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Is Clean Energy Doomed If President Obama is not Re-Elected?

by Natalie Pace.

Interview with Michael Liebreich, the founder and chief executive of Bloomberg New Energy Finance.

Interview with Michael Liebreich, CEO, Bloomberg New Energy Finance, on May 30, 2012 at The Ritz London.

 

Michael Liebreich.

While waiting for Michael Liebreich at the Rivoli Bar at The Ritz London, I tried to envision what he would look like in person. Would he be tall and imposing, erudite and impeccably dressed, or just a hunk with muscles bulging beneath his suit? Michael is not just a capital markets geek. He is also an Olympic skier and a pretty prolific Tweeter. As the founder and CEO of Bloomberg New Energy Finance, Michael and his team are the world's most comprehensive providers of independent analysis, data and news in the clean energy and carbon markets.

And what would I ask Michael first? About competing as a member of the British Ski Team at the 1992 Albertville Olympic Games (to loosen him up)? What it's like to build a business and sell it to Bloomberg in five short years (so I can copy his strategy)? How he won the Riccardo Prize for Thermodynamics at Cambridge (way out of my league) or became a Harkness Fellow and Baker Scholar at Harvard, where he earned his MBA? Or what the hell happened to all of my clean energy stock?! Should I force him to sing a tune and dance a jig (was he hiding awards for that, too, somewhere?) so as to fully experience a modern Renaissance man?

Michael entered, and was immediately escorted by the Rivoli staff over to my table, charging the room with his effervescent smile and confidence. His rapidfire responses to my questions killed my complacent belief that I knew what was going on and just needed the "expert" to parrot the obvious. Like most of us, I had an opinion on clean energy that was part fact, part commentariat and part recalcitrant clinging to my current, rather convenient, partially green, way of life. Liebreich's data, statistics and provocative point of view turned all of that on its head. Fortunately, I was taping the interview. (There was little chance that I would keep up otherwise.) That's very good news because, amidst all of the data and stats on where the clean energy industry is headed and why, he tipped me on one of the best safe investment ideas for these volatile times we live in.

Liebreich is that rare blend of common sense, impeccable schooling and hands-on business acumen. He has an informed view and very provocative suggestions for the way through the current clean energy "consolidation" that has wiped out firms like Solyndra. (And yes, you can tell that he's an athlete -- even in a suit.)

Interview with Michael Liebreich

May 30, 2012

Natalie Pace. Clean Energy is once again a hot button in politics. People wonder whether solar, wind, geothermal and electric cars are really cleaner or better than what we currently have. And there are pretty loud complaints that the technology will never be reliable or affordable. What do you say to this?

Michael Liebreich. We've got to somehow get everybody to understand that a different and better energy system is not only just possible, it's inevitable. If there are issues of intermittency, well, they'll get resolved. Nobody ever talks about baseload telephone calls. It's not like we have nuclear-powered phone systems and then ones that only deal with the peaks. No, you have a network, and the resilience of a good network design.

We're in the middle of a global economic crisis. How can we justify spending extra money on clean energy when cuts are needed to balance budgets? We don't want the U.S. (or the U.K.) to become the next Greece.

People are out there saying that solar is 10 times as expensive as any other solution based on data that is four to six years old. Manufacturers are complaining about the low prices that they get. This stuff is much cheaper than the commentariat would believe. If you can't believe these people when they tell you what the costs are, then you really have an agenda. It's as simple as that.

How cheap is cheap?

If you go back to 2010, there was only one place in the world where solar on your roof made sense with no subsidies and that was Hawaii. If you pay quite high rates mid-day, then you should put solar on your roof, even now, without subsidy. Solar is going to get cheaper and cheaper to the point where within two or three years, in every sunny country, having solar panels on your roof will be cheaper than buying from your utility.

Aren't we talking about tens of thousands of upfront costs? It's hard to ask U.S. homeowners to make an investment of this magnitude when so many are out of work and struggling to keep their homes.

