Saturday, March 13, 2010

CASE STUDIES: Alternative Energy Investment - Japan's Emerging Role

By Ken Raymond

What's Japan's role in alternative energy investment? Japan is among several countries that are addressing energy needs by making advances in water treatment, electricity storage and in solar power. Currently, SPI Holdings, Inc., has $3 billion in private equity investments meant to access growth in Asian companies with a venture capital fund, and will be among the new alternative energy funds expected to appear.

Specifically, global investors are expected to come up with 30 billion yen, or $330 million, from sovereign wealth funds like Masdar Clean Tech Fund of Abu Dhabi and Temasek Holdings Pte. Expected internal rate of return on investment is expected to be 25 to 30%.

Clean technologies are increasingly in the public eye because President Barack Obama and Japan's Prime Minister Yukio Hatoyama are focusing on projects that will deliver electricity to consumers from wind power and solar plants, both renewable energy sources, without disruption to the current system; the current system largely depends on fossil fuel sources like coal for its electricity generation needs.

This has boded well for the Dow Jones Sustainability World Index, which has gone up about 30% in the last year, more than benchmark equities indices' gain in both Japan and the United States (it should also be noted, however, that some investors are taking losses, resulting in what seems to be at least a temporary financial crisis. In 2009, for example, clean energy investment fell 6.5% versus 2008).

This interest in renewable energy technology is not new, but its actual inception, including sustainable, renewable, clean or "green" energy sources, is indeed new and has been exciting to watch, for many. Japan's own focus on developing renewable sources like wind power has made it a perfect partner to the US in developing these technologies. managing director of the Institute of Energy Economics Japan, Kensuke Kanekiyo, has said that, "Japan is also getting this trend off the ground and money follows." Specifically, alternative energy funds like the one being developed by SBI prevent new opportunities for investors.

A year ago, SBI joined with a unit of Mubadala Development Co., a sovereign fund of Abu Dhabi, meant to speed the development of alternative energy so that a reduced dependence on oil as possible. Now, SBI's plan for the 30 billion yen fund is waiting for investors' commitment, with two companies so far involved.
Takashi Nakagawa, director of Tokyo-based SBI, says that the plan is to look at water management, light emitting diodes, solar and batteries. Clean technology is paramount and one of the "three pillars" of SBI's investment policy, including the other two "pillars," bio-science and information technology.

One of the companies SBI has chosen for the alternative energy pilot fund has found a way to produce silicon solar cells that are shaped like spheres, do not require as much material as standard solar cells, and yet have more power output. Another of the companies SBI has chosen for the pilot fund has developed a lithium rechargeable battery that is both safer and lighter than current models.

One of the major developments in Japan's use of renewable energy is that its solar panel sales achieved record levels in 2009 as the government used incentive programs so that citizens would switch to renewable power, which meant an increase in local demand and helped to offset the negative aspects of a decline in exports. Sales in solar panels increased 21%.

Indeed, perhaps the current high price of fossil fuels like oil is not an entirely negative thing, given that it spurs the growth of these technologies. Of this, the Institute's Kanekiyo says, "There are plenty of untapped technologies that can be developed when oil is priced at the current level."

What might this mean for the development of alternative energies in the US, besides the development of alternative energy funds?

Although it is not quite known what the far-reaching benefits of this will be yet, in October of 2009, President Obama unveiled a plan to invest $3.4 billion in government grants so that a smart grid could be developed and installed; this "smart grid" would make electricity delivery more reliable and would also help deliver power from "green energy" sources like solar panels and wind turbines. In November of 2009, the US Department of Energy also announced $620 million in funding for these smart grid projects.

The development of smart grid technologies and renewable "green" energy technologies, such as is being done in Japan and the US, bode well, of course, for our economies, in that oil prices are skyrocketing and making this type of energy much more expensive to acquire; additionally, development of these types of "green energies" will also garner independence, in that our countries will not be able to generate our own energy from these renewable technologies. Exciting for any investor who wants to sink his or her money into alternative energy funds that support not only financial success, but national independence from fossil fuel imports and environmental benefits, too.

For more information on the potentials and pitfalls of alternative energy funds, visit us at

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