Sunday, October 9, 2011

Clean Energy 'Unreliable', Subsidies 'Unsustainable', says Forbes

The lead paragraph from the July Forbes Magazine article screamed for my attention: 
"The global clean energy industry is set for a major crash. The reason is simple. Clean energy is still much more expensive and less reliable than coal or gas, and in an era of heightened budget austerity the subsidies required to make clean energy artificially cheaper are becoming unsustainable" (The Coming Tech Crash, July 2011).
Is this pessimism warranted?  With governments as well as growing communities of venture and angel investors targeting clean tech investments around the globe, and with so much U.S. capital stockpiled and seeking ventures for investment, why the gloom and doom?  

Forbes blames a slowing of government subsidies, along with poor targeting of subsidies already rolled out.  Moreover, Forbes' analyst accuses cleantech energy of failing to demonstrate cost-efficiency in general.  In a disconcerting prediction, coming cuts in subsidies, they say, will soon lead to an exodus of investment dollars from the U.S. to Asia.

Gloomy stuff.  Yet Forbes' assumptions are worth a second look.

Over the next weeks, this blog will explore a number of factors driving  investment in clean technology, including Forbes' demonized government subsidies, global recession, new technologies, declining oil stocks, risk management, and geopolitics.

Forbes' current view of cleantech investment may be too strongly colored by its view of subsidies launched by President Obama in 2009.  At that time, investors' hopes were riding high as the new administration assembled its stimulus plan in response to the growing recession.  That optimism set up the president to take a share of blame when subsidized investments in cleantech met uneven returns in the unstable markets of 2009-11.  

Critics of Obama's subsidies might be wise to spend more time focusing on more fundamental market forces.

Clean technology investing slowed dramatically with the crash of 2008, as did investments in other sectors.  Yet, a recent report by the Cleantech Group measures first quarter 2011 investment in US clean technology at its highest level since 2008.  
Why, with subsidies coming under new criticism, with a gridlocked U.S. government running out of options, with a global recession lingering, why is investment rising?

The desire to be green may not be so much a part of the equation as it was in those heady days of early 2008.  Business leaders, as always, are seeking secure supplies and a stable prices.  Many are targeting these very attributes in cleantech.

For example, global companies need forward-thinking supply chain strategies, of which biofuels are a growing component.  Price instabilities are now systemic in the global oil industry, petroleum stocks management is complicated by geopolitical uncertainty, and markets are overly influenced by speculation (more on this in coming weeks).  While rising oil prices are challenging for business, uncertainty is worse.  It is the growing risk management issues these instabilities create that are now fueling new growth in the biofuels sector.

To Forbes, the cleantech sector today looks overly subsidized, too capital intensive, and inextricably tied to a passing era of government activism.  Yet. cleantech is showing continued signs of vitality, and the real reasons for this cleantech investment rebound may be back-to-basics pragmatism.   

Sustainability, after all, is about reducing risk and planning ahead.

Next week, we'll explore more clues regarding the future of cleantech investment. 

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