The Energy Balance of Snake Oil

It’s no secret that money is flooding into the alternative energy sector, but not all of this money comes from sophisticated, investors. Unsophisticated investment is a lighting rod for the scam artists. Because there is both an urgent need to deal with the the problems posed by global warming, energy security, and resource depletion, and the new money is rapidly accelerating the advance of technology in renewable energy, new innovations are very plausible.

There are many ways to lose money in alternative energy, even without being taken by a scam. .
The current emotional climate in the industry makes even the most solid companies’ shares gyrate wildly. Even mildly profitable, relatively unexciting picks like LED-maker CREE go on wild rides from $35 in April 06 to $15.25 at the start of February this year, only to shoot back up to over $25 today. A speculative technology startup such as Beacon Power Corp. (NASDAQ:BCON) , on the other hand, is likely to be even more volatile, having dropped almost 80% in a little over a year, and now looking as if it is headed into an upswing (as our< own Charles Morand hopes.)

With all the risk already inherent in investing in a booming (or is it bubbling?) emerging industry, shell companies founded just to raise money from unsophisticated investors are at least one risk we can protect ourselves against. Below are a few basic precautions. I plan to illustrate them and how they apply to U.S. Sustainable Energy Corp. (OTCBB:USSE), a company that recently announced a “revolutionary new process” for creating biofuel from soybeans, which was brought to my attention by a comment on an article I had written on Green Diesel.

4. Conservatism. Scammers have the incentive to boast about their company’s future, solutions to big problems draw more suckers than fixing mundane, everyday problems. They will also gravitate towards business plans that are easy for everyone to understand and that people can see in their everyday lives. Not constrained by actually needing a real product to sell, they will almost invariably come up with a product that will make most people think “Wow, that’d be great.” Conversely, you don’t have to worry too much about the company that is trying to sell its widget that will make sewage treatment plants 5% more efficient.

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