The Week In Cleantech (Apr. 20 – Apr. 26) – Are Alt Energy Stocks Decoupled From Oil Prices?

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On Monday, Michael Kanellos at CNET’s Green Tech Blog told us that cellulosic ethanol was to surpass corn…in 14 years. Turns out he got that info from one of the leaders in making enzymes to break down cellulose. So if it takes about 14 years for cellulosic ethanol to scale up production levels to about 15 billion gallons annually, or roughly 10% of current liquid fuel consumption in the US, could there be a risk that cellulosic misses the boat altogether? Most of the estimates thrown out there for the cost of cellulosic to be competitive with corn are in the neighborhood of four to eight years, but once costs come down will the industry be able to scale up fast enough to even stay relevant in the race for alternatives to gasoline? On Tuesday, Toby Shute at The Motley Fool argued that Google’s gigawatt was gaining steam. What gives Google an edge in renewable energy, according to the author? The firm’s expertise in scalable solutions. I’ve never been a big fan of launching into things in which you don’t have a competitive advantage or even expertise, so I’m somewhat skeptical of Google’s forays into wireless and especially clean power . Nevertheless, the folks at Google can certainly tell a strong business model from a bad one, and I’m sure they know a thing or two about execution. Maybe one day I, too, will be silenced. On Thursday, Matthew Hougan at Seeking Alpha shone light on solar ETFs. This piece provides a detailed overview of two solar ETFs launched recently. ETFs are a great way to balance concentrated exposure to a sector with a healthy amount of firm-level diversification, at a cost that makes sense for retail investors. For solar, you have the choice: you can go pure play or solar light. On Thursday, Katie Fehrenbacher at earth2tech asked if PG&E would own solar power plants. The argument made here is interesting, namely that large utilities can leverage their strong balance sheets to acquire cheap capital for the construction of large-scale renewable energy projects like a solar thermal plant. Given the nature of these projects, where there is long-term revenue certainty and costs is where big gains can be realized, the ability to come in with cheap capital can make a notable difference over time. In fact, as the solar industry follows wind and consolidates, there is where you should expect the big players to have a significant advantage. On Friday, Dan Lewis at AEI wondered whether Brazil’s latest oil find would undermine its booming ethanol industry. Broadly speaking, he is wondering whether whatever oil can be found and economically extracted from unconventional sources is enough to put a dent in the current supply-demand imbalance, if indeed there currently is an imbalance, and therefore shift political and investor attention and resources away from the search for alternatives. This is every alt energy company’s CEO’s greatest fear, as there is no doubt that expensive oil has increased their access to, and lowered their cost of, capital. It has also provided some of the political justification for the generous subsidies alt energy has enjoyed in many jurisdictions. So the question begs asking: given the lengths to which certain governments have gone to promote alt energy, would a sharp drop in the price of oil be as much of a shock to the system today as it may have been five years ago? I think not, although alt energy stocks would take a serious beating for a time.


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