TODAY’S STUDY: WHERE THE MONEY WILL TAKE NEW ENERGY

Clean Energy Trends 2011
Ron Pernick and Clint Wilder with Trevor Winnie and Sean Sosnovec, March 2011 (Clean Edge)

What was the one lesson from the infamous Watergate scandal that had a long-lasting impact?

Politicians didn’t learn it’s the cover-up and not the crime that gets them. Partisans didn’t learn that dirty tricks disgust voters. The media didn’t learn that the best reporting takes a long time to unfold its insights.

But what Deep Throat told Bob Woodward has rung down the decades like a truth from on high: Follow the money. Anybody who wants to see the undeniable logic of New Energy needs only to heed the adage.

Looking at where the marketplace is on energy, as the report highlighted below does, can only lead to one conclusion: The future belongs to New Energy.

It is not something the nation at large has come to realize. The nuclear nightmare in Japan has provoked a lot of chatter among uninformed if well-meaning TV panelists about the nation’s energy choices. One laughably observed – dismissively – that while everybody wants New Energy, it is impossible to imagine it providing a significant portion of the nation’s power sooner than a couple of decades. As an advisor to NewEnergyNews often observes about the mutterings of fools, HA!

Compare the rate of private investment in New Energy over the last five years (detailed below) to the private funds being used to build new nuclear plants (none). How much operational “clean” coal has come on line in the last five years? None.

For four consecutive years ntil 2010, when the federal government pulled the carpet out from under New Energy with policy reversals that no other generation source was subjected to, only new natural gas capacity was greater than new wind capacity. Though still a small portion in absolute terms, solar’s installed capacity is growing at a faster rate than any other generation source.

It can take a decade to build a new nuclear plant and probably almost that long to build utility-scale “clean” coal (though it could easily be longer, nobody knows for sure because it has never actually been done). Meanwhile, a 2008 Department of Energy report unhesitatingly endorsed the capability of wind to supply twenty percent of U.S. power within two decades.

Solar industry observers almost universally agree its price is on the verge of, or has already become, competitive with the cost of new nuclear power. For the last three decades, the market has avoided nuclear because of its risk and cost. With the spectre of the meltdown in Japan looming over a too, too costly nuclear option, solar is only going to seem all the more preferable to investors and make the industry’s goal to provide ten to fifteen percent of the nation’s power by 2025 more achievable.

Yes, it will be one to two decades before New Energy achieves the same proportions in the U.S. (and world) energy mix as the Old Energies that have been in place and well-subsidized for decades (nuclear) or centuries (coal). The nation’s lights will remain on and its air conditioning will keep running as marketplace choices guide the progressive replacement of the Old with the New.

It will be two decades of phenomenal growth, as the New Energy economy emerges fueled by the emissions-free, domestic, ever-replenishable sources of power from the sun, wind, deep heat and flowing waters of this good earth.

Those talking heads may know all the names of all the contenders for the thankless job of running against President Obama in 2012 but any one of them who disdainfully says New Energy won’t be a player in the nation’s energy mix because it will take two decades to build that capacity is essentially advising the same thing the report below advises: There was never a better time to buy into New Energy than right now, at the beginning of the boom.

Clean Energy Trends 2011

Ten years ago, in April 2001, Clean Edge released Clean Tech: Profits and Potential, our first publication. It marked the launch of our research firm and the beginning of a decade-long journey exploring the growth, opportunities, and challenges of the clean-tech sector.

Back then, the concept of clean tech was virtually unknown in the mass media, in business circles, and among politicians. At the time, there was one clean-tech institute in India and the United Nations used the term sporadically, but decided, in a move that only a bureaucrat could love, to use the term “environmentally sound technologies” or ESTs, instead. But we thought the term “clean tech” was most apt – reflecting terms used in earlier revolutions such as high tech and biotech – and much more aligned with our own Internet-age proclivities. Needless to say, clean tech and clean energy won out – and have moved broadly into the mainstream vernacular – from Beijing and Washington, D.C. to Rio de Janeiro, Seoul, and across the globe.

