The Good, the Bad and the Ugly in Cleantech

Almost every day you can find renewable energy in the news, and sometimes it’s so overwhelming that you can't see the forest for the trees. Therefore, I always appreciate the opportunity to stop for a minute and get a better look at the big picture. Such an opportunity was The Wall Street Green Summit that took place in New York. This event provided many interesting perspectives on the present and the future of the cleantech sector, and I’d like to share three main themes from the summit that seemed to be having the greatest influence on the industry. I’ll divide them into the good, the bad and the ugly.

The Good – U.S. Army: The fact that the U.S. Army is an important driver in the development of the cleantech sector is quite well known. Yet, what might be less known is the political consensus on this trend. I learned about this somewhat surprising finding from a presentation of Howard Snow of Federal Business Strategies and Solutions and former Deputy Assistant Secretary of the Navy. Snow showed how both Republican and Democratic administrations provided similar mandates for the Army on the use of green energy. He showed how the current efforts of the Army are based on policies that are supported by the Obama administration but were actually signed into law by President Bush, like the Energy Independence and Security Acts of 2005 and 2007 (EISA 2007), or National Defense Authorization Act 2007.

For the army as Snow explained renewable energy is a force multiplier and the military sees it as an important tool to provide greater support to the warfighter and expand combat capability. With such an attitude it is no wonder the army is using its influence in Washington to make sure politicians are aware that it sees renewable energy and energy efficiency as an essential part of its future, especially in days of budget cuts. As a result the Army is becoming some sort of a green bubble and the most powerful ally the cleantech sector has right now.

The Bad - Lack of green energy policy: If there’s one thing that all the speakers at the summit could agree on, it was how the lack of consistent green energy policy (unless we’re talking about the Army) is harming the industry. Michael Carter, director of the energy group at SNL Financial, said it very clearly on the first day of the summit: We need a simple structure and a consistent policy. Doesn’t sound like too much to ask, right? Still, the chances this request will be granted are quite slim.

Carter wasn’t the only one who expressed his dissatisfaction with the lack of stability when it comes to energy policy. Tom Blum, an investment banker and partner at G C Andersen who is focusing on cleantech brought the point of view of investors. He explained how investors have started debating if they should maintain the level of resources focused on cleantech after the U.S. didn’t adopt a carbon pricing policy. John Joshi, managing director at CapitalFusion Partners, gave specific examples, like the Section 1603 Treasury Program (aka 1603 Cash Grant program) that was expired by the end of 2011. Although many solar developers as well as the President want to see the program extended, the chances of that happening are not that high.

The frustration of both developers and financiers of cleantech projects of the inability of policy makers to maintain some sort of stability is actually a recurring theme in many conferences I've attended recently. Given the divide between the political parties in the U.S. on government support of cleantech, energy and climate issues, these complaints won’t disappear anytime soon.

The ugly – Shale gas: It could easily be picked for the part of "the bad," but Shale gas seems to be a better fit with "the ugly," in part because of its “deceptive” nature, having an image of a clean energy source that helps get rid of coal, while at the same time stabbing the real clean sources in the back by making them less attractive.

Frank Dinucci, principal at Meridian Resource Advisors, reminded the audience of the magnitude of impact shale gas has on electricity prices – according to an S&P report quoted on Bloomberg, shale-driven glut of natural gas has cut electricity prices for the U.S. power industry by 50 percent on average since 2008. In the same Bloomberg article, Travis Miller, a Chicago-based utility analyst at Morningstar Inc. explains that “wind on its own without incentives is far from economic unless gas is north of $6.50” (per million British thermal units). Unfortunately, this breakeven point is not at sight - gas is expected to stay below 2011’s average price of $4.03 for the next two years according to the investment bank Robert W. Baird (BADC) & Co.

Therefore, it wasn’t that surprising to hear Tom Blum, the investment banker, saying that from investors’ point of view cheap natural gas makes it harder to make an argument for developing and building a renewable energy project. You can already see it with renewable energy projects that are either shelved, like NextEra Energy plans for new U.S. wind projects, or canceled, like T. Boone Pickens’ 2010 plans for a Texas wind farm.

It is still left to be seen which of the three elements will have a more significant impact on the future of the cleantech in the U.S. We can only hope it will be the good force, although the political landscape and the surge of shale gas suggest there’s a good chance the bad and the ugly will be the ones shaping our future.

[Image credit: Wall Street Green Summit 2012]

Raz Godelnik is the co-founder of Eco-Libris, a green company working to green up the book industry in the digital age. He is an adjunct faculty at the University of Delaware’s Department of Business Administration, CUNY and the New School, teaching courses in green business and new product development.