Alternative energy: A better investment than Fernando Torres

Roman Abramovich is best known as the owner of Chelsea. But he’s also an astute investor, who’s taken an interest in alternative energy. Tom Bulford explains why you should too.

What is Roman Abramovich up to? Aside from looking grumpy when Chelsea lose and wondering whether to bring Jose Mourinho back to take charge at Stamford Bridge, he has a number of other projects on the go.

For one thing, he is busy merging three adjoining grade II-listed buildings into one property on the historic Cheyne Walk, in Chelsea. The cost? £10m. Small change! But as well as these frivolities, he is also splashing out on some stock-market investments. Here the money gets more serious and the story gets a bit more interesting…

Abramovich seems to have acquired a taste for alternative energy, and I think he could be on to something. The timing looks right. The world is running out of oil. The burning of fossil fuels, at least in the traditional way, is damaging the environment. Governments all around the world, with the exception of the Middle East, are keen to diversify away from reliance on oil.

Solar panels, wind energy, and geothermal heat pumps have all made their mark. Meanwhile ,the biggest change to the energy mix has come from unconventional gas. Fracking and horizontal drilling have unleashed vast reserves of previously trapped gas, especially in the United States.

A decade on, it’s ready

But while the political and environmental pressure to reduce dependence on oil and other fossil fuels has been constant, what has really changed is the technological progress made in alternative energy. This was a hot stock-market theme around the year 2000.

Hopes for its fuel cells made Ballard Power Systems (Nasdaq: BLDP) the poster boy for alternative energy – its share price soared from $20 to over $100 in 1998, and then again in 2000.

But while the demand for alternative energy existed a decade ago, the industry was not ready to meet it. Converting sunlight, tidal power, hydrogen or bio-waste into energy is not easy. Huge amounts of investment have gone into these alternative technologies and now they look as if they could provide a genuine alternative to conventional fuels.

On the UK stock market, IQE (IQE) is betting that solar power can now be competitive. Vast farms of solar panels are appearing in those parts of the USA where the sun shines the most, but the key to their success is the ability to convert sunlight into energy much more efficiently than ever before.

 

Generating power from waste hydrogen

In the waste to energy business, a fascinating announcement at the end of last year was that British Airways is to buy £315m of jet fuel to be manufactured at a waste-to-energy plant in East London. This is being developed by Solena Fuels, but much of the important technology for converting the waste into gas and then the gas into liquid fuel comes from Oxford Catalysts (OCG).

Meanwhile, second generation bio-fuels, which rely not upon food crops but upon the inedible stalks and husks, are a promising source of renewable energy.

Abramovich has invested in Oxford Catalysts. He is also invested in Afc Energy (AFC). From its office at Dunsfold Park in Sussex, home of the Top Gear race track, AFC is developing low-cost alkaline fuel cells. These have been around since 1839 when Sir William Grove demonstrated the first alkaline fuel cell, and they have been used by NASA since the 1960s in Apollo missions and on the Space Shuttle.

Turning this promise into commercial opportunity back here on planet Earth has been challenging, but AFC wants to use fuel cells to generate power from waste hydrogen, and believes that these can be cost competitive against mainstream electricity generators.

Abramovich is in the market

The other technology in which Abramovich seems to be taking an interest is underground coal gasification (UCG). As I described here on 22 January, the veteran natural resources entrepreneur Algy Cluff is keen on this too, and believes that projects can be developed around the coast of the UK.

To remind you, UCG is all about generating power from coal, but it has one great advantage: the coal does not have to be dug up. It is burnt where it lies under ground, the gaseous smoke comes up a pipe to the surface where it is cleaned, and can then power generators or be turned into liquid fuel.

At the end of last year, Abramovich was spotted in a Brisbane restaurant talking to Peter Bond, whose Linc Energy (ASX: LNC) is a pioneer of advanced technologies including UCG and waste to energy and fuel cells.

Linc’s share price has tripled since rumours of their meeting leaked out. Whether Abramovich is smarter than the average investor, I don’t know. But it is interesting to see him making a concerted move into alternative energy. I reckon it could prove a better investment than Fernando Torres.

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