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As witnessed over the past decade, clean tech has proven to be a significant business opportunity, and its growth rates now rival that of earlier technology revolutions like telephony, computers, and the Internet. According to Clean Edge research, the global market for solar photovoltaics (PV) has expanded from just $2.5 billion in 2000 to $71.2 billion in 2010, for example, representing a compound annual growth rate (CAGR) of 39.8 percent. The global market for wind power, which like solar PV we have tracked every year for the past decade, has similarly expanded from a global market worth $4.5 billion in 2000 to more than $60.5 billion today, for a CAGR of 29.7 percent. And these growth rates are not limited to solar and wind. Other clean-tech sectors, such as hybrid electric vehicles, green buildings, and smart grid, have seen similarly spectacular growth rates.

This overall trend for clean-tech markets continued to be one of growth and expansion in 2010. Combined global revenue for solar PV, wind power, and biofuels surged by 35.2 percent over the prior year, growing from $139.1 billion to $188.1 billion. The bulk of this expansion came from a more than doubling in global solar PV installations. For the first time since we began tracking the wind sector, however, we witnessed a slight year-over-year decline in market size.

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According to our research:

- Biofuels (global production and wholesale pricing of ethanol and biodiesel) reached $56.4 billion in 2010 and are projected to grow to $112.8 billion by 2020. In 2010, the biofuels market consisted of more than 27.2 billion gallons of ethanol and biodiesel production worldwide, up from 23.6 billion gallons the prior year.

- Wind power (new installation capital costs) is projected to expand from $60.5 billion in 2010 to $122.9 billion in 2020. Last year’s global wind power installations declined slightly to 35.2 GW, down from a record 37.5 GW the prior year. China, the global leader in new installations for the third year in a row, continued to see an increase with total installations of more than 16 GW. The U.S. continued to see significant declines in the face of a tight project finance market, uncertainty around project grants until late in 2010, and the lack of a federal RPS, among other challenges, adding only half as much capacity as the prior year with just 5 GW installed in 2010. Against this backdrop, China surpassed the U.S. for the title of global leader in total cumulative installs for wind power, with a capacity of more than 42 GW.

- Solar photovoltaics (including modules, system components, and installation) are projected to grow from a $71.2 billion industry in 2010 to $113.6 billion by 2020. New installations reached more than 15.6 GW worldwide in 2010, a more than doubling from 7.1 GW in 2009. The level of growth and expansion in solar PV was a direct result of PV prices dropping by more than 30 percent in 2009 followed by an additional 10 percent drop in 2010.

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Together, we project these three benchmark technologies, which totaled $139.1 billion in 2009 and grew 35.2 percent to $188.1 billion in 2010, to grow to $349.2 billion in the next decade.

When Clean Edge released its growth projections for solar and wind power 10 years ago, many observers, to put it kindly, thought we were being optimistic. We projected that solar power would grow from a global market of $2.5 billion in 2000 to $23.5 billion by 2010 and that wind power would grow from a global market of $4 billion in 2000 to $43.5 billion by 2010. But as we’ve highlighted above, we were actually quite conservative in our estimates, coming up around 300 percent short in our solar PV estimates and approximately 50 percent short in our wind estimates. Below is a table that shows the actual global market growth for solar and wind for the past 10 years, and for biofuels for the past five years, based on Clean Edge’s annual market figures.

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U.S. Clean-Tech Venture Investments

In 2010, U.S.-based venture capital investments in clean technologies increased from $3.5 billion in 2009 to $5.1 billion in 2010, an increase of 45.7 percent, according to data provided by the Cleantech Group.

While falling short of 2008’s record-breaking $6.1 billion total, 2010’s more than $5 billion represented nearly a quarter of all VC activity in the country last year, a new record. In addition, the more than 370 deals in 2010 represents the largest number of financings recorded in a one-year period. Of the 10 largest clean-tech venture deals in 2010, five were for solar, two were for EVs, two were for bio-based materials, and one was for geothermal.

