New 'Green' Energy from Dirty Sources

Nichola Groom, PlanetArk 31 Jan 08;

LOS ANGELES - Wall Street has piled billions into solar panels, wind farms, and other alternatives to oil and gas, but many investors also see big opportunities in making better use of older, dirtier energy sources.

"Very few people will tell you that efficiency is a really green form of energy, but it's the greenest of all," said Kevin Landis, chief investment officer of San Jose, California-based Firsthand Funds, which owns several energy efficiency stocks.

Energy efficiency companies may be top "green" initial public offerings this year due to growing corporate interest in efficiency programs.

Boosting efficiency could be the easiest, quickest way to reduce emissions of harmful greenhouse gasses, starting with the task of installing new metering hardware and usage control systems in every home and building, proponents say.

"It's some basic IT technology, and the end consumers don't even have to really notice a difference," said Trae Vassallo, a partner with Silicon Valley venture capital firm Kleiner Perkins Caufield & Byers.

As US energy consumption has skyrocketed in recent years, so-called demand response companies like Comverge Inc and EnerNOC Inc have helped utilities reduce peak demand, such as on hot summer days, when cranked-up air conditioners prompt utilities to bring their oldest coal-fired plants on line, or buy high-priced power on the open market.

Demand response companies have software that automatically adjusts an air conditioner's temperature or turns off a swimming pool pump when electricity supplies are tight. Customers are warned ahead of time about the changes with devices that broadcast signals from the utility.

These small measures, for which customers often receive lower rates or payments, can make the difference between tight supply and blackouts.

Both EnerNOC and Comverge went public in the middle of last year, and investors pushed their stocks up 88 percent and 75 percent, respectively, through the end of 2007.

But this year the stocks have been battered by fears of a US recession and concerns that falling oil prices will dampen interest in green technology. Comverge shares are down 38 percent in 2008, and EnerNOC's stock has dropped 26 percent.

Signal Hill alternative energy analyst Michael Carboy said energy efficiency companies will still be among sought-after IPOs in 2008.

"The companies that are going to go public are not going to be those that are raising capital for yet another new energy source, but those that have products and services that focus on using energy more efficiently," said Carboy.


TRACKING POWER USAGE

The next generation of public energy efficiency companies won't be limited to focusing on peak demand, Carboy added. Rather, they will be businesses who aim to cut everyday consumption by either measuring how much electricity customers use or providing technologies to cut that usage. Orion Energy Systems Inc, which sells efficient lighting systems to corporations including Coca-Cola and Kraft and went public last month, is one recent example.

"EnerNOC and Comverge have been really great steps in the right direction, but you are going to see some more holistic solutions," said Vassallo of Kleiner Perkins.

A key element of reducing energy usage is being able to track it. To do that, utilities are slowly replacing old customer meters with automated systems that allow them to take detailed measurements of energy usage.

Echelon Corp and Itron Inc are two of the companies that make the new meters. Firsthand Funds owns shares in both companies.

"You need to have the information about where the energy is going," Landis said, adding that "the market for it is only every office building and and every home."

Firsthand also holds shares of Honeywell International Inc because of its building systems automation business, which Landis said will go through "a big renaissance."

California utility PG&E Corp is installing new meters in Bakersfield and Sacramento, some of the hottest areas it serves. The meters give customers up-to-the-minute details about how much energy they use and when, said Randall Wong, PG&E's supervisor of demand response.

The new meters will be available to all PG&E customers by the end of 2011. Add-on "smart thermostats", available in some markets, allow PG&E to control a customer's heat or air conditioning remotely in the event of a supply shortage, Wong said, adding that customers can always choose to opt out if they are unable to participate on a given day.

Not everyone has been pleased with the idea of utilities controlling their air conditioning. The California Energy Commission this month dropped a proposal to require that the new thermostats be installed in new buildings after lawmakers and others complained that participation should be optional.

Nevertheless, with such big opportunities to cut back on energy bills, businesses and consumers may embrace the new meters and the efficiency measures they promise to deliver.

"It's really just the first step in what's likely to be a 20- to 50-year move," said David Kurzman, head of the alternative energy group at research firm Panel Intelligence. "It took us 100 years to get the grid to where we are, and it's going to take us another 50 or so to upgrade it." (Editing by Tim Dobbyn)