By Mark Jewell
AP Personal Finance Writer
BOSTON (AP) -- President Obama laid out an ambitious goal in his latest State of the Union address: By 2035, America will get 80 percent of its electricity from clean energy sources.
Achievable? Maybe, if you consider that Obama's expansive definition of clean energy includes nuclear and emerging clean coal technologies, which many environmentalists don't embrace as ways to combat greenhouse gases.
A less-obvious question is whether mutual fund investors will have the patience to stick with green investing principles that have recently left them in the red.
The stocks of renewable energy companies, such as wind and solar power providers, have been big losers. The Clean Edge Global Wind Energy Index, which tracks wind energy stocks, is down about 27 percent over the last 12 months.
That disappointment came as oil company stocks and the Standard & Poor's 500 stock index both surged about 20 percent.
If his goal is to be realized, Obama and his successors will have to stick with the programs he embraced early in his presidency to support wind and solar. The government may even have to raise its commitment, likely through new subsidies that could create further opportunities for green investors.
Either way, Obama's speech offered comfort to investors left wondering how long to stick with it.
"The sector is not much loved at the moment," concedes Edward Guinness, co-manager of the Guinness Atkinson Alternative Energy Fund (GAAEX).
With a nearly 22 percent loss in 2010, the fund finished last among 83 funds specializing in energy stocks, according to Morningstar. The $38 million portfolio was weighed down by solar and wind energy stocks, most of which fared poorly last year. One of its biggest holdings, SunPower Corp., fell 46 percent.
Meanwhile, another Guinness Atkinson fund, Global Energy, posted a nearly 17 percent return last year, thanks to gains for the oil and gas company stocks it holds. They benefited from an economic recovery in a world still hooked on fossil fuels.
Meanwhile, solar and wind energy stocks have recently hit several obstacles:
-- Several European governments face huge deficits that could jeopardize their traditionally strong support for alternative energy subsidies. Spain and Italy have already reduced their backing, and wind and solar stocks have been hurt by fears that more such cuts are coming.
"That has been this huge ax sort of hanging over the alternative energy industry, keeping everyone cautious," Guinness says.
-- Recently low natural gas prices have reduced the incentive to convert to solar or wind.
-- A recent rise in oil prices hasn't yet been enough to translate to significantly higher costs for electricity generated from burning fossil fuels, Guinness says.
Still, investors in wind and solar energy stocks may benefit over the long haul, if they've stuck with it this far.
One such investor is Matt Moscardi. He and his wife have about 15 percent of their portfolio in exchange-traded funds holding stocks of clean energy and other environmentally-conscious companies. Moscardi hasn't seen big returns since he began investing in clean energy six years ago, but he's confident it will pay off eventually.
"For me, it was like an opportunity to buy into IBM or Microsoft in the early 1980s, when nobody thought personal computing was going to be a big deal," says Moscardi, a 32-year-old researcher with a Boston financial company.
Renewable energy "is going to be the norm someday," he says. "With these stocks so cheap now, maybe I'll go out and buy some more."
Among institutional investors such as pension funds and foundations, recent losses on solar and wind energy stocks have led to a new recognition of how volatile these stocks can be, said Dan Bakal of Ceres, a Boston-based nonprofit network of green investors and environmental groups. The declines "have made investors a little more careful."
One example of how low prices have gotten is Evergreen Solar Inc., a maker of solar panels whose stock has been on a long slide. Shares traded around $100 three years ago, but are now trading below $3. Last month the company announced plans to shut down a Massachusetts factory and lay off 800 workers. Despite receiving state tax breaks, Evergreen's production costs weren't competitive with those of Chinese solar manufacturers, which also are subsidized.
Such competition has sent prices for solar technology down globally. Evergreen, which still has a plant in Michigan and another in China, said prices for its products tumbled 10 percent in the fourth quarter alone.
For fund manager Guinness, such trends are cause for optimism, although they will hurt U.S. manufacturers that can't compete with Chinese rivals on cost. Lower prices will accelerate the pace at which wind and solar options chip away at fossil fuel dominance.
Another cause for optimism, Guinness says, is the likelihood that stalled wind projects will be revived once the global economy recovers more fully. One of his favorite stocks that could profit from such a turnaround is Vestas Wind Systems, a Danish turbine maker whose shares also trade in the U.S.
Guinness also notes that many alternative energy stocks are trading at prices around one-third of where they stood three years ago, relative to the profits the companies are generating. It's only a matter of time before those stocks rise, he figures.
But it's important to remember that alternative energy stocks and the handful of funds that specialize in them are volatile, and few investors can expect to profit from a short-term strategy. Expect these investments to experience sharp rises and falls, buffeted by such unpredictable factors as oil and electricity prices, and on-again, off-gain political backing for subsidies.
Volatility is one reason why Morningstar analyst David Kathman advises most investors keep no more than 5 percent of their portfolios in alternative energy stocks or funds.
The hope is that over the long haul -- meaning several years -- there's more up than down for the stocks. Guinness figures a shift could come soon: "I'm hoping to see decent gains in the next 18 months. And in our mind, that is short-term."
Published: Mon, Feb 7, 2011
