Solar power doesn't work at night. Wind power needs wind. Hydro runs into droughts. Geothermal works great, but it's scarce.
Alternative energies are a pain in the neck. They're expensive and inconvenient. "Biomass" is America's newest alternative power source. It doesn't have any of these problems...
With a market cap of $26 billion, Southern Company (SO) is one of the largest electric utilities in the world. In November, Southern Company broke ground on a new biomass power plant in Texas. This biomass plant, when complete, will be the largest biomass plant in America. Southern Company is considering building five more plants like it.
Duke Energy (DUK) is another gigantic electric utility, with a market cap of $22 billion. Last year, Duke Energy entered into a joint partnership with Areva, the giant French engineering company, to build a portfolio of biomass plants. They named this joint venture Adage Biopower. Adage recently announced the location of its second biomass plant.
And what about Oglethorpe Power... With $6 billion in assets, this is the nation's largest power cooperative. Last year, Oglethorpe announced it will build three new biomass plants...
So what the heck is biomass and why is it getting so much attention from the world's largest utilities?
If it's cold outside and you have a fire burning in your living room, then you're using "biomass energy." When people talk about biomass power, they're almost always referring to the process of using wood as a fuel to generate electricity. You burn the wood, the heat turns water into steam, steam drives a turbine, and electricity results.
Using wood to generate electricity is clumsy. Wood is bulky and hard to gather. It needs extensive treatment before you can burn it. Transportation is a pain. And most importantly, wood has other major industrial applications... like making paper and construction materials... so it's expensive.
For these reasons, biomass is not a significant source of electricity, accounting for about 1% of electricity generation in America. Coal is the best energy source for generating power. Burning coal produces 50% of America's electricity.
The thing is, the government is waging a war on carbon dioxide. To force its agenda, the government wants to set up all kinds of taxes, subsidies, and regulations to make us burn less coal and use more carbon-friendly energy sources in its place like hydro, wind, solar, geothermal... and biomass.
Government bureaucrats consider biomass energy a green energy because trees consume carbon. When you burn a tree, you release that carbon into the atmosphere. But the tree you replant in its place sucks the carbon back in. Therefore, as long as you replace the trees you burn, biomass energy is "carbon neutral" and you get the green light.
Starting soon, the major utilities are going to have to pay big fines to the government if they don't generate enough "carbon neutral" electricity. They're scrambling to install as much alternative energy capacity as they can.
It turns out, despite its clumsiness, biomass fuel is the best choice for a utility to reduce its greenhouse gas emissions. Many utilities won't even bother building new biomass plants. They'll simply mix wood pellets with coal dust and blow the mixture into their existing furnaces.
You and I will pay for these changes through our electric bills. To help compensate my readers for this cost, I'm searching for timberland investments. The more wood the power industry burns, the more timberland values are going to rise.
I don't have any timberland companies in my portfolio at the moment. I'm just getting started on my research. I'll let you know when I find something...
updated Jan 12, 2010
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