However, like many other alternative-energy firms, wind power stocks face significant costs and risks.

For example, varying wind speeds cause a wind turbine’s electricity output to fluctuate. In many areas, the wind is stronger in the daytime, when demand is lower, and dies down in the evening, when consumers use more appliances. As well, electrical power can’t be stored efficiently, so to make economic sense it must be used when it is produced. As a result, utilities must maintain back-up power capacity that is equal to their reliance on wind power.

Wind power stocks also face high construction costs. Installation can also be expensive, depending on the terrain and distance from the power grid. Not surprisingly, many of these companies are heavily reliant on uncertain government subsidies and political support.

The best wind power stocks have a sound base of other operations

Risks like subsidy cuts are one of the reasons why we continue to recommend that you only invest in wind power stocks if they have a sound base of other operations to offset the added risks involved with investing in wind power.

TransAlta Corp. (symbol TA on Toronto), a stock we cover in our Canadian Wealth Advisor newsletter, provides an example.

TransAlta operates roughly 80 unregulated power plants in Canada, the U.S. and Australia. These assets give it steady revenue streams and help cut its risk.

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TransAlta has been adding to its wind-power assets lately: In November 2009, it bought Canadian Hydro Developers Inc., which owned and operated 21 power-generating facilities in Alberta, B.C., Ontario and Quebec. These include eight wind farms and one biomass plant, which generates power by burning plant materials and wood waste from lumber mills.

TransAlta is also expanding its Kent Hills wind farm in New Brunswick. That’s because it won a 25-year power contract from the provincially owned electrical utility.

The company will increase Kent Hills’ capacity to 150 megawatts from 96 megawatts in partnership with Natural Forces Technologies Inc., a local wind-power developer. The partners expect to finish the expansion by the end of this year. At that point, TransAlta will have a total of 1,000 megawatts of wind-power generating capacity.

New coal restrictions shouldn’t hurt TransAlta

On June 23, 2010, the federal government announced plans to phase out older coal-fired power plants by around 2025. TransAlta’s shares fell 5% on the news. That’s because, even though it has expanded its wind-power capacity, the company uses coal to generate about 57% of its power.

Under the proposals, utilities would have to close coal-fired plants when they reach 45 years of age or when their power-purchase contracts with provincial electricity regulators expire, whichever is later. The new rules would prevent utilities from extending the lives of these plants unless they can lower their carbon emissions to the same level as natural-gas-fired plants.

However, Ottawa’s plan is still in its early stages, and much could change before the new rules come into effect in 2011. As well, TransAlta feels it can replace some of its older plants with gas-fired facilities. It is also developing new clean-coal and carbon-storage systems that would help it comply with the new standards.

We’ll continue to monitor TransAlta’s green-power expansion and update our buy/sell/hold advice as necessary in Canadian Wealth Advisor. Click here to learn how you can get one month free when you subscribe today.

That’s because many of them need a long time to move from the research or concept stage to profitability. High government deficits have also cast doubt on the future of some subsidies for renewable energy stocks.

To cut your risk, we recommend that you focus on renewable energy stocks that already have a sound base of other operations. That helps offset the risks of expanding into renewable-power production.

FPL Group: A broad-based renewable energy stock

FPL Group Inc. (symbol FPL on New York) certainly meets this qualification. Its NextEra subsidiary is the leading wind-power producer in the U.S., and controls 30% of the market.

However, the company gets 70% of its revenue from its regulated Florida Power and Light subsidiary, which sells electricity to 4.5 million customers in eastern and southern Florida.

(To reflect its increasing focus on green power, FPL Group is changing its name to NextEra Energy Inc. The company plans to change its ticker symbol to “NEE” in late June. The names of its two main subsidiaries will remain the same.)

FPL Group has been steadily increasing its wind-power generation capacity, and is making a big investment in solar power (see below for further details). We’ve taken a close look at its green-power expansion and updated our buy/sell/hold advice on the stock in a just-published issue of Wall Street Stock Forecaster.

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FPL Group is aware of green-power risks — and is proceeding cautiously

Because wind speeds are variable, wind farms produce a less-reliable power stream than traditional power plants. NextEra cuts this risk with long-term contracts that lock in the selling prices for its wind power. It also protects itself from volatile prices for natural gas, oil and other fuels with swaps, options and other contracts that trade on futures exchanges.

In early 2010, Florida power regulators allowed much smaller rate increases than Florida Power and Light requested. That prompted FPL Group to suspend work on $10 billion of new power plants. However, the company later resumed work on these projects. It felt the lower operating costs following these upgrades would outweigh the negative impact of the rate ruling.

