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Middle East:Alternative energy, the best bet for future investments

https://www.chemnet.com   Mar 14,2011 commodityonline
Over the last few years there has been increasing concern about the rapidly depleting natural, non-renewable energy resources of coal, oil and natural gas. Human nature always seeks opportunity in adversity, and for the savvy there is the chance to capitalise.

Governments and private companies have been investigating the renewable energy technology needed to harness these resources and the application of naturally replenished resources. These technologies include solar, wind, rain, geothermal, fuel cells, biomass, biogass and microturbuines.

There are several reasons why one might consider investing in renewable energy: to help fight global warming, to prepare for peak oil, to improve energy security and local economies, or to cash in on these trends.

If you buy shares in a alternative energy company you can benefit forthese non-mutually exclusive goals. In fact, with one investment you can help the planet, feel good about your contribution and benefit from the spectacular growth story which is likely to lead to big profits in the future.

Just another bubble?

Just like the dot-com bubble there has been intense speculation, numerous no-profit start-ups and of course the established players diversifying to get their slice of the cake. Yet the internet has continued to grow and transform since the bubble burst.

And as we now wade into web 2.0 more cautiously, we must concede that the reasons behind developing renewable energy are a lot more compelling than those behind the internet.

The invaluable lessons learned from the last boom should guide your investments into the future. Unlike the internet, renewable energy companies are capital intensive and operate in a heavily regulated sector which is likely to impede rapid expansion.

Where and how to invest

Given the infancy of this complex industry it is hard to know where exactly to focus investing. There are many start-ups which may offer good value for money and many established companies turning their attention to this new sector.

Firstly, identify new companies involved in renewable energy. Focus on developing countries because these economies will be the driving force in alternative energy development. Classify these companies according to subsectors and the strength of business and opportunities for growth in the near future.

Secondly, identify established companies that are moving or have already started investing in alternative energy markets. Generally speaking this type of investment is less risky because established businesses have strong foundations and market capitalisation to offset losses.

Thirdly, identify companies that are part of the International Carbon Action Partnership or local Climate Action Partnerships. Besides developing alternative energy technologies these companies are heavily involved in lobbying governments for global reduction in carbon dioxide, methane, nitrous oxide, sulphur hexafluoride and other emissions.

Fourthly, watch for the formation of alternative energy focused mutual funds. Currently there is not too much to choose from and for the existing funds the relatively high expense and price ratios are a deterrent.

For now, it makes sense that investors would be better off selecting individual stocks on merit and building their own portfolio. In addition, investors could negate the effect of speculative fluctuations by focusing on established companies who have already moved into the renewable energy arena.

Some experts believe there is considerable room for active management due to the complexity of these alternative energy technologies and the obvious lack of coverage by industry analysts.

Success of actively managed energy portfolios is likely to be based on understanding the underlying technologies and being practical rather than emotional when it comes to selecting investment opportunities
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