Bright Side of the Clean Power Plunge: It’s Not the ’70s

Cleantech startups were a bright spot in terms of overall venture funding in 2008. But while the sector pulled in record investment from VCs, as BusinessWeek noted recently, shares of cleantech companies fell harder than the rest of the stock market. According to the Wall Street Journal, the WilderHill New Energy Global Innovation Index of clean energy stocks fell 66 percent in the first 11 months of 2008. Solar stocks alone plummeted a dizzying 76 percent. That’s a significantly deeper dive than the benchmark MSCI World Index, which dropped 44 percent.

Despite this year’s plunge, however, industry analysts say today’s market bears little resemblance to the renewables boomlet — and ultimate bust — of the 1970s oil shock. That’s because the industrialization of India and China is likely to keep energy demand outpacing supply for the next several decades, Paul Deninger, vice-chairman of the investment bank Jefferies, told BusinessWeek. For example, with a population of 1.1 billion, India’s government expects the country’s energy demand to quadruple within 25 years.

Where does that leave investors looking for strong, long-term plays? (If you want fast returns from clean energy, you’re on your own.) With a bull’s-eye on freshly subsidized solar and good reason to consider wind, smart grid technology and biofuels derived from sources other than corn. Here’s some of the reasoning from Business Week’s Adam Aston:

After years of patchy support, Congress granted eight years of incentives for solar as part of the October bailout bill. They take effect on Jan. 1 and allow homeowners and nonenergy businesses, as well as utilities and power plant developers, to deduct 30% of solar system costs from their taxes. Meanwhile, the stock market crash has brought shares of top solar companies back within reach.

After years of tight supplies, the number of windmills being produced around the world is finally catching up with global demand. The result is price erosion, which may pinch profits at manufacturers such as Denmark’s Vestas Wind Systems. On the other hand, falling windmill prices benefit utilities and project developers that hope to profit from Obama’s green stimulus program. In recent months some have slowed plans to build multibillion-dollar wind farms because of tight capital. But inexpensive equipment could fan their enthusiasm.

When it comes to ethanol, it’s all about the “next generation” of cellulosic fuels — technology that needs to hit its stride soon if it is to avoid becoming more of a political talking point than a real-world solution.