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GARP, White papers

The Energy Transition: Risks and Opportunities | GARP

GARP-Energy-Risk-White-Paper-2021

  • This white paper surveys changes sweeping the global energy industry as net-zero carbon policy and alternative technologies begin to displace fossil fuels.
  • Researched and wrote 5,000-word report, drawing on primary research, press coverage and subject matter interviews; researched and designed data visualizations.
  • Target audience: Finance, traders and risk professionals in the finance, oil/gas, utility and renewables sectors.
  • On behalf of the Global Assn of Risk Professionals.  Published February 2021. 
  • Download the full report here or at garp.org.

Global CCS Institute

Lessons form California’s daunting carbon challenge | Global CCS Institute

Among US states, California is leading the race to explore and implement ways to lower its greenhouse gas output. Its goal: to cut emissions to one-fifth of 1990 levels by mid century. As such, other states and nations are closely watching the Golden State’s practices for inspiration and technical guidance.

What then, if a deep, hard look at California’s ambitious plans to lower its greenhouse gas emissions revealed that – even by pursuing an all-out, no-holds-barred mix of today’s technologies and aggressive efficiency measures – the state was only likely to get about halfway towards its goal?

That, roughly, is the conclusion that Jane C. S. Long comes to in a commentary published in the journal Nature last October. Titled Piecemeal cuts won’t add up to radical reductions, her note maps out, with remarkable clarity, the mountainous challenge ahead for California to achieve its climate goal. The bracing conclusion: California can’t just spend or deploy its way to an 80 per cent reduction or beyond – and neither can anywhere else.

Jane’s expertise stems from her role as co-leader of a team of energy analysts who wrote California’s Energy Future: The View to 2050 published in May 2011. By day, she’s principal associate director at Lawrence Livermore National Laboratory, a global leader in research on energy technologies and policy.

One of the important implications that surfaces in Jane’s broader analysis is the central role of carbon capture and sequestration (CCS). This is somewhat surprising given that California’s grid is all but coal-free.

California is different from most states, she observes, with 40 per cent of total energy used for transportation, versus 25 per cent nationally. Thus CCS must come into play less so for grid power than to help generate low-carbon vehicle fuels and other applications where neither electricity nor biofuels can substitute for existing fossil fuels.

The model Jane and her team developed strives to avoid what she calls ‘sleights of hand’ where it can be difficult to fully account for the secondary or tertiary impacts induced by switching to new energy forms. For example, rather than simply count solar panels as clean generation, Jane’s model more fully enumerates the impact of electric power generation at night and other times when solar panels are off line.

The analysis reveals that to achieve a 60 per cent reduction – well short of the 80 per cent goal California and many nations are looking to – would require all manner of tough-to-imagine steps:

[The state would have to] replace or retrofit every building to very high efficiency standards. Electricity would have to replace natural gas for home and commercial heating. All buses and trains, virtually all cars, and some trucks would be electric or hybrid. And the state’s entire electricity-generation capacity would have to be doubled, while simultaneously being replaced with emissions-free generation. Low-emissions fuels would have to be made from California’s waste biomass plus some fuel crops grown on marginal lands without irrigation or fertilizer.

Given that California represents a best-case scenario for the rest of the US, Long’s assessment is a compelling case to accelerate the speed and scope of carbon-reduction efforts.

I’ll refrain from diving into the broader implications of her report here – better to check it out in whole. Instead, for the Global CCS Institute’s community, I wrote to Jane to tease out a bit more of her vision of CCS in California’s future. An edited version of our exchange follows.

Adam: You’ve said that CCS has a critical role in helping California achieve its goal of cutting emissions to 20 per cent of their 1990 levels by mid century. How so?

Jane: I would guess that CCS will not play much of a role in meeting the AB32 goals of 20 per cent reductions, but it may play an important role in meeting the longer-term goal of 80 per cent reductions by 2050. Natural gas generation is a large part of California’s electricity portfolio. If this is to continue and meet the emission reductions, CCS would have to be used whether or not that generation was within state or say, by wire from Wyoming.

In the long term, CCS may play a critical role in solving the fuel problem. We are unlikely to have enough biofuel to meet all of our demands for fuel even if we are successful in cutting demand in half through efficiency measures and electrifying everything we can. CCS could be part of a hydrogen scenario where we get hydrogen from methane and sequester the CO2 generated in this process. Or we might use biomass to make electricity and sequester the emissions to create a negative emission credit to counter the continued use of fossil fuels.

Adam: Yet CCS technologies remain immature and under-commercialized. Starting in what years would CCS need to begin entering into California’s energy mix to play this kind of role? And are we already behind that pace?

Jane: If we start now with demonstration projects, it could be possible to have all new fossil generation be using CCS within a few decades. We need that amount of time to be sure the demonstrations are working.

Adam: What lessons does California’s CCS case have for the transportation challenge in other countries?

