Why drill for oil and dig for coal, when you can harness clean and renewable energy sources such as sun, wind, sea, biomass and hot rocks? But the challenge for renewable pioneers and their backers is to know which sectors offer the biggest returns and in what timeframe, and how returns compare with reducing energy consumption.

“One of the few certainties in an unpredictable world is that we are gradually going to move away from fossil fuels,” says Bart Markus, general partner at Wellington Partners, a pan-European venture capital firm. So for anyone keen to invest in green technology, energy generation is compelling.

Wind power has been maturing rapidly and has lots of associated intellectual property (IP), so there are few opportunities, says Garry Staunton, technology director of the UK’s Carbon Trust, which helps businesses commercialise low-carbon technologies.

The emphasis shifts to making something more cheaply, rather than a technological advance. Offshore wind, which is less mature, provides more possibilities, such as stronger cables, deep-water foundations, safer access in rough conditions, and more efficient turbine arrays.

Solar is relatively established, but has gone through a rocky period in Europe, following the introduction of heavy subsidies in Spain. Huge growth was suddenly cut off, when the subsidies were withdrawn in 2008. More recently, Germany, which represents 50 per cent of the world market, has also reduced incentives.

Jens Rosebrock, head of clean technology and renewables in Europe for Piper Jaffray, the US investment bank, says solar is still volatile. “It has not shed the image of a travelling circus,” he says. The bulk of solar panel production has now gone to China and companies such as Yingli Solar, Trina Solar and Suntech.

Plunging panel prices have proved beneficial to users and installers. In Italy, the technology has now reached the stage where it is cheaper than using the national grid. Germany and the UK are expected to reach this point within the next five years.

Rolls of photovoltaic plastic that would be light, cheap and simple to install on flat roofs are at an earlier stage of development by Heliatek, based in Dresden, Germany. The company has attracted two rounds of investment and is developing the product with BASF and Bosch.

Most solar panels use silicon, but US-based First Solar is developing a revolutionary thin-film technology that, while more complicated to produce, is highly efficient. However, some observers have raised concerns about the fact that it is based on cadmium, which is toxic. First Solar, which received large-scale investment and was floated in November 2006, is capitalised at $11.4bn.

Marine power is now attracting interest, says Mr Staunton, with Edinburgh-based Pelamis Wave Power demonstrating the technology’s first commercial production. “Another radical idea is the Anaconda. It is basically a giant rubber tube just under the surface that creates a pulse when a wave passes above, which can be captured and turned into energy.”

In spite of Europe’s lead on wave and tidal power, and the large potential, investors remain to be convinced.

“We are not too bullish because wind and solar are so far ahead and have considerably lower costs,” says Mr Rosebrock. “It probably makes sense to work in these areas, but it’s difficult to find private investors that would back them to a level where they become competitive.” More public support is needed to get the technology ready, unless there is a brake on the number of wind and solar farms that can be built, he says.

The same goes for carbon capture and storage, which also requires high levels of funding. And geothermal technology is seen as high-risk, following problems in Switzerland, where drilling was blamed for a small earth tremor, and southern Germany, where there was structural damage to buildings. Further disincentives for would-be investors include the cost of drilling and the difficulty of knowing where to do it.

Often investors are as much attracted by improved processes as patents. In the UK, the Drax power station has experimented with adding up to 20 per cent biomass feedstocks into coal-burning plants. Germany’s Agnion is developing technology to convert biomass feedstock to gas.

Biochemical companies are investigating new sources for biofuels, such as the cellular waste left after sugar cane is pressed. And companies such as Denmark-based Novozymes, DSM in the Netherlands, BASF, Wacker and DuPont are developing organic compounds that could replace petrochemicals. “In contrast to energy, this often happens without subsidy,” says Mr Rosebrock.

In lighting, a “tectonic shift” is taking place, says Mr Markus, as incandescent bulbs, with their dismal 5-6 per cent efficiency, are replaced with compact fluorescent lighting and light emitting diodes (LEDs) that bring efficiency closer to 50 per cent. The latest generation can be colour-tuned to match conventional lighting.

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