making "green" economics work
Jan. 15th, 2006 02:29 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
chelidonFrom my local paper: Going ‘Green' Gaining Steam
The article spotlights a local company which is doing good business in renewable energy construction and production. For better or worse, we live in a largely capitalistic society -- if renewables are going to take off, it'll be because clever people have figured out how to make them economically competitive against non-renewable alternatives. I can quibble with some of the specifics in the story -- for instance, some studies have shown that ethanol, far from being a magic bullet, may have a negative net energy return, once you figure in all of the oil-based fertilizers, farm equipment, distillation and transportation costs that go into it, but the basic point is a very good one -- corporate and other institutional investment is starting to increasingly flow into alternative energy research and production. Energy production and distribution takes a huge amount of capital investment, which is going to have to come from somewhere. Our short-sighted government is doing virtually nothing to prepare for the post-oil future, but perhaps the business world can show a bit more foresight. We'll see.
Hanover -- For the last four decades, being a renewable energy advocate was cool, but being green was hard to do.
Costs were high and technology improvements were slow in coming.
For 30 years, new research and developments were said to be on the rise. Breakthroughs were just around the corner that would make being green practical, affordable and easy.
By using renewable energy sources such as wind, sun, corn or soybeans, we were told that we would be saving the environment and lowering our dependence on foreign oil. The idea was pleasing. We knew that like a daily teaspoon of cod liver oil, being green was good for us, albeit hard to swallow.
Now, in the 21st century, with oil nearing $70 a barrel and gasoline again edging up toward $3 a gallon, it's not only still cool to be green, but it also is becoming feasible. As a result, in the last four or five years, investment money has started flowing into the renewable energy sector, and that has made all the difference.
In fact, in 2004, roughly $30 billion was invested in renewable energy worldwide, which was 20 percent to 25 percent of the entire global power generation sector, according to a report released in December by Renewable Energy Policy Network for the 21st Century (REN21), a global policy network.
Renewable energy is attracting some of the world's largest companies, including General Electric, Siemens, Sharp and Royal Dutch Shell. There are nearly 40 million households worldwide that heat water with solar collectors, most of them installed in the last five years, and renewable energy is now providing 1.7 million jobs, the Renewables 2005: Global Status Report says. The report, released at the Beijing International Renewable Energy Conference, is based on a study conducted by Worldwatch Institute, a Washington-based nonprofit and nonpartisan research group.
The swing toward renewable energy will pump more and more money into research and development, and as a result, there will be more renewable energy options available for consumers, said Scott Brown, chief executive officer of New Energy Capital, a Hanover-based company that puts money into clean energy projects.
Clean Investments
Brown, along with Dartmouth College classmate Dan Reicher and Cornell University graduate Dan Goldman, decided to take advantage of the trend. They formed New Energy Capital, and they found funding from VantagePoint Venture Partners and the California State Teachers' Retirement System.
Together, the three have more than 50 years of experience founding and managing renewable energy companies.
Brown has a law degree from Harvard Law School and has 20 years of experience in the renewable energy field.
Reicher, who is president of the firm, has a law degree from Stanford Law School, 20 years of experience in the field, and served for four years as assistant secretary of energy in the Clinton administration.
Goldman is the chief financial officer and has been in the business for 17 years. He has held senior management positions in Hong Kong and Boston with InterGen, a power generation company co-owned by Bechtel and Shell. He has a master's degree from the London School of Economics.
New Energy invests in, and owns and operates renewable energy and generation projects. “We're basically a green power company,” Brown said.
The company buys projects with existing, known technologies and diversifies in different segments of the renewable sector, he said. “We don't invest in companies that are developing technology.”
After receiving its initial funding in July 2004, New Energy Capital has purchased or invested in a biodiesel production plant in Delaware, cogeneration projects in California and Massachusetts, a biomass power plant in Maine and ethanol plants in Indiana and Michigan.
During the first quarter of this year, the company also will complete the purchase of a 110 million gallon ethanol production facility in northern Indiana's corn-producing area. New Energy will have a $20 million stake in the venture, which is within 60 miles of the firm's other 40 million gallon production facility in Indiana, Brown said.