Jane: The transportation problem in the developing world is really interesting because it’s not clear that countries like India, for example, should electrify automobiles as a first strategy. If their electricity is made with coal without CCS, electrification is not a clear benefit. If they move to de-carbonize electricity, then electrification of transportation and heat makes much more sense.

Adam: I’ve assumed that developing countries such as China and India ought to leapfrog to electric fleets ahead, and skip the oil-burning stage, to whatever degree possible. You’re suggesting that might not be the best bet for the climate?

Jane: The distance countries like China and India have to go to provide enough electricity at low emissions is huge. If having to run cars on electricity means they add twice as much coal-fired electricity without CCS it would be a disaster. As well, the biomass for biofuel problem is likely to be more acute in these countries as they face serious challenges with food supplies. In the same 2050 period that we are looking to more than double energy supply, we are looking to double food supply. As it takes some time to roll over the fleet of automobiles to electric vehicles, it probably makes sense to move forward with electric transportation at some level as this is what we need in the long term, recognizing it will make the need to decarbonize electricity even more acute.

Adam: Writing for the Institute, the Natural Resource Defense Council’s CCS expert, George Peridas, recently summarized California’s progress as “not a whole lot of progress on the CCS front to showcase since last year, but developments are expected soon”. How could the state reorder its CCS priorities to pick up the pace of technology development?

Jane: The state could get behind a demonstration project for a combined cycle gas plant. There are a lot of people skeptical about CCS. We need to have a concrete example that it works. A big issue in CCS is integrating all the complex industrial processes: electricity generation, capture, and storage. We need experience in actually doing what we theoretically ‘know’ how to do.

For an exploration of the broader report, along with further details on the technicalities of the model used in Jane’s analysis, check out Andy Revkin’s interview with Jane at his Dot Earth blog at the New York Times.

GreenBiz

Venture capital investment in cleantech shrank by 4.5% in 2011 | GreenBiz

Why Sinking Cleantech Investment Data Aren't the End of the World

In cleantech, as in most realms of emerging technology, venture capital acts as a sort of incubator for the youngest, most promising technologies. That’s why it’s a cause for concern when venture capital investment slows or shrinks.That’s just what happened last year. In 2011, venture capital investment in early-stage cleantech companies fell by 4.5 percent, to $4.9 billion, compared with the 2010 tally, according to a round-up of full-year data by Ernst & Young published Feb. 1, based on data from Dow Jones VentureSource.Whether this downtick is cause for concern is open to argument. The question links to hot-button issues being debated in Congress, on the campaign trail, and in the media. I, for one, believe that given the headwinds facing cleantech, the numbers are cause for optimism. They’re good news, but I wish they were better.figure 1To make my half-full case, note that cleantech venture capital investment has been resilient despite both economic and political headwinds. Last year’s funding remains 29 percent higher than its 2009 total, when overall venture flows crashed in the wake of the global financial crisis.

What’s more, cleantech is nurtured by other streams of capital. As I reported last month, global investment in mature renewable energy technologies — new wind farms, solar panels, and the like — expanded by 5 percent, to $260 billion last year. That rise helped put total investment in renewable energy, efficiency, smart grid and related technologies over the trillion dollar mark last year.

Still, I’m a worrier. And there are reasons to furrow my brow at these numbers.

However promising cleantech may be, venture capitalists are finding more alluring options in other sectors. Cleantech’s decline comes despite a 10 percent rise of overall venture capital investment. Globally, for the year, investors placed $32.6 billion into 3,209 venture deals, according to Dow Jones Venture Source.

So while cleantech retreated, investment in healthcare and IT startups remained roughly steady. The big winner? Consumer information services — think Twitter, LivingSocial and Zynga — pulled in $5.2 billion, up 23 percent from the prior year.

But before I complain any further that clean technology shouldn’t be losing out to Twitter, let alone Facebook, here’s a bit more on what went down in cleantech over the past year.

• Battery technology is hot. Energy storage continues to attract interest, and growing flows of money. Venture investment in batteries rocketed up by 253 percent. And this is bound to accelerate. Growing volumes of electric vehicles, plus the graduation of wind and solar from emerging-tech status to mature technology, are all driving demand for energy storage, in a dizzying array of niches.

And while some segments of battery manufacturing are mature — increasingly subject to the sorts of commodity price dynamics driving down prices of solar PV — there is arguably bigger potential for scientific discovery to upend today’s batteries.

• Investment is tilting towards more mature plays. Cleantech companies already generating revenue garnered 69 percent of the funding, up from 50 percent in 2010.

• M&A exits dominate. Given the parlous state of IPO offerings, mergers & acquisitions continue to be the main path to maturity for cleantech players. In 2011, a total of $2.9 billion in M&A deals involved cleantech startups, some 79 deals, according to Ernst & Young’s analysis.

