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Rare commodities as an alternative energy play

April 15th, 2009 · 1 Comment

We were already working on something like this, but then we found this article. It’s difficult to bet on a single company, or even a technology (investing in an EFT offers an alternative).

But the materials they use might offer another opportunity, especially if these are scarce. We will focus in the future on lithium (in lithium-ion batteries), tellurium (goes into the flat panel solar cells of First Solar) in particular.

Clean Energy: The Materials Play
Written by Tom Vulcan

There has been much discussion recently both of the “green” items on the agenda at the G20 summit in London, and the place of clean energy projects in the current U.S. administration’s economic stimulus package.

In addition to a budget that calls for some $15 billion each year for renewable energy programs, this package includes tax breaks and grants of $56 billion over the next 10 years for clean energy projects.

When the government has gotten around to organizing how these funds are actually going to be disbursed (the funds distributed to date have been minimal), the financial benefits available for those companies operating in the “space” could be quite significant.

What Is Clean Energy?

Clean energy is most often considered to be synonymous with “renewable energy,” “green power” and “alternative energy.” More often than not, it refers to electricity generated using the wind, sun, water, etc.

It is, however, also frequently used in the context of CO2-mitigated traditional electricity generation using nonrenewable resources (e.g., coal or oil), the use of such technology as advanced batteries for transportation purposes (e.g., in electrically powered cars) and even conventional nuclear power generation.

Further “down the line,” as it were, the expression “clean energy” is often used when talking about increasing the efficiency of existing, everyday items; for example, electric light bulbs – of which more later.

Renewable energy today comes from a variety of sources. These include:

Biomass: The organic matter in plants and trees. It can be used to make such products as ethanol and biodiesel.

  • Geothermal: Energy derived from the Earth’s resources of internal heat, in the form of either hot water or steam, or, indeed, hot rocks. These can be used both to generate electricity and to heat and cool buildings.
  • Hydrogen: Most commonly associated with fuel cells. And the only by-product is water vapor!
  • Hydropower: Uses the kinetic energy of flowing water to generate electricity.
  • Ocean: While the tides and waves are those sources of power most frequently associated with the oceans, among other angles, research continues to try to exploit the temperature gradient that often exists as you descend through to an ocean’s depths.
  • Solar: Power derived from harnessing the sun’s radiant energy in any of a number of ways. These include photovoltaic systems, passive heating and lighting, and systems to focus the sun’s rays to create steam.
  • Wind: Turbines, essentially windmills, convert the wind’s kinetic energy to electricity.

The Technologies

A number of different technologies have been, and continue to be developed to exploit energy derived from these seven different sources. And there’s no telling what further sources may possibly be added in the future (e.g., the holy grail: fusion energy).

Further technologies continue to be developed, too, not only to help “clean up” conventional fossil-fuel-burning power generation, but also to improve the efficiency of battery-powered propulsion in road vehicles.

Trying to determine just which of these technologies will eventually be winners is extraordinarily difficult, if not impossible. Any investor should be aware of two fundamental considerations when looking at clean energy technology. First: While some technologies may be not just viable, but even very successful, in an economic environment replete with subsidies and other government (or state) incentives, should these be removed, the narrative can be very different. Second: Legislation is continually being introduced, at all levels, that will determine not only what funding is available for clean energy initiatives, but also, just as importantly, which clean energy technologies are, as it were, “flavor of the month.”

A somewhat extreme example of this last is the fact that, in Europe, under an EU directive, standard incandescent electric lamps will be phased out by 2012. Discussions of a ban on incandescent light bulbs have also taken place, amongst other places in Canada and Australia, and Ireland has banned the bulbs since the start of this year. In the U.S., according to the New York Times, the Energy Act, signed into law in 2007, will “render most incandescent bulbs unmarketable by 2014.”

