A Stern response to the bubble question

One year ago, the UK Treasury published the Stern Review on the Economics of Climate Change to intense media interest. Unlike previous surveys or popular accounts of climate change, Stern put a financial cost on both action and inaction in cutting emissions of greenhouse gases and moving to a low-carbon economy.

The work was of obvious relevance to the clean energy industry, which can't always convince potential customers that its products and services make economic sense, and generally hailed as good news. Specialist financial information provider New Energy Finance welcomed the Review as "good news for investors in the renewable energy and low carbon technologies sectors", highlighting Stern's calls for a stronger price signal for carbon emissions, greater international cooperation, and increased funding for low carbon R&D, "all of which will boost clean technology companies". Stock tippers on personal investment websites also saw the Review as positive news, posting 'Buy' recommendations on selected clean energy stocks.

At the time, there were concerns about a speculative investment bubble in the sector, manifest in both venture capital activity and in the valuations of publicly listed companies. Such concerns continue to date. While some bubble-like behaviour is hardly unexpected in an emerging and potentially revolutionary sector, a bubble and burst would be likely to cause medium-term financial problems that could seriously damage the prospects of clean energy companies.

From an economics point of view, it's virtually impossible to say whether a market is actually in a bubble situation until some time after it's burst - not a very useful situation for current investors. Previous bubbles have however demonstrated the role played by the media in feeding 'irrational exuberance' and inflating bubbles, with stock prices moving in an irrational fashion in response to high-strength but low-weight news events.

The release of Stern Review can be considered as such an event. The Review did not contain any new information about the nature of the climate change problem or related policy or technological issues. Despite the NEF's comments, it also contained nothing that could meaningfully affect the prospects of individual companies or the clean energy sector as a whole.

So could the stock price response of listed clean energy companies to the Stern Review and its accompanying media hype shed any light on the much-debated clean energy bubble?

That's the question I addressed in some recent research (completed as my dissertation for a Master's degree in Economics & Finance), using event study methodology to test the reaction of a portfolio of AIM-listed clean energy companies.

The findings were largely negative, which is fairly encouraging. A small minority of clean energy firms (notably those dealing in carbon trading) did show abnormal returns around the release of the Stern Review, but there was no significant portfolio-wide response that would indicate irrational exuberance among investors. There is no indication of a runaway bubble of the kind seen in the dotcom era, a period to which the current cleantech boom is sometimes compared.

Although the research methodology can't claim to be conclusive (and is relatively untested in its application to a non-company-specific event such as this), its conclusions are encouraging for the sector. Investor interest in clean energy, and the broader cleantech sector, appears to be rational and reasonable. That can only be good for its longer-term prospects.

The dissertation, 'Evidence for a speculative bubble in the clean energy sector: an event study', is available as a 1.2Mb PDF here.

For the latest news on clean energy and cleantech VC, see my Clean Ventures blog.

Balls for Tinsley

Yesterday's 150th anniversary of the world's first football club links inevitably to another Sheffield obsession - how to replace those much-loved Tinsley towers.
This thing pictured here (image copyright unknown) is, according to the Star, the proposal from local MP Richard Caborn. Got to say, think I preferred the winning design from the actual RIBA competition.

Football, another Sheffield invention

I'm not much of one for football, but the 150th anniversary of Sheffield FC can't be ignored. The world's first football club, Sheffield basically set the rules for the FA and created the modern globalised game. That the beautiful game was made in Sheffield is probably the one footballing fact that both Blades and Owls have ever agreed on.

And personally, I'm very glad to settle one question I've always wondered about - if they were the first team, who did they play against?
Members organised themselves into teams for matches such as Married Men versus Unmarried Men, and Professional Occupations versus The Rest, apparently.

The anniversary celebrations also mean that the club's current fixtures list reads a little differently:
Grantham Town
Spalding United
Stocksbridge Park Steels
Inter Milan FC
Carlton Town

New reviews

Just added three new pieces to the Reviews section of the main site:
The Artist and the Mathematician by Amir Aczel;
New Theories of Everything by John Barrow; and
Super Crunchers by Ian Ayres.
All three are pop science of various flavours (as the titles suggest, variously covering maths, statistics and, well, pretty much everything) which I've reviewed for the Fortean Times in recent months, all of which are interesting if flawed. I've also just submitted another review, of David Toomey's The New Time Travellers which is highly recommended for anyone with a passing interest in real-life adventures in time and space.

Flickr of danger

Having joined the digital age with the new Canon, I've also signed up with the Flickr photo-sharing site thingummy. There's a permanent link over the right there. I've just put up a few pics from a weekend visit to the Museum of Science and Industry in Manchester, including the above. Quite a nice response from the camera in pretty low-light conditions.

