A cloud of uncertainty

Ask any moneyed investor where start-up capital is set to flow in the coming years and there’s an excellent chance that the clean energy sector will be high up on the list.

Some of the sums bandied about are astronomical. According to a report released this week by Bloomberg New Energy Finance, there will be $36 billion in renewable energy investment between now and 2020. This is more than the entire amount spent on the National Broadband Network.

“In 2010 alone, over $4 billion was invested in renewable energy in Australia. That’s nearly half of the amount the mining industry invested in equipment, plant and machinery over the same period,” enthuses Seb Henbest, who heads Bloomberg New Energy Finance’s Sydney-based research team.

“We forecast that strong levels of investment will continue thanks to the national targets and the rapidly falling costs of clean energy. This means that by 2020, renewable energy in this country will be as big as the NBN.”

Lagging behind

On the face of it, green start-ups are due a huge windfall, aided by a compliant government. The reality on the ground, however, is a little different.

Despite a surge in the number of solar panel and, briefly, home insulation installation businesses, investors are still doing more talking, rather than actual investing, in renewable start-ups. And the situation, in the short-term at least, could be set to get worse.

“There’s been a lot of expectation, a lot of hope and a lot of hype over renewables, but the fulfilment just isn’t there,” says Tim Buckley, managing director of green investment firm Arkx.

Despite the notable lack of big business investment in green start-ups – Australia has no domestic version of Google, for instance, which recently invested more than $100 million in a new wind farm project – Buckley lays the blame squarely at the feet of government.

“There is no transparency, longevity or certainty coming from the Government,” he says. “In the last six months, there have been more than 22 regulatory changes that affect the industry. How can you invest when you’ve got the Government making those kind of backflips?”

Planet start-up

There is little question that the renewable market is in full bloom overseas.

Germany, for example, despite being located in often-gloomy northern Europe, has a solar production capacity 200 times that of Australia. Despite its abundance of natural resources, Australia is struggling to act as a friendly host to innovative green start-ups.

Buckley blames the recent cutting back of Federal Government grants and household incentives for renewable energy, such as the Green Loans program. This has led to what the Clean Energy Council calls the “stop start” growth of the renewables market in Australia.

The situation is set to become tougher in July when the Government scales back its solar credit multiplier a year ahead of schedule. The scheme offsets the cost of solar power by issuing additional certificates under the Renewable Energy Target. This week, the government said that the multiplier would be reduced to a multiple of three, down from four, from 1 July. Climate Change minister Greg Combet says that “strong demand” for solar panels prompted the move.

Meanwhile, the NSW State Government has already put its support for a similar state-based scheme on ice. Nationally, the solar industry is expected to fend entirely for itself by 2014.

Where’s the boom?

“In theory, this should be a boom time for renewable opportunities,” says Russell Marsh, policy director of the Clean Energy Council. “The Government has a 20% renewable energy target by 2020 and it’s around the single digit level now, so that should prove a great opportunities for new companies to come in.”

“But at the moment the policy framework is uncertain, as is the carbon price. The renewable market is soft and there isn’t much incentive to get into it.”

“The Government is moving from a grant-based system, where they will pay out money to new renewable businesses, to relying on the market to drive the industry. There are companies that have started up based on a policy that is changed overnight. They are left stranded with stock and staff they can’t use.”

Buckley’s Arkx, which is 30% owned by Westpac, may be located in Sydney, but it invests in no Australian start-ups at all. Buckley says that that isn’t through a lack of effort.

“We keep an eye on Australian companies but there isn’t a return for shareholders in them at the moment,” he says. “Investors are working out how to adjust their portfolios but they are confused by the misinformation put out there by the fossil fuel lobby.”

“In China, there are 100,000 people employed in solar and they already have 50% of the market.”