The Obama administration’s commitment to environmental and clean technology legislation means changes and opportunities for several industries. Baird asked senior research analysts Richard Eastman (Process Technology), Michael Horwitz (Clean Technology), David Parker (Utilities) and Andrea Wirth (Facility & Industrial Services) for their insights.
Q: Clean technology is very broad. How does it relate to your industry?
Michael Horwitz: We define clean technology broadly as technologies that use energy, water and other raw materials more efficiently and productively. We think innovation to improve the efficiency in resource use will span nearly every industry.
David Parker: For the utility industry, it’s technology that decreases the overall environmental impact of delivering energy to customers.
Richard Eastman: In our industrial-oriented sector, clean technology provides a sustainable benefit to the user, and we believe clean technology will contribute to the next investment cycle within the global industrial market. Examples include: technologies that eliminate contaminants or emissions, measurement or treatment technologies that enable conservation and recycling, energy-efficient drives and motors, more efficient power grids that enable consumers to actively manage power usage and investment in renewable energy sources and energy storage .
Andrea Wirth: In Facility & Industrial Services, the companies I follow focus on the
implementation of clean technologies. In facility services, companies increasingly focus on “green” services, such as energy and water usage efficiency. In industrial services, engineering and construction companies are focusing on services to environmental and renewables markets, including emissions control "scrubbers," carbon capture and sequestration, and the buildout of wind and solar power infrastructure.
Q: The Obama Administration has made environmental/clean technology legislation a centerpiece of its agenda. How might legislation or policies affect various industries or companies?
Parker: New standards for emissions will modify how the electric industry invests in the energy delivery system. While coal will remain an important fuel source, we expect rapid expansion of lower-carbon-emitting energy sources, including renewables and nuclear.
Eastman: Investments in clean technology received a boost with the American Recovery and Reinvestment Act of 2009, which directed significant funding and tax credits toward energy and environmental programs, many of which were already in various stages of development and implementation. Investments to make the power grid “smart,” water resource programs, renewable energy projects, grants for battery technology advancements, tax credits for energy-efficiency programs are all poised to accelerate due to federal subsidies.
Horwitz: Several pieces of legislation have been proposed and enacted that will benefit the Clean Technology sector. Tax benefits for renewable electricity should spur growth in solar, wind and geothermal. Recent legislation also provides loan guarantees and grants to accelerate technologies in transportation, such as plug-in-electric hybrids, electric vehicles and alternative fuels. Finally, the administration is currently supporting climate change legislation that would create a cap-and-trade program for carbon dioxide emissions and mandate the use of renewables.
Wirth: Engineering and construction firms would benefit from updated legislation for nitrogen oxide, sulfur dioxide and mercury emission reductions. More importantly, utilities would be able to better estimate the cost of carbon, reducing the economic uncertainty of new power generation builds and potentially unleashing another wave of spending. Engineering and construction companies would benefit from virtually all sources of new power generation that would be built, including nuclear.
Q: A stated objective of this legislation and policy is to make the United States a leader in these emerging technologies. How is the U.S. positioned to capitalize on clean technology?
Parker: The energy industry has historically been slow to adopt new technology, primarily reflecting the need for system reliability at a reasonable cost. Wind generation has gained acceptance, but it’s early in the game for other technologies. Field testing and approvals can take years before wide-scale adoption; however, with more funding and incentives, that timeline could be reduced.
Eastman: With the world’s largest economy, the United States has the most to gain and lose if we do not stay competitive. The United States is positioned to benefit from the global adoption of clean technology as a result of two factors: the U.S. leads the world in research and development spending, and U.S. Industrials have a corporate culture of product innovation. The United States invests approximately 2.6% of gross domestic product in R&D, nearly 50% more than the European Union and 160% more than China or Japan. A recent survey conducted by Battelle noted that 69% of respondents expected to increase 2009 investment in energy-related and environmental technologies. Lastly, many large U.S. manufacturers have significant global market share in emerging technologies, which is the result of leadership in product innovation.
Horwitz: In some ways the United States has lagged Europe. For example, Germany has made renewables a focus. By subsidizing the industry, Germany plans to create 800,000 to 900,000 jobs and produce at least 33% of electricity from renewables by 2030. That said, the U.S. has several advantages to be a global leader. First, significant private and public market investments have been made in U.S.-based Clean Technology companies, spurring development of an industry “ecosystem.” Second, previous innovations can be leveraged to develop new technologies. Third, the United States has strong natural resources, e.g., prime areas to develop wind, solar, geothermal, to support the development of the sector. Finally, the sector has significant political support, which should help the U.S. become a global leader in the sector.
Wirth: The clean tech industry is still generally in its infancy globally, so there is considerable opportunity for both traditional and nontraditional players to capitalize on the advent and implementation of new technologies. Policy clarity in the U.S. could open the flood gates to investment in clean tech innovation.
Q: Please give examples of how specific types of companies are best positioned to capitalize on clean technology.
Wirth: We expect facility service companies focused on energy and water efficiency, such as Ecolab (ECL), to be best positioned, since the financial impact on their customers’ bottom-line will be the most direct. Longer term, the buildout and modification of our nation’s infrastructure to meet new environmental policies and regulations should benefit engineering and construction companies, such as URS Corp (URS), AECOM (ACM), Shaw Group (SGR), Jacobs Engineering (JEC) and Fluor (FLR).
Horwitz: We think companies across many industries are positioned to capitalize on the shift to clean technology. These include innovators in electricity generation, energy storage, alternative fuels, transportation, water, and energy efficiency. We expect all companies in our coverage will benefit from a shift to clean technology. However, we think investors should focus on waste-to-energy – Covanta Holding (CVA); geothermal – Ormat Technologies (ORA); demand response and energy efficiency – EnerNOC (ENOC ) and Comverge (COMV); and ultracapacitors/energy storage – Maxwell Technologies (MXWL). Some will flourish as stand-alone companies and others will be acquired. We also expect many forward-thinking multinational corporations to benefit. We think the emphasis on clean technology and increased resource efficiency can be more than just “feel-good” marketing, and see many of these companies increasing productivity and lowering costs by incorporating clean technology.
Eastman: The majority of companies on our coverage list have adopted a clean technology objective and manufacture products for the energy or environmental markets. New product development has emphasized efficiency, including: ESCO technologies (ESE) – smart grid components and network products; and Rockwell (ROK) – energy-efficient electronic components and drives. A number of our companies also manufacture products for water resource management, environmental testing and energy storage including: Badger Meter (BMI) – water meters and automation products; Pall Corp. (PLL) – water filtration products and equipment; Dionex (DNEX) – water testing instruments; Danaher (DHR) – water testing and treatment; Nalco (NLC) – water treatment; and Polypore (PPO) – energy storage.
Parker: FPL Group (FPL) is an industry leader in developing and owning wind generation. Otter Tail Corp. (OTTR) expanded manufacturing capacity in 2008 to increase its market share of wind tower construction to roughly 35%. Xcel Energy (XEL) is in advanced testing of smart grid technology.
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