Friday, March 19, 2010

Green Technology Investment

A few days ago, I wrote on a couple of publicly available "green funds" for investors who hope to capitalize on the booming upward trend in companies and corporations that sell goods or services that will be in demand more and more, when and as man-made global warming causes the Earth to begin its roasting stage. We've read about or heard all the predictions of doom: melting ice caps, disappearing glaciers, rising sea levels, coastal and island flooding, population relocations, intense droughts, huge hurricanes, prolonged and unprecedented heat waves, widespread tropical disease, crop failures, snowpack melting in the California Sierra Nevada mountains, and all the rest. The two funds, GWO and PBW, each consist of approximately 50 publicly traded stocks, with GWO having a world-wide base, and PBW drawn only from the U.S.A. Neither fund is doing very well, in fact, both are in the tank, and each fund's price is heading downward. That is odd, as surely there are savvy investors looking to place their money into a sure thing like global warming. After all, the scientists have spoken, and their words were of impending heat and doom. The science is settled, they said. The small matter of the East Anglia University emails and computer code, and the errors in the IPCC summary report are merely distractions, they said. The point of no return has already passed, they said. There is warming in the pipeline that we cannot avoid, they said. We need a global treaty to make every country do its fair share, and the rich countries must pay so the poor countries can have a chance for survival. But, apparently not, at least in the view of experienced investors. GWO and PBW are not rising at all lately, but are sinking. So much for the publicly traded firms. How about privately-held firms, those funded with venture capital?

One of the popular themes over the past few weeks, at least in California, has been the huge amount of venture capital that has poured into the state as funding for green technologies that will create millions of new jobs, clean jobs, in industries that do not produce CO2, and will pull California out of the economic slump and make it the envy of the world. This theme is trumpeted by those who wrote and signed AB 32 (State Senator Fran Pavley and Governor Schwarzenegger), and by many others who oppose the upcoming ballot initiative that will suspend AB 32 for several years. So, I took a look around to see where these green startups are, what they are doing, who is funding them, and, more importantly, when was the funding made. That last point is key, and more on that in a moment.

I found that most of the work has already been done, at least through 2009, at this link. The authors listed 50 startups, all funded by VC (venture capital), and all in the "greentech" sector. The technologies range from solar panels to solar power towers to innovative software to smart grid hardware, to green buildings, green algae that produces hydrocarbons from sunshine, to batteries and electric cars. The common attribute for all of these is that none will be economically competitive on their own, were it not for government subsidies and laws that require such goods. In fact, none would be competitive with crude oil at $80 per barrel, but might be attractive if oil were at $150 to $200. Rather than re-hash the list of 50 companies, I'll leave that to readers to pursue the link and read them there. I want to focus on the funding and the timing.

The article shows a chart (see below) with VC funding in greentech for each year from 2005 through 2009. Not surprisingly, 2008 had the greatest annual investment with almost $8 billion. Each prior year was smaller, leading up to the peak year of 2008. Then, 2009 dropped of to just under $5 billion. That is rather curious, too.

A better explanation for VC funding is the price of crude oil. Crude oil price peaked in 2008, at around $140 per barrel. It very likely appeared to the VC firms that the greentech would be attractive, especially if crude oil increased to $200 per barrel. Then, in 2009, crude oil dropped back to the $70 and $80 range, along with a reduction in VC investment into greentech. This, then, is the key. As the OPEC countries have learned, high crude oil price leads to innovations and lower demand for crude oil.

Finally, VC-funded enterprises have a dismal track record of success. Very few companies ever make a product that catches on in the market, and the same can be expected from these.

It is puzzling to read and hear AB 32 supporters with their claims that greentech VC funding is due to the laws incorporated in AB 32. There has been some investment, but not all that much. Plus, with the price of crude oil down from the 2008 peak, the funding is reduced. The final reality for the AB 32 proponents is that very few jobs have been created by the VC funded greentechs. What California needs is a million reliable jobs that produce goods and services that are competitive in a world market. These VC greentechs do not provide those jobs.

Roger E. Sowell, Esq.
Marina del Rey, California

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