by Terrence Murray - July 22, 2010

Edward Guinness, portfolio manager with the Guinness Atkinson Alternative Energy Fund

While many cleantech investors these days are seeking venture-type investments, London-based Edward Guinness of prefers to back profitable renewable energy companies with established track records (yes, those do exist.) The firm’s Alternative Energy Fund (GAAEX), which Guinness helped launch in 2006, has been underperforming lately, (down nearly 30 percent year to date), but he remains confident that the sector and his fund will grow over the long-term, bolstered by an improving global economy and cheaper solar and wind power. Guinness shared with us his views on the BP spill and how it will impact the U.S. renewable energy sector for our Cornerstone Conversation series.

Green Energy Reporter: Is cleantech a trend or a long-term investment opportunity?

Edward Guinness: First off, we wouldn’t be investing in the sector if we did not think we could unearth value for our investors so, yes, we believe renewable energy offers long-term value. Various factors have, in a relatively short time, helped turn renewable energy into a vital global industry. One is the growing cost of extracting oil, both in dollar-terms and, as we’ve been witnessing in the Gulf, environmental. Also, there is the the fleet of coal-fired power plants, especially in the U.S., that continue to age and which will have to be replaced, most likely in this carbon-constrained world, by wind, solar or even biomass power plants. A constant backdrop to the rising clean energy investment flows are concerns of human-made climate change and energy security. Particularly in the U.S., where renewable energy is largely understood as being a key way to cut overseas oil imports.

G.E.R.: Could the high cost of renewable energy compared to coal or natural gas hamper the sector’s growth?

EG: Yes, it’s undeniable that coal and natural gas are cheaper than wind or solar power. Is this a long-term trend? Historically, natural gas prices have been quite volatile. However, we do believe that natural gas prices are currently at a particular low point but in the next three-to-five years could trade north of $6. Also, it is important to note that the cost of solar power, for example, has fallen dramatically over the past couple of years, partly because of cheap PV production from China and better technology that have helped make solar generation a more efficient and cheaper proposition. We believe that by 2013 there will be price-parity between solar and traditional energy. So, overall the combination of rising gas prices, over the medium-to-long term and falling solar or wind power prices, will make the renewable energy sector an attractive investment opportunity.

What could hopefully come out of the BP spill is additional funding for the renewable energy industry as Washington cuts the many tax breaks the oil industry has been enjoying for years. It’s a long shot but it could happen.

G.E.R.: In a related question, how do you think natural gas prices could impact cleantech and renewable energy investments?

I think that U.S. natural gas prices are today creating a headwind for the wind and solar sectors. Current low cost (today) of natural gas fired electricity generation, combined with lower demand caused by the global recession means that utilities have been offering long term PPA’s for wind projects at lower prices than before. This means that fewer PPAs with renewable energy projects have been signed. As I have mentioned before our view is that U.S. natural gas prices will continue to rise. One reason for that is that it is more expensive to extract shale gas than drilling for conventional reserves. We also believe that as the global economy improves demand for renewable power will also increase. And finally, specific to the U.S., establishing policies like a Renewable Portfolio Standard could have a meaningful effect on utilities in the next three years.

G.E.R.: Let’s talk about the BP oil spill. Here in the U.S. we hear that it could actually help get the Kerry – Lieberman climate change legislation passed.�How do you think it will it impact the greentech industry?

EG: The spill has definitely helped put the need to wean ourselves from polluting, carbon-based energies on the forefront. The reality though is we are going to continue to depend on carbon-based energies for a while. The spill also underscores that, today, accessing crude reserves is more challenging than ever — and as the BP spill underscores — dangerous. Besides playing a crucial role in cutting emissions, contrasted with the events in the Gulf, wind and solar power offer a more sustainable and safer source of energy. From a big picture perspective, I don’t think the BP spill will help get the Kerry – Lieberman bill signed into law. What it has done though, is put environmental concerns back at the forefront as an argument in support of renewable energy. This had not been the case for at least a decade. Until the BP spill the arguments in favor of renewable energy focused on three factors: rising fossil fuel prices, climate change concerns and energy security. More concretely, what could hopefully come out of the BP spill is additional funding for the renewable energy industry as Washington cuts the many tax breaks the oil industry has been enjoying for years. It’s a long shot but it could happen.

G.E.R.: One ongoing criticism about the cleantech sector is the over-reliance on government support. Can this industry succeed without government support?

EG: Over the near term the industry will have a hard time growing void of government support. However, over the medium and long-term, the industry, we believe, will grow on its own economic merits. Fueling that growth will be higher oil and gas prices and a lowering of the costs of alternative energy. Already, today, geothermal, hydropower and biomass are competitive without subsidies. Wind power, is broadly speaking, competitive and solar costs have fallen dramatically and the industry has a road map for achieving further significant reductions over the next ten years. The most important support that the sector will receive is structural – grid developments in particular. While this is still a subsidy-driven industry, it has a road-map to continue growing profits and for subsidies to continue to decline.

Photo: Guiness Atkinson Funds

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