Bill Gates Was Right: Green Energy Wasn't Ready for Prime Time

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MIcrosoft chairman Bill Gates. (Elaine Thompson, AP)
Elaine Thompson, AP
It's been nearly two years since Bill Gates came out with his famous dismissal of "green energy" in general, and solar power in particular, as "cute" but too inefficient, too expensive, and too small in scale to actually make a dent in global warming. And once again, it appears the founder and chairman of Microsoft (MSFT) was ahead of the curve.

In an article in this month's edition of The Wall Street Journal's WSJ.Money magazine, the newspaper outlined a swelling backlash against solar, wind, and biofuels -- among investors at least: "Burdened by global overcapacity, slowing demand and the resurgence of fossil fuel production, clean-tech investments have fallen heavily out of favor" on Wall Street, lamented the Journal.

Wind and Sun and Batteries, Oh Well!

And no wonder. While energy experts predict that wind power contributions to global energy production will continue rising, and may account for more than 30 percent of global energy production by the year 2050, the pace of growth in other green energy sectors is already showing some slack.

Take solar power systems installations, for example. After growing nearly six-fold from 2007 to 2012, growth in the solar power market is expected to slow in the coming years, and to barely double in size from 2011 through 2016.

Other green-energy niches are encountering headwinds as well. While electric cars saw sales spike 26 percent last year as Tesla (TSLA) and Nissan, and even Ford (F) and General Motors (GM) brought e-cars to market, sales are expected to grow only 6 percent this year. After rapidly burning through their supply of early adopters -- and as the vehicles' limited driving range and high sticker prices, plus the lack of charging infrastructure along major transportation routes becomes more clear -- automakers are hitting a wall as they seek further growth.

The Fallout

Meanwhile, a surge in investment in shale gas and oil is helping ignite a boom among traditional energy companies, expanding supply, driving down prices, and making green energy look all the more expensive in comparison.
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Result: One pioneer of green energy investing, Sun Microsystems co-founder and green energy investor Vinod Khosla, has seen the value of his green-energy investments fall by half.

And that's the good news.

The bad news is that many ventures in the industry have done much, much worse. Solar panel maker Solyndra was only the highest profile of these failures. More recently, we've also seen bankruptcy filings of battery makers A123 Systems and EnerDel parent Ener1. The death of automotive start-up Th!nk Global. The slow fade of Pacific Ethanol and its peers.

What Does It Mean to You?

The good news among all this doom and gloom, of course, is that as the hot air rushes out of the overinflated green energy balloon, what remains should be a more solid core. Once the unprofitable dross have been cleared away, any profitable companies that remain should be easier to spot -- and considerably cheaper, should you still feel inclined to invest in them.

Meanwhile, the future for investments in oil and gas companies like ExxonMobil (XOM) is looking shinier than ever.

Motley Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends Ford, General Motors, and Tesla Motors. The Motley Fool owns shares of Ford, Microsoft, and Tesla Motors. Try any of our newsletter services free for 30 days.

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Bill Gates Was Right: Green Energy Wasn't Ready for Prime Time

Apple (AAPL) was a market darling until late last year. That's when the market began to concern itself with the world's most valuable tech company, and Google's (GOOG) Android encroached on Apple's lucrative iPad and iPhone market share.

Android is a problem for Apple, as the open-source platform allows any handset or tablet maker to put out an economically priced gadget with the confidence of customer recognition and app developer support.

As customers flock to cheaper devices -- especially in overseas markets where wireless carriers don't subsidize the high prices of iPhones -- Apple has seen demand soften. Margins have also followed suit as Apple is down to offering cheaper iPad minis and keeping around older generations of cheaper iPhones.

Skullcandy (SKUL) went public two years ago at $20, but now it's trading in the single digits. Skullcandy got its start marketing its cutting edge headphones and audio accessories to extreme sports enthusiasts who appreciated the company's brash and colorful designs.

Skullcandy's problem is that fashion is fickle. The stock took a hit last week as it warned of a sharp quarterly loss on a 30 percent decline in revenue for its next report.

Millennial Media (MM) is another broken IPO. The online advertising company hit the market with all of the right connections. As the second largest player in mobile brand advertising -- overtaking Apple and only trailing Google -- Millennial Media seemed to be at the right place at the right time.

A big selling point for Millennial Media is that it's operating system agnostic, and that's something that Google and Apple can't say.

Growth is certainly there. Revenue soared 71 percent last year, and Millennial Media sees 52 percent to 58 percent in top-line growth for 2013. The rub is profitability. Millennial Media is losing money, and it's expecting another shortfall this year.

Select Comfort (SCSS) is the company behind the popular Sleep Number mattresses. The air-chambered mattresses have firmness settings, and a big selling point is that larger beds can have different settings for each side of the bed.

Net sales climbed 26 percent to a record $935 million last year, fueled by a 23 percent spike in comparable store sales at company-owned locations. The lumps in this mattress maker are that it fell short on the bottom line during its holiday quarter, and earlier this month it warned that sales since the beginning of February have been softer than expected.

Photo: Eddie~S, Flickr.com

The Fresh Market (TFM) is another surprising name on this list. The operator of high-end grocery stores continues to attract foodies. Net sales climbed 15 percent in its latest quarter and 20 percent for all of last year. However, The Fresh Market has somehow come up short on the bottom line relative to expectations in back-to-back quarters.

It wasn't supposed to be this way. The economy's improving, and upscale supermarket chains are showing signs of life. Whole Foods Market (WFM) has been rattling off several quarters of positive store-level sales. The Fresh Market hasn't been as fortunate with comps climbing just 1.9 percent in its latest quarter. It still plans to aggressively open new stores this year, but it will need to shore up its popularity along the way.

Falling out of favor is never fun for investors, and it's particularly painful to be a laggard when the market itself is racing to new highs.

However, each of these five companies have plenty to prove before they earn their way out of the market's penalty box. Some of them will do exactly that, but don't be surprised if some continue to hit fresh lows in the weeks to come.

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