Investing in green energy—for profit

Earlier this week, the Wall Street Journal reported that some US factories that convert maize into ethanol are closing. Even though the Farm Security and Rural Investment Act of 2002 guarantees farmers a price floor for maize, even though the Energy Policy Act of 2005 mandates that 7.5 billion US gallons of ethanol be added this year to gasoline, turning maize into ethanol is no longer profitable. Americans aren’t driving enough.

China’s subsidies for its green energy sector were also in the news recently. In March the US Commerce Department imposed tariffs of 2.9–4.73% on all solar panels imported from China after it had concluded that China was illegally subsidizing exports. China has appealed to the World Trade Organization to have the tariffs lifted.

And last year, Solyndra, a California-based manufacturer of advanced thin-film solar cells, went bankrupt after the company had received a $535 million loan guarantee from the US Department of Energy.

Is green energy profitable only with government help?

For Spain, the question has already been answered. In the wake of the world financial crisis of 2008, Spain cut its generous subsidies to its solar energy industry, which promptly collapsed .

Meanwhile, the prices of the major fossil fuels—oil, natural gas, and coal—are all declining, at least for now. As governments around the world struggle to reduce their deficits, subsidies for green energy are likely to dwindle. Even Germany, whose finances are relatively healthy and whose Green Party won 10.7% of the votes in the most recent federal election, is debating whether to cut subsidies for solar energy.

Renewables will widen investor enthusiasm

As someone who wants green energy to thrive, I was heartened to come across a special report, Modern Energy , in the 4 June edition of the Financial Times. As befits the newspaper’s name, the report focused on the financial and commercial aspects of energy. Some of the report’s stories—on nuclear power in the West and offshore wind farms in the UK—were gloomy, but the lead story on renewable sources of energy was upbeat.

In “Renewables will widen investor enthusiasm” , energy correspondent Guy Chazan surveyed the green energy market. He noted that

Fifteen percent is still modest. Thanks to new supplies, the price of natural gas has fallen back to its level 12 years ago. In the US, when an aging coal-fired powerplant is brought offline, its replacement is more likely to run on natural gas than any renewable source. Moreover, the financial crisis has reduced the supply of capital that wind farms, wave-energy converters, and other renewable energy facilities need to get up and running.

Still, the overall message of Chazan’s story is gratifyingly positive. Two investment experts whom he quoted, Andreas Quint of Jones Lang LaSalle and Ian Simm of Impax Asset Management, both foresee renewable energy providing a steady, long-term stream of income, much like bonds—because renewable sources of energy, unlike fossil fuels, are, well, renewable.