Iceland Volcano Vs. Alternative Energy and Global Warming (FSLR, PBW, PEIX)

The volcano in Iceland is still spewing ash into the air.  While many Americans have discussed investment banking scandals, the volcano situation in Iceland is affecting far more than many might have thought on what might be a normally isolated event.  Airlines are grounded in northern Europe and air passengers are stranded.  To make matters worse, many of these travelers might be grounded for quite some time even as reports are coming out that some air traffic will be reopened.  But there is another twofold-issue, and not one without controversy… Global Warming and Alternative Energy.

A couple issues we are considering, only in part at this time, are First Solar Inc. (NASDAQ: FSLR), PowerShares WilderHill Clean Energy (NYSE: PBW), and Pacific Ethanol, Inc. (NASDAQ: PEIX).  And, No!, this is not about a global blackout nor about worldwide famine.

For starters, if you read as much over the weekend as I did about volcanic activity and the impact on the earth’s climate, you will know that there may only be more questions than there are answers when you look beyond the immediate impact.  The immediate result is lower temperatures, but longer-term is where the questions come into play as this increases CO2 at relative and comparable rates which differ from source to source.  The immediate impact is a cooling, and there are already many reports showing scientists saying that this volcano is not enough to slow global warming.

Laki blew for months in Iceland in 1783 and 1784, and this caused some of the coldest temperatures on record.  Mt. Tambora blew in Indonesia in 1815 and this caused spring and summer temperatures the next year to cool enough that it was known as “the year without a summer.”  Krakatau blew in Indonesia in 1883, which also caused very cool weather.  Mt. St. Helens blew in 1980 and caused only minor cooling; but in 1991 we had Mt. Pinatubo in the Philippines and Mt. Hudson in southern Chile both erupt close enough together that there was a noted temperature drop.

Imagine if we have no summer, or a very cool summer.  There are many firms which delayed, postponed, or just canceled and mothballed many large alternative energy projects due to the recession and due to the relative cost versus using fossil fuels.  Does it seem logical that utility-scale and large industrial power consumers will have a stronger case against using mandated alternative energy sources?  They of course won’t end the process, but imagine another one-third of projects being delayed endlessly.  During the hard times, these are just a handful of the cases of delays and problems in an already more competitive sector:

• T. Boone Pickens killed much of his major wind project.
• First Solar Inc. (NASDAQ: FSLR) has seen steady margin compressions, along with most peers, even as revenues grew.
• PowerShares WilderHill Clean Energy (NYSE: PBW) is down over 50% from 2006, 2007, and 2008 highs as many components in the ETF have lost their way.

Keep in mind that in many cases these “significant changes” are only 1 degree centigrade.  That is enough to matter in many cases, but it is can make a huge difference if the effects are prolonged.  The notion that this volcano is coming in mid-April is significant in that if it continues as it has in the past then there could be an impact on the summer and winter temperatures, and that in turn can lead to growth in many of those shrinking glaciers.

A cold summer is probably not enough to take away from some of the longer-term needs of alternative energy.  But you know that climate change and global warming (the same of course) enrage many on the right and on the left.  It is becoming almost impossible not to think that many of the skeptics making alternative energy purchase decisions will put off any alternative energy bets for years if things are cool enough that a summer in the northern hemisphere is almost non-existent.

There is of course the case of famine caused by changes in growing season and in crop death (and livestock death) due to acid rain, but we don’t want to go too far on this issue.  We don’t want to give any of the 2012 believers any extra rope.  Whether or not the climate would change (enough) south of the equator is unknown as far as acid rain, but a change in the PH of rain there might put an end to that noticed ethanol boom in Brazil.  But it could certainly derail that turnaround at Pacific Ethanol, Inc. (NASDAQ: PEIX) as corn supplies could be affected in the U.S.

JON C. OGG