On the strength of these two new stories, I'd say quite a lot !

Exhibit A: what can happen when too little rain falls?

New Zealand is facing a power crisis, because a two year long drought which has drained the reservoirs that were providing 75% of that island nation's electricity. Now their contribution has fallen to just 50% and the Kiwi government is asking its citizens to cut back on electricity use. Alas, hydropower is not 100% reliable because you can't guarantee and make long-term predictions about rainfall. So if blackouts do ensure in NZ, you wonder what's going to  happen to Trustpower, NZ's vertically integrated retailer and hydro asset owner of hydroelectricity, listed on their stock exchange (unfortunately, no yet on advfn). Any country over-exposed to hydropower runs this risk - indeed, such was the case with Norway (which has 27 GW of hydro) a few years ago. But by and large, it's still a small risk.


Exhibit B: so what about when too much rain falls?

Analysts at BMO Capital Markets and Citigroup have cut their stock ratings on ethanol makers and corn refiners in America's midwest because of massive flooding in that region which is widely thought to affect this year's crop. They are anticipating there won't be enough corn to go around (which suggests to me the price of ethanol will go up) for them to work on. This downgrade has so far affected Archer Daniels Midland and VeraSun Energy amongst others.

So there you go, investors can - like the late 80s pop group Milli Vanilli - blame it on the rain. It's just a pity that  New Zealand and America's Midwest can't swap their weather !

Apart from regretting the terrible loss of life, some are now starting to wonder if China's massive hydrpower expansion plans - an additional 170 GW by 2020 - will be scaled back in the face of the earthquake. No dams have actually burst, but cracks were found in one major dam in Sichuan province and allegedly, according to this wiki, 391 other dams. It seems to be the smaller and possibly older, dams that  are most vulnerable.

China's hydropower plans may be small compared to their coal-plant construction - an addtional 91 GW last year alone. Yet their vast hydropower expansion is completely without precedent in the history of the world. If you look round the globe, it tends to be that the ideal sites for hydro assets were originally created by tectonic activity - i.e. mountain ranges with deep gorges. Today of course, you just want those locations to be dormant. A quick look at this map of Quake Epicentres in 1963 - 1998 tells you that China is far from quiescent in earthquake activity. And at 7.8 on the Richter scale, this was their largest earthquake in 58 years.

Ultimately, all dams can potentially fail, because it is impossible to build something that can last forever. So repairs to cracks in the concrete structure has be factored in at some point in the future. I suspect this happens quite often and we don't hear much about it. The bottom line is, cracks in dams are - and have always been - a problem for the hydropower industry. But they are not an  insurmountable one. And my guess is that China's thirst for at least some clean power is simply too great to scale back the hydro programme in favour of coal.

And one final point. It's erroneous to believe that hydropower is uniquely vulnerable to earthquakes.  Japan's experience of  an earthquake-damaged nuclear reactor last year created a spike in the price of Liquefied Natural Gas for some time in the Pacific Basin market.

I've just finished going through this free report on China's renewable energy programme just released on Renewable Energy World, which is dated January 2008. Apart from the odd bit of Chinglish, it's very good. Here are what I consider to be the highlights;

1. China will have to invest a staggering $263 billion by 2020 to meet its renewable energy targets. As there is a planned 170 GW of additional hydropower capacity which costs, conservatively, approx $1.2 billion per gigawatt then that leaves about $59 billion for solar, wind and biopower.
   

2. Wind - In 2009 China will become the world’s largest producer of wind turbines. In  2009 and 2010, Chinese  wind turbine manufacturers---Jin Feng (Golden Wind) and Hua Rui---will start to export. So deflation  in the cost of  these machines is finally in sight. This is big news.
   

3. Biofuels - China has approximately 212 m hectares of wasteland which could be cultivated for biofuel producing crops. Leaving aside the questionable benefits of biofuels, modern China likes to think big so don't think they won't try.
   

4. Solar PV - China only has 15 MW of it. The solar emphasis continues to be solar thermal in China and the cheapest solar thermal unit costs just $150. When will they start exporting them?
   