The company also is looking at wind, solar and municipal gasification plants for future investments, he said.
Converging Factors
A number of different factors have come together this decade to make the renewable energy sector attractive to investors, Brown said.
The mainstream interest in investing in renewable energy began shortly after the blackouts in California and the brownouts in the East in 2000 and 2001. That interest was heightened by the terrorist attacks of Sept. 11, 2001, and a renewed fear of being too dependent on foreign oil, he said.
“Then, the cost of fuels from renewable sources started declining. The cost of solar is dropping while the cost electricity is going up,” Brown said.
Those factors made renewable energy an attractive alternative, but last year's run-up in the costs of fossil fuels, such as oil and natural gas, coupled with further instability and price increases caused by hurricanes and the weather, began pushing alternative generation to mainstream institutions, Brown said.
“In addition, the public interest in renewable energy has increased because of a greater awareness and concern about the environmental impact of fossil fuels.”
Basically, demand has outstripped production of fossil fuels and prices have increased, while the costs of alternative energy and fuels have come down to a level closer to conventional energy, which has increased demand.
“Before energy prices got to a high enough level, it was like pushing on a string. You couldn't make it happen,” said Colin C. Blaydon, the director of the Center for Private Equity and Entrepreneurship at the Tuck School of Business at Dartmouth.
“The recent surge in oil prices have made alternatives feasible, and investors are putting a lot of money in them,” said Blaydon, who has been involved in the energy sector for nearly 40 years.
Putting money in renewable energy has become a sound investment and good business, and the trend will continue, Blaydon said.
“Private equity is clearly going that way, and the large oil companies are getting into it. It will be interesting to see if the oil companies are able to be innovative and reinvent themselves,” he said.
The movement of the oil companies into the renewable sector should not deter private investors “who see real opportunity with this kind of technology,” Blaydon said.
Attracting Investments
Both corporate and private capital is flowing into solar and other aspects of the sector, the Worldwatch report says. “Solar is becoming one of the world's fastest growing and most profitable industries.”
From $5 billion to $7 billion of capital investment is estimated to have gone into solar during 2005, and the trend is expected to continue.
Perhaps the best illustration of renewable energy becoming big business is the wind power industry, which produced more than 6,000 wind turbines worldwide during 2004, and $9.5 billion was invested.
The wind industry also has seen the entrance of large electrical equipment companies buying into the business. GE purchased Enron Wind in 2003, and Siemens bought Bogus in 2004. Both firms are investing heavily in the expansion of wind generation, the study says.
Brazil is leading the world in ethanol production. The country produces about half of the world's ethanol, and exports about half the global trade. All of the country's fueling stations sell pure ethanol and gasohol, a 25 percent blend. Most of the cars produced in Brazil can operate on either pure ethanol or the blend.
Most of the ethanol sold in the United States is in the Midwestern corn belt. There are going to have to be improvements in the country's infrastructure for ethanol to become a significant alternative, Blaydon said.
As in Brazil, automakers will have to develop the vehicles that can run on ethanol, and fueling stations have to be able to handle the product, he said.
“It's not going to happen overnight. It's going to have to evolve,” Blaydon said.
Although the United States is the world's second-largest consumer and producer of ethanol, only about 30 percent of all gasoline sold in the United States is blended with ethanol, but that market also is expanding, the study says.
Construction of 12 new ethanol plants was completed and 16 were started in the United States in 2004, bringing the total in the country to 80. Federal tax credits for ethanol production were $2 billion, and public benefit funds might add another $1 billion in incentives, the study says.
The New Energy Capital plants are making ethanol from corn and have formed partnerships with local farmers. Brown expects the U.S. market to grow 30 percent a year and to soon reach production of 4 billion gallons a year.
“That's 4 billion gallons that replaces foreign oil,” he said.
Ethanol is an alcohol-based alternative fuel than can be blended with gasoline up to 85 percent ethanol and 15 percent gasoline, a U.S. Department of Energy Web site says.
In some areas of the country the blend only is 10 percent ethanol, which still reduces carbon dioxide emission, but is not considered an alternative fuel by the Environmental Protection Agency.
