Dramatic changes in U.S. energy policies are gaining steam in Washington, creating more potential for clean-technology industries and their investors.

Congress is closing in on its third major piece of energy/ climate legislation in five years. The Senate is beginning work on carbon reduction provisions for its bill, and it's possible a final bill could land on President Barack Obama's desk as soon as the end of the year.

"Even if this legislation doesn't get enacted this year, there's still a huge collection of national trends that will be driven by climate awareness, a shift to alternative fuels and more efficient technology," said Christine Tezak, senior research analyst for energy and environmental policy at Robert W. Baird & Co. "This is creating a very exciting space."

The Obama administration has a chance to "meaningfully accelerate" the previous energy legislation from 2005 and 2007, Tezak said.

There will be some inflationary cost to build the new technology, but ultimately the new energy policy will bring new investment over time, said Michael Horwitz, Baird's senior research analyst for clean technology.

"The hard part is swallowing what will be painful at first," he said.

Horwitz began covering several clean-tech stocks in June:

First Solar Inc. (FSLR, $154.20), Tempe, Ariz., uses a thin-film semiconductor technology to make inexpensive electricity-producing solar modules. It has an impressive backlog and has won a number of utility projects, Horwitz said. He gives it a "neutral" rating because it's fairly priced, he said.

Covanta Holding Corp. (CVA, $16.67), Fairfield, N.J., runs 60 energy-generation facilities.

Covanta has domestic and international opportunities with its waste-to-energy facilities that convert municipal waste into renewable energy, as well as other forms of renewable energy generation, Horwitz said. In the U.S., it converts about 5% of the nation's trash into about 1,100 megawatts of clean energy, he said.

Covanta has a solid financial position and has used its strong cash flow to pay down debt while making acquisitions, Horwitz said. It could be eligible for renewable energy tax credits if federal legislation is enacted, he said.

Risks include Covanta's concentration in the northeastern U.S., fluctuations in the waste disposal and energy markets, and political, legal and other risks internationally, Horwitz said. These shares could go as high as $22 in the next 12 months, he said.

Ormat Technologies Inc. (ORA, $39.70), Reno, Nev., builds and runs geothermal power facilities.

The largest publicly traded pure play in the cost-competitive geothermal field, Ormat is expected to benefit from its ability to satisfy existing state and proposed federal renewable portfolio standards as well as certain tax credit requirements, Horwitz said. Ormat is one of the best-capitalized companies, so it has a good chance to expand its land holdings at the Bureau of Land Management's July 14 sale in Nevada, he said.

Risks include the possibility of drilling unproductive holes; the high cost of geothermal drilling; and the expiration of production tax credits in 2013, Horwitz said. Share prices could hit $50.

ABOUT THIS

The Journal Sentinel focuses on Wisconsin money managers or analysts in this weekly feature, looking at a trend that helps investment pros make their decisions.

Copyright 2009, Journal Sentinel Inc. All rights reserved. (Note: This notice does not apply to those news items already copyrighted and received through wire services or other media.)

(c) 2009 Milwaukee Journal Sentinel. Provided by ProQuest LLC. All rights Reserved.

A service of YellowBrix, Inc.