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A good time to invest in clean technology

The global economy has been battered by the most severe crisis since the Great Depression of the 1930s, but one area has been heralded as a possible saviour – clean technology.

In the run-up to the crash, clean technology enjoyed explosive rates of growth as a number of drivers combined to push money into the sector. First, the evidence on man-made climate change and its effect hardened. Second, oil prices soared to new highs, raising fears over energy security and finally, a whole range of resources became limited in supply, highlighting fears about wider issues of sustainable growth.

Low-carbon measures played an important role in many of the stimulus plans introduced around the world – $66 billion out of a total of $430 billion was committed to clean technology and environmentally-friendly initiatives, according to HSBC's Climate Change Centre of Excellence.

Meanwhile, great hope has been invested in the United Nations climate conference in Copenhagen in December, where diplomats are due to hammer out a replacement for the Kyoto Protocol, which runs out in 2012.

The drivers for investment in low-carbon technologies and companies did not go away with the crisis, says Nigel Meir, fund manager at Ludgate Environmental Fund, which counts a number of family offices among its investors. Many clean technologies, particularly in the field of renewable energy, are very capital intensive and need the financial might of the banks to get them off the ground.

Ben Goldsmith, of the venture capital group WHEB Ventures agrees that renewable energy is too capital intensive for a VC group. "Instead we focus on technologies in the area of industrial efficiency - enabling industry to become more efficient in its use of energy, raw materials, water or waste," he says. 

Ludgate also focuses on waste management, waste treatment and waste-to-energy projects. "Taking out valuable materials and recycling them or using them to produce energy fits in with the current economic situation, uses resources more efficiently and is often backed by government," Mr Meir says.

Clean tech is a theme which cuts all industrial sectors, he adds. "Companies in all industries are now waking up to the fact that they can save significant sums of money by becoming more efficient in their use of energy, raw materials, water and even waste. Technologies that enable such savings to be made with a short payback period on the capital investment required represent a tremendous investment opportunity."

Some of the fastest growth in environmental markets is coming from private companies as new technologies and services are developed, which is an area most investors will find difficult to access, points out Steve Mahon, chief investment Officer at Low Carbon Accelerator. "Low Carbon Accelerator – being AIM listed - gives investors exposure to a portfolio of these private opportunities, covering themes such as the smart grid, renewable energy and energy efficiency technologies. During the current economic downturn valuations are also low, meaning we can capture more value in our portfolio – it is a good time to be a low carbon investor."

However, Clean technology did not escape the collapse in world stock markets. The Wilderhill Clean Energy Index, which tracks the sector, is currently trading at about one third of its 2008 peak. Guinness Asset Management, which has just launched an alternative energy fund, believes the lower valuations means "an attractive entry point has opened up for investors".

Tim Guinness, lead manager on the Alternative Energy Fund said: "During 2008, company earnings in the sector collapsed. However, revenue growth has continued in 2009, driven by stimulus packages and new long-term government incentives and thereby setting up these stocks for an expected strong recovery in 2010/11. Further support will come from the US and China as their governments initiate policies to support the industry. 

"The sector has seen a 20% annual growth rate over the past 15 years and with support now stronger than ever across the G20 countries, we should continue to see strong increases."

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