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March 17 2012 | Filed Under Energy, Investment
Cleantech, or clean technology, investing seeks sustainable investments in
environmentally friendly companies that work to improve their operations,
performance, productivity and efficiency, while lowering their costs, energy
consumption, inputs, waste or pollution. Clean technologies can lower a
company's environmental impact and may provide improvements in resource
efficiency and productivity. When a company operates with less energy and
materials, or produces less waste, the result can create more economic value
for the company and its shareholders.
Cleantech is currently clustered in six industry sectors: energy, water and
waste water, advanced materials, energy efficiency and manufacturing,
transportation and agriculture. The largest of these sectors is energy and can
range from biodiesel, clean coal and fuel cells, to wind and solar energy.
Energy
Interest in clean energy is driven by sustainability issues, oil depletion and
energy security concerns. Political decisions, like the Kyoto Protocol and
concerns about global climate change, are also increasing interest in this
sector. Within the energy sector there are many different subsets of clean
energy including solar, wind and biofuels. Finally, the rising interest in
clean technology energy arises from the increased recognition that costs can be
significantly reduced if energy efficiency is addressed.
Solar Power
One option for clean technology is solar power. Although it is not yet as
widely used as hydro power, this may change, because hydro is limited by the
finite nature of suitable dam sites and political restrictions on available
supplies of water. Solar power, however, obtains usable energy from sunlight.
Solar energy is used in a number of applications, such as heat and electricity,
and is very attractive because it is plentiful and virtually pollution free.
Despite these advantages, however, solar power is still expensive when compared
to grid electricity. Even with the boom in solar power investment, the industry
remains dependent on government incentives. With economies of scale from
widespread use, this energy may become more competitive.
Wind
Wind power is the conversion of wind energy into more useful forms, usually
electricity. Global wind power generation more than quadrupled between 2000 and
2006, but is still a small part of total energy use. Wind energy is a renewable
and clean source of energy, but this energy source can be intermittent because
the wind is notoriously inconsistent. Wind energy is, therefore, unlikely to
grow to be more than a supplemental source of energy and, although wind power
is expected to grow quickly, solar power remains the more attractive investment
because of its high growth rate, better profit margins and wide range of
investment options.
Biofuels
Biofuels are derived from biomass, recently living organisms or their metabolic
byproducts, such as manure, corn, soybeans, sugar cane or palm oil. This is a
renewable source of energy and is a form of stored solar energy. Plant matter
used as a fuel can be constantly replaced by replanting, and a reasonably
stable level of atmospheric carbon can result from plant matter used as a fuel.
However, biomass use can still contribute to global warming - this happens when
the natural carbon equilibrium is disturbed, such as in deforestation.
The drawback to relying on biofuels, however, is that it puts pressure on grain
costs and water supplies, which can dramatically increase the cost of raising
livestock. This means that alternate feed stocks, such as switchgrass and
algae, must be found..
SEE: Grow Your Finances In The Grain Markets
Geothermal
Geothermal is another energy source that is viewed as sustainable because it is
provided by the vast heat of the earth, only a very small fraction of which may
be enough to meet the world's energy needs. This source of energy will require
technical innovation before it can be widely used.
There is also a central issue that may be the force that drives the technology
in one direction or the other: centralized versus decentralized energy
generation. Centralized energy generation, such as with gas or coal and
nuclear-fired power plants, is subject to detailed and slow-changing
regulations. These technologies are very capital intensive, with long lead
times necessary to build capacity. Centralized energy plants also tend to have
powerful political bases from which to block competitive energy sources.
Distributed power generation, such as solar or wind power, tends to react to
changing market conditions and new innovations much more quickly. In general,
decentralized power sources require less capital and their fragmented nature
make them less likely to have a concentrated political foundation.
Water
The cleantech water industry is focused in several areas, especially waste
water treatment and general filtration. The world's water consumption continues
to grow as it is used in modern agriculture and industry. Because water is an
essential resource and the planet's natural supply of water is virtually
static, it is likely that there will be room for growth in this industry for
many years to come.
What is likely to change is the fragmentation of the water industry. This
industry has often been compared to the oil industry 100 years ago, which was
fragmented and eventually consolidated. The water industry may also
consolidate, which could have an impact on investment decisions in this area.
As the industry becomes more concentrated, it is likely to seek ways to use
waste water plants more efficiently, use chemicals better and use less power.
Other Avenues for Cleantech
Advanced Materials
Advanced materials can yield products that are less toxic, less expensive and
more efficient than existing materials. These materials can make products
lighter, stronger and cheaper, and can benefit both the environment and a
company's bottom line.
Energy Efficiency/Manufacturing
The best way to make energy is to not use it in the first place. Many green
products require fewer natural resources, either in manufacturing or during
their life span. This means these products will cost less either up front or
over the total time period of their use. Examples include fluorescent light
bulbs and improved packaging that reduces waste. These products don't have to
be high tech, but the more economic sense they make for consumers, the more
likely they are to be adopted.
Transportation
One of the biggest cleantech success stories in transportation is hybrid
vehicles, which combine a conventional engine and a battery-powered electric
motor to achieve improved fuel economy and performance. These vehicles are
gaining increased acceptance as gasoline prices remain high. Annual U.S. sales
of hybrids are expected to grow to more than 1.5 million vehicles by 2015.
SEE: Getting A Grip On The Cost Of Gas
Agriculture
Cleantech in the agriculture sector ranges from more efficient farming, to
micro and drip irrigation that reduce water usage, to natural pesticides.
Investments are likely to be driven by cost-effectiveness, regulatory mandates,
consumer demand and public interest. For example, in 2010 organically produced
food had grown at close to 10% in the U.S., over 2009, while sales of
conventional foods had grown 1%. At the same time, organic food production has
become increasingly regulated, so that organic certification is necessary to
market foods as organic. The following chart demonstrates how organic food
production has increased between 2000 and 2010, in comparison to non-organic.
Performance
Corporations are likely to continue to increase their use of clean technologies
and renewable energy systems as investors look to separate companies that are
inefficient from those that are sustainable and effective. The cleantech area
is constantly evolving and will expand as political and broad public interest
in new renewable energy and cleantech technology continues to grow.
Cleantech has ties to the environmental movement of the 1970s and many
investors in this area are from that generation of socially responsible
investors. However, Cleantech investing doesn't mean investors have to assume
sub-par financial performance. The recent increase in market demand and
technological innovations has generated positive, and very competitive,
investment returns for many Cleantech companies.
The Bottom Line
Cleantech is focused in a handful of industries today, but is likely to grow as
consumers, governments and businesses demand products and services that are
more efficient, environmentally cleaner and cheaper.
Investing in cleantech does not mean investors have to sacrifice returns.
Instead, the potential for cleantech is broad and likely to expand because it
can add to both a company's bottom line and bring greenbacks to an investor's
portfolio.
by Zoe Van Schyndel
Zoe L. Van Schyndel, CFA , lectures on investments and finance at the
University of Miami, Coral Gables, Fla. She also writes for the investment web
site, The Motley Fool, on mutual and hedge fund issues. Van Schyndel was
instrumental in initiating the iShares KLD Select Social Index Fund (KLD), one
of the first socially responsible exchange-traded funds. Van Schyndel also led
the development of the KLD/Russell Mellon family of socially responsible
indexes. Previously, she was a New England regional manager at the Securities
and Exchange Commission, responsible for regulatory oversight of investment
advisors and mutual funds.
http://www.investopedia.com/articles/07/clean_technology.asp