Investing in clean energy companies should be approached like any other investing activity: invest in companies that can make money; don’t chase fads.

The famed venture capital investor Vinod Khosla quipped “cleantech is maintech”.  He meant that investing in clean energy companies is like investing in any other technology company, meaning that one should evaluate the cleantech company on the same basis as any other company.  That means that the company has to have a sustainable business model in which the company demonstrates profitability.  Many investors chased wind energy and solar energy investments only to have them fall back to earth when oil prices fell by over 50%.  

The other idea for investing in clean energy is known as the “Chindia test”.  This means will the product sell in China and India?  If not, then the product may be too expensive, and until it is a viable product in these growing emerging markets, the company will have a limited market of the United States and Europe.  Alternative energy is most helpful for emerging markets if it is cost competitive with fossil fuels.  Most new energy projects are not competitive with fossil fuels.  Even solar relies heavily on subsidies for its viability.  However, some wind turbine producers and certain solar glass makers are profitable because of demand in the U.S. and Europe.  Perhaps the costs of those components will come down sufficiently to make the products salable Chindia.

Keeping these two rules in mind when evaluating new energy and environmental businesses will make ones portfolio a portfolio for the future.