Clean Energy Investment

Nick Hodge

Updated January 9, 2008

We’re only in week two of the New Year, and from the headlines being generated in a multitude of financial news camps one would think the entire country made a resolution to convert to green investing.

However, as we all know, that’s not the case. A better answer to why there’s been seemingly endless new stories touting the myriad benefits–both ecological and economic–of renewable energy is that, well, it’s a good idea.

From what I’ve seen so far this year, news outlets have been more than willing plaster their pages and sites with all things green. I guess it’s not a leftist niche market after all.

Here’s why.

Clean Energy Investment Grows 33%

At Green Chip Stocks, we’ve been waiting for the day when the world would realize it pays to go green. And I’d say we’re on the cusp of that right now.

In 2007, investment in clean energy rose 35% worldwide to a staggering $117 billion, up from $86.5 billion in 2006, according to researchers at New Energy Finance. The reason for the increased investment–surprise, surprise–was widespread concern over climate change and energy scarcity, coupled with increased government action to battle those challenges.

Those mammoth investment dollars have perhaps helped the industry to weather a widespread credit crunch spurred by the sub-prime mortgage mess that has kept other sectors flat.

And, speaking of mammoth investment dollars, nearly 6% of that $117 billion came from one single IPO–Iberdrola Renovables SAU (MCE: IBR), the renewable arm of Iberdrola S.A. (MCE: IBE), the Spanish utility giant.

Profits from Clean Energy Investment

If the shear amount of dollars pouring into this sector isn’t enough to get you excited, maybe some forecasts of clean energy profits for 2008 will. The previously mentioned Iberdrola Renovables has already done well since its IPO, climbing over 17% in its first month of trading. Check out the chart:

renewable energy IPO: Iberdrola Renovables (MCE: IBR)

But the outlook in Dow Jones Financial News article "Profits Forecast for Clean Energy" on Monday seems even better.

The report said that while alternative energy has hit some stumbling blocks, like regulatory hurdles and a variety of untested technologies that have made company valuations difficult, 2008 will be a year when this industry truly prospers.

Evidence included the build-up of specialized departments at many of the world’s top banks, like Morgan Stanley, Merrill Lynch and Goldman Sachs, to handle the increased activity in the sector. That’s something I’ve touched on before, especially when it comes to the carbon market.

Those big banks are bullish on nearly all sectors of the highly fragmented renewable energy market, although they note that some technologies still need tweaking before massive profits can be taken.

For example, ethanol when made from corn has proven to be a near bust. But cellulosic ethanol, which is made from non-food-based feedstocks, looks very promising. In fact, a new study by Ken Vogel, a plant scientist at the Agricultural Research Service in Nebraska, found that for every unit of energy used to grow and harvest switchgrass, almost 5.5 units of energy could be recovered via cellulosic ethanol.

And when it comes to methods of remotely producing electricity, like wind and geothermal, the banks note that increased storage and transmission capacity needs to be installed for these to reach their full potential. At Green Chip, we look at that as another potential area for investment and profit.

The banks had fewer concerns about the solar market, in which total market caps have grown from $1 billion to $118.3 billion in four short years–an 11,730% increase!

Renewable energy as a whole broke the $1 trillion barrier last year as its entire market cap grew to $1.3 trillion. That growth will certainly continue as proven technologies and processes emerge and M&A and IPO activity increases.

To get your piece of the trillion dollar action, you may want to check out what Green Chip Stocks has to offer. You can read about it in the report here.

Until next time,

nick hodge


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