Green Investing: Clever Plays in Clean Tech

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Eventually, however, silicon solar cells are likely to be edged out by thin-film cells, which at the moment aren't nearly as efficient as silicon-based cells.

While most solar panel manufacturers understand that they will eventually need to make the transition to thin-film, only two—SolarWorld and SunTech Power Holdings (STP)—have made public statements about their intention to do so, says Jack Uldrich, who heads a nanotechnology consulting firm and writes about investing in emerging technology for The Motley Fool Web site.

"The manufacturing economics tell me the future is in thin-film, as well as flexible polymers, and not silicon," says Uldrich. "Both [SolarWorld and SunTech] are positioning themselves to take advantage of that," he says. At the same time, they maintain strong positions in silicon.

Wind Generation May Have Reached Maturity

The long-term supply contracts that both SolarWorld and SunTech have secured at fair prices will enable them to ride out any fluctuations in silicon prices. The contracts also include the flexibility to renegotiate rates if silicon prices fall, Uldrich says.

Unlike solar power, which still has a lot of room to run, wind generation has reached its maturity, he believes. Major players such as Siemens (SI), Vestas, and Spain's Gamesa (GCTAF) will keep building generation capacity, but he argues that the potential for high growth is no longer there. Part of that is due to the huge land requirements that wind turbines necessitate, he says.

FPL Energy, an unregulated division of FPL Group (FPL) has adopted a new strategy that takes advantage of the fact that wind power has matured to where it can now compete with natural gas-fired capacity, says Angie Storozynski, a utilities analyst at Macquarie Research in New York, who has an outperform rating on the stock. (Macquarie Capital USA or an affiliate expects to receive or intends to seek compensation for investment banking services from FPL Group in the next three months.)

FPL Goes for a Merchant Strategy

Until recently, FPL Energy has sold its wind power, most of which it produces outside of its regulated territory in Florida, to other utilities under long-term, fixed-price contracts. But a sustained surge in natural gas prices has spurred the company to shift to a merchant wind growth strategy for the next few years. FPL believes it will be able to get bigger margins from higher gas prices, since gas determines the marginal price of power in most U.S. markets.

FPL is also betting that the merchant energy strategy will enable it to capture more upside from utilities if carbon costs are imposed by legislation, something regulators wouldn't permit under contracts, says Storozynski. Down the road, once FPL feels that gas prices have stabilized, it plans to switch back to long-term contracts for wind power, but at higher prices. "The longer they wait to fix their prices, as utilities get closer to deadlines for renewable portfolio standards, they will be willing to pay up for wind," she says.

The strategy also exposes FPL to risk from volatility in gas prices. The company can hedge that risk in the short and medium term to smooth its earnings but is likely to see more ups and downs in profitability over the long term, she warns.

Reducing Consumption During Peak Usage

While wind has reached maturity, there are research efforts in Denmark aimed at developing smaller wind turbines that can operate at lower wind speeds and cooler temperatures. That could lead to equipment that can derive two to three times as much energy per acre of land as larger turbines.