Friday, September 09, 2005

Alternative Energy Investment



Mark Tran reports in the Guardian on the state of the alternative energy investment market.

The past few months have seen record levels of investment in alternative energy amid fears that high oil prices are here to stay.

Last month, Impax, an investment group focusing on alternative energy, successfully raised €60m (£40m) in the first tranche for a new equity fund, New Energy. The new fund, that will target renewable energy projects mainly in western Europe, aims to grow to at least €125m within 12 months.

With the current interest in green energy - wind, solar and biomass - New Energy should have no trouble reaching its target. Alternative energy as an investment is currently very much in vogue. What was notable about New Energy was that it attracted interest from some big financial players.

The British Airways pension fund, Co-operative Insurance Society and South Yorkshire Pensions Authority all provided finance for the fund.

"It illustrates that large institutions see commercial returns in the sector," said Impax chief executive, Andrew Simm. "Global concerns about flooding as well as drought have generated investor interest in companies that address some of the damage."

Big companies are also stepping up the pace of investment. In May, General Electric, the US conglomerate that makes products from jet engines to power generation, announced plans to double its annual investment in renewable energy technologies to $1.5bn (£816m) by 2010. In Europe, companies such as Spain's Iberdrola and Britain's Npower are making big investments in wind power projects.

In the financial community, a dozen or so investment funds have sprung up in Europe for institutions and small investors who want to make a bet on green energy. Apart from Impax, there is Henderson's Industries of the Future Fund and Sustainable Asset Management, Europe's largest sustainability investor.

According to New Energy Finance, a London-based energy research company, the second quarter of 2005 saw near-record levels of venture capital and private equity investment in the clean energy sector - some 45 deals worth an estimated $340m. "It is good to see that the number of renewable energy funds and the amount of money flowing into these funds is increasing," said Juliet Davenport, the chief executive of Good Energy, a UK supplier of 100% renewable electricity. "The renewable generation market is at an important stage in its development; it needs the continued support of the consumer, investor and government to ensure that it reaches its potential and really starts to make a difference to climate change."

Ms Davenport rightly notes that renewable energy is at a crucial juncture. Although investment is at record levels, it is still pretty paltry. Markets are pretty much subject to herd instinct; as a new area of investment, renewable energy is still unproven. The big money lies with pension funds and while a few - notably the California state pension fund Calpers - have dipped their toes in clean energy, others are still at the water's edge.

"The pension funds navigate with rear view mirrors," said Michael Liebreich, founder and chief executive of New Energy Finance. "They put money into sectors that are proven money makers. They're still into traditional equity. If they could put just a tenth of 1% of their money into renewable energy, it would be a real shot in the arm for the sector."

Institutional investors for the most part remain resistant, even though all the indicators show that the renewable or low carbon energy and energy technology sectors are poised for dramatic growth.

The big investors face several dilemmas: the track record of venture investment in the sector is less than stellar; they have to choose from a wide range of investment opportunities covering geography, technology and business models, and they have to figure out who are the best fund managers.

"The sector just doesn't have the sort of success stories that make reputations," Mr Liebreich wrote in a leader article for New Energy Finance. "The good teams with good track records from outside the sector, by definition, don't have experience of clean energy, with its particular technologies, regulatory issues and investment cycles."

But things are changing. This week, Numis became the first London stockbroker to have a dedicated renewable energy analyst.

Numis "feels that this relatively new and under researched sector will develop into a core sector for both traditional and socially responsible investors alike", the company said on its website.

The London Stock Exchange is planning an event next month that will bring together executives of small renewable energies listed on the Aim stock market, and the wider investment community. The first event of its kind, the occasion will allow these companies to strut their stuff for analysts and investors.

Currently, only around $20bn a year is invested worldwide in renewable energy capacity; mainly wind and solar, with some in biomass and biofuels. A further $5bn is spent on research each year, particularly into hydrogen and fuel cells. But that figure is bound to grow. New Energy Finance expects the figure to increase to over $100bn within a decade - a sustained compound annual growth rate of 15-20%. That means there will be opportunities to make money provided investors make the right choice.

Wells Fargo 2006 Report on Alternative Energy Investment Opportunities

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11 Comments:

Blogger stomv said...

So can a regular Joe like me in tUSA invest $1,000 to $10,000 in a fund, or are we still stuck investing in conglomerates who are doing more than nothing (like GE, FPL, etc)?

7:11 am, September 09, 2005  
Anonymous Anonymous said...

Winslow Green Growth Fund (WGGFX) is a small-cap fund that specializes in emerging green technologies. Among their top 10 positions are alternative energy and fuel cell manufacturers. They've done quite well since their inception (but very volatile). I have $2000 invested with them right now.

9:12 am, September 09, 2005  
Anonymous Mark said...

You can also take a look at the PowerShares Clean Energy ETF. This ETF mirrors the Wilderhill Clean Energy index.

Thanks for the pointer to the Winslow Green Growth fund. I have several readers that are looking for additional mutual fund alternatives.

1:10 pm, September 09, 2005  
Anonymous Mark said...

Sorry, I forgot to include the ticker for the PowerShares ETF which is PBW.

1:11 pm, September 09, 2005  
Anonymous Anonymous said...

New Alternatives Fund.
http://www.newalternativesfund.com

5:47 pm, September 10, 2005  
Blogger stomv said...

Thanks for all of these. I plan on moving a few thousand into PBW within the next few weeks.

I encourage you all to encourage others to invest in these socially conscious funds. After all, ensuring that there is capital to be invested in alternative energy will only help encourage research & development as well as construction of more alternative energy solutions.

8:31 am, September 11, 2005  
Blogger And w. said...

I would look closely at the top holdings of these funds to get a good idea of where the money goes. I was disapointed to see that the #1 holding in the Winslow Green Growth Fund is a drug company and their top ten includes Herbalife!
The new alternatives fund looks much more promising. I believe this demonstrates the difference between actually investing in green technologies versus adhering to guidelines where you don't invest in the absolute worst:

link

* Military/Weapons No investment (by fund policy).

* Employment/Equity Proactive investment Actively promotes diversity in all held companies.

* Environment Restricted investment (by fund policy). Follows environmental guidelines of Trillium Asset Management.

* Tobacco No investment (by fund policy). Avoids companies in which tobacco is a primary source of revenue. "

11:59 am, September 13, 2005  
Blogger Safety Neal said...

Excellent post, very informative about the state of the market for renewable energy. Keep up the good work!

10:05 pm, September 14, 2005  
Blogger plantigrade said...

I follow individual Renewable Energy companies here:

Wind @ http://www.smartinvestment.ca/php/phpBB2/viewtopic.php?t=2361

Solar @ http://www.smartinvestment.ca/php/phpBB2/viewtopic.php?t=2073
xsunx just had a run: http://www.smartinvestment.ca/php/phpBB2/viewtopic.php?t=3256

Geothermal @ http://www.smartinvestment.ca/php/phpBB2/viewtopic.php?t=2075&highlight=geothermal

and I'm preparing a review on Ocean power.

;)

4:35 pm, September 19, 2005  
Blogger brianrobertsmith said...

It's interesting to analyze the relative maturities of capital investments and financing of renewable technologies. I'm not surprised US capital markets have yet to aggressively analyze and track these technologies. I'm a bit more surprised that Europe is just beginning to move in that direction, which is the sense I get from that article.

10:01 am, September 24, 2005  
Anonymous Anonymous said...

To whomever is doing research on ocean power. We've found only two very small cap listed companies, both listed in the UK.

2:41 pm, September 26, 2005  

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