Alternative Energy: The energy cycle does it again
Today's Financial News - Posted October 21, 2008
Many companies are wondering if they will survive the current economic crisis. With trouble brewing, nobody wants to enter the risk of world of alternative energy, especially as energy prices plummet.
By Andrew Snyder
Baltimore – (TFN): There is a reason alternative energy has never taken root. It is trying to ignorantly force its way into one of the strongest and most cyclical industries in the economy.
The “green” wave has attempted a weak takeover of the traditional energy industry several times over the last few decades. Each time it appears to get close to success, the energy cycle kicks into high gear, prices plummet and nobody wants to even think about developing and implementing costly new forms of energy.
That is exactly the phenomenon that has destroyed the solar and ethanol industries over the past year. The nation has bigger problems on its hands, like staying fiscally solvent, to worry about.
Putting Ma Nature on Hold
If companies cannot get the financing they need to stay in business or even pay their employees next Friday, how in the world are they going to be able to afford to invest in solar or wind energy? It is not going to happen anytime soon.
Take General Electric (NYSE:GE), for example. The company has been a leader in renewable energy research and development. But lately, it has had to drastically reduce its spending, eat the burden of increased borrowing costs, and face the reality of a global slowdown.
You can be certain Jeff Immelt, GE’s prominent leader, has not spent much time thinking about how windmills and solar panels are going to turn his mega-conglomerate around. He will save those thoughts for when he is sure his company has a few extra million to toss around.
If you need an example of how bad some alternative energy companies have done over the past two years, turn to Pacific Ethanol (NASDAQ:PEIX). At the peak of the alternative energy craze, its shares were trading for over $40. Today, you can buy all you want for under a buck.
A stubborn market
No companies are willing to head to the exorbitantly expensive credit markets to bet on unproven technology. If they have to finance their profits with debt costing them double-digit interest, they have no shot at success.
Just as they have done several other times over the past fifty years, falling oil and natural gas prices will destroy the alternative energy market.
If Big Business is not willing to invest in alternative energy, neither should you.
Next Article: Invest in your vices: McDonalds (MCD) and Phillip Morris (PM) surprise
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