Alternative energy is starting to blow bubbles

MONEY is flowing into alternative energy companies so fast that "the warning signs of a bubble are appearing", according to a report on investment in clean technology by a New York research firm, Lux Research.
The report also suggests that companies that make equipment to cleanse air or water, or that process waste, have been overlooked by investors.
Matthew Nordan, president of Lux, said that the amount of venture capital put into clean energy investments globally last year was $US1.5 billion, up 141 per cent from the $US623 million of 2005, and that in the same period, new floats of companies in this sector rose to $US4.1 billion, from $US1.6 billion in 2005.
The floats were primarily in companies involved in solar power or biofuels.
The investment was driven by fear that the peak of oil production was approaching, Mr Nordan said, and by the possibility of new taxes or other restraints in an effort to curb global warming gases, principally the carbon dioxide that was given off by burning fossil fuels.
Money was "sitting on the shelf" waiting to be invested and investors were now chasing entrepreneurs, he said, rather than the other way around.
"When you see venture capital more than double from one year to the next, and IPO values double from one year to the next, that's the sign of a bubble in the making," Mr Nordan said.
As an example of a new participant in the booming market, he cited DFJ Element, a venture capital fund formed last year to invest in clean technology companies. It had a goal of $US150 million but was closed to new investors by the sponsoring companies, Element Venture Partners and Draper Fisher Jurvetson, last June when it reached $US284 million.
Mr Nordan said that his company counted about 1500 clean technology start-ups globally, 930 of them in the energy field. "One hundred ninety-eight have received some venture capital funding," he said. "That's a pretty high share; generally, we see one out of 10 with some venture capital."
The investors, and the companies they financed, were chasing an enormous market. Mr Nordan pointed out that China planned to derive 10 per cent of its electricity from renewable sources, not counting large hydro projects, by 2010. Meeting that goal would require 6 gigawatts of electricity.
While many - and probably most - of the start-ups are pursuing technologies that will not be commercially successful, even some alternative energy companies using established technologies may be on shaky financial ground, according to the report.
For example, the profit margin for ethanol made from corn was once $US1 a gallon, but now it was about US3c, according to the report.
The New York Times