TODAY’S STUDY: LOOKING INTO NEW ENERGY’S FUTURE

Clean Energy Trends 2013

Ron Pernick, Clint Wilder and Trevor Winnie, March 2013 (Clean Edge)

Clean Energy Trends 2013

2012 proved to be an unsettling and difficult year for clean energy. High-profile bankruptcies and layoffs plagued many clean-tech companies, overall venture investments retreated in the face of increasingly elusive returns, and the industry was begrudgingly transformed into a partisan wedge issue during the highly contentious U.S. presidential campaign.

The beginning of 2013 has continued many of these same themes. In the U.S., conservative organizations and politicians continue to attack pro-clean energy policies at both the state and federal level. Numerous groups, most prominently the American Legislative Exchange Council (ALEC), are feeding off election-season rhetoric by ratcheting up efforts to roll back supportive policies such as state-backed renewable portfolio standards (RPS). In Europe, ongoing economic struggles continue to slow demand for a host of clean technologies. Even in China, where economic growth and cleantech commitments seem to carry on unimpeded, the country’s overleveraged solar manufacturers are being forced to crawl back to the government for even larger (and we’d say unsustainable) safety nets.

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The fundamental global market drivers for clean technology, however, remain largely intact. Intensifying resource constraints (everything from freshwater to energy feedstocks) cannot be ignored, especially with a global population now exceeding 7 billion. In the aftermath of unprecedented climate disruption in the U.S. and abroad, resiliency and adaptation are becoming critical business and policy drivers as organizations scramble to meet a literally changing landscape. In the U.S., President Obama has signaled a strong commitment to expanding clean energy and energy efficiency in his second term, calling for a doubling of renewable power by 2020. And increasingly lower prices for clean-tech goods and services are helping wind and solar power reach cost parity in both utility-scale and distributed markets, making the value proposition increasingly attractive. Even amidst the carnage of 2012, clean energy has continued its ascent as a major economic force, with an increasing focus on deploying technologies that are ready and available now.

Indeed, against 2012’s not-so-rosy backdrop, solar, wind, and biofuels deployment continued to rise. As a result, combined global revenue for solar PV, wind power, and biofuels grew yearto-year – albeit only slightly – from $246.1 billion in 2011 to $248.7 billion in 2012. This marginal growth doesn’t reflect the industry’s true expansion, though, as solar PV revenues fell considerably even as installed capacity grew – one of many consequences of fast-declining prices for solar power technologies.

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-Biofuels (global production and wholesale pricing of ethanol and biodiesel) reached $95.2 billion in 2012, up from $83.0 billion the previous year, and are projected to grow to $177.7 billion by 2022. From 2011 to 2012, global biofuels production expanded from 27.9 billion gallons to 31.4 billion gallons of ethanol and biodiesel. Market size growth over the next decade is expected to be driven by added production, but also by modest price increases.

-Wind power (new installation capital costs) is projected to grow from $73.8 billion in 2012, up from $71.5 billion the previous year, to $124.7 billion in 2022. Global wind capacity expanded by 44.7 gigawatts in 2012, a record year led by more than 13 GW added in both China and the U.S., and an additional 12.4 GW of new capacity in Europe.

-Solar photovoltaics (including modules, system components, and installation) decreased from a record $91.6 billion in 2011 to $79.7 billion in 2012 as continued growth in annual capacity additions was not enough to offset falling PV prices. While total market revenues fell 19 percent – the first PV market contraction in Clean Energy Trends’ 12-year history – global installations expanded to a record of 30.9 GW in 2012, up from 29.6 GW the prior year. Germany remained the top market, adding 7.6 GW in 2012, followed by strong growth in China, Italy, and the U.S., which each added more than 3 GW. By 2022, solar PV revenues are expected to grow to $123.6 billion.

Together, we project these three sectors will continue to grow over the next decade, nearly doubling from $248.7 billion in 2012 to $426.1 billion in 2022.

