When oil was more than US$140 a barrel earlier this year, clean energy technologies were all the rage. If they could replace expensive fossil fuels, it was worth a try. But now that the price of a barrel of oil has tumbled to about US$65, skeptics are writing off renewable energy because it is no longer competitive on the price point alone.

Skeptics say this scenario is far too familiar. During the 1970s — when the price of oil was sky high — the U.S. made huge advances in renewable energy, especially wind power. But when the price of crude tanked in the 1980s, interest waned and the sector was largely stalled — until the price of oil started creeping northward again earlier this decade.

Between uncertainty in the credit markets and the decline of conventional energy costs, clean energy stocks have taken a beating lately — more so than most sectors. But while this is discouraging in the short term, it amounts to one of many compelling reasons to keep an eye out for opportunities in the renewable energy space in the long term.

Renewable energy covers a broad range of energy sources of which hydro, wind, solar and, to a certain extent, geothermal are the most common. Renewable energy refers to sources of energy that are not depleted when harnessed to generate electricity, produce fuel for vehicles or heat homes. Once the wind turbines, hydro installations or solar panels are in place and working, they will just keep going, generating power and profits for generations if they’re properly maintained.

Green technologies, however, span an even wider spectrum of technologies that maximize the resources we have and, ultimately, minimize the impact of humans on the planet. Where renewable energies focus on replacing or supplementing power-generation capacity with zero-emission renewable energy, new green-focused technology seeks to reform bad habits among consumers and polluters. Its aim is to reduce energy consumption and emissions and effectively improve the systems that already exist. This is the space that brought us more efficient lightbulbs, high-efficiency appliances, hybrid cars, low-emission smoke stacks, biofuels and so on.

The new consciousness is having fascinating consequences: things that are old are becoming new again. Heralding a new age of sail, the Bremen, Germ.-based Beluga Group launched a container cargo ship in December 2007 that is partially propelled by a 160-square-metre kite developed by Hamburg-based SkySails GmbH & Co. The use of the kite reduces fuel consumption by as much as 20%.

So, now that the price of oil has tumbled, will all this investment in renewable energy and green technologies collapse again? In fact, it never really did. Although the cleantech sector may have fallen apart in North America, it continued to grow in Europe and Asia. Germany, Spain and Denmark now lead the way in wind power, both for installation and as technological rainmakers. Japan, meanwhile, placed its focus on solar power.

When Toronto-based Criterion Investments Ltd. launched its Global Clean Energy Fund last year, it went with a Switzerland-based subadvisor — Pictet Asset Management SA in Geneva — for expertise in a global market to answer local demand for clean energy investments. Although this space may seem new in North America, there are several mature large-cap companies in the renewable energy space.

Some are pure plays — companies that deal only in clean energy — such as Denmark-based Vestas Wind Systems A/S or Spain-based Gamesa Corporación Tecnológica that lead the way in wind turbine production and design. Other blue-chip companies, however, including Germany-based Siemens AG, Japan-based Sanyo Electric Co. Ltd. or U.S.-based General Electric Co., make wind turbines and solar panels as well as microwaves, television sets and television shows. Just because North America stopped paying attention to energy efficiency almost two decades ago does not mean that the rest of the world followed suit.

There are lots of other reasons to pay attention to the sector. For instance, many people are still worried about world politics and the environment. “There are three things that make renewable energy interesting,” says Ian McPherson, president of Criterion Investments. The high cost of fossil fuels is the first one that comes to mind, but the geopolitical need for energy independence and the environment are also paramount.

@page_break@Although energy independence has been a key point of discussion during the U.S. presidential election, the U.S. is not alone in its concern.

Some of the world’s most volatile regions control the Western world’s power. The West imports oil and natural gas from Venezuela, Nigeria and the Middle East while Europe relies heavily on oil and natural gas from Russia. “Major economies want to diversify,” McPherson explains. So, proper use of alternative energy sources could effectively wean Europe and the U.S. from their reliance on foreign energy, not just oil.

Natural geography has a lot to do with North America’s slow adoption of renewable energy. Unlike Europe and Japan, it is blessed with an abundance of fossil fuels and rivers, the latter of which are instrumental to hydro generation. Historically, Canada and the U.S. have been quick to rely on these resources for energy consumption and exports.

North America is also beginning to take advantage of the full spectrum of its natural resources, including solar, wind, geothermal and tidal, to name a few. The U.S. is among the leading countries for renewable energy in absolute terms, but trails when its size and population are taken into account. Given its vast natural resources, the U.S. could lead the way — with some vision.

Ron Pernick, co-founder of Clean Edge Inc. a clean-tech research and publishing firm based in Portland, Ore., posits that renewable energy could prove to be a “new industrial revolution” for the U.S. as the renewable-energy sector would create sustainable jobs.

Although the current lending climate has wrought havoc on new projects, there were enough projects in the pipeline that there may not be any slowing of installations. And while putting together financing for long-term projects is the current challenge, it is hardly an insurmountable one. There is no question of demand, just as there is little doubt that we will need electricity 10 years down the road.

Another hurdle is the electrical grid in North America, which for the most part serves localized markets. For renewable energy to really be effective, we would need a “smart” grid, like those found in Europe, that allows for sharing between various jurisdictions.

One of the shortcomings of wind, solar, and hydro is that they are intermittent. Sometimes it’s cloudy, sometimes the air is still and sometimes it’s dry. Storage is as yet inefficient, so the grid needs to run two ways so that when the sun goes down in one place, electricity from some other source somewhere else will keep the lights on — and vice versa.

Still, U.S. energy policy seems to be holding on to renewable energy despite the economic climate and the related drop in the price of oil. The US$700-billion bailout package included an eight-year extension on tax incentives given to those who install solar power and a one-year extension on a similar program for wind.

The U.S. is following the trend toward a portfolio of energy resources. What remains to be seen is whether the energy resources will conform to ambitious standards or if the standards will instead conform to the available resources. But even if the U.S. holds off, there is still the rest of the world. And as it stands, manufacturers cannot make solar cells or wind turbines fast enough to meet demand.

As such, Investment Executive will analyse the various renewable energy and green technology subsectors in this series, beginning with geothermal energy (see below), to determine the investment opportunities and prospects they present. IE