09/04/2007 12:25 PM

Clean Investments

Europe: No. 1 in Sustainable Energy

By Mark Scott and Cassidy Flanagan

The EC is committed to policies that include subsidies for alternative energy and encourage investment in new technologies. And business are betting on big profits to be made in following legislators' lead.

Saving the planet may not seem like the quickest path to riches. Yet plenty of investors are betting that sustainable energy will make them lots of money. Already the sector is fast becoming a multibillion-dollar industry, giving companies the chance to boost their profit margins and help fight climate change at the same time. Taking advantage of this investment revolution, a wave of European firms has pioneered alternative energy technology to help make Europe the world leader in reducing carbon emissions.

The fight against climate change has definitely become big business. According to London-based research firm New Carbon Finance, public and private investment in the global renewable-energy sector will top $90 billion in 2007, a 27% increase over the year before. The U.N. Environment Program (UNEP) says Europe remains the top spot for investment, receiving $27.1 billion in 2006, while the U.S. came in second, with $22.5 billion. An estimated $27.9 billion was set aside last year for financing renewable energy projects around the world, and $18 billion in 180 investment funds is now focused on sustainable energy.

EC Policy Spurs Growth

With so much money floating around, several public and privately held European firms have been quick to pounce on these new opportunities, and the firms now dominate industries such as wind-turbine manufacturing and solar-panel design. With annual sales totaling $737 million, German company Q-Cells has recently finished building the world's largest solar farm in southern Spain, and Danish wind-turbine maker Vestas, with $279 million profits in 2006, has outmaneuvered the likes of General Electric to become the leading global wind-turbine provider. "The industry is growing both geographically and technologically," says Q-Cells spokesperson Stefan Dietrich. "You have to expand internationally because there are so many new players coming into the market."

At present, wind and solar power remain the most commercially viable technologies, but other firms are looking to cash in on the growing interest in the sector by developing new ways to produce renewable electricity. One such company is Marine Current Turbines, based in southern England. It has created a machine that harnesses tidal power to produce environmentally friendly energy, and the company expects its first "tidal farm" to come on line by early 2008. According to MCT's technical director Peter Fraenkel, it's now a lot easier to find funding for new technologies. "When we started it was very difficult, but now governments and investors are throwing money at many different projects," he says.

Behind much of the growing interest in alternative energy is European Commission policy. The EC outlined plans early this year to produce 20% of the EU's energy from renewable sources by 2020. Such regulatory certainty has helped to reassure investors, who still face significant risks developing new types of energy technology. According to New Carbon Finance's Chief Editor Angus McCrone, subsidies from European governments have made the EU the No. 1 investment destination in the sector, although other countries, particularly the U.S., are quickly catching up.

Global Markets for Sustainable Energy

As sustainable energy becomes more mainstream, Europe's tight hold on the sector could be threatened. Simon Shaw, managing director of London-based EEA Fund Management, which has more than $1.5 billion invested in renewable projects, believes North America will soon attract more investment than Europe. "Regulatory regimes around the world have shifted towards alternative energy," Shaw says. "Over the next 10 years, the majority of governments will support this technology."

Despite the growing threat from competitors, European companies remain out front for now and hope to stay ahead by focusing new growth in international markets. Ocean Power Delivery, a Scottish company that has designed a turbine powered by wave energy, has targeted North America as a key battleground. Growth in the U.S., according to the company's Business Development Director Max Carcas, could propel the wave-power sector to a $10 billion-per-year industry by 2012. Similarly, Germany's Q-Cells, which has gone from employing 19 people in 2000 to a projected 5,000 in 2010, is trying to diversify into Asian markets, which are expected to be worth $36.1 billion by 2010. For many companies, the rising awareness—and growing competition—for alternative energy is good for business as emerging markets offer new commercial opportunities. Investment in sustainable energy in India, for example, has jumped 160% over the last three years, while cash for such projects in China has increased by a staggering 2033%, to $6.1 billion, in the same period.

Expanding Capacity

Along with overseas markets, European companies have a steady supply of projects in their home countries to help shore up their bottom lines. Currently more than 25,000 wind farms are operating throughout Europe, and capacity is expected to double by 2015. According to the European Wind Energy Assn., the industry will be worth $109 billion by 2020. Similarly, solar panel capacity in Germany, the world's largest market with annual sales over $5 billion, is expected to reach 4,500 megawatts by 2010—the equivalent of almost six coal-fired power stations. Government subsidies and beneficial electricity tariffs are also making energy from marine and biomass technologies increasingly cost-effective.

The rapid increase in investment over recent years has made such advances possible. For as the public's imagination has been caught by the fight against climate change, so too have European companies been won over by the high rates of return offered by the renewable energy sector. No one would say firms are making investment decisions simply to save the planet, but if that's a by-product of the growing investment in alternative energy, so much the better.


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