April 23, 2013 – Vol.18 No.6

IT'S ABOUT WATTS, NOT DOLLARS.
by Bruce Mulliken, Green Energy News

Oh, the gloom and doom. The sky is falling. Report after report says that investment in renewable energy is down everywhere. From the headlines you'd think that renewable energy, wind and solar in particular, is headed to the dustbin.

Yet the sub-headlines tell something completely different: Renewable energy capacity is up. Clean power is growing! This is great!

But what gives? How can this be? How can investment be down and capacity up?

There's one way to look at this and it's simple enough: Renewable energy is getting very cheap. More generating capacity in terms of Watts is being built for fewer dollars than ever before. It's the dream come true! It's what people have wanted for decades!

Yet now the analysts who write these reports seem upset about this. Though the financial world may only look at dollar signs as a way to compare this and that, in the power generating business it's Watts per dollar that counts and you want as few dollars (or really pennies) spent as possible for each Watt of generating capacity built. The environmental community (those that concern themselves more about the planet than profits) extends the power business's mantra by adding that you want as few dollars spent for each Watt of CLEAN generating capacity built, that way the environment gets better and better.

Some analysts may argue that the dropping costs of renewables means that there should be more investment and even more clean Watts built. And in this they have a point. What they're saying is that despite the drop in the cost of some renewables, that the return on investment isn't as good as other investments so there's less willingness to invest in renewables. That is, it's hard get money for renewables when there's greater potential profits elsewhere. In other words, they're saying that investors have lost interest in renewables, and this isn't a good thing for the industry. (Right now fracked gas is probably a better bet as an investment than renewables, so the investment dollars once spent on wind and solar may be being channeled to gas.)

Some may blame government policies, both here and abroad, for the decline in investment in renewables, and they may call for new policies to spur investment. But it may be the renewable energy industry itself that brings back the investment dollar. Consider this: It certainly seems feasible that given the current downward trajectory in the cost of renewables that eventually renewables could actually be less costly than conventional energy. As renewable energy companies continue to cut costs to survive, eventually they might go over that tipping point, parity as its called in the business, where their energy becomes the cheapest around, cheaper than conventional energy, natural fracked gas included.

Even if as renewables get close to parity ( in some markets they may already be) there might be increased incentive to invest and that, too, is simple to understand. Adding renewable energy, particularly solar, is relatively easy, quick and can be done incrementally. Need another megawatt of peak period power to meet demand? Find a cheap piece of property or a roof top as a willing host, install a bunch of solar panels and the new power capacity is there with little maintenance needed for 20 years or more.

Power companies would much rather add new capacity incrementally, in relatively small bits than in big expenditures, big expensive projects. If those small doses of new power capacity are profitable from the second they're connected then its a much better investment as those costs drop.

There's much more to the investment down/capacity up story, of course, and it's far more complex:

--- Renewable energy companies are getting very good at finding new markets for their products and services.

--- Energy consumers, particularly businesses, are finding that renewables are good for the bottom line, a good way to meet company environmental goals and are good for public image.

--- And, there are still incentives, goals and mandates from all levels of government around the planet to build new renewable capacity.

It would helpful if analysts follow the Watts more closely than they do the dollars. If new installed capacity drops then be concerned. If not, and capacity still increases while dollars invested drops, then the renewable energy industry is healthy, doing what it's supposed to do: Adjusting to new market conditions and learning to be more competitive.

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