Financial crisis and $60 oil: Now what?

A colleague of mine (and several readers of the green blog) expressed a spreading sentiment of uncertainty whether the current financial crisis and the price downfall of crude oil will put a brake in the investment surge towards renewable energy and other clean technologies.

Venture capital investments for cleantech companies have done well for the past 3 quarters, according to both Cleantech Group and Ernst & Young.

In the US, Ernst & Young reported investments in cleantech companies reached a record $1.6 billion in Q3 2008, up 55% from the previous quarter. A total of $3.3 billion was invested in the first three quarters of 2008, surpassing the figure for the same period last year by 71%.

Companies who deal with solar, energy efficiency, alternative fuels, hybrid transportation, and water, were some of the big green financing recipients this year.

Ernst & Young does not expect investments to slow down next year:

“In light of challenging economic times, the US cleantech market may be entering a transitional period. However, the structural market drivers of the cleantech sector remain intact, suggesting that the prospect for long-term market development is positive,” says Joseph Muscat, Americas Director of Cleantech and Venture Capital, Ernst & Young LLP.

“Factors such as technological advances, consumer demand and programs at both the federal and state-level help to create the conditions needed for long-term growth in cleantech.”

KPMG also assured nervous stockholders that investment in the greentech sector is still expected to significantly increase in 2009 according to their recent survey.

So I guess, that means we don’t have to sell our clean tech stocks immediately although there had been some casualties in this sector already especially within biofuels.

Ethanol producer VeraSun Energy filing for bankruptcy late last week; Evergreen Solar filing suit against Barclays and Lehman Brothers for their stocks; Aventine Renewable Energy delayed one plant start-up and canceled plans to open another after JPMorgan cut its credit facility by $50 million; and two other biofuel firms temporarily shuttering their plants, according to seekingalpha.com.

But, overall, the tone within clean tech industry is “cautiously optimistic” despite the volatility in the credit markets and the regulatory landscape, according to several industry players and investors at the 6th Jefferies Global Clean Technology Conference in London.

“Despite the prospect of slowing global economic growth, rising living standards in the developing world will continue to pressure energy costs and infrastructure demands. Yet policy (incentives and regulation) will continue to be dominant investment drivers for some time.” – Jefferies analysts.

Here are some of the key points discussed in the conference:

Solar: Focus on cost reduction, access to raw material feedstock, and financing. The successful passage of an 8-year US tax credit extension has been a source of much optimism for many solar companies although the prevailing perception is that the US is not likely to be a major growth market for solar until 2010.

Wind: No consensus exists on the the ability to raise financing in the wind markets – differing viewpoints have been offered by several companies. European developers have not talked about any difficulty raising capital for future projects whereas the U.S. markets have had difficulty raising funds due to the transition in the tax equity markets. There were some discussion surrounding the possibility that about pricing declines for wind turbines in 2009.

Geothermal: The favorable outlook for geothermal projects remain intact as geothermal projects still have financing cache among banks and private investors and will benefit from the one year investment tax credit.

Water: Superior economics compared with other renewables continue to drive rapid adoption, despite rising component, engineering costs, as well as some impact from the credit crisis. Increased emphasis on offshore developments and rapid adoption in emerging markets.

Other: The potential of plays on energy efficiency and electric vehicles continued to draw interest.
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One Response to Financial crisis and $60 oil: Now what?

  1. Pradeep 4 November, 2008 at 11:00 pm #

    Interesting, I wonder what the $/kW numbers look like, for each of these technologies.
    I would expect wind & geothermal to be a little lower than solar and tidal power.

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