All of this for me is leading to one point - the next big wave in alternative energy  (after biofuels, solar, etc. ) ought to be Chinese alternative energy companies. There's also the added bonus that Chinese stock markets were down as much as 50% until a few days ago and oil is now at $118 a barrel. Chinese alternative energy companies - i.e. the ones who are investing in China have a lot of work to do. Finally, don't discount the very good chance by the end of the year that China's currency - the Renminbi - will float and appreciate upwards. That will alleviate the buying power of China's rural poor currently faced with record food prices. Of course, such a course of action will be denied right up until after the event, but no Chinese government wants to face down a new peasant revolt.

THE GAINERS


Voller Energy LSE:VLR FuelCells 25.00
Eop Biodiesel O.N. XE:E2B Biodiesel 16.82
Solar2 Ag XE:S2R Solar 16.67
Torrens EN Fpo ASX:TEY Geothermal 16.67
Renewable Energy NK 1 XE:R3Q Solar 13.68
Colexon Energy AG O.N. XE:HRP Solar 13.64
Quantum Fuel Systems Technologies Worldwide (MM) NASDAQ:QTWW FuelCells 13.39
Beacon Power (MM) NASDAQ:BCON EnergyStorage 13.00

There's precious little information - in English - on Chinese stocks. But there is a massive hydropower programme going on there, a staggering 170 Gigawatts of hydropower is to be added by 2020. I've been looking at Chinese stocks and have come up with these 3 so far which should have some exposure to that;

Chongqing Three Gorges
Guizhou Qianyuan Power
Sichuan Mianjiang Hydropower
The first two are on the Shanghai Stock Exchange and the last one is listed on the Shenzen Stock Exchange which is not fully live yet with ADVFN - watch this space for more Chinese stocks.

I have just been thumbing through the ultimate global resource on hydropower - The World Atlas 2007 of the International Journal of Hydropower & Dams. It's worth reflecting on just how big the hydropower industry is and how fast it is quietly growing.

• Worldwide, total hydro capacity is 807 GW, 50 GW up on on 2006
• Annual 2007 hydroelectricity production stood at 3030 TWh
• At least 150 GW of hydro is under construction in 106 countries of the world
• In Africa, hydropower production increased by about 9 per cent in 2007 to 93,000 GWh
• In Asia, 126 GW is under construction - well over 80% of the global total
• We've all heard of the 3 Gorges Dam in China, but Vietnam has an ambitious programme - from 4,500 MW today to 16,580 MW by 2020
• Europe has more than 3,364 MW under construction - the largest of which is in Iceland at 690 MW to power an aluminium smelter

And yet, I only have a handful of hydropower stocks. There must be many more - please comment below or shoot me an email for any you think I should know about, particularly in the developing world.  I know there are environmental issues with  hydropower, but fully amortized hydro it is the cheapest form of electricity bar none and it is highly scaleable compared to any other existing renewable resource. No wonder the world's energy poor are taking such a shine to it.

PG&E Corp is quietly ramping up alternative energy assets - see page 14 of this pdf. What's quite exciting is that they are investing in some quite radical assets - like Finavera's 100 MW wavefarm and more recently, 175 MW of geothermal, subject to full regulatory approval. BTW, you should also be aware that PG&E Corp owns a subsidiary called (i.e. not the same company)  Pacific Gas and Electricity  which already has a substantial hydro resource.

It did occur to me that the diversified approach of the utility ramping up alternative energy assets, combined with  the dull conventional power assets make them a less volatile investment for investors worried about an alternative energy bubble. I suspect the utility angle on alternative energy is greatly under appreciated. With a stable, but consistent income of electricity paying customers, they have an easy to understand repeat business model, which may just make them the primary defensive stocks of the alternative energy sector.

I don't like to get into politics on this website, less still opine on them. Investors should be above all that. But in a detached way, you can't ignore the shift (and the opportunity) that will occur in Australian alternative energy policy, assuming Kevin Rudd wins the Australian General Election tomorrow - not entirely certain.