• IPO drought lingers. Just five companies IPO’d in 2011, not many more than the three that listed a year prior. Biofuels dominated last year’s public debuts, with Solazyme, Gevo, and KiOR. Intermolecular, a semiconductor R&D company focused on cleantech listed in the final quarter, as did Rentech, a clean energy solutions provider. The five raised a total of $688 million.

The low count of IPOs for cleantech is an indicator of a growing backlog and is one reason why new cleantech investment may be slowing. Without a clear line to exit, venture funders will steer their money to sectors where it’s easier to cash out.

Thus, Facebook. Good things may yet come of Facebook’s super-hyped IPO. Perhaps it will improve the atmospherics around cleantech IPOs?

But on balance I find the din disheartening. The very big IPOs by Twitter et al. smack of hype. To emphasize my point: Facebook’s pending IPO is likely to raise around $5 billion, more than was invested by VCs in the entire cleantech sector last year. Indeed, Facebook’s valuation is verging on speculation, maybe even magical thinking. The offering is slated to value the total company at $100 billion.

Compared with the foaming enthusiasm for all-things-Facebook, it can feel like cleantech has drifted into a period of backlash, however undeserved. Investment continues apace to be sure, but the narrative around cleantech is growing more polarized.

Long-time cleantech investor Ira Ehrenpreis put it this way, as quoted in GreentechMedia.com: “While I’ve never been more bearish on U.S. cleantech, I’ve never been more bullish about global cleantech.”

Blame domestic politics for the widening gap in cleantech prospects here compared with global markets. Leading the negative push—recklessly so—are House Republicans, who seem intent on vilifying federal support of renewable energy, using Solyndra’s failure as a political bludgeon against President Obama. Likewise, the GOP presidential aspirants have retreated on cleantech: far-right opposition of climate change is so dogmatic, even discussions of cleantech have become off limits despite the fact that practically all the Republican candidates have championed renewable investment in the past.

Meanwhile, media find it hard to resist the counter-intuitive appeal of the “cleantech is failing” tale, and are amplifying the meme. Picking up on the GOP’s talking points, the tally of stories of Solyndra’s failure far outpaces coverage of the fact that it’s been a record year for solar capacity growth in the U.S. Or that plummeting solar prices are a windfall for buyers of the technology, enabling even energy-poor regions such as India to light up.

Witness Wired magazine’s February story “Why the Clean Tech Boom Went Bust.” While its author, Washington Post’s Juliet Eilperin, actually offers a reasonably measured take on the impact of cheap natural gas and the Solyndra scandal, you’d have a hard time figuring that out from the headline or the explosive artwork illustrating the story (at right, by Dan Forbes).

Lurid pictures of exploding wind mills, fiery biodiesel canisters, and a shattering PV panel left me thinking that John Doerr must be on the verge of switching back coal heat for his mansion. Meanwhile, elsewhere on Wired.com, the breathless all-technology-is-pretty-much-cool coverage of green developments continues apace.

Wired’s schizophrenic take on cleantech is not unique, but it deserves special attention because the magazine has been such a vocal, effective champion for innovation as a driver of economic growth. The editors’ tabloid take on cleantech is sure to gather clicks: scores of contrary comments and irate tweets suggest the story has generated a lot of attention.

But in gunning for controversy, Wired goes off target, loosing sight of the bigger, better idea that cleantech is a near-ideal innovation catalyst for U.S. economic growth. That’s why we should keep our fingers crossed that venture capitalists will keep steering more money into the sector too.

See the original story here: http://www.greenbiz.com/blog/2012/02/06/why-sinking-cleantech-investment-data-arent-end-world

GreenBiz

Clean Energy Makes Big Strides, but Just How Sustainable is the Growth? | GreenBiz

Clean Energy Makes Big Strides, but Just How Sustainable is the Growth?

Global investment in clean energy capacity expanded by 5 percent in 2011 to $260 billion. The growth comes despite the considerable drag from economic crisis in Europe and weak growth in the U.S.

The new research, compiled by Bloomberg New Energy Finance, was announced yesterday in New York at United Nations headquarters building, site of the Investor Summit on Climate Risk & Energy Solutions.

Up from $247 billion in 2010, last year’s rise in spending on clean energy capacity offered reasons for optimism along with rising cause for concern. Note that this data includes spending on renewable energy technologies, but not advanced coal, nuclear or conventional big hydro.

The good news: Spending has quintupled in the past seven years, with outlays for solar power leading the expansion — soaring by 36 percent to $137.5 billion during 2011.

And in the global horse race for green energy leadership, the U.S. regained its lead over China for the first time since 2008. U.S. spending hit a record, at $55.4 billion, up 35 percent, as investment in China rose by just one percent to $48.9 billion.

“The performance of solar is even more remarkable when you consider that the price of photovoltaic modules fell by close to 50 percent during 2011, and now stands 75 percent lower than three years ago, in mid-2008,” Michael Liebreich, chief executive of Bloomberg New Energy Finance, said in a statement.

