EGG-energy

Crisis Mode in Clean Energy and Africa Investments: Ironic?

Isn’t it ironic that some of the most important areas for investments in sustainable, balanced and long-term development, namely Africa and clean energy, are so heavily impacted by the current economic downturn? It certainly makes sense for investors, companies and consumers to focus on their investment base, reduce their risks and consolidate to do better in the future.  At the same time, isn’t it the best time to support the potential products, ideas and startups that can make a difference in the global warming mitigation and sustainable growth race?

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2009 was a tough year and the situation looked scary.  Stock markets were down – see the Dow Jones’ 50% drop in two years -, banks such as Lehman Brothers were going bankrupt and unemployment reached 20% in such places as Spain.  It therefore made sense for consumers, companies and investors to reduce their spending and appetite for risky investments.

One of the sectors which suffered the most was clean energy.  A look at the fluctuations of the Wilderhill New Energy Global Innovation Index highlighted in an article from the Economist (The Green Slump, http://www.economist.com/specialreports/displaystory.cfm?story_id=14994802) shows that clean energy was hit almost twice as hard as the S&P 500, losing 43% of its value between 2007 an 2009 when the S&P 500 was only losing 24%.  In 2009 alone, clean-tech companies saw a 50% drop in investments from the previous year, although fortunately the number of deals increased (U.S. clean-tech investment falls 45% in fourth quarter, http://latimesblogs.latimes.com/technology/2010/02/us-cleantech-investment-falls-45-in-fourth-quarter.html).

This is alarming as clean energy is one of the most critical areas for investments, not only for financial returns but also and above all as the fuel to the engine of global warming mitigation.

Why are clean energy investments suffering so much?  Some of the key reasons put forward in the Economist (The Green Slump, http://www.economist.com/specialreports/displaystory.cfm?story_id=14994802) include high up-front costs. This means debt finance funding and high debt-to-equity ratios, which explains why, when the financial crisis made money less available, the clean energy sector was among the first to suffer.  Others argue that the lack of support from consumers triggered fear from investors.  Lack of support from consumers?  Well yes, in critical times, consumers tend to flow towards whatever cost effective solutions they can find.  And the relative failure of the Copenhagen meeting in 2009 did not help incentivize consumers to favor more eco-friendly solutions.

It remains to be seen what impact this will have on global warming.  Clean energy investments must grow to reduce our environmental impact and limit temperature rises.  But by how much?  Different views have been voiced.  A study by New Energy Finance and the World Economic Forum shows, for instance that they should reach $600 billion yearly by 2030, from a little more than $100 billion in 2009 (Green Investing: Towards a Clean Energy Infrastructure, 2009, http://www.weforum.org/pdf/climate/Green.pdf).  This would imply a five-fold increase in 20 years, which will not be easy.  We were already late when signing the Kyoto protocol in 1997, we are still very much behind this target today.

At the same time, the financial crisis has also had a significant impact on Africa.  The BBC estimates from $49 to $280 billion the losses for 2009 alone (Crisis will cost Africa $49bn,  http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/7945843.stm).  This is bad news for a continent that needs to catch up on development and accelerate its growth.  What’s more, the impact of a $ 280 billion drop in investments on poverty and development is likely much worse in Africa than on other continents.  Programmes for health, education, nutrition and infrastructure were reduced or stopped.  And some are wondering if Africa will ever meet its Millennium Development Goals.

People, here is a gap to fill.  To catch up, we need to find solutions that are innovative, affordable and efficient.  This is what we have been trying to develop at EGG-energy: an innovative supply chain, an affordable project for investment and an efficient idea using existing products, channels and means to reach consumers and reduce their kerosene/carbon footprint as quickly as possible.  Luckily enough, EGG-energy is only one of many ideas that are out there to help the world be a better place: good luck to them all!

Emmanuel Cassimatis

This entry was posted on Wednesday, February 24th, 2010 at 12:59 pm and is filed under Thinking it out loud. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.