YEARS ago, it was seen by many as the preserve of the hippy, the environmental activist prepared to practise what they preach rather than merely talk the talk. Now, driven by the surging price of oil and the sudden desire to halt global warming, “renewable” and “energy” are buzzwords in enterprise. In the words of Jonathan Johns, of the accountancy firm Ernst and Young: “The green sandals are now wearing business suits.”

The British environmental technology industry is already the world’s fifth-largest, with more than 7,000 companies. Yet forecasters at the Department of Trade and Industry believe that Britain’s renewable energy market, at present worth £280 million, will grow to more than £19 billion by 2020.

The Government has set a target of generating 15 per cent of electricity from carbonless and low-carbon sources — wind, wave, tidal, hydro, solar, and biomass (organic material) — by 2015, and 20 per cent by 2020. Now it is just 3 per cent.

Not surprisingly, perhaps, given such potential growth, Mr Johns, of Ernst & Young’s Renewable Energy Waste Group, said that the sector, once considered risky and unconventional, is attracting much more interest from investors. “Activity in the sector is increasing,” he said. “Investors are driven in part by the high price of oil, the vast unmet demand for electricity in China and India, and government incentives.”

The sector has benefited already from the DTI’s £31 million investment to fund solar installations and a further £12.5 million for small-scale renewables. Now subsidies called Renewable Obligation Certificates introduced to support the drive towards renewable energy, are being awarded to electricity suppliers that provide “clean” energy.

When oil prices spiked in the 1970s, renewable energy businesses were encouraged to enter the mainstream market, but with disastrous results. Companies formed, but then proved unsustainable and the market did not understand how to make use of them once prices had stabilised.

Today the landscape is different. Years of experimentation in various renewable energy fields, including solar and wind power, have advanced innovation and increased industry and investor knowledge.

Nick Walker, managing director of corporate finance at Libertas Capital, the financial services firm, said that although the sector has existed for decades, it is only the recent convergence of market forces that has caused many “to raise their heads above the parapet”.

He said that the recent surge in the number of renewable- energy companies listing on AIM, the junior stock market, highlighted the sector’s increasing popularity: “At present, there are 19 renewable-energy companies floating on AIM — keeping in mind that almost all companies in this sector are small.

“No companies in this sector existed on the stock markets before November 2003. Since then, an average of one per month has floated. Five have listed in the last two months. The price of oil has piqued interest and dozens more are expected from the UK and abroad soon.”

Ian Simm, chief executive of Impax Group, an environmental investment firm, said: “Over the last two years, and in particular the last six months, we have seen a steady increase in the number of entrepreneurs trying to raise money, and a lot more demand for capital. We are also seeing a lot more interest from large companies wanting to buy smaller energy companies in this sector.”

Richard Brook, commercial director of the New and Renewable Energy Centre in Blyth, Northumberland, strikes a note of caution. He does not expect an immediate throng of renewable-energy start-ups. “Despite the ‘free’ energy from wind or wave and tidal sources,” he said, “the capital cost per megawatt of renewable energy generators is higher than conventional fossil-based generators, where the research and development costs were amortised long ago.

“Renewable energy start-ups tend to be very capital intensive, with new energy generation products having a longer development period, normally three to five years.

“After coming up with the concept and creating a one- fiftieth scale prototype in a university environment, it then takes about one year until a one-tenth scale prototype is made. It will then take two years to develop the full-scale prototype, and finally another year for a commercially viable product. A typical project would require £3 million to £5 million spread out over two to four years.”

Traditionally, companies could not raise investment funding until they were commercially viable, usually four or five years into their development. However, Mr Brook said that if fuel prices continue to rise, the cost of renewable energy generation will become more competitive.

Entrepreneurs or start-ups interested in pursuing the environmental industry should contact the Carbon Trust, a government-funded company that helps businesses to achieve the commercial potential of clean technologies.

www.thecarbontrust.co.uk

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