Wednesday, October 18, 2006

Renewables - good for business?

A study into the performance achieved by investors in low-carbon energy technology companies in Europe has shown an average annualised return of 86.7% per annum.

The European Clean Energy Venture Returns Analysis (ECEVRA), which was commissioned by the organisers of the European Energy Venture Fair, looked at the returns achieved by a sample of 19 investors who had invested in 57 companies in the sector since 1999. Among the other key findings were the following:
  • Of 57 portfolio companies sampled, five had completed an Initial Public Offering (IPO) and three had been sold to a trade buyer. This group of companies had produced an average annualised return of 476% for their investors
  • A further nine had undergone a second or subsequent venture investment round at a higher valuation, yielding an average annual return (on paper) of 14.9%.
  • Six companies had been liquidated, with the majority of money invested being lost.
  • The remaining 34 portfolio companies had not undergone any subsequent investment round, and so were valued for the purpose of the study at the same value as at the time of the initial investment. Many of these were quite recent investments, and could prove highly attractive.
  • The 57 companies in the sample had raised a total of €130.8m of venture capital money, and €449m in follow-on funding from the public markets.
  • The companies in the sample have created a total of 2,700 direct jobs.
  • It is estimated that in total European venture capital-backed clean energy companies have created a total of just under 9,000 direct jobs and a total of 24,000 direct and indirect jobs in the European economy.

On the other hand, in the States, whereas in 2005 solar stocks outperformed the average NASDAQ stock by an amazingly wide margin -- almost 100 times, despite California passing major pro-solar legislation and state after state following suit, as of the end of the 3rd quarter, solar has been was one of the worst market sectors to be invested in.

- Average Loss for US solar stocks in 2006 = -11.98%
- Average Gain for Leading US Indexes in 2006 = +6.13%.

According to Wall Street analyst J. Peter Lynch "the solar sector is currently oversold and is certainly due for at least a technical "bounce" up. But it is still suffering from short-term emotions and fears. There is no doubt in my mind that the future of the solar industry is brighter than ever. As with any new industry, there will initially be greater volatility and will more than likely be more losers than winners."

In the longer run the Low Carbon Kid expects a shake-out rather as has happened in the internet sector - small companies pioneering the way, but we end up with a few giants at the end, and these may well be the traditional oil giants, reconfigured. After all, they've got the capital and muscle.

The question is, how green will they really be?

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