Between the low price of natural gas, continued policy uncertainty in Washington and a disappointing year in 2012 for cleantech investments, there’s a growing narrative among venture capital and private equity investors that renewable energy is dead. There’s just one problem, according to an analyst and a major investor in the industry: The story’s just not true.
In a panel discussion at the recent National Renewable Energy Policy Forum, Nancy Pfund, a managing partner at green-tech heavyweight DBL Investors, and Ethan Zindler, head of policy analysis at Bloomberg New Energy Finance, argued that while the cleantech investment landscape is certainly changing, surprising, brand-new investment opportunities still abound.
And the notion that renewable energy costs more than fossil fuels is becoming an old-time myth, these two experts found.
“We’re starting to get some surprises on the ability of renewables to compete,” Zindler said, based on Bloomberg’s Sustainable Energy 2013 Factbook.
“If you’re not looking at information from the last six months, then you are looking at data that is irrelevant and outdated.”
Pfund’s moves at DBL Investors show that she agrees, including stakes in SolarCity, Tesla Motors, Bright Source and FloDesign. DBL also participated in an $11 million round of funding in 2011 for Primus Power, which is developing new grid-scale energy storage technology. The company has received orders from the Bonneville Power Administration, the Department of Defense and the city and county of Modesto, California.
“To give you a sense of how important storage is,” Pfund said, “those contracts were signed even though the system isn’t ready yet because they’re that desperate to integrate storage.”
Another exciting area for Pfund: Collaborative consumption. DBL Investors is currently researching a possible deal to invest in a company that helps employees share rides to work. The investment merges two emerging opportunities, using capital-efficient software applications and “using technology to reduce the number of cars on the road.”
Perhaps the biggest surprise is that renewable energy is finally becoming cost-competitive with fossil fuels. Even as policy makers and editorial writers continue to claim that renewables simply cost more, the cost per kilowatt hour for renewables including solar and biomass dropped 20 to 30 percent in the last twelve months, Zindler found, which completely changes the energy landscape.
“We’re starting to get to the Promised Land in which this technology can compete on its own, without subsidies,” Zindler said.
One example is the wind power industry, in which turbine prices dropped 40 percent since 2009, and capacity grew by 5 percent, causing a 22-percent savings in the average cost of delivered electricity, according to Bloomberg’s Factbook. The obvious problem is that the $13.9-billion financing boom in 2012, in which investors rushed to take advantage of production tax credits that appeared likely to expire, is causing a hangover that could last into 2014, said Zindler.
Still, private investment in other forms of renewable energy continues, despite much talk to the contrary.
“Another big myth is that cleantech venture capital is dead. There’s been a lot of wringing of the hands about this,” said Pfund.
What many people forget is that many sectors experienced a similar drop in investment during the hard economic times of the last few years, Pfund said, and that venture capital always has large fluctuations no matter the industry. “There is no need to jump ship,” said Pfund.
The inevitable rebound of renewables financing, Pfund said, is being supported by another overlooked fact: Federal and state policies to support the growth of renewable energy are boons, not boondoggles. DBL’s investment in FloDesign is supported by funding from the controversial ARPAE program, as well as research funded by the Department of Defense dating back to the 1940s on super-efficient wind turbines, said Pfund. There’s also Primus Power, recipient of funding from the Department of Energy and ARPAE, which recently announced that it won a contract from the Department of Defense to build an energy storage system for the Marine Corps Air Station in Miramar, California.
“The policy is working,” Pfund said. “The loan guarantee program, it is working. ARPAE, it is working.”
If anything, renewables are under-subsidized, said Pfund, who co-authored a study by DBL Investors finding that government investment in the critical early years of renewable energy have totaled less than half a billion dollars, compared to $1.8 billion for oil and gas and $3.3 billion for nuclear. Those supports take many forms, from favorable tax treatment of REITs and Master Limited Partnerships in the oil and gas industries to the Price-Anderson Nuclear Industries Indemnity Act of 1957, which removes insurance costs from nuclear by making the government responsible for payment.
“If you reduce insurance costs, that would reduce the returns people would need to have and reduce the cost of capital,” Pfund said.
Despite all the headwinds renewables face, they are still playing a major role in America’s changing energy markets. Improved efficiency caused U.S. energy consumption to drop by 6.4 percent over the last five years, even as GDP has perked back up recently. A total of 9 gigawatts of coal energy came offline in 2012, Zindler said, as the industry faces stricter EPA requirements, fierce price competition from natural gas, plus 17.4 gigawatts of new clean energy capacity installed in 2012, an all-time record.
The newfound growth of renewables has prompted a well funded campaign by the fossil fuel industries to undermine green power, said Pfund. That includes lobbying for new taxes on net metering, challenges to new low-carbon fuel standards, and a neverending parade of lawsuits against California’s cap-and-trade system.
“We’re seeing what always happens,” Pfund said. “Once you get a little success, the established industries get more worried.”
Other countries have no such policy battles. China spent $68 billion on renewable energy projects in 2012 and has committed to building 43 gigawatts of green power in 2013, including 10 gigawatts of solar. The streamlined system for buying new residential solar modules in Germany has led to 400 watts of solar energy per citizen there, compared to less than 50 per person in the U.S., Zindler said.
“The trend of this century is personalization, and so far energy has managed to escape that,” said Pfund, who participated in last year’s funding round that brought $81 million to SolarCity. “I don’t think that will continue.”
Meanwhile, the growth rate of renewables in developed countries including the United States has started to lag behind that of developing countries, Zindler’s research found. Exponential growth is occurring in countries like South Africa, which went from spending very little on renewables to spending $5 billion in 2012 alone.
“This is exciting because it means a number of smaller developing countries are investing and they’re growing very, very quickly,” Zindler said.