The Coming Green Bubble - Part 2
By Bill Moore
If you buy Dr. Robert Bell's thesis, a green tech stampede is about to happen as frightened investors large and small bolt from any investment associated with global warming-forcing fossil fuels. For Bell, greenhouse gases are the "new asbestos" and he considers nuclear waste "unsalable inventory" that only terrorists would want to buy.
If he's right and you're brave, there's a fortune to be made for the savvy investor.
In Part One of my interview with the Chair of the Economics Department at Brooklyn College, City University New York (CUNY), we talked about the premise of his new book, 'The Green Bubble'. Bell, who lives part of the year in Paris and has authored seven other books that have been published both in Europe and North America, argues that when the realization finally sinks in that global warming is a serious and immediate environmental crisis, vast sums of investment dollars will begin to flow into 'green energy' technologies, at first creating an accelerating bull market that quickly inflates into the largest investment bubble in human history.
And when it does, fortunes will be made and lost, but the world will have transitioned from a fossil fuel-powered world to one that relies on the infinitely free and clean power of the sun, wind, waves and geothermal energy.
In the second half of this nearly 50-minute MP3 interview, he begins by discussing one of the little talked about but significant reasons why he believes nuclear power is a bad idea economically, despite all the renewed interest in what has been a largely moribund industry in North America in the wake of the reactor meltdown at Three Mile Island and the disastrous fire at the Chernobyl nuclear power plant in the Ukraine.
"Without going into the long story of the safety of nuclear reactors and the danger of terrorism, there is the question of so-called 'nuclear waste.' Absolutely misnamed," he insists. "It should be called 'nuclear inventory' because it has all the properties of inventory except one. It has to be stocked. It has to be watched. It has to be protected. But it can't be sold. The only guy who wants to buy that inventory is (Osama) bin Laden. Nobody else wants it. It's the exact opposite of the Japanese concept of 'just in time inventory'; this is 'just for eternity' inventory.
"That by itself would sink nuclear," he continues, "because of the colossal increasing cost of just storing all of this unsalable inventory. But the other big issue is that if you get permission today, right now to build a nuclear power plant of any generation, but let's say the new generation, the so-called third generation... the one that's being built in Finland and... being proposed in France, the minimum to when that thing is pumping out electricity [is] ... five years and more likely ten years. There are technical delays, there are legal delays, there are lots of people who don't want the things, that object to them...
"By contrast, a wind turbine, from the day you get permission... [it's] six months to the time that thing is pumping out. So, the potential for wind turbines to just mushroom is huge. That's one thing."
Bell further points out that although there is a theoretical 18-20 percent limit on how much intermittent wind power you can feed into the utility grid and still keep it stable, the current worldwide penetration of wind is less than one percent of total electric power generation, so there is enormous room for expansion and he believes that this so-called grid "barrier" is largely irrelevant, made so by the advent of advanced energy storage devices led by lithium ion batteries.
"With the lithium ion car-sized batteries that are already for sale... you can buy them now. They're expensive, but they are for sale today."
Dr. Bell disclosed that he owns shares of the French battery maker Saft, who is now allied with Johnson Controls in developing automotive-sized lithium ion batteries for General Motors, indicating to him that the U.S. giant has placed its bet on lithium ion chemistry. It is that chemistry that he sees being one of the key storage mediums for intermittent energy from wind turbines and solar panels.
Coincidentally, Altair Nanotechnologies, an emerging lithium battery chemistry developer based in Reno, Nevada, told the California Air Resources Board two weeks ago in San Diego that the future stationary power storage market that Bell is referring to is five times the size of all of the automotive industry. Also, it has long been suggested that once advanced electric car batteries reach the end of their useful life -- meaning they can hold only about 85 percent of their charge -- that they can be recycled into the stationary market to homes and businesses, allowing owners to power their residences during expensive peak electric use periods using previously stored off-peak power and renewable energy.
He likens the present nuclear and 'clean coal' mindset in Congress and the power industry that sees these "old, tired" technologies as the only viable pathway beyond petroleum to the power brokers and policy makers in 1997 who even then viewed the Internet as just a passing fad.
"I think this business of the switch to renewables is exactly the same."
Despite his openly critical view of the "oil-soaked" Bush Administration, and before that the Reagan Administration, which he believes strangled America's leadership in renewable energy technology, allowing European companies to replace it, Bell says 'The Green Bubble' isn't about politics or American foreign policy.
"But foreign policy and international politics and local politics play such a huge role in energy prices and energy uses that one can't understand the one without understanding the other.
"So, whatever was the purpose of the Iraqi war, and we still don't know what was the real reason for that war, it appears that on everybody's... short list one of the items is always oil.... However, this [effort to capture Iraq's oil reserves] has obviously failed. There is less oil coming out of Iraq now than during the last years of Saddam Hussein."
Despite Middle East experts warning the Administration of the dangers of invading Iraq, "The United States is now more dependent on unreliable oil than before Bush's Iraqi war," Bell asserts. "The energy policy created behind closed doors was simply to drill more holes, drill for oil everywhere. That was the policy. The economic growth policy was based on burning more gas. There was no attempt to restrict the amount of gasoline burned in any way. That assumed the more gas you burned, the more prosperity."