Of all the actual clean energy resources available, probably the most widely available are the sun and the wind. It is safe to say that, unless you are skulking in a tropical rainforest or dug in under the ice at the South Pole, you’ll experience (at some time) sunshine and wind pretty much anywhere around the world. Other clean energy resources, however, are, by their very nature, location specific, e.g., biomass, ocean and hydropower. Whether, at any location, the available renewable resources can be harnessed efficiently and viably (economically) is another matter altogether.

Back To Basics

There are, needless to say, a plethora of different technologies that provide us all, in one way or another, with clean energy.

It may be useful to try to categorize some of them as a way to spotlight potential investment opportunities that may be available in the clean energy “space.”

Essentially, with some examples, the dominant technologies are used to:

  • Increase Efficiency: compact fluorescent electric lamps, LEDs and retrofitting the Empire State Building with 6,500 thermopane glass windows
  • Clean: catalytic converters in motor cars, scrubbers in power station smokestacks
  • Convert: photovoltaic cells in solar arrays and wind turbines convert sunshine and wind, respectively, into electricity

Each of these categories will, of course, not only have its own many subcategories, but there will be many technologies that overlap categories.

While many of these technologies will undoubtedly rely on commonly available materials, one of the most interesting (and exciting) developments associated with clean energy has been the increased use of less common materials.

Some Of The Materials Used

Wind Power

Solar cells and wind turbines need to convert the energy from their renewable sources into electricity as cheaply and as efficiently as possible. While in the case of wind, the problem is essentially an engineering one, with solar cells the challenge involves both the materials used in the semiconductor, and how it and the cell are made.

With wind turbines, how efficiently the electricity is generated is of critical importance. This will depend on the design of the motor. While the wiring of its coils and its gearing can make a great difference to efficient generation, so too can the motor’s magnets. A number of the world’s leading wind turbine manufacturers are, therefore, now using permanent magnets made of a neodymium-iron-boron (NdFeB) alloy. They are not only lightweight, but also excellent for high energy capture.

Solar Power

In the world of solar energy, the search continues, as ever, for the most efficient and cheapest photovoltaic cells.

Currently, crystalline (mono- and multi-) silicon cell technology accounts for some 93% of solar cell demand. The remaining 7% of market share is accounted for by a number of different technologies; in particular, thin film technologies, which seek, not least, to use cheaper materials. In addition to amorphous silicon, these materials include cadmium telluride (CdTe) and copper indium gallium (di)selenide (CIGS) – see Gallium: A Slippery Metal).

While all these cells are solid state, development work also continues on electrochemical cells with a liquid active component, e.g., dye-sensitized nanocrystalline cells. Many have hopes that these will offer considerable advantages when it comes to manufacturing costs. Other emerging technologies include photogeneration cells, quantum dot solar cells and “nano-enabled polymer photovoltaic materials.

With the cost of the silicon wafer accounting for around 45% of the total cost of a silicon cell solar module, it is understandable that the search for new, cheaper, materials is as important as that for cheaper manufacturing processes.

Compact Fluorescent Lighting

The materials used in compact fluorescent light (CFL) bulbs are very much more exotic than those to be found in your humble traditional incandescent electric lamp. (And, in one instance, at least, considerably more toxic: Mercury is an essential component in CFL bulbs!)

In contrast with incandescent bulbs (in which a heated element emits visible light), the visible light emitted by CFL bulbs is produced by the phosphors (with which the inside of the bulbs are coated) when they are struck by the UV light from the gas with which bulbs themselves are filled.

The spectra (the colors) of the light from different CFL bulbs are determined by the nature of the phosphors with which they are coated inside. Some of the most important materials used to make these phosphors are the rare earths; in particular, europium, terbium and yttrium. For example, of the nine CFL phosphors offered by the California company, Intematix, only one is absent a rare earth metal: All the others contain at least one.

