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Innovative wind farms, solar power panels, fuel cells and even seemingly viable wave power generation systems – the market is filling up with a new generation of green and eco-friendly ventures that are firing the public's imagination and promising investors profits. Elliott Davis reports

For more than forty years environmentalists have lobbied governments and corporations alike to change their ways. But, while the social arguments for recycling, reducing carbon dioxide emissions and investing in renewable energy have long resonated within the public's consciousness, tangible progress has been slow.

At long last, however, the economic case for 'going green' has become compelling. Oil prices continue to rise, global carbon dioxide emissions are reckoned to have breached 400,000-year highs and, according to former environment minister Michael Meacher, by 2015 oil production may fail to match the global thirst for power.

So concerned is the Government that it has pledged to meet 20 per cent of the UK's total energy demands from renewable sources by 2020. Regardless of your views on the environmental debate, this opens up a plethora of opportunities for green companies.

Blustering onto AIM

Unsurprisingly, many young businesses are looking to exploit the anticipated boom in the renewable energy market. For proof you simply need examine the tidal wave in recent weeks of environmental aspirants either washing onto the market or announcing their intentions to float.

Specialities are diverse. Los Angeles-based Solar Integrated Technology, for instance, produces photovoltaic (solar) roofing panels that are designed to bolster existing power supplies. It claims to have forward orders of more than £40 million and is already modestly profitable (see page 4).

Fellow AIM newcomer Star Energy, meanwhile – which raised a staggering £70 million on arrival – may currently make all of its cash from distinctly environmentally unfriendly oil and gas interests. Yet it is also committed to installing 14 wind turbines in the East Midlands – at a cost of £12 million – by the middle of 2005, with a view to selling the power produced back into the energy market.

Although the likes of the fully listed (and substantially valued) AMEC, International Power and Shell have also set their sights on this market, it is widely believed that the potential for wind energy in the UK could eventually come to represent the largest renewable energy source in Europe. Star therefore, in addition to Solar, looks a decent speculative bet.

Fuel cells arrive at last

If backing an oil and gas company is not your idea of an environmental investment, your attention may instead be drawn to the two new fuel cell businesses lining up AIM floats.

As fuel cells generate electricity by burning hydrogen with oxygen – producing nothing but water vapour as a by-product – they have long been touted as the most viable alternative to the fossil fuel-consuming internal combustion engines of today.

Eager to take advantage of the technology's increasing profile, which owes much to a Europe-wide trial of fuel cell buses, Durlacher-advised ITM Power is looking to raise £10 million ahead of a mid-June launch.

ITM's products will initially be used to power everyday products such as laptops and mobile phones.

Evolution Beeson Gregory-advised Intelligent Energy, meanwhile, has grander expectations for its products and is looking to prise £40-£60 million from investors to launch its cells into the transport market.

Both companies are worth keeping an eye on, post flotation.

AEA's reinvention

Of those already established, science and engineering support services business AEA Technology looks an intriguing proposition.

The fully listed company recently cheered investors with news that – while still in the process of divesting its nuclear power operations – results for the year to March seem set to match market expectations. Based on the predictions of house broker Cazenove, a £10.3 million profit appears to be on the cards, marking a significant improvement on the £5.4 million loss of 2003.

Much of the credit for this turnaround has been directed toward the company's environmental consulting offerings, so with spending in this area set to increase AEA appears increasingly well positioned.

Net debts of £36 million will worry some, but a prospective p/e of 13.5 times anticipated earnings for 2004/05 implies good value.

Awash with potential

AIM, meanwhile, boasts a flotilla of environmental technology businesses, of which Ocean Power Technologies represents a particularly interesting punt.

The world's first commercial wave power generation firm, New Jersey-based Ocean Power arrived on AIM in October 2003. It remains some way away from profitability (having lost $3.6 million in the first half alone). That said, its 'Powerbuoy' wave power generation system has already attracted considerable attention enabling Ocean Power to secure deals with Spanish renewable energy business Iberdrola and US defence giant Lockheed Martin.

A £20 million cash pile notwithstanding, investors need bear in mind that Ocean Power's £44 million market valuation is somewhat steep.

Clean Diesel Technology represents an altogether different green proposition. With its main technologies having recently entered commercialisation, first quarter results from the emissions reduction specialist showed the anticipated surge in sales. Yet, while revenues doubled to $176,000 and losses fell from $907,000 to $808,000 during the three months to March, attentions were drawn to president James Valentine's insinuation that further orders may soon be announced.

CDT's 'Platinum Plus Purifier System', which reduces the harmful particulate emissions of diesel engines by up to 50 per cent by adding a small amount of platinum-based catalyst to the fuel, received Environmental Protection Agency (EPA) approval in October. By December, drinks giant Coca-Cola had signed up with a view to retrofitting delivery trucks in three US states with the system, a deal that represented CDT's first commercial order. Valentine most recently reported that the company expected 'negotiations on several other orders to be completed in the next few weeks'.

In the meantime CDT continues to develop. EPA verification of a second system, reckoned to reduce diesel particulate emissions by up to 75 per cent, is said to be close, while development partner Mitsui/PUREarth is currently investigating possible applications in South East Asia.

Mercury rising?

Valued at just £5 million and having produced a small profit of £71,000 (before goodwill) this year, Mercury Recycling could well represent the best opportunity on AIM at present, particularly if figures for the year to 31 December match the expectations of house broker Rowan Dartington.

Mercury specialises in the recycling of fluorescent tubes and lamps, which despite being highly toxic – just one tube has the potential to render 30,000 litres of water undrinkable – have traditionally been disposed of on landfill sites. Now, however, European-wide legislation is forcing users to seek more responsible forms of disposal.

For 2004 analyst Neil Crook of Rowan Dartington forecasts profits of £440,000, revenues of £1.7 million and earnings of 1.32p per share. These estimates place the shares on a prospective p/e of just 9.8 times earnings.