This month we are pleased to welcome Alex Race, a private investor with a particular interest in the Renewable Energy sector and author of offshore wind energy blog, ‘Depthcharge’ (http://www.depthchargewind.blogspot.com/). Like many investors I have avoided the Renewable Energy sector and to date I have not regretted this strategy. However, after a number of conversations with Alex, he has persuaded me that there are opportunities in this sector which warrant serious consideration. Alex will be writing a short series of articles on Renewable companies. Today he starts the ball rolling with an introduction to the sector – Ed.

The Lean towards Green – by Alex Race

Over the past five years more than forty companies in the renewable energy sector have been floated on AIM raising in excess of £1 billion in the process. The variety exhibited amongst these companies is an illustration of how diverse the sector has become, ranging from electricity generation and technology to support services and financing. Whilst there has been no shortage of renewable companies finding their way onto AIM, renewable stocks have struggled to attract investors for a variety of reasons. The sector is often overlooked, pushed to the sidelines by revenue-generating companies which are perceived to be more dependable.

Progress to Date

If attitudes towards renewable energy investments are to change, companies will need to persuade investors that there are real prospects for healthy returns. To some extent the slow progress to date has been a question of timing. As with many industries, most renewables companies have spent their formative years spending money. Whether developing technology, maturing leases or building infrastructure, renewable projects have experienced notoriously high cash-burn. Not a proposition investors relish, particularly when there is no certainty of future returns. However, at some point, this capital investment will reap rewards and for some companies the first signs of this are beginning to show. A number of AIM-listed renewable companies are now either in profit or at least approaching it, a feat which has eluded many of their peers recently.

Although many ‘green’ technology and energy companies are starting to perform strongly, the renewables sector remains as hotly debated amongst investors as it has across many communities throughout the UK. Some critics have argued that project financing could pose a serious problem, whilst others question the economics of renewable developments. Such concerns go some way to explain the poor market valuations attributed to renewable companies on AIM.

Strong Positive

One strong positive factor for the sector is that governments need renewable energy to succeed and they will do everything in their power to ensure success. So, in the same way that regulation has given a voice to the

dog-walkers of Daventry, it provides greater incentives to renewable companies. The chancellor's extension of the renewable obligation in the 2008 pre-budget report is a good example of this.

With more favourable fiscal incentives than ever before and increased pressure to achieve ambitious C02 targets by 2020, renewables have real potential to transform themselves from an un-loved and underperforming sector into a strong defensive investment in an increasingly unstable market.

I will be featuring an AIM-listed renewable energy company in each of the next three editions of Aimzine. The companies I have chosen are already well positioned to benefit from the ‘Lean towards Green’. All have an increasing revenue, a strong pipeline of projects and a lack of debt. The company I will feature next month is particularly well-placed to take advantage of the continuing need for renewables over the coming years.

 If you are interested in the Renewables sector please let us know by clicking here. We would be interested to hear your views on prospects for the sector and which companies particularly interest you.

Alex's wind energy blog can be found at  http://www.depthchargewind.blogspot.com/

in the last 5 years more than 40 companies in the renewable energy sector have been floated on AIM

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Written by Alex Race

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