In an era of cheap capital, emerging technology companies could provide investors the biggest bang for the buck we've seen in years.
The key is finding a market that already has billions of dollars in pent up demandólike cheap energy.
Of all the cheap alternatives available to us today, I'm most excited by hydrokinetic power systems for the simple reason that the oceans contain enough energy to potentially support more than 50% of U.S. demand alone, according to the U.S. Department of Energy.
In case you are not familiar with the term, hydrokinetic systems produce power from the water's kinetic energy. It's quite literally power from the motion in the ocean.
Critics charge there are limits involved because the technology we need to make, transmit and store wave-based energy is primitive and prohibitively expensive.
And they're right. . .it is, or at least has been to date.
That's why despite years of effort and billions of dollars in government-sponsored financing, there are a mere five megawatts of wave-generated energy being created worldwide.
According to Forbes Magazine, that's only enough to light 4,000 U.S. homes.
Yet studies estimate that two-thirds of the world's economically feasible hydropower has yet to be exploited. Perhaps not surprisingly, much of this untapped energy is concentrated in South America, Asia and Africa.
That's my kind of opportunityóbut it will require a sea change in our thinking (pun absolutely intended).
The Rising Tide in Hydrokinetic Power
That's because traditional "alternative" power choices tend to evolve in terms of how applications like solar, hydro, thermal and gas production ties into the grid. As such, they're dependent on environmental variables that come and go.
On the other hand, hydrokinetic systems really are the grid. By placing turbines, bobbers and impellers into large bodies of water, they become part of the very system they're tapping into.
And it's a whopper of a system.
The Electric Power Research Institute estimates that the total energy potential for hydrokinetic power may be 100 gigawatts by 2050 or enough to power 67 million (M) homes while reducing carbon dioxide emissions by more than 80M metric tons. That's, incidentally, the amount of power produced by 20-30 coal-fired power plants. So we're not talking chump change here.
There are many benefits, not the least of which is continuity.
For example, despite the fact that Katrina wiped out an area the size of Great Britain and devastated many of the power plants in the area, the area's rivers kept flowing and the ocean kept producing waves.
In Japan, the situation is much the same. As recently as December 2011, only six of the nation's 54 reactors remained in operation, according to Marketwatch.
This is making fuel costs skyrocket and negatively impacting Japanese profit margins despite all the cash and effort being poured into that nation's recovery.
As an island nation that's heavily dependent on nuclear power with now extremely apparent risks, the potential for harvesting water is significant, considering that the entire nation is a series of islands quite literally surrounded by boundless energy.
Closer to home, we've got the Hudson, the Missouri and the Colorado Rivers to contend with, in addition to strong tidal currents and waves along both coastsóall of which could be exploited for power production.
Environmentalists charge that the systems will disrupt natural habitats, effectively creating gigantic blenders or Cuisinarts that aren't fish-friendly, creating underwater acoustic pollution or otherwise disrupting maritime habitats.
Not to dismiss any of these concerns, but I think the demands outweigh the bureaucratic red tape in an age where energy demand is rising and rapidly becoming an issue of national security rather than luxury.
Two Hydrokinetic Power Companies to Keep an Eye On
Here are two companies worth watching. One is public and "investable" today. The other is still private but getting ready to commercialize a full-scale version of its core product.
Ocean Power Technologies (NASDAQ:OPTT)óBased in New Jersey, the company is tiny with a market cap of a mere $36.39M and change. It's running at a loss and, according to Yahoofinance.com, sports negative earnings of $1.71 per share. That is entirely understandable when you recognize $120M they've spent developing their proprietary PowerBuoy wave generators.
PowerBuoys look like gigantic thumbtacks comprised of a movable float, a base plate and a long spar that holds everything together. Each one is capable of producing 150 kilowatts using nothing more than the piston like action of waves.
Defense contractor Lockheed Martin Corp. (NYSE:LMT) recently partnered with the company to help with development and logistics. Presumably Lockheed Martin will help with costs as well.
Earnings are scheduled for March 9 and I can hardly wait.
Columbia Power Technologies (still private)óColumbia is based in my backyard in nearby Corvallis, Oregon. Although it's still private, the company is worth watching because it has already deployed a version of its SeaRay generator in Puget Sound and is set to commercialize its technology within the next two years.
Unlike the PowerBuoys, SeaRay generators look like a big oil barrel with floating wings. Essentially the core barrel, for lack of a better term, is a magnetic coil that produces energy when the wings move up and down on the waves. The intent is to use as few moving parts as possibleóin this case two.
The company has partnered with angel investors and received some $8.5M in grants from both the U.S. Department of Energy and U.S. Navy.
This month, they'll be retrieving the SeaRay from the water and beginning work on the full-scale version called a "Manta," with the intent to deploy it in 2013.
There is no word on commercialization yet but with more than 63% of anticipated wave-based energy capacity yet to be developed, there is undoubtedly time.
Not to mention "alternative" alternatives we haven't yet begun to envision but which are undoubtedly being developed in a garage somewhere.
Keith Fitz-Gerald, Money Morning