Biofuels power 'clean energy' boom

The spending boom is being fueled by a confluence of factors, including broader recognition of global warming, an influx in venture capital, and growing interest in energy among corporations and politicians.

Clean Edge said that in the overall market for fossil fuel alternatives, biofuels represent the largest portion, at $20.5 billion in 2006 spending. Wind and solar power saw $17.9 billion and $15.6 billion in spending, respectively, while $1.4 billion in funding went into fuel cell technology last year.

Those four energy technologies grew in aggregate by 39 percent in 2006, year over year, to $55.4 billion. Clean Edge forecasts that the rapid growth rate will continue for the next decade, making clean technology a $226 billion market globally.

Led by the projected use of ethanol for transportation, biofuels are projected to grow to more than $80 billion in 2016. Solar power will grow more rapidly than wind, as solar manufacturers scale up their operations, Clean Edge said. The solar market, representing both products and services, will expand to nearly $70 billion, and wind will be a $60 billion market in 2016, the research group forecast.

Amid the boom, Clean Edge detailed a number of factors that potentially could slow adoption of these different energy technologies.

The rising costs of manufacturing solar photovoltaic systems and building biofuel refineries could slow anticipated price drops relative to other fuel sources, said Ron Pernick, one of the report's authors.

Due to the high cost of materials, the cost to install a megawatt of wind and solar power has gone up since 2004, and profit margins for ethanol in the U.S. "all but collapsed" in 2006.

Also, it's unclear whether the high investment rates from venture capitalists will continue, said Rodrigo Prudencio, a partner at venture firm Nth Power, which participated in the report.

Venture capital in energy technology more than doubled last year to $2.4 billion, which is 9.4 percent of all venture dollars invested in the United States. By comparison, energy represented only 0.8 percent of total venture investments in 1999.

Prudencio noted that investments in biofuels, in particular, is something of a departure for venture capitalists because much of the equity is spent on the construction of physical plants rather than on intellectual property. He added, though, that these "low tech" biofuel investments have relatively few risks.

In a conference call on Tuesday, analyst Joel Makower singled out five trends that will shape clean energy during the coming years.

Those he noted were anticipated government regulations designed to put a price on carbon emissions; biorefineries that improve the overall energy output by using animal wastes or plant byproducts during production; improved battery technology for vehicles; retail giant Wal-Mart's energy efficiency and renewable-energy programs; and utilities such as Duke Energy and Pacific Gas and Electric starting to embrace initiatives like carbon limits.