But lurking behind those big numbers are worries that U.S.’ resurgence in 2011 may turn out to be the lunge that precedes a stumble. Spending in the U.S. was buoyed by a big surge of stimulus funds, originally set aside in the 2008 stimulus bill, that will taper off sharply in the year ahead.

“The U.S. jumped back into the lead in clean energy investment last year,” Liebreich added. “However before anyone in Washington celebrates too much, the U.S. figure was achieved thanks in large part to support initiatives which have now expired.”

As those incentives shrink, the global wind and solar industries are set to consolidate. Supply in both the wind and solar markets exceeds demand significantly, leading to bankruptcies and pullbacks. In the solar space, Solyndra is the most visible, but one of a growing number of startups that crashed under pressure from falling solar cell prices.

Dominated by mature conglomerates such as GE and Siemens, the outlook for wind is dimmer than for solar: Global investment fell by 17 percent to $74.9 billion. To try to compete with lower-cost Chinese manufacturers Vestas, the world’s largest producer of turbines, yesterday announced it was shuttering a factory, and cutting 2,335 jobs, or about 10 percent of its staff.

Of course, oversupply means lower-cost energy systems for buyers. And even as subsidies are declining in the wealthy West, non-financial policy support remains resilient. In the U.S., renewable portfolio standards in 29 U.S. states represent a $400 billion investment opportunity, as other states finalize similar commitments.

Meanwhile, stepped up subsidies in emerging markets — especially Brazil and India — are upgrading energy services to virgin markets. Spending in these areas will replace some of the investment that is retreating in North America and Europe, said Ethan Zindler, Head of Policy Analysis at Bloomberg New Energy Finance.

Financial innovation remains a weak spot, however, especially in the U.S., where clever capital solutions could help fill the gap left by shrinking federal subsidies. Given the multi-billion dollar scale of many clean-energy investment projects, there’s been a dearth of the sorts of high-efficiency financial instruments that can bundle up batches of projects, and finance them at low cost in public markets, Zindler added.

There have been some promising precedents — such as PACE loans and solar lease-to-own programs. But nothing has yet emerged to substitute for large-scale, multi-billion federal subsidy programs. Proposals such as green bonds or a national infrastructure bank are stuck in the starting gate, said Zindler.

Institutional investors, meanwhile, are hungry for more diversified ways to put money into greener projects. “Investors need diversified, sustainable strategies that maximize risk-adjusted returns in a volatile investment environment,” said Ceres head Mindy Lubber, which directs the Investor Network on Climate Risk, a network of 100 institutional investors with collective assets totaling about $10 trillion.

The retreat of subsidies may enhance the competitiveness of products and strategies already honed to deliver higher efficiency and energy savings, said Marc Vachon, vice president of ecomagination at GE. He added that GE’s ecomagination product line is growing at twice the rate of the rest of the company, having already generated $85 billion in revenues to date.

The event saw the release of two other reports of note for folks following investment trends in green business and clean tech:

• Global investment consultant Mercer issued a new report showing how leading global investors, including the nation’s largest public pension fund, CalPERS, are integrating climate change considerations into investment risk management and asset allocations. The report, “Through the Looking Glass: How Investors are Applying Results of the Climate Change Scenarios Study” comes on the heels of a Mercer report last year showing that climate change could contribute as much as 10 percent to portfolio risk over the next 20 years.

• Deutsche Asset Management also released a new report, “2011: The Good, The Bad, and the Ugly,” describing generally mixed results on climate investments and policy in 2011 but projecting long-term growth in cleaner energy markets to continue. Positive trends included China and Germany’s continued low-carbon leadership, the U.S. Environmental Protection Agency’s issuance of new rules on hazardous air pollutants, Australia’s new carbon legislation, and Japan’s commitment to supporting the deployment of more renewable energy.

The report also highlights negative trends such as the weak performance of cleantech public equity stocks in 2011 and the expiration of several U.S. federal renewable energy incentive programs, including the “highly successful” Treasury Grant Program that expired Dec. 31, 2011. The report noted that the TGP program, in 2 1/2 years, leveraged nearly $23 billion in private sector investment for 22,000 projects in every state across a dozen clean energy industries.

Last but not least, a plug. If you, like me, have concluded that the “end of coal” is all but inevitable to prevent catastrophic climate change, check out this remarkable presentation — which ended with a standing ovation — by Richard Trumka, President of the AFL-CIO at yesterday’s summit.

Trumka, a former miner, spoke with passion about how the “end of coal” message is landing on the ground in blue-collar coal country, even as he acknowledged the dire need to address climate risks and build a low-carbon economy.

His message is cause to reflect on how labor’s interests are often misunderstood and under-represented in climate policy discussions. Where coal miners see their jobs, housing values, and culture imperiled, it’s no surprise that the politics of climate change become hard to swallow — no matter how chaotic the climate change signals may be. The same labor issues vex the proposed XL Pipeline, about which Trumka says labor remains divided, and natural gas fracking as well.

