Green Energy Investments
Where the Green Money's Going Now
So the markets are in the pits. Earlier this week, patrons were lining up for hours—predawn hours—to withdraw money from their failing banks. And the Dow recently hit it's lowest point since July. . . of 2006.
At this point, many portfolios are in a holding pattern. The so-called credit crunch, and the resultant housing collapse and severe stock market downturn, has led to the shrinking of savings and the defaulting of millions of mortgages.
And yet, there's no point in selling—houses or stocks. Why sell a long-term investment for less than you paid for it, especially if it's likely that the price will rise again in the next few years?
The same holds true for green energy investments. Some stocks that you've picked up so far may be showing red returns at the present time. But as long as you're willing to hold out, they'll rise again once market conditions begin to improve and policies are put forward that actually deal with our energy and environmental problems instead of just implementing laws du jour aimed only at swaying public opinion or cushioning constituents' bottom lines.
In the meantime, it's still possible to make money on the bull side of things, but it's going to take more than a promising press release. To make money in this market, you have to know the ins and outs of green energy investment and how it's developing.
What's more, if you can get past the guttural reaction to simply watch from the sidelines, there are some good buys to be had in this down market. Ones that are off their recent highs, but will return to those levels or higher as the market rebounds.
With that in mind let's take a look at the current state of the renewable industry from a purely monetary standpoint, in an effort to identify which areas are ripe to buy in troubled waters.
Green Energy Investments: Growing, Growing
First and foremost, green energy investing has been, and will continue to be, a runaway train scenario. Check out the total annual green investment data for the past few years:
2004, $33.4 billion
2005, $58.7 billion, 76% growth
2006, $92.6 billion, 58% growth
2007, $148.4 billion, 60% growth
In that time, total public market transactions have also skyrocketed. The following data includes IPOs, secondary offerings, and convertible bond issues:
2004, $800 million
2005, $5.6 billion
2006, $12.6 billion
2007, $27 billion
Take a look at just one more set of data. These are total green venture capital and private equity numbers from early stage through over the counter listings:
2004, $2.4 billion
2005, $6.4 billion
2006, $9.3 billion
2007, $13.5 billion
These numbers are impressive, showing not only the strong growth of the renewables industry, but also indicating—via the 2007 venture capital data—that the industry is far from saturated and that billions are still being wagered on the future success of young companies and new ideas.
But the effects of the credit crisis began to rear their ugly heads early in 2008, resulting in few new IPOs and downward pressure on most stocks. This tightening of the markets spawned increased merger and acquisition activity, as it generally tends to do.
Yet for all the recession talk and bear banter, overall investment in green technology during the first half of 2008 has actually been above the levels seen during the first half of 2007.
And, according to Global Trends in Sustainable Energy Investment 2008:
Although asset finance is down somewhat, venture capital and private equity invesment, public market capital raising and stock prices are all healthy, indicating that the finance community still sees strong fundamentals underlying the sector and is increasingly looking to take part in its future growth.
Investment between now and 2030 is expected to reach $450 billion a year by 2012, rising to more than $600 billion a year from 2020. The sector's performance during 2007 sets it on track to achieve these levels, with the current credit crunch testing the market's resolve, but not dislodging it.
In many ways, our current sentiment as retail investors is out of line with the rest of our financial brethren. The problem is not a lack of investment—indeed, investment flows have continued to grow—but rather the broadening of the sector and the diversification of green investment options, which now run the full gamut, from primary energy production in the form of electricity and transportation fuels to demand-side management solutions for the end user, including smart grid technologies.
So yes, it's becoming more difficult to find a good green investment because of all the options. But it's certainly not impossible.
And it's Green Chip's role, along with our other publications, to help you do that.
Where's the Green Investment Money Going Now?
Despite the limelight shone on the solar industry, the wind industry has and continues to attract the most investment—$50.2 billion in 2007.
Although, solar's limelight isn't entirely undeserved, $28.6 billion of new investment flowed into that sector in 2007. Investment in solar has grown at a 254% clip since 2004.
Not surprisingly, most of that money traded hands in Europe, with the U.S. in second place. But China, India and Brazil are attracting a growing amount of capital as their share of asset investment has doubled since 2004.
A large portion of green investment ($84.5 billion) in 2007 went toward building new sustainable energy assets. This is a result not only of factory and capacity expansions, but also of massive installations of solar systems and wind farms.
When put together, wind, solar and biofuels accounted for about 85% of new investment in 2007. Here's the chart of total green investment in 2007:
But the chart for just public market green investment looks strikingly different:
Public markets are dominated by wind and solar alone, to the tune of 81%. This is obviously where our money should be as well.
A good place to start is probably with Iberdrola Renovables (MCE: IBR), whose $7.2 billion IPO last December accounted for over half the money raised in 2007 via initial public offerings.
That's an installation play, and a good one. For a turbine play, try the company with which Iberdrola recently inked the biggest wind transaction ever, Gamesa (MCE: GAM). Of course a wind ETF like First Trust Global Wind Energy (NYSE: FAN) or Powershare's Global Wind Energy (NASDAQ: PWND) could also do the trick.
On the solar side of things, production is still very much key. You should be looking for mid-size companies with extensive growth and expansion plans that have a steady supply of raw materials.
Solarfun (NASDAQ: SOLF) is one such company. Members of the Alternative Energy Speculator have already seen gains in excess of 60% on that stock. And there's probably more upside to be had.
Installers of both traditional solar and concentrating solar will also begin to receive increased attention.
We'll continue to cover broad topics like this again in my next issue of the Green Chip Review. Instead of focusing on which sectors are getting the public and asset money, we'll focus on the up-and-comers claiming victory in green venture capital and private equity.
In the meantime, don't miss another day's worth of profits by sitting on the sidelines.
Green Chip International is quickly growing a portfolio filled with green juggernauts located outside North American borders in parts of the world receiving not only more investment, but better policy as well.
And Alternative Energy Speculator is picking up the growth opportunities here in the U.S. and Canada. That portfolio is currently boasting six double-digit winners with 3 over 60%
Call it like you see it,