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Thursday, March 27, 2008

Clean Energy - Best Investment for the 21st Century

March 26, 2008

The Future Ain't What Is Used to Be

Anyone still not convinced about the economic strength and viability of clean energy need look no further than the latest numbers in our annual Clean Energy Trends 2008 report.

Against the backdrop of a contracting economy, record-high oil prices, rising home foreclosures, and consumer uncertainty, clean-energy markets grew by 40 percent from $55 billion in 2006 to $77.3 billion in 2007. We project that these same technologies will reach $254.5 billion by 2017.

For the past decade, solar and wind have been averaging growth rates in excess of 30 percent per annum. That's a compounded annual growth rate that most industries would be envious of.

Clean-energy naysayers complain that the cost for clean energy is still too high, but they just aren't looking at the numbers. The cost for solar and wind have both dropped by an order of magnitude over the past 30 years, bringing the cost of both sources within striking distance of, and sometimes even cheaper than, conventional energy sources.

In fact, the average upfront capital cost for a new 1-gigawatt (GW) nuclear plant — often lauded as one of the cheapest sources of energy — is between $2 billion and $6 billion. Compare that to the cost of 1 GW of geothermal and wind power at less than $2 billion and 1 GW of solar at between $5 billion and $10 billion. Not to mention the fact that it can take years to bring a new nuclear power plant online (the U.S. hasn't had a new nuke plant in more than two decades).

Admittedly, these aren't apple-to-apple comparisons. Whereas coal, nuclear, natural gas, and geothermal plants are able to provide baseload power, solar and wind are intermittent resources. In order to compete head-to-head with conventional sources, solar and wind have to be paired with baseload power sources or require the implementation of energy storage/smart-grid capabilities.

But clearly, the pendulum is shifting in favor of a range of renewables.

Europe provides a great example of this transition. Since the beginning of the decade the EU has added 47,000 megawatts (MW) of new wind energy compared to just 9,600 MW of coal and only 1,200 MW of nuclear, according to Platts Power Vision and the European Wind Energy Association. Perhaps even more telling, 2007 saw net capacity additions of 8,505 MW of wind, whereas both coal and nuclear saw net capacity reductions of 750 MW and 1,023 MW, respectively.

This trend toward renewables isn't just happening in carbon-constrained, Kyoto-signatory Europe.

In the United States more than 50 new coal plants are on hold because of concerns about greenhouse gas emissions and some Wall Street luminaries have put the kibosh on investments in coal power in anticipation of federal carbon emissions caps under the next presidential administration. Nearly 800 cities in the U.S. have pledged to meet Kyoto protocol targets and more than two dozen states now have renewable portfolio standards calling for significant portions (often up to 20-30 percent) of their electricity supplies to come from renewables within the next decade or two.

Investors are taking aim at this opportunity. New global investments in energy technologies — including venture capital, project finance, public markets, and research and development — have expanded by 60 percent from $92.6 billion in 2006 to $148.4 billion in 2007, according to research firm New Energy Finance.

High-tech giant Google has no doubts about both the opportunity and the necessity of renewables. The company is hiring dozens of engineers to push the clean-energy envelope like it has within the world of online search and information. Google's goal: Nothing less than bringing the cost of renewable energy to less than the cost of coal power. And according to the company, it hopes to achieve this goal not within decades, but years. Google has the cash to back high-risk, high-return, clean-energy investments - and the company has zeroed in on solar-thermal, advanced wind, and geothermal projects as some of the sectors to bet on.

The clean-energy opportunity hasn't escaped the attention of legendary oil and gas investor and prospector T. Boone Pickens either. He recently announced plans to build the world's largest wind farm at 4,000 MW with an estimated development price tag of around $10 billion. "I have the same feelings about wind," Pickens told the New York Times, "as I had about the best oil field I ever found."

Critics of clean energy like to point out that without subsidies and regulation, clean-energy sources would never be getting a foothold in the market. But that misses the critical point that all energy industries are subsidy and regulatory dependent. Coal, oil, natural gas, nuclear power and other sources have been supported with the direct and indirect financial support of governments that want to encourage them. Clean-energy sources shouldn't be expected to operate without similar regulatory support and incentives.

Indeed, governments that support the growth of clean-energy industries are already reaping the benefits with tens of thousands of jobs, reduced carbon footprints, and the creation of a competitive 21st Century industry.

As American baseball icon Yogi Berra put it, "The future ain't what it used to be."

That certainly seems to be the case when forecasting the energy industry. Instead of the once conventional wisdom of cheap coal, inexhaustible supplies of oil, and unlimited nuclear power, we now have cities choking on power plant emissions, $100 barrel crude, and nuclear proliferation and radioactive nightmares. The future doesn't belong to the incumbents, but to a range of emerging efficiency and renewable energy technologies that are reshaping the global economic and environmental landscape.

Over the next two decades, this transition will offer untold opportunities to the companies, individuals, and governments that exploit it.

Ron Pernick is co-founder and principal of clean-tech research and publishing firm Clean Edge, Inc. and co-author of The Clean Tech Revolution (Collins, June 2007). Clean Edge's annual Clean Energy Trends 2008 report is available for free download at