Read the transcript here or watch his talk below, starting just before the 14-minute mark. It’s well worth the 15-minute running time. If the embedded player isn’t working, point your browser here: http://www.unmultimedia.org/tv/webcast/2012/01/2012-investor-summit-on-climate-risk-and-energy-solutions-2.html:

Wind turbine photo CC-licensed by Samuel Stocker.

GreenBiz

Despite Boom in Renewables, Risks Could Hurt Further Growth | GreenBiz

“Alternative” energy is officially not so alternative anymore. Last year, for the first time ever, spending on projects to generate electricity from renewable sources eclipsed the amount spent to build conventional fossil fuel plants.

In 2010, renewable projects drew $187 billion in investment, 19 percent more than the $157 billion spent to build or augment conventional generating plants, fuelled by natural gas, oil and coal, according to analysis released by Bloomberg New Energy Finance for the Durban climate talks.

As the clean energy sector comes of age it must now reckon with the challenges of more mature industries. Namely, managing the risk posed by larger, more complex projects. According to “Managing the Risk in Renewable Energy,” a report released this week by the Economist Intelligence Unit and Swiss Re, minimizing financial risk is one of the most “acute” challenges facing the sector in the near term.

The renewable energy sector will face an even more uncertain future if it fails to manage the growing risks associated with larger, more complex projects, EIU found. The study was based on survey of 284 senior-level renewable energy executives.

The survey found that renewables have moved to center stage. Power companies increasingly view renewable energy as central to their business strategies, and are developing larger and more complex renewable energy projects. Billion dollar projects, once rare, have become regular.

Worry is rising among renewable energy investors that some of the other 100 or so governments supporting clean energy will cut public subsidies as part of austerity measures, the report found. Fiscal crisis in Europe and economic malaise in the U.S. suggest public support for renewable energy is more likely to shrink than grow in the near term. For example, solar feed-in tariffs are being slashed across Europe: lowered by 15 percent in Germany and up to 70 percent in the U.K.

As public funds dry up, the appetite for renewables remains strong, siginaling a shift to more private funding. “Risk management measures such as insurance will be key to encourage further private sector investment,” said Agostino Galvagni, Chief Executive Officer Swiss Re Corporate Solutions in a statement. “Additional investments into renewable energy are needed to achieve the transition to a low-carbon economy,” he added.

A major issue in renewable energy projects is their high up front costs. Projects are typically capital-intensive and highly leveraged, with up to up to three quarters financed through debt. As companies seek to scale up investments, overcoming financial risks is one of the biggest challenges, according to 76 percent of the survey respondents.

Among plant investors, owners and operators surveyed, other significant concerns included political and regulatory risk (62 percent) while weather-related volume risk comes in third for wind power producers (66 percent). These risks increase further as projects grow in scale and complexity.

The report revealed that while companies are sophisticated in using insurance elsewhere in their businesses, the dearth of risk-management tools in the renewables space has limited their use. About two-thirds of respondents already use insurance to transfer risks. But only half of respondents said they are currently transferring risk successfully, for example through insurance to hedge against the risk of weather-related reductions in output of a solar park or wind farm. Instead, because of the limited availability of suitable risk-transfer mechanism, many retain the risks related to renewable energy assets on their balance sheets due to.

The use of solutions such as weather-based financial derivatives is slowly picking up, even though only 4 percent of wind power producers apply them to their projects. Many solutions on the market today are unsuitable for small-scale projects. In the survey, executives say they would transfer more risk if suitable risk-transfer products become more widely available in the future, particularly more standardized and cost-effective products.

With the next round of global climate talks expected to founder in Durban, the need to develop more efficient private sector investment tools for technologies that mitigate climate change, such as renewables, is only growing. The toll for climate related damage is expected to continue to rise in coming years. In 2011, the U.S. eclipsed the prior worst-year record for extreme weather events, with 14 such events doing more than $1 billion in damage. In 2008, the prior record year, the tally was nine such events.

“New technologies and innovation in renewable energy will be the only possibilities left should a global policy regime to reduce carbon emission not materialize,” says Andreas Spiegel, Swiss Re’s Senior Climate Change Adviser in a statement.

As the reports sponsor, Swiss Re is eager to “better understand how insurance can mobilize financing for renewable energy projects and identify the most cost-effective ways to reduce risks,” Spiegel added. Insurance can help lower construction and operational risks, by covering losses in the case of accident or delay.

For deeper dive into the survey’s findings, check out the EIU’s summary analysis here [PDF]. Cribbed from that analysis, here are the reports key findings, as well, according to Aviva Freudmann, Research Director at EIU.

1. Renewable energy is growing in strategic significance in the power industry, and is the focus of ever-larger investments.2. As renewable energy projects grow in number, scale and complexity, the industry faces a growing range of risks — as well as significant challenges in managing them.

