Favorable winds fueling sharp rise in renewable-energy stocks

By Steven Mufson The Washington Post

The planet isn't the only thing heating up because of climate change. Some renewable-energy stocks have been pretty hot too.

Shares of Vestas Wind Systems, the world's biggest maker of wind turbines, have doubled in the past year, despite the market's latest turmoil. The Danish company is ramping up production in its two biggest markets, China and the U.S., and expects sales to rise 17 percent this year. It recently announced that profit jumped fivefold in the most recent quarter.

Vestas might seem a perfect place to invest for an era of global climate change. The fortunes of many firms are tied to changes in the Earth's temperatures and to the evolving legislative climate, and that can present an array of investment opportunities, as well as pitfalls. There are builders of nuclear power plants, traditional utilities, wind turbine-makers, solar companies and biofuel firms.

"This is not a social or moral issue only. It's an investment issue," said Edward Kerschner, chief investment strategist at Citigroup Inc. "Whether or not you believe in climate change is not germane to how you invest your money."

But before jumping in, investors would be wise to carefully study the companies involved. Vestas, for example, faces hurdles. Wind turbines use hundreds of parts that are in limited supply, raising the specter of bottlenecks despite strong demand. The company also depends in large measure on continued government subsidies. And it faces stiff competition as companies such as General Electric Co. and Siemens AG expand and take aim at Vestas' market-leading position.

Investors also need to pay close attention to action in Congress. The final details of climate-change legislation, such as whether to auction or distribute carbon-dioxide emission allowances, could turn some companies from losers to winners, or vice versa.

One thing a lot of analysts agree on: Some kind of regulation or tax for emissions is coming, and that could affect the fortunes of several companies, including Lake Forest-based Tenneco Inc. and Chicago-based Exelon Corp.

Though not the most potent greenhouse gas, carbon dioxide is the most common, accounting for 77 percent of the gases. And because carbon dioxide is produced by the most common forms of energy use -- coal, oil and natural gas -- that could alter a wide range of behavior and investments.

*Transportation. California and Florida plan to require the carbon content of tailpipe emissions to drop by at least 10 percent by 2020. That won't help just Toyota Motor Corp. and its hybrid vehicles, but Tenneco, which supplies emission-reduction technologies for diesel-fueled engines, could benefit, Citigroup said.

Tenneco has jumped 25 percent since the start of the year. Diesel engines are more efficient than gasoline engines and, as a result, diesel-powered vehicles emit 10 percent to 30 percent less carbon dioxide than gasoline-fueled ones.

Anticipating a rise in diesel market share, Marathon Oil Corp. is investing in its largest U.S. refinery to be able to produce equal quantities of gasoline and diesel. Marathon is up 13 percent since the start of the year. Diesel car sales will climb to about 750,000 this year, but sales of gas-electric hybrid vehicles are growing faster and pose competition for carbon-conscious consumers.

*Coal. If Congress and the White House agree on legislation that puts a price on carbon-dioxide emissions, utilities that have a lot of nuclear power capacity, such as Exelon, could benefit from being able to sell carbon-free electricity. Others, such as American Electric Power Co., whose coal-fired plants are leading emitters of carbon dioxide, could face new costs.

A cap-and-trade system would set a national ceiling on emissions and issue allowances for that amount. Companies with extra allowances could sell them to those falling short.

Any company that figures out the best method of separating carbon dioxide from coal-plant emissions and burying it safely underground stands to make lots of money. There are three unproven, and costly, technologies now, pioneered by the likes of GE, Siemens, Babcock & Wilcox and Alstom.

Meanwhile, the coal rush has shown some signs of slowing. Several plants have been blocked by lawsuits, soaring construction costs and regulatory delays. Citigroup recently downgraded coal stocks.

*Biofuel. Federal regulations requiring growing use of ethanol by gasoline refiners have boosted the fortunes of countless ethanol producers. Ethanol production in January averaged 375,000 barrels a day, up 30 percent from the year before. Legislation approved by the Senate would require that use to rise to 2.3 million barrels a day over the next 15 years, half of it corn-based and half using other plants, such as wood chips or switch grass, as feedstocks.

