companies around the world. JA Solar Holdings (NASDAQ: JASO), headquartered in Shanghai with strong backing from Beijing, has fallen almost 80% over the last 52 weeks. First Trust Wind Energy, the exchange traded fund for wind energy, is down about 40% for the same period.
Despite all the hope and promise that attracted billions and billions in public funding, venture capital and and all types of investor financing, there is not a single form of green tech that even comes close to matching the effectiveness and efficiency of energy from oil, natural gas and coal. While fracking is still in its infancy as a technology and tool in use around the world, no clean tech source even has the potential to produce the energy that it already is today in the natural gas field. Fracking methods will only improve along with its greater usage around the world, making the days ahead brighter for all energy consumers as prices will be driven down. By contrast, the future is as bleak for alternative energy as an investment for profit as has been the past performance of the sector.
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