Eco-money: Cool your heels and learn the facts before jumping into the world's hottest clean-energy markets.
Clean energy offers equal parts peaks and pitfalls for invest
Global investment in clean energy last year rose by 30 per cent to US$243 billion (Dh892bn), according to the World Economic Forum (WEF). Mid- to long-term investment opportunities are particularly strong in China, which alone accounts for $51.1bn invested in clean-energy projects.
Year-on-year growth was spread evenly across three regions looked at by the WEF and Bloomberg New Energy Finance in the report, Green Investing 2011: Reducing the Cost of Financing. Europe, the Middle East and Africa grew by $19bn to $94.4bn and the Americas rose $17bn to $65.8bn. In Asia and Oceania, investment grew by $20bn to $82.8bn.
But while areas with massive growth potential, such as China, are attracting interest among green investors, the world's fastest-growing clean-energy markets have pitfalls for the unwary. It is often hard to spot tomorrow's winners in immature markets and many new ventures also only offer their largely unlisted shares through over-the-counter (OTC) electronic transactions.
China Clean Energy, the biodiesel fuel producer, is attracting growing US investor interest. Through its subsidiaries Fujian Zhongde Technology and Fujian Zhongde Energy, China Clean Energy develops, manufactures and distributes biodiesel fuel. It sells to companies domestically and also exports globally to Europe, North America and Southeast Asia. Its quarterly revenues are $16 million, having risen 300 per cent from the same period in 2009 with profits growing by 382 per cent to $3.7m.
Although it is now widely considered an investment opportunity, China Clean Energy is part of a sector that has seen recent trouble. One of the company's chief competitors is the biodiesel producer Gushan Environmental, which was hit by recent consumption tax. Gushan is now not expected to be operating normally until next year. This is understood not to have affected China Clean Energy because its customers are not state-owned enterprises.
But other risk factors that could adversely affect China Clean Energy include the mainland's heavily regulated environment. Because the company is subject to government regulations governing clean energy, biofuels and chemicals, it is also seen as vulnerable to Chinese economical and political risks. China Clean Energy is in the China small-cap sector and could also be scrutinised and kept to a low valuation.
Another risk factor is seen to be that the company's shares are available via OTC electronic trading. China Clean Energy has, however, upgraded to a higher tier of the OTC market, the OTCBQ, a marketplace developed by the OTC Markets Group. But some investors remain wary of OTC stocks because many are low-value penny stocks or are offered by companies with bad credit records.
Market observers are also warning investors against China in the short term because of rising prices and slowing growth.
Diana Choylev, a director of Lombard Street Research, told CNBC that this was "the worst time to be investing in the [Chinese] equity market".
She added that investors should stay away from Chinese equities for the next six to 12 months. Ms Choylev was speaking after China reported that consumer prices in February rose 4.9 per cent year-on-year. According to Lombard Street Research, China's consumer price index will grow further and peak at about 6 per cent in June. Lombard Street Research also believes that China's growth rate will have to come down before the government can bring inflation under control.
But in the longer term, the clean-energy market in developing regions is set to become increasingly attractive. According to the WEF, higher energy prices may increase demand for clean energy and more alternative sources can now compete with fossil fuels. The WEF points out that although clean energy projects have generally relied on subsidies, wind projects can compete with and surpass their fossil-based rivals on price and that solar power generation has already caught up with retail electricity prices in some parts of the world.
According to environmental group The Pew Charitable Trusts, the clean-energy sector has seen 630 per cent growth in finance and investments since 2004. Countries such as China, Germany, Italy and India are attractive to financiers because they have policies that support renewable energy standards, carbon reduction targets and incentives for investment. But The Pew Charitable Trusts says that ambiguity surrounding clean-energy policies in the US has caused investors to look towards markets such as China, which is now reported to be the world's leading manufacturer of wind turbines and solar panels. However, China is also investing heavily in non-renewable energy, including coal-fired power stations.
But despite uncertainty now surrounding China's economy and its developing regulatory environment, the country's clean-energy sector appears set for dramatic mid- to long-term growth.