Published On: Thu, Mar 21st, 2013

Which Alternative Energy Stocks will Shine from Extreme Weather?

Scientists have long claimed that climate change can result in extreme weather conditions, ranging from hurricanes to droughts.  A recent study on climate change from the National Climate Assessment and Development Advisory Committee adds even greater weight as it concludes that extreme weather events such as drought, floods, and hurricanes will develop more often and into far greater intensity in the future.  According to the report “Sea levels are rising, oceans are becoming more acidic, and glaciers and arctic sea ice are melting.”

This has certainly not gone unnoticed in the financial marketplace.  Both the public and private sector have responded with massive funding of alternative energy projects and companies for the events of climate change ahead that are predicted to feature:

  • Higher Sea Levels: If both poles melted from global warming the ocean would rise by 200 feet, which threatens wide swaths of coastal regions;
  • More and and Stronger Storms: A major prediction is that there will be increased storm activity and severity around the world.  For the United States, hurricane seas in the Atlantic and the Gulf of Mexico will be much more frequent and much more violent.
  • Heat Waves: Since 1895, the average temperature in the United States has increased by 1.5 degrees Fahrenheit.  More than 80% of that rise has occurred since 1980, which is alarming. Temperatures are expected to rise 5-10 degrees Fahrenheit by the end of the century

These types of weather result in alternative energy stocks becoming more attractive.  This transpires as more businesses and residences endeavor to “move off the grid” into localized sources of power due the aging infrastructure in the United States that is challenged by extreme weather.  This increases the appeal of solar power for homes, and cogeneration facilities for commercial purposes.

This was demonstrated when Hurricane Sandy hit the East Coast of the United States in late November, as the only power producer that continued working was Capstone Turbine, whose microturbines are powered by alternative energy, among other sources[O1] .  Traditional power companies require natural gas or coal to generate electricity. But the turbines of Capstone Turbine can run on a variety of alternative fuels such as biomass and methane gas (emissions from landfills).

SunPower Corp. (NASDAQ: SPWR) is also benefitting from solar power becoming more attractive as a result of extreme weather, among other factors.   [O2] Over the last month, MidAmerican Energy Holdings, a power company controlled by Buffett’s Berkshire Hathaway (NYSE: BRK-A), reached an agreement to pay $2 billion to $2.5 billion to SunPower Corp for two California solar projects.

That increases Buffett’s solar power holdings in California, as earlier a solar farm in San Luis Obispo was purchased by Berkshire Hathaway for $2 billion.  MidAmerican Energy Holdings also owns 49% of an Arizona solar point in a venture with NRG Energy (NYSE: NRG) and First Solar (NASDAQ: FSLR).  Overall, according to the Solar Energy Industries Association (SEIA), growth in the United States from 2011 to 2012 for solar power usage was over 50%, from 1.9 gigawatts to 3.2 gigawatts.  By 2016, SEIA estimates it will more than double to 8 gigawatts.

There should also be a resurgence in biofuel stocks due to the impact of extreme weather on the energy sector.  The biofuel industry has been decimated over the last year.  But uber investor David Einhorn recently established a huge position in Biofuel Energy (NASDAQ: BIOF).  Biofuels become much more attractive as extreme weather can knock out refining facilities, destroy offshore drilling platforms, and create additional havoc for the oil and natural gas industry.  For the last six months of market action, Biofuel Energy is up by 58.15%.  For the last year, however, it is down by 65.00.

Extreme weather results in alternative energy stocks becoming more attractive[O3] .  The Grid, offshore oil platforms, refining facilities, natural gas pipelines, and other aspects of the fossil fuel industry are all very vulnerable to the hurricanes and the other aspects of extreme weather.  As more consumers move to alternative energy sources, the share prices for these companies will rise, too.


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About the Author

- Marcus Holland has been trading the financial markets since 2007 with a particular focus on soft commodities. He graduated in 2004 from the University of Plymouth with a BA (Hons) in Business and Finance.