“Because of the abundance of ethanol-compatible vehicles, the future is bright for ethanol as a fuel,” the DOE says.
Brown also believes that the gasoline oxygenator MTBE, which is being banned in some states, will be replaced by ethanol, and that also will help increase sales.
Once all of New Energy's current plants are in full production, the company will be producing more than 200 million gallons of ethanol a year, Brown said.
Big Players
Mainstream investors such as Citigroup, Morgan Stanley and Goldman Sachs, too, are investing in renewable energy.
In 2004, $1 billion in venture capital was invested in U.S.-based clean energy.
“There is growing belief in the mainstream investment community that renewable energy is a serious business opportunity,” the Worldwatch study says.
For example Morgan Stanley is investing in wind power in Spain, and Goldman Sachs bought a wind development firm working on major projects in the United States. And GE's finance arm has started lending money for renewable projects.
“Venture capital is being driven partly by future market projections, some of which show the solar and wind industries growing to $40 billion to $50 billion each sometime during 2010-2014,” the study says.
In May, GE also launched its “ecomagination” campaign, which pledges the company to double its investment in green research and development by investing $1.5 billion annually in clean technologies, according to the firm's Web site.
The company also plans to double its revenues, from $10 billion in 2004 to $20 billion by 2010, from products and services that provide “significant and measurable environmental performance advantages to customers.”
GE has also committed to reduce the company's greenhouse gas emissions significantly by 2012.
Right Time, Right Thing
When Brown and his partners started New Energy Capital, the time seem right for them to put their global concerns and personal interests together in a business venture.
“When the markets turned favorably, moving back to renewable energy was a logical choice. Along with population growth, world energy generation and consumption will be the major factors determining the environment and quality of life for generations to come,” Brown said last week in an e-mail.
“I have always been interested in ventures, whether business or otherwise, that make a difference,” he wrote, adding that he worked on arms-control issues and ran a solar energy company in the 1980s and ran a consulting firm focused on international peace negotiations in the 1990s.
“Whenever possible, I believe in harnessing free enterprise to address important issues. I think we have found a way to do that, and to do it profitably for our investors. That's important to me.”
The article spotlights a local company which is doing good business in renewable energy construction and production. For better or worse, we live in a largely capitalistic society -- if renewables are going to take off, it'll be because clever people have figured out how to make them economically competitive against non-renewable alternatives. I can quibble with some of the specifics in the story -- for instance, some studies have shown that ethanol, far from being a magic bullet, may have a negative net energy return, once you figure in all of the oil-based fertilizers, farm equipment, distillation and transportation costs that go into it, but the basic point is a very good one -- corporate and other institutional investment is starting to increasingly flow into alternative energy research and production. Energy production and distribution takes a huge amount of capital investment, which is going to have to come from somewhere. Our short-sighted government is doing virtually nothing to prepare for the post-oil future, but perhaps the business world can show a bit more foresight. We'll see.
Hanover -- For the last four decades, being a renewable energy advocate was cool, but being green was hard to do.
Costs were high and technology improvements were slow in coming.
For 30 years, new research and developments were said to be on the rise. Breakthroughs were just around the corner that would make being green practical, affordable and easy.
By using renewable energy sources such as wind, sun, corn or soybeans, we were told that we would be saving the environment and lowering our dependence on foreign oil. The idea was pleasing. We knew that like a daily teaspoon of cod liver oil, being green was good for us, albeit hard to swallow.
Now, in the 21st century, with oil nearing $70 a barrel and gasoline again edging up toward $3 a gallon, it's not only still cool to be green, but it also is becoming feasible. As a result, in the last four or five years, investment money has started flowing into the renewable energy sector, and that has made all the difference.
In fact, in 2004, roughly $30 billion was invested in renewable energy worldwide, which was 20 percent to 25 percent of the entire global power generation sector, according to a report released in December by Renewable Energy Policy Network for the 21st Century (REN21), a global policy network.
