Warning signs of energy bubble

PUBLISHED : Friday, 24 August, 2007, 12:00am
UPDATED : Friday, 24 August, 2007, 12:00am

With the effects of global warming hitting home and the investment world scurrying to develop products that can offer exposure to what's become a trendy field, a New York-based research firm has warned of possible signs of a bubble in clean technologies.

Estimates suggest spending on the development of 'clean technology' is due to jump 14 per cent this year, hitting US$55billion. And Asia is an increasingly important testing ground, with countries such as Japan, China and South Korea leading the way in terms of government funding, corporate research and development and scientific research.

But sceptical voices are suggesting that too much money may be flooding into certain areas of clean tech, particularly energy research. Venture capital in that area has more than doubled, to US$1.5billion from US$623million, mainly on research into solar power and biofuels.

'The warning signs of a bubble are appearing in the energy segment,' a new study, 'The Cleantech Report,' from New York-based Lux Research, suggests. 'With 930 energy startups operating worldwide - 198 of which are venture-funded - energy technology looks primed for a classic private equity boom and bust.'

The total value of the initial public offerings in clean energy jumped from US$1.6billion in 2005 to US$4.1billion in 2006, and looks set to post another record this year. Besides private funding, energy also commands more than half of the US$26billion in government funding that was devoted to the sector last year.

But energy is only part of the clean technology scope. The report says opportunities are likely to be better in other fields such as clean air, clean water, waste-product reduction and sustainability.

Mike Holman, a senior analyst at Lux Research who helped write the report, said it was far from clear whether investments in clean-technology funds pay off.

Most exchange-traded funds and similar financial vehicles focused on clean technology had not outperformed the market, he noted. That was partly because of the kind of companies getting involved. Although big companies such as General Electric (GE) invest significantly in clean technology, their investments tend to pale in comparison to the size of the overall company.

'On the other hand, stocks of small-cap clean tech specialists, which make up a significant portion of most ETFs, haven't yet proven to be a reliable investment,' Mr Holman explained.

Interestingly, Asia commanded the greatest share of total government funding flowing into clean technology, cornering 38 per cent of the US$26billion, followed by 29 per cent from Europe, 26 per cent from the United States and governments in the rest of the world contributing the remainder.

Asia also leads the world in terms of scientific articles on the topic, with a similar sort of breakdown.

Clean investments