Renewable energy investment grows

WASHINGTON, March 24 (UPI) -- Renewable energy sources are edging closer to competitiveness with traditional energy sources, aided by government subsidies, a booming European market and rapid technology development, analysts say.

In a March 2005 report, Clean Edge, a market research group that focuses on clean technology, said growth was strong in the renewable energy sector.

"The growth of clean-energy markets reflects its growing acceptance. Global wind and solar markets reached $11.8 billion and $11.2 billion in 2005 -- up 47 percent and 55 percent, respectively, from a year earlier," the report said. "The market for biofuels hit $15.7 billion globally in 2005, up more than 15 percent from the previous year."

Eric Packer, with the investment firm Progressive Asset Management, which focuses on environmentally responsible investing, says the sector has done well because of companied both in the United States and elsewhere.

"On the investment side in the portfolios that we manage to be have been able to get the very strong performance over the last several years it has been a blend of domestic and international companies," he said.

Renewable sources, like wind, are proving more readily deployed and less expensive in the Midwest than traditional sources like natural gas. Clean Edge reported that customers in Colorado, New Mexico and Minnesota saw wind power pay off.

"By early 2006, electric utility customers buying wind power in at least three U.S. states paid less, for the first time, than those purchasing the conventional power mix (mostly natural gas and nuclear) from the same utilities" it said.

The Clean Edge report also indicates that investor interest in renewable energy is up.

"Investors poured $917 million -- an increase of more than 25 percent from 2004 -- into more than 80 private companies," wrote Rodrigo Prudencio principal of Nth Power, an energy technology venture capital. "In 2005, more than 4 percent of the $21.7 billion venture capital market was represented by energy-tech investments, compared with 3.3 percent in 2004."

Some might say this increased interest in renewable energy is because of a continued rise in oil and natural gas prices, but Robert Preston, a portfolio manager at Merrill Lynch, says that is only the first step.

"The renewable energy market has higher correlation to stronger economy than to high oil prices," he said. "I think oil prices trigger thinking toward renewable energy and it pushes people to start looking around, but at the end of the day it is very difficult to make the transition to renewable over traditional energy source.

"You really need a good economy support all the aspects that renewables need like the infrastructure and the legal and accounting and maintenance that is needed."

And Preston said that those economic factors are coming together in the United States in addition to a favorable political climate.

"We have a perfect world right now with high energy prices in traditional sources, a relatively good economy with growth in the GDP and low interest rates relative to what they've been in the last 15 years," he said. "We have an environment today where renewable energy can start to get the legs it needs to be viable in the future."

But despite costs that are going down, and technology that is improving, the renewable energy market in the United States is still being held back by supply problems and the same government programs that are supposed to boost development.

Investment in solar energy has doubled in the last two years said Clean Edge principal and report author Ron Pernick.

"The biggest IPO investment is in solar," he said, adding this was because semiconductor companies in the electronics sector are the parents for some of the most successful solar IPOs. "The most activity is from electronic because they know how to ramp up production; they understand economies of scale; they understand volume. They know that solar will become mass manufacturer and not a batch process."

But recently solar has faced a supply chain problem from the U.S. silicon industry. There simply isn't enough silicon to meet the growing demand for photovoltaic solar cells. Last Thursday, Evergreen Solar, which has grown by 34 percent since it started, lost its contract with MEMC Electronic Materials, the sole supplier of its silicon. This has touched investor confidence in solar IPOs and will hurt Evergreen's margins. Despite this, Wall Street analyst Peter Lynch said solar continues to experience growth.

"Solar stocks as a group are probably up 4 to 6 times more than most of the commonly followed indices," Pernick said.

Government incentives programs, especially the production tax credit for wind energy technology, hasn't been around for more than two years at a time and has been allowed to lapse between renewals. According to the American Wind Energy Association, the production tax credit started in 1992, provides a credit of 1.8-cent per kilowatt-hour for electricity produced from wind farms during the first 10 years of its operation. The credit has been recently extended through 2007.

"It's detrimental to development," Preston said. "I actually prefer no incentive to these on again off again incentives."

Preston said project proposals are written differently and require different kinds of investors when the tax credit is in effect and when it isn't.

"And what takes months to write up all of a sudden then isn't applicable any more. And now they have to redo it and get different types of investors and there are different types of market drivers and it drives the financial industry crazy," he said.

Clean Edge's report for the renewable sector is bright. It projects large growth in biofuels, wind, solar and hydrogen fuel cells, which had a combined market of $40 billion in 2005 to quadruple by 2015.

"Shifts in energy happen over decades and not over years," Pernick said. "Eventually renewable will be on such large scale that you see smaller growth rates. But we hope by then that clean energy become 35-30 percent of mix of energy used in this country."

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