Renewable energy is attracting some of the world's largest companies, including General Electric, Siemens, Sharp and Royal Dutch Shell. There are nearly 40 million households worldwide that heat water with solar collectors, most of them installed in the last five years, and renewable energy is now providing 1.7 million jobs, the Renewables 2005: Global Status Report says. The report, released at the Beijing International Renewable Energy Conference, is based on a study conducted by Worldwatch Institute, a Washington-based nonprofit and nonpartisan research group.
The swing toward renewable energy will pump more and more money into research and development, and as a result, there will be more renewable energy options available for consumers, said Scott Brown, chief executive officer of New Energy Capital, a Hanover-based company that puts money into clean energy projects.
Clean Investments
Brown, along with Dartmouth College classmate Dan Reicher and Cornell University graduate Dan Goldman, decided to take advantage of the trend. They formed New Energy Capital, and they found funding from VantagePoint Venture Partners and the California State Teachers' Retirement System.
Together, the three have more than 50 years of experience founding and managing renewable energy companies.
Brown has a law degree from Harvard Law School and has 20 years of experience in the renewable energy field.
Reicher, who is president of the firm, has a law degree from Stanford Law School, 20 years of experience in the field, and served for four years as assistant secretary of energy in the Clinton administration.
Goldman is the chief financial officer and has been in the business for 17 years. He has held senior management positions in Hong Kong and Boston with InterGen, a power generation company co-owned by Bechtel and Shell. He has a master's degree from the London School of Economics.
New Energy invests in, and owns and operates renewable energy and generation projects. “We're basically a green power company,” Brown said.
The company buys projects with existing, known technologies and diversifies in different segments of the renewable sector, he said. “We don't invest in companies that are developing technology.”
After receiving its initial funding in July 2004, New Energy Capital has purchased or invested in a biodiesel production plant in Delaware, cogeneration projects in California and Massachusetts, a biomass power plant in Maine and ethanol plants in Indiana and Michigan.
During the first quarter of this year, the company also will complete the purchase of a 110 million gallon ethanol production facility in northern Indiana's corn-producing area. New Energy will have a $20 million stake in the venture, which is within 60 miles of the firm's other 40 million gallon production facility in Indiana, Brown said.
The company also is looking at wind, solar and municipal gasification plants for future investments, he said.
Converging Factors
A number of different factors have come together this decade to make the renewable energy sector attractive to investors, Brown said.
The mainstream interest in investing in renewable energy began shortly after the blackouts in California and the brownouts in the East in 2000 and 2001. That interest was heightened by the terrorist attacks of Sept. 11, 2001, and a renewed fear of being too dependent on foreign oil, he said.
“Then, the cost of fuels from renewable sources started declining. The cost of solar is dropping while the cost electricity is going up,” Brown said.
Those factors made renewable energy an attractive alternative, but last year's run-up in the costs of fossil fuels, such as oil and natural gas, coupled with further instability and price increases caused by hurricanes and the weather, began pushing alternative generation to mainstream institutions, Brown said.
“In addition, the public interest in renewable energy has increased because of a greater awareness and concern about the environmental impact of fossil fuels.”
Basically, demand has outstripped production of fossil fuels and prices have increased, while the costs of alternative energy and fuels have come down to a level closer to conventional energy, which has increased demand.
“Before energy prices got to a high enough level, it was like pushing on a string. You couldn't make it happen,” said Colin C. Blaydon, the director of the Center for Private Equity and Entrepreneurship at the Tuck School of Business at Dartmouth.
“The recent surge in oil prices have made alternatives feasible, and investors are putting a lot of money in them,” said Blaydon, who has been involved in the energy sector for nearly 40 years.
Putting money in renewable energy has become a sound investment and good business, and the trend will continue, Blaydon said.
“Private equity is clearly going that way, and the large oil companies are getting into it. It will be interesting to see if the oil companies are able to be innovative and reinvent themselves,” he said.
The movement of the oil companies into the renewable sector should not deter private investors “who see real opportunity with this kind of technology,” Blaydon said.
Attracting Investments
Both corporate and private capital is flowing into solar and other aspects of the sector, the Worldwatch report says. “Solar is becoming one of the world's fastest growing and most profitable industries.”
From $5 billion to $7 billion of capital investment is estimated to have gone into solar during 2005, and the trend is expected to continue.
