Market News

 September 27, 2006
Renewables have attractive investment potential

 London, UK (GLOBE-Net) - Renewable energy represents a huge growth market with a bright future, and banks and other traditional investors are now aware of the potential returns to be made in the sector. This was the general message emerging from a Renewable Energy Finance Forum this week where investors, private sector representatives, and government officials reviewed the potential for financial and other rewards from clean energy. Also this week, two major U.S. think tanks reported the convergence of renewable energy costs with fossil fuel prices, and the need for policy actions to promote further cleantech investment.

Renewable Energy Finance Forum speakers such as Esteban Morras, executive director of Spanish firm Acciona, used personal examples to show progress being made in the sector. The renewable energy mogul told of starting 15 years ago with a single project and a small staff, rising over the years to become a multinational success. One key point made by Morras was the importance of diversification for investors. Acciona always sought to branch out into emerging renewables sectors, he noted. However, visionary ideas must always be evaluated with sound business sense, he added.

The sector's future is assured as long as there are concerns about the rising price of fossil fuels, security of energy supply, climate change, and increasing energy demand in developing countries, said Morras. Renewables can also help to spread energy wealth among countries that do not possess oil and gas reserves, he noted.

Shri Subramanian, secretary of India's Ministry of Non-Conventional Energy, described developing countries' view of renewables, and outlined targets the country has set to promote clean energy as a component of growth. Subramanian also commented that discussion of renewables tends to focus on electricity generation, and the potential of biofuels for heating and transport is often overlooked.

Martin Schope of the Germany Ministry for the Environment focused on his country's policies to promote renewables and to phase out nuclear power. He discussed the relative merits of two types of incentive schemes used in the EU -- quota systems which require grid operators to buy renewable energy versus feed in systems that offer subsidies for renewables.

Overall, the message of the Forum was that renewable energy is a huge growth market with a bright future, and banks and other traditional investors are now aware of the potential returns to be made in the sector. "A change in the world energy markets is a must and renewables should play a role in that change, we're convinced that the economics of renewables are already competitive today," said Morras, reports the Environmental Data Interactive Exchange.

"We can produce cheaper electricity with wind than with natural gas and other resources, and other technologies are getting cheaper all the time. The financial markets are ready for this, and that is very significant." As the world economy is relatively healthy, now is the time to switch to renewables, he said, urging that waiting until a crisis point will be considerably more difficult.

The Royal Bank was the lone Canadian participant in the London Forum.

Renewables becoming cost-competitive

Renewable energy is the fastest growing niche of the booming environmental technology sector. According to the Cleantech Venture Network, 'clean technology' is now the third-ranked venture capital sector, raising US$843 million in the second quarter of 2006. Energy led the way with investments of $594 million, a 69% increase over the previous quarter.

With this growth, the cost of renewables in the United States is rapidly converging with fossil fuel prices, but improved policies are needed to make investment opportunities comparable with other leading countries, said a recent report from two leading US think tanks.

The Worldwatch Institute and the Center for American Progress say that changing U.S. policies have let the country fall behind in their American Energy Now report.

The study cites high growth rates in global renewable use, with wind energy generation tripling since 2000, solar cell production increasing six fold since 2000, and ethanol production more than doubling during that period.

Available renewable technologies are now or will soon be economically competitive with fossil fuels, the authors conclude. The think tanks make a series of policy recommendations to support the growth of the renewables industry, including long-term, predictable rules for developers and financers, incentives based on energy generated per dollar of public investment, pricing fossil fuels according to external costs through a carbon cap-and-trade system, and reducing subsidies for fossil fuels.

Canada losing ground

Canada remains in the top ten countries in which to investment in renewable energy, but has lost ground in recent years due to progressive policies enacted by countries such as India and Spain, concludes Ernst & Young. The 2006 Renewable Energy Country Attractiveness Indices produced by the firm showed Canada ranked 10th overall for investment attractiveness. The market is intensely competitive worldwide and with rapid growth investment will flow to those areas with the most favourable policies, he added.

New policies in Ontario are largely responsible for the relatively high score, as Canada has strong natural resources for wind and biomass but has been slow to bring renewables capacity online.

See article: Canada losing on renewables investment.