The sixth technology to clean up
On the never-ending quest for perfect places to invest some cash going forward, I thought it might be interesting to look at the relatively new area of clean technology — cleantech or, as one large asset management company has called it, the sixth technology revolution.
Although few have forgotten the ‘dot.com’ bubble, when things got out of control and we discovered that there was no real asset value there for many of the companies, this time I think it is very different.
Recent financial events have, for one thing, left us severely chastened and we will undoubtedly be bringing a much more jaundiced eye to any new area of investment.
The sphere of Cleantech has reached an interesting moment in its development.
While its key drivers — climate change, energy supply worries and increasing resource scarcity — become ever more pressing, at the same time they have also all been affected by the recent financial crisis.
However one of the positive outcomes of this has been a host of new challenges and opportunities. Clearly, this takes us into an area of high risk investing.
But, as history has shown, such periods play a pivotal role in defining the path of any new industry and will reward brave investors with high returns.
Our first port of call has to be the venture capital market. But before we dismiss this as ‘vulture capital’ with all its associated connotations, this is because, for many new companies, it is where they have to go to raise development capital.
Many ultimately successful companies start out in Venture Capital Trust (VCT) or Enterprise Investment Scheme (EIS) portfolios on offer to the public, although the best examples of these in recent times have been in Europe and not the UK.
One notable example is Germany’s Q-Cell, the world’s largest solar cell manufacturer, which was funded initially through venture capital.
And across Europe, as a whole, venture capital has grown very strongly over the last few years and has accounted for 24% of all investments made.
This has of course reduced in the current period but means, ironically, that there are therefore many more opportunities on offer.
Much of the renewed optimism, as you would expect, can be attributed to the USA where the new President and his team have taken a more progressive approach to environmental issues.
Governments across the world are putting huge sums of cash into stimulus packages and in Europe $54.2bn has been earmarked for cleantech projects.
So what new areas are there for investors to look at? Smart-grids technologies, which allow the distribution of energy from suppliers to consumers in more efficient ways, may be one.
Smart-grids also allow better accommodation for renewable energy sources by helping to overcome issues with unpredictable electricity in addition to generation from multiple, decentralised locations.
There are other areas such as electric cars, carbon capture and storage and energy efficient buildings to name but a few.
Linking up with this technology are areas such as waste, water, food, agriculture and materials. The list is not exhaustive.
But the result is that companies will be looking to solve multiple issues, rather than just one technical problem.
One interesting local example of this is a company that has designed and produced an intelligent, building evacuation product, one of the by-products of which is a significant reduction in electricity consumption.
Where are such opportunities to be found? As I said earlier, many will be offered via the VCT and EIS.
Others will come from specialist, capital fundraisers such as CSS Partners. In many cases, you will find that you do not need to put in large sums.
So you could consider spreading your cash around and building a Cleantech portfolio.
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