When you invest in General Electric (NYSE: GE ) , you are, in many ways, investing in the equivalent of a mutual fund that is widely diversified across a number of commercial and industrial sectors, including financial services, health care, transportation, manufacturing, and energy. As such, the odds that an investment in the company will produce eye-popping returns are remote, but it does offer investors the prospect of garnering market-beating returns for the foreseeable future.
I say this because I'm bullish about GE's strong push into renewable energy. The company has been headed down this path for a couple of years now. In 2005, Jeffrey Immelt announced his company's "ecoimagination" campaign and, as part of that initiative, committed to increasing research and development spending on "cleaner technologies" from $700 million to $1.5 billion by 2010. Most of this money will be dedicated to coal gasification, nuclear, wind, solar, and fuel cell technologies.
Near-term opportunity: coal and nuclear
Earlier this year, GE announced it was joining DuPont (NYSE: DD ) and Lehman Brothers (NYSE: LEH ) , among others, to form an organization called the United States Climate Action Partnership to address the issue of global climate change. Some environmentalists claim the partnership is geared more toward generating positive press and less about a serious commitment to the environment. As evidence, they point to GE's continued emphasis on coal-related technologies.
This criticism is misguided and, even if it were justified, it won't have much impact on slowing the amount of energy produced by coal. In spite of the recent success of environmentalists in encouraging TXU (NYSE: TXU ) to abandon eight of its 11 new coal plants, there are still more than 140 new coal plants now on the drawing board in the U.S., and the numbers are even more staggering in China.
Simply put, people need energy and a functioning global economy demands an affordable and reliable source of electricity. Coal satisfies those requirements. The challenge, therefore, is to create cleaner coal. To this end, GE's Integrated Gasification Combined Cycle (IGCC) system, which converts coal into a cleaner burning fuel, could go a long way toward making it more attractive.
It has been estimated that if all existing coal plants were converted with such a system that 320 million fewer tons of carbon dioxide would be emitted into the environment. And while such a massive undertaking is unlikely, what is possible is that many of the new coal plants will utilize this technology. Given the number of new plants that will be needed, this represents a huge opportunity for GE.
GE will also benefit as public attitudes about nuclear power continue to soften. Although no new nuclear plants have been built in three decades, nuclear power (which emits no carbon dioxide) is now being seen in a "greener" light. The company's advanced reactor design is expected to be used in the handful of the new nuclear plants that have already been approved, and last month GE was awarded a contract to boost the output of a large existing nuclear plant in Minnesota. As nuclear power grows, GE can be expected to grow along with it.
Mid-term opportunity: wind power
Beyond coal and nuclear, GE is also pushing strongly into more traditional "clean" energy sectors. And nowhere is this truer than wind power. Since the company purchased the wind division from Enron in 2002, it has significantly increased its presence in the wind business. In 2006, it generated an estimated $3.5 billion from the sale of wind turbines -- up from about $2 billion in 2005.
All signs suggest that these numbers will grow rapidly. Last year, 15,200 megawatts of wind power were installed worldwide. This represents an impressive growth rate of 32%. Even more impressive, the figures are expected to continue to post similar growth rates through the end of 2010.
In the U.S., GE is now the top supplier of wind turbines. Just last week, the company announced that it was investing $240 million to fund 410 megawatts of additional wind power -- or enough to power about 100,000 homes -- in six different states.
In Europe, the competition is stiffer, as Vestas Wind Systems, Gamesa, and, most recently, Siemens (NYSE: SI ) are all major players. But in Asia, GE could be standing at the door step of a great opportunity. Last year, the company opened a new wind turbine plant in China that could position it nicely as that country continues to increase its demand for clean energy.
Longer-term: solar and fuel cell
Further down the road, look for GE to dramatically increase its presence in the solar cell and fuel cell arenas. Today, solar power generates less than one-tenth of 1% of the world's energy needs, and the much-hyped hydrogen economy is little more than talk for the time being.
Of the two, solar represents the more promising opportunity. Like wind power, solar represents a minute slice of the overall energy market today, but it is rapidly expanding. GE still trails larger players such as BP Solar (NYSE: BP ) , but in 2006, it was awarded its largest single sale for solar equipment when it received an order to supply a 3-megawatt facility in South Korea with its 200-watt solar power modules.
The deal pales in comparison to the size that companies such as Suntech Power (NYSE: STP ) have announced recently, but it's a start. And as GE applies its technological prowess in nanotechnology to solar cells, look for the company to land more and larger deals in the near future.
Another promising area to keep an eye on is the company's research into fuel cell technology. This past fall, I wrote about GE's partnership with Ballard Power Systems (Nasdaq: BLDP ) and A123 Systems to develop a light battery for a hybrid fuel yielding zero emissions. In another related development, researchers at its Global Research Lab last year announced that they had developed a prototype fuel cell system that reportedly produces hydrogen at a fraction of the cost of today's existing technology. If the company can bring the cost of hydrogen down to the price of gasoline, it could be the start of something big.
Foolish bottom line
World demand for energy is only going to increase in the future. As it does, there will be a continued emphasis on clean technologies. While people will continue to disagree on the merits of various technologies -- especially coal and nuclear -- those two energy sources will remain a big part of the overall energy picture for the foreseeable future. Mid-term, wind will continue to expand through at least 2010. Beyond that, solar and fuel cell technologies will begin to emerge as significant components of energy production.
There are a lot of ways to invest in clean tech. One is to invest in individual companies, and another is to invest in a clean energy exchange-traded fund such as PowerShares WilderHill Clean Energy (AMEX: PBW ) . But for investors looking for a little more stability, who appreciate a modest annual dividend, and don't mind adding some additional diversity to other sectors (such as financial services and medical technologies), General Electric is a great fit.
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Suntech Power and PowerShares WilderHill Clean Energy are both Motley Fool Rule Breakers recommendations.