Investing in Energy Efficiency Companies

Jim Rogers is a socialist.

(Not the famous investor and "Adventure Capitalist" Jim Rogers.)

The Jim Rogers I'm referring to is CEO of Duke Energy, one of the three largest utilities in the country. He tends to be a staunch conservative, and his company is one of the biggest emitters of greenhouse gases in the country.

And he is often quoted saying that solar energy doesn't make "economic sense" in its current form.

But you'd never know all that if you heard his talk last week at GreenBeat 2009, where I was squarely planted in the front row.

Instead, the green version of Jim Roger showed up. And some of his admissions were surprising, to say the least...

The Most Energy Efficient Economy in the World

Rogers has been referred to as a "coal baron."

So I could barely believe my ears when I heard him say "we need to make ours the most energy efficient economy in the world."

And I was even more surprised to hear him say that we need to do it, "even if carbon is off the table."

His reasoning is simple and sound. If we fail to eliminate energy waste from our economy, we will fall sharply behind Europe and Asia.

In many ways, that's already happening. We already owe China a massive debt. And billions of dollars worth of stimulus payments for clean energy have been awarded to foreign companies that have much more expertise than their American counterparts.

With clean technology being possibly the largest economic driver of the century, Rogers worries we're on the brink of letting our dominance slip away.

So for him, going green is more about maintaining economic dominance than anything else. And when you use that lens to look at cleantech, some interesting outcomes emerge.

Silly Consumers

For starters, you come to the conclusion that consumers aren't very bright.

Take gas prices, for example. When they shot from $2.00 per gallon to $4.00 per gallon, rampant change ensued. People drove less.

But when gas prices decreased to $3.00 — not even back to $2.00 — consumers quickly settled back into their old routines.

Simply put, Rogers thinks consumers are too stupid to modify behavior, even in the face of strong price signals.

For him, true energy efficiency gains will come through technology. And that's a good thing for investors.

In a nutshell, Rogers believes change needs to come from the top down. And the change needs to make economic sense.

In his own words, the only way to do this is to "socialize" the cost of distributed generation.

Leveraging Energy Socialism

You read that correctly. A prominent businessman from the conservative school is throwing around the "S" word.

Here's what he means...

We know that consumers are slow to change their behavior. It's a well-known fact that it's better to run your dishwasher or washing machine during off-peak hours. But honestly, how many of us do that?

We know that putting a solar array on our roof is good for the environment and will add to the renewable energy generation mix. But who wants to shell out several thousand dollars to install one, before struggling with lengthy paperwork to reap any available tax incentives?

Rogers wants to socialize the practices.

So his company, Duke Energy, will lease your roof in order to install solar panels. You'll be paid a small fee and the cost will be socialized into the electricity rate.

In another example, Duke would pay for you to install a smart meter or other energy saving device. You would benefit from reduced energy costs and the cost of the device would be socialized into the electricity rate.

If you can get passed the irrational fears associated with the term, it actually makes perfect sense.

Rogers sees it just like building a new coal plant, in which we already know he's an expert. He would simply capitalize the costs of installing solar panels or deploying smart meters just as he would capitalize the cost of building a new coal plant.

The costs are measurable. The energy is measurable.

It's just a new, cleaner way of doing thing — a way Rogers sees as imperative if we want to maintain our global economic superiority.

Technology is Key

But as I said, he thinks technology — not behavior modification — is the way to do it.

So he sees smart meters running energy programs for the home.

In one example, the meter has a software program that tells the refrigerator to cycle power when the dishwasher is turned on - something a consumer could never do. This way, even though another appliance is turned on, no more net energy is consumed.

Rogers has so much confidence in clean technology and its benefits that he made a bold prediction:

By 2016, all Duke customers (4 million) will have smart meters in their homes and automated distribution (the dishwasher example) will be in place.

For investors, this presents a monumental opportunity. Because along with Duke, several other utilities have similar plans. In fact, PG&E and SoCal Edison in California, FPL in Florida, Austin Energy and Centerpoint in Texas, and BG&E here in Baltimore all have similar plans.

That means millions of homes installing millions of devices — from smart meters to smart thermostats to smart switches.

And I've identified three companies whose share price will double as this happens. They're the companies providing these devices and technology solutions. And they're already locking in massive contracts as utilities begin to act.

Call it like you see it,

Nick

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