Last Call for Ethanol

America's ethanol experiment may be coming to an end. Lawmakers on both sides of the aisle are calling for an end to the $6 billion a year ethanol subsidy.

The question is, if Congress does abandon ethanol, who benefits?  

One potential winner is other alternative energy sources. Cars now consume an astounding 25% of all corn grown as a result of the ethanol subsidy. But with ethanol out of the picture, other energy sources will be called upon to fill the void. Natural gas and electric vehicles are the most attractive options.

Congress agrees and is considering legislation favoring both. Many companies stand to benefit.

Electrifying investments
A123 Systems (Nasdaq: AONE  ) makes batteries for electric vehicles. The company has negative earnings, making it purely a story stock at this point. But the story is intriguing.

The company recently built the largest lithium-ion battery factory in North America in anticipation of federal support for the industry. If electric is the future, A123 Systems is in a good position to capitalize.

NRG Energy (NYSE: NRG  ) will charge the batteries that power electric vehicles. The company plans to construct a network of charging stations in major metropolitan areas across the country. Many of the stations will be available at popular retailers such as Best Buy. Of course, NRG Energy will charge for a charge. The estimated fee is $49 to $89 dollars a month.

Unlike A123 Systems, analysts expect positive earnings from NRG Energy this year, making it a safer electric vehicle investment option.

Natural investments
Westport Innovations (Nasdaq: WPRT  ) and Clean Energy Fuels (Nasdaq: CLNE  ) are two ways to play the natural gas transportation trend.

Westport Innovations holds proprietary technology enabling trucks to operate on natural gas. Clean Energy Fuels provides the stations to fuel the trucks. Both companies operate in the red at this point, but that could soon change if Congress passes legislation to jump-start the industry.  

The bottom line
Congress is searching for ethanol's successor. Natural gas and electric are the likely choices. Look for stocks in these industries to perform well in the near future especially with federal support. 

For related Foolishness:

Fool contributor Adam J. Crawford does not own any shares of any company mentioned in this article. Motley Fool newsletter services have recommended buying shares of Westport Innovations. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (5) | Recommend This Article (6)

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  • Report this Comment On June 01, 2011, at 4:43 PM, pyotrpetrovich wrote:

    American investors and farmer cooperatives spent 40 billion dollars to build our ethanol plants, not including the related distribution infrastructure, at the request of congress. Now you want to just walk away from the only available alternative to petrol?

    Ethanol is by no means the solution to our excessive reliance on oil, but it is part of the answer along with future developments like conservation, natural gas, wind, solar, geothermal and many more. But corn ethanol is here and now.

    Sure, dump to big oil blender's credit (VEETEC). I am sick of listening to the complaints about "ethanol subsidies" which are big oil subsidies. If you want to reduce government waste, go after big oil subsidies too.

    If, in your wisdom, you close all the ethanol plants, what will you do with all the surplus corn? OK, the price of corn will drop some (I doubt that your grocery store will reduce their prices) and we can go back to government surplus corn purchases, Corn and other grain supplies are currently tight as they have been on and off throughout history since Neanderthal wandered around. Productivity on the farm will soon supply enough corn to bring supply and demand back in balance.

    There needs to be some serious long term thought put into the subject, not just cute sound bites that serve no purpose.

    Up until WWI, 40% of our crops were used for transportation. Yup, horse feed! If this sounds absurd, consider that without better planning and developing EVERY alternative to oil in parallel, you may end up riding a horse again.

  • Report this Comment On June 01, 2011, at 5:33 PM, jimmy4040 wrote:

    It's simply not going to happen until after 2012, which means it's probably not going to happen at all.

  • Report this Comment On June 02, 2011, at 3:58 AM, SubsidyEye wrote:

    Mr. Crawford,

    While allowing the VEETC and the protective import tariff on fuel ethanol to expire at the end of this year would be a good thing, that would not spell the end to ethanol use in the United States by any means. There remains the Renewable Fuel Standard, which mandates a certain and growing amount to be blended with gasoline each year. That volume, currently running at more than 12 billion gallons a year, will rise to 15 billion gallons by 2015. And, by the way, the share of U.S. corn production being sent to ethanol plants will be 40% this year, not 25%.

    So your announcement of the demise of ethanol is premature, and the histrionic remarks by Pyotrpetrovich about what would happen if all the U.S. ethanol plants were to be closed down, are all pure fantasy. It's not going to happen.

  • Report this Comment On June 02, 2011, at 6:00 PM, adriano22 wrote:

    Although Ethanol, in my opinion is a nice alternative to oil, let's not forget about the fact that there are other alternatives that are rapidly getting attention and support from the overall market such as hybrid electric vehicles (HEV's) plug-in hybrid electric vehicles (PHEV's) and electric vehicles (EV's). Even though right now there is only a few less than 50 different models on the market, it is expected to go up to 116 by 2012.

    So there are other alternatives, I am currently watching some of the companies that will benefit from this (if it happens), and one of them is A123 Systems Inc. (AONE).

    If you would like to see my research on the matter please visit my latest post within my personal blog.

    http://adrian-50000journey.blogspot.com/2011/06/a123-systems...

  • Report this Comment On June 07, 2011, at 3:56 PM, buffalonate wrote:

    This author obviously doesn't know what he is talking about. Ethanol is going nowhere. The companies that produce ethanol publicly acknowledged that they do not need subsidies to be profitable. They said the subsidies were necessary when getting started but now producing ethanol is profitable. A company called Celanese has found a new technology for producing cellulosic ethanol which will change the ethanol equation.

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