Look To Emerging Markets For Renewables Growth

By Aaron Levitt | November 19, 2010 AAA

With the recent debt problems in Europe and austerity plans beginning to take shape, many investors believe that alternative forms of energy are dead in the water. Renewables are heavily subsidized in order to help them compete with traditional fossil fuels on price. Spain, one of the leaders in solar energy, has seen new projects nose-dive over the past two years with only 100 MW of generating capacity being installed through 2009 and 2010 compared to nearly 2,700 MW added in 2008. Across the rest of the developed world, similar stories are occurring with new wind generation capacity stalling and solar projects put on hold. With developed markets turning their attentions to budget deficits, the renewable energy trend keeps growing in other parts of the world.

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Going Off the Beaten Path
By 2030, non-OECD economies will account for 59% of global energy consumption. The expansion of electricity-generating capacity in these emerging markets will need to be supplied by wind, solar, geothermal and hydropower. While the rest of the world grapples with austerity, emerging markets are ready to transition themselves towards a renewable future. The usual suspects have made their intentions well known, but growth is coming from other sources as well. Kenya, which relies on hydro-electric generation for 60% of its energy, has strained during severe droughts that have caused supply problems, plans to add 1,700 MW of renewable energy sources by 2013. The nation's Lake Turkana Wind project is predicted to be the continent's largest and Africa will be part of a 50% increase in new infrastructure dedicated to power generation and transmission on the continent.

Asia is seeing similar growth prospects for alternative energy projects. Pakistan has recently partnered with AES (NYSE:AES) to build a new 150 MW wind facility that costs $375 million. BRIC superstar India has announced plans to create an additional 35 GW of renewable power generation by 2015 through wind, solar and nuclear means. Technologically advanced emerging markets are also getting into the sector at a rapid pace. Taiwan, which currently relies on imports to meet almost all of its energy needs, has set forth plans to add 20,000 MW of renewable power over the next 20 years and South Korea has recently purchased 3 million meters worth of high voltage superconducting cable from American Superconductor (Nasdaq:AMSC) in order to build out its own smart grid.

Tapping This Growth
With the developed world's growth in renewables taking a pause, emerging markets are picking up the slack. Many have begun taking the steps towards making significant progress and investments in the sector. In the short term, the panic from European austerity has given longer-term investors a chance to participate in the renewable sector.

Investors wanting to add a broad swath of the various renewable energy sectors can do so with the PowerShares WilderHill Clean Energy (NYSE:PBW). The exchange traded fund tracks over 50 different firms engaged across all sectors of renewables market, including solar, energy efficiency and the smart grid. The ETF trades at a surprisingly cheap P/E of 16 and charges 0.6% in expenses.

Shares of individual solar companies have plummeted in the wake of Spain's recent decision to cut feed-in tariffs and subsidies. However, many Chinese solar firms such as JA Solar (Nasdaq:JASO) and China Sunergy (Nasdaq:CSUN) have reported that business will be better in the months ahead. With the bulk of its holdings in China and Germany, Claymore/MAC Global Solar Energy (NYSE:TAN) will be a beneficiary of the growing emerging market interest in solar. The same can be said for PowerShares Global Wind Energy (Nasdaq:PWND) and the wind industry.

The Middle East has been quietly turning petro-dollars into green investment. The United Arab Emirates has committed $22 billion to developing renewable energy, and Saudi Arabia has been tapping into their immense solar and geothermal resources to power new cities. This private investment in the green sector has benefited many of the financial institutions in the region. With a third of its assets in financial firms, the WisdomTree Middle East Dividend (Nasdaq:GULF) can be used as a stealth play on this growth.

Bottom Line
While many of the developed world's alternative and renewable energy plans have stalled due to massive budget deficits, the emerging world is chugging right along. Various projects across a spectrum of renewable sectors are getting their start in these fast growing nations. The short term price drop in shares of renewable stocks such as A-Power Energy (NASDAQ:APWR) has given long term investors another chance to play on this growth.

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