BANKING & FINANCEAlternative Energy
IS THERE SPACE FOR THE SMALLINVESTOR?
WITH OIL AND NATURAL GASPRICES AT THEIR PRESENTLEVELS THERE WOULDAPPEAR UTILE PRESSURE
OR EVEN INCENTIVE TO
INVEST BILLIONS OFDOLLARS IN ALTERNATIVESOURCES OF ENERGY. BUTTHE PRESENT STATE OFAFFAIRS IS LIKELY TO BE
SHORT-LIVED, DESPITE THEBREAKTHOUGHINRECENT YEARS OFFRACKING IN THE US AND
THE RECENT DISCOVERY OFPOTENTIALLY MASSIVE OILDEPOSITS IN THE SOUTH OFENGLAND.
Indonesia rs now a net importer of oiland thanks lo its population explosionand economic growth is unlikely everto be self-sufficient m oil again
Eventually this will be the fate of every
oil-producing country in the world
as finite supplies that took millionsof years to form from plankton are
devoured m just a few generations ofhuman existence. Even with abundantcoal supplies which will also run out
within perhaps the same timespan, if
the world does not develop alternativeand renewable supplies of energy
civilisation as we know it will notsurvive much beyond a hundred years.
So what are the alternative options
and what are the considerations anddrawbacks? Let's consider the mainones:• HYDROELECTRITY- needs anabundance of fast-flowing water.
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Typically generated by building
dams on major rivers. It rs also
possible to harness tidal flows.
Drawbacks: fluctuating supplies
and around 50% loss of energy fed
into generators. Construction ofdams can lead to environmental
degradation.
• SOLAR ENERGY - abundant supply
m warmer countries Drawbacks:
only 25% efficient and source ofenergy intermittent.
• WIND - plentiful in many parts of
the world Drawbacks: only 25%
efficient and interrn'ttent supply.
Environmental objections in termsof noise and threat to bird life.
• NUCLEAR - ample supply andshould m theory be 'clean'.
Drawbacks: the ever-present riskof accident as at Chernobyl in theUkraine or natural disaster suchas the earthquake and tsunami at
the Fukushima plant m Japan. Bothdisasters were on a devastating
scale leaving damage that wilt
impact for generations• GEOTHERMAL - tn abundant supply
in the volcanic regions of the worldand highly efficient compared tosolar and wind. Drawbacks. potential
environmental damage and cost.
• BIOFUELS - f rst introduced in 1897
by Rudolph Diesel who created thefirst diesel engine to run on peanutml. Since then a whole range of plantbased sources have successfully
been converted to fuel Drawbacks:
serious ethical issues as crops arediverted to produce energy at theexpense of food supplies.
• WASTE CONVERSION - this processserves two purposes, not only doesit produce a source of electricity but
it also removes the need for landfills
and avoids the damage caused by
mountains of waste, particularly indeveloping countries. Drawbacks:
the waste still has to be processed
and the technology rs m its infancy.
Cost rs a major issue affecting all formsof alternative energy supplies. To
supply national grids with a meaningful
level of power generally requires
investments m the billions of dollars.
So it comes down to governments andtaxpayers at the end of the day with thehelp of major corporations and global
financial institutions.

BUT IS THERE A PLACE FOR THE
SMALL INVESTOR?
If we are thinking in terms of direct
investment lo generate energy thereis the potential for individuals to installsolar panels on their roofs and somegovernments will even give small

COPYRlGHT Cl 2015 TH BRITISH CHAMBER OF co1.• "'\[RC[ IN lNDOr lESIA

tax breaks for the effort Then again
there have been cases of farmers fed
up with the price of fuel who found a
way to convert their plentiful supplyof manure into methane gas to use invehicles around the farm This has led
to amusing stories of vrsrts from tax
inspectors demanding that tax is paidon the fuel whether it comes from theoil pump or farm animals
Personal choices can also make asmall contribution to a reduction in
the use of fossil fuels. An example
would be the purchase of an electricor 'hybrid. car which can makeuse of electricity that is generated
increasingly by alternative energy
sources. Such investments should
certainly contribute to a less polluted
world and a slowdown in climatechange, but while oil remains relatively
cheap there will be little financial
incentive rn the short term.
But how can the small investor
contribute lo and benefit from the bigpicture and be involved rn companies
that actually help to fund or run themajor projects? It's actually very easy
as there are a number of mutual funds
that have latched onto the theme ofalternative energy.

