Clean Energy Trends 2005

The following is an excerpt from Clean-Energy Trends 2005. To read the full report, please download the PDF file by clicking on the link to the left.

When historians look back to assess the history of clean energy, the first half of the 21st century's first decade will likely be viewed as the point at which the industry began its hockey-stick growth spurt. Which is not to say that it's all smooth skating. Like the hockey rink itself, the business of developing next-generation solar, wind, hydrogen, and other technologies can be both slippery and high-risk.

The industry has entered a critical phase encountered by all major tech booms. As individual technologies mature, there is an inevitable churning of players: mergers, acquisitions, divestments, bankruptcies, and -- always -- new market entrants. The result is a constant rising and falling of prospects for companies, and even entire sectors, that is variously fascinating (if you're an outside viewer) or frightening (if you're an inside participant). But it's never dull.

Some of this is due to technology breakthroughs -- some real, some potential -- that continue unabated. But it may be the far less scientific world of politics that leads the way. Last year demonstrated just how non-ideological the race to develop clean-energy sources can be. Republican governors Schwarzenegger of California and Pataki of New York both launched aggressive clean-energy initiatives, and China unveiled plans that could result in up to 100 gigawatts of new renewables by 2020. Meanwhile, Germany's generous feed-in tariffs made solar photovoltaics (PV) so popular that it led to module shortages around the world.

All of which bodes well for clean energy's continued growth. According to Clean Edge research, markets for solar PV (modules, system components, and installation) will grow from $7.2 billion in 2004 (compared to $4.7 billion in 2003) to $39.2 billion by 2014. New wind power installations are projected to expand from $8 billion in 2004 (about the same as 2003) to $48.1 billion in 2014. And fuel cells and distributed hydrogen are projected to grow from $900 million (primarily for research contracts and demonstration and test units) to $15.1 billion over the next decade.

Already, these three clean-energy markets have expanded from $9.5 billion in 2002 to just over $16 billion in 2004. By 2014, they will grow another sixfold, to more than $100 billion.

For all the positive developments and encouraging signs, pure-play clean-energy stocks showed mixed results in 2004. While a number trade at or near their 52-week highs, many continue to be saddled with delayed product releases, limited earnings, and similar issues facing emerging companies. Some investors are turning instead to larger players with clean-energy initiatives, such as GE, Sharp, and Toyota. But for those with an appetite for risk, and the potentially high returns that come with it, many clean-energy stocks still offer significant potential. As one sign of investor interest, the first clean-energy index began trading on AMEX as an exchange-traded fund in early 2005.

Venture capital (VC) investments in energy technologies increased last year from $509 million in 2003 to $520 million in 2004. As a percent of total VC investments, energy tech declined from 2.8% in 2003 to 2.6% in 2004. This was due to an overall increase in total U.S. VC activity, increasing from $18 billion in 2003 to $20 billion in 2004.

As an asset class, clean energy and clean tech continued to post gains last year. Several traditional venture firms have recently begun investing in the space, along with more established energy funds. And some new funds, such as Chrysalix Energy II and Expansion Capital II, recently achieved initial closings. With pension funds and other institutional money also eyeing the clean-energy arena, the relative trickle of money entering this space is expected to become a steady stream.

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