Wednesday, January 28, 2009

Investing in CleanTech: Efficiency Upgrades and Renewable Energy

In the US CleanTech* will continue to move forward in spite of the global economic recession. However, as indicated by frozen credit markets we still can't see the light at the end of the tunnel. Ongoing tribulation in the housing and banking markets, uninspiring consumer spending, and daily job cuts make it clear that we have not hit bottom yet.

According to President Obama, energy is a matter of national security, and crucial to the future of the American economy and national security. Obama’s energy plan calls for a $150 billion investment in clean technologies over the next 10 years. It emphasizes GHG reductions, energy efficiency programs, low-carbon biofuels, and renewable energies. Obama plans to impose measures that ensure that American utilities generate 10 percent of electricity from renewable sources by 2025. Obama's focus will help drive the Green megatrend forward in the hard months and years ahead.

President Obama's concerns about energy are well founded. The International Energy Agency (IEA) indicated that fossil fuels will simply not be able to keep pace with US energy demand. In response the President has confirmed the future of renewable energy in the US. The IEA World Energy Outlook (12 November 2008) indicates that renewable energy will soon become the second largest source of electricity.

The IEA's World Energy Outlook also reports that coal may not be as abundant as once thought and the world will hit a gas plateau by 2020, and go into decline by around 2025. In North America, producing gas wells have tripled since 1971, but natural gas production is actually falling. Many suggest nuclear is the solution to America's energy requirements, but there are limiting factors, like the availability of uranium.

We are coming to understand that oil is a finite resource. We now find one barrel of conventional oil for every 4 we consume. New wells drilled over the last few years have nearly doubled, but production has remained flat. About 75% of the world's current oil production is from fields that were discovered prior to 1970, which are past their peaks and beginning their declines. And the remaining 25% comes from fields that are now 10 to 15 years old.

Apart from scarcity, as the leading source of GHGs, fossil fuels come with the added distinction of being an environmentally destructive source of energy. A new energy economy is required to manage dwindling supplies of fossil fuels. Failure to address these issues now could prove to be a crisis more devastating than anything we have faced thus far.

The Obama administration has proposed two major approaches to managing energy, enhancing efficiency and expanding alternatives. Renewable alternative energy sources like solar, wind and geothermal, will be increasingly important contributors to America's new energy mix. The Department of Energy (DOE) has indicated that the entire US power demand could be met by a solar system covering about 9% of Nevada, an area of approximately 92 miles by 92 miles. (The extension of solar energy tax credits and increased utility focus on renewable power will further brighten solar's future). The DOE has also stated that wind has the potential to provide 5,800 quads of energy each year, that is 15 times the current global energy demand. According to M.I.T., there are over 100 million quads of accessible geothermal energy worldwide, that is 2500 times the worlds yearly power consumption.

In terms of energy efficiency, governments can be expected to increasingly demand green buildings for both themselves and the private sector. This should help the Green-building industry continue to grow at a prodigious rate, but the focus should begin to switch from new buildings to greening existing buildings. Enhanced efficiency in the automotive sector could also play an important role in helping to make America more energy efficienct. According to the Institute for the Analysis of Global Security, if all cars on the road were hybrids, and half were Plug-In Hybrid Electric Vehicles by 2025, US imports would be reduced by 8 million barrels per day. That's about 80% of current US daily consumption.

There is strong evidence that Green will just keep growing. In a January 19, 2009 article written by Jacklyn Rome, cleantech* is described as, "one of the fastest growing areas of investment within the venture capital and private equity community, showing constant growth since 2003 and accounting for 7.4% of total venture investment in 2007. According to data compiled by Cleantech Group, LLC, the 3rd quarter of 2008 saw $2.6 billion invested in 158 deals in the sector, with total investments in 2008 projected between $7.6 and $8.1 billion. This represents 30% growth in comparison to 2007’s $6.01 billion, $2.2 billion of which was invested in U.S. companies. Internationally, interest in cleantech has grown in countries around the world, particularly in the Middle East, Europe, and China. As new regulations are put into effect globally, particularly in emerging markets such as China, demand for innovative energy sources and cleantech solutions will grow as existing resources are depleted."

Last year's spike in fossil fuels fueled the recession and put the entire global community in a very vulnerable position. But this glimpse into the future also created fertile ground for a renewable energy bull market. Cleantech and more specifically renewables may prove to be amongst the greatest investment opportunities of the 21st Century. Critics have been silenced by the momentous growth of renewable industries and the number of double and triple-digit winners. Despite the current economic downturn, cleantech remains one of the only sectors still projecting investment growth.

Thousands of investors are planning to profit from the integration of renewable energy and efficiency upgrades in the US, the question is, will you be amongst them.

*The cleantech category is comprised of a variety of subsectors that represent products, services, and technologies created to reduce greenhouse gas emissions, develop energy independence, promote energy efficiency, and conserve natural resources. Subsectors within the category include, solar, wind, biofuels and geothermal. Infrastructure to support alternative energy generation. Energy storage incl. batteries, fuel cells, etc.. Agricultural productivity and natural pest control technologies. Materials and manufacturing processes requiring less resource intensive inputs. Pollution control, recycling, clean coal, and wastewater/water technologies.

1 comment:

Ron Robins said...

Lots of green energy and infrastructure development also means huge sums being spent on the products and services of green companies. Stocks of these companies could benefit significantly.

For anyone interested in green and socially responsible investing, I have one of the most popular sites on the web on the subject. It also covers the latest related global news and research too. It's at www.investingforthesoul.com

Best wishes, Ron Robins