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Big, Smart Money Steps In

Increased financing from deep-pocketed traditional energy and technology players is also helping to accelerate clean-tech deployment, and simultaneously turning heads. In early 2013, famed investor Warren Buffett’s MidAmerican Energy Holdings further expanded its solar portfolio with a $2 billion acquisition of the Antelope Valley Solar Projects, which will feed 579 MW of electricity to Southern California Edison when construction is completed by SunPower in 2015. Other recent MidAmerican solar project acquisitions include the 550 MW Topaz Solar Farm and a 49 percent stake in the 290 MW Agua Caliente solar power plant. In similar fashion, and announced only a week later, Google’s $200 million equity investment in a Texas wind farm pushed the tech giant’s ownership in solar and wind projects to 2 GW, enough to power 500,000 households. (Innovative finance models are also greasing the wheels for distributed solar; see Distributed Solar Financing Comes of Age on page 10.)

The transportation market is also seeing significant activity from both relative newcomers and established industry icons. Most notable is Tesla’s Model S all-electric sedan, which was named 2013 Motor Trend Car of the Year, the first non-internal combustion engine vehicle to win this prestigious performance-based award. While demand for electric cars has been lower than expected by industry participants, EV sales are generally mirroring the growth pattern that hybrids experienced when they first became available to the mass market in the early 2000s. Sales of the Chevy Volt, for example, tripled to more than 23,000 in 2012 in the model’s second full year on the market, according to General Motors. (See page 12 for more on how micro-hybrid technology is set to impact fleet-wide fuel efficiency.) The growing popularity of car-sharing programs also presents an interesting scenario for the future of advanced transportation, particularly for personal urban transport. In January 2013, car rental giant Avis Budget Group announced its plan to buy car-sharing pioneer ZipCar for $500 million, a promising reminder that new ways of thinking can be just as disruptive as new technologies.

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Global Energy Shift Heats Up

Although the federal production tax credit for U.S. wind energy projects ultimately got an 11th hour reprieve during Congress’ recent fiscal cliff negotiations, the extended period of uncertainty was more than enough to rush developers to beat the year-end deadline. As a result, wind represented nearly half of all new U.S. generation capacity added in 2012 – 41 percent of the total, to be exact – outpacing natural gas’s 33 percent share. Including solar, biomass, geothermal, waste heat, and water sources along with wind, renewables accounted for a record 49 percent of added capacity in the U.S. during 2012. And with coal at just 17 percent of last year’s new capacity, and no new nuclear to speak of, it has really become a renewables and natural gas story for new generation capacity in the U.S.

For the European Union the transition is happening even faster, but in this case solar is in the driver’s seat. In 2012, newly installed solar PV accounted for 37 percent of all added capacity, followed by wind with a 26.5 percent share, and gas at 23 percent. In total, renewable sources represented more than 31 GW of the 44.6 GW of new generation capacity in the EU, roughly 70 percent of all new capacity for the second consecutive year.

Generating capacity is, of course, not the same as actual generation. But even in this regard, cleanenergy sources have moved past their days as rounding errors and are playing a significant role in meeting electricity demand in a number of global markets. Wind energy in Denmark blew past a 30 percent share of national electricity use in 2012, and an official target is in place to generate half of all the nation’s power from wind by 2020. In Germany, clean energy already accounts for 25 percent of energy production – led by wind (9.2 percent), biomass (5.7 percent), and solar (5.3 percent) – and the country is aiming for 35 percent from renewables by 2020. In the U.S., nine states were generating more than eight percent of in-state electricity from wind alone by the end of 2011. Iowa’s largest utility, MidAmerican Energy, now gets nearly one-third of its total power from the wind after adding more than 400 MW of wind power capacity in 2012.

On the whole, solar’s role in electricity production remains smaller than wind, but with the rapidly declining costs of solar PV, solar is gaining ground. While only five years ago PV was being installed at roughly $7 per watt, today projects in Germany can be completed at closer to $2 per watt. PV system prices remain higher in the U.S., where balance-of-system costs (“soft costs”) have not fallen as fast, but outgoing Energy Secretary Steven Chu is optimistic about where things are heading. “Before maybe the end of this decade, I see wind and solar being cost-competitive without subsidy with new fossil fuel,” Chu explained at a Pew Charitable Trusts event last year. For this to occur, PV costs will have to drop to around $1 to $1.50 per watt installed.

