Green energy: high hopes, low profits

As valuations soar ahead of returns, there's a whiff of dotcom fever in the renewable energy sector and the flood of green fund launches this summer has as good as confirmed this. "There is clearly a bubble forming in the eco-energy market," Matteo Novelli of Star Innovation at CFD Capital Management tells Reuters, "and there could be a hefty correction at some point". F&C's Global Climate Opportunities Fund and the Schroder Global Climate Change Fund both launch this month at a time when the Power Shares Global Clean Energy ETF is trading on a frothy p/e of 40. "I have serious concerns about what I have seen," says Justin Urquhart Stewart of Seven Asset Management in the Financial Times. "Anything that is green and called ethical is this year's fashion fad, but there is a chance of it being next year's tank top."

Many of the companies that clean energy funds have invested in are, in reality, appalling businesses. Take Volatalia, a renewable energy specialist listed on the over-the-counter market in Paris since 2006. It has a market cap of e67.5m, but generated revenues last year of just e17,000 that's revenues, not profits. Clean energy utility EDF Energies Nouvelles, meanwhile, is on a p/e of 90 times. High hopes, and not a lot to show for them just like the dotcom boom. Yet still the money pours in. According to New York-based Lux Research, venture capital investment in clean energy rose from $623m in 2005 to $1.5bn last year; the amount raised in IPOs rose to $4.1bn in 2006 from $1.6bn in 2005. "When you see venture capital more than double and IPO values double from one year to the next, that's the sign of a bubble in the making," said the company's president, Matthew Nordan, in the International Herald Tribune.

Nobody doubts that clean energy is here to stay. After all, the internet has gone from strength to strength, despite the dotcom crash in 2000. "If you look back at the dotcom bubble you could now see it as a correction. The internet is here to stay," says Dan Bakal, director at Boston-based consultancy Ceres, in The Times. But most of the dotcom businesses did not and more importantly, the technology funds that invested in them are only just starting to recover. Look at it like that and now might not be the time to go too green with your cash.

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