The Economist has a nice overview of the problems that green tech companies have experienced over the last year.
The industry suffered particularly badly in the credit crunch. Almost by definition, renewable energy sources have low running costs but high up-front costs. And because they are regulated assets with long-term pre-defined revenue streams, they are particularly suited to debt finance, and therefore tend to have high debt-to-equity ratios (typically 80-20). “When the project finance disappears, you’ve got a problem,” says Robert Clover, director of alternative-energy equity research at HSBC. He points out that some of the banks that suffered worst during the crisis—RBS, Lehman Brothers, Washington Mutual and Fortis—were also among the biggest in clean-energy finance.
As the flow of finance to electricity generators dried up, so did the orders to equipment manufacturers. Mr Clover reckons that wind-turbine manufacturers’ order books so far this year are down by 55-60% on the same period in 2008.
But the problem was not just the shortage and cost of capital. The credit crisis also revealed a basic problem with the clean-energy business. Fossil fuels are, in terms of the energy they store, remarkably inexpensive to get out of the ground and sell. That makes dirty industrial processes irresistibly cheap—so long as they are not required to cover the costs of the pollution they cause. Companies cannot be expected to abandon them unless they get a clear signal from consumers or governments that it is in their financial interest to do so. And they are not getting such a signal.
This is a pretty classic analysis of the problems with green tech since the 70s. High up front cost. Dependent on using tax credits. Dependent on debt. And yet, if fossil fuel prices are high, they still look like a great investment.
What the economist leaves out is that fossil fuel prices rise and fall, sometimes very quickly. To borrow the language of the knock on renewable energy production, the cheapness of oil and coal is intermittent.
In order to provide energy cost stability, it makes sense to include sources that do not depend wholly on oil, natural gas, and coal prices. They are a natural hedge for an uncertain future in which the geophysical reality of declining oil production and climate change will become increasingly apparent.
(Thanks to Geoff Manaugh.)
“Fossil fuels are, in terms of the energy they store, remarkably inexpensive to get out of the ground and sell.”
Energy density matters. Because energy density scales directly to capital cost. Solar and wind have wretched energy density. Fossil fuels have excellent energy density. Nuclear fuel has staggering energy density (a million times more than fossil). Nuclear fuel has both energy density and no CO2 emissions. So which one should we pick?
@Kirk: This is not liquidflouridethoriumreactorhistory.com.
LFTRs (as well as other forms of nuclear energy) are a lot more “green” than wind and solar, if by “green” you mean, will help the environment by actually cutting CO2 emissions because they actually get built because they’re actually cost-advantageous.
I’m still wondering why solar and wind have been anointed “green” anyway? They’re not stopping coal and won’t be stopping coal anytime soon.
Mankind used solar and wind for millennia. Due to their diffuse and intermittent nature they required vast capital expenditures versus the energy derived. Mankind moved to a more dense source of energy (fossil fuel) at the first opportunity.
We’re waiting for water to flow uphill if we expect mankind to go backwards from less-capital-intensive to more-capital-intensive in the form of wind and solar. All that will happen is that activities that require reliable and dense forms of energy will migrate from our country to those places where those energy sources are available.
You don’t want to listen to arguments about the technological development of wind and solar. That’s fine, but I’m just saying that this blog is dominated by my interests, not yours. I like debating with your folks and all, but I’m not going to go refight a battle that I don’t even believe in (wind/solar/geothermal vs nuclear) on every post.
I see many energy sources working together in the future — and I see that diversified system as advantageous on many levels. So, I’m just not interested in the debate that you’re trying to have with me here. There are plenty of other people who are, though, and I’m sure you can find them elsewhere.
Besides, there are plenty of more interesting discussions that we could have, anyway. How should the grid be built out and modernized? What’s the role of architecture in energy systems? What type of electric transport makes the most sense? Etc.
My goodness Alexis–you would be shocked to learn what I do all day.
Wanna guess?
I work with solar panels. I lay them out. I calculate their energy-generating potential. I investigate the most cutting-edge, high-efficiency, triple-junction, forget-how-much-it-costs stuff out there. I figure out how to point them and control them and calculate how to store every joule of energy those little stinkers put out.
Then I come home at night and blog about thorium and work on my nuclear engineering degree.
You’re clearly an energy guy through-and-through. Well, good, we can work together here. I’m a big fan of re-opening nuclear R&D to investigate the alternatives that were foreclosed for reasons unrelated to their technological potential in our current context. I’ve been meaning to write an article about why LFTR hasn’t gotten more attention at the universities.
I’m just grateful that big brainy people like you are trying to solve this problem, as I am saddened by the prospect of a world slowly being poisoned on so many levels. Thanks for your passion and your great work. Hopefully it will stimulate those who are blinded by ‘cheapness’ and bring them to their senses.