3. Plant financiers and operators consider financial risks the most significant, particularly in early project stages.

4. Industry players are becoming more cautious, taking a variety of measures to reduce their exposures and transfer the remaining ones. One emerging way to manage certain risks is to diversify by geography and by technology.

5. By a wide margin, the industry chooses insurance to transfer financial risks to third parties, followed by capital-market instruments such as catastrophe bonds.

6. For operational risks, industry players seem unsure whether to continue using current risk transfer mechanisms, which focus on insurance and capital-market instruments. Many transfer operational risks to hardware suppliers.

7. Confusion abounds on how best to manage weather-related volume risks. The industry calls for a broader range of risk transfer products to cover such risks.

Solar farm photo via Shutterstock.

GreenBiz

Are We Entering Cleantech’s Dark Ages? | GreenBiz

The budget brinksmanship that, amazingly, lasted all the way into the first days of August pushed me over the edge. Whether a willful choice, or some kind of subliminal denial, I opted for a partial mental vacation in recent weeks, trying to tune out from the mostly dismal news about elections, energy and environment.

But all vacations must end, and as distasteful as the political process has been for the last few weeks, the late-summer news cycle holds potentially big impacts for the world of cleantech.

From policies enacted and planned to electoral and financial developments, all signs suggest we’re moving from relative boom times for cleantech into what will almost certainly be dark days.

Cleantech’s “Age of Austerity”

Let’s start with the fallout from budget deal, known officially as the Budget Control Act (BCA) of 2011. Scanning a few weeks’ worth of news releases from Bloomberg New Energy Finance (BNEF), the prospects for cleantech finance are nothing short of grim.

“For the clean energy sector, the Act heralds an era of austerity in which current subsidy programmes may not be extended beyond their current funding,” wrote Stephen Munro, a policy analyst at BNEF, in a research note on Aug 5 titled “An age of austerity for clean energy?”

The BCA agreement requires cuts of $917 billion in discretionary spending. Clean energy programs aren’t named specifically, but they fall under the discretionary spending portion of the budget, Munro points out.

Programs are likely to become vulnerable as they come up for renewal. First up is the Treasury Department’s “1603” cash grant program for early-stage project investment, which expires at the end of this year.

For solar and wind developers formerly dependent on tax equity finance — which evaporated as a result of the mortgage-backed security crisis — these 1063 grants, which can cover 30 percent of a project’s upfront costs, have been a lifesaver. Last December, the Solar Energy Industry Association estimated that the grant program had made possible more than 1,100 solar projects in 42 states, with a total investment value $18 billion.

Similarly, the 100 percent bonus depreciation incentive for new equipment and property purchased for renewable energy projects sunsets soon. Known by the unwieldy acronym MACRS (short for Modified Accelerated Cost-Recovery System), the federal program allows businesses to accelerate deductions for the capital investments to five years, or just one, for certain bonus projects.

Renewal looks “unlikely” for either of these programs.

There’s some stirring that the tax-equity market — which the 1603 cash grants were established to replace — will rise again. ClimateWire’s Joel Kirkland recently wrote that a return to tax equity financing may be nigh (via the NYT). Given that corporate America is sitting on mountains of cash, it follows that they’ll seek higher returns than are available through Treasury bills.

Kirkland’s central example is Google, which has made seven green energy investments totaling $700 million over the past few years. Although it would be encouraging if those investments marked the start of a rush to market, that’s not the sense I’m getting from my review.

Further out, the bipartisan committee of 12 created as part of the BCA boondoggle is required to come up with another $1.5 trillion in cuts over the next decade. For wind, solar and geothermal projects, tax credits end as early next year, and deadlines continue through 2016.

What’s more, the fisticuffs aren’t over. The Act doesn’t make adjustments to the overall budgets for the Energy Dept. or Environmental Protection Agency or any of their sub-programs, such as ARPA-E. Yet these budgets, Munro points out, will be among the first to be addressed when lawmakers return from their summer recess on Sept. 5. Given the bludgeoning GOP presidential aspirants have lately been administering to the EPA, it’s likely the EPA and DOE budgets could be especially tortured in the next couple of weeks.

“The debt agreement, which is focused on cuts only and not revenue increases, makes it more likely that this infant sector gets strangled before it matures,” said Daniel Weiss, a senior fellow at the Center for American Progress, a Washington policy group that advises Democrats, in an interview with Bloomberg Government.

Subsidies for renewable energy are expected to decline beginning this year, and will fall 77 percent by 2016 from their peak in 2010, according to Bloomberg News, citing data from the White House Office of Management and Budget.

Cleantech VC Investment Ebbs

Well maybe the private sector will step up and fill the gap — maybe Google’s investments are a sign of things to come, right? Probably not.

Second-quarter venture investment in early-stage cleantech startups decelerated, according to the Cleantech Group’s preliminary data for the quarter, released in early June.

