Alt-Energy Watch: Germany to Replace Nukes with Fossil Fuels, Build Smart Grid (FSLR, SPWRA, TSL, STP, GE, VWSYF, ABB, SI, SBGSY, ALSMY, AMSC, BGC, QCLN, GRID, PWR)

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The German government’s decision to abandon nuclear power generation by 2022 briefly put a little wind in the sails of alt energy sources like solar and wind. Now, however, Chancellor Angela Merkel has proclaimed that in order to meet demand the country will have to double the amount of generation from fossil fuels.  It may take a while for the news to sink in, but once it does, solar makers like First Solar Inc. (NYSE: FSLR), SunPower Corp. (NASDAQ: SPWRA), Trina Solar Ltd. (NYSE: TSL), and Suntech Power Holdings Co., Ltd. could see share prices get trimmed again. Wind turbine makers like General Electric Co. (NYSE: GE) and Vestas Wind Systems A/S (OTC: VWSYF) could also get some pressure.

The Wall Street Journal noted Merkel’s need of 10 to 20 gigawatts of fossil capacity need to be built over the next decade.   Those 20 gigawatts are essentially equal to the amount of electricity Germany currently generates from its 17 nuclear plants. And these 20 gigawatts will be built in addition to another 10 gigawatts already under development and set to be completed by 2013.

Whether Germany builds new fossil fuel plants or new solar or wind plants, the country’s electricity grid needs to be upgraded. Germany is expected to spend at least 9.7 billion euros to build more than 2,200 miles of cables to connect new generation capacity with consumers. This project is a real boon to infrastructure providers like ABB Ltd. (NYSE: ABB), Siemens AG (NYSE: SI), Schneider Electric S.A. (OTC: SBGSY), Alstom SA (OTC: ALSMY) and General Electric.

Other companies that could benefit from Germany’s need for an improved grid is American Superconducter Corp. (NASDAQ: AMSC), which makes high-efficiency superconducting wire used for electricity transmission, and General Cable Corp. (NYSE: BGC).

There are also two relatively small ETFs that offer a investment opportunity in the buildout of the global energy grid. The larger of the two is First Trust NASDAQ Clean Edge Green Energy Index Fund (NASDAQ: QCLN), which tracks the NASDAQ Clean Edge Green Energy Index. The fund’s largest five holdings are National Semiconductor Corp. (NYSE: NSM), Linear Technology Corp. (NASDAQ: LLTC), First Solar, ON Semiconductor Corp. (NASDAQ: ONNN), and Cree, Inc. (NASDAQ: CREE). QCLN’s net assets total $37.2 million, and it’s year-to-date return is negative, at -2%. Since its creation in February 2007, the fund’s NAV has declined by -4.01%. Shares are lightly traded and opened today at $14.85, within a 52-week range of $12.93-$18.39.

The even smaller grid fund is the First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (NASDAQ: GRID). The fund’s five largest holdings are Red Electrica Corp. S.A., NGK Insulators Ltd., Prysmian SpA, Schneider Electric, and Quanta Services, Inc. (NYSE: PWR). The fund seeks returns equal to the NASDAQ OMX Clean Edge Smart Grid Infrastructure Index before expenses. The fund was created in November 2009 and its lifetime NAV is 12.66%. The fund’s net assets total just $27 million, and like QCLN, it is very lightly traded. The shares opened today at $32.06, within a 52-week range of $26.84-$35.82.

Building out the global grid is likely to cost $500 billion.  And much of the work hasn’t even started yet. Germany’s shift away from nukes forces the country to upgrade its grid, whether it wants to or not. This is definitely something worth watching.

Paul Ausick

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