Catalytic Converters

When it comes to cleaning up the emissions from motor cars and trucks, the science of catalysis is both well advanced and tested. Palladium, platinum and rhodium are the metals most commonly to be found in such catalysts. But other metals are also used; for example, manganese, iron, lanthanum, zirconium and the rare earth metal cerium.

Investment Opportunities

Going back to basics may offer some interesting investment opportunities in the clean energy space. Rather than looking at individual technologies (and taking a view on any one or other), it may be as constructive to look across them to determine what material demands, if any, they have in common.

As long as internal combustion engines burn gasoline, or diesel, and until such time as less expensive substitutes are either developed or discovered, there will be a need for the likes of palladium, platinum and rhodium. And should lithium ion batteries win the day in the battle of the batteries (see The Battle Of The Batteries) for use in electric and hybrid cars, there will, then, be a greatly increased need for lithium.

Despite the current economic environment, the place of solar energy in the roster of clean resources looks, and current interest therein remains, both unchallenged and still very strong. When it comes to solar cells themselves, for the present anyway, and until any other dominant photovoltaic cell technology appears, silicon looks set to remain the semiconductor of choice.

Investing in the quoted silicon refiners and suppliers may, therefore, offer an interesting route into silicon. Amongst the largest quoted companies are: MEMC Electronic Materials Inc (Bloomberg Ticker – WFR:US), Wacker Chemie AG (Bloomberg Ticker – WCH:GR), REC Group (Bloomberg Ticker – REC:NO) and Tokuyama (Bloomberg Ticker – 4043:JP).

Finally, members of one particular group of materials are used across a broad range of clean energy technologies, from fluorescent light bulbs (europium, terbium and yttrium) to wind turbines (neodymium magnets), and from hybrid NiMH batteries (lanthanum and cerium) to hybrid electric motors and generators (neodymium, praseodymium, dysprosium and terbium). They are the rare earth metals (REM).

With nearly all the world’s REM coming from mines in China (see Rare Earth Metals: Not So Rare, But Still Valuable), there are not only few producers of REM outside that country, but there are even fewer such REM operations that are publicly quoted. However, outside China, if they can survive current market conditions, here are some that hope to be producing the metals soon: Alkane Resources (Bloomberg Ticker – ALK:AU), Arafura Resources (Bloomberg Ticker – AFAFF:US), Avalon Rare Metals Inc (Bloomberg Ticker – AVL:CN), Great Western Minerals Group (Bloomberg Ticker – GWG:CN), Lynas Corporation (Bloomberg Ticker – LYSCF:US) and VMS Ventures (Bloomberg Ticker – VMS:CN).

Conclusion

While it is hardly apt to compare the pursuit of clean energy with the search for gold during the gold rush, it is probably true to say that, as then, there will be significant opportunities to be had in offering the right materials to those who are themselves engaged in that pursuit.

These may be substitutes for existing materials; for example, neodymium instead of iron in electric motors’ magnets. Or they may complement existing materials; for example, cerium and lanthanum additives to diesel fuel.

However they may be used, though, an investment in the materials used to make, ultimately, clean energy may be both a more prudent and, perhaps, more profitable option that investing in either the technologies that create clean energy or the generation of clean energy itself.

Tags: Commodities

1 response so far ↓

  • 1 sparty // Apr 16, 2009 at 3:10 pm

    Australia “the lucky energy rich country” has three major REE deposits. Lynas Corp’s Mt Weld project is massive and is also said to be the richest REE ground in the world.

    Arufura Resources ASX Code: ARU and Navigator Resources ASX Code: NAV also have Australian deposits.

    Greenland Minerals and Energy Limited ASX Code: GGG has a very interesting uranium – REEs project. (GGGs uranium by JORC is around 220m lbs) in Greenland )

    Very little money is embedded in the market caps of this Australian sector and tremendous bargains exist.

    This link will take you to a list of Australian compnaies with Rare Earth resources.

    http://www.australian-shares.com/company-database.php?search=rare+earth&type=what&go=Search+the+Database