Renewable Energy

Energy Concepts Renewable Energy  • Biofuels  • Carbon Trading  • Cellulosic ethanol  • China's Water Scarcity  • China's Coal Power Pollution  • Clean Coal  • Coal Power  • Corn Prices  • Oil Prices

TOP CONTRIBUTORS

Avinash Gandhi

Matt H

Isaac Middendorf

Wind energy is the most established of the renewables, constituting 1% of global energy production^[2], or about $51.4 billion in 2008^[3], and accounting for more than 50% of global investment in renewable energy in 2009 ^[4]. It can also be the most cost-efficient, especially when large installations using large turbines can take advantage of economies of scale. On the other side of the fence, solar power is the most expensive, least efficient form of renewable energy - for now. Increased spending in the sector has caused tremendous improvements both in cost and efficiency, and this has caused companies from China, Europe, and the U.S. to flood the sector, increasing competitiveness and driving even greater improvements; in 2008, $29.6 billion of the renewables market was made from solar.^[5] Geothermal energy gets relatively little attention, but with states along the fault lines and geysers of the Western United States increasingly passing renewable energy mandates, its potential is growing. Biofuels, however, have been all the rage, and with Congress's 2007 passage of an energy bill mandating increased production of ethanol and cellulosic ethanol, the stage is set for their use to greatly increase - in spite of protests from social activists who are worried about rising food prices. In 2008, biofuels were worth $34.8 billion on the global market.^[6]

Since the middle of 2007, oil prices have been trending upwards, to record highs; on the 21st of May, 2008, for example, oil traded at $134.10 per barrel^[7], after averaging around $20 during the 1990s.^[8] Still, most renewable technologies are still less cost-efficient than fossil fuels - though government support has led to heavy spending in search of ways to close this gap. Renewables are quickly catching on in progressive regions like Europe, and with over 750,000 deaths in China caused by air pollution and other environmental damages each year^[9], the market for clean energy is expected to grow in there as well.

Renewable Energy Breakdown

Costs of renewable energy relative to wholesale and retail prices of traditional fossil fuels

U.S. Electricity Generation by Source^[10]

Geothermal

Geothermal energy uses hot water deep within the earth's crust to spin turbines and produce power 24 hours a day, seven days a week. It produces few carbon emissions and can re-inject used water back into the earth to be used again, making it fully sustainable. Not every part of the planet has geothermal resources; usually, they can be found in regions where there is volcanic activity, or where two tectonic plates meet. This is why places like Indonesia and the Philippines, which are situated on the Pacific "Ring of Fire", or California, with its myriad fault lines and hot springs, are such strong markets for geothermal technology.

• The only pure-play geothermal company is Ormat Technologies, though Calpine Corporation operates a number of plants. Surprisingly, with an installed geothermal capacity of 1,273 MW in Indonesia and the Philippines, oil giant Chevron supplies 13% of the world's current geothermal energy supply - and is the largest private geothermal energy company in the world^[11]. Italian energy producer Enel is also actively involved in geothermal energy production being a leader in geothermal technology.^[12]
• Major electric utilities that purchase geothermal power include Southern California Edison, Hawaiian Electric Industries, and Sierra Pacific Resources.

Solar

The appeal of solar power is obviously there. It is a virtually limitless resource. It's free of greenhouse gas emissions, widely thought to contribute to global climate change. In developed countries using lots of air conditioners, it generates more electricity exactly when you need it-- at times of peak electricity usage (e.g, you run your air conditioners more during the hottest, sunniest days of the time). Once installed, solar systems can function for 25 or more years with little maintenance or oversight.^[13]

• SunPower, First Solar, and Suntech Power Holdings are three emerging solar companies that have received a lot of attention in the past six months. Other major solar manufacturers, both emerging and established, include Evergreen Solar, JA Solar Holdings, Solarfun Power Holdings, Kyocera, Sharp, BP, Q-cells , Mitsubishi, Sanyo, EMCORE, Uni-Solar and Daystar Technologies.
• Major polysilicon suppliers to the solar industry include MEMC Electronic Materials, LDK Solar, and Renewable Energy Corporation.

