Wednesday 18 October 2017

Maeve Dineen: For investors green energy is a bubble that’s ready to pop

Photo: Thinkstock
Photo: Thinkstock

GREEN energy is a lovely idea but it is impossible to escape the uneasy feeling that it is fast becoming a bubble that is about to pop.

The latest manifestation of this bubble is a new Dublin City University course announced by John Bruton last week; an MSc in sustainable energy finance.

Call me a cynic but there is something wrong when a course needs to be introduced in the National Conference Centre by a former Taoiseach and accompanied by a press release.

Mr Bruton is, of course, the IFSC czar and the financial services centre has hopes of becoming a new centre for green finance in the years ahead, just as it used to have hopes of becoming a centre for Sharia finance once upon a time.

I could not resist raising an eyebrow when I read that the course was made possible by funding from the government-funded Skillnets training agency which, according to the press release, "enables companies with grant-aid towards programme fees to enable IFSC companies to rapidly develop the exciting market opportunities for Ireland and create new, high-quality jobs for the future".

There in a nutshell is the problem: anything to do with green energy seems to involve grants from the State rather than hard headed business decisions. We seem to be a very long way from the day when green energy will make financial sense.

In the US, many Americans are getting annoyed by Barack Obama's failed $38.6bn (€31.4bn) green jobs programme, which the 'Washington Post' said has created just "3,545 new, permanent jobs" after giving out almost half the allocated amount. That means more than $5m per job. What are the figures like here?

It is not just me who is worried. In a survey of private equity firms by tax and accounting services firm Rothstein Kass last year, a quarter of fund managers named green energy as the sector most at risk of producing the next investment bubble.

Gold was second and there are interesting parallels with the precious metal. One can profitably buy the gold or invest in green energy in the hope it will increase in value while not believing that this makes any sense.

There's no doubt people are still investing in green energy -- Goldman Sachs announced in May that it plans to channel investments totalling $40bn into green energy over the next decade, but that does not mean the sector makes much sense.

Goldman said, incidentally, that green technology was one of the biggest profit opportunities since its economists got excited about emerging markets in 2001 and it is now targeting big manufacturing countries such as China and Brazil. Two bubbles rolled into one.

There's no point in overstating the case; green technology is here to stay, along with the BRICs, but how big will the sector be once governments tire of it?

In the meantime, the real question for the IFSC is whether Ireland is poised to be a player.

I don't believe a country without an adequate public transport system and with an outrageous dependence on fossil fuels will ever be the natural home for green finance. There has to be some correlation between the financial world and the real world.

There is another form of green finance that could make sense, however: agriculture. Ireland is a country with a deep and genuine knowledge of this sector and the financing that farmers and food companies need.

The folk memory is strong and there is a vast amount of experience on offer from executives in companies such as Kerry and Glanbia.

There may well be a small bubble developing in this sector as well but Ireland will always be an agricultural country where a large part of the population has a deep-seated interest in farming and obtaining finance to invest. It remains to be seen whether more than a tiny segment of the population will ever be interested in the green technology.

Irish Independent

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