FPL Group now expects to spend roughly $2.9 billion on new projects and upgrades this year. It will devote $2.0 billion to Florida Power and Light and $950 million to NextEra. The company plans to put some of these funds toward increasing its wind-power capacity by 1,000 megawatts this year (though it may scale back these plans because of the weak economy).

Solar power expansion will help build on this renewable energy stock’s dominance

Besides wind projects, FPL Group is building new solar-powered generating stations over the next few years. The company opened a 10-megawatt solar facility in April 2010. It will open a larger, 75-megawatt facility by the end of this year.

NextEra plans to spend up to $4 billion over the next four years to add up to 600 megawatts of solar power to its portfolio.

You can get our full analysis, including clear buy/sell/hold advice, on FPL Group and 16 other U.S. stocks in the latest issue of Wall Street Stock Forecaster. Click here to learn how you can get one month free when you subscribe today.

The Nissan LEAF is the first electric car to be widely sold in the U.S. So far, 115,000 customers have paid a $99 reservation fee for the new car. The company aims to convert at least 25,000 of these reservations into firm orders by the time the car begins shipping.

In light of recent developments surrounding this new electric car, we’ve updated our buy/sell/hold advice on Nissan in a just-published issue of Stock Pickers Digest, our newsletter for aggressive investing.

Nissan LEAF benefits from a wide array of government incentives

Recently, the company said that it would sell the Nissan LEAF for $32,780, though the price drops to $25,280 when you include a $7,500 federal tax credit.

The LEAF will also be eligible for further rebates in California and some other states. Nissan will offer a lease program starting at $349 a month, not including tax credits.

In addition, customers who buy the LEAF will also be able to buy personal charging docks from Nissan. These docks will cost an average of $2,200. Here too, buyers of the Nissan LEAF qualify for government incentives: both the charging dock and installation are eligible for a 50% federal tax credit.

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Stick with established green stocks for electric-car profits

One of the main risks of investing in green stocks, including makers of electric cars and related components, is that the subsidies they receive will shrink or end as governments struggle to get their budget deficits under control.

That’s why we think the best way to profit from alternative-energy-powered vehicles like electric cars is through large companies that have the research budgets to stay ahead of the competition in developing these vehicles. These green stocks should also have a sound base of other operations to offset the added risks that electric vehicles entail.

Nissan, for example, is already a well-established automaker; it is Japan’s third-largest after Toyota and Honda. Any subsidies it gets (or in the case of the LEAF, any subsidies that Nissan car buyers receive), will provide a welcome boost to the company’s growth. But Nissan can survive and prosper without them. In contrast, many speculative green stocks will collapse when subsidies end.

The LEAF is only one of this green stock’s advantages

Nissan’s advantage in the highly competitive compact-car market goes far beyond the Nissan LEAF. For example, the company recently entered into an alliance with Germany’s Daimler AG. Nissan has been allied with Renault SA of France for over 10 years. Renault holds a 44.3% stake in Nissan, and Nissan owns 15% of Renault.

As part of the deal, Renault and Nissan will use their compact-car expertise to help develop the next generation of Daimler’s Smart fortwo, as well as a new Smart four-seater. The companies will also develop a new model of Renault’s successful Twingo compact car.

In return, Daimler will provide engines for Infiniti, Nissan’s luxury brand. And Renault will help Daimler’s Mercedes subsidiary develop a new light truck for launch in 2012. Nissan and Renault hope this new partnership will generate $2.7 billion in cost cuts and new business for them over the next five years.

You get our latest buy/sell/hold advice on Nissan and dozens of other companies that could be suitable for the part of your portfolio you devote to aggressive investing when you subscribe to Stock Pickers Digest. Best of all, you can get one month free when you subscribe now. Click here to learn how.

Focus on quality when investing in green technology stocks

A number of the companies on the S&P/TSX Clean Technology Index are speculative in nature. (However, the index does contain one established company that may have found a profitable niche in wind and solar-power generation. Read on for further details.)

We continue to recommend a number of companies that are now involved in, or are planning to expand into, green technology and green power production.

However, while green technology stocks appeal to a lot of investors on an emotional and conceptual level, many offer only limited investment potential. That’s because they may need a long time to move from the research or concept stage to profitability. The recession has also cast doubt on the future of government subsidies for green stocks.

To cut risk in green stocks, we recommend focusing on established firms that have a sound base of other operations, or whose products have a number of different uses.

This green technology stock’s products go far beyond renewable power

RuggedCom Inc. (symbol RCM on Toronto), provides an example. We cover the stock (which is on the new S&P/TSX Clean Technology Index), in Stock Pickers Digest, our newsletter for aggressive investing. We recently updated our buy/sell/hold advice on RuggedCom in a Stock Pickers Digest hotline.

