Wednesday, January 23, 2008

Separating Hype from Reality: A Confluence of Hot Air in the Debate over Green Technology

From Knowledge@Wharton:

Most energy experts agree that global warming is a serious threat, and they also agree that green technology has the power to fundamentally reshape how business gets done. But at this early stage, these experts -- including investors -- are finding it hard to separate truth from exaggeration when it comes to the benefits that green technology can offer. That was the consensus of industry speakers at the recent Wharton Energy Conference who participated in panels on renewable energy, oil and gas, energy finance and power.

At the moment, an aura of uncertainty surrounds the electric-power industry, according to several panelists who noted that old-line players, like the investor-owned utilities, are cautiously awaiting signals from politicians, regulators and even the public. Companies want to know whether the United States will adopt a so-called "cap-and-trade"system to govern carbon emissions or a more straightforward carbon tax. In addition, they are wary of betting too heavily on any particular new technology, such as wind or solar, until they know that it will be broadly supported.

Yet at the same time, venture capitalists and new investors like Google are eagerly pouring money into just about any startup that brands itself as pursuing "clean tech" or renewable energy. As a result, technologies that remain unproven on a massive scale are seeing huge run-ups in value. Stock in U.S.-based First Solar, for example, has returned nearly 600% over the last 12 months.

"We are not in a bubble [for renewables], but there are valuation issues," said Michael Liebreich, chief executive of New Energy Finance, an energy consultancy. "There is $100 billion of new money that has been invested in clean energy across all sectors and countries. What you have is enormous inflation of asset prices, which is driven by that liquidity, not by fundamentals. In the fear-and-greed balance of capitalism, we're definitely in the greed phase."

People are so giddy over solar power's potential that they are making investments that simply don't add up, Liebreich said. Germany, a country with relatively weak sun, has committed to producing electricity via solar. But solar power, which remains costly compared with traditional sources, works best in places with abundant sunshine and a weak transmission infrastructure for electricity, like Africa and much of Asia. Germany is "is papering over agricultural land with solar," he said. "It's absurd. You have a situation where 90% of the capacity of rapidly growing solar-cell manufacturing is going into Germany."...MORE