Renewable Energy: The Next Economic Boom

I found some interesting reading over the weekend, and much of it was directed towards the renewable energy. The longish article (The power and the glory | Economist.com - read it all) hypothesized the next boom in investments will be in the energy field, specifically renewables. I found the short history of economic booms to be revealing and I will attempt to give a quick outline here.

The modern industrial age was driven by the increasing availability and use of different energy sources. Coal to power factories and trains, oil increased the efficiency of ships and trains, and gave us the personal mobility of cars and trucks. Electricity allowed us to light and power our homes and businesses efficiently. Natural gas provided a clean, inexpensive source of electricity and heat.

These low cost energy sources led to the recent technological booms: Computing in the 1980s and the Internet in the 1990s. Now, however, the rising cost of energy has become a cost too big to ignore and threatens global economic growth.

The point of the article is that we will see a boom in renewable energy to compare with the economic booms of the past. The article makes a very good point on how huge the prospects for future energy needs are:

A prize beyond the dreams of avarice

 

The market for energy is huge. At present, the world’s population consumes about 15 terawatts of power. (A terawatt is 1,000 gigawatts, and a gigawatt is the capacity of the largest sort of coal-fired power station.) That translates into a business worth $6 trillion a year—about a tenth of the world’s economic output—according to John Doerr, a venture capitalist who is heavily involved in the industry. And by 2050, power consumption is likely to have risen to 30 terawatts.

My interest and research into renewable energy started in earnest about a year ago, and I believe this industry is still in a very early stage. The initial investing excitement has passed for the sector, but the true breakthroughs are still ahead of us.

In comparison, the largest oil ETF (XLE) has $5.5 billion in assets, the largest renewable energy ETF, (PBW) has $1.6 billion. Of the stocks in the respective indexes, the median market cap in XLE is $48 billion, for PBW it is $3.7 billion, putting the value of renewable stocks at a fraction of the oil companies.

I believe we do not yet know where the true renewable energy breakthroughs will come from. I am referring to those technologies that will let us replace a significant portion of our carbon based energy, as the Internet has replaced the TV and newspaper as sources of news. As an investor, I currently would go with an ETF like the PowerShares Global Clean Energy Fund (PBD). This will be a boom that takes decades to fulfill its destiny.

Disclosure: None

 

Comments

[Brian Pursley:]

Oil is renewable and it's booming as we speak.

2008 Jun 24 11:32 AM

[Learning Curve:]

It's good to have some perspective --by way of numbers-- that you provide in this article. Thanks.

2008 Jun 24 01:10 PM

[ozzy43:]

This snippet is misleading due to the implicit assumption it makes:

"...by 2050, power consumption is likely to have risen to 30 terawatts."

This should have said, 'based on current trends, demand for power is projected to rise to 30 TW'. The fact is, as any petroleum geologist will tell you (except for a few crazies in the Soviet Union who maintain oil is abiotic in its origins - and if you believe them I have some oceanfront property here in Phoenix I'll sell you), oil is a finite and non-renewable resource, and as many of these self-same geologists are now saying, we're past, at, or very near, the peak for oil. Which does not mean that oil is going away, but that cheap, easy to get to oil is going away. Current plans call for the Saudis to double or triple their output by dozens of millions of barrels per day to meet future demands - but they can barely seem to squeeze half a million extra out these days.

The point is this: all of the renewables depend on fossil fuels - whether for the mining or farming or extraction or manufacturing operations, as well as transport. Try generating hydrogen, mining - and then extracting oil from - tar sands, or manufacturing a solar cell array or a wind turbine (and then transporting any of it) - without cheap fossil fuels. There is no renewable form of energy (or energy storage) that can be swapped in for fossil fuels in the short term span of time geologists say we have - it would take decades and we don't have decades to replace this fundamental - foundational - piece of infrastructure, upon which everything else runs and depends.

It is a statement of fact to assert that power consumption cannot grow beyond power supply. Therefore whatever the power consumption will be in 2050 will most assuredly depend utterly on the supplies and types of energy which are available to be harnessed. Oxen and horses for much of the world, most probably. I doubt it will amount to 30 terawatts.

But if it helps you sleep at night, by all means feel free to believe that oil is an infinitely renewable resource. And get back to me about that property in Phoenix while you're at it...

2008 Jun 25 08:29 PM