Russia Could Be Turning U.S. Trash Into Gold

The big power story is renewables, but don't overlook this alternative fuel that could help the world in more ways than one!

Jul 16, 2014 at 4:56PM

We've been powering this nation with carbon-intensive fuels for so long that we seem to have forgotten the many alternatives at our disposal. I'm not talking about solar and wind, I'm talking about refuse. This niche power source may be small today, but in a carbon-conscious world it could become much more important. That's doubly true if Russia's global provocations get U.S. natural gas exports heading higher: Watch Covanta (NYSE:CVA) and Waste Management (NYSE:WM).

Boston loves garbage
Covanta is a power company with a twist because it burns trash. While that may not be particularly environmentally friendly on the face of things, take a step back. Ask yourself what would happen if Covanta didn't burn the trash it collects to generate electricity. That refuse would end up in a landfill and some other source of base-load power, which increasingly means carbon-emitting natural gas would be tapped instead.

(Source: Yuyudevil, via Wikimedia Commons)

That's why the city of Boston recently extended its relationship with Covanta for another four years. The energy from waste (EfW) specialist will take 140,000 tons of Boston rubbish each year. How good an environmental deal is this? According to Covanta, "For every ton of municipal solid waste processed at EfW facilities, greenhouse gas emissions are reduced by the equivalent of approximately one ton. This is due to the avoidance of methane from landfills, the offset of greenhouse gases from fossil fuel electrical production, and the recovery of metals for recycling."

Is burning trash a profitable business?
So burning our waste for power is a good thing, but how does it stack up financially? That's a tougher question to answer. For example, Covanta's top line has fallen in each of the last three years, and it lost a nickle a share in 2013.

Waste Management, another trash hauler, also has an EfW division. In the fourth quarter last year Waste Management wrote down the value of its EfW division by a massive $1.85 per share, pushing earnings for that period well into negative territory at a loss of $1.29 per share.

The nearly $500 million impairment charge was the result of low power prices. And a big part of that trend is tied to the historically low price of natural gas. This is essentially the same reason that utilities like Dominion Resources (NYSE:D) have been selling merchant power plants, particularly those reliant on coal.

Dominion Resources has instead been building out its green fleet. For example, its $3.4 billion of capital spending planned on the generation side of its business between 2014 and 2018 includes such things as solar, wind, and biomass conversions. But biomass is, essentially, burning things like wood waste. Although burning wood is different than burning trash, it's basically the same idea. In fact Europe is also burning a lot more wood to keep the environment clean. Trash, as Covanta explained, has some serious green cred, too. Over time, look for EfW to look increasingly desirable.

Russia on offense
Essentially, power companies around the world are reexamining their fuel options and finding some new, or perhaps old, ways to keep the lights on and help the environment at the same time. But what does this have to do with Russia?

CVA Chart

CVA data by YCharts

Russia is currently in a dispute with Ukraine over natural gas that could threaten natural gas supplies into Europe. Some in the U.S. government are looking to capitalize on this window of opportunity to make it easier to export the fuel, an activity that is currently heavily restricted. In fact, Dominion Resources is one of the many companies looking to open a liquefied natural gas export hub.

With the United States increasingly using natural gas and the potential for global turmoil to open up the export market, gas prices could start heading higher over the long term. That would make other fuel options, such as garbage, more competitive. This, in turn, would make EfW companies more valuable.

Waste Management is a hedged bet on the space because EfW is a small portion of its overall business. Covanta, however, is a direct play that's still off its pre-recession highs. Don't overlook this dirty business -- you know the old saying, "One man's trash is another man's treasure..."

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Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Dominion Resources and Waste Management. The Motley Fool owns shares of Waste Management. 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

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