This from Investment U:

The Obama administration has made a big deal about renewable energy. Over the next several years, the new President has plans to spend roughly $150 billion promoting and enabling its growth. And with $700 billion flowing from the United States into OPEC’s pockets every year, I don’t think you’ll get much of an argument from anyone about the timeliness or the need for renewables.

But even with massive amounts of capital investment – and widespread adoption by utilities and end users – renewable energy will still only account for roughly 10% of world energy output by 2030, an increase of only three percentage points from today’s estimated 7% contribution. Depending on whom you talk to, however, that estimate is wildly optimistic.

The stark reality of worldwide energy production is a dirty, four-letter word: coal. Since the beginning of the 21st century, its worldwide consumption has outpaced any other fuel source, growing nearly 5% per year. This, too, in the face of prices that have escalated every year since 2000.

Consider 97% of that growth has occurred in emerging market countries, most notably China and India. They’ve respectively accounted for 66% and 19% of the total increase.

To keep up with the demand, world coal production is projected to increase by nearly 60% by 2030. Every major coal producing country will see huge increases in its coal output: China will almost double its output, India’s will more than double and Russia’s will rise almost 75%.

What about reserves… is there enough coal out there to meet this huge increase in consumption? The answer is yes. World reserves are more than adequate, with China, Russia and the United States accounting for 60% of them.

Presently, China’s a net exporter of coal, but that will change in a year or two. By 2030, China will be importing 88 million tons of the black rock a year. India will be importing a staggering 220 million tons per year, overtaking Europe to become the second-largest importer.

All this is of great benefit to U.S. coal producers, who have seen their exports surge nearly 45% in 2008 alone. They will continue to see increasing exports of coal to China, India and other emerging market countries.

Large investments will be needed on the prospecting side – to identify economically viable deposits – and on the mining side to develop new projects once identified. Total investment in coal-supply infrastructure is expected to be $730 billion through 2030, with 91% of that going to mine development and mining equipment, and the rest for port expansions and shipping upgrades.

Mining Coal’s Profits

The safest direct coal play is the Market Vectors Coal ETF (NYSE:KOL), which tracks the performance of the Stowe Coal Index. This gives investors a means of tracking the overall performance of companies engaged in the coal industry. This is a relatively new ETF and it gives investors exposure to the major players in the industry including:

• Arch Coal (NYSE:ACI) – One of the largest coal producers in the United States.
• Peabody Energy (NYSE:BTU) – The largest private sector coal company in the world, with majority interests in 31 coal operations located throughout the United States and Australia.
• Bucyrus International, Inc. (Nasdaq:BUCY) – A world leader in above and sub-surface mining equipment.

Another safe coal bet is Joy Global, Inc. (Nasdaq:JOYG) – essentially a carbon copy of Bucyrus. Joy’s wholly owned China Mining Machinery subsidiary recently acquired Wuxi Shengda, a Chinese manufacturer of long wall shearing machines used in underground mining operations in China.

Speaking of China, the second-largest coal producer in China, Yanzhou Coal Mining Company (NYSE:YZC), owns eight working mines – including one in Australia – with many others under construction. The seven working mainland mines have almost two billion tons of proven reserves. That’s enough to run China’s power plants for five-and-a-half years.

Of course the negative aspects of increased coal usage are increased greenhouse gas generation. Right now coal is responsible for 42% of greenhouse gasses emitted worldwide. The International Energy Agency estimates that will increase to 46% by 2030, even with aggressive implementation of new carbon capture and storage technology.

Coal is a dirty four-letter word when it comes to energy generation. And unfortunately, even under the best-case scenario, the world will have to depend on it for years to come. Investors would be wise to consider some form of exposure to coal as part of a well-balanced energy and infrastructure portfolio.

Source: Renewable Energy Reality: Coal

Mining: the latest “wisdom” from Wall Street is that commodities have or are in the process of peaking. Don’t believe it. The 95 percent increase in iron ore prices negotiated between China and Rio Tinto a couple of weeks ago shows how ridiculous that line of thinking is. (My favorite mining-related company: Bucyrus (BUCY)).                 

Energy: with energy prices this high, there has to be some good investments out there and there are, but it’s not in Big Oil. I like a medium sized oil company from South Africa called Sasol (SSL).

Fertilizers: This sector is a little more volatile than I would ideally like. And fertilizer companies have gone up a great deal already. Potash Corp. (POT) seems to be the favorite among analysts, but I like Terra Industries (TRA) better.

Oil support/transport: Some analysts like the pipelines. I like the rig companies better. Helmerich & Payne (HP) is an outstanding one.

Health care: Following the Boomer into their old age can’t be a bad strategy. Medical Properties (MPW) is a real interesting health care REIT with loads of upside.

