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On things worth considering when investing in Cleantech

By : Ziad K. Abdelnour| 31 May 2010
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As part of Blackhawk’s close group of family and friends; and to set the record straight, we thought we’d share with you some of the most provoking thoughts we entertain when investing in Green Technology.

As you may be aware of, throughout the world, the growing demand for energy is set to accelerate over the next 20 years. Not only will this challenge efforts to abate climate change trends, but it will also impose significant costs on the global economy, businesses and consumers….all this during an era of already high oil and gas prices and uncertainty over the security of energy.

Despite these conditions, certain types of businesses are seeing a major opportunity to harness energy growth while also offering attractive returns to investors. These opportunities exist mainly in the “cleantech” sector, with companies whose core business is in the development and deployment of green technologies.

Even if you think of yourself as a conservative investor, here are a few of the factors you need to consider if you decide to add cleantech exposure to your portfolio

1. Is the company committed to a variety of cleantech themes?

While the cleantech sector includes many subsets (solar panel manufacturing, biofuel production, etc….), it remains unclear which technologies will emerge as solutions. The strongest contenders, however, are uniquely positioned to satisfy four requirements.

1. Is the energy source easily accessible and renewable?
2. Is the company able to produce, supply and store energy?
3. Is this company’s technology making a significant contribution to energy efficiency, waste reduction and water management?
4. And finally, is the company using low impact materials and products?

By fulfilling these criteria, a cleantech company is better positioned to make a strong commercial case in favor of active investment.

2. Is the company providing a value-added solution?

The cleantech sector can sometimes sound like a monotone of the same ideas: The revised solar cell, the next-generation biofuel or the cheaper wind turbine. Rather than putting your money on iterations of existing technologies, pay attention to whether a company is providing creative, cost-effective solutions that have gained some market traction. Today, cleantech entrepreneurs are turning carbon into fuel, sucking mercury out of the air, and running cars on compressed air. It may pay to look above the solar panels and beyond the windmills.

3. Is the company on a cleantech index?

Generally, a cleantech index is useful to gauge whether global environmental trends are impacting capital markets. Interested investors are able to reference a cleantech index to assess how a perceived surge in the demand is trending. Today, numerous cleantech indices exist (the S&P/TSX Clean Technology Index, the ACT Australian Cleantech Index and The Cleantech Index® are just a few). By tracking them, you might be able to gain insight and feedback on this new and somewhat uncertain sector.

4. What about mainstream activity?

To be safe, and if you are looking to bolster your cleantech portfolio you may want to focus on large, established companies that are actively investing in a variety of cleantech technologies themselves. Google was the second most active cleantech investor in 2008 and is working with GE to develop a U.S.-wide electricity Smart Grid. Intel has been investing in solar, battery and energy storage companies, and has been advised to move into lithium-ion battery production. DuPont is working with BP on advanced biofuel production and earlier this year, Walmart announced plans to double its already sizable solar program in California. As usual, take “green” media campaigns with a dose of skepticism while recognizing that many companies with a global reach are sending strong signals as they pursue cleantech investments and the resulting profits.

5. Is the company in it for the long haul?

Often, cleantech shares are known as “growth stocks” and are expected to grow in value at a higher rate than the average market. Many times, growth stocks won’t come with a dividend payment because the entire focus of the stock is in growing its net worth. Most of these companies need numerous rounds of venture capital to build plants, hire workers and fuel innovation. For these reasons, cleantech investing is riskier than with other products, as a positive return may come years after an initial investment. Minimizing this risk involves a long-term financial investment that will look toward the future, slowly moving stocks from higher risk to lower risk.

In his 2010 TED speech on energy, Bill Gates noted that technology takes 20 years to develop and implement, then another 20 to catch on. Add to this the notion that great technology is different than a worthwhile product, thus making deployment more costly than management often anticipates. Always remember the ones who make the real money are the very sophisticated and the very, very patient.

Cleantech benefits from being part of the energy market – the largest market in the world – while simultaneously having many different aspects to the business. Furthermore, the drivers of change are here to stay: higher fuel costs, security of supply and mostly increasing demand. At current rates of consumption, global demand for energy is expected to double to 30 terawatts by 2050, up from 15 terawatts today. To put that in to context, 30 terawatts is the amount needed to power 30 billion American homes. With this, it becomes clear that a push towards cleantech investments is less reminiscent of a feel-good bubble and rather a necessary leap towards long-term gains.

