What has been happening in the new energy sector over the last 12 months?

Investment Q&A: Poppy Buxton - Money - Times Online


Poppy Buxton, the co fund manager (with Robin Batchelor) of the Merrill Lynch New Energy Technology Trust Plc, answers Times Online's investment questionnaire
What has been happening in the new energy sector over the last 12 months?
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There are three main macro drivers that have been supporting the new energy sector in the last 12 months:
1. Positive government policy: In the US a comprehensive energy bill has been passed, offering tax rebates for renewable power from sources such as wind and geothermal, as well as financial incentives for solar, fuel cells and coal gasification. When this Energy Bill was passed in August 2005 we estimated that it benefited two thirds of the portfolio. There is also a lot going on in the US at a State level. For instance, earlier this year the California Public Utility Commission approved a $3 billion solar rebate program to promote the installation of three gigawatts of solar power on one million homes over the next 12 years.
Elsewhere in the world, China recently enacted a "Renewable Energy Law". This includes a variety of measures including targets for renewables (15 per cent by 2020) as well as attractive financing and tax breaks for renewable energy projects. These measures (combined with similar frameworks around the world) are leading to very strong growth in renewables. In fact, DKW estimate that we will see 26 per cent growth in wind and 28 per cent growth in solar this year.
2. Traditional energy costs such as coal, natural gas and oil have been rising and new energy costs generally, have been falling. We are now in a situation where many forms of alternative energy are now cost competitive. For example electricity from wind and gasoline or diesel from biofuels (fuels from crops, sugar) makes economic sense in many instances.
3. Energy security has become a priority. Where we get our energy from is on governments’ minds. The US is the biggest consumer of oil in the world and imports about 60 per cent, that figure is going to increase as domestic production is falling while demand rises every year. China and India are also large importers of oil and we don’t envisage this changing in the near term. Interestingly, the US, China and India all have significant domestic coal resources and it may make strategic and economic sense to convert some of this coal into liquid fuel (coal to liquids). This has been done in South Africa for years and is a proven process.
How do you decide which stocks to buy for your portfolio?
We employ a top down, bottom up approach. We look at macro drivers first – taking into consideration things like government legislations and price trends, and then identify which sub sectors will benefit. We then pick the investment companies which we think will benefit the most.
I co-manage the funds with Robin Batchelor and we also have an analyst, Sandy Christie working with us. Having a three-man team allows us to meet with over 300 company companies a year and conduct numerous site visits throughout the world. This means we can really get to know the companies we invest in.
What stocks have you bought recently?
We have been adding to our positions in companies involved in ethanol and coal to liquids. As oil prices have risen, these forms of "alternative fuels" are increasingly economic. Due to favourable growth prospects in Asia we have also been increasing our exposure to this market. An example is Suzlon, an Indian wind company. Suzlon is well positioned close to high growth markets and is also able to benefit from low cost manufacturing in India and China.
How do you decide when to sell a stock?
We will sell a stock if our view on the overall market has changed, if a company’s fundamentals have changed or because of valuation.
What made you become a fund manager?
I was interested in equity markets and investing. My background was in physics and geophysics and from an early age I had an interest in the energy sector. Running energy funds has allowed me to combine both interests.
What was the most valuable piece of advice you were given when you first started in fund management?
Be open minded to ideas from all sources and share ideas as much as possible, as you never know where they may lead.
What do you do to relax when you are not managing money?
I am interested in art and painting. I also enjoy diving and travel.