Bubble, Bubble

Source:

". . .meet the latest investment bubble: green energy."

One of the most endearing aspects of financial bubbles is that, however strong the warnings, most people plunge in regardless.

We saw this two years ago when the number of listed companies with at least one uranium project shot through the 200 mark in no time, as floats were launched as fast as prospectuses could be printed and existing companies suddenly found that there, among the gold or base metals targets, was—miraculously—a sniff of uranium.

Now meet the latest investment bubble: green energy.

In the U.S., Money Week magazine has just devoted pages to warning of the danger of too much, too soon in the green energy sector, and even Renewable Energy Magazine this month is talking about a "solar bubble" investment surge. The New York Times recently reported a warning from Wall Street firm Lux Research that money was flowing too quickly into alternative energy companies. In 2008, U.S. investors ponied up $1.5 billion for such investments—a 141% increase on 2005.

This is not to say that green energy is anything but a go. Wind, biofuels, geothermal and solar are all going to play a huge part in the future of the world's energy supply. It's just that every venture is not a guaranteed success.

Nor—it is important to add—should this be construed as a judgment on any individual Australian company. The people at Lux and elsewhere make it clear that the demand for green energy will be enormous; their point is that investors are not being sufficiently discerning and are chasing entrepreneurs rather than the other way around. We saw this in the 2007 uranium frenzy: investors bought whatever was on offer. They simply did not have the knowledge to judge what companies had uranium projects with real potential and which were, in the Canadian parlance, just moose pasture.

Expect the green/renewable energy story to go through the same stages as the uranium one did: initial over-excitement, and then the big sort-out of winners and losers.

Both sectors also have something else in common: whether its uranium or electricity generated from renewable sources, there will be a growing market for what they produce.

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