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I recently discussed renewable energy with a New Yorker working in project finance. For keeping-her-job purposes, let's call her Jane Dough. She sheds light on the pessimism of financial institutions that can't seem to stay afloat -- let alone afford idealism. While she envisions energy crises facing this nation's future, she offers two solutions: technological innovation and energy efficiency education.
Michael Kroon: How does the New York finance community see renewable energy?
Jane Dough: I won't speak for the entire city. But I work for one of the premier project finance banks in the world, and our experts tell me all the time that renewable energy will never cover base-load electricity demand in this country.
MK: Why not?
JD: I lay out the details of comparable transactions in the energy space. Coal is overwhelming. Natural gas is overwhelming. Wind is trendy. Solar is extremely difficult to finance. The largest solar power plant in the US is a 75MW facility. The average coal utility is ten and twenty times that.
And the backlog of coal-fired power plants is 20 years long, inhibited only by permitting issues. If those issues are resolved, those plants have long-term Power Purchase Agreements associated with them that will attract quick financing and supply huge volumes of power to this country.
If those permitting issues are not resolved - if our government establishes a cap-and-trade policy on carbon emissions, and these utilities cannot be built, I do not see how their capacity will be replaced with any existing alternatives.
MK: Thankfully, some sort of carbon pricing seems likely. What then?
JD: Renewables will never cover anything but peak capacity unless there is a technological revolution.
MK: We need to drastically ratchet up our renewables research, but barring a technological breakthrough, where do analysts in New York see a carbon-priced energy market heading?
JD: I think there are two theoretical alternatives here: 1.) Power shortages. Or 2.) As the cost of power increases, people will not decrease power usage; but, adjustments will be made to coal plant construction, and existing plants will be retro-fitted.In terms of 2: existing technology can control sulphur and carbon dioxide in coal plants -- chimney liners, in the most basic of terms. If there were carbon dioxide controls, they might clean the air, but they might also lead to the shutting down of a lot of currently functioning power plants.
MK: So, it's door number 1?
JD: Yes: power shortages. And in my most pessimistic moments, I feel that we might deserve that.
MK: If so, who's to blame?
JD: It is difficult for me, within New York finance, to identify who is the enemy. I am surrounded by successful people whom I respect but whose careers depend on the de-prioritizing of sustainable investments. No one finances renewable energy exclusively because it's clean. Financial sponsors just make good equity investments. I like to argue with them, but as I listen, I realize that they are not the enemy. They are really smart people with experience and responsibilities.
That said, I've watched the same "responsible" professionals lobby for the credit fundamentals of a cigarette company one week and a wind farm project the next. And I realize that public health and renewables are not factors in these discussions beyond their quality as investment considerations or risks.
MK: Is there room for the rest of us to influence your industry?
JD: I'd like to hope so. I had dinner with a friend recently. She went to one of our nation's top colleges. She was known at my high school as a voracious reader and solid individual. She also said the following to me:
"The first month I moved to New York, my electricity bill was $400. No one ever told me I had to turn off my air conditioner".
MK: Can we change such ignorant facets of New York culture? Would a smarter public lead to a smarter market?
JD: Whether this is a function of over-privilege or general ignorance, I cannot say - but come on! It may be that education is the only manageable solution, because we can't beat a market - any market. We have a responsibility to teach those ridiculous teenagers that air conditioning costs money! We should channel this anxiety into a program on personal sustainability and electricity consumption, so that at the very least, a few more little girls and boys in the world know to conserve their AC.
I think the interviewee focuses on the dollars and cents (indicated in the original title "$cared to ¢are") of renewable energy equity investment, as opposed to the technical plausibility of the utility projects. And though the market has begun to swing, coal sadly remains the best investment -- in the short-term at least.
I agree that she expresses investors' anxieties with exaggerated pessimism, and the present funding of enormous alternative energy projects contradicts her.
But with her arguable assertions, she plunges an interesting cultural thermometer into a gun-shy financial sector biased against its better judgment.
The logic of convincing environmental concerns has consistently fallen victim to the irrationality of conventional wisdom, especially among the decadent "experts" of Wall Street. This misguided flock -- thinned by self-predation in recent days -- presents a fortunate opportunity for independent investors interested in making money after an inevitable pricing of carbon emissions. Failing to recognize such overarching patterns promises to punish those beholden to a blindly anti-ecological bias.
Finally, and arguably her best point, she bemoans a wasteful culture of consumption and consequently fears future power shortages in this country. This double-edged sword demands both responsible investment -- in SmartPower for greater efficiency and battery technology for better storage -- and universal energy efficiency education, from neo-natal to the nursing home.
Excuse the irony of hogging the share of comments on my own blog, but I couldn't resist quoting our own government on this. Setting aside details of private equity investment, the US Department of Energy explains Photovoltaics and the aspirational baseload:
"PV technology can meet electricity demand on any scale. The solar energy resource in a 100-mile-square area of Nevada could supply the United States with all its electricity (about 800 gigawatts) using modestly efficient (10%) commercial PV modules.
"A more realistic scenario involves distributing these same PV systems throughout the 50 states. Currently available sites—such as vacant land, parking lots, and rooftops—could be used. The land requirement to produce 800 gigawatts would average out to be about 17 x 17 miles per state. Alternatively, PV systems built in the 'brownfields' —the estimated 5 million acres of abandoned industrial sites in our nation's cities—could supply 90% of America's current electricity.
"These hypothetical cases emphasize that PV is not 'area-impaired' in delivering electricity. The critical point is that PV does not have to compete with baseload power. Its strength is in providing electricity when and where energy is most limited and most expensive. It does not simply replace some fraction of generation. Rather, it displaces the right portion of the load, shaving peak demand during periods when energy is most constrained and expensive."
http://www1.eere.energy.gov/solar/printable_versions/myths.html#1