U.S. Defense Contractors Are Hidden Investment Plays in Renewable Energy Initiatives

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Not many investors are aware of it, but the U.S. defense contractors are hidden investment plays in the widening use of renewable energy. That’s because the U.S. military is way ahead of almost every other organization in pursuing a clean energy policy that’s critical for the operation of its bases — with the assist of some defense contractors that usually provide aircraft, weapons, missiles and specialized technological systems and services.

Even when President Obama announced in his State of the Nation Address last month that the Dept. of Defense would make the largest commitment to renewable energy technology in history, not many realized that the U.S. military was already moving rapidly to accelerate clean energy innovations.

The Defense Department spends some $20 billion a year on energy, using about 300,000 barrels of oil a day, according to the Pew Project on NationalSecurityEnergy and Climate Control. And military spending on renewable energy rose 300% between 2006 and 2009, to $1.2 billion, notes Pew, and should exceed $10 billion per year by 2030.

The military’s mandate to use clean, renewable energy is stipulated in the United States Code’s Section 2911 of Title 10: “It shall be the goal of the Department of Defense… to produce or procure not less than 25% of the total quantity of facility energy it consumes within its facilities during fiscal year 2025 and each fiscal year thereafter from renewable energy sources.”

A year ago, the Defense Department invited a number of private-sector companies to demonstrate renewable energy technologies that could be adapted for military use. A small number of them submitted products and were selected for further testing.

Some defense contractors which have already been awarded contracts by the U.S. Dept. Of Defense for various renewable-energy projects, include:

Lockheed Martin (LMT), which is developing an Ocean Thermal Energy Conversion technology that uses temperature differences between warm surface waters and deep cold water to generate power.

Boeing (BA),  which is developing a prototype of a highly energy efficient solar-electric drone that can stay aloft for several months, purposely to serve as a platform for remote sensing, reconnaissance, and scientific experiments. Boeing plans to begin test flights next year for the revolutionary aircraft, named Solar Eagle.

Johnson Controls (JCI), which was awarded a $34 million contract by the U.S. Army for solar, wind, and energy management control systems to improve energy efficiency.

Siemens (SI), which won a $16.8 million U.S. Army contract to install solar power system at the Whie Sands Missile Range.

SunPower (SPWR), which broke ground on Jan. 18, 201, on a 13.78 megawatt solar photovoltaic power system at the Naval Air Weapons Station in China Lake, California.

Arista Power (ASPW), which delivered last year to the U.S. Army’s Proving Ground in Maryland for testing a prototype mobile version of its “Renewable Power Station” that utilizes wind turbines, solar panels, and an on-board battery storage system. On Jan. 12, 2012, the tiny company, was selected as the prime contractor and awarded $892,000 initial contract to develop an “intelligent scalable renewable energy micro-grid for the U.S. Army. The Dept. of Defense has the option to grant additional phases of development, which would presumably mean substantial additional revenues for Arista – – should the Army want to expand the project.

“This is a huge development and a major vote of confidence for Arista, a tiny company that is flying well below Wall Street’s radar, notes LaLoggia, who owns Arista shares.  Arista reported orders worth $2.3 million in 2011, up from $88,000 in 2010.  The Federal Bureau of Investigation was one of Arista’s customers: it bought one of the company’s Mobile Renewable Power Stations.

Surely the Defense Department will award more and larger project contracts to pursue its clean-energy initiatives, which would be a boon to many companies. Obviously, Lockheed Martin, Boeing, Johnson Controls, Siemens, Sunpower and Arista are among the contractors that should significantly benefit, having already won contracts for their renewable energy technologies.

“Any renewable energy company that has the ability to develop and deliver a workable technology to address a specific military application could quickly find itself on a sudden and rapid-growth trajectory, not only because of the potential sales to the military but also because of the benefits that would accrue to that company’s business,” says investment consultant Charles LaLoggia, a former publisher and editor of a newsletter on investing opportunities.

Clearly, no matter which way the political winds are blowing at any given time, the U.S. military has made a long-term commitment to develop and utilize renewable clean energy — and some companies are going to benefit in a major way, says LaLoggia.

“I really believe all of the Dept. of Defense’s focused spending on renewable-energy technologies is going to be a big stock market story,” says LaLoggia.


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