Another view on the markets comes from tracking the performance of publicly traded clean-energy stocks. Clean Edge, along with NASDAQ, currently produces three indices which act as transparent and liquid benchmarks for the sector: CELS, which tracks U.S.-listed clean-energy companies; QWND, which tracks global wind power companies; and QGRD, which looks at smart grid and grid infrastructure companies. These Clean Edge indices* soared 75, 67, and 34 percent respectively in 2007; plummeted 64, 54, and 43 percent respectively in 2008 along with the general market; and outperformed most market indicators in 2009, rising 44, 38, and 49 percent respectively. 2010 saw a more mixed performance, with CELS up two percent, QWND down 35 percent, and QGRD essentially flat (down 0.4 percent) for the year. Since 2007, the volatility in the clean-energy sector represents both the ongoing struggle within the broader financial markets and the real and perceived risks associated with the clean-tech sector. The wind industry in particular took a beating in 2010, as manufacturers were faced with tempered demand and declining revenues. U.S.-listed clean-energy companies fared the best among Clean Edge’s three indices, buoyed by fairly strong stock performance of energy-efficiency and power-management companies.

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As we’ve written many times before, clean-energy markets will only truly thrive when they reach cost parity with conventional offerings. In March 2011, we released a pricing report for subscribers to our U.S. Clean Energy Leadership Index that analyzes current and future costs of distributed solar PV compared with U.S. retail electricity rates, and current and future costs of wind power compared with U.S. wholesale electricity prices. For the first time in history, these clean-energy technologies are reaching cost parity in select markets. And by 2015, we project that distributed solar PV systems will be cost-competitive for residential retail customers in at least 11 states, and for commercial customers in more than six states. By 2020 that number, based on our projections, grows to an astounding 47 states for residential customers and more than 35 states for commercial customers.

Wind is already cost-competitive with fossil fuel-generated electricity in many markets, when considering time to market, siting requirements, and overall costs. That doesn’t mean that wind power, like its fossil fuel brethren, doesn’t require some subsidies and supportive policies, but it’s increasingly becoming a viable option for states and regions looking to bolster their renewable resources. At present, most new wind farms are producing electricity in the 5-8 cents per kWh range, which makes it one of the least expensive options for new generating capacity additions. Since 2007, wind power has ranked near and often ahead of natural gas as the leading source of new generating capacity in the U.S.

These projections and market realities bode well for clean energy as an industry. Clean-energy deployments are proving economically viable in a number of key markets. Add in tax credits, low-cost utility financing, and other pricing schemes, and some utilities, like Southern California Edison, are stating that they can deploy solar PV for even less than new natural gas-fired generators at the wholesale level. While such examples are still rare, the tide is turning in favor of renewables, and our research shows there will be many new cost-parity and cost-beating stories to report in the next five years.

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Clean Edge has a full decade of research and projections under its belt. This deep history of data tracking and analysis provides a critical view on where the clean-tech sector has been and where it’s headed.

Based on our research and vantage point, what will the world look like a decade from now? While it’s difficult to forecast the future with complete accuracy, we expect a host of developments and changes in the next 10 years, including:

- solar and wind resources contributing a combined 20-30 percent, or more, of electricity generation capacity in dozens of U.S. and global markets;

- explosive growth in the electrification of transportation, with millions of grid-connected EVs on the road in the U.S., China, Japan, Europe, and other major markets;

- the eventual death of compact fluorescent light bulbs (CFLs) and the emerging dominance of solid state light-emitting diode (LED) technology (see Trend #1 on page 8);

- a movement to create low-cost, competitive green buildings that produce more energy than they consume; and

- waste streams becoming a common feedstock for new materials and energy production.

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As China, India, South Korea, the U.S., Germany, Japan, and other nations compete to win the global clean-tech race, and large-scale clean-energy deployment results in innovation and declining costs, we expect to see continued growth in many clean-tech industries.

Of course, challenges persist. A number of key battles, for example, are brewing within the public and private realm that could have significant impact on the industry. These include everything from budgetary shortages and disputes to supply chain constraints (see Trend #5 on page 16). These and many other vexing issues will demand creative solutions, collaboration among strange bedfellows, and public and corporate leadership, to name just a few. But our assessment, 10 years into tracking this sector, is that clean energy remains one of the strongest and most vital sectors reshaping the global landscape.

...[In the report] we look deeper at five of the key trends we believe will shape clean-energy markets in 2011 and beyond...