Corn-based ethanol saves little energy compared with petroleum because of the energy that goes into growing and distilling corn. Cellulosic ethanol, or sugar-based ethanol, has a better balance between energy and carbon and would fare better than corn-based rivals under legislation that placed a value and price on carbon emissions.

So far, however, all the major U.S. ethanol producers, led by Decatur-based Archer Daniels Midland Co. and Verasun Energy Corp., use corn. Profits at those firms have been squeezed by high corn prices.

*Solar power. This is much more expensive than other forms of power generation, but it would become more competitive if lawmakers tax or price carbon-dioxide emissions."Electricity prices could go up 50 percent over the next 10 years. Then solar will be cheaper than the grid," said Jesse Pichel, a senior analyst at Piper Jaffray, who expects rising oil and coal prices and falling solar costs as companies innovate the way semiconductor chip firms did. For now, solar relies heavily on government subsidies.

Shares of Suntech Power Holdings Co, a Chinese maker of photovoltaic cells used in solar panels, were up as much as 35 percent in the past year before sliding during the market turbulence this month. The company's output has surged, however, making it the world's fourth-biggest manufacturer of solar cells in 2006. Next year's Summer Olympics in Beijing could prove to be a showcase for Suntech's products.

Although the problem of polysilicon shortages and a sevenfold price increase over five years is squeezing profits at Suntech and its competitors, it has proved a boon to companies that turn sand into polysilicon. Among those companies are a unit of Dow Corning and MEMC Electronic Materials Inc., based in St. Peters, Mo. The polysilicon industry is expected to more than double production by 2010.

*Nuclear power. Advocates for nuclear power believe their time has come. The Bush administration has been pushing for a nuclear power revival, and the Energy Policy Act of 2005 contains powerful financial incentives, especially for the first half-dozen plants.

If lawmakers make companies pay for carbon emissions, nuclear would get another boost. So far, 17 companies are weighing license applications for more than 30 plants, and other plants are being built abroad. The main companies in the nuclear-power construction business are a unit of GE, Areva of France, a unit of Mitsubishi Heavy Industries and the Westinghouse Electric unit of Toshiba.

In anticipation of a nuclear resurgence, uranium prices have soared, brightening the fortunes of firms such as Cameco Corp. of Saskatchewan, the world's largest uranium producer. Uranium prices rose to $136 a ton in mid-July from $11 a pound in June 2003, though they have fallen to $105 per ton.*Natural gas. Carbon dioxide emissions from natural gas are far lower than those of other fossil fuels. That should keep demand strong for domestic natural gas producers and importers of liquefied natural gas.

Costly LNG projects mostly involve big utilities and major oil and gas multinational firms. Sempra Energy and Cheniere Energy are active in new LNG terminals in the U.S. Exxon Mobil is helping Qatar expand its LNG export sector. In a recent climate change report, Citigroup noted that every 1 billion gallons of additional ethanol production would require 28 billion cubic feet of natural gas to fire the ethanol distilleries.

*Wind. There is a giant backlog of orders for wind turbines. Most manufacturers have enough orders to keep busy through 2009. Gearboxes, blades, castings and bearings are all in short supply. Technology has more than doubled the power output from each turbine, with size growing from about 10 yards in diameter in the 1970s to more than 80 yards today. The biggest turbinemakers are Vestas Wind Systems, Spain's Gamesa, GE and Siemens.

Developers of wind farms also could benefit. Citigroup pointed to Babcock & Brown Wind Partners Group, an Australian company, which has an interest in 33 wind farms, many in the U.S.

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The International Race to Mine the Moon

Lab experiments suggest that future fusion reactors could use helium-3 gathered from the moon.

At the 21st century's start, few would have predicted that by 2007, a second race for the moon would be under way. Yet the signs are that this is now the case. Furthermore, in today's moon race, unlike the one that took place between the United States and the U.S.S.R. in the 1960s, a full roster of 21st-century global powers, including China and India, are competing.

