Entrepreneurs are always on the lookout for a market that's on the rise.
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When they find one, they try to leverage their skills and expertise into an enterprise that rides the upward trend all the way to profitability. Green technology, also known as alternative energy, appears to be a sector that is poised on the brink of productive expansion.
But is alternative energy a lucrative opportunity? Or is the country just headed for a "green bubble?"
At first glance, green technology appears to be a sure thing. The concept enjoys broad support from corporations, Wall Street financiers, and both political parties. In 2009, almost $5 billion in private capital was pumped into hundreds of different alternative energy ventures. And the federal stimulus package allocated a whopping $79 billion toward renewable energy initiatives.
The five main focal points for alternative energy in the U.S. are:
Solar power – photovoltaic cells which convert sunlight to energy
Wind power – windmill-like turbines that use wind to power electric generators
Geothermal power – heat from the earth's core is converted to steam to power turbines
Transportation – hybrid gas-electric engines or full battery-powered vehicles
Biofuels – replacing fossil fuels with agricultural products
With all this financial and political support for alternative energy sources, what could possibly go wrong for entrepreneurs who invest in this technology?
For starters, some experts are worried that the perceived monumental growth of the sector is actually just a "green bubble" which will eventually burst (like the dot-com bubble from the late 20th century). In fact, the green technology sector has already seen a "mini-bubble" from 2005 until 2007, when the recession struck the nation and the world. This was illustrated perfectly by solar panel producer SunPower, whose stock skyrocketed from $25 a share in 2005 to $150 in 2007 – but plunged back to $19 the following year.
Few people doubt the concept of or potential for green technology. But it requires significant time and monetary investment before this technology can be brought to market. There are many alternative energy companies who have put large sums of money into research and development but have yet to turn a profit or even create a viable green product.
Venture capitalists have so far been undeterred by a lack of results. However, if green companies continue to drain coffers without having anything to show for it, it's quite possible that their financial backers will pull out and cut their losses. And since government subsidies can dry up when political winds change, alternative energy companies cannot afford to rely on federal or state handouts either.
Even when there are practical applications for alternative energy, the implementation process presents a huge obstacle. For instance, most of the nation's electricity comes from three electricity grids – which are currently controlled by some 3,000 utility companies who have licenses to provide power to specific areas. Since these companies in essence operate as monopolies, they have little incentive to embark upon costly upgrades to their aging infrastructures - which often are not configured to handle green technology.
So if entrepreneurs are looking to get into the green technology sector, they should conduct their research and due diligence as thoroughly as they would for any other business opportunity. In the end, the green projects or companies who stand on their own merits will be the most attractive ventures for entrepreneurs to focus their attention. Whether or not a green bubble looms in the future, it will be the entities with solid financing and sound business plans which will set the pace in the alternative energy sector.