Investment into Alternative Energy - who takes the risk?

Investment in Alternative green energies and power-saving electrical appliances is full of paradoxes at present as it calls into question the very nature of "what is value?" (i.e. finance or the environment?) as well as showing some surprising investment trends (i.e. agriculture over fossil fuels), as well as showing a strange co-habitation of controlled investment with free market economics.

What constitutes value? The stereotype of an investor preferring "Jam today rather than jam tomorrow" would argue against investment in values such as "conservation" and "stewardship of the environment" (all long-term benefits and little immediate financial payback). This would be true were it not for the politics and prices of oil seen back in 2006-7 in which:

a) it became commercially viable all of a sudden to exploit alternative forms of energy that previously were seen as too expensive due to the cheap price of fossils;

b) extraction technologies for certain types of biofuels coincidentally came of age;

c) bio-fuel crops offered an opportunity to a beleaguered farming community in the western hemisphere unable to compete in traditional foodstuffs markets.

So on the free market, there has been a trend already against traditional fossil fuels and into Green Energies that paradoxically gives investors an incentive to invest in the environment.

But there has equally been a political drive from the grass roots electorate to move away from fossil fuel dependence and the drivers for this are many (and not necessarily all driven from a concern for the planet or the warnings from scientists). People started to react en-masse when fossil fuel prices started to hit their pockets. These drivers have included:

- political resentment at the high taxation of fossil fuels and consequent high prices at the petrol pumps;

- occasional distribution strikes that have caused massive queues for petrol;

- disapproval of the 2003 invasion of Iraq and subsequent failure to see any of the promised "reconstruction bounty" that was promised after the war;

- high rises in the cost of domestic energy and a desire to get back to some level of independence from large energy companies.

At a government level, therefore, 'Green' politics suddenly became a new avenue of political exploitation by the major parties, rather than a sideshow - partly because of the individual drivers above. As a consequence there have been stimuli to invest in green energies from governments in the form of:

- World targets to reduce carbon emissions that have translated into targets (and thus opportunities) for individual contruction companies;

- Tax breaks offered to individuals and companies for adoption of green energies and energy-saving appliances and motor vehicles;

There is still a question of the pace of change that is possible versus the commercial question of "what makes commercial sense to do first (and see some return from it)?" Clearly the two forces act in tension.

From the author's own point of view "exploitation" of alternative energies and power-saving products is a free market question. If a technology is proven and stable, then providing there is commercial sense in adopting it (and incentives such as tax breaks to sweeten the change) then this is a free market question. The role of government on the other hand is to encourage research and development and to take-up the initial risk expenditure in investment that may lead nowhere; as well as to act as voice of authority on what technologies indeed are approved and stable (as there is currently a too much hype on the open market if regulation and approval is left to private industry. Remember - the beneficiaries of the gold rush were those who sold the spades, not those who did the digging!)

Equally, R&D is investment is always subject to diminishing returns. The author's own opinion is that as soon as commerciality of any technology is proven, the market is going to compete so quickly and aggressively to fill-up any capacity in it, that these diminishing returns will be realised very quickly. For a commercial investor, this would probably discourage the desire to invest in the first place.

About the Author: Mike Howard, Director of Green Energy (Eu) is a rapidly-emerging expert in the field of Green Energy and power-saving electrical products for the home and office. With more than twenty years experience in top-end building Mike is sole UK distributor of the renowned Redwell Infrared Heating systems.

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