Wind

Wind is caused by different parts of the earth heating at different rates to different temperatures, creating pressure gradients and leading air molecules to move from areas of higher pressure (density) to areas of lower pressure (density). As long as the sun shines, the wind will blow. It would appear that wind is the ultimate source of energy, but, like all other renewables, it faces some issues. Not every region has winds that are the right speed year-round; furthermore, turbines are very dangerous for birds, particularly during migrations. Wind parks can also "overproduce" on windy days, creating more electricity than needed by the utilities grid, though there are massive batteries being developed to store some of this excess energy for periods when the wind is weaker than needed.

Wind turbines have the lowest installation costs of any of the renewables, and with large wind installations taking advantage of economies of scale to reach lows of $800 per kilowatt installed^[14], today it rivals natural gas as a form of cheap, base-load energy.

• Danish wind giant Vestas Wind Systems is the world's leading producer of wind turbines, with the Spanish Gamesa and American General Electric following. Indian market entrant Suzlon Energy Limited has grown very quickly, out-pacing competitors like Nordex and Siemens.
• Xcel Energy is an American electric utilities company that has made wind energy one of its primary sources of grid-based electricity.

Wave Power

Wave power uses the kinetic energy from ocean waves to generate electricity. Most wave energy producers are private labs and emerging companies, but Ocean Power Technologies has emerged as the first publicly-traded wave power producer in the U.S.

Biofuels

Biofuels are sources of energy that are renewable in the truest sense of the word. They are made from plant matter; since plants can be regrown, the energy source can be renewed. Major biofuels include biodiesel, ethanol, and cellulosic ethanol, though there are currently private companies working on refining biogasoline. In the U.S., major companies that dabble in the three main forms of biofuels include:

• Pacific Ethanol
• ConAgra
• Archer-Daniels-Midland Company
• Aventine Renewable Energy Holdings.

Ethanol

Ethanol is a biofuel that can be blended with gasoline; it is made by fermenting sugar, and corn is its primary input. Currently, American cars can run on a mix of 90% gasoline and 10% ethanol, though there isn't nearly enough corn-based ethanol being produced at the moment to meet this capacity.^[15] There are also cars that can run on 85% ethanol and even pure ethanol^[16] , though these vehicles are few and far between in the U.S. VeraSun Energy primarily produces corn-based ethanol.

Cellulosic Ethanol

Energy legislation passed in 2007 mandated an increase in the amount of ethanol used in the U.S. to far levels greater than the nation's corn-production capacity. Another form of ethanol, cellulosic ethanol, uses industrial or biological processes to refine ethanol from cellulosic matter, like paper, wheat husks, and dead plants. Companies like Bluefire Ethanol refine ethanol from trash, while others like Verenium Corporation use lab-developed enzymes to break down cellulose from plant matter like leaves and grass.

Biomass and Energy-From-Waste

Companies like Covanta use trash instead of gas to generate the heat needed to spin steam turbines. These companies burn waste from farms and landfills, converting leavings that would otherwise not me monetized into valuable electricity.

Not-Quite-Renewables

Notably excluded from this list is nuclear energy,is neither a fossil fuel, nor a form of renewable energy. The fuel source, uranium, is estimated to outlast mankind, i.e.100,000 years or more. Nuclear power produces radioactive waste. Nuclear power plants are not all the same quality, are highly technical, and involve risk of atmospheric and other environmental contamination. For this reason, nuclear power in the US carries a dual reputation and generally is unpopular for good reason. Large companies that are part of the nuclear industry include Exelon, Entergy, American Electric Power, and Duke Energy.

Hydropower is a special case of renewables, because the technology has been in use since the 19th century and, more importantly for those looking to expand renewable sources of energy, the majority of good sites for hydropower, at least in the developed world, have already been developed as power sources. Combustible renewables and renewable waste would include biofuels, but the historical driver of this 10.6% of our energy supply involves the burning of wood, plants, and organic waste in developing countries.^[17] Still employed around the world, this method of energy generation is, in the truest sense, renewable, though it is highly inefficient in terms of energy conversion and may take several hundred years to replenish itself (e.g., in the case of burned-down forests).

