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Renewable Energy IPO

Uncorking New Energy Profits

Written by Nick Hodge
Posted May 28, 2008

In the Alentejo Forest, money really does grow on trees.

Located in Portugal, inland of the southwestern coast of the Iberian Peninsula, the Alentejo Forest is home to a remarkable crop: the cork tree.

In fact, the area is so laden with the trees that it's responsible for about half of of the world's total cork supply.

Cork—despite its superficial blandness—is actually a remarkable species of plant. Native to southwestern Europe and northwestern Africa, the tree must mature for 25 years before its bark can be harvested in the form of cork.

But what makes the tree really special is its unique ability to regenerate bark, which most trees cannot do. Over time, the bark grows increasingly thick and rough until it is ready for the next harvest, typically in 10 to 12 year intervals.

Once again on the brink of flourishing, a few years ago the cork industry nearly faced extinction.

The Opposite of the Renewable Energy Problem

In May 2003, around the same time our current energy issues were being framed (with a new war, an upcoming election, the beginning of rising oil and the early days of publicized climate change), the cork industry was also in a transitional phase.

Plastic and metals were still relatively cheap, and many wine producers began switching to plastic corks and aluminum screw tops. Not only were the novel wine plugs cheaper, they were also better at preventing an apparently serious problem in the wine industry: cork taint.

Cork taint, as defined by Wikipedia, "is a broad term referring to a set of undesirable smells or tastes found in a bottle of wine, especially spoilage that can only be detected after bottling, aging and opening."

It's caused by the cork tree's absorption of chloroanisole, a pollutant found in pesticides and wood preservatives.

And so the cork industry had to make a choice: adapt or die. After all, about 66% of cork-related revenues come from wine corks, but only 15% of global cork is used to make them.

Thus began the modern evolution of the cork industry alongside a revolution in the way the world sees and uses energy. Only in cork's case, it was the incumbent trying to reinvent itself. Regarding energy, there was a new show in town. . .

Renewable Cork, Renewable Energy IPO

Since cork is a renewable resource, its future availability wasn't the limiting factor. What cork really needed was a production process makeover (to eliminate the chloroanisole) and some good PR campaigns.

It got both. And a cork renaissance—along with a renewable revolution—is now in full swing.

First and foremost, the world's largest cork producer, Amorim (Lisbon: COR), invested 40 million euros to keep cork free from compounds that cause cork taint, mostly through sterilization processes. The company now has a new automated factory that produces 4.5 million corks per day.

But the cork industry also used the marketing momentum associated with sustainability to make its case. Amorim launched corkfacts.com and began documenting the sustainability of cork harvesting and production, as well as touting the benefits of cork usage and recycling.

Now, just five years after the origination of the cork scare, the trend toward plastic stoppers and screw tops seems to be over.

Of course, the transition to a low carbon energy economy won't be quite as rapid. Yet there are many lessons to be learned from the cork scenario.

The main takeaway is that evolution and adaptation are as critical for energy—both fossil and renewable energy— as they were for tainted cork.

Renewable energy must create economies of scale, drive down prices and be able to compete for base-load power applications. Efficiency and storage are also main issues.

Fossil fuels, for their part, must be able to be burned more cleanly and efficiently and, in some gases, have their gases trapped and stored (carbon capture) after combustion.

As you know, these types of energy transitions are creating billion dollar investment opportunities. To get an inside edge, I'm headed to the Renewable Energy Finance Forum mid-June in New York. You may want to check it out.

But you won't have to go there to here about this opportunity, which, incidentally, comes from the cork country itself, Portugal.

Next month, Portugal's largest Utility, EDP Energias de Portugal (Lisbon: EDP) will IPO its renewable division, EDP Renovaveis.

The IPO, slated to begin trading June 4th in Lisbon, should debut in the eight to nine euro range. The renewable energy IPO is so anticipated that rumors are circulating about its immediate inclusion in the PSI 20, Portugal's exclusive stock index.

What's more, EDP Renovaveis will reportedly become the world's 2nd largest wind power producer by 2012. Using the proceeds from the IPO, EDP Renovaveis will pay off debt and finance the addition of 1.4 gigawatts per year of installed wind capacity through 2011.

At that point, Renovaveis would be second only to its competitor (and neighbor) Iberdrola Renovables(MCE: IBR).

While getting a piece of this company is probably a good idea, wind won't be a cure-all.

You see, it's not one company or one technology that will bail us out of this energy mess and help us turn a profit in the process. It's a mix of technologies and processes, both fossil and clean, that will be necessary.

Gas to liquids, biomass, hybrids, solar, and carbon capture for coal and oil will each have their place—and their associated investment opportunities.

That's the essence of the Alternative Energy Speculator, a service focused on taking profits from whichever energy alternatives emerge to help battle peak oil and increasing emissions.

Cork may have one the battle for wine stopper domination, but there will be several winners in the energy mix.

One of them could be this emerging technology right here.

Call it like you see it,

nick hodge

Nick

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