Global funding hit $1.83 billion, a 33 percent retreat from the prior quarter ($2.75 billion) and 10 percent down on 2010 ($2.03 billion). Quarter to quarter VC numbers are notoriously volatile, but behind these numbers are other signals that the U.S. cleantech ecosystem is not generating a lot of new companies: Most of the deals — 66 percent by deal number, and 87 percent by value — were B-series or later stages. Funding retreated more sharply in the U.S. than Europe or Asia-Pacific.

A Dearth of IPOs

A close cousin of cleantech venture capital funding is the rate of initial public offerings of shares by young, fast growing companies. By this measure too, the climate in the U.S. is growing more anemic by the week, just when it should be offering a vigorous exit path for smart, small companies.

While the Cleantech Group data reflected a “robust” global IPO market through June, the bulk of the listings have come in China. Here in the U.S., the swooning stock market is reinforcing a sense that much-anticipated listings are likely to hold back. At GigaOm.com, Ucilia Wang captured this snapshot:

“…companies that have filed papers for IPOs (but not yet traded) include solar equipment developer Enphase Energy, smart grid tech companySilver Spring Networks, biodiesel producer Renewable Energy Group, and solar power plant developer BrightSource Energy. VentureWire reported that electric car company Fisker Automotive, and biofuel company Genomatica had also hired bankers to investigate the IPO process. But it’s seemed apparent to some of these companies that the IPO window has been slowly closing.”

Oil Prices Falling

With the economy teetering between neutral and reverse, oil prices are falling. West Texas Intermediate (WTI, the U.S. benchmark) fell to around $80 per barrel early in the month, presaging a fall of 40 cents per gallon at the pumps, if the price signal follows through.

Lower fuel prices are salve to an ailing economy, of course. But they’re trouble for companies looking to sell innovative transportation technologies, whether they’re century old automakers pushing advanced EVs or algal biofuel startups targeting their production price for $100 oil. More broadly, low energy prices dilute public urgency on energy efficiency and alternative energy.

In its Aug. 8 research note, Bank of America’s Global Energy Weekly pointed to threat of a double dip recession. By its models, a mild recession would draw Brent Crude (Europe’s North Sea reference blend) to $80 per barrel, and (more importantly to U.S. buyers), WTI to $50-60 per barrel.

While these two blends typically trade within a dollar of one another, in recent weeks their prices have diverged to record levels, with Brent trading at over $25 per barrel more than WTI. The gap reflects unprecedented levels of uncertainty with Europe’s fiscal outlook and worries the U.S. is about to tip back into recession.

Is It Darkest Before the Dawn?

If all these harbingers from the political and economic arenas weren’t enough, we’ve also had one of the most extreme and disaster-filled weather years ever — with 2011 already bringing more billion-dollar catastrophes than in any other year, according to NOAA.

And to top it all off comes news from the Energy Information Administration that U.S. carbon emissions rebounded by more than 3.9 percent last year, the sharpest uptick in more than 20 years, as industrial activity, power generation and travel volumes returned to norms depressed by the Great Recession.

It’s enough to make anyone want to go back on vacation, at least until Labor Day, or maybe Groundhog Day, or … anytime after November 6, 2012.

But perhaps I’m overly pessimistic — I’d love to know if you’re seeing anything out there in the world that offers some hope for a resurgence of cleantech’s potential?

Photo CC-licensed by Samuel Stocker.

BusinessWeek

Here comes lunar power | BusinessWeek

Think windmill, but underwater. In 2006, six of Verdant Power's 10-foot-tall turbines will spin in New York’s East River, supplying a supermarket.

Moon-driven tides, ocean currents and waves generate more oomph than wind, are more consistent that solar

A drama is unfolding in New York City’s East River. This summer the Popsicles at a Gristedes supermarket on Roosevelt Island, midstream between Manhattan and Queens, will be kept icy by power generated just a stone’s throw from the riverbank. Anchored 30 feet down, six underwater turbines will turn day and night, driven by the tidal flows in the channel. At a fish-friendly 35 rpm, the propellers will crank out up to 200 kilowatts of clean power, or roughly half the peak needs of the supermarket.

Projects like this one are still small fry. But hydropower, the granddaddy of green energy, is making a comeback. Think Hoover Dam, but less visible and a whole lot easier on the environment. This born-again breed of clean energy isn’t yet on the agenda for George W. Bush, who is out barnstorming the nation on behalf of renewable power. The President is pointing to the earth for plant-based ethanol, to the sky for wind power, and to the sun for photovoltaics. But he should also be pointing to the moon, say fans of the new hydropower, and to the seas that lie below it. Tugged by lunar gravity and stirred by wind and currents, the oceans’ tides and waves offer vast reserves of untapped power, promising more oomph than wind and greater dependability than solar power.

