Biofuels is big and growing, but just how big was brought home to the meeting here yesterday by Michael Liebreich, ceo, New Energy Finance.
In 2005 global investment in clean energy was, by his estimate $48.9bn which includes venture capital/private equity, public markets, corporate R&D, government R&D, asset finance and small scale projects. If you add in M&A deals the total is around $66.2bn.
Ignoring the value of M&A, the total investment represents a 62% increase on 2004 and he estimates that this year, excluding M&A we’re looking at around $63.3bn.
In terms of equity, biofuels raised around $2 bn between the last quarter of 2005 and the third quarter of this year, which is about a third the level of equity generated by solar projects in the same period and well ahead of wind power.
The type of people investing in biofuels is changing and financial investors are suffering a “gold rush mentality” and are confused between project and technology valuations.
Speaking informally to several consultants here they tell of over optimism, interest in potential projects that are badly thought through. Including statements by investors that ‘the US would never let the biofuels sector fail’ and using that as a justification for investing in bioethanol plants. The US may not let the sector fail, but as one delegate pointed out to me, that doesn’t mean that the investor will be able to hold onto the asset if the bank forecloses to get its money out.
Also the possibility of using Jatropha grown on an island off Africa, lacking roads, ports, or people to harvest the product has been floated to several investors. Put like that it doesn’t make me want to sell the house and put all I’ve got into that particular venture. Did many people get really rich in the Yukon or Klondike?
So if a large amount of money is rushing into biofuels, it won’t all be going into the strongest projects… I think I’d like to know what the chances of a shake out in the next couple of years are. Here’s what yesterday afternoon’s panel said:
There won’t be an unmitigated bump in biofuels because the markets are widely differentiated and quite national
Ioannis Kaltsas , senior economist of the European Development bank
Talking about Europe, I think there could be a big bump sooner rather than later. The market needs regulation, it is easy to make biofuels and unless the market is regulated it will get a big surprise.
Martin von Lampe, economist with the OECD
There is a lot of political will in the sector in Europe to expect a major bump is too pessimistic.
Which is the closest you’ll get from unanimity from two economists and a consultant.
The 2006 European Biofuels Forum is being held in Warsaw, Poland from 20-21 November and is organised by the World Refining Association.