Even more surprising is that one reason for much of the interest appears to be plans to mine helium-3--purportedly an ideal fuel for fusion reactors but almost unavailable on Earth--from the moon's surface. NASA's Vision for Space Exploration has U.S. astronauts scheduled to be back on the moon in 2020 and permanently staffing a base there by 2024. While the U.S. space agency has neither announced nor denied any desire to mine helium-3, it has nevertheless placed advocates of mining He3 in influential positions. For its part, Russia claims that the aim of any lunar program of its own--for what it's worth, the rocket corporation Energia recently started blustering, Soviet-style, that it will build a permanent moon base by 2015-2020--will be extracting He3.

The Chinese, too, apparently believe that helium-3 from the moon can enable fusion plants on Earth. This fall, the People's Republic expects to orbit a satellite around the moon and then land an unmanned vehicle there in 2011.

Nor does India intend to be left out. (See "India's Space Ambitions Soar.") This past spring, its president, A.P.J. Kalam, and its prime minister, Manmohan Singh, made major speeches asserting that, besides constructing giant solar collectors in orbit and on the moon, the world's largest democracy likewise intends to mine He3 from the lunar surface. India's probe, Chandrayaan-1, will take off next year, and ISRO, the Indian Space Research Organization, is talking about sending Chandrayaan-2, a surface rover, in 2010 or 2011. Simultaneously, Japan and Germany are also making noises about launching their own moon missions at around that time, and talking up the possibility of mining He3 and bringing it back to fuel fusion-based nuclear reactors on Earth.

Could He3 from the moon truly be a feasible solution to our power needs on Earth? Practical nuclear fusion is nowadays projected to be five decades off--the same prediction that was made at the 1958 Atoms for Peace conference in Brussels. If fusion power's arrival date has remained constantly 50 years away since 1958, why would helium-3 suddenly make fusion power more feasible?

Advocates of He3-based fusion point to the fact that current efforts to develop fusion-based power generation, like the ITER megaproject, use the deuterium-tritium fuel cycle, which is problematical. (See "International Fusion Research.") Deuterium and tritium are both hydrogen isotopes, and when they're fused in a superheated plasma, two nuclei come together to create a helium nucleus--consisting of two protons and two neutrons--and a high-energy neutron.

A deuterium-tritium fusion reaction releases 80 percent of its energy in a stream of high-energy neutrons, which are highly destructive for anything they hit, including a reactor's containment vessel. Since tritium is highly radioactive, that makes containment a big problem as structures weaken and need to be replaced. Thus, whatever materials are used in a deuterium-tritium fusion power plant will have to endure serious punishment. And if that's achievable, when that fusion reactor is eventually decommissioned, there will still be a lot of radioactive waste.

Helium-3 advocates claim that it, conversely, would be nonradioactive, obviating all those problems. But a serious critic has charged that in reality, He3-based fusion isn't even a feasible option. In the August issue of Physics World, theoretical physicist Frank Close, at Oxford in the UK, has published an article called "Fears Over Factoids" in which, among other things, he summarizes some claims of the "helium aficionados," then dismisses those claims as essentially fantasy.

Close points out that in a tokamak--a machine that generates a doughnut-shaped magnetic field to confine the superheated plasmas necessary for fusion--deuterium reacts up to 100 times more slowly with helium-3 than it does with tritium. In a plasma contained in a tokamak, Close stresses, all the nuclei in the fuel get mixed together, so what's most probable is that two deuterium nuclei will rapidly fuse and produce a tritium nucleus and proton. That tritium, in turn, will likely fuse with deuterium and finally yield one helium-4 atom and a neutron. In short, Close says, if helium-3 is mined from the moon and brought to Earth, in a standard tokamak the final result will still be deuterium-tritium fusion.

Second, Close rejects the claim that two helium-3 nuclei could realistically be made to fuse with each other to produce deuterium, an alpha particle and energy. That reaction occurs even more slowly than deuterium-tritium fusion, and the fuel would have to be heated to impractically high temperatures--six times the heat of the sun's interior, by some calculations--that would be beyond the reach of any tokamak. Hence, Close concludes, "the lunar-helium-3 story is, to my mind, moonshine."

