Given that two-thirds of oil and gasoline consumption comes from foreign sources, alternative energy is all the rage these days, whether it be solar power, fuel cells, wind power, manure, and of course, ethanol. Ethanol today is largely made from the sugar of corn or sugarcane, which is basically grain alcohol that can be mixed in varying amounts into gasoline. Despite growing critics ethanol has slowly but surely emerged as the next real alternative fuel of choice in the US. In fact, the government has already picked ethanol to move to the head of the alternative energy fuel class.
Ethanol Gets Government Backing: The US government has approved a 50 percent boost in the amount of ethanol in gasoline for newer cars made in 2007 or later to 15 percent from 10 percent. The announcement comes after the EPA reported that the rise in Ethanol does not harm emissions control equipment in newer cars and light trucks. The Environmental Protection Agency while approving the request from ethanol producers to raise the amount of ethanol in a gallon of gasoline named the new fuel as E15 gasoline.
The Rise Of Corn- Ethanol Futures: Meanwhile after the recent lowering of USDA estimates for the US corn harvest with the prospect of tighter supplies, triggered a surge in futures prices and a rally in shares across the agribusiness sector especially in the corn and Ethanol segment. While CBOT Corn Futures reached two-year highs Wednesday before pulling back slightly, Ethanol futures settled higher, inching up in an attempt to keep margins profitable in the face of input corn cost.
Investing in Ethanol: Some investors have certainly made money with ethanol stocks. Investors once made money on dot-com’s as well. Making money is no indication that the underlying fundamentals are good. Although investment performance returns from these alternative energy companies may not yet be as competitive as the established companies that are currently in the business of the popular fossil fuels, the technology for these alternative fuel companies may still be a long way of waiting as the issue of having the necessary infrastructure to produce and distribute alternative sources of fuel like ethanol will take quite some time.
There is an exchange-traded fund (ETF) that specializes in ethanol and other alternative energy sources: PowerShares WilderHill Clean Energy (PBW). PBW came out at around $15 in March 2005, climbed to $24 in May 2006, and is now at $9.35 a share.