Barriers to Renewable Energy Investment

What exactly does green energy mean? To me it’s a possible career path.  To Europe its a way of life and to the United States it is a touchy subject that has been a point of contention for decades.  The most pertinent question however, is what does green energy mean to Corporate America?

Harnessing important natural resources like wind requires a substantial amount of capital.  Renewable energy companies hoping to invest in wind and solar power technology seek private capital needed to embarce these innovative sources of energy. The alternative energy industry requires effective, market based solutions to address climate change and ecosystem degradation in order to create new business opportunities for capital investment and industry growth. Consider the following statistics compiled by the U.S. Energy Department in 2009; worldwide demand for electricity is expected to increse from 14.8 trillion kilowatts to 27.1 trillion kilowatt hours by 2025.  Investment in electric generation, distribution and transmission will be required to meet this demand. Yet, there must be a convergence of public and private sector interests to bolster these nascent technologies.  Here, it is important to examine how China’s vast energy needs and capability limitations provide ample opportunity for U.S. clean-tech firms to create an integrated, globalized market for alternative energy innovation.  Radical innovation in the U.S., supported by public and private capital, can complement the producing power of China, capable of producing billions of widgets at a penny each.

The problem in the U.S. is twofold: 1) Renewable energy projects generally require higher amounts of financing to the same capacity than conventional energy sources.  Capital markets may demand a premium in lending rate for financing proects of such kind.  More capital is risked up front than in conventional energy projects. 2) The failure of Waxman-Markey alternative energy bill to pass in the Senate, which would have provided important incentives for capital investment in wind, solar and bio-fuel technologies, reflected the persistent legislative constraints surrounding the investment and application of these alternative energy technologies.  Mr. Paul Loeffelman of American Electric power spoke at the United Nations in 2009 about changing the legislative landscape to spark corporate interest in alternative energy investments. His outline consists of three requirements—the laws must be predictable, stable and enabling.

With these requirements met it will be easier for the rest of the industry to begin to grow.  His requirements for the industry to follow suit are also three fold. 1) The creation of strong public-private partnerships to provide market-based solutions to make alternative investment attractive here at home and not in China, where outsized production capacity and state support of renewable initiatives has drawn the production of alternative technologies away from the U.S. 2) Technology and training must be available to support the growth of a domestic renewable industry.

3) Funds for development, construction, and maintenance are critical components of a capital intensive, public-private partnership in pursuit of a vibrant and sustainable U.S. clean-energy industry.

The United Nations has begun to draw more attention to the issue by sprinkling an energy agenda into the Millennium Development Goals.  While energy is not one of the goals, the United Nations has tried to incorporate it into each of the existing ones.  This is an important step and according to Dr. Shihab Kuran, founder of Petra Solar, “unless action is taken now, the consequences of inaction will be devastating”.   Peter Fusaro, founder and chariman of Golbal Change Associates commented on the issue saying, “we can’t just have the rhetoric of green.  What we need is the deployment of capital and finance in green”.  His goal has been to make alternative energies competitive and profitable.  His company invests in new projects and is a leader in renewable energy investment.

With leaders like these paving the way, even in an uncertain legislative landscape, it is easy to see that this industry is bursting at the seams.  Within the next five to ten years, the renewables market is expected to become one of the fastest growing in the world.  Dr. Kandeh K. Yumkella of Sierra Leon, Director General of UNIDO (United Nations Industrial Development Organization), closed his keynote address at the United Nations high-level energy conference by saying, “you can’t eliminate climate change without an energy revolution”.  Whether you are interested in green energy for the prospect of fortune, or simply for the promotion of a more sustainable planet, Dr. Yumkella is correct: what the world needs is an energy revolution.