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Distributed Power: The Next Big Investment?

Distributed Power: The Next Big Investment?

With today's electricity demand expanding beyond the reach of available supply, and nationwide electric deregulation efforts providing inconsistent results, distributed power just may be the next big thing, according to Bear Stearns analyst Robert Winters.

With technology-laden, electricity-hungry companies popping up every time you turn around, and blackouts and brownouts occurring more frequently as large power grids are becoming less reliable, the analyst points towards distributed energy services as a possible solution, and maybe the "next big investment opportunity for the coming decade." In Winters' 250 page report, "Distributed Energy Services-The World's Power and Transportation Industries: Set for a Revolution-Part 2," he examines technologies and companies within the distributed energy services sector that might be able to take advantage of the current situation.

"Thanks to major technological advances and energy deregulation, a wave of new investment in the power industry has just begun. We believe that this coming era in the power industry could resemble the wave of investments which flooded into the telecommunications industry following the breakup of AT&T in the early 1980's," said Winters.

"Companies and municipalities need to find ways to ensure the availability of high quality, reliable power," added Winters. According to his research, microturbines are the best positioned of the "new" technologies that would be able to have an immediate impact on electric generation.

He based his recommendation on the fact that microturbines are small, quiet, efficient and very versatile. "They can be used as a main power source, a back-up power source or as an alternative when there is a spike in traditional energy prices," the analyst said. "Microturbines can also be used in remote locations, including developing countries, that do not have access to electricity." Another attractive feature of microturbines is their fuel requirements. The units often use natural gas, but can also use several other fuels as well.

In the study, the analyst also examined fuel cells, flywheel technology, and existing reciprocating engines technologies such as diesel engines and Stirling engines, which he noted are enjoying a comeback.

In addition to the report, Winters initiated coverage on two distributed energy companies. He labeled Active Power, a company that is pioneering flywheel technology, as a "buy" and Capstone Turbine Corp., a leading manufacturer of microturbines, as "attractive."

Los Angeles-based Capstone announced late last month that it had shipped its 1,000 microturbine unit since it began operation in 1998. The company has enjoyed sizeable growth from year to year, selling just two units in 1998, 221 units in 1999, and over 548 units by the end of September this year.

These latest companies added to Winter's coverage are in addition to two fuel cell companies he currently follows. Ballard Power is currently a buy, and Plug Power is rated neutral.

Alex Steis

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