Solar used to cost $20-$30 thousand bucks, and then you got a state subsidy and a federal subsidy, and somehow you managed to get the payback period down from 30 years to 11 years. That's how it was 3-4 years ago. Now you are looking at these systems costing $3-$7 thousand dollars and the payback, with the state and federal subsidies, coming down to 4-7 years. Well, I don't know about you, but I'm getting about 2.5% interest, if I'm lucky, on any savings that I've got. So, if I can save money on my electric bill. And I don't get taxed on the savings. That's a fantastic investment! Where are you going to get a better return? This is risk-free. The sun shines. This is no asset manager who can lose it all for you.

What a great idea! That's very good for homeowners, but meanwhile investors who own clean energy stock are getting burned. The Powershares Wilderhill Clean Energy Portfolio ETF has lost 85% of its value since the October 2007 highs. And, of course, almost everyone has heard of the Solyndra bankruptcy. What is the future of the industry for investors?

Powershares Wilderhill Clean Energy Portfolio
5-year performance (July 2007-July 2012)

Source: Money.MSN.com. For illustration purposes only.

This is a young industry, which is consolidating. The year that Ford Motor Company was founded, in 1903, there were 500 car companies. Of course, that got whittled down. Some were acquired as brands of the Big Three. A lot went out of business. That doesn't mean the car was a dumb idea.

So, Ford thrives and the Stanley Steamer dies, meaning investors might do best to avoid individual companies right now. But what about the industry as a whole? It sounds like you are rather bullish about the long-term prospects of solar and clean energy.

For every manufacturer who is finding the low prices extremely challenging, there is somebody buying that kit, who is getting cheap solar on their roof or in their project. The manufacturers are hurting, but the buyers are doing great.

Some of the companies with weak balance sheets are going out of business, as we've been saying for some years that they should and will. Think of all of the fiber that was put into the ground. Did people over invest in fiber? Yes. Did some companies go bankrupt? Yes. Are we using that fiber? Yes!

Do you have a favorite clean energy? Is there one that is just further along in capacity, efficiency and affordability than the others?

I like wind because it is industrial scale. I like solar. I can't wait for there to be large roll-outs of really smart grid. Where you've got geothermal and hydro with pump storage, those are fantastic resources. With the combination of wind, solar and hydro, you've solved all of your issues, right? The challenge is how do we transition from old school 'base-load and peak' to a network of a portfolio of technologies. If you've got diversity, you're going to be more resilient to any price shock, to any technology shock, but it is challenging to knit it together. Outside wind and solar, it's those knitting technologies that I like, everything from high voltage DC to smart-grid and smart-home energy management.

Efficiency is a big deal. I know people who have cut their electric bill by 90% simply by changing their habits and eliminating the energy vampires from their homes.

What you do in Vermont is not the same as what you do in Arizona. It's actually boring insulation, double-glazing, finding all of your drafts, that kind of thing. In Switzerland, when you lock your door, it settles on its hinges and then seals. So you reduce all of the draft that normally goes under a door. Of course, the door costs a bit more, but it pays for itself super quick, in the cold, up in the Alps.

Everyone is worried that if President Obama is not re-elected, clean energy will lose funding and the industry as a whole will implode, just like it did under President Carter. Is this a do-or-die moment for the industry?

We've got to transition to a subsidy-free system. This means subsidy-free also on the fossil side. What got clean energy to 5% of the energy mix is not going to get it to 30, 40 or 50%. Clean energy companies think that they're going to get all of the policies straightened out and everybody behind them with more and more strident support. But they don't need it and they're not going to get it. The industry needs to move on and think about how they break down the barriers. How do you factor in defense costs, which are very considerable and are the true price of fossil fuels? Why not price in the external costs around health, particularly coal, and the insurance costs and risks around nuclear?

No one has put the picture together in that way. Fiscal conservatives clamor for more drilling, and forget that we experienced the most expensive oil spill in history in the Gulf just two years ago. The costs of that spill are still being sorted out.

Right now, the U.S. is spending $300-$400 billion per year importing oil. That has a few implications. It starves the U.S. of investment funds. It shifts money over to parts of the world, which are traditionally inefficient and unproductive.

