Energy leaders plan shift from high-carbon to low-carbon

Jun 9, 2008 - renewableenergyfocus.com

LONDON, UK - The world's energy sector is in the throes of a transformation from high-carbon to low-carbon, but the scale of the challenges remains daunting, according to clean energy insiders who attended the first New Energy Finance Summit earlier this year.

While the last three years have seen total investment in the sector of US$300 billion, this pales into insignificance compared with the US$10 trillion that must be spent by 2030 to create a low-carbon energy industry. However, the size of the task has created “almost unlimited opportunities,” said Michael Liebreich, New Energy Finance chairman and Chief Executive Officer (CEO).

The results of the Summit, on 28 and 29 February, have now been published in a special 64-page book, including a wealth of previously unpublicised material on the investment outlook for the clean energy sector. Over 150 delegates at the Summit, representing leading clean energy companies, investors, regulators, utilities and traditional energy players, discussed frankly the challenges ahead under “Chatham House Rules”.

Their views were stimulating and often surprising. Renewable energies such as wind are often criticised for being intermittent, but many clean energy executives hit back, saying that the real problem is “intermittency of policy” in countries such as the US, where the Production Tax Credit for wind is due to expire at the end of 2008.

Traditional energy players saw themselves as part of the move to low-carbon rather than an obstacle on the way, and they identified a key role for themselves in working with customers to promote demand-side energy efficiency and micro-generation. There was lively debate on the merits of nuclear as a way to curb emissions, with one proponent arguing: “New nuclear offers a solution to climate change and energy security and should not be confused with old nuclear.” Traditional energy companies also pointed out that, if carbon capture and sequestration could be made viable, fossil fuels had a bright future. However, there was a lack of clarity in regulation and over who would pay for the development of the technology.

Policy-makers were in strikingly upbeat mood, stressing their commitment to implement the measures that would bring about the necessary investment in renewables. Equity investors, unusually, were more cautious – debating hard among themselves whether renewable energy valuations got out of hand in 2007, or whether the sector’s strong fundamentals would drive share prices further forward. One said: “Unlike the internet, renewables offer a longer term investment return, so the sector does not have bubble characteristics.”

In his keynote speech at the start of the Summit, Mr Liebreich said that the latest science suggested the extent of climate change was even bigger than realised, but he added that improvements in energy efficiency and the amount of renewable energy being installed would exceed official forecasts. There was more than enough oil to take CO2 levels beyond 750 ppm, which would lead to 3-5ºC of warming. “We either leave the stuff in the ground or we kiss the climate goodbye or we figure out carbon capture and sequestration. Those are the only three choices that we have,” he said. While achieving reductions in CO2 emissions was going to cost a lot of money, “I believe we will see a peak in carbon dioxide before 2020,” Mr Liebreich added.

Lord Browne, the former head of BP and European managing partner and managing director of Carlyle Group/Riverstone Holdings, outlined the key conditions for the large-scale implementation of energy efficiency and renewable energy. The first was to establish a price for carbon, which would boost the viability of low-carbon energy and promote energy efficiency in an economically efficient manner. Tailored technology incentives were needed to accelerate the development and deployment of low-carbon technologies while policy barriers to deploying low-carbon solutions also needed to be removed. These included planning laws, grid regulations, a lack of consistent technical standards and subsidies for conventional energy, which total about US$200bn, against US$33bn for nuclear and renewables. Finally, government needs to intervene to create renewable energy-friendly infrastructure. “To do all this will require soaring vision – capturing the public’s hearts and minds. But we will also req uire lead shoes to keep us on the ground,” with lots of hard, detailed technical work to back up the vision, he concluded.

The Summit examined the role of renewable energy technologies, the role of traditional energy, the stance of policy-makers, the outlook for equity finance, the role of the carbon markets and the provision of project finance. Among the main obstacles to continued rapid growth in the sector, delegates said, were uncertainty over regulation and bottlenecks ranging from a shortage of silicon to a lack of skilled staff and entrepreneurs who can grow a business successfully.

The Summit book also includes the results of the New Energy Finance Awards, based on the firm’s league tables, which objectively rank investors, banks and law firms according to the volume of business they completed in 2007. There were five general categories, split according to asset class: Venture Capital, Public Markets, Project Finance, M&A, Carbon Finance.

A full version of the league tables for 2007 can be found by visiting the White Paper section of New Energy Finance’s website. Click here.