Energy Conservation

Building new generating capacity is expensive; many electric utilities would much rather deal with growing electricity demand by getting customers to use electricity more efficiently. Companies like EnerNOC (ENOC) contract with large industrial electricity users and electric grid operators; when energy use peaks, the company gets factories and other large consumers to cut down usage (by turning off unnecessary lighting, systems, etc.) so that grid operators can direct the extra electricity to where it is needed. That way, they don't have to install extra generators to meet peak demand.

Private company EnerPath has developed technology to deliver cost effective energy efficiency upgrades to the mass markets and highly complex applications that have typically been difficult to penetrate with energy efficiency. EnerPath implements energy efficiency programs and delivers software for utilities throughout North America.

Renewable Energy Funds

Powershares Wilderhill Clean Energy ETF - stock symbol "PBW", along with a slew of other renewable funds, offers broad exposure to the sector. Given the plethora of IPO's in renewable energy and clean technology that occurred in 2006, 2007, and 2008, a broad exposure to the clean energy market through an ETF is a good bet for beginning green investors -- like the Internet boom, some of these companies will burst and others will survive, but it will be hard to predict early in the development curve which is which.

One item investors might want to consider with PBW the Powershares Wilderhill Clean Energy ETF, is that index is based on mostly US companies working on solar panels. An alternative one might consider is Market Vectors Global Alternative Energy ETF - stock symbol "GEX" which has a has invested more than half its assets outside the U.S. and includes a Danish company, Vestas Wind Systems which is the fund's top holding at nearly 11%. Rounding out the top three holdings are a Spanish company -- Gamesa, a specialist in wind turbine and wind farms -- at roughly 8% of holdings, and Norwegian solar energy company Renewable Energy, which accounts for roughly 7% of assets.

Trends and Forces

Falling Oil and Gas Prices Limit Demand for Renewable Energy

Fossil fuels and coal are not renewable because there is a limited quantity of both resources on the earth, and the replenishment of these resources takes hundreds of thousands of years. As oil becomes more rare, prices increase and new energy sources become increasingly feasible from a financial perspective.

Oil and gas prices have fluctuated heavily over the past few years, but the most recent trend has been a significant decline in prices. The price of crude oil fell from a record high of nearly $150 a barrel in July 2008 to around $50 a barrel in the first quarter of 2009.^[18] As falling oil and gas prices lead to more affordable commercial electricity, consumers limit their demand for new, often expensive sources of renewable power.

Note: Wind energy cost included the U.S. Production Tax Credit

U.S. Pushing Renewable Energy at Copenhagen 2009 Conference

On December 14th, 2009 at the Copenhagen climate conference, U.S. Energy Secretary Steven Chu announced a new initiative to promote clean energy in developing technologies. It was the launch of the Renewables and Efficiency Deployment Initiative (Climate REDI) which, accelerates the deployment of renewable energy in developing countries to reduce greenhouse gas emissions, fight energy poverty and improve public health. Additionally, he spoke of progress of the Major Economies Forum on Energy and Climate (MEF). The Forum was established in March 2009 as a dialogue among developed and emerging economies to combat climate change and promote clean energy.^[23] MEF countries include: Australia, Brazil, Canada, China, the European Union, France, Germany, India, Indonesia, Italy, Japan, Korea, Mexico, Russia, South Africa, the United Kingdom, and the United States.^[24]

The Climate REDI initiative will launch a renewable energy program under the World Bank's Strategic Climate fund and includes four clean energy technology programs.

• The Solar and LED Energy Access Program- deploys LED lanterns and affordable solar home systems to those without electricity.

• The Super-efficient Equipment and Appliance Deployment Program- will leverage MEF countries to improve efficiency for appliances traded throughout the world.

• The Clean Energy Information Platform- will enable MEF countries to exchange information and infrastructure to aid in deploying clean energy technologies across the world.

