GLOBE-Net - The current credit crisis affecting world financial markets is raising questions about companies being able to find enough capital to pursue their renewable energy projects.   The recent drop in natural gas and crude oil prices is also threatening the allure of alternative fuels. As a result, the clean energy sector has seen its share prices fall dramatically over the last few weeks.

Yet a number of analysts believe in the long-term growth of the industry.  A report published in October by Deutsche Bank’s Asset Management division argues that despite the current market downturn, the accelerating pace of global warming will force governments to invest more heavily in climate change technologies.

“Unlike the initial outbursts of interest in climate change from 1990 through 1992, which faded in the face of a financial crisis and recession, we believe that climate change investing in the early 21^st century, based upon solid science, is poised to make a very different impact as governments look for ways to stabilize economies and promote energy security,” writes Deutsche Bank.

In fact, the report argues, the financial crisis may spur governments to spend money in climate sensitive sectors such as power grids, water, buildings, and public transport which present a vast field for the creation of new technologies and jobs.  “The current crisis is making the necessity of tacking climate change an opportunity to stimulate growth through investment opportunities,” says Mark Fulton, head of climate-change investment research at Deutsche Bank. (See GLOBE-Net Business Report for more information on this Report).

But it won’t be smooth sailing for everyone.  According to The Globe and Mail, many analysts expect a wholesale consolidation in the renewable energy sector as weaker firms drop by the wayside and stronger ones take advantage of strong balance sheets to make acquisitions.  And some experts fear that government subsidies for renewable energy projects may not be a done deal.  Several U.S. states, for instance, have already modified their goals toward cleaner energy.

Still, private developers have yet to put a halt on their investments.  GDF Suez, for instance, acquired Energy International in October for $60 million.  The Paris-based energy giant sought the Colorado-based company for its 266 megawatt portfolio that includes hydroelectric and wind projects in Central and South America.  It also believes in the company’s ability to produce electricity from biomass resources in the United States.

So far this year venture capitalists in North America, Europe, China and India have invested $2.6 billion into clean technology during the third quarter of this year, according to the Cleantech Group, up 17 percent from the previous quarter.  Those receiving the most capital are thin-film solar firms and algae companies.  Smart grids companies also benefit from venture capital.  Many expect the growing demand for electric vehicles to push utility companies into improving electric grids to manage plug-in vehicles. 

• Still, some green investors are likely to avoid high risk propositions according to independent research firm Verdantix. Institutional and high net worth investors will shy away from pre-revenue clean tech businesses, pre-break even carbon credit developers and pre-revenue “green consumer” propositions until predictability returns to global capital markets, it argues.
• Early stage green technology companies may also find it hard to attract investment funding, notes Glen Schwaber, general partner at Israeli venture capital firm Israel Cleantech Ventures. “From that perspective it can be a concerning time to be a clean tech investor.” Cleantech investment in early stage companies should fall off at the end of the current quarter, Schwaber added.
• While the overall level of venture capital investing has remained fairly stable over the past quarter, the National Venture Capital Association, and PriceWaterhouseCoopers in their most recent MoneyTree Report suggest that technology oriented companies seeking their first round of venture funding will have the toughest time because a frozen market for initial public offerings. 

Consumers are also having their say in the growth of sustainability of renewable projects. A new survey by Rogers Publishing, for instance, shows that Canadians are increasingly demanding that financial advisors include green opportunities in their portfolios. Moreover, the survey revealed that nearly half of them had initiated discussions regarding green investments with their advisors, instead of the other way around.

So the renewable energy sector may not run off the rails despite a worldwide credit crunch.  It has strong support from venture capitalists who want to make money and consumers who want an environmentally-friendly planet.   Unlike past recessions, both have the support of governments eager for alternative solutions to the economic downturn.

“I think we can all agree that we need to view this not as a crisis but as an opportunity.  The transition from fossil fuels of old to the renewable fuels of tomorrow can create jobs, protect our national security and cleanse our environment,” said Harry Reid, US Senate Majority Leader last September.

All that remains is the veil hanging over credit markets.  Central to the debate are how long will credit be tight and how low will oil and natural gas prices fall.   A question with no clear answer for the moment as the global economy weakens by the day.  Yet it is this issue that will replenish investor confidence and propel the clean energy sector to new heights.