A new window of opportunity is opening up for energy investors in the next few years.
Weknow energy demand will increase in the future; we know our currentfossil-fuel-heavy energy policy is destroying the environment; we alsoknow that by doing nothing, America’s economy will limp through thetwenty-first century, mired in wars to secure dimishing fossil fuelresources.
Increasingenergy demand in the future can be remedied by increasing generationfrom renewable energy sources, but before America can double itsrenewable energy capacity, investors will have to recognize and seizethe opportunity of a changing energy landscape.
Currentlywe generate around 7% of our energy from renewables; about the sameproportion that is developed from nuclear. In order to bring thisfigure up to 10% by 2012, investors will have to dig deep in theirpockets and come up with the capital necessary to construct and operatea plethora of renewable energy facilities. Renewable energy projectstypically have high start-up costs associated with them (but lowlong-term operating costs) and, therefore, require immense amounts ofcapital to get off the ground. Fossil fuels have the opposite problem,low start-up costs and high operating costs. If renewables want tojoin the party, the money will have to be shown upfront initially.
Investorswill open up their wallets to some of the risks associated withrenewable energy, but not before regulations are solidified and energypolicy is finalized. These things should take place this summer, andby the end of the year we should start seeing less risk and higherdemand for renewable energy project developers, and a new paradigm forfinancing renewable energy projects can begin.
Afterthe Obama administration nails down the specifics regarding energypolicy and regulations, investors will undoubtedly flock to an industrythat has extraordinary growth potential for the entire first half ofthe twenty-first century. Emission regulations are imminent; manycompanies are currently streamlining their manufacturing processes onpaper, and after a certain point those plans will translate intoproject capital and construction of facilities. Once more renewablereal assets are on the books, the whole energy game changes.
Thefinancing, procurement, construction, and operation of a multitude ofrenewable energy projects of all makes and sizes is a long-termendeavor. We are currently in the financing stage, but will quicklymove through the procurement phase later this year and begin a massiverenewable energy constrution phase beginning in 2010.
Granted,credit conditions are tight now with capital going into only the mostconservative of projects, but we are talking about a national buildoutof renewable energy supported by government policy and increasingrenewable energy generation from 49 to 114 GW. This would only bringrenewable energy’s penetration to 10% (from 7%) of the total energymarket because our national energy generation figures will also grow tokeep pace with population figures.
Capitalfor oil exploration and new coal-fired power plants is not easy to comeby either these days. While experts and analysts are in agreementabout the increases in energy demand over the next four decades, theyhave not reached a consensus about how to generate the additionalneeded energy. Many of the models show a lionshare of the new energycoming from additional coal facilities, but an energy policy that takesinto account the costs of pollution and environmental degradation willundoubtedly shift captial from fossil fuels to renewable energy.
Thisinitial buildout phase through 2012 will give us all an idea of how thebusiness of generating energy through renewable and sustainable methodsis going to work. Once the reality of the next three years is behindus, we will then have an established model that can be replicated totake America from 10% renewable energy penetration to 25%, and then onto 50%. Start conservative and build from there.
America’seconomy can grow for the next 50 years, guaranteed. Collectively, thegovernments of the world have begun to shift their thinking regardingenergy generation. Renewable energy generation is part of the naturalevolution of humanity, and America is, so far, choosing to embrace thechange in an initial small growth spurt. What happens between now andthe end of 2010 will determine to what extent renewable energypenetrates global energy markets.
Europetried to be the catalyst that sparked the creation of an internationalrenewable energy market by backboning the Kyoto Protocol, but it isreally America and China that will set the energy paradigm goingforward. America did not participate much in the development or thenegotiation of energy principles at Kyoto, and without several of theworld’s largest economies in agreement, getting a renewable energymarket up and running globally would be analogous to filling your car’sgas tank up with honey…you might save money, but only because the caris broken.
TheAmerican government has decided to participate in energy negotiationsthis time around at Copenhagen. The conversation on energy in Congressthis year is part of the process of preparing internally for aninternational treaty; a national carbon market will allow America todraft an energy agreement later this year with a majority of theworld’s citizens. The government can only jumpstart the process,though, investors will have to take the torch and carry it forward.
For more info:
How much renewable energy do we use; EIA, Energy in brief