Global families

GLOBAL INVESTOR 1.07 Basics — 31
the DOE predicts that such houses could become the buildingindustry
standard. Today, anyone can have a zero-energy home, but
at a price: 10 % to 20 % more than the cost of a traditional home.
Over the coming years, however, prices for microgenerators are
expected to decline, driven by further technological improvements
and mass production.
Improved technology and mass production
In recent years, solar panels have been refined through improvements
in resin efficiency, conductivity power, and the ability of new
silicon to capture the sun’s rays. Windmills benefit from more resistant
alloys, improved wing design to react to wind patterns more
quickly, and better energy conservation devices. Ethanol efficiency
has improved and uses a lower share of sugar/corn than in the
1970s, making it more viable as an oil alternative. Finally, micro geothermal
heating systems have become a reality at cheaper prices,
following the implementation of new drilling and construction techniques.
Against the backdrop of rising oil prices in recent years, an
increasing number of projects have been implemented involving
alternative energy. As a result, many providers of microgeneration
clean energy devices have been able to significantly raise their production
capacity. Consequently, production costs have declined,
enabling providers to lower prices. This virtuous circle is likely to
continue as an increasing number of microgeneration projects are
being implemented. Thus, both the affordability and efficiency of
alternative energy microgenerators have improved and will likely
keep improving. Consider the following example for solar energy:
thirty years ago, US President Jimmy Carter had solar panels installed
on the top of the White House, which never worked! Twenty
years ago, one USD 5,000 solar panel would satisfy the lighting
requirement of a bedroom. Five years ago, it became possible to
fully power a US home using solar energy, but this still required
20 solar panels and an investment of USD 25,000. Today, according
to industry experts, 17 solar panels are enough, at a price tag
of USD 16,000. In less than a decade, mass production and R & D
should enable the widespread use of such “luxury items.”
Solar energy, geothermal heating and windmills
Solar air heating systems will likely register the strongest success.
Mounted on an exterior, southern-facing wall or on the roof, solar
air-heating collectors can reduce a home’s or business’ annual
heating costs by as much as 30 %. Costing far less than a new
conventional heating system, solar air heating systems usually break
even in three to six years. They will typically last for 18 to 35 years,
and require minimal maintenance. Solar water heating systems can
also reduce a home’s hot water heating demand by 60 % – 90 %.
Designed to last at least 30 years, they preheat water before it
enters existing traditional water heaters. The hot water produced is
stored in an insulated tank until the home is ready to use it. Geothermal
systems are modern renewable resource systems using the
earth’s capacity to store solar energy. Geothermal systems use the
heat retained by the earth during the heating season (the winter)
and return it during the cooling season (the summer) by using a
conventional heat pump. This geothermal process is possible since
the temperature of the soil one meter below the ground is practically
constant. The US Environmental Protection Agency (EPA)
found that geoexchange systems can reduce energy consumption
by over 70 % compared to electric heating systems with standard
air-conditioning equipment. Mini windmills have become efficient
due to technological improvements in the field of mill strength and
conductivity. Their mass production in several countries, such as
Germany and Spain, has led to a decline in prices. Current UK government
policy aims to generate 20 % of the nation’s energy from
green sources by 2020, replacing gas, coal and oil power stations
that create the carbon emissions blamed for climate change. Presently,
80,000 homes in the UK have some kind of home power
generation such as windmills and/or solar panels. This power is now
moving into the mass market and UK retailers such as B & Q (a subsidiary
of Kingfisher), the largest do-it-yourself retailer in Europe,
are selling rooftop windmills for GBP 1,500, including installation.
Other UK retailers such as Currys offer solar panels. Although local
windmills will probably not be able to generate the power necessary
for such energy-intensive functions as home heating or air
conditioning, they can generate power for less energy-intensive
appliances like lighting.
Investing in alternative energy
We believe that the implementation of the three microgeneration
sources mentioned above will likely see houses move toward zeroenergy
emission status. This microgeneration revolution should
have a positive effect on alternative energy stocks. We recommend
that long-term investors gain exposure to a whole universe of alternative
energy stocks, possibly via an index or a certificate to gain
access to smaller companies that are fully dedicated to some alternative
energy sources. As these companies have higher risks than
large diversified companies, an index or basket is required to limit
company-specific risks. Among the large cap companies, we have
selected General Electric (GE US, BUY), the world’s largest wind
power installer, for which renewable energies contributed around
10 % to 2005 sales figures, Siemens (SIE GY, BUY), for which total
sales in alternative energy represent 2 % of sales, but a much larger
share of the company’s operating earnings growth outlook, British
Gas (BG/ LN, BUY), world leader in liquid natural gas production,
Gaz de France (GAZ FP, HOLD), Vestas Wind Systems (VWS
DC, HOLD), the largest pure play in wind technology, Philips (PHIA NA,
BUY), producer of energy-saving lightbulbs (lighting represents
15 % of sales, but Philips does not report the share of energy-saving
lightbulbs), Cameco (CCO CN, BUY), the largest uranium producer,
and SolarWorld (SWV GR, BUY), a pure play in solar cells.