26/04/2012 - 11:06

Tough task to pick ‘clean-energy’ winners

26/04/2012 - 11:06

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Alternative and renewable energy companies have been a good way to lose money for the past 20 years.

Alternative and renewable energy companies have been a good way to lose money for the past 20 years.

Not since the 1980s, when Brian Burke was premier of Western Australia, has any government in Australia put at risk as much of taxpayers’ dollars in business adventures as the Gillard Government is about to do with its attempt to pick ‘clean-energy’ winners.

With a starting allocation of $2 billion and a plan to spend up to $10 billion, the Clean Energy Finance Corporation, will be a star player in the government’s push to promote renewable energy.

But, even before it starts dishing out cash to alternative energy schemes and low-emissions carbon concepts, the critics are gathering. And the head of the CEFC acknowledges that picking winners will be the devil of a job.

Jillian Broadbent, a member of the Reserve Bank board and chairman of the CEFC, said last week the investment task was challenging because an over-arching objective was to apply a “commercial filter” to all investments.

Without wishing to rain on Ms Broadbent’s parade, she will find that very few alternative energy schemes pass comfortably through a commercial filter. And if they did then conventional investors, such as you and me, would be investing in them.

We’re not and for good reason. Alternative and renewable energy companies have been a good way to lose money for the past 20 years.

It’s early days for the CEFC but if history is a guide it will quickly abandon its attempt to apply a commercial filter on the proposals it will be asked to consider, even if the filter is far less stringent than that conventionally applied.

The problem will be that few, if any, of the proposals put to the CEFC will pass through any form of commercial filter.

To emphasise that point it’s worth revisiting a portfolio of alternative energy stocks that I started following more than two years ago.

In January 2010, the objective was to compare ‘green’ and ‘black’ energy companies to see how a basket of renewable energy companies were performing against a basket of coal miners. 

No prize to the reader who knows the score in that game. Coal 1. Renewables 0.

What is surprising is to look at the renewables portfolio today and discover just how poor most have been as investments over the past 27 months. 

The results look like this:

Infigen Energy shares were $1.43 on January 8, 2010, and are now around 24.5c. Energy Developments was $2.70, now $2.40. Ceramic Fuel Cells was 23.5c, now 9.8c Geodynamics was 90c, now 16c.Quantum Energy was 17.5c, now 1.9c. Dyesol was 96c, now 17c.

Any investor who allocated part of his or her portfolio to that selection of stocks would now be looking at a substantial loss, with the primary reason being that only one of the six companies, Energy Developments, had what could be called a commercial approach to alternative energy – and even it has a lower share price than 2010.

Picking winners is never an easy task in any field, even for private investors allocating their money with great caution, because they understand what it feels like to suffer personal loss.

Government employees, which is what the staff at the CEFC are, have no “skin in the game” and, while they might be talented professionals, they will almost certainly prove no match for the smooth operators who will be knocking on their door with all forms of alternative energy schemes.

Brian Burke discovered just how convincing Australian entrepreneurs could be when he was lured into a series of disastrous deals created by the late Laurie Connell, Alan Bond and the late Robert Holmes a Court.

Those three men used Mr Burke to gain access to the WA treasury as a last-ditch attempt to save a series of failing companies, including Rothwells, Bond Corporation and Bell Group.

It might be history now that Mr Burke’s belief in his ability to pick business winners cost taxpayers $100 million.

Ms Broadbent will know that history and she will know that a government committee is no match for a slick investment banker, or a dodgy entrepreneur.

That’s why she has issued a clear warning even before the CEFC makes its first investment that she wants all investments to have a commercial objective – a wish that is highly unlikely to be fulfilled.

Shale gas twists

The increasingly complex world of shale gas took two fresh twists last week, neither of them particularly pleasant.

In Argentina, the lure of easy money from a giant shale gas discovery saw the nationalisation of YPF, a Spanish-controlled oil and gas company.

In Russia, a chill wind from shale gas discoveries and tumbling gas prices blew across that country’s absolutely critical oil and gas industry.

Argentina first, because its compulsory acquisition of the local arm of Spain’s Repsol group can be seen as reminder of historic dirty deals in the oil sector and as a pointer to more acts of government bastardry in the future.

The problem for Repsol is that it has been too successful in discovering shale gas in Argentina and the ultra-nationalist government of that country could not resist the temptation to steal the asset.

Given that Argentina has a long history of shooting itself in the foot, there might not be too much surprise that it’s done it again, but the YPF raid ought to be a wake-up call that some governments just cannot resist temptation, especially when oil or gas are involved.

In Russia, it is a different problem and one which has reached the highest levels of government with a warning last week from president-elect, Vladimir Putin, that shale gas had the potential to seriously reshape the global energy market.

That could be bad news for a country almost totally dependent on high-priced gas exports.

Next suggestion?

Fresh from the loopy suggestion that shopping centres start charging customers to park their cars, came an even better way to destroy the retail sector. 

It’s a proposal that shops being used as free showrooms for online shoppers charge a “refundable admission fee” that is returned when a purchase is made.

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“The penalty of success is to be bored by people who used to snub you.” Nancy Astor.


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