• The Scaling-up Renewable Energy Program (S-REP)- will help provide policy support and technical assistance to low-income countries developing national renewable energy strategies and underwrite additional capital costs associated with renewable energy investments.^[23]

Funding for the programs is $350 million over five years. The United States will contribute $85 million and the rest will be from Italy, Australia, the United Kingdom, Netherlands, Norway, Switzerland and other partners.^[23]

The Climate REDI programs will coordinate with other programs in developing countries. The Solar and LED Program will work with the International Finance Corporation’s Lighting Africa initiative, TERI’s Lighting a Billion Lives program and the U.S. Department of Energy’s Lumina Project. The Super-efficient Appliance Program will work with the International Partnership for Energy Efficiency Cooperation (IPEEC), the Collaborative Labeling and Standards Program (CLASP), EPA’s Energy Star program and the Asia Pacific Partnership on Clean Development and Climate. The Clean Energy Information Platform will work with the OpenEI platform, developed by the Department of Energy’s National Renewable Energy Laboratory (NREL). While the Scaling-up Renewable Energy Program will work under the Climate Investment Funds, a multilateral, multibillion dollar trust fund housed at the World Bank.^[23]

To drive work on the programs, Chu announced that he would have a first-ever Clean Energy Ministerial for MEF and other countries in Washington, D.C., next year.^[23]

At the end of the conference an accord was created where developed countries would finance $10 billion a year starting in 2010 for three years to fund projects in developing countries to deal with impacts of climate change and develop clean energy. The accord also set a goal to increase the financing to $100 billion a year by 2020.^[25] The accord pushed developed countries to financial responsibilities, but did not require them to make cuts in greenhouse gas emissions.^[26]

Modernization of the U.S. Electrical Grid is Needed to Ensure Full Potential of Wind Energy

As interest in renewable energies has increased, focus has turned to the ability of the nation's electricity grid to handle this energy and in a more efficient manner. With the passing of the American Economic Recovery and Reinvestment Act of 2009, $4.5 billion dollars was allotted to the Office of Electricity Delivery and Energy Reliability to be used to modernize the electric grid, enhance security of the energy infrastructure and to ensure that growing demand is met.^[27] However, this is a small amount of what is required to upgrade grids and interconnects. It has been reported that to support the transportation of the proposed 300,000 MW of wind energy will require the investment of $60 billion by 2030.^[28]

The current grid is over 100 years old and consists of over 9,200 electric generating units with more than 1,000,000 megawatts of generating capacity and more than 300,000 miles of transmission lines. Integrating large amounts of wind or solar power into the grid will require advanced energy management techniques and approaches at the grid operator level. According to the European Wind Energy Association for these energies to supply more than 20%, vast improvements will be required. If these are not met and planned for, the full potential of wind and solar power will not be realized. This is crucial considering that 29 states have committed to the use of renewable energy sources, with goals of increasing energy portfolios by up to 20% by as early as 2010.^[29]

Also for the second year in a row a poll conducted by NRG Systems at the American Wind Energy Association's (AWEA) WindPower 2009 conference found that transmission and interconnection constraints were the greatest barrier to the development of wind energy. 43% of respondents (making it the leading opinion) stated that an upgraded national transmission system would contribute the most to the development of wind energy.^[30] Without improvements the ancient electric grid of the U.S. will continue to struggle to meet increasing demand and the ability to incorporate input from renewable resources. Work must not only focus on the generation of wind energy, but to ensure that it can be distributed and utilized to its full potential.

The 2008 Financial Crisis Will Likely Slow Renewable Expansion

Companies in every industry are feeling the effects of the 2008 Financial Crisis as budgets shrink and it becomes more difficult to obtain loans and investments. These conditions are especially dangerous to industries, like solar, that are expanding rapidly (as with solar, which expanded at a rate of 41% per year from 2001-2008^[31]) and require large sums of money to do so - a description that fits the renewable sector exactly. Tighter lending practices will not only make it harder for renewable companies to expand at such high rates but also threaten to decrease demand, as their customers struggle to obtain funding for the expensive projects. Centrica has estimated that it costs £3 million per megawatt to build a wind farm - less than nuclear energy - and most lending institutions simply don't want to lend to projects that are so large and risky - at least until credit markets calm down.^[32]

Declines in the Price of Carbon Emissions Trading on European Markets Reduces Incentives for Renewable Investment

From the summer of 2008 to February 2009, the right to emit one ton of carbon fell from €30 on the EU carbon market to €11.80. Research has suggested that carbon needs to trade at around €25 in order to have a significant effect on green investment.^[33] With the price of carbon allowances so low, incentives for clean energy production in Europe have dramatically decreased.