Still, the cleantech label encompasses many competing technologies, and serious questions still linger over the impeding market distortions, taxing, subsidizing, and regulating of this sector. As such, it’s still too early to assess which clean technologies will emerge as the big winners. However, the current trajectory of legislation, funding and corporate support is creating a significant incentive to invest in the early stages of a growing opportunity.

Looking forward to doing business with you and to continue being your resource for deals, capital, relationships and advice.

Your feedback as always is greatly appreciated.

Thanks much for your consideration.

Comments

  1. Ted WeirTed Weir

    Is cleantech only about energy? Is “sustainability” only about green solutions? There are other areas of significant influence on a planetary social scale to the sustainability of the human component of the world. In cleantech one such area of interest to me is packaging. The environmental impact of non-biodegradable non-recyclable packaging can be witnessed in both the Pacific and Atlantic Oceans where garbage has been dumped for many years and now have become huge fields of plastic refuse floating just below the surface. Styrofoam is being made illegal to use for packaging in a growing number of US cities. Packaging equipment is aging. The last significant development in packaging technology being Tetrapak in 1951! Since then the world has changed greatly – computers and the internet have completely changed our world and how we share it but packaging has stalled. There are some “recent” developments however. Pakit Inc. over the past 10 years has developed and continues developing a highly efficient, sustainable (yeilding a 100% compostable product) and scalable technology which may revolutionize the $500 Billion packaging and change the landfill problems experienced by many major cities. At the present time the largest threat to our planet has become the unsustainable economic conditions which now hobble our world and which could result in the loss of such cleantech solutions. I worry that our human world is suffering from the pollution of greed. The recent evapouration of wealth and its source in the moral bankruptcy of our financial leadership is in my opinion the greatest threat to a healthy relationship with our world. Have we become “unsustainable”?

  2. Milton Rodrigues, LondonMilton Rodrigues, London

    What’s your take on B.P. ( British Petroleum ) ??? – in the UK they are saying that there have been many other ecological disasters by US-owned entities where the President or Prime Minister did NOT intervene ! e.g. Exxon Valdez, off Alaska; Torrey Canyon off Cornwall, Piper Alpha ( US-owned ) exploded in the North Sea in 1988. Jeremy Clarkson in the Sun newspaper of June 12th 2010, points out that there was the US-owned Union Carbide factory in Bhopal which sprang a leak in 1984 & was also a huge ecological disaster.

  3. Ed TorresEd Torres

    Interesting remarks on Cleantech. I was researching the term on http://www.google.com/trends and found these following trends: ARCADIS Selected to Elite Cleantech Index (CTIUS) – MarketWatch – Jul 10 2008 STOCKS NEWS US-Merrill: 2009 will be a hard year for cleantech – Reuters UK – Jan 26 2009 ReVolt Technology Named a Global Cleantech 100 Clean Technology Company – Reuters – Sep 9 2009 Westport ranked No. 1 on Canadian Cleantech 10 list by Corporate Knights – Reuters – Oct 23 2009 Report: Cleantech VC investment falls in 2009 – Seattle Post Intelligencer – Jan 6 2010 Veolia Environnement Unveils Cleantech Innovation Partner Development Program – CNNMoney.com – Feb 25 2010

  4. Parker David DaleParker David Dale

    The more fundamental green economy is being driven by limitations of capital and constraints if ecological capacities to handle massive populations within urban economies. Look for transformational energy consumption strategies and technologies that re-invent the infrastructure which supports our advanced requirements in managing such. Green should also be thought of greater profitability from existing operations. The oil industry, while popularly exploited by the media as bad environmentally, in truth has been extraordinarily innovative in evolving greater productivity. We need likewise the intelligence and management skills applied to exploiting both alternative sources of energy, as well as creating new business models that can thrive in the new world emerging before our eyes.

  5. Syed Azizur RehmanSyed Azizur Rehman

    The points raised are very much factual. As of now wind energy enjoys lion share in the renewable energy market. There is a saying- Once a winner always a winner. With several hundreds of billion dollars wind sector is going offshore in abig way with more R & D underway, as of now it is advantage wind which carries a strong chance to remain number one till solar takes( if at all)

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