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At first glance, RuggedCom’s connection to clean technology is not immediately clear. The company makes computer-networking equipment that is used in harsh environments.

Its products are designed to reliably operate under high levels of electromagnetic interference. They can also cope with wide variations in temperature and humidity, as well as vibration and exposure to dust. They also work while exposed to such things as corrosive gases and water.

The company’s products include Ethernet switches that connect computers together and let them exchange data at high speeds. It also makes Internet-based communications networks that are faster and more functional than systems that are now used in harsh environments.

RuggedCom’s highly reliable equipment is perfect for renewable power generation

The durability of RuggedCom’s products is what’s caught the attention of renewable-power companies. That’s because these companies’ projects, such as solar and wind farms, tend to be located away from heavily populated areas.

In January 2010, RuggedCom sold over $2.1 million U.S. of equipment for use in wind farms in China. That was a record order for the company.

The Ethernet switches for the Chinese contract are highly resistant to electromagnetic interference and heavy electrical surges. They can also operate in temperatures ranging from -40 degrees C to +85 degrees C (with no fans). Moreover, the switches are designed to be highly reliable, and include a number of cyber-security features.

We’ll keep you updated on RuggedCom’s renewable-energy expansion

RuggedCom’s move to profit from wind and solar power is what got the company a place on the S&P/TSX Clean Technology Index. This could be an added source of future growth for the company. We’ll keep you up to date on RuggedCom’s progress in our Stock Pickers Digest newsletters and hotlines.

You get our latest buy/sell/hold advice on RuggedCom and dozens of other companies that could be suitable for the part of your portfolio you devote to aggressive investing when you subscribe to Stock Pickers Digest. Best of all, you can get one month free when you subscribe now. Click here to learn how.

One of the main problems with wind power is that varying wind speeds cause its electricity output to fluctuate. In many areas, the wind is stronger in the daytime, when demand is lower, and dies down in the evening, when consumers use more appliances. As well, electrical power can’t be stored efficiently, so to make economic sense it must be used when it is produced. As a result, utilities must maintain back-up power capacity that is equal to their reliance on wind power.

Wind power stocks also face high construction costs. These include the cost of the turbines themselves, plus buying or leasing the necessary land. Installation can also be expensive, depending on the terrain and distance from the power grid. Not surprisingly, many of these companies are heavily reliant on uncertain government subsidies and political support.

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Infrastructure suppliers have much less risk than wind power stocks

A good way to profit from rising demand for renewable energy (including wind power) at lower risk is to focus on companies that build components for electrical-power grids.

In spite of the weak economy, governments around the world continue to invest heavily in upgrading their electrical grids. That’s partly because power-grid upgrades are important to the continued development of renewable energy projects, including wind farms.

While most power plants are located near big cities to keep costs down, wind farms tend to be in more remote areas with steady winds. As well, a lack of transmission capacity has been a major problem for wind projects.

One electrical infrastructure supplier that stands to benefit from continued government investment in transmission-grid upgrades is Switzerland-based ABB Ltd. (symbol ABB on New York). We updated our buy/sell/hold advice on ABB in a recent issue of our Wall Street Stock Forecaster newsletter.

Rising demand for wind power should help ABB

ABB makes transformers, transmission switches and other equipment for distributing electricity.

In late 2009, ABB received a $30-million order for specialized power equipment from Ontario’s main electricity utility. The company will deliver this equipment in 2011. This order is small next to ABB’s annual revenue of $35 billion U.S. But it could lead to more orders as Ontario closes its coal-fired power plants and invests in green-power projects. ABB is also seeing higher demand for its power equipment from developing countries.

ABB’s revenue and earnings fell slightly in 2009. However, the company is doing a good job of controlling its costs; it has been cutting jobs, closing plants and buying more raw materials from low-cost countries. These factors, along with rising demand for electrical infrastructure, could mean strong gains for ABB in the coming months.

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The company will increase Kent Hills’ capacity to 150 megawatts from 96 megawatts in partnership with Natural Forces Technologies Inc., a local wind-power developer. Natural Forces owns 17% of Kent Hills, and will have an option to buy an additional 17% by the end of 2010, when the partners expect to finish the expansion. At that point, TransAlta will have 1,000 megawatts of wind-power generating capacity.

The 18-turbine project will cost roughly $100 million. TransAlta earned $66 million, or $0.34 a share, in the third quarter of 2009.

TransAlta is a buy.

(We’ve just released a new Special Report that covers all you need to know to find profit-making opportunities in solar power stocks — “Profiting from the Coming Solar Power Boom.” You can get your copy, along with more than 30 other in-depth Special Reports, subscriptions to all 4 of our newsletters, and the ability to ask Pat your own personal investment questions when you become a member of Pat McKeough’s Inner Circle today. Read on for further details.)