This is what he said in his final plea to voters in a newspaper today;

"Labor will immediately ratify the Kyoto Protocol and establish Australia’s first national emissions trading scheme to provide the framework to meet a carbon target of reducing our greenhouse gas emissions by 60 per cent on 2000 levels by 2050. We will implement a renewable energy target of 20 per cent by 2020. Our $500 million renewable energy fund will help develop and commercialise solar, wind, geothermal and wave power projects, in addition to our $500 million national clean coal fund. We will set up a desalination and urban water recycling fund".

Considering that Australia, a fast-growing developed economy, generates roughly 9% of it's electricity - mostly hydro - from renewables, this target will be tough going. The headline story here though will probably be the Kyoto Protocol and the impact Oz will have on carbon trading.

It has been a while since I've had the chance to post about a forthcoming IPO - a shame because historically, IPO Watch has been one of the most popular sections on this website.

So I was pleased for more than one reason to learn of National Hydroelectric Power Corp's plans to sell a 13.8% stake in an IPO to raise $580m. Growing at over 8% per annum, India needs a lot more power and they will need all the capital they can get to obtain it.

Apart from which, I like Hydropower - it is proven technology, can deliver clean energy in gigawatt scale and does so at the lowest possible cost compounded over the lifetime of the plant - up to 200 years. So my personal view is that exploiting fully amortized hydropower is an excellent long-term bet. But selling off only 13.8% of your company strikes me as a bit blasé - and some would unkindly sum up the attitude behind it as this;

we want your money, but we won't concern ourselves with what you think and will care even less, because you will always be a minority shareholder.

I've just been reading a fascinating and revelationary book by Eric D. Beinhocker "The origin of wealth - evolution, complexity and the radical remaking of economics". and I was very taken by one point (amongst many) that he made - essentially that mankind has evolved a system for fairness and reciprocity in business, but if the conditions for reciprocity, fairness and trust are not replicated following the business transaction, then civilization does not advance much beyond the Machiguenga people of the Peruvian rain forest (I abbreviate and exaggerate for effect, but it's not an unfair synopsis).

Why am I saying this?

Because there is another Indian hydropower company Jaiprakash Hydro Power, which although much smaller, continues to earn respect and good ratings, not least because far more of its shares are traded on the open market.

Going public with an IPO is about trusting the market and the investors to have the best interests of your company at heart. That's why deep down, I believe that anything less than a 50% offering is a long-term mistake.

So I hope NHP reconsider and think big by trusting big. And I dearly hope many other alternative energy companies do not eschew the market either.

Because the public markets still leave the venture capitalists and the banks for dust when it comes to raising larger amounts of capital at lower overall cost.

Canadian Hydro Developers - a developer, owner and operator of 18 renewable energy generation facilities totalling net 230 MW in operation with an additional 384 MW nearing construction has just announced Q3.

Buried within the detail, I was amazed to find out that they had actually signed last July one 20 year and even three 40 year Electricity Purchase Agreements from BC Hydro for the supply of 44.5 MW of electricity from hydroelectric projects.

With a 40 year power purchase agreement, all manner of investments become economically viable as they can pay for themselves and more within that time period. Typically in Europe the ppa lasts just 15 years and not many power plants can recoup costs that fast - probably only gas and partially subsidised wind. That's why capital intensive industries like nuclear are screaming for 40 year carbon contracts. As I have opined here before, fully amortised hydropower assets produce the cheapest electricity bar none. This I'm now beginning to realise is best achieved with long-term ppa contracts. So why not extend it to some of the other renewables?

This may be a cheaper way of subsidising alternative energy.

Yet Canada has the advantage over European nations of being a growing country and can make a bet on future electricity demand, regardless of who its customers might be in 40 years. In Europe, 15 year ppas are based on an established client base and demand levels that will probably not change much.

It's hard to judge - how can you do this optimally?

I hope to come back to this theme and explore it again shortly.