The appeal of next-generation hydropower is hard to miss. “It’s local, reliable, renewable, and clean. Plus, it’s out of sight,” says Trey Taylor, president of Verdant Power LLC, the Arlington (Va.) startup developing the East River site. Adds Roger Bedard, ocean energy leader at the Electric Power Research Institute (EPRI), the industry’s research-and- development arm: “Offshore wave and tidal power are where wind was 20 years ago, but they’ll come of age faster.” By 2010, Bedard predicts, the U.S. will tap about 120 megawatts of offshore wave energy — enough to power a small city — up from virtually zero today.

GROWING DEMAND

The planets are certainly in alignment for hydro. Prices for natural gas and coal are high, making renewables more cost-competitive. And in an effort to halt climate change and cut energy imports, 19 states have mandated that a share of their power come from green sources. Demand for alternatives is soaring: U.S. wind capacity surged by nearly 2,500 megawatts last year, up 35%, and solar is sizzling.

Wind and solar won’t be able to satisfy all the green-power mandates. So more than two dozen companies worldwide are developing systems to unlock the power of waves and currents. The first to sell devices to a commercial project is Edinburgh’s Ocean Power Delivery Ltd. Its Pelamis system is a snake-like steel tube that floats, semi-submerged, in the ocean.

In its Scottish factory, OPD is putting the finishing touches on three of these 400-foot-long machines. This summer they’ll be towed to a site three miles off Portugal’s northwest coast and hooked into the power grid. Lying low in the water, the snakes are invisible from a distance, unlike offshore wind farms that are causing “not in my backyard” complaints across the Atlantic, in Cape Cod. Initially the project will supply 2,500 kilowatts of juice, enough to run 1,500 Portuguese homes. OPD hopes to have 30 units at the site by 2008, pumping out enough current to power a town of 15,000 homes.

With its vast stretches of shoreline, the U.S. has some 2,300 terawatt-hours of potential near-shore wave power, estimates EPRI. That’s more than eight times the yearly output of the nation’s existing fleet of hydroelectric dams — “a very significant resource,” says Bedard. What’s more, since water is heavier than air, marine systems pack a bigger punch than wind power. Because they work not by impounding rivers behind costly bulwarks but by tapping water’s energy as it ebbs, flows, rises, or falls, upfront costs are lower than for dams. Maintenance to keep away barnacles and similar “biofouling” generally runs higher than for wind. Still, on balance, wave energy will evolve to be cheaper than wind was at similar levels of development, Bedard believes.

The power is more predictable, too. Unlike dam-based hydroelectric generators, which depend on rain or snowpack to keep current flowing and which shut down during droughts, newer “hydro- kinetic” systems exploit less capricious natural forces. “Lunar power” is the term offered by experts such as George Hagerman, a senior research associate at Virginia Tech and co-author of a recent EPRI marine-energy study. “You can’t know if the wind will be up in an hour,” he says, “but you can predict the tide 1,000 years from now.”

Hydropower already propelled one revolution in the U.S. Starting in the Great Depression, the government erected thousands of dams, spreading cheap power across many states. Today they supply 7% of U.S. demand, some three times the combined share of wind, solar, and other renewables. Yet even as existing dams are being upgraded, environmental concerns thwart new building.

EUROPEAN EMBRACE

Before the U.S. fully taps tidal power, it will have to play catch-up. Marine-energy R&D was born in the energy programs of the Carter and Reagan eras, but these experiments lost their funding in the 1980s. “We were the leaders when I started out. Now Britain is entreating us to set up there,” says Verdant’s technology director, Dean Corren. He dreamed up the East River project in the mid-1980s while investigating alternative power at New York University. But then “power got cheaper, and research stopped,” he says.

Across the Atlantic there is a long history of subsidies for renewable energy. For example, the EU-backed European Marine Energy Center Ltd. in Orkney, Scotland, is a one-stop shop for lunar startups. Entrepreneurs can get a test rig in the water and get hooked up to the grid quickly, says EMEC managing director Neil Kermode.

Ocean Power Technologies Inc. in Pennington, N.J., opted for a London stock listing because of stronger interest from European backers, says CEO George W. Taylor. Both the U.S. Navy and Iberdrola, a utility in Spain, have signed contracts to test OPT’s PowerBuoy, which generates energy by bobbing up and down.

In the U.S., last year’s energy bill raised hopes in the hydropower community. By unifying the licensing of offshore wind- and marine-energy projects under the jurisdiction of the Interior Dept.’s Minerals Management Service, “it sets the stage for faster approvals,” says Carolyn Elefant, co-founder of the Ocean Renewable Energy Coalition. But the bill failed to recognize ocean energy as eligible for the sorts of production tax credits that jump-started wind power investment in the ’90s.

At the East River, Verdant is confident its compact submarine turbines are ready for the long haul. Once an 18-month trial is completed, Verdant hopes to get the O.K. to install up to 300 turbines. That would generate enough power to supply some 8,000 New York homes. “It’s our flight at Kitty Hawk,” says Taylor.

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