Professional Documents
Culture Documents
Emerging Opportunities
In Renewable Energy
September 2004
© 2004 Clean Edge, Inc. All rights reserved.
Overview ..............................................................................................................................7
A Confluence of Forces......................................................................................................8
Key Clean Energy Technologies......................................................................................11
Wind Power ...................................................................................................................... 11
Biomass ............................................................................................................................. 12
Solar Photovoltaics.......................................................................................................... 12
Hydrogen Fuel Cells and Infrastructure........................................................................ 14
Grid Automation and Optimization .............................................................................. 14
Small-Scale Hydro ........................................................................................................... 15
Geothermal ....................................................................................................................... 16
Wave and Tidal Power .................................................................................................... 16
Emerging Capital Markets ...............................................................................................17
Select State Clean Energy Initiatives .............................................................................19
Select Key Clean Energy Trends .................................................................................... 20
Green Power: A Price Hedge and Market Accelerator................................................ 20
The Energy Web: Changing the Future of Energy Services....................................... 20
China and India: The Next Wave in Clean Energy Development ............................. 22
The Hydrogen Infrastructure: Big Bucks, Big Challenges .......................................... 23
Defense Spending Promotes Clean Energy Technologies........................................... 24
Rural Electrification: Large Markets from Small-Scale Power .................................. 25
Conclusion .........................................................................................................................27
GEF is a registered investment advisor with the U.S. Securities and Exchange
commission, having maintained its registration continuously since 1992. Our
senior management team has worked together for nearly 10 years, and we have
an experienced group of investment and financial administration professionals,
including five who are CFA Charterholders through the Chartered Financial
Analyst Program and three Certified Public Accountants (CPA). In recent years,
the GEF investment team has completed more than 30 private equity or early-
stage technology investments in businesses operating in a broad array of
economic sectors and in all of the world’s major geographical regions. On a
firm-wide basis, the six-year audited internal rate of return on more than $165
million invested by GEF in private equity and early stage technology deals for
the period 1998 to 2003 stands at 29.5 percent.
From our inception in 1990, Global Environment Fund has invested in the
development and deployment of cleaner, more efficient energy sources around