He rejects the notion that his political views have colored his perspective of the current energy situation, pointing out that even Republicans like Governor Schwarzenegger "see the folly of this fossil fuel energy policy."
"It was a policy cooked up behind closed doors with the aid of a convicted Enron criminal, Kenneth Lay.
"But there's... more. This policy has tanked the dollar," Bell continues. "A policy of more war and fewer taxes has really damaged the dollar. When Bush came into office, one dollar approximately equalled one Euro. Now to buy a Euro, you have to pay $1.34.
"The fallen U.S. dollar means that innovative U.S. companies in this field of renewable energy, when they exist are easy foreign take-over targets," he says, citing the example of Genencor, a biocatalysts developer whose enzymes are used to make cellulosic ethanol, was taken over by a Danish food company.
Bell also stressed that because of this, investments in Euro-denominated assets are often better than comparable assets denominated in dollars. He sited the example of Florida Power and Light (FPL), which increased 56% in dollar terms in the last 12 months. However, a similar company, Iberdola in Spain, is denominated in Euros and available only on the Madrid stock exchange. It went up 65% over the same period, but when you calculate in the 13% slide in the value of the dollar to the Euro, FPL actually increased in value a less spectacular, though still respectable 43% compared to the Spanish company.
As FPL, a major owner and operator of wind farms around the United States, demonstrates, there are promising signs that the U.S. is beginning to catch up, at least in terms of renewable energy investments, seeing a 138% jump in both venture capital and private equity placements in 2006 compared to a slight retrenchment in Europe of -2% from $2 billion to $1.9 billion. But from Bell's perspective, all of the leading deployable technologies from wind turbines to hybrid cars are owned by foreign firms. He pointed to the recent bidding war between Suzlon, the Indian wind turbine manufacturer and Areva, the French nuclear power plant developer for the German offi-shore wind turbine maker, RePower. He couldn't think of any U.S. renewable energy company that would inspire a similar investment battle.
"In each industry that works now, the many companies are all European. Vestas Wind Systems is the world's biggest wind turbine manufacturer. Gamesa in Spain is the second biggest. Re Power in Germany is perhaps the most innovative. In biofuels the leader again is in Spain, Abengoa. And then there's Brazil with ethanol.
"In photovoltaics, Germany with Q-Cell... There is a recent U.S. build-up in thin-film photovoltaics and perhaps this will be the next wave, but perhaps not too. We can't be absolutely certain that at a giant industrial scale [thin film] really works now. We'll see."
For the smart investor, timing is critical so I asked Bell when does a bull market boom become a "bubble." He replied that it happens when the price-to-earnings ratio or P/E "gets out of whack." He pointed to the example of First Solar (FSLR) , which as of the time of this interview had an "out of whack" P/E of 288. This compares to the S&P 500 P/E on the same day of just over 18.
"When most of the major stocks in a given field such as renewable energy have crazy price-earnings ratios that's a bubble in the market. That's how you can tell.
"There are bubble stocks in Europe right now," he continues. "Nordex, a wind turbine company that makes off-shore wind turbines has a P/E of 123. Vestas... has a P/E of 84, more than four times the S&P 500. Gamesa, which I also mentioned... has a P/E of only 20, 20.6 to be exact as of yesterday.
"So you can see inklings of bubbles in a number of places," he contends, adding that he's skeptical of the U.S. stock market, which he sees as a "bubble-blowing" machine.
Bell's forecast 'Green Bubble' will eventually burst for the most contrarian of reason, energy will be over-produced.
"Keep in mind," he tells me, "that during the telecom dot.com bubble fiber optic cable was overbuilt by a factor of forty. That means that only a little over two percent of the cable that was laid down was ever actually "lit" is the technical term. (Light) never flowed through more than about two percent. And I think something similar, perhaps not by a factor of forty will happen with wind turbines, which will be built offshore everywhere, (and) on land probably almost everywhere. Solar panels will be on every rooftop. Lithium ion batteries will be in every attic and basement. Biofuels from agricultural waste, garbage, possibly even human sewage.
"So when will the bubble burst? That depends on when the bubble actually starts. Once it starts, if the last bubble is any guide, within five or six years of the beginning of the bubble it will blow up."
He underscores this by comparing the "inflection point" of the dot.com bubble using 1995 NASDAQ charts. Five years afterwards, that bubble burst in the Spring of 2000.
"Keep in mind that this will be the first truly worldwide bull market then bubble, which unlike the dot.com bubble now includes Brazil, Russia, India and China, as well as North America, Australia and Europe. This is the first really worldwide story and the reason is that renewable energy will affect everything that human beings build, move or deliberately heat or cool."
Bell stress to me as we wrap up the interview that "I am not giving financial advice. I will not be responsible for anybody else's money. I am just telling people about my own personal money that I have put into these stocks. I am not a fund manager. I am not playing with other people's money."
But for Robert Bell, PhD, those investments over the last 18 months have done very well for him, very well, indeed.
You can listen to the complete interview using either of the two MP3 players at the top of the page or by downloading the file to your computer hard drive for transfer to your favorite MP3 device. The download URL is: http://www.evworld.com/evworld_audio/greenbubble2.mp3.