In other news, here's my brother at one extreme of the automotive safety and efficiency debate.

Halifax's knockout Nobel

Congratulations to Oliver Smithies, joint winner of this year's Nobel Prize in medicine. Along with Mario Capecchi and Martin Evans, Smithies wins the prize for helping develop the 'knockout' technique for using embryonic stem cells in genetic modification - a technique that remains rather controversial in some areas.

Science and controversy aside, the (entirely parochial) interest here is that Smithies was born here in Halifax, and educated at the former Heath Grammar School just down the hill from me. That makes him, as far as I can tell, Halifax's first Nobel Laureate. Not the first for Calderdale though - Todmorden has John Cockcroft (Physics, 1951) and Geoffrey Wilkinson (Chemistry, 1973) to its credit. Not too bad for a small Pennine borough that doesn't even have a university.

Bubble, bubble

Further speculation and comment on possible bubbles in a couple of tech areas -
The Guardian worries about another dotcom bubble with VCs searching for the next Facebook or Myspace. There's particularly tutting over the apparent focus on very young entrepreneurs:
With millions of pounds once again being poured into companies run by young entrepreneurs, some experts are warning that too much emphasis on youth could help reinflate the dotcom bubble.
"People like Mark Zuckerberg [of Facebook] show that there is great talent out there ... but there's a world of difference between a teenager and a young entrepreneur," said Sayula Kirby of Index Ventures, which has backed a large number of European internet startups. "I wouldn't say we are in a bubble yet, but we are getting closer to the point where the froth begins."

Meanwhile, in the specialist media, Rob Day of the Cleantech Investing blog meanwhile revisits the continuing concern about a cleantech bubble, this time focusing on solar:
As for the verdict, solar VC bubble or not, it’s too tough to say. That’s a different answer than I would have given just a few months ago, when a “no” would have been the simple answer, but the crowded marketplace and rising valuations and deal sizes is worrisome. Also worrisome is seeing VCs get out of their tech-focused comfort zones to invest in unfamiliar business models. And when you hear stories about unworried investors and entrepreneurs who haven’t done their homework, that’s got to raise some eyebrows.
Are there a lot of reasons to be very optimistic about solar markets and the prospects for solar investments long-term these days? Absolutely. But could we be due for a bit of a break in the hyper-activity? Quite possibly, but maybe not quite yet.

As noted below, last week I handed in the final draft of my dissertation on evidence for a bubble in the AIM-listed clean energy sector. The event study methodology I used didn't provide any significant evidence of speculative bubble-like behaviour, but some of the data is certainly suggestive. I should be submitting the finalised paper later this week, subject to my supervisor's comments, and will put up a PDF of it here.

D day

As a reward to myself for finishing the Master's (or, at least, handing in the final draft of the dissertation, of which more soon), I bought a new camera. One of the recently launched Canon EOS 40D digital SLRs, to be exact - pretty much the digital equivalent of the EOS 30 film camera I've been using for the past few years. So on Friday, a glorious Autumn day, we took a trip up to Harewood House, where I put the camera through its paces. 200-odd shots later, I felt I was getting the hang of it.

While the basic controls are much the same as the trusty 30, there seems a hell of a lot more wee buttons on the back to play with (or, more often, to try not to press by accident). The 1.6x increase in effective focal length (because of the sensor being smaller than a frame of 35mm film) takes some getting used to, with my standard 50mm lens now a minor telephoto - great for portraits, but less useful for other subjects. The 19-35mm wide angle, on the other hand, now covers that mid-range, but loses the far wide angle that I like. Still, that's no surprise - while I'd have liked one of Canon's full-frame models, I couldn't really justify the extra cost. Physically, it's a lovely body - heavier and more solid that the film equivalent, and much more comfortable in my big hands than the cheaper 400D. My one complaint is the absence of eye control autofocus, one of my favourite features on the 30 - the different AF grid is easy enough to adapt to, but I do miss the eye control.

Anyway, here's a few of the first results (substantially reduced in size from the output images, of course).

M62 diversion

Liverpudlian vicar John Davies is a man on an epic journey across an everyday landscape - he's walking the M62. A couple of years ago, I got in touch with John after he blogged about my Halifax Slasher article in Strange Attractor Journal.

This Saturday, John stopped off in Halifax and I gave him the tour of the town, taking in the sights - the Wainhouse tower, the gibbet, Dean Clough, the bridges, etc - as well as the sites of some of the most notable Slasher attacks (or, rather, 'attacks' - read the article, or this brief introduction). John's written about it here. And now I'm writing about it here.

The virtual world of blogging might often be a self-obsessed and insular one, but it can help you meet new friends and even, just occasionally, get you out into the fresh air.