Investors are still waiting for the big breakthrough in new energy.
Plenty of people are sceptical about renewable energy. They point out that windfarms don't work when the wind doesn't blow, and require back-up from fossil fuel-hungry power stations.
They note that biomass threatens the rainforest, wave power wipes out migrating birds (those that haven't already been chopped up by wind turbines), and carbon capture will only encourage more coal mining (and the technology doesn't work anyway). Plus of course it's all really expensive, and can only be developed with the help of massive government subsidies.
And if they are really, really sceptical, they will claim the whole thing is just an excuse to tax us all into oblivion.
Life's a gas
Given all the obstacles, you might wonder why we bother with renewable energy at all. In fact, we wouldn't, and didn't for years, when the world's oil and gas reserves looked endless, and everybody thought global warming was what happened when the sun came up in the morning.
But peak oil will strike at some time, and unless climate global warming is exposed as a myth, hoax, religion or tax grab, we need to do something about our warming planet as well.
And that is why renewable energy matters. The sector has been through a bad time lately, especially after oil fell to around $30 a barrel in March 2009, but some analysts claim that is about to change. Is there a rebound opportunity for investors?
Over a barrel
One way of viewing alternative energy is as a reverse play on the oil price. If the cost of a barrel of oil falls, then renewables suddenly look uneconomic, and investors drift away. When the oil price rises, they wander back. If it passes a certain trigger point, perhaps around $100 a barrel, they come running.
As I write, a barrel of crude oil costs $81.59, up from around $72 in early February. As the global recovery gathers momentum, it may rise even higher, bolstering the case for renewables, which could make now a good opportunity to get in at (or rather nearish) the bottom.
Changing investment climate
If you don't want to invest in the individual manufacturers of wind turbines or thin film solar panels, there are several funds to choose from. My long-standing favourite is BlackRock New Energy (LSE: BRNE), which invests in companies such as the American Superconductor Corporation, China Agri-Industries Holdings, Iberdrola Renovables and Vestas Wind Systems. It is up 18% over one year and 52% over five years, but with a sticky patch in-between. It currently trades at a wide 14% discount.
Schroder Global Climate Change, a unit trust that invests in companies that aim to limit the impact of climate change, has posted a strong 12-month performance of 44%. Impax Environmental Markets (LSE: IEM), which invests in clean energy, water and waste, has done even better, rising 55% over the same period. It is also up 68% over five years and trades at a -9% discount. Although as you can see, the sector isn't a total rebound play, you missed the sweet spot 12 months ago.
More heat than light...
I think renewable energy is a terrific idea, in principle. The practicalities, especially from an investment point of view, aren't so pretty. It is an area fraught with pitfalls, many of them political.
Politicians like to talk big on climate change. Under EU obligations, the UK is committed to getting 20% of its primary energy from renewables by 2020 (up from just 6.7% today) with stiff penalties for falling short.
Energy and climate change secretary Ed Miliband claims switching to a low-carbon economy could provide £100 billion worth of investment opportunities and half a million jobs over the next decade, but that looks fanciful to me. The UK doesn't have the engineers, scientists, physicists and manufacturing capability to hit these ambitious targets, and I don't think we've got the politicians either.
Burnt by the sun
Alternative energy is an industry in desperate need of a big breakthrough. This might come from pay range of sources, such as accelerating climate change, peak oil, or a game-changing technical advance, possibly in solar energy, which still seems to me the best bet for a sustainable energy future.
Solar panel specialists PV Crystalox Solar (LSE: PVCS) has seen its share price cool from 160p to just 49p over the last year, and could make an interesting high-risk recovery play -- for the brave.
Until that breakthrough comes, renewable energy will continue to blow in and out of favour, depending on the ever-changing winds of investor sentiment. You can't rely on it.
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