So, is He3-based fusion untenable? In fact, Close is correct in his claims about how impracticable both deuterium-helium-3 fusion and pure helium-3 fusion in tokamak-based reactors would be. But there might be alternatives. For example, Gerald Kulcinski, a professor of nuclear engineering at the University of Wisconsin-Madison, has maintained the only helium-3 fusion reactor in the world on an annual budget that's barely into six figures.

Kulcinski's He3-based fusion reactor, located in the Fusion Technology Institute at the University of Wisconsin, is very small. When running, it contains a spherical plasma roughly 10 centimeters in diameter that can produce sustained fusion with 200 million reactions per second. To produce a milliwatt of power, unfortunately, the reactor consumes a kilowatt. Close's response is, therefore, valid enough: "When practical fusion occurs with a demonstrated net power output, I--and the world's fusion community--can take note."

Still, that critique applies equally to ITER and the tokamak-based reactor effort, which also haven't yet achieved breakeven (the point at which a fusion reactor produces as much energy as it consumes). What's significant about the reactor in Wisconsin is that, as Kulcinski says, "We are doing both deuterium-He3 and He3-He3 reactions. We run deuterium-He3 fusion reactions daily, so we are very familiar with that reaction. We are also doing He3-He3 because if we can control that, it will have immense potential."

The reactor at the Fusion Technology Institute uses a technology called inertial electrostatic confinement (IEC). Kulcinski explains: "If we used a tokamak to do deuterium-helium-3, it would need to be bigger than the ITER device, which already is stretching the bounds of credibility. Our IEC devices, on the other hand, are tabletop-sized, and during our deuterium-He3 runs, we do get some neutrons produced by side reaction with deuterium."

Nevertheless, Kulcinski continues, when side reactions occur that involve two deuterium nuclei fusing to produce a tritium nucleus and proton, the tritium produced is at such a higher energy level than the confinement system that it immediately escapes. "Consequently, the radioactivity in our deuterium-He3 system is only 2 percent of the radioactivity in a deuterium-tritium system."

More significant is the He3-He3 fusion reaction that Kulcinski and his assistants produce with their IEC-based reactor. In Kulcinski's reactor, two helium-3 nuclei, each with two protons and one neutron, instead fuse to produce one helium-4 nucleus, consisting of two protons and two neutrons, and two highly energetic protons.

"He3-He3 is not an easy reaction to promote," Kulcinski says. "But He3-He3 fusion has the greatest potential." That's because helium-3, unlike tritium, is nonradioactive, which, first, means that Kulcinski's reactor doesn't need the massive containment vessel that deuterium-tritium fusion requires. Second, the protons it produces--unlike the neutrons produced by deuterium-tritium reactions--possess charges and can be contained using electric and magnetic fields, which in turn results in direct electricity generation. Kulcinski says that one of his graduate assistants at the Fusion Technology Institute is working on a solid-state device to capture the protons and convert their energy directly into electricity.

Still, Kulcinski's reactor proves only the theoretical feasibility and advantages of He3-He3 fusion, with commercial viability lying decades in the future. "Currently," he says, "the Department of Energy will tell us, 'We'll make fusion work. But you're never going to go back to the moon, and that's the only way you'll get massive amounts of helium-3. So forget it.'

Meanwhile, the NASA folks tell us, 'We can get the helium-3. But you'll never get fusion to work.' So DOE doesn't think NASA can do its job, NASA doesn't think that DOE can do its job, and we're in between trying to get the two to work together." Right now, Kulcinski's funding comes from two wealthy individuals who are, he says, only interested in the research and without expectation of financial profit.

Overall, then, helium-3 is not the low-hanging fruit among potential fuels to create practical fusion power, and it's one that we will have to reach the moon to pluck. That said, if pure He3-based fusion power is realizable, it would have immense advantages.

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