March 21, 2006

Alternative Energy Attracting More Investors

By Lisa Haarlander

CHICAGO -- A perfect storm of high energy prices, government subsidies and renewed interest from Wall Street is boosting investment in wind, solar and other alternative energy projects, said fund managers and other experts on Monday at a conference on renewable energy.

"This is the best time to think about energy technology whether you're a large equity fund, trying to get money for a company you're running or to make returns in the stock market," said Philip Deutch, managing partner of NGP Energy Technology Partners, a $150 million private equity investment fund.

Well known investors such as Goldman Sachs Group Inc., the Carlyle Group and Berkshire Hathaway Inc. have all made recent investments in wind and solar power, Deutch told about 75 people attending the conference in Chicago sponsored by Platts, an energy industry publication.

And Microsoft Corp. Chairman Bill Gates and venture capitalist Vinod Khosla are investing in ethanol.

Recent public offerings by SunPower Corp., a California-based maker of solar panels, and Q-Cells, a German maker of solar cells, have also caught the attention of investors.

But alternative energy is not without risk, primarily due to rapid changes in technology and volatile commodity prices, Deutch said.

He pointed to the fall in share prices of fuel-cell maker Plug Power Inc. and Capstone Turbine Corp., a producer of low-emission microturbines.

"Both these stocks have traded down almost to the single digits," he said. "Energy technology is not new and it is often overpromised. One has to enter this area with some humbleness and think about how quickly change occurs."

Despite the risks, the sector is gaining popularity with venture capitalists, said James Greenberger, partner at Chicago law firm Sachnoff & Weaver, which caters to venture and private equity firms.

Total venture capital between 2002 and 2005 has remained fairly stagnant at between $18 billion and $22 billion. However, the percentage invested in energy technology has risen from 2.7 percent in 2002 to 4.2 percent in 2005, he said.

"Clearly, something is going on," Greenberger said.

In the U.S. Midwest, ethanol and wind farms have received the most attention from investors.

Last year, U.S. ethanol production reached a record 3.9 billion gallons, according to the U.S. Energy Information Administration. There are 97 ethanol plants operating and another 33 under construction and nine being expanded, according to the Renewable Fuels Association.

In 2005, U.S. wind generating capacity jumping 35 percent as companies invested $3 billion to bring an additional 2,400 megawatts online.

This year, capacity is expected to grow by another 3,000 megawatts, said the American Wind Energy Association, a trade group in Washington.