TWO RECENT initiatives may have sparked a renewed interest in alternative energy sources. These actions have not gone unnoticed by the investment community. In Denmark, a CAEI Index was launched last October to track investments in alternative energy sources. Merrill Lynch introduced a New Energy Fund through its Mercury Sterling Trust. They, like the rest of the market, have experienced a spike in the last 30 days.

U.S. Energy Secretary Spencer Abraham announced a $1.5 billion cooperative at the Detroit auto show in January. The three big auto companies will work together to develop fuel cells and hydrogen fuels over the next eight years. A California Stationary Fuel Cell Collaborative was formed by its Governor, the stateâs Air Resource Board and the National Fuel Cell Research Centre. Its goal is to increase the number of stationary fuel cells in the state of California over the next three years. The U.S. production tax credit for wind energy sources is up for renewal. The creative energy behind these legislative actions will foster growth in new energy development.

The CAEI Index covers publicly traded companies that design, develop and manufacture power generation and storage systems with lower levels of carbon emissions. Companies included in the index will be restricted to those in the alternative and renewable energy market. The CAEI companies will be the 50 largest in the field, based on market capitalization. Fossil fuel generating and nuclear power companies are specifically excluded. The index started at 100 on October 31 and is now at 110, after reaching a low of 95 in February.

The Mercury Sterling Trust launched the New Energy Fund about one year ago. It invests in global companies with significant involvement in alternative energy and energy technology sectors. Emphasis is placed on renewable energy, automotive and onsite power generation, energy storage and enabling energy technologies. The fund is managed by Robin Batchelor in London and is registered in Luxembourg.

Largest holdings

The fund started at a level of U.S.$10 on April 6, 2001. It moved to a high of $14 by mid May and fell to $6 on September 11 before returning to $7.25 early this week. According to the January 31 fact sheet, less than half of the portfolio investment is in the U.S. More than a quarter is invested in European companies. Almost 20 per cent of the assets have been placed with Canadian companies. The 10 largest holdings are Energy Conversion Devices, AstroPower, Ballard Power, FuelCell Energy and Gamesa.

Energy Conversion Devices synthesizes new materials and develops production technology and products, mainly in alternative energy and advanced information technology.

It holds a 91 per cent interest in Ovonic Battery Company. The battery is marketed through alliances with General Motors, Canon, Matsushita Electric and Sony. Ovonic and Matsushita Battery have been in a patent dispute over nickel metal hydride batteries since last year. A federal judge has issued a temporary stay against Matsushita selling the batteries to U.S. auto companies while the patent suit proceeds. Energy Conversion Devices trades on Nasdaq National Markets under the symbol ENER US. The company ENER has lost 23 per cent of its value over the last year. It fell from a high of $36.54 in June to $12.64 in September. Now it is trading around $20.

AstroPower Inc. trades on the Nasdaq with symbol APWR US. Astro develops, manufactures, markets and sells photovoltaic solar cells, modules and panels for generating solar electric power. The company also provided conventional single-crystal silicon solar cells. Astroâs shares have increased 4.6 per cent over the last year. Bloomberg reports an estimated P/E ratio of 48 with a long-term growth rate of 52. Astro has aligned with homebuilder Standard Pacific, as well as other builders, to install solar power facilities in new homes.

Ballard Power Systems is probably the better known company in the New Energy Fund. Ballard develops, manufactures and markets zero-emission proton exchange membrane (PEM) fuel cells. They are used in transportation, electricity generation and portable products. Ballardâs technology enables automobile and electric equipment manufacturers to develop environmentally clean products. The company is located in Canada. Ballard trades under BLDP US on the Nasdaq. It has a market capitalization of $3.3 billion. Its stock has declined 21 per cent over 12 months, but has picked up 5.8 per cent so far this year.

FuelCell Energy Inc. develops and commercializes fuel cell power plants for electric power generation. It has research and development contracts with governments and industry. FuelCell is a qualified bidder on the California Fuel Cell Collaborative mentioned earlier. The company is located in Connecticut. FuelCell has a market cap of $655 million. Trading as FCEL US, the stock has declined 23 per cent in value over the last year. Bloomberg reports a long-term growth rate of 26 per cent.

Gamesa is a Spanish company incorporated as Grupo Auxiliar Metalurgico, SA. Gamesa manufactures aircraft parts, but also produces renewable energy. It develops and implements windmill electricity power generation facilities. These facilities now contribute over half of its revenues. The P/E ratio is pegged at 23.67 by Bloomberg. The companyâs stock trades over the counter in the U.S. as GAUXF US. It increased in value 22.6 per cent over the last year and now trades at $15.75.

More information on investments in New Energy Technology can be found in Powerwave. Baird Power Technology publishes this monthly report as an investment guide to power technology. It is available at www.rbaird.com or by calling 1-800-RWBAIRD. Robert W. Baird & Company has a research division as well as investment banking, capital partners, and venture partner groups. It is a member of the NYSE and other principal exchanges.

In some respects discussing alternative power seems like a throw back to the 60s and 70s. Unfortunately the problem of renewable and safe energy sources has not faded away. It is of increasing importance in this era of reckless U.S. energy policy. Investing in new power technology may be in all of our best interests.

Patrice Horner is vice president with Osprey Investments, a division of Anchor Investment Management Ltd. in Bermuda. She holds an MBA in Finance and a NASD Series 7 Licence. Horner is also a Certified Financial Planner and member of the Financial Planning Association.