Those who remembered how the first renewable energy boom ended knew the recent upsurge in interest in alternatives to carbon fuels would be a race against time. The challenge always was to achieve scale before the high price of fossil fuels, that stoked the interest in the first place, started to damage economies and, at the same time, the oil and gas industries’ massive exploration programs started to bear fruit. This is, of course, where we are today. A new word, ‘fracking’ has entered the energy market lexicon and now the US is a net energy producer once more. Saudi Arabia is scaling back production and the suspicion is, now that China has completed its reserve building exercise, a tidal wave of the black stuff will drown the energy market.
How many renewable energy companies will get washed away this time? Two decades ago a fall in global energy prices, following the 1970s recession and an exploration binge that saw oil being dragged up out of the North Sea, swept away most of the renewable energy sector. Even companies and technologies that looked might, given more time, have achieved scale were left under water.
This time around things should have been different, after all climate change legislation was pulling the market upwards while rising energy prices supported it from below. However the renewables industry’s choice of partners for this venture could have been better – alternative energy looks a lot less alternative if your key backer is an oil company. While energy prices are high, and the oil and gas sector profitable, governments can exert substantial pressure on energy companies. Environmental programs and support for companies developing alternatives are a relatively painless way for the oil and gas industry to avoid windfall taxes. However when wholesale prices fall governments lose some of their clout.
The UK government’s policy on renewable, or alternative, energy is currently in a state of flux. The Department of Energy and Climate Change (DECC) has a foot in each camp. With austerity starting to bite and energy bills remaining stubbornly high, allegedly to pay for green initiatives and carbon reduction, it is fairly obvious how DECC will react when offered fossil fuel at knock down prices. The department is also being pulled in two other directions and is the battleground of choice during power struggles between the government’s coalition partners. An early casualty is likely to be the Green Deal – currently the main game in town for secondary construction companies, which have added energy saving and micro-generation technology to their product portfolios.
The collapse of the Green Deal would see construction companies going back to being builders and energy companies dumping renewable energy programs. When that happens pure play alternative energy companies will need alternative business models. The answer, and we have to assume there is an answer, is to develop technologies that not only generate sustainable forms of energy but also support sustainable business models. This was one of the main findings of the research carried out by Steinkrug and published in its series of CarbonFree Reports.
Photovoltaics has almost reached the point where it can stand on its own feet but, even here, there is more work to do before it is completely subsidy free. Other forms of alternative energy, such as passive solar, never had the benefit of government support. As a result companies developing these technologies have been forced, by necessity, to develop more cost effective solutions. DECC has also recently seen the light with respect to energy storage and is now in the early stages of funding development. However, companies that have been working on energy storage for many years may find DECC’s interest short lived and it could well be a case of last in first out when it comes to reigning in funding.
To prevent a rerun of the 1980s renewable energy crash companies must look again at their business models and who they partner with. It is also time to seek out technologies that are price competitive with oil and gas during periods of glut. Also to develop solutions that provide a broad approach to energy management – such as eliminating the formation of the heat islands that make life intolerable in built up areas during summer months but are, nonetheless, a potential source of energy. Time not to just think out of the box, but also think outside of the barrel.
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