Sustainable and Renewable Future

Well, apparently this is the most depressing part of the year. Dr. Cliff Arnall from the University of Cardiff has made a pronouncement on the subject and I can see what he means. Apparently, while days technically get longer after the winter solstice on 21st December, cyclonic weather systems develop in January bringing low, dark clouds to Britain. Moreover, most people break their New Year resolutions within the fi rst couple of weeks and start to feel bad about themselves. Bizarre, eh?
Also the commercial property market has dropped like a chalupa in the last couple of months and the overall stock market which has just plummeted by about 5%. An analyst said that this was due to the American market and pointed out that it wasn’t because this was going down. Or indeed up. Either of these is a clear movement and could be dealt with. No, it’s the uncertainty of what was going to happen which was making people panic. And apparently (as I may have mentioned before) we’re all doomed. Doomed. Doomed. Doomed.
One of the interesting effects of the world economy slowing down (even if it’s in the short-term) is that more and more money is being invested in areas which are regarded as ‘safe’ – that is, an existing market which doesn’t need to be developed and where there is a constant and, ideally, increasing demand. Specifi cally oil, gas and fossil fuels. Not entirely environmentally-sensitive, you’ll appreciate, but when people think they might lose money this ain’t too high on their agenda.
However, these are short-term decisions. And I’d like to suggest that it’s worth thinking a little more into the medium-term.
You see, although demand for oil, gas and fossil fuels is increasing, production has possibly already peaked. So demand is increasing but supply isn’t. This means that while it’s an attractive short-term investment attention is already beginning to move onto alternatives. I acknowledge that there’s still quite a lot of fossil fuel – yup, more than enough to destroy the entire climate - but there’s only so much of it. It doesn’t grow or reproduce. And one day it’ll dry up completely. So the desirability of these holdings is likely to decrease as our attention moves towards sustainable alternatives.
Which isn’t to say that we’re already there. There’s an increasing demand for energy from different sources but, at present, there is only a comparatively small amount available from sustainable and renewable resources. And they have problems which the established oil giants don’t. Wind farms find it incredibly difficult to get planning permission. There are all sorts of arguments (many of them environmental, interestingly) against hydro-electricity. Biomass generators are unpopular and it’s diffi cult to persuade people in a country with weather like ours that solar panels are a good idea. Biofuels have all sorts of issues being raised, such as the effect on food prices of switching to growing bio-diesel and the amount of fossil fuels utilised in procuring them. Good questions, eh?
Conventional thinking would suggest that it’s going to take a long time and a lot of money to develop this market to a point where it is viable and able to compete with existing options. So you’d think that, as a medium- to long-term investment it wasn’t a very good place to go now - especially in a falling market.
But. But. But…for various reasons sustainable and renewable energy is trading at a discount, so you’re able to buy into it on the cheap. And the more money goes in - as it’s a developing market – the faster it’s likely to expand.
What seems to happen is that when oil prices go up people start to look for alternatives to fossil fuels – presumably on the basis that if something is getting more expensive it makes sense to look for a substitute. As a result their desirability (and prices) rise sharply. But when oil prices subsequently drop (often because production is being increased for political reasons) people tend to go back to holding this kind of shares and abandon their sustainable investments.
As a result, sustainables are extremely volatile. One of the best specialist funds has grown at an average of 58.44% per year for the last five years – pretty good, eh? Except that this is the average. And if you look at the short-term performance, you may find your eyes popping out of your head. So in the last twelve months, it went up 12% between February and March and down 8% in one week thereafter. Rather a slow early summer – it grew 30% in the next two months and then dropped 25% in the six weeks to mid July. Recovered its 30% between mid October and mid November but lost half of it by the end of the month and went up to its highest point – growth of 42% since the beginning of the year – by mid December.
But when you match this against the oil price index, you’ll see that the drops are less volatile than fossil fuel prices. Which suggests that it’s a growing market.
Now, this isn’t going to be a comfortable place unless you’re a high-risk investor. Sustainables will almost certainly drop again like the chalupa I mentioned earlier. And hopefully grow afterwards. And probably drop again. But it suggests that people are beginning to get the point about climate change. And that if their money is going into areas which address the real problems, in due course the market’s attention will start to follow.
So it’s not quite as absolutely depressing as I’d thought. And now the moon is gliding across a beautiful, cloudy sky. Makes you almost happy to be alive, doesn’t it?