The fallout from the Al Gore movie “An Inconvenient Truth” has reached the finance community. VC firms Kleiner Perkins and Foundation Capital held private screenings of the film for clients and partners. It’s a Non-Partisan Thing.
The investment house Guinness Atkinson devotes eight lines to it in their inaugural Alternative Energy briefing- even urging investors to view it, though they’re aware it may be outside the comfort zone of many. “If you’re a right leaning voter, don’t be put off by Al Gore’s starring role.”
No, the investment world hasn’t taken a turn to the left, they’re simply recognizing there’s money to be made in an industry that follows the universal laws of supply and demand.
“The International Energy Agency (IEA) predicts a worldwide increase of over 50% in primary energy demand by 2030… No one is predicting a lower consumption of energy… but where will this energy come from? It doesn’t look like oil alone can plug the gap”, according to the Guinness Atkinson Energy Briefing.
Just how big this gap will be depends on many factors. One is whether we’ve hit peak world oil capacity- the point where oil supplies begin to decline (The US reached peak oil in 1970.). Those at Guinness Atkinson think we haven’t reached it yet, but to them it’s irrelevant, along with issues like price.
“Might energy and oil prices even go down from the recent highs?—Yes, that is entirely possible. But, the point for alternative energy is that high prices for conventional energy makes all forms of alternative energy relatively more competitive.”
We’ve reached a point where some in the investment community are even suggesting that the term “alternative” is outdated.
“Clean energy is not alternative–it is becoming mainstream business. In 2005, the biofuel, wind, solar photovoltaics, fuel cells markets alone were worth $40 billion globally and have been expanding in the double digits annually”, says Ron Pernick, cofounder, clean energy research firm Clean Edge, at SocialFunds.com.
Backing his claim, his firm recently partnered with NASDAQ to create the NASDAQ Clean Edge US Index to track publicly traded US renewable energy securities. The American Stock Exchange has launched three similar indexes in the past year. Clean Edge´s Pernick sees this as a matter of course for an industry in transition.
“The index is meant to capture this transition from a fossil-fuel based economy to a clean-energy driven economy”.
But not all industry members are so optimistic. Philipp Lukas, director of TMO Biotec, a bio-ethanol firm London Stock Exchange’s Alternative Investment Market recognizes there is still considerable risk in this relatively new market. “There are going to be a lot of disappointments in this sector, and a rocky road to success for others”, one can read in The Sunday Times.
One of the industry’s more established funds, the British-based Merrill Lynch New Energy Tech, has reflected this rocky road; from its launch in 2000 until 2003 its share price dropped 90%, but from then until early 2006 it rebounded 270%.
The challenge facing investors is choosing which clean energy alternative will be competitive with oil, gas, coal and nuclear. Due to variables ranging from oil price to location of wind or solar, it is impossible to calculate a fixed cost forrenewables , but according to the International Energy Agency’s calculations of lifetime costs, only solar is outside the range of competitiveness with coal and gas.
Levelized cost* per megawatt hour
Energy Source/ Cost
Coal/ $25 – $60
Gas/ $37 – $63
Nuclear/ $21 – $50
Wind/ $35 – $140
Micro-hydro/ $45 – $100
Solar PV/ $150 – >$300
Source: International Energy Agency
* Levelized costing calculates in current dollars all capital, fuel, and operating and maintenance costs associated with the plant over its lifetime and divides that total cost by the estimated output in kilowatt-hours over the life-time of the plant.
Adding to renewables’ competiveness are government incentives, like the EU’s carbon trading program, that are becoming more and more common on both sides of the Atlantic (The British government wants alternative energy to be responsible for 10% of the UK energy generation by 2010 and double that by 2020).
With all the recent interest in clean energy investment, the oil giants aren’t being left behind: BP, Shell and Exxon are branching into methanol, hydrogen and wind. BP has staked its claim in the solar market as the world’s third largest producer of photovoltaic cells. Even traditional utilities are getting involved: Spain’s Iberdrola and Scottish Power run their own wind farms.
Former US president Bill Clinton believes renewables are capable of turning a profit and essential for planetary health. This fall he launched a one billion dollar investment fund for renewable energy aimed at reducing our dependence on fossil fuels “while getting returns on capital invested.”
He’s backed by financial heavyweights: the funds main investors are venture capitalist Vinod Khosla, supermarket magnate Ron Burkle, and Hollywood producer Steve Bing. Clinton sees his Green Fund as a win-win investment.
“The Earth is warming at an alarming rate, we are running out of fossil fuels, and it is long past time for us to take action to correct these problems. This is also a tremendous opportunity and there are countless good new jobs to be created in the field of green energy.”
Robin Batchelor, fund manager of the Merrill Lynch New Energy trust told The Sunday Times that depending on location wind power is already competitive with fossil fuels. Backing his claim, he has invested 8% of his fund in American turbine maker Clipper Windpower.