Alternative energy - the investment for 2009?
Despite the deepening recession, many people are seeking to invest what funds they have because cash is such a poor alternative.
For those with longer-term investment needs, there is also an imperative to acquire stocks cheaply so that they will benefit from the upturn in the markets over the chosen time span.
So, in an effort to unearth some potential repositories for your cash, I took a look at alternative energy.
Given the recent performance of equities in the alternative energy sector, you could be forgiven for thinking that the promising prospects for this industry in the past had vanished.
And there is no doubt that they have been hurt — mainly by a combination of falling markets and the rapid deterioration of the short-term outlook as capital has become scarce for all businesses and projects.
However, unless we experience a veritable Armageddon, the long-term outlook for the industry as a whole is good.
In fact, many think it will be one of the first sectors to emerge from the current financial quagmire. Many of the drivers in this sector are to do with electricity and how the sector industries can deliver grid parity electricity using current forms such as oil and gas.
Wind turbines have been growing at the rate of 24% per year for the last 10 years, and still only account for 1% of global demand.
And, as there are plenty of future sites, the potential is clearly there. Assuming the industry grows at 20% per annum it will still only be supplying 10% of the world’s needs.
Then there’s the sun. The market for photovoltaic, solar, energy panels is still in its infancy due mainly to the cost of the panels.
But the potential to halve this cost over the next five years without needing any new technology already exists, having more to do with silicon cost, manufacturing and efficiency cost reductions.
Germany, for example, has recently taken a major step by issuing new laws and providing a specialist government bank to supply loans for new projects and back-up to the solar industry.
Many other countries will be watching carefully to see how well this project does.
One of the more established sources of alternative energy is of course hydroelectricity. However most of the sites for this are already is use.
There are some run-off river schemes in the pipeline, but not enough to add any significant supply to world demand. But there are other emerging technologies such as hot rock geothermal power.
Here water is pumped down through granite to some five kilometres below the earth’s surface and then forced back up and the energy captured.
Biofuels have also been in the headlines but, although the potential is huge, getting the right materials has proved tricky and the technology still has to be geared up to its true potential.
Another exciting, potential source is tidal power, which is very much in its infancy.
But systems that will capture the tidal flows at their most powerful without vast structures embedded into the seabed, are being researched and developed. And car manufacturers are experimenting with fuel cells and fossil fuel replacements, although realistic alternatives are still a long way off.
So, despite the very innovative nature of this sector, there is still a genuine need for governments to invest in projects such as these. It might even be one of the ways in which they could spend their way out of this recession.
Valuations are at a low point, compared with the bull run of three years ago, so if you are building a long-term portfolio it could be worth your while to do some serious homework in this sector.
Nicholas Watts is an independent financial adviser with Positive Solutions Financial Services which is regulated by the Financial Services Authority. To contact him, use the website www.realwealthmanagers.co.uk