Legislative Support

Legislative support for clean energy investment in the form of tax breaks, subsidies, and energy mandates has driven growth in the sector over the past few years. Because most renewables aren't as cost-efficient as traditional fossil fuels, such government support is necessary to make clean energy appealing. In April, 2008, the US Senate approved the passage of the Clean Energy Tax Stimulus Act of 2008, in response to high oil prices and climate change fears. This act continues the previous subsidies, increasing the amount of spending to $19 billion. In addition to national legislation, states have also passed their own mandates on clean energy adoption. California has notably stringent policies, including the California Global Warming Solutions Act of 2006, which requires utilities to provide 20% of energy from renewable sources by 2020.

In March 2009, Senator Harry Reid drafted legislation that would make it easier for the government to approve the installation of transmissions lines from remote renewable energy generators to major population centers; the legislation would also set aside enough government land for 4-25 GW of solar energy generators.^[34] Whether the bill passes remains to be seen.

In July 2009, the government of the UK released a white paper documenting a plan to reduce carbon emissions to 22% below 1990 levels by 2012, 34% below 1990 levels by 2020, and 80% below 1990 levels by 2050. These goals are expected to be pursued through the use of wind power and nuclear energy, though many are skeptical about the government's ability to meet the 2020 goal.^[35]

Obama Supports a Renewable Future

In January 2009, President-elect Barack Obama called for the U.S. to double its use of renewable energy by 2012, as part of his plan to stimulate the economy and pull the country out of recession. His plan, which is expected to include up to $800 billion over two years in subsidies and tax cuts for renewable energy, energy efficiency, and electric grid modernization projects, has the potential to pull the industry out of the slump caused by the 2008 Financial Crisis.^[36]

In response to the Financial Crisis, Obama pushed through a stimulus plan that earmarks $80 billion for green projects, including $7.6 bn in renewable energy loan guarantees and bonds, as well as grants of up to 30% for business/homeowner investments in renewables.^[37] A further $10 bn has been earmarked for energy efficiency, $11 bn for efficient power grid expansion, $6 bn for clean energy research, and $2 bn for hybrid cars.^[38]

China is Investing in Renewables

China lead the world in renewable energy investment in 2009, with total investment exceeding $34 billion. China currently produces 52.5 GW using renewable energy sources, or 4% of its total energy consumption. Roughly 70% of China’s renewable energy investment has gone towards wind power. China has aggressive renewable energy targets: it aims to produce 30 GW of power from both wind and biomass sources by the year 2020, a 246% and 1042% increase in capacity respectively^[39]. China announced in March of 2009 that it would subsidize solar energy installations at a rate of $3 per watt - about 60% of the cost - as part of its economic stimulus package.^[40]

Cost of substitutes

Demand for renewable energy is driven largely by the price of the alternatives, namely coal and natural gas (for electricity generation) and oil (for liquid fuel). All the factors that drive rising oil prices or fears of peak oil, therefore also drive demand for renewable energy. On the demand side of the equation, clearly rising worldwide energy demand also plays a large role.

Fears of greenhouse gas emissions

As the evidence in favor of climate change has mounted and governments and citizens have begun to crack down on greenhouse gas emissions, demand for biofuels has ramped up significantly. It's expected that this demand will only continue to grow, as the consensus behind reducing greenhouse gas emissions grows. Heavy investments in renewable energy by such petroleum firms as BP, Shell, Chevron, Total, as well as companies as diverse as HP, Intel, and Google, suggest that businesses are already acknowledging this future demand.

On February 4th, JP Morgan Chase, Citigroup, and Morgan Stanley stated that they would put into effect a set of "Carbon Principles" by which they would give investment priority to clean energy groups, and force any company planning to build coal-powered plants to show how they would deal with the carbon dioxide pollution in order to get investment money. With investment priority at these major banks now going to renewables, clean energy start-ups should have less trouble getting financing.

Cost of inputs

Though its energy inputs are typically renewable, generating renewable energy is not costless, and like all booming industries, renewable energy faces bottlenecks and supply shortages for its key inputs. In the case of wind energy, the cost of turbines has climbed, as manufacturers typically put customers on 18-month waiting lists and even then struggle to source gearboxes and other key parts for the finished products. Solar cell manufacturers face shortages in polysilicon, while biofuels producers face rising prices for their feedstocks, especially corn and sugarcane.