But as solar and other renewables continue their march down the cost curve, it seems that the goal posts are continually on the move, at least in the U.S., where fracking and horizontal drilling technology to inexpensively tap vast supplies of shale gas has fundamentally shifted the economics of energy. Some argue that America’s cheap natural gas will crowd out clean energy technologies, but we strongly believe this is not the case, as solar and wind have seen repeated record deployment in recent years and state-based RPS keep deployment targets on track. Instead, it appears that the future of energy in the U.S. belongs to a mix of clean energy, improved efficiency, and responsible natural gas resource development – a path recommended in our latest book Clean Tech Nation: How the U.S. Can Lead in the New Global Economy (HarperCollins, September 2012). Both private industry and government have active roles in advancing this scenario. Oregon Governor John Kitzhaber’s 10-Year Energy Action Plan, for example, calls for meeting 100 percent of new electric load growth through energy efficiency and conservation. General Electric’s product innovations include new advanced natural gas-fired power plants that can be powered up and down quickly to better partner with variable clean energy sources on the grid.

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U.S. Clean-Tech Venture Investments

In 2012, U.S.-based venture capital investments in clean technologies totaled $5.0 billion, contracting for the first time in three years with a 26 percent drop from $6.6 billion in 2011, according to data provided by Cleantech Group.

Clean tech’s decline, however, matched a similar downward trend for total VC investment in the U.S., with clean-tech investments still representing nearly one-fifth of all VC activity in the U.S. during 2012. This share could quite easily shrink in coming years as clean-tech IPOs remain all too rare and mainstream VC firms begin to shift focus back to other areas – particularly to less capital-intensive sectors with shorter business life cycles like software and web-based startups. Worldwide, clean-tech VC investment dropped 33 percent from the 2011 amount to $6.5 billion in 2012, with U.S.-based companies attracting more than three-quarters of the global total, according to Cleantech Group.

Beyond venture capital, total global clean-energy investments fell 11 percent to $269 billion, down from $302 billion in 2011, according to Bloomberg New Energy Finance. But this wasn’t entirely negative news for the industry, and it reflects similar findings in our global solar and wind market numbers reported earlier. As BNEF said in a press release, “sharply lower prices of solar and wind technology exert downward pressure on investment volumes, though they allow higher installation levels per dollar of funding.” This is backed up by record amounts of installations of both wind and solar worldwide during 2012, even amidst lower investment doled out.

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Monitoring clean-tech performance in public financial markets, Clean Edge, along with NASDAQ®, currently produces two indexes* which act as benchmarks for the sector: CELS tracks U.S.-listed clean-energy companies and QGRD looks at smart grid and grid infrastructure companies (QWND, which was discontinued in early 2013, tracked performance of global wind companies). Historically, these indexes have experienced much volatility, climbing as much as 74 percent and falling as much as 64 percent in a single year. During 2012, CELS was down 1.8 percent and QGRD up 18.2 percent for the year. QGRD outperformed the S&P 500 index benchmark, which rose 13.4 percent in 2012.

Looking Ahead: Five Trends to Watch

Clean tech’s diversity can sometime make it difficult to identify the sector’s trajectory, but as we move beyond the age of hype and hope into an era rooted in accelerated deployment and near-term solutions, several influential trends will emerge. For 2013, our five major trends to watch are:

• Smart Devices and Big Data Empower Customers, Open New Chapter in Energy Efficiency

• Distributed Solar Financing Comes of Age

• Under the EV Radar, Microhybrid Technology Saves Big on Fuel Consumption

• In the U.S. and Overseas, Geothermal Picks up Steam

• Perfectly Natural: Biomimicry Makes its Mark on Clean Tech

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