High Oil Prices Fuel New Energy Star

12/20/2007 12:00 am EST

Focus: COMMODITIES

Michael Murphy

Former Editor, New World Investor

Michael Murphy, editor of New World Radar Report, finds an alternative energy company he says is ready to break out with new technology and big sales.

Goldman Sachs just raised its average 2008 forecast on oil to $95 from $85 per barrel. That means they expect oil to be over $95 for half the year, and probably over $100 for at least 90 days. While that's bad news for consumers at the pump, it's good news for new energy technology stocks.

FuelCell Energy (NASDAQ: FCEL) reported that sales were up 81% to $16.5 million in the October fourth quarter, while it reduced its loss per share from 47 cents in the October 2006 quarter to 25 cents per share this year. The backlog rose 107% to $57.8 million and, in addition, in November and December the company received $35 million in orders from The Linde Group, the world's largest industrial gases company, and the Eastern Municipal Water District in California.

Wastewater treatment facilities now represent 33% of the company's total business. The fuel cell uses the methane that these facilities generate to produce electricity, and the heat by-product generated by the fuel cell can be used in the wastewater treatment process.

The conference call was very positive. The company announced the sale of two of the big 2.4-megawatt DFC3000 fuel-cell power plants to POSCO, their Korean distributor. They are scheduled for installation in 2009, but if FCEL can increase production capacity fast enough, POSCO wants them earlier. FuelCell is increasing annual capacity from 11 megawatts to 25 megawatts right now, and then will expand to 60 megawatts during 2008. The company also intends to take another 20% out of its cost of goods.

The Connecticut Clean Energy Fund selected six FuelCell Energy projects totaling 68 megawatts earlier this year. The utility review and public hearing process are now complete, and the Department of Public Utility Controls will deliver its draft decision on December 21st, with the final decision due on January 9th.

Plus, the 2007 Clean Energy Bill now in a conference committee includes favorable provisions for fuel cells, with an eight-year extension of the investment tax credit and an increase in the available tax credit to 30% of the project capital cost or $3,000 per kilowatt.

One striking statistic: on the conference call, management pointed out that the Energy Information Administration says that global demand for electricity is expected to almost double from 14.8 trillion kilowatt-hours in 2003 to 27.1 trillion kilowatt-hours by 2025. Throughout the world, governments, businesses and voters are looking for ways to generate this electricity 24/7 by using renewable, ultra-clean technologies.

Just in case you didn't buy it yet, I am temporarily raising the buy limit to $12 (it closed slightly above that Wednesday—editor) and making the stock a Top Buy for the December 21st announcement and the impending passage of the 2007 Clean Energy Act. The target price remains $22.

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