Global warming – Best Companies

It’s a complex issue but as far as investment is concerned it seems to be limited to energy and possibly biotech if someone can come up with a viable means of reducing agricultural (methane from animals and rice growing, oxides of nitrogen from fertilizer use) emissions.

I’ll stick to energy for this post since I don’t have much knowledge in the area of biotech.

One problem is that to a significant extent the companies concerned are either a minor part of a bigger company or are government owned.

The dominant (presently over half of the entire industry) generator of renewable electricity in Australia is the Hydro-Electric Corporation (branded as Hydro Tasmania (HT)). It also has operations in China (wind power) and a global consulting business in power, water, civil engineering, cloud seeding etc. A $10 billion+ business in terms of what its assets would cost to replace with 2006 dollars. But it’s 100% owned by the Tasmanian Government so it’s not an option for investment.

The second largest renewable energy generator, Snowy Hydro, is also 100% owned by 3 governments so again it’s not an option for investment. That said, the actual business focus of Snowy Hydro is more to do with financial trading than actual power generation (though it does generate power too).

So investing in renewable energy supplied to the grid means either investing in companies that are presently relatively small producers or have no production at all. They have a viable future for expansion ONLY with either a change in Australian government policy or by setting up overseas operations (hence HT’s move into China).

That’s not to say there aren’t opportunities, there are, but you can’t just go and by the shares of the dominant renewable electricity generators and hope they go up because they aren’t listed companies. Another post on this thread has given a reasonable list of the relevant companies so I won’t repeat that.

Then there are the non-grid renewables – eg solar hot water systems manufactured by SolaHart and competitors. But again, to a significant extent the companies are also involved in other activies. The world’s largest manufactuer of solar panels (for electricity, not hot water) is BP, as in the oil company.

It’s much the same with energy conservation too. CSR is a major manufacturer of insulation for buildings but that is by no means it’s main line of business.

There are certainly quite a few companies that are listed and have a promising future. But in general you’re buying into juniors which may or may not deliver on their promises

Even Uranium is much the same. Either it’s a small part of a bigger company or it’s a junior that is yet to go into production and may never do so. With only 3 mines operating there isn’t a lot of choice amongst the existing producers.

So basically it’s a case of getting in at the ground floor and trying to pick the right stocks. Just like buying computer stocks in the 1980’s – if you chose Microsoft and held it long enough then you did pretty well but many others simply disappeared altogether.

Carbon capture and underground storage is another one. But it’s only a tiny part of Rio Tinto’s activities and you can’t buy stock at all in some of those involved (Queensland Government).

One area which stands out is natural gas. I disagree strongly with the popular notion that using more gas is a real solution to global warming (it still pollutes and there simply isn’t enough to replace more than a relatively small portion of coal use over the long term).

But gas companies are here and now and for the next few years at least stand to benefit from a shift towards gas, particularly for power generation. Major transmission pipeline owners and upstream gas producers are well placed in this regard. The upstream industry also stands to benefit as gas replaces some oil use in the coming years.

All that said, if I were going to buy a “hold and hope” stock in this sector then I would be looking very seriously at geothermal energy (hot dry rocks). If they can get the cost down then it’s the only serious alternative to coal/nuclear over the next few decades and would logically be a major beneficiary of any real move away from coal (unless political considerations lead to nuclear being the winner regardless of cost).