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May 14, 2008

Is A Renewable Energy Bubble Looming?

A renewable energy bubble looming?Maybe.

According to a report issued by KPMG (download pdf), a bubble may be developing globally in the renewable energy sector as bidders compete for assets and send prices up.

Oil and gas companies are buying in the hunt for cleaner fuels and financial buyers are searching for stable long-term cash flow - the overall effect has been to push valuations up to record levels. The report indicates that 50 % of respondents, and nearly two-thirds in Europe, agreed that there is a real risk of a bubble in the renewable energy sector.

The KPMG press release also reported:

"On a more micro level, there are other issues including the fact that many sites have difficulty connecting to electricity grids and there is a shortage of turbines to build new wind farms. All this is also putting aside one the most basic risks of all - that investors are putting money into technology that could become obsolete very quickly."
While I agree that investors should be cautious, I think that is always good advice. Although the KPMG report has raised some important questions about supply chain bottlenecks, and uncertainty in government incentives, I would argue that the renewable energy and cleantech sectors are relatively robust, despite the fact that many companies have yet to turn a profit.

In the U.S., a lot depends on what (if anything) comes out of Capitol Hill to stabilize the incentive structure for investment in clean energy technologies. I will argue, as I have before, that even if this current Congress does not pass meaningful extensions this year, some sort of tax credit will be passed early next year, and there is a good chance they could extend it retroactively.

Photo: Limbo Poet via flickr under a Creative Commons License

1 comment:

Samantha Jacoby said...

If you're interested in the renewable energy market, as well as the economic and policy factors influencing development, you should attend the Renewable Energy Finance Forum-Wall Street (, held June 18-19 in New York City. Speakers from companies like Credit Suisse, JPMorgan, UBS, and Morgan Stanley will share their thoughts on the future of the renewable energy industry and opportunities for finance and investment. In addition, one of the official event sessions will feature representatives from the Institute for Sustainable Energy Policies, New Energy Finance, the Stella Group, and Lazard Freres & Co in a discussion about the world energy trends, policy developments, and economic factors that are fueling (or constraining) industry growth.