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Last Updated: Friday, 22 September 2006, 17:42 GMT 18:42 UK
Branson's grand power strategy
By Michael Dempsey
Business reporter, BBC News

Sir Richard Branson
Sir Richard Branson's Virgin Fuels is a shrewd move in an emerging area
Sir Richard Branson's widely-publicised decision to invest $3bn (1.6bn) in renewable energy technologies is much more than green philanthropy.

According to some experts, the Virgin boss also is making a canny attempt to get in on the ground floor of a fast growing and innovative global industry.

Should he get it right, then the newly set up Virgin Fuels group could be an investment vehicle that would give Sir Richard's global business empire a prominent role in energy long after the 56-year-old millionaire had retired.

And it might also see him fulfil his mission to turn Virgin Fuels into a power giant in the same class as Shell or Exxon Mobil.

Renewables boom

Virgin Fuels' ambitions stretch across the entire power-generation sector.

The company talks of investing in more ventures like Californian firm Cilion, which plans to make bio-ethanol fuel from corn. Wave power and wind farms are on the agenda, so is nuclear power.

While oil and gas dominate that is a short-term perspective
Professor Tom James, energy analyst

Virgin Group director Will Whitehorn said that Virgin Fuels has been carefully positioned to bridge the gap between environmental rhetoric and commercial reality.

"I'm a believer in the science, not the polemics, of climate change," Mr Whitehorn explained, adding that his grandfather was an inventor and engineer.

Professor Tom James, an energy markets analyst at business advisors Deloitte, says the opportunities for Virgin Fuels are almost limitless.

"Virgin is putting itself in the right timeframe and getting in early because while oil and gas still dominate the energy sector that is a short-term perspective," Professor James said.

'Mom and Pop'

Virgin is not the only business to spot an investment opportunity.

"Venture capital companies that focus on renewable energy are popping up all over the place," says Deloitte's Professor James.

Sir Richard wants to make money in a field where returns are being made
Marko Maschek, 3i

Global venture capital group 3i is very active in the renewable energy area and estimates that 180 venture capital deals worth $2bn were signed across the US, Europe and Israel in the first half of this year.

3i partner Marko Maschek said that the renewables sector, or cleantech, as it is known, is a magnet for investors.

"Sir Richard wants to make money in a field where returns are being made right now," Mr Maschek said.

Virgin's Mr Whitehorn knows that there are bargains to be had by buying into small companies with good ideas, and describes many US biofuel outfits as "very much Mom and Pop businesses".

And while Mr Whitehorn talks cryptically about a car he has been testing that runs on Virgin's own secret biofuel, the real secret to success in the renewable energy industry will be a long-term commitment and financing.

Do the maths

The money seems to be there, and the funding for Virgin Fuels will come from the profits of travel companies that Sir Richard controls himself.

Investment plans for companies like the Australian airline venture, Virgin Blue, will not be diminished by the green initiative, and future proceeds from share sales and asset sell-offs will also go to fund the energy business.

Critics point out that there are serious technical drawbacks to be overcome before an airliner full of paying passengers flies from London to New York on a tank full of biofuel.

But it would be foolish to under-estimate Sir Richard's interest in changing this situation.

After the fuel bill for his Virgin Atlantic airline grew by 300m over two years he spoke of wanting to build a new oil refinery to reduce world prices.

At that time, in late 2005, the fuel bill for both Virgin Atlantic and Virgin Express airlines was running 750m a year, Sir Richard said.

It seems there is a compelling commercial logic behind Sir Richard's drive for new fuels.

Profile: Richard Branson
21 Sep 06 |  Business
Branson on wealth
26 Apr 06 |  Magazine
Branson backs African students
08 Nov 05 |  Education

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