Financial Crisis Takes its Toll on Renewable Energy

While worldwide investments in renewable energy have been on the rise through much of this decade, the financial crisis that began last year sharply dragged that growth down. According to a new study by the United Nations Environment Program, total investment in the renewable energy sector reached $155 billion last year, compared to $148 billion in 2007. But those gains were achieved in the first half of the year, before the markets crashed. In the final six months investment was down 17 percent from the first six months and 23 percent from the second half of 2007. The trend continued into the first quarter of this year as well, according to the report, new investment fell to $13.3 billion, the lowest quarterly value since the first three months of 2006.

Clean energy stocks also took it on the chin last year, dropping by 61 percent, a more precipitous drop than the overall stock market. I wrote about this back in November when the eight worst performing funds through the third quarter under Morningstar’s rankings of socially responsible funds were alternative energy and green funds. At the time the fund managers I interviewed said lower oil prices had cooled the interest in companies in solar energy and hydro power, for example. That was on top of the market collapse that began in October.

But the managers were also optimistic that shares in their funds would rebound because the nations of the world are still on a path for a severe oil shortage – though experts differ on when. And they were buoyant about the newly-elected Obama administration’s plans to make alternative energy a priority as a way to combat the climate crisis and create new jobs.

But those managers probably did not expect the severity of the credit crunch that soon followed. According to the UN report, while venture capital and private equity investment in early-stage grew by 60 percent last year, in the larger stock markets it fell by more than 50 percent. “Activity noticeably slowed in the second half of 2008, and the public markets have effectively been closed for clean energy fund raising so far in 2009,” the report states.

So does all this mean oversold fund share prices and opportunity for investors? Do your research. Among the green funds that have struggled are: the Guinness Atkinson Alternative Energy Fund, the Calvert Global Alternative Energy Fund and the Winslow Green Growth Fund.