Editor's Note: According to the Bureau of Economic Analysis, the U.S. imported $331.6 billion of crude oil and $421.2 billion for all energy-related petroleum products in 2011.

We had an $11.2 billion monthly deficit to OPEC in May 2012 (Source: BEA). It was even higher in April. Why isn't this more widely known and openly debated?

That money is not being spent on fabulous universities and entrepreneurial businesses that will create the new Facebook, or Google or TV series even. It's very hard to see how you can have an efficient economy when hundreds of billions are leeched out of it and sent overseas. And other economies have the same issue. For instance, India, if it doesn't shift to clean energy, it will see its dependence on imported oil and gas rising from 2% to 3% to 4% of its GDP. No country can develop with that sort of a drag on its economy.

The political debate never includes the true costs of oil -- our monthly trade deficit to OPEC, the lives lost and the political risk of being beholden for your fuel to unfriendly regimes. Earlier this year, politicians tried to rein in Secretary of the Navy Ray Mabus' clean energy policies and Great Green Fleet.

It is very risky. They have to understand the risks they are running by doing things like trying to get Senators to tell the U.S. military what fuel it should or shouldn't be developing for future use in theater. It is an incredibly dangerous route to go. The military should say, "We're the people who understand the military and the future military need and we're the ones in charge of protecting you're ass and this is our best judgment." And they should be allowed to do that. Ultimately, inevitably, these technologies will be deployed by other countries, but also by the military of other countries. It is extraordinarily irresponsible to squander the U.S.'s lead in some of these technologies. You are creating a future trap.

Fiscal conservatives clamor about the costs that Secretary Mabus is paying for alternative fuel, but what's the price of patrolling the gulf? Why isn't that factored into gas prices?

There is a fascinating piece of research by the Rand Corporation. They calculated how much you could save on the U.S. defense budget if the U.S. did not have to patrol and secure the Persian Gulf. And the answer is $83 billion per year.

The entire global clean energy subsidy that everyone is talking about, including the half a billion that was wasted on Solyndra, is $66 billion. That one waterway is costing 50% more than the supports of all clean energy in all of the world.

Editor's Note: The $83 billion in defense savings estimate was published by Rand in its 2009 report, "Imported Oil and U.S. National Security."

 

That's a fact that rarely gets quoted.
Even more than that, and absolutely astonishing if you think about it, whose oil tankers are going through the Strait of Hormuz? Very few of them are American, because America gets its oil from itself, Canada, Mexico and Venezuela, mainly. The tankers that are going through the Strait of Hormuz tend to be European, Chinese and Japanese. So, the American taxpayers are paying $83 billion a year to secure the supply chain of their economic, geopolitical rivals.

So, we spend $83 billion a year on the oil supply chain, plus we lose one soldier for every 50 convoys and then we also give the oil companies subsidies.
The President is saying, quite rightly, "Why do these subsidies exist?" It's true. It's quite obvious. But what about the $83 billion in subsidies that flows directly to your economic competitor's benefit? Those have to be priced in. If you cannot price them in, then you find an alternative way to produce a better outcome for your people. You move away from that energy source essentially.

Be sure to read the 2nd half of this interview in the September 2012 ezine, when I discuss electric vehicles, energy independence, alternative fuels and the Green Economy with Michael Liebreich.

 

About Natalie Pace:
Natalie Pace is the author of You Vs. Wall Street and Put Your Money Where Your Heart Is. (The hard cover and paperback version of her first book.) She is the founder and CEO of the Women’s Investment Network, LLC (a global financial news, information and education site), where she has been adding a splash of green to Wall Street and transforming lives on Main Street for more than a decade. Natalie is a blogger on HuffingtonPost.com
and a repeat guest on national television and radio shows such as Good Morning America, Fox News, CNBC, ABC-TV, Forbes.com, NPR and more. As a strong believer in giving back, she has been instrumental in raising tens of millions for public schools, financial literacy, the arts and underserved women and girls worldwide. Follow her on Twitter.com/NataliePace and Facebook.com/NWPace. For more information please visit NataliePace.com.

 

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