Why renewable energy investment will continue despite oil price drops…
Gordon Brown’s trip to the Middle East was a clear example that non oil exporting states are still very much affected by OPEC’s decisions. While OPEC nations continue to brazenly collude consumers have passed the tipping point and have made concerted efforts to cut OPEC’s impact out of the equation. Consumers have seen the impact on their economy and environment. Politicians have now realized that we will vote for them if they highlight their green credentials, and we know that by supporting locally sourced energy we are developing local employment and business opportunities.
The reality is that it will be hard to finance projects that are purely based on predictions for increasing prices. What green investments need are the foresight of people and entities that believe that their technology will yield considerable margins even under low oil prices – in the future if not immediately. These investors are out there; BP (formerly British Petroleum and now “Beyond Petroleum”) and Chevron have already shown a push towards becoming broader energy companies by investing in solar, geothermal and biofuel concerns. Companies like Monsanto beginning to play in the BioFuels game. Cynics might tout that this is good for marketing, and it is – but these companies understand investment in research and development. They have an appetite for risk, exploration is not cheap, and investing in exploration of different technologies as opposed to new oil wells has a similar cash flow profile.
As these investments begin to start paying dividends, these companies will naturally commit more and more resources to ensure their existence after oil; and they will have the benefit of an infrastructure of experience and networks as a result of their early investment. Players like these are going to need to make ‘bets’ by financing projects heavily with equity to lead investments during tight debt cycles – but financing for risky capital intensive projects is what these players know. Pressures are beginning to wane from a cost point-of-view, and people are increasingly concerned with the economy over energy. With the promotion of concepts like those highlighted by Van Jones, these two concerns become increasingly aligned.
From a project perspective, there are opportunities that are currently competitive and being driven by forward looking micro and macro economic factors that are increasingly proximate. Big winners are going to be those whose development times are fast enough. A friend of mine, who is confident in the future of renewables, working with a stealth 3rd generation biomass to liquid (BTL) fuels sets it out like so:
“It comes down to carefully adapt and match the opportunities to the projects and stay away from the approach of thinking that one solution fits all and everywhere. People always expect to have the one-size-fits all answer to the general energy question and think that there are economics that are universally promising and if they are not then they are not viable. Energy can only be solved in a much more global approach where solutions might considerably vary only miles apart but the big picture and overall economics contribute holistically.”
Renewables are going to become commonplace, but we need to be realistic and not measure achievements with the same lens that we judged the success or demise of technologies. The US market in particular (though the EU market as well) is horribly overburdened by ridiculously raised expectations being touted by enamored venture investors and adopted by optimistic legislators which as my “masked friend” puts it are: “not only untrue but more importantly bluntly false.”
Pundits can argue about when we will run out of environmentally and economically exploitable oil, but the fact is oil is a finite resource. The environmental costs have only begun to show themselves, and the cost curve for oil exploration moves obediently to increased exploration complexity. We will adapt, whether we do it now with foresight, or in the future as a response, we will develop renewable energy technologies.
It would be much less burdensome on our economy (and even stimulating) if we could begin to develop projects now that could feasibly be of a scale large enough to address the requirements of just the growth in energy demand or transportation fuel demand; we can then more realistically attempt to tackle the problem of displacing any fossil fuel shortages. Our masked pal distilled his point brilliantly by asking “What do you think is faster? Oil prices back at $150/bbl or technology maturation curves?”
Even if consumers and legislators cannot see the economic benefits of investment, renewables are here to stay – even if the environment continues to suffer from a lethargic up-take. The future of renewables will be safe in the hands of investors and companies that have long investment horizons and want to ensure their existence long after oil reserves have been squandered.
I’m sure that there are pessimists… let me hear you roar.
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