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Tickers in this Article: CPST, CUT, WOOD, XEL, IBDRY, FE, UTX, IR, ABB
With energy prices beginning to rise and climate change making headlines, investors are beginning to take a look at renewable energy sources. While most investors will focus their attentions towards solar or wind, via vehicles such as Market Vectors Solar Energy ETF (NYSE:KWT) or the First Trust Global Wind Energy (NYSE:FAN), there are other opportunities in the renewables sector. Companies such as Ocean Power Technologies (Nasdaq:OPTT) and its wave power systems, represent cutting edge technologies. However, a fuel source that has been used since the dawn of man is getting some real attention. IN PICTURES: Baby Buffett Portfolio: His 6 Best Long-Term Picks



The Trees Are Calling
At its core, biomass sources involve using biological matter to make some other form of energy. This includes human waste, municipal solid waste and sewage. One of the more intriguing sources of biomass is leftover wood from logging operations. Analysts estimate that in the United States alone, up to 6,000 GWh of potential biomass power is disposed of annually. The Department of Energy calculates that U.S. forests could sustainably produce at least 368 million dry tons of wood for energy annually. This leftover "waste" and sustainable feed stock, give credence to the usage of the fuel increasing.

However, one of the difficulties with biomass is that unlike coal, the fuel resource is highly distributed and has a low energy density. This makes transportation costs uneconomical beyond roughly 50 miles. Smaller power plants such as Iberdrola Renewable's (OTCBB:IBDRY) Tacoma facility, could be an example of the future of the industry. The power plant, which opened next to a paper mill, burns the leftover scraps and wood waste to provide energy to homes in Sacramento. More recently, Xcel Energy (NYSE:XEL) and the Energy & Environmental Research Center (EERC) are developing biomass power system that combines microturbines and a biomass gasifier. The system would produce 30 KW worth of energy and could be placed near small biomass sources.

Biomass Energy Investment
Investors wanting to play the trend in increasing use of wood scrap as a biomass energy fuel source do have few options. Iberdrola, Xcel and First Energy (NYSE:FE) are a few examples of the nearly 20 utilities that have wood related and biomass power plants. With the current market conditions, an investment in utility stocks might make sense. Wood power, although growing, still remains a small percentage of their overall energy pies. Investors may want to focus on other choices within the sector.

Feed Stock Plays
While the iShares S&P Global Timber & Forestry Index ETF (Nasdaq:WOOD) and Claymore/Beacon Global Timber Index (NYSE:CUT) are poor trackers of raw timber prices, their allocations to paper and packaging companies make them ideal plays on the growth of timber-waste energy. As these companies become feed stock suppliers to utilities and profit from this relationship, the ETFs should benefit. Investors may want to give WOOD preference; the iShares fund has a nearly 60% weighting towards paper and packing companies.

Microturbines
As biomass is generally a small scale power producer, corporations that produce these microturbines should see their share prices benefit. Microturbines produce energy in the 20 to 60 KW range are perfectly suited for these biomass type installations. Conglomerate Ingersoll-Rand (NYSE:IR) has a profitable microturbines division as does United Technologies (NYSE:UTX). Investors wanting a pure play on the growth should take a look at Capstone Turbine (Nasdaq:CPST). The small-cap has received praise for its products across a variety of industries and could see continued growth from the biomass sector.

Bottom Line
As energy prices continue to rise, investors and governments are looking to new alternatives to help power their portfolios and cities. Biomass energy, especially that from wood scrap, is an interesting renewable choice. The potential amount of energy that is wasted is staggering. Investors wanting to play the resurgence of man's earliest power source can do so with the timber ETFs or microturbine producers such as ABB Ltd. (NYSE:ABB). (For related reading, take a look at The Biofuels Debate Heats Up.)

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