Natural Gas Trumps Renewables, at Least to Fund Managers
“Just follow the money” is an age old guide when one is trying to get to the bottom of what is REALLY going on in any matter of importance. “Money talks and bullshit walks” is a pretty good one, too. I like them both.
I've lately been in the company of a number of people who chase money on behalf of clients for a living. These are specialists that act as middlemen between a company in need of funding and non-bank funding sources, which can include venture or private equity funds or government and institutional resources. Their job typically goes like this: a) size up the enterprise in question; b) determine if it is, in fact, a good enough story to tell; c) apply lipstick to this pig; tightening up that story to make it more sellable; and d) presenting the case to these outside funding parties with the goal of convincing them to invest in the enterprise in some fashion. It's fun stuff, but certainly not for the feint of heart or weak of mind.
In chatting with these type of folks and inquiring as to what exactly that money flow is telling us, I've reached a surprising – make that shocking – conclusion. I shall put in it universal office correspondence format for easy reading:
TO: American Green'iacs
FR: This is the Money Talking
Your Green/Renewable Revolution is Over.
(Or at least set back a generation.)
Yes; you heard it here first. Just like that, with a snap of the fingers, done. Kaput. Turn out the lights, this party's over. It was a nice short run, and the masses were certainly all singing the same tune for awhile about making the big transition to renewable energy sources, weren't they. My, but weren't those glorious days? But those high flying time are rapidly getting smaller and smaller in the rear view mirror as we give up the ghost and get back on the carbon train.
OK, what the hell am I talking about, you ask? Since you asked, here it is:
Renewable energy sector investments (money flow) have dramatically slowed down. What is surprising is just how quickly this new trend has emerged. For the past several years, alt-energy has been the darling of the venture crowd, both private and public sector. If some new firm with the word 'solar' or 'wind' or 'electro' popped up, lines would seemingly form outside their front door (if they even had one yet) to get involved. Now, those same backers seem to be running and hiding. This is true of not only private funds but also government sources, especially at the federal level.
What gives? Two easy answers:
Solyndra, of course, was the highly-hyped US new-idea solar cell developer that pooped the bed after burning (at wildfire speed) through $500million of federal boost money. The reasons for demise are complex, but include Chinese currency manipulation, a bad tooling gamble and downward market pricing of competitive energies.
But in this age of dumbing everything down to a bumper sticker level, the Forces of Darkness (aka the Republican party and its motley bed mates) now have handed to them on a silver platter the opportunity to point to something that they can deem as examples of red meat hot buttons ranging from Obama incompetence to the overreach of government to the infeasibility of renewable energy, period. Never mind the reality or the recognition of government sponsored core R&D as being inherently messy and somewhat inefficient. The challenge of basic scientific research requires someone to accept that messiness – and the private sector won't.
The result is that the White House is now playing defense and running scared, exacerbated by the upcoming election and the prospects of millions of sickening sound bites. What used to be loose money being available for new-energy projects is now tighter than a clam, and that's waterproof. That's what I'm hearing, at least.
The we have the natural gas phenomena. Phenomena is a good word. So is the word 'suddenly,' because here it is, suddenly and seemingly out of nowhere, getting pumped from the ground – American ground at that – in quantities that are mind boggling. Plus, it's cheap! Sure, it's not renewable, but some estimates are claiming a 200 year domestic supply. And it's cleaner than coal or oil (please note the last two letters in the word cleaner).
From a purely macro economic POV, this is best be described as a mega windfall for the USofA. Granted, natural gas does not significantly replace foreign oil to the extent its backers claim, but its potential to replace oil heating in the northeast should not be minimized, either. What it IS in is the early stages of significantly replacing is coal, the primary energy source for the non-nuclear centralized plants of the power grid.
But coal is an American resource, too: won't American gas just replace it for a nyet-nyet push? The answer to that is No. Coal will now be one of the nation's most significant exports, as it will go about feeding the emerging world's industrialization. So right there, anyone hoping that gas would at least be “a little better than coal:as far as greenhouse gas emissions can now sulk.
So, given all this, the question becomes: if it was so hard for new-energy alternatives to compete on a pricing-feasibility level a few years ago, how can it possibly be able to do so now with the emergence of King Gas? It's a darn good question. Add to the mix that China's shenanigans in gaming the solar market (via product dumps, currency manipulation and state subsidies) is under the gun and one could conclude that solar retrofit pricing should rise, thereby dampening demand for arrays in the US.
With business plans and revenue models becoming even suspect than they were in the recent past, market-funding sources are also suddenly (there's that word again) looking away from solar, wind, thermal and biomass start-ups and ramp-ups. A better word here might be avoiding.
Where are they looking to invest, then? Well, as they (and school boys) tend to do, they flock around the pretty new girl who just transferred into school. Yes, the money is going into Natural Gas. We're not talking just land rights and drilling here, but also:
Delivery infrastructure (the existing infrastructure is both old and inadequate for the new supply and new demand)
R&D for moving the natural gas influence over to the transportation end of the energy equation, specifically into natural gas-powered and electric autos (remember: electric will now be natural gas at its source end)
Fracking technology. Yes, we knew we'd need to get here didn't we? As we know, the jury is still out on the environmental health and safety aspects of fracking, which is the key means for extraction thru shale. The basic problem is that all sorts of scary chemicals (many of them toxic) are being pushed into the earth, and where they all end up (water? air?) is the Big Q of the times. The rush is on now to find natural and non-toxic ingredients that will serve the same purpose.
There we have it. The money is going into Natural Gas. Yesterday's prom queens are today's washed-up has-been's, and many will soon be starved of the lifeblood of precious funding. Cheap natural gas will get the masses' minds off the “energy problem”, at least as it relates to residential power needs. A successful immersion of natural gas or electric powered transportation will get their minds off the problem in total, because they will accept the “it's cleaner” aspect of gas. Carbon emissions in the US might actually decline as a result, but worldwide carbon will continue to rise at an alarming rate, with much of it done so with US coal.
Given all of this, responsible US policy at this stage of the game might include something like dedicating all the energy savings brought to the table by natural gas to subsidizing both the development and the usage of true renewable technologies and sources. Responsible global policy might include the realization that carbon is a global and not a national issue, and the creation of international governing bodies to go about developing universal standards with that in mind.
But the likelihood of either seeing fruition is nil. A discussion on expanding the State's role in the energy market is impossible to convene at this time. How then, would we even describe the possibility of convening a discussion on a worldwide regulatory body?
Impossible on Steroids, maybe?