NEW ENERGY CAUGHT BETWEEN THE COST AND THE NEED

People all over the New Energy community are wondering one thing.

V. John White, executive director, Center for Energy Efficiency and Renewable Technology (CEERT): “Everyone is in shock about what the new world is going to be…Surely, renewable energy projects and new technologies are at risk because of their capital intensity.”

Are they?

The key questions: (1) How long will credit will be tight? (2) How low will oil and natural gas prices fall?

General wisdom: New Energy is viable with oil prices in the $40-to-$60/barrel range.

If the prices for oil and gas go lower, utilities and consumers could turn away from New Energy.

A little history: All the gains New Energy made in the 1970s disappeared when oil fell to $10/barrel in the 1980s.

However: It didn’t help in 1980 when President Reagan took the solar panels off the White House and drastically cut R&D funding to New Energy.

What has changed: Both presidential candidates are supporters of New Energy. Neither will sabotage it like Mr. Reagan did. Senator Obama includes a big New Energy investment and a national Renewable Electricity Standard (RES) as part of his platform. Senator McCain’s platform does not allocate such large monies or make such explicit promises but he runs TV spots touting wind installations and has pledged to make the U.S. the “leader in a new international green economy.”

What never changes: Neither candidate has been candid about what he will sacrifice as a result of the financial crisis.

Where does that leave New Energy?

John Woolard, chief executive officer, BrightSource Energy: “[R]ight now we are looking at tumultuous and unpredictable capital markets.”

Analysts say wind beats solar when natural gas is at or above $8/thousand cubic feet (tcf). July 3 gas was $13.58/tcf. October 21, it was $6.84/tcf.

Kevin Book, senior vice president, FBR Capital Markets: “Natural gas at $6 makes wind look like a questionable idea and solar power unfathomably expensive…”

Conundrum: More than half the states now have RESs requiring their utilities to obtain a specific portion of their power (10-to-20%) from New Energy sources by a date certain, some as early as 2010 or 2012. Will those RESs drive New Energy development despite the uneconomic nature of the undertaking?

Kevin Book, senior vice president, FBR Capital Markets: “When they can’t meet their targets…they change them.”

The not-widely-known good news (for New Energy): Prohibitions against greenhouse gas emissions and radioactive waste continue to make huge investments in, and long payback periods for, dirty coal and nuclear power plants inequitable. “Clean” coal and "next generation" nuclear are not solutions to this, they are still experiments.

The unfortunately good news (for New Energy): Security concerns make dependence on foreign oil undesirable. The wars in Iraq and Pakistan will continue to drive public opinion toward New Energy.

Arnold R. Klann, chief executive, BlueFire Ethanol: “What is driving the market this time is that we’re at war and this is a security issue…”

Most important unknown: Will global climate change remain enough of a concern to the public, even as times get hard, to sustain New Energy?


What will the plummeting price of natural gas do to utilities' investing in wind and solar installations? (click to enlarge)

Alternative Energy Suddenly Faces Headwinds
Clifford Krauss, October 20, 2008 (NY Times)

WHO
New Energy developers and investors; Energy market experts and analysts (V. John White, executive director, Center for Energy Efficiency and Renewable Technology; John Woolard, chief executive officer, BrightSource Energy; Kevin Book, senior vice president, FBR Capital Markets; Arnold R. Klann, chief executive, BlueFire Ethanol; Mark Flannery, energy analyst, Credit Suisse)

WHAT
New Energy faces serious challenges due to the credit freeze and the big drop in oil and natural gas prices. Investment capital for New Energy projects is tight and getting tighter.

View the full .DJIA chart at Wikinvest

WHEN
- Recent months: Shares of New Energy companies more sharply than the rest of the stock market.
- 2007 world New Energy initial/secondary stock offerings: $25.4 billion
- 2008 world New Energy initial/secondary stock offerings: expected to be less than half of 2007.
- 2004 total world New Energy investment:: $33.4 billion
- 2007 total world New Energy investment: $148.4 billion
- 2008: total world New Energy investment: expected to drop below 2007
- 1970s: Oil prices skyrocketed from $3 to $12/barrel, setting off a New Energy boom
- 1980s: Oil prices dropped, ending the boom

WHERE
- Worldwide project financings for new construction of New Energy in Q2 2008: $23.2 billion
- Worldwide project financings for new construction of New Energy in Q3 2008: $17.8 billion
- Financings for new construction of projects expected to fall sharply in Q4 2008 and more sharply in 2009.
- New Energy development migrated to Europe when oil prices dropped in the 1980s.

WHY
- Neither candidate will sabotage New Energy the way President Reagan did but neither has been candid about what much be sacrificed from his proposals due to the credit crunch.
- Venture capital financing for New Energy projects is “drying up,” according to anecdotal reports and analysts.
- 2 wind energy companies have had to delay projects recently due to trouble raising capital.
- Several Iowa and Oklahoma corn ethanol projects have been delayed for lack of financing. An Ohio corn ethanol plant operator filed for bankruptcy last week.
- Electric car maker Tesla Motors delayed production of its all-electric Model S sedan, closed 2 offices and laid off staff.
- State RESs will drive production as will federal biofuels mandates.
- Coal and nuclear remain too expensive to invest in.

Will they drive New Energy development despite tight credit? (click to enlarge)

QUOTES
- Mark Flannery, energy analyst, Credit Suisse: “Government funding for renewables is now going to have to compete with levels of government funding in other areas that were unimaginable six months ago…”
- Kevin Book, senior vice president, FBR Capital Markets: “If you can’t borrow money, you can’t develop renewables…”