Pernick: As Oil Prices Go Up, Clean Energy Costs Fall

Ron Pernick is co-founder and managing director of Clean Edge Inc. The San Francisco area-based consultant and researcher creates indexes to track various segments of the clean energy industry. One of its benchmarks serves as the basis for the PowerShares Global Wind Energy Portfolio (PWND).

IndexUniverse.com's Murray Coleman caught up with Pernick recently at Clean Edge's offices in Portland, Ore., working on development of a new index series expected to be unveiled by year's end.

IU.com: What do the correlations between conventional energy pricing trends and alternative energy trends show now?

Pernick: Conventional energy prices are extremely volatile. Over time, you can make the case that those will continue to increase, especially oil. On the other hand, clean energy prices in general have been going down. Solar power is a very striking example. For every doubling of solar PV modules [the technology used to convert sunlight into electricity], there's about an 18% decline in pricing.

IU.com: Is that a big change from past years?

Pernick: In 2007, for the first time, the solar industry started using more silicon than the high-tech semiconductor industry. From 2006 through 2008, we saw a significant shortage of silicon. But that three-year period is ending, which will further help to reduce costs of solar energy going forward. Some of the large manufacturers such as Suntech Power (STP) last year started initiating price reductions of around 25% on solar cells and panels. And we're seeing more price reductions this year. That bodes well for the solar industry and solar PV modules in the future. We're also seeing companies like First Solar (Nasdaq: FSLR) delivering thin-film solar technologies now that are cheaper. That's a neat twist in the non-silicon, new chemistries market.

IU.com: How about wind energy?

Pernick: Over the past 30 years, we've seen a reduction in pricing in wind power. But now it's stabilizing. We probably won't see significant ongoing wind reductions in terms of costs. It could decrease slightly or remain stable. The key is that wind power has taken a maturation path where there are large players who've been working on large projects for years. Those include companies such as GE and Siemens AG (SI).

IU.com: As clean energy costs go down, how much will its usage escalate?

Pernick: My crystal ball is no better than anyone else's might be at making predictions. But many drivers are in place to increase usage in the United States. More than two dozen states already have renewable portfolio standards, which require states to produce clean electricity at certain levels. For example, California is requiring 33% of all electricity produced in the state to come from renewable sources by 2020. And a number of states are pegging that rate at 20-25% by 2025. Today, between 8-10% of our electricity generation in the U.S. comes from renewable energy. That figure includes hydropower. It's important to remember that most of these state mandates don't include hydro.

IU.com: What do you see as the biggest gainers from such a development?

Pernick: There's no doubt wind is going to be a big benefactor of this push on a statewide level. There are 12 states, in particular, that appear to be well-positioned. Those include Texas and Iowa, of course, along with almost anywhere across the Great Plains. Also, the three Western states stand to gain along with those in the Eastern coastal parts of the country. Wind prices are relatively stable now, which is a plus for states looking to plan projects on a larger scale.

IU.com: What about solar power?

Pernick: Considering that solar costs are positioned to drop dramatically in the next several years, we could easily get to a point where solar might represent 10% of the country's electricity generation by 2025. But that can only happen with utilities actively involved in the process. Other industries also must take the right steps in terms of gaining proper access and receiving enough incentives to fully take advantage of new solar technologies. It's important to note that in the past five years, the most activity we've seen in the U.S. in terms of solar adoption has been from commercial and industrial buildings putting systems on roof tops.

IU.com: How is new legislation impacting new projects?

Pernick: The last two quarters of 2008 and the first quarter of 2009 were pretty dismal. The decimated credit markets didn't help alternative energy sectors. But we're starting to see the impact of stimulus dollars and more liquidity in credit markets show up in a number of different ways. For example, the stimulus package includes over $9.3 billion to improve high-speed rail. To build a smarter grid system, another $11 billion is targeted in the stimulus bill. In total, we've identified more than $70 billion from this stimulus package for clean energy projects alone. If you add clean water spending into the mix, that goes up to close to $90 billion.

We also should see some stimulus coming as the result of an eight-year extension for solar tax credits. The most we've seen in terms of extensions in the past have been two years. And it often takes a long time to actually receive an extension. So this eight-year period should provide a lot more clarity in lowering costs for people to install solar power.

But we don't expect any of these drivers to make a big impact on clean energy industries until early 2010. So while we're starting to see some increased activity, it's going to take some time to recover from the ravages of the recent bear market.

IU.com: What is the most attractive subsegment of renewable energy market?

Pernick: Some other areas of interest are conservation and efficiency. By deploying these measures, you reduce the amount of electricity needed. Weatherizing a house, for example, is a great idea. How many people use a digital thermostat to automatically turn off their heat when they don't need it? And there are a lot of new energy efficient technologies coming down the road—including windows that can reduce cold or heat outflows by three-to-five times. Retrofits are great and a lot of programs are being developed to help people fund these types of projects.

But the really dramatic changes are coming in the green building arena with brand new structures. Anything embedding more intelligent and efficient systems in our power grid is going to make a huge difference. When there's a power outage today, utilities find out today by phone calls. In the future, utilities are going to use technologies that talk to each other. It's the next big networking project in high-tech.

Original post

Comments

[robert.b.fe...:]

According to Boone Pickens (pickensplan.org) wind power production is not viable untill oil reaches $200 U.S. per barrel. That bench mark is only attainable short term by market manipulation. Think cap and trade.

May 19 09:20 AM

[Windsun33:]

Solar and wind do not replace oil, they replace coal power generatrion primarily. 10 trillion gigawatts of wind will not put a gallon of gas in your car.

That seems to be the most common fallacy and most common flaw in all these oil vs solar type arguments.

May 19 11:43 PM

[gmiller:]

What about nuclear power? It is the best alternative for baseload power, in terms of scalability and cost. The waster disposal objection is overblown and more of a political problem than a real one. France generates 80% of its electricity via nukes and even sells power to neighboring countries. Due to recycling, all national waste fits in a space about the dimensions of an olympic swimming pool. Confucius say "man who say something cannot be done, should not contradict man already doing it." Speaking of smart Chinese, China is building nuclear plants like crazy, securing project capacity and buying up available uranium supply. They will have clean, cheap, abundant energy, while we scramble for the scraps. so much for change we can believe in.

May 20 12:16 AM

[gmiller:]

Yeah, but it can power electric cars and trains.


On May 19 11:43 PM Windsun33 wrote:

> Solar and wind do not replace oil, they replace coal power generatrion
> primarily. 10 trillion gigawatts of wind will not put a gallon of
> gas in your car.
>
> That seems to be the most common fallacy and most common flaw in
> all these oil vs solar type arguments.

May 20 12:18 AM

[spald_fr:]

Nuclear power is the most facile instrument out of power constriction and rising power costs but politically, it's a loser. The USA will go cap and trade.

May 20 07:55 AM