Novice investors need not apply

A line in the sand for green startups: $50 dollar a barrel oil


Andrew Leonard
October 18, 2006 7:15PM (UTC)

My last post yesterday, "Greenspan and the Speculators," wondered whether the volatility in energy prices caused by speculation could harm the prospects of green technology startups counting on expensive oil to make their business plans work. This morning, I received an encouraging note from Scott Christiansen, the executive director of Maine's Fractionation Development Center, a forest biorefinery startup that I wrote about in March.

A few months ago you did a short piece on my Maine-based organization. Since that time, we have progressed significantly and are in discussions for siting of biomass conversion plants, with power and fuels as the primary initial products.

With regard to the reaction of the finance markets to fluctuations in oil prices, you are right that there is definitely a link. However, professional investors are fairly savvy and few that we deal with were convinced that oil would remain above $70 a barrel in the short term. At the same time, all of the investors we deal with are convinced that renewable energy is a smart play because of the array of forces that militate against oil being cheap in the long-term. Smart investors have their own expectations for the future; my organization has built a model that expects oil prices to undulate between $50 and $100 over the next five years.

While there may be a decline in relative interest in renewable energy plays as oil sinks closer to $50 (and a palpable reduction in the number of viable deals), it is below $50 that opportunities fall off a cliff. For now, we don't expect prices to sink that low and we continue working with an array of people who have the same expectation. Time will tell if we are right.

The bottom line is that the only real impact we are seeing from declining oil prices thus far is a slight tightening of deal parameters and a dramatic drop-off in inquiries from novice investors.


Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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