December 16, 2009

International discussions to achieve firm carbon constraints may come up short. But that won't inhibit national governments and their legacy enterprises from investing in green technologies.

Now that the worst of the global recession is apparently over, money is expected to flow into next-generation energy technologies that include wind, solar and energy efficiency projects. While analysts say that the reason behind the influx of new capital is tied to rising spending by national governments, they are also saying that the same policymakers must now implement long-lasting and certain rules.

"Fueled by unprecedented quantities of 'green and clean' stimulus money, cities, states, provinces and countries are now competing to grow cleantech businesses, to bring innovation to market, to attract inward investment and to brand themselves as hubs of cleantech growth," says Nicholas Parker, chair of the Cleantech Group. "It's no longer about trading our way out of the carbon crisis; it's about inventing new industries."

Despite the harsh economic decline, investment in green technologies held up, he adds. In 2009, they declined -- but to 2007 levels, which is still the second biggest year on record. And in the third quarter of this year, they surpassed biotech and software as the one segment that attracted the most venture capital. Parker is predicting that global venture and private equity in cleantech in 2010 will exceed that of 2009 by a "healthy margin."

And so does New Energy Finance. It has said in published reports that global investments in green energy will jump from $130 billion a year to $200 billion a year. At least $60 billion of that will come from national governments, it adds, which will also grow over time. The money will flow no matter the immediate outcome in Copenhagen, Denmark where 190 nations are now in climate change talks.

They are also involved because of public mandates. American Electric Power, which is one of the largest generators of coal-based power, has said it will double the amount of wind power that it buys -- to 2,000 megawatts by year-end 2011, largely to meet state mandates. It says, though, that despite the higher initial costs that over the long run such investments will pay for themselves.

"The increasing interest and activity of multibillion-dollar companies around the globe underscores the growing market opportunities in cleantech," says Gil Forer, global director of cleantech at Ernst & Young. "Making good on those opportunities will likely depend on identifying new partnership models that enable corporations and emerging cleantech companies to meet their own objectives while facilitating the arrival of a low-carbon and resource-efficient economy."

Stable Policies

For many companies in the survey, spending on clean technology has risen as high as 3 percent to 5 percent in annual revenues.

The cleantech investment community may be applauding the more optimistic outlook for green technologies. But even its upbeat outlook may not be enough to compensate for what some scientists say is unyielding trend -- increasing amounts of greenhouse gases being emitted into the atmosphere.

While other experts dispute the conclusion that global warming is chiefly a man-made problem, the International Energy Agency says that outlays into next-generation energy alternatives must reach $430 billion by 2020 to achieve 25-40 percent cuts in carbon levels by 2050. And the pressure must then be put on the utility sector, which contributes a third of all global greenhouse gas emissions.

The biggest problem the industry has is getting financing from battered banks. Therefore, it says that the pace of new investment in clean technology may not be enough to bring down levels of heat-trapping emissions enough to prevent what it says are the consequences of global warming.

"Our analysis of energy markets in the next two decades shows that world new investment in clean energy will have to reach $500 billion a year if emissions are to be brought under control by 2020," says Michael Liebreich, chair of New Energy Finance.

Shoring up the banks is one thing. Creating stable energy policies is another. While few analysts are expecting the world community to reach definitive agreements in Copenhagen, most say that it is vital for national governments to make rules that encourage entrepreneurship and that allow countries to build their own energy supplies. And as increasing capital is allocated to alternative technologies, companies will find it cheaper to invest in modern equipment than to buy carbon credits.

Global climate talks aside, more governments are actively supporting their cleantech sectors. As such, increasing funds will flow into green technologies. And while national subsidies and mandates may comprise a goodly amount of this, the overall aim is to develop the tools to create more fuel diversity and greater economic opportunities.

 

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Ken Silverstein EnergyBiz Insider Editor-in-Chief
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