Energy Technology is NOT a Bubble

Earlier this month, I asked the question, “is energy technology the new bubble?”, citing dramatic increases in clean energy VC investment between 1999 and 2006. For details, check out my May 9 post: “Is Energy Technology the New Bubble?”

Recent gushing interest in energy (particularly renewable energy) is NOT a bubble. In the wake of the dot.com bust, inevitable energy investments were merely accelerated by a dearth of any other favorable short-term investments.

My claim that alternative energy investment is not a bubble arises from the myriad money making opportunities available using green technologies to improve our existing energy infrastructure. The underpinning driver of the renewable industry is solid financial return, which will keep this sector growing. Juxtapose the solvent energy boom against the speculative dot.com bust, and the non-bubble nature of energy investments becomes plain.

Compact fluorescent lamps (CFLs) constitute one simple example. Both John Dodge and I have devoted significant blog bandwidth to coverage of CFLs, and with good reason. Switching out incandescent lamps for CFLs is an easy step we can all take to reduce energy consumption. However, what’s more important to the consumer than energy savings is that CFLs save money. You don’t need to be a rocket scientist to realize that if CLFs outlast incandescent bulbs and provide identical illumination using fewer electrons then CFLs will eventually pay for themselves via offset electrical costs. Heck, John Dodge cut his residential electric bill in half with a simple CFL retrofit!

So long as people and companies get the same level of service (i.e., illumination in the case of CFLs), they will naturally gravitate toward the most economical solution. Gross inefficiencies inherent in our modern energy distribution network make ripe pickings for companies that can improve their clients’ bottom lines. By hacking away at conventional energy infrastructure, there is money to be made. Thus, renewable energy represents a real, bust-free boom, while the dot.com frenzy was merely a speculative bubble.

This sentiment was summed up beautifully by John McGowan, president of Energy Control, Inc., who speaks from 30 years experience in the energy technology industry. In his April 2007 Energy & Power Management column, “Smart Energy Technology Is Green Technology”, McGowan says: “it has been stated many times that the greatest untapped source of energy on this planet is efficiency, and the way to tap it is in great part through technology.”

While the current pace of renewable energy boom may not last forever, it is certainly no bubble. The end may someday arrive when every inefficiency has been driven from our energy systems and there remain no further economic benefits to retrofit. Nonetheless, this condition represents a moving target because technology will continuously improve. Certainly there will be some deviations along the way. From time-to-time, investors may see higher rates of return in short-term speculative plays (like dot.coms), but when those investment bubbles pop (as they did in 2001), money will always flow back into energy technologies, as is now the case.