THEROLEOFMUTUALFUNDS
One way small investors can invest
in and share the potential profits ofalternative and renewable energy is
via mutual funds. For several years
a number of major fund houses havebeen offering alternativeenergy
funds. One of the largest funds isBlackRock New Energy with invested
assets of over a billion US Dollars
It invests almost entirely in the US
and Europe. The fund reached apeak rn the technology boom at theturn of the millennium but ltke alltechnology funds fell spectacularly byaround 80% in 2001. It then recovered
sharply and rose to an even higher
peak in 2008 only to crash again in
the global financial cnsis when theprrce of oil fell, only to rise once again
as oil reached a new peak When theprice of oil fell unexpectedly to $50 abarrel in 2014 the fund price fell yetagain. although this time by only asmall amount, reflecting perhaps thegrowing maturity of the market
A more recent entry onto the scene rs
the Guinness Alternative Energy Fund.
Interestingly, this one invests close to40% of its assets in China and Hong
Kong, with the balance mainly in the
US and Europe Not surprisingly thishas resulted in highly volatile returns
with a loss of 42% in 2011 but a gain of
70% in 2013.
Another group of funds come under
the 'Climate Change' theme, clearly
hoping to appeal to environmentaltyconsciousorgreen
investors.
They invest more broadly in major
corporations that in turn invest inareas that contribute to a reduction inclimate change They will even include
oil and automobile companies thatare makrng serious efforts to diversify
away from fossil fuels. While they do"TO SUPPLYNATIONAL GRIDSWITH A MEANINGFULLEVEL OF POWER
GENERALLY REQUIRESINVESTMENTS IN THE
BILLIONS OF DOLLARS ...

not outperform, these funds are lessvolatile than pure alternative energy
funds and reflect more closely themovement of the broader markets.

SO SHOULD YOU CONSIDERINVESTING IN THESE FUNDS?
Clearly the alternative energy funds
are highly volatile Get in at the topof the market and you may suffer
heavy losses. Move in at the right time
however and you could double or treble
your investment in just a few years.
The funds are highly correlated withthe price of oil So when oil becomes
expensive everyone is Looking aroundin panic again at alternative sourcesof energy, which means good business

FACILITATING TRADE & INVESTMENT BETWEEN INDONESIA AND BRITAIN

and profits forcompanies
inthatindustry.
But when oilbecomes cheap.
alternativeenergies
fall
quickly out offavour.
Forlongterm

investors

there

Colin Bloodworth ~r
PT PPI Indonesia has
spenl over 20 years
10 Indonesia

If 1ouhave an~ questions on
this article or related

topics you can contact
him at 021 2598 5087
or coun bloodworthl?!
ppi-advisory comPPi

rs little doubtthat population
growth alone will
put pressure on oil supplies and theprice of oil will quickly rise again. At
that point you can almost guaranteethat attention will once more focus
on alternative energy, causing relatedcompany shares and mutual fundprices to surge. Many will consider
that going into this market right now
would be premature but history has
shown time and time again that whenthe market surges it can be sudden
and most people miss the boat. A small
allocation to the asset class might beappropriate if you can take a long term
view. Coupled with an investment in
one of the many conventional energy
funds at the same time would give you
complete coverage of the energy fieldA prudent way to invest in thisasset class is via a regular savingsor pension plan where it is notnecessary to commit to a large
lump sum al the outset but simply
build up holdings gradually over anumber of years. Profits can always
be taken later by switching to otherfunds if there is a surge in prices.
If you already have such a plan you
should be able to switch into lhefunds without charge. A total energy(old and new) allocation of 5% to 8%of a portfolio might be appropriate
but expect short term volatility as
the price to pay for the occasional
windfall or Long term gain
If there rs a long wait for profits atleast you will have the comfort ofknowing that you are investing rn afuture where the world's valuable
resources can be preserved.

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