Sneak Peek 2008 / Brian Wingfield On Energy

The Big Trend

Climate change. Politicians and businesses are banking on a Democrat to win the White House in November 2008, and they'll spend the year cooking up a green-leaning energy policy to go into effect in 2009. The cornerstone will be a mandatory "cap-and-trade" system to limit carbon emissions, currently being shaped with the influence of heavyweights like BP, General Electric and Duke Energy. A skeleton energy bill that reduces auto emissions and boosts ethanol production will also pass, but it won't include a mandate for renewable energy--companies will naturally invest in greener technologies once the cap-and-trade system is established.

The Unconventional Wisdom

Place your bets on coal. It provides roughly 50% of the U.S. electricity sector's needs--even with the "going green" craze at full throttle, power companies aren't going to stop gobbling up coal. But with a cap-and-trade system looming, they'll invest in ways to burn it cleaner and to sequester the carbon emissions from power plants. And they'll go nuclear, which produces almost no carbon emissions. By 2009, federal regulators expect to see applications for 32 new reactors.

The Misplaced Assumption

That ethanol will save the country from record oil prices. Congress will pass an energy bill in 2008 that dramatically increases ethanol production, and oil will top $100 per barrel, but only the former will be detrimental to the economy. Without sufficient technologies in place to make corn ethanol, increases in corn ethanol will drive up food prices, adding to inflationary pressures. Only two things will lower oil prices: more of it (not likely to happen if Congress raises taxes on Big Oil, limiting exploration) or less want for it, which will happen if gasoline gets too expensive.

The Watch List

Energy Future Holdings Corp. -- Barely a year back, the former TXU was reviled by greens for plans to build coal power plants. But after a 2007 buyout by private equity, it's going green with its newly christened wholesale power provider, Luminant Energy.

VeraSun Energy -- Recently announced plans to merge with U.S. BioEnergy, a $700 million deal that could make the company the U.S.'s leading ethanol producer. It's a good spot to be in, as Congress intends to mandate biofuel increases.

PetroChina -- China's largest oil and gas producer is a company backed by a state that is expected to have the highest growth in energy demand in the coming decades. PetroChina shares have dropped nearly 30% since its November 2007 IPO, but the company is worth another look.

A Bold Prediction

Green energy is the next Internet bubble. With so much media attention focused on going green, a new crop of companies that provided the latest in energy efficiency and renewable technologies will sprout up, as will companies that sell carbon offset credits. Careless investors will flock to them. The bubble won't pop in 2008, but it will inflate tremendously.