plenty of hot air but little to show

From the Age:

"Plenty of hot air but little to show
PADDY MANNING
July 11, 2009 .
SUSTAINABLE INVESTING

Green investors can be easy prey for opportunists hoping to turn a quick profit, rather than make a lasting difference.

Matthew Kidman, portfolio manager at Wilson Asset Management, which invests heavily in smaller companies, says the clean energy industry has "done itself no favours".

"It has attracted a bunch of entrepreneurs. People are attracted to the story, that everything's going to go green, but not for the right reasons."

Not that there's anything wrong with entrepreneurialism. There is a desperate need for capital to bring Australia's best environmental technology to the market, which means people prepared to risk their money to back a big idea.

The natural cynicism of Australians is part of the problem. "We have no faith in the future," says Kidman. "We can't see the outcome. It's the same reason the biotech market is hard."

In the lead-up to the credit crisis - with oil prices rising - a mini-bubble formed around environmental stocks. The bubble well and truly burst last year, despite the long-run promise of green technology, and investors were often disappointed.

Kidman says most of the action is at the high-risk end of the market, while the blue-chips with clout sit on the sidelines. There's no pure environmental play in the Top 100, for instance.

A bubble in smaller "green chip" stocks could easily form again as governments adopt tougher emission reduction targets and start to throw real money at clean energy technologies.

Sustainable investors are patient and will suffer a short-term loss if there is a genuine prospect of long-term gain. They aim to make a slow buck, and do it by picking a company that has an impact.

The record of the company principals is as good a place as any to start when evaluating green technology stocks.

Walter Pahor ran listed Energy Developments for years while it battled to get its infamous SWERF (solid waste energy recovery facility) running in Wollongong. The shares went over $14 in expectation of a breakthrough, when the dotcom boom was driving investment in any tech stock, before they collapsed in 2001, the technology was dumped, Pahor exited and the company went back to focusing on dependable landfill gasification (it is now subject to takeover offer from private equity firm Archer Capital, at $2.80 a share).

Since 2004 Pahor has run Viridis Clean Energy, backed by the Investec merchant bank, which has wind and landfill gas interests in Germany, Britain and US. It floated at $1 but is now at about 27c.

There are many other examples of green stocks with mixed fortunes: GRD, Renewable Energy, Natural Fuels, even Orbital Energy. It's a long list.

Or take Bertus de Graaf, managing director of listed Panax Geothermal, which has just raised more than $9 million at 13c a share.

This week Panax boosted its claims to Australia's second measured geothermal energy source, from hot sedimentary aquifers in the Cooper Basin. Geothermal is thought to have vast potential to deliver low-emission power by tapping into underground heat sources.

De Graaf is no newcomer: he is a veteran of the Queensland mining industry and founder of Geodynamics, our biggest geothermal company, which floated in 2002 and laid claim to Australia's first measured geothermal energy resource.

Geodynamics won early backing from Woodside and Origin Energy (both have sold their shareholdings down in recent years) and won federal grants totalling $13.5 million in 2002 and 2007, to trial its hot fractured rock technology, which generates electricity by sending water down deep wells drilled into the granite, boiling it and using the steam to spin a turbine.

Geodynamics' first well, Habanero-1, apparently was promising. Habanero-2 had to be abandoned in 2006 at a reported cost of $10 million, after the drill got stuck. Habanero-3 exploded in April, with water and steam erupting, and it was not stabilised - by plugging it with mud and concrete - for four weeks.

The company is reviewing its plans with an outcome to be announced in August.

That is about when Geodynamics is due to find out about potential grant funding under the federal Renewable Energy Demonstration Program. It has applied for about $90 million needed for a one MegaWatt pilot plant.

Geodynamics may come good, and any new technology suffers setbacks. This week de Graaf said he was reluctant to talk about Geodynamics, why he left or why Panax was pursuing a different type of technology.

"I wish (Geodynamics) well," he said. "We achieved a fair bit in a very short time, using Australian can-do. I worked very hard on that. I raised about $95 million. I'm not saying I've swapped one technology for the other. HSA was not really recognised here when I started Geodynamics and even if it was, there wouldn't have been the technology to support it."

De Graaf did OK out of Geodynamics. Over four years between the public float at 50c in 2002 and 2006, he drew total salary of $1.7 million, including a termination payout of about $430,000, and was issued 550,000 options of which at least 200,000 were exercised at 50c - potentially lucrative, depending on what the Geodynamics share price was doing. It peaked at more than $2. De Graaf had just over 1 million shares after the float. By September 2007 he had sold just under half at an undisclosed price.

But seven precious years later, the planet is yet to benefit at all, investors are entitled to feel disappointed, and more readily available clean technologies like solar thermal are starving for capital."