While renewables and other "clean" energy solutions continue to lose steam with investors in North America, it's quite another story elsewhere.
Investment capital is moving east at an incredible pace.
Last week, the Pew Charitable Trusts issued the fourth annual "Who's Winning the Clean Energy Race?"
Worldwide, nations increased clean energy generation capacity by 88 gigawatts (GW) in 2012. However, that also complemented an 11% decline in overall investment compared to 2011.
Some of that is explained by the impending end of heavy government subsidies in both the U.S. and the European Union. But despite the drop, 2012 still marked the third straight year in which clean energy investments topped $200 billion worldwide.
The year still ended with more than five times the investment recorded in 2004, the year generally used as the base for calculations.
The recent upward spike by leading U.S. solar energy stock First Solar (NasdaqGS: FSLR), up better than 32% for the month through close of trade on Friday, has accelerated the entire sector in the short-term. Unfortunately, this masks a continuing weakness in solar companies in the longer-term. FSLR is down 61.2% over the past 18 months.
Meanwhile, American Depository Receipts (ADRs) of the leading Western wind power company – Danish Vestas Wind Systems (OTC: VWDRY) – are down 3.4% for the most recent month and 58% over the past year and a half.
Simply put, the FSLR advance resulted from a much better than expected quarterly bottom line, itself largely the product of phased out subsidies. I don't see this to be a sustainable recovery.
There is also another important element to remember.
Looking only at what is happening in the West among the renewables misses the trend entirely. In fact, Phyllis Cuttino, the head of Pew's clean energy program, concludes that "Clean energy trends demonstrate the ongoing resilience of this emerging sector in the global economy."
The reason she would say this in the face of a global decline in investment is rather simple.
There is a strong move of clean energy investment movement into Asia in general and China in particular. This is now the driving force behind a clean energy push.
So do any opportunities exist in Chinese clean energy projects?
Policy Leads the Way to Profit
The Pew report states: China has done everything right by putting long-term, consistent policies in place, goals for clean energy in every case they have increased them. If you're looking for a place to invest, China sure looks like a good bet."
But I am not getting on the Chinese clean energy investment bandwagon just yet.
While I track dozens of Chinese solar, wind, and related renewable energy companies, their performance has been spotty at best. In addition, there remain significant transparency, liquidity, and regulatory concerns with many of these shares.
The trend, on the other hand, is hardly in doubt.
As Pew explains, "2012 continued the ongoing trend of investments moving away from the Americas and into Asia and Oceania." The report goes on to state that "the Asia and Oceania region has experienced uninterrupted growth in investment annually for nine years and in 2012 became the leading regional destination for investment for the first time."
The figures are striking.
Investment in clean energy dropped 31% in the Americas for the year, counterbalancing a 30% rise in 2011. The U.S. led the decline at 37% year-on-year, Brazil 32%, and Canada 23%.
In marked contrast, the investment rose by 16% in Asia and Oceania to $101 billion. That accounts for 42% of the entire global total, with the brunt of the rise resulting from significant growth in China and, to a lesser extent, in Japan.
Solar Remains the Clean Energy Source in China
The Pew report singles out China for special emphasis. It is especially noticeable in solar energy investments. Despite the aggregate drop in global clean energy investment, for the second consecutive year, the report states, "solar technologies attracted more investment than any other clean energy technology, accounting for $126 billion in investment during 2012, 58% of the G-20 [most developed nation] total."
It was not surprising that China led the charge here as well. The country has been rapidly taking over leadership in both solar technological development and application. Once again, according to the report, "China attracted nearly double what it did in 2012, with $31.2 billion in solar investment."
Elsewhere, the best performers in an overall declining market were Germany ($17.2 billion), the U.S. ($16.5 billion), and Italy ($14.1 billion). However, the U.S. result is tempered by the fact that American investment saw financing decline more than 50% from the level recorded in 2011.
There is no doubt that clean energy is establishing a foothold in the energy balance and is already occupying an established niche in the global market.
It is also evident that the primary investment emphasis moving away from North America and Europe to Asia and China – in spite of the drive currently underway in Germany to emphasize renewables in the replacement of nuclear power.
Nonetheless, until there is a genuine and secure way for individual investors to tap into this transition, I would suggest it is better to wait until the dust settles.
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About the Author
Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk assessment, and emerging market economic development. He serves as an advisor to many U.S. governors and foreign governments. Kent details his latest global travels in his free Oil & Energy Investor e-letter. He makes specific investment recommendations in his newsletter, the Energy Advantage. For more active investors, he issues shorter-term trades in his Energy Inner Circle.