Cost

Demand for renewable energy is driven largely by the price of the alternatives, namely coal and natural gas (for electricity generation) and oil (for liquid fuel). All the factors that drive rising oil prices or fears of peak oil, therefore also drive demand for renewable energy. On the demand side of the equation, clearly rising worldwide energy demand also plays a large role.

References

1. ↑ SeekingAlpha: "Solar, Wind and Biofuels' Impressive Growth Surge in '08"
2. ↑ http://www.iht.com/articles/2007/06/03/bloomberg/bxwind.php "Energy companies make wind power a top investment"]
3. ↑ SeekingAlpha: "Solar, Wind and Biofuels' Impressive Growth Surge in '08"
4. ↑ http://www.pewglobalwarming.org/cleanenergyeconomy/index.html Pew Charitable Trust "Who's Winning the Clean Energy Race? Growth, Competition and Opportunity in the World's Largest Economies"
5. ↑ SeekingAlpha: "Solar, Wind and Biofuels' Impressive Growth Surge in '08"
6. ↑ growth-surge-in-08?source=email SeekingAlpha: "Solar, Wind and Biofuels' Impressive Growth Surge in '08"
7. ↑ Reuters: "Oil surges over $134 on supply woes, weak dollar"
8. ↑ Oil Prices Chart
9. ↑ The Wall Street Journal, Blog by Mark Gongloff, July 3rd, 2007
10. ↑ Energy Information Administration
11. ↑ Chevron Geothermal Website
12. ↑ geothermal energy association:major companies. Retrieved on 2010-0815.
13. ↑ University of Wisconsin - Madison News: "UW-Madison employee shines light on solar power, energy conservation"
14. ↑ [1]
15. ↑ "5: E10, E85, and Flex-Fuel Vehicles "
16. ↑ "5: E10, E85, and Flex-Fuel Vehicles "
17. ↑ EcoWorld: "Greening India’s Energy", May 15th, 2007
18. ↑ Bloomberg Commodities: Energy Prices
19. ↑ Montana Environmental Information Center
20. ↑ American Wind Energy Association
21. ↑ Scientific American
22. ↑ Nuclear Energy Institute
23. ↑ ^{23.0 23.1 23.2 23.3 23.4} Fact Sheet: Clean Energy Technology Announcements, U.S Department of Energy, December 14, 2009
24. ↑ Major Economies Forum Website, accessed on December 28, 2009
25. ↑ UN urges all countries to sign climate accord, en.cop15.dk, December 22, 2009
26. ↑ China: Climate talks yielded "positive" results, en.cop15.dk, December 20, 2009
27. ↑ The American Recovery and Reinvestment Act Includes $4.5 billion for the Office of Electricity Delivery and Energy Reliability, Office Of Electricity Delivery and Energy Reliability News, February 25, 2009
28. ↑ Fessler, David "Why Isn't Midwest Wind-Generated Power Blowing East?," Seeking Alpha, July 14, 2009
29. ↑ U.S. Department of Energy, The Smart Grid: An Introduction, accessed on June 24, 2009
30. ↑ NRG Systems News Room, Industry Poll Finds Transmission Constraints Pose Greatest Barrier to Wind Development, accessed on June 24, 2009
31. ↑ Industry Growth and Policy Progress on the Agenda at Solar 2008
32. ↑ FT: "Funding doubts for giant wind farm"
33. ↑ FT: "Carbon price fall bad for green investment"
34. ↑ SeekingAlpha: Senate Draft Legislation a Boon for Solar, Smart Grid
35. ↑ FT: Winds of change for British energy
36. ↑ SeekingAlpha: "Obama Calls for Doubling Renewable Energy in Three Years"
37. ↑ FT: Fiscal sun shines on renewables groups
38. ↑ FT: Fiscal sun shines on renewables groups
39. ↑ http://www.pewglobalwarming.org/cleanenergyeconomy/index.html Pew Charitable Trust "Who's Winning the Clean Energy Race? Growth, Competition and Opportunity in the World's Largest Economies"
40. ↑ SeekingAlpha: "Economic and Technical Factors Create Winners and Losers in the Solar Cell Market"