Investors in clean technology have more to smile about than most at the recent upturn in sentiment in stock markets.
The diverse sector, which includes wind farms, electric cars, solar panels and composting, suffered badly during the financial crisis.
After four years of stellar growth, new investment in clean energy alone – the bulk of the sector – plunged from $41bn in the final quarter of 2007 to only $13.3bn in the first quarter this year, according to research from New Energy Finance, the consultancy.
However, investors who have stayed with the sector have been rewarded with a spectacular rebound. Share prices rose 36 per cent between April 1 and June 30, according to the WilderHill New Energy Global Innovation Index, a widely watched index in the sector. That compares with a recovery of 15 per cent in the S&P 500.
Meanwhile, new investment in clean energy globally shot up to $36.2bn in the second quarter, according to NEF, and appears set to continue at similarly high levels.
“We are not out of the woods yet but this sector has more optimism than most of the world economy,” says Angus McCrone of NEF.
Will Oulton, of the FTSE responsible investing unit, which has begun producing new indices for the sector, agrees: “The impact of climate change is set to alter the shape of the global economy over the coming years, and so there is an expectation that the environmental technologies sector will benefit and grow.”
Two factors behind the boost are the increase in the oil price, which benefits clean energy companies by making them more competitive with conventional power, and recent stimulus packages unveiled by governments around the world.
Nick Robins at HSBC estimates that more than $512bn of the global stimulus outlined so far will be devoted to “green” projects, though the full effect on clean technology companies will not be felt until the end of this year through to 2011. “With expected multiplier effects, the total spending impact now tops $1,000bn,” he says.
The fundamentals of the sector remain “compelling”, says Richard Youngman, managing partner at the Cleantech Group. Concerns over energy security and climate change, the rapid increase in the oil price and increasing environmental regulation by governments are all good reasons to posit strong growth.
This is also a market that straddles the developed and emerging economies, says Peter Gutman, global head of renewable energy and environmental finance at Standard Chartered Bank. “China now does 40 per cent of global solar manufacturing, and solar makes sense for India too. Wind is also doing well in both countries,” he says.
Serious problems remain, however. Many clean technology companies require heavy investment in infrastructure – such as turbines and solar panels – and debt financing is more difficult to come by and more expensive than for conventional technology.
The public markets also remain a hostile place. Globally, according to the Cleantech Group, there were only four clean technology initial public offerings in the first quarter of 2009 and two in the second quarter.
A dearth of interest in flotations has driven many companies to seek new investment from other sources. “Investors are willing to allocate more to this sector,” says Nigel Meir, fund manager at Ludgate Environmental Fund, which provides late-stage funding to a variety of clean tech specialists.
“But the IPO market will not give the appropriate value at present. Strategic investors will.”
As with any young market, the clean technology sector is still highly volatile and likely to remain so for years to come. As Mr Youngman cautions: “We are still in a learning phase.”
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