Perhaps the best illustration of renewable energy becoming big business is the wind power industry, which produced more than 6,000 wind turbines worldwide during 2004, and $9.5 billion was invested.
The wind industry also has seen the entrance of large electrical equipment companies buying into the business. GE purchased Enron Wind in 2003, and Siemens bought Bogus in 2004. Both firms are investing heavily in the expansion of wind generation, the study says.
Brazil is leading the world in ethanol production. The country produces about half of the world's ethanol, and exports about half the global trade. All of the country's fueling stations sell pure ethanol and gasohol, a 25 percent blend. Most of the cars produced in Brazil can operate on either pure ethanol or the blend.
Most of the ethanol sold in the United States is in the Midwestern corn belt. There are going to have to be improvements in the country's infrastructure for ethanol to become a significant alternative, Blaydon said.
As in Brazil, automakers will have to develop the vehicles that can run on ethanol, and fueling stations have to be able to handle the product, he said.
“It's not going to happen overnight. It's going to have to evolve,” Blaydon said.
Although the United States is the world's second-largest consumer and producer of ethanol, only about 30 percent of all gasoline sold in the United States is blended with ethanol, but that market also is expanding, the study says.
Construction of 12 new ethanol plants was completed and 16 were started in the United States in 2004, bringing the total in the country to 80. Federal tax credits for ethanol production were $2 billion, and public benefit funds might add another $1 billion in incentives, the study says.
The New Energy Capital plants are making ethanol from corn and have formed partnerships with local farmers. Brown expects the U.S. market to grow 30 percent a year and to soon reach production of 4 billion gallons a year.
“That's 4 billion gallons that replaces foreign oil,” he said.
Ethanol is an alcohol-based alternative fuel than can be blended with gasoline up to 85 percent ethanol and 15 percent gasoline, a U.S. Department of Energy Web site says.
In some areas of the country the blend only is 10 percent ethanol, which still reduces carbon dioxide emission, but is not considered an alternative fuel by the Environmental Protection Agency.
“Because of the abundance of ethanol-compatible vehicles, the future is bright for ethanol as a fuel,” the DOE says.
Brown also believes that the gasoline oxygenator MTBE, which is being banned in some states, will be replaced by ethanol, and that also will help increase sales.
Once all of New Energy's current plants are in full production, the company will be producing more than 200 million gallons of ethanol a year, Brown said.
Big Players
Mainstream investors such as Citigroup, Morgan Stanley and Goldman Sachs, too, are investing in renewable energy.
In 2004, $1 billion in venture capital was invested in U.S.-based clean energy.
“There is growing belief in the mainstream investment community that renewable energy is a serious business opportunity,” the Worldwatch study says.
For example Morgan Stanley is investing in wind power in Spain, and Goldman Sachs bought a wind development firm working on major projects in the United States. And GE's finance arm has started lending money for renewable projects.
“Venture capital is being driven partly by future market projections, some of which show the solar and wind industries growing to $40 billion to $50 billion each sometime during 2010-2014,” the study says.
In May, GE also launched its “ecomagination” campaign, which pledges the company to double its investment in green research and development by investing $1.5 billion annually in clean technologies, according to the firm's Web site.
The company also plans to double its revenues, from $10 billion in 2004 to $20 billion by 2010, from products and services that provide “significant and measurable environmental performance advantages to customers.”
GE has also committed to reduce the company's greenhouse gas emissions significantly by 2012.
Right Time, Right Thing
When Brown and his partners started New Energy Capital, the time seem right for them to put their global concerns and personal interests together in a business venture.
“When the markets turned favorably, moving back to renewable energy was a logical choice. Along with population growth, world energy generation and consumption will be the major factors determining the environment and quality of life for generations to come,” Brown said last week in an e-mail.
“I have always been interested in ventures, whether business or otherwise, that make a difference,” he wrote, adding that he worked on arms-control issues and ran a solar energy company in the 1980s and ran a consulting firm focused on international peace negotiations in the 1990s.
“Whenever possible, I believe in harnessing free enterprise to address important issues. I think we have found a way to do that, and to do it profitably for our investors. That's important to me.”
