Denaris - Administration

Not all new energy areas are profitable
yet. What can investors expect?
Should they be ready to bear
considerable risks and adopt a
long investment horizon?
It is correct that many companies
in the sector have not yet reached
profitability. But on the basis of our
analysis focusing on companies with
very clear commercial potential and
consistent business plans, and considering
the developments at a
macro-level, we are confident that
such investments will pay-off in the
long term. This said, these investments
have to be considered as risky
and investors have to cope with relatively
high volatility. A long investment
horizon is necessary and the
new energy sector is therefore not
suitable for all classes of investors.
Why invest in new energies when
the «old» ones like oil, for instance,
are again very attractive
for investors?
A direct comparison does not do
justice to the nature of these two distinct
sectors. The classic energy sector
and the new energy sector have
fairly different value drivers. The new
energy sector can count on two main
drivers: The first is the fact that the
costs for energy stemming from finite
resources are steadily increasing. At
the same time, the costs for renewable
energies are declining while the
demand is increasing. Another issue
– which ultimately is favourable for
the new energy sector – is that of security
in energy supplies. The world
is a very nervous place when it
comes to securing the energy supplies
of nations. The United States,
for instance, import almost 60% of
their energy, much of it from politically
instable regions like the Middle
East. In this context, new energy
sources are getting increasingly attractive,
not because they are less
polluting, but because they allow a
PHOTO: PIERRE FREIMÜLLER, APPUNTO
risk diversification for energy supplies.
What effect do unexpected events
in the energy market – e.g. the energy
crisis in the US or changes in
government policies – have on
the new energy sector?
Blackouts like the one in California
in 2001 highlight the fragility of
the US energy sector and suggest that
substantial investments in the power
grid and in modern energy technology
are necessary and upcoming. Disruption
of energy supply is very costly
and governments as well as industry
are becoming more and more
aware of this fact. Government policies
are certainly unpredictable by
nature, but the latest developments
are very promising. There is a comprehensive
energy bill addressing
many of the issues of the US domestic
energy sector. The bill has been
held up by interest groups but when
it eventually passes, it will surely
The MLIIF New Energy Fund invests
worldwide in equity securities
whose predominant activity is
in the alternative energy and energy
technology sectors. It was
launched in June 2001 and has
raised over 121 million Dollars (as
per 31 March 2005). MLIM, with offices
in Zurich and Geneva, is the
investment management division
of Merrill Lynch.
boost developments in new energies.
Moreover, in January 2002, President
Bush has announced 1,7 billion US
Dollars in funding over five years to
develop hydrogen powered fuel
cells, and on our side of the Atlantic
the EU has pledged 2,12 billion Dollars
over the next three years for similar
projects. All in all, these developments
suggest that new energies and
investments in new energies have a
bright future.
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Renewable energies
have a long tradition.
To go back to
these roots shows not
only ecological but
also economic advantages.
(Picture:
windmill on Funen,
Denmark)
New Energy