High costs mean many solar power stocks must rely on government subsidies

According to recent estimates, natural gas would have to cost $36 U.S. per thousand cubic feet (it’s now at $5.27) and oil would have to cost $393 U.S. a barrel (it’s now at $73.67) for solar-thermal power (which is most often used for large-scale power plants operated by utilities) to match the cost of power generated from oil and gas.

Because of that price disparity, solar power relies heavily on government subsidies and political support. That support is based on environmental “clean” energy concerns and perceptions of climate-change urgency, as well as a push toward energy independence. Right now, Germany and Spain are two of the biggest subsidizing countries.

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However, the German government is now proposing a 15% cut in feed-in tariffs for roof-mounted solar-power installations that will come into force by April (feed-in tariffs require utilities to pay higher prices for solar power).

Larger cuts loom for other types of open-field solar and solar-power sites that are located on farmland. The cut follows a similar move by France, which cut its feed-in tariff for rooftop systems by 24%.

Cut your risk by sticking with solar power stocks with a sound base of other operations

Risks like subsidy cuts are one of the main reasons why we continue to recommend that you focus on solar power stocks that have a sound base of other operations to offset the added risks involved with investing in solar power. FPL Group Inc. (symbol FPL on New York), a stock we cover in our Wall Street Stock Forecaster newsletter, is a good example.

FPL Group gets 70% of its revenue from its Florida Power and Light Co. subsidiary, a regulated utility with 4.5 million customers in Florida. FPL is also a leader in wind power, and the company is also investing heavily in solar-powered generating stations. These include three new solar stations that will be ready in 2010.

FPL recently received a $200 million U.S. grant to help with its installation of “smart meters,” which customers can use to cut their power and save on their electrical bills. But unlike many solar-power companies, FPL’s subsidies mainly provide a boost to its growth. Its regulated operations provide a continuing source of income.

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The company will expand Kent Hills’ capacity to 150 megawatts from 96 megawatts in partnership with Natural Forces Technologies Inc. (NFT), a local wind-power developer. NFT owns 17% of Kent Hills, and will have an option to buy an additional 17% by the end of 2010, when the partners expect to finish the expansion.

The project will cost roughly $100 million. TransAlta earned $66 million, or $0.34 a share, in the third quarter of 2009.

TransAlta is a buy.

United Technologies is paying $271 million. That’s equal to 26% of the $1.1 billion, or $1.14 a share, that it earned in the three months ended September 30, 2009.

Clipper is currently losing money. However, demand for wind-power equipment is growing strongly as countries look for ways to cut their fossil-fuel use. Clipper should also benefit from United Technologies’ jet-engine and fuel-cell expertise. Moreover, it can use United Technologies’ distribution network to increase its sales.

United Technologies is a buy.

The president was there to announce a $200 million U.S. grant to FPL that will help with the green stock’s installation of “smart meters.” Customers can use these meters to cut their power use and save on their electricity bills. The grant is part of the government’s continuing investment in strengthening and upgrading the country’s power grid.

FPL is in a good position to scoop up even more green-power subsidies over the next few years. See below for more on this company’s leading-edge operations.

Obama’s ambitious green energy plan could be a boon to utilities — and investors

Aside from grid improvements, President Obama aims to ensure that 25% of U.S. electricity comes from renewable sources by 2025. The president also wants to make an 80% cut to greenhouse-gas emissions by 2050.

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These programs will result in great opportunities for smart investors in select energy-producing green stocks. These include solar, wind, geothermal and marine-energy stocks.

However, we continue to advise against investing indiscriminately in anything that sounds like a “green stock.” Instead, focus on companies that have a sound base of other operations to offset the added risks involved with investing in alternative energy. FPL Group certainly meets this qualification.

This green stock’s well positioned to benefit from new government investment

FPL Group gets 70% of its revenue from its Florida Power and Light Co. subsidiary, a regulated utility with 4.5 million customers in Florida. But the company is also a leader in wind power. The green stock’s NextEra Energy Resources subsidiary accounts for 25% of the U.S.’s wind-power capacity.

Investing in green-power technologies comes with one overriding drawback. This is the risk that subsidies, like the one FPL just received, will suffer or end as governments struggle to bring their economies out of recession. However, FPL’s subsidies mainly provide a boost to its growth. Its regulated operations provide a continuing source of income. In contrast, many higher-risk green stock speculations will collapse when subsidies end.

We’ll continue to watch how FPL taps into higher green-energy spending and update our buy/sell/hold recommendation as necessary in our Wall Street Stock Forecaster newsletters and hotlines. Click here to learn how you can subscribe for one full year with no risk and no commitment.