Energy 2.0

Clean Technology Investing

Posted on: June 13, 2008

Cleantech, or clean technology, investing seeks sustainable investments in environmentally friendly companies that work to improve their operations, performance, productivity and efficiency while lowering their costs, energy consumption, inputs, waste or pollution. Clean technologies can lower a company’s environmental impact and may provide improvements in resource efficiency and productivity. When a company operates with less energy and materials, or produces less waste, the result can create more economic value for the company and its shareholders.

Cleantech is currently clustered in six industry sectors: energy, water and waste water, advanced materials, energy efficiency and manufacturing, transportation, and agriculture. The largest of these sectors is energy and can range from biodiesel, clean coal and fuel cells to wind and solar energy.

 

Energy
Interest in clean energy is driven by sustainability issues, oil depletion and energy security concerns. Political decisions, like the Kyoto Protocol and concerns about global climate change, are also increasing interest in this sector. Within the energy sector there are many different subsets of clean energy including solar, wind and biofuels. Finally, the rising interest in clean technology energy arises from the increased recognition that costs can be significantly reduced if energy efficiency is addressed.


Solar Power

One option for clean technology is solar power and, although it is not yet as widely used as hydro power, this may change because hydro is limited by the finite nature of suitable dam sites, and political restrictions on available supplies of water. Solar power obtains usable energy from sunlight. Solar energy is used in a number of applications such as heat and electricity, and is very attractive because it is plentiful and virtually pollution free. Despite these advantages, however, solar power is still expensive when compared to grid electricity. Even with the recent boom in solar power investment, the industry remains dependent on government incentives. With economies of scale from widespread use, this energy may become more competitive.


Wind
Wind power is the conversion of wind energy into more useful forms, usually electricity. Global wind power generation more than quadrupled between 2000 and 2007, but is still a small part of total energy use. Wind energy is a renewable and clean source of energy, but this energy source can be intermittent because the wind is notoriously inconsistent. Wind energy is therefore unlikely to grow to be more than a supplemental source of energy and, although wind power is expected to grow quickly, solar power remains the more attractive investment because of its high growth rate, better profit margins and wide range of investment options.


Biofuels
Biofuels are derived from biomass, recently living organisms or their metabolic byproducts, such as manure from cows, corn and soybeans, sugar cane or palm oil. This is a renewable source of energy and is a form of stored solar energy. Plant matter used as a fuel can be constantly replaced by replanting and a reasonably stable level of atmospheric carbon can result from plant matter used as a fuel. However, biomass use can still contribute to global warming – this happens when the natural carbon equilibrium is disturbed such as in deforestation.


The drawback to relying on biofuels, however, is that it puts pressure on grain costs and water supplies, which can dramatically increase the cost of raising livestock. This means that alternate feed stocks, such as switchgrass and algae, must be found.

Geothermal
Geothermal is another energy source that is viewed as sustainable because it is provided by the vast heat of the earth, only a very small fraction of which may be enough to meet the world’s energy needs. This source of energy will require technical innovation before it can be widely used.


There is also a central issue that may be the force that drives the technology in one direction or the other: centralized versus decentralized energy transmission. Centralized energy generation, such as with gas or coal and nuclear-fired power plants, is subject to detailed and slow-changing regulations. These technologies are very capital intensive, with long lead times necessary to build capacity. Centralized energy plants also tend to have powerful political bases from which to block competitive energy sources. Distributed power generation, such as solar or wind power, tend to react to changing market conditions and new innovations much more quickly. In general, decentralized power sources require less capital and their fragmented nature make them less likely to have a concentrated political foundation.

Water
The cleantech water industry is focused in several areas, especially waste water treatment and general filtration. The world’s water consumption continues to grow as it is used in modern agriculture and industry. Because water is an essential resource and the planet’s natural supply of water is virtually static, it is likely that there will be room for growth in this industry for many years to come.


What is likely to change is the fragmentation of the water industry. This industry has often been compared to the oil industry 100 years ago, which was fragmented and eventually consolidated. The water industry may also consolidate, which could have an impact on investment decisions in this area. As the industry becomes more concentrated, it is likely to seek ways to use waste water plants more efficiently, use chemicals better and use less power.

Other Avenues for Cleantech


Advanced Materials

Advanced materials can yield products that are less toxic, less expensive and more efficient than existing materials. These materials can make products lighter, stronger and cheaper, and can benefit both the environment and a company’s bottom line.


Energy Efficiency/Manufacturing

The best way to make energy is to not use it in the first place. Many green products require fewer natural resources either in manufacturing or during their life span. This means these products will cost less either up front or over the total time period of their use. Examples include fluorescent light bulbs and improved packaging that reduces waste. These products don’t have to be high tech, but the more economic sense they make for consumers, the more likely they are to be adopted. 


Transportation
One of the biggest cleantech success stories in transportation is hybrid vehicles, which combine a conventional engine and a battery-powered electric motor to achieve improved fuel economy and performance. These vehicles are gaining increased acceptance as gasoline prices remain high. Annual  sales of hybrids are expected to grow to more than half a million vehicles by 2010.

 

Agriculture
Cleantech in the agriculture sector ranges from more efficient farming, to micro and drip irrigation that reduce water usage, to natural pesticides. Investments are likely to be driven by cost-effectiveness, regulatory mandates, consumer demand and public interest. For example, organically produced food has grown at close to 20% in the world, while sales of conventional foods have grown 2-3%. At the same time, organic food production has become increasingly regulated so that organic certification is necessary to market foods as organic.

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