{"id":29399,"date":"2012-05-01T11:14:42","date_gmt":"2012-05-01T15:14:42","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/2012\/05\/germanys-big-bet-on-green-energy-and-virtual-power-plants\/"},"modified":"2012-05-01T11:14:42","modified_gmt":"2012-05-01T15:14:42","slug":"germanys-big-bet-on-green-energy-and-virtual-power-plants","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2012\/05\/01\/germanys-big-bet-on-green-energy-and-virtual-power-plants\/","title":{"rendered":"Germany\u2019s Big Bet on Green Energy and Virtual Power Plants"},"content":{"rendered":"

Article by Investment U<\/a> <\/p>\n

\"Germany\u2019s<\/p>\n

In a bold and futurist statement last year, Germany pledged to obtain a third of its power from renewable sources by 2020, and reach 80% by 2050.<\/p>\n<\/div>\n

Imagine if the United States could derive 33% of its power from renewable energy eight years from now, and more than 75% in just 38 years.<\/p>\n

Sounds like a tall order for our bi-partisan congressional bureaucracy that can\u2019t come to a compromise on anything as of late.<\/p>\n

But all we have to do is look across the pond to Europe\u2019s most populous state and largest economy \u2013 Germany \u2013 to see a country that\u2019s actually making decisions and taking steps to curb their carbon footprint and reduce their dependency on fossil fuels.<\/p>\n

In a bold and futurist statement last year, Germany pledged to obtain a third of its power from renewable sources by 2020, and reach 80% by 2050.<\/p>\n

When the country pledged to shut down all 17 of its nuclear reactors within a decade, it set foot on a path where it plans to replace around 30% of its energy (that\u2019s currently produced by nuclear reactors) and replace all of it with renewable power.<\/p>\n

Some might see this as outrageous and unrealistic, but with recent innovations in \u201cvirtual power plants\u201d coupled with subsidies, Germany\u2019s visionary future has become surprisingly plausible.<\/p>\n

Virtual Power Plants<\/h2>\n

It\u2019s time for a quick rundown. A virtual power plant is essentially a centralized control system that can manage a group of different power sources.<\/p>\n

Think of wind turbines, hydro plants, solar and back-up systems that are working in full concert through a central control room that has the ability to deliver and control energy for peak use times and store surplus.<\/p>\n

Using software-based systems, virtual power plants are designed to store immense amounts of power, which is important for green technologies<\/a> like solar and wind that don\u2019t produce energy evenly.<\/p>\n

And virtual power plants are anticipated to help provide detailed information about what power supplies are available and even help predict their output in advance.<\/p>\n

The good news is Germany isn\u2019t the only country pushing for a virtual future. You might have heard the word \u201csmart grid\u201d thrown around in infrastructure conversations recently, and virtual power plants are part of that equation.<\/p>\n

The smart grid idea is, in a nutshell, to have all users and generators of electricity connected through information networks.<\/p>\n

Italy, the Untied Kingdom and the United States have already started putting in smart electric meters on residences, and hope to provide more power use flexibility to consumers, even allowing for discounts to those who save energy.<\/p>\n

But at the moment, Germany truly is the country with the most ambition for a cleaner and more advanced power grid.<\/p>\n

Zi First to Zi Party<\/h2>\n

In February this year, Germany\u2019s second-largest generator of electricity RWE AG<\/strong> (PINK: RWEOY<\/a>) began operating the world\u2019s first commercial-sized virtual power plant.<\/p>\n

Working with the large German engineering company Siemens AG<\/strong> (NYSE: SI<\/a>), RWE built wireless links on power equipment and used an energy-management system designed along with Siemens.<\/p>\n

This system has established a way to intertwine a number of small green energy sources into a steady stream of electricity and government subsidies. By monitoring renewable power supplies digitally, RWE can tie them together into a large supply of electricity it can then sell on computerized exchanges.<\/p>\n

Today the virtual power plant can produce about 80 megawatts of electricity. RWE is now offering this power to bidders on the continent\u2019s largest market for trading energy, the European Energy Exchange in Leipzig<\/p>\n

While selling energy to the exchange is regular business for the company, it\u2019s quite another story for operators of renewable power technologies. This is the first time they have been able to sell their green technology to the exchange, which allows them to compete directly for power contracts with coal, nuclear and natural gas plants.<\/p>\n

Now lets get to the subsidies, a word that some (like myself) are always skeptical of\u2026 and why not?<\/p>\n

I\u2019m truly a believer of free markets, where prices determine supply and demand.<\/p>\n

Subsidies can be influenced by corporate giants looking for a bailout, and create surpluses of unneeded resources. And many argue that they can have no effect at all, only making beneficiaries wealthier that they otherwise would have been.<\/p>\n

The list could go on and on.<\/p>\n

But in the case of decreasing carbon emission and reducing dependency on fossil fuels (a supply that will eventually run out, just simple math), subsidies for renewable power sources is a pill I can swallow for the greater good of our plant and our children\u2019s future.<\/p>\n

The German government gives heavy subsidies for renewable power, with this year\u2019s number reaching about $18 billion.<\/p>\n

Profound subsidies like this have generated a rush to build wind farms<\/a> and solar arrays.<\/p>\n

Problem is, these spread-out and irregular power sources have outpaced the ability for anyone to control them, creating unruly electrical flows on grids along with additional volatility in Germany\u2019s energy market.<\/p>\n

New Technology to the Rescue<\/h2>\n

The explosion of renewable energy sources being pumped into the grid has created strong growth and demand for Siemens and RWE since the launch of their virtual power plant.<\/p>\n

Just by providing power to the energy exchange in Leipzig, they have quadrupled their output from 20 megawatts to 80 megawatts in only two months.<\/p>\n

And RWE customers have really helped generate more power, as they\u2019re now selling power they generate at their businesses and homes directly back to the grid.<\/p>\n

It has been a sweet ride so far for the system. The virtual program might very well be able to achieve their original goal of reaching a 200-megawatt capacity by 2015 by the end of this year\u2026 not too shabby.<\/p>\n

Reaching a 200-megawatt capacity would put the virtual power plant in the same weight class as some natural gas-fired power plants. And the sky is the limit as the system could continue to increase capacity.<\/p>\n

Hard subsidies given to renewable energy producers have really pushed development in Germany and boasted virtual power plant capacity. The current downside is that the system\u2019s supply still relies on heavy government subsidies.<\/p>\n

Good news is that in time subsidies might become inappropriate if power prices rise, which is very likely. Over time the system could evolve from a regulated machine to a more market determined one. And surely, if shown to be successful, other developed nations would follow suit.<\/p>\n

Surfing on the German Green Energy Wave<\/h2>\n

Pike Research projects that the virtual power plant market could reach $7.4 billion by 2015. And both RWE and Siemens are in a position to profit from this growing market.<\/p>\n

The two companies operate in the energy industry<\/a> and are working to develop more environmentally friendly solutions.<\/p>\n

RWE is an electricity and gas producer that also provides services and products on the transmission side, as well as power plant construction. They provide electricity to 17 million customers and gas to eight million in the Netherlands, Belgium, the U.K., Germany and other eastern and central countries in Europe.<\/p>\n

Siemens is an electronics and electrical engineering company and provides a diverse range of products and services. The company works in six segments of energy, healthcare, equity investments, industry, financial services and IT solutions.<\/p>\n

So while there are some small differences in what both companies do to make a profit, both are working on smart grid<\/a> and virtual power solutions to help boast their bottom lines.<\/p>\n

And if I had to choose one I would prefer to jump onboard Siemens. Take a look at the chart below for a quick comparison:<\/p>\n

\"RWE<\/p>\n

Reviewing the breakdown you can see that Siemens beat RWE in every category except dividend yield. And as we have mentioned before at Investment U,<\/em> picking stocks solely on the fact that they have higher dividend yields can get you in trouble.<\/p>\n

So yes, RWE pays a 6.06% dividend yield compared to Siemens 4.2%. But if you dive into the company\u2019s payout history you\u2019ll see that RWE\u2019s dividend has been shrinking while Siemen\u2019s has been growing.<\/p>\n

Over the past three years RWE\u2019s dividend has decreased 23.60%<\/span>, while Siemen\u2019s has grown 22.92%<\/span>. As an income advocate, I will always choose a company that\u2019s growing its dividend over one that\u2019s shrinking it; that\u2019s a no-brainer.<\/p>\n

And let\u2019s take a look at the debt to equity on both stocks. A lower debt to equity percentage means that a company is using less leverage and holds a stronger equity position. Siemen\u2019s is much lower at 57.83% compared to RWE\u2019s at 128%.<\/p>\n

Add on top the fact that Siemen\u2019s has better revenue growth, profit margins, earnings-per-share growth, return on equity and operating margins, and the true winner starts to shine.<\/p>\n

Not to mention RWE\u2019s CEO Jurgen Grobmann recently stated \u201cthe coming years will be difficult for us,\u201d as the company is in the process of a corporate reorganization.<\/p>\n

When you hear the word \u201creorganization\u201d and a negative statement about future performance from a company\u2019s CEO, it should instantly raise a red flag in your head. No use trying to capture a dividend on this one.<\/p>\n

Raise Your Green Glass to the Future<\/h2>\n

Investors should keep an eye on virtual power plant development in Germany and other nations. Utility companies in Canada and the United States are already testing virtual power plants in smart grid projects.<\/p>\n

And what ever your beliefs are on developing cleaner energy sources with the help of subsidies (I\u2019m sure we\u2019ll receive some feedback from IU<\/em> readers on this), the virtual power plant system will at least promote green energy production by allowing for small creators to bid alongside the big energy dogs.<\/p>\n

So while time will only tell if Germany will be able to achieve their ambitious goals of obtaining one third of their power from renewable energy<\/a> by 2020 or 80% by 2050, companies like RWE AG and Siemens will still be on the receiving end of German investment and subsidies for some time to come.<\/p>\n

I would just be more inclined to pick up shares of Siemens over RWE for the reasons that we have discussed above.<\/p>\n

Good Investing,<\/p>\n

Ryan Fitzwater<\/p>\n

\n<\/img><\/a> <\/img><\/a> <\/img><\/a> <\/img><\/a> <\/img><\/a>\n<\/div>\n

<\/p>\n

Article by Investment U<\/a> <\/p>\n","protected":false},"excerpt":{"rendered":"

Article by Investment U In a bold and futurist statement last year, Germany pledged to obtain a third of its power from renewable sources by 2020, and reach 80% by 2050. Imagine if the United States could derive 33% of its power from renewable energy eight years from now, and more than 75% in just … <\/p>\n

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