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Cleantech – How To Invest In It?

“Clean Energy” gets serious

It is 108 years since the Ford Model T introduction – the world’s first affordable “mass market” car. Before the Model T crude oil was used for street lighting. Demand for cars and petrol “made” Standard Oil Co whose subsequent split created Exxon, Chevron, Marathon Oil, Atlantic Richfield, Standard Oil of Ohio (now BP) and about 30 other co’s.

Last week, Guangzhou based Ehang unveiled a passenger carrying battery powered drone at the Las Vegas China Exhibition Show. The tablet controlled drone carries 100kg ie.1 person and flies for 23 minutes. These two events seem connected.

EHANG 184 MODEL T

 

The “Ehang 184” 2015                                       Model T Ford 1910

 

In its day, the Model T Ford was ground breaking technology. The Ehang 184 is today’s Model T. It is likely drones evolve into a mode of transport. The tricky point is the adoption timetable. How do investors approach the clean energy tech drones require?

The oil industry is overproducing 1-2m bbls per day creating a glut of c.2bn bbls of crude. The end of the US export ban could lead to unsold inventories being exported as US storage availability is running out. What is clear is fossil fuels will play a lesser role in the future with new competing technologies unlikely to use a petrol/ combustion engine.

What Bill Gates is doing…

The world’s wealthiest individual, Bill Gates announced a coalition of billionaires and institutional investors, the “Breakthrough Energy Coalition” to invest in clean energy initiatives. Gates will personally invest $1bn by 2020 in clean energy initiatives addressing “energy poverty” – bringing modern energy access to 1bn people.

The Coalition’s name call sounds like a Forbes roll call, Jeff Bezos, Richard Branson, Jack Ma, Mark Zuckerberg, Ratan Tata and others. The only institutional investor is the University of California. Gates expressed the view that solar and wind power had made a lot of progress but “many different paths needs to be explored using new approaches”. The objective is to work with countries that are signatories to Mission Innovation a COP15 commitment to double clean energy research by 2020.

President Obama secured $4bn in new funds from investors for a clean energy initiative via the PRIME Coalition which is aiming to lower the barriers of entry for philanthropists and institutional investors to invest in clean tech. According to the International Energy Agency the fossil fuel industry received $550bn of subsidies in 2013 – the aim is to change energy policies to improve the speed of new clean tech proliferation.

What is “Clean tech”? Why is it so diverse?

Clean technologies comprise mainly non carbon derived energy sources  a) Hydrogen Fuel Cell / Fuel Stack b) Battery c) Wind Power d) Solar Power e) Coal Bed Methane. Clean technology investment refers to the adoption of clean technologies into diverse industries.

Cleante4ch chart

source; www.wikipedia.com

“Cleantech” is evolving, with a number of new and competing technologies at various stages of evolution with different capital requirements. We are taking a portfolio approach, as a first step, but will follow this with more detail at a later date, possibly looking at drone manufacturers.

PowerShares Cleantech Portfolio (PZD) ETF….. BUY

PowerShares Cleantech was designed to identify clean technology companies (“that produce any knowledge based product or service that improves the operation, performance, productivity or efficiency while reducing costs, inputs, energy consumption or waste pollution”) in the CleanTech Index.

The ETF was launched on October 24th 2006 and invests 90% of total assets in CleanTech index constituents. The portfolio is diversified with top 10 holdings (57 in total), Eurofins Scientific( 3%), Intertek (3%), Novozymes A/S (2.97%), Siemens (2.93%), SGS SA (2.92%), vestas Wind Systems (2.92%), DSM (2.92%), Xylem (2.91%), ANSYS Inc (2.9%) and Roper Tech (2.9%). The style allocation mixes large cap (26.2%), mid cap (42.83%) and small cap (30.92%) according to the last quarterly report (1st October 2015).

Company Power Shares Cleantech
 Share Price ($) 26.84
Target Price ($) 35.00
52 Wk Hi/Low ($) 32/25
Shares O/S 64.41m
Market Capitalisation $67.1m
Avg Daily Volume 81.2k
Dividend Yield 0.9%

Source; Fidessa plc


Key Risks to Price Target

i) PowerShares ETF invests up to 90% in a clean tech investments hence risk of tracker error.

ii) The PowerShares ETF is a smaller ETF, hence can experience low liquidity.

iii) The PowerShares ETF is exposed to small cap companies which may require funding rounds that dilute existing shareholders.

iv) This is a US dollar ETF listed on the NYSE and hence is subject to exchange rate risk. It may be subject to different commission rates and holding charges.

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