With the global economy beginning to gain steam, albeit slightly, oil has resumed its march back to the $90 level. With energy prices rising, alternative and renewable energy sources are back in the spotlight. The broad proxy for the market, PowerShares WilderHill Clean Energy (NYSE: PBW), has bounced back over the past few weeks, moving in tandem with oil prices. While new solar and wind energy projects seem to be functioning okay despite European austerity measures, biofuels are in a quagmire. With rising food costs and the fate of the various blenders' credits at hand, the U.S. corn ethanol sector continues to disappoint. However, a developing market is quickly becoming a go-to destination for ethanol production.


IN PICTURES: What Is Your Risk Tolerance?


Sugar Sugar

While China's renewable energy ambitions are well known, Brazil is emerging as a leading biofuels producer. Unlike American ethanol, which is corn-based, Brazil's ethanol is 100% made from sugarcane. The nation's vast sugarcane fields and early adoption of flex-fuel vehicles have helped the sector see tremendous increases in a short time. Currently, there are about 11 million flex-fuel automobiles in Brazil, with the nation adding 2 million to 3 million new vehicles each year. Auto makers have noticed this growth. Models such as the Fiat Siena Tetra - which can run on natural gas, petrol, moisturized alcohol and Brazilian gasoline - have been designed exclusively for the nation.

While Brazil consumes much of its ethanol production, it exports nearly 10% to developed nations including the United States. Analysts estimate that the U.S. will require 136 billion gallons of ethanol by 2022, and Europe will guzzle 18 billion liters in 10 years. Most of this demand will come from imported ethanol rather than domestic supplies. Brazil has been moving forward in increasing its production with the goal of adding to its export number. Most recently, the Brazilian Innovation Agency (FINEP) and Brazil's National Development Bank (BNDES) have created a $540 million fund to help finance bio-fuel and ethanol production in the nation. More than $20 billion in private investment has entered into the sector, and 100 sugarcane mills were established over the past few years.

The Right Way To Play Ethanol

Without the food-versus-fuel hindrance that plagues America's corn ethanol industry, Brazil's bio-fuel sector will be the go-to choice for nations drifting away from traditional fossil fuels. Just as investors have plenty of choice for investment in the American corn ethanol sector like Archer Daniels Midland (NYSE: ADM) or Pacific Ethanol (Nasdaq: PEIX), there are opportunities in Brazil as well.

A recent deal between two energy giants could be the shape of things to come with regard to domestic ethanol production and distribution. Cosan (NYSE: CZZ) is the largest producer of sugar ethanol in Brazil. The company recently partnered with Royal Dutch Shell (NYSE: RDS-A) on an ethanol joint venture. The partnership will span 23 ethanol plants and nearly 4,400 service stations. Shell also owns 15% of advanced bio-fuel start-up Codexis (Nasdaq: CDXS), which it has pledged in the deal as well. As the dominant forces in production and distribution, investors wanting to participate in sugarcane ethanol's growth can play the pair.

In the first quarter of 2010, ag commodity producer Bunge (NYSE: BG) added five new sugarcane mills to its three existing mills in Brazil. The company is poised to take advantage of Brazil's 9% annual growth rate for ethanol demand.

Finally, as hated as it is, BP (NYSE: BP), through as partnership with Tropical BioEnergia SA, produces 435 million liters of ethanol per year in Brazil.

Bottom Line

As oil prices resume their march upward, alternative energy technologies are back in the spotlight. However, with the fate of the blender's credit and higher food costs plaguing the corn ethanol industry, Brazilian sugarcane is beginning to take the lead. Investors wanting to play the growth in bio-fuels may want to steer clear of the corn producers and look at those firms operating in Brazil. (For related reading, see The Biofuels Debate Heats Up.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!



Related Articles
  1. Economics

    India: Why it Might Pay to Be Bullish Right Now

    Many investors are bullish on India for all the right reasons. Does it present an investing opportunity?
  2. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  3. Investing Basics

    Building My Portfolio with BlackRock ETFs and Mutual Funds (ITOT, IXUS)

    Find out how to construct the ideal investment portfolio utilizing BlackRock's tools, resources and its popular low-cost exchange-traded funds (ETFs).
  4. Fundamental Analysis

    Performance Review: Commodities in 2015

    Learn how commodities took a big hit in 2015 with a huge variance in performances. Discover how the major commodities performed over the year.
  5. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  6. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  7. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  8. Investing

    3 Things About International Investing and Currency

    As world monetary policy continues to diverge rocking bottom on interest rates while the Fed raises them, expect currencies to continue their bumpy ride.
  9. Stock Analysis

    The Biggest Risks of Investing in SandRidge Stock

    Learn about the significant risks of investing in SandRidge. Read how the company may not be able to service its substantial debt load.
  10. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
RELATED FAQS
  1. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  2. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  3. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  4. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
  5. Are Vanguard ETFs commission-free?

    While some Vanguard exchange-traded funds (ETFs) are available commission-free from third-party brokers, a large portion ... Read Full Answer >>
  6. Do Vanguard ETFs require a minimum investment?

    Vanguard completely waives any U.S. dollar minimum amounts to buy its exchange-traded funds (ETFs), and the minimum ETF investment ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center