There's money to be made from clean energy and other green technologies.
Ben Hargreaves looks at some of the initiatives aimed at encouraging more to invest in the sector
Times are tough. The re-capitalised banks are stingy with money as they attempt to shore up their balance sheets. The economy is still in recession despite all the government’s stimulus measures. The recovery in industry is fragile at best.
Green technology has suffered in the wake of the credit crunch and global recession. It was particularly hard hit towards the end of last year, when investors shied away from ventures that were perceived to hold high levels of risk – such as the development of clean energy.
But things have improved recently, says Michael Liebreich, chairman and chief executive of New Energy Finance, which monitors the finances of green technology firms. New Energy Finance’s index of how companies in the sector are doing has bounced back from the lows seen at the end of last year, he says. “The index started well and then crashed in September 2008, but it has bounced back considerably in recent months from the lows: those companies are able to raise money and they are raising money.”
Liebreich says it is not a case of there being no private money to finance investment in, say, renewables such as solar power, but that investors are choosier about which projects to back. “There is private money around: it’s just become pickier and more expensive,” he says, “and of course the debt markets are sticky.”
In the face of this, the role of state-sponsored investors such as the Carbon Trust is becoming more important. Some have recently called for the establishment of a “green bank” which could invest in technologies that could have impact in the battle against climate change.
At the end of last month, leading environmental think-tank Green Alliance called for the development of a national green investment bank which would be publicly owned and dispense capital purely to accelerate the transition to a low-carbon economy. Shadow Chancellor George Osborne echoed this call in a speech at Imperial College London.
Meanwhile a disparate group of academics, environmentalists and economists wrote an open letter saying that the Royal Bank of Scotland, now majority-owned by the taxpayer, should be made a “Royal Bank of Sustainability” dedicated to creating green jobs and fighting climate change.
Dr Stuart Parkinson, executive director of Scientists for Global Responsibility, was one of the signatories of the letter. He says the government should be considering climate change as a security issue and devoting some of the resources dedicated to defence to pursuing green technology. “The government spends about 40 times more on developing military technology than it puts into R&D on renewable energy,” he claims. “So, there’s a considerable mismatch, and climate change has all sorts of security consequences.”
New Energy Finance’s Michael Liebreich suggests that the market fundamentals underlying the development of environmentally friendly technologies remain strong. “There has been a relentless stream of bad news about the climate, and oil prices remain high, despite the recession.”
He says the accession of US firm First Solar, which manufactures photovoltaic modules, to the Standard and Poor’s 500 Index, the first pure renewable energy company to be added, sent a signal about the way the market will go in the future. “During the next five years we’re going to see some real industrial leaders become established in this space: this is the future of energy, and the leaders are not all in place yet,” Liebreich argues.
Parkinson says the macro-economic case for renewable energy and energy-efficiency measures is attractive. “They create wealth. Renewable energy creates more jobs per megawatt hour than fossil fuels or nuclear, so there’s potential there we’re missing.”
Investors who get in on the act for clean technology now could make a killing. Liebreich concludes: “The time to invest is not when everyone’s decided something is a wonderful one-way bet and the prices are ridiculously high.”
| POTENTIAL OF PRIVATE EQUITY |
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One avenue for engineering firms looking for investment in their environmental technology projects could be private equity. Sometimes maligned by trade unions, the sector is praised by others for taking risks and giving companies the chance to develop away from the glare of the stock market.
Simon Walker, chief executive of the British Venture Capital Association (BVCA), says: “Private equity has cash on hand and is willing to invest in the right business. It is estimated that the industry has $1 trillion in unused funds to invest globally.”
He adds that private equity is not dependent on the banks to complete investments. “Because of the funds available, the industry has the luxury of not having to rely on bank debt to complete a deal, and we have seen a number of companies bought by private equity recently using only cash.
“One of the BVCA’s most active mid-market members, Barclays Private Equity, has a strong track record investing in engineering businesses across Europe.”
Despite the severity of the recession, private venture capital is performing better than many would have expected, says Walker. “That said, the venture capital industry is still suffering from a lack of institutional investment. Many pension funds, insurance companies and banks which invested in venture funds in the late 1990s and early 2000s got their fingers burnt and have been reluctant to invest again.”
Walker says the establishment of the government’s UK Investment Innovation Fund, announced last month and dedicated to carbon capture and storage, energy efficiency and renewables, will help to catalyse more institutional investment. |
© PE Publishing, 9 December 2009
