Analysis: Cleantech opportunities return after dismal year

LONDON Thu Oct 14, 2010 2:34pm EDT

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LONDON (Reuters) - Green energy opportunities are emerging after dismal returns this year, led by a buoyant solar industry and government renewable energy targets, but more support was needed to convince the world's biggest investors.

Optimism was returning to the renewable energy market, blocked after project finance froze in the global financial crisis, executives told the Reuters Climate and Alternative Energy Summit this week.

"Really we've kind of bottlenecked at the funding or financing stage of the project development," said Jim Davis, president of Chevron Energy Solutions, which develops cleantech projects for public-sector customers, and especially solar.

Now, banks were "becoming a little bit easier to deal with again, and they are moving a little bit faster. I think that's going to just continue," he said.

In the vacuum without a post-2012 global climate deal, as U.N. talks falter, national and regional targets and subsidies were driving investment.

The European Union, for example, has a binding target to get a fifth of the bloc's energy from renewable sources by 2020 compared with about 10 percent now.

"It's a massive opportunity," said Stephen Lilley, head of renewable energy infrastructure at Climate Change Capital, which has about 1 billion pounds under management and is targeting the European renewables market.

Advisory firm Ernst & Young this week estimated that Britain alone needed 450 billion pounds ($721 billion) capital investment through 2025 to meet its green energy goals.

Emerging economies had also set demanding targets, said Scott McGregor, chief executive of the UK-based carbon investor Camco, which last month announced a tie-up with the Malaysian government's investment arm.

"There's a significant amount of clean energy tariffs, subsidies and cheap debt," he said, resulting from Malaysia's target to cut greenhouse gases per unit of economic output.

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Graphic on Green Funds Returns:

link.reuters.com/gew38p

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RETURNS

In Europe, solar support has been cut in Germany, the Czech Republic and Spain. But Bank of America Merrill Lynch said in a report on Wednesday that feed-in tariff reductions in 2011 would not dent European demand significantly.

"In the context of the stock market, we believe cleantech offers more potential upside than most sectors," said Bank of America Merrill Lynch in a separate report, "Alternative Energy Perspective," published on Monday.

The bank's cleantech index had underperformed the S&P 500 by about 20 percent year to date, the report said, but moved up in line with the wider market in the third quarter.

That mirrored data from Lipper, a Thomson Reuters company, which show clean energy and technology funds moving into positive territory.

For example, returns averaged across 154 such funds outside the United States were up 3.6 percent in the month to September 30, and up 3.9 percent for the third quarter, but down over longer time periods, for example falling nearly 5 percent year to date.

Such falls were a concern for mainstream, non-specialist investors, said Rob Lake, head of sustainability and governance at the Dutch pension asset manager, APG, which has 250 billion euros ($352 billion) under management.

"We don't give special treatment to investments in renewables, whether infrastructure or listed equities. We invest in them if they're attractive."

When asked what policy would make a particular difference, he said: "Cap and trade legislation in the United States." A draft U.S. climate bill is stalled in the senate.

-- Additional reporting by Nina Chestney in London, Alister Doyle in Oslo, Braden Reddall and Peter Henderson in San Francisco

(Editing by Erica Billingham)

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