Alt Energy: Solar rocks. Now that China has had their 50 percent correction, I’m liking Suntech Power (STP) all over again.

Precious metals. Gold and silver are going up, baby. The ETF GLD rises with the price of gold. That’s sounds good to me.

Everyone should have a recessionary handbook in their back pocket. This is mine.

Source:  The “Seven Up” Recessionary Handbook 

I recommended Bucyrus about a year-and-a-half ago. The company makes coal and copper mining equipment. I could have gone with a coal-mining company instead. But rising coal prices had made coal companies a bit expensive. Bucyrus’ price was still cheap. It was probably a vote of “no confidence” on a softening domestic market and uncertain global prospects… supposed signs that dirty coal was falling out of favor.

I knew better. It probably had something to do with the fact that I like to keep things simple. And there’s something very simple and compelling about the number 1,000. That’s how many coal-fired plants are scheduled to be built in the next five years, many of them in China and India.

I also knew that China and India had ambitious nuclear-plant expansion plans. So ambitious, in fact, that there was little likelihood of coal taking a back seat from either country stepping up its nuclear plant construction timetable.

And nuclear – not solar, wind, or geothermal – is the only competitive energy source to coal, in terms of cost and scale. Oil and gas? C’mon. On a per kilowatt basis, they weren’t competitive two years ago. Now, they’re completely off the map.

The other thing I know about coal plants is that they don’t die. They just get rebuilt as they get into their 20’s and then 30’s. Sort of reminds me of Northwest’s aging fleet of airplanes, except you don’t have to fly coal plants, thank goodness.

This brings me to the third thing I know about coal plants. To paraphrase an old Geritol commercial, they don’t get older, they get better. (That commercial has to be at least 25 years old. Do you remember it?) Let me explain.

A great deal of equipment that goes into coal plants has shelf lives of between 10-20 years. And replacing them is a little tricky.

In some ways it’s like you and I going out and getting a new washer and dryer to replace the old one. The new ones will be more effective and efficient. That is, it’ll do a better job washing our clothes and it’ll do it on less energy.

But our washer and dryer aren’t hooked up to a vast and complex array of machinery – all working together to pump out electricity. Replacing a 15-year old piece of machinery with a new one is hard because they usually aren’t made anymore. The new-and-improved part usually comes in a slightly different shape and size. And these small differences can create huge headaches. Even getting it from the OEM (original equipment manufacturer) is no guarantee that you can slip it into the factory without a great deal of re-engineering.

This brings me to the final (sort of) thing I know about coal plants. They’re cleaner than you think. Replacing parts and components is a chance to upgrade. If you’re going to spend serious money and have engineering challenges, you might as well go for the replacement machinery that gives you the most improvement in not only effectiveness and efficiency…

But also in the environment. Oddly enough, as these coal-fired plants all over the world get older, the environmental gap between them and ever-cleaner new plants gets smaller, not bigger.

I happen to know this because at one time I supplied old coal plants in Asia with new parts from American OEMs. These plants weren’t pretty to look at. The re-engineering tended to give these plants a meandering jerry-rigged look. One of the ugliest coal plants in all of creation was one in Taipei. I supplied a ton of parts to it (I don’t think there’s any connection between my role and how ugly it was, but I can’t swear to it.) But it also was one of the most efficient coal-fired plants I knew.

Just goes to show you, looks aren’t everything.

Look, coal will never be the flavor of the day. And, l guarantee, every few years it’ll be written off. Don’t believe it. When oil and gas end their run and begin to drop, coal won’t follow. Of all the energy commodity plays, it’s the most durable… safest… and longest-lasting.

Coal plants aren’t the only things dependent upon a constant stream of parts. Bucyrus’ after-sales market is huge. When I found out that the company was doubling its capacity to make spare parts for its used mining equipment, it struck home.

Spare parts aren’t glamorous or sexy. But it’s something I know about. If they could prop up coal-fired plants, certainly they could prop up sales of a single company that mined the very stuff those plants need.

Sure, it was just a coincidence: A manufacturer whose reliance on spare parts for growth neatly bookended one of the hidden props of the coal-energy market it was part of. If all our picks had to have these neat little coincidences, we wouldn’t get anywhere with our portfolio, would we?

But sometimes a pick just speaks to you. And you have to listen. That’s how it was with Bucyrus. Spare parts were the hidden story and my own personal insight into the company and the sector it belonged to. Nobody mentions coal and spare parts in the same breath. Not even Rusty, the maestro investor of mining. But it’s a great back-end business. The 175% gain I’ve made from Bucyrus so far (and it shows no signs of slowing down) backs up my contention that you should go with what you know.

When you make a connection that others aren’t making, chances are you’re on to a good thing.Good Trading,

Andrew Gordon

P.S. To let me know what you thought of today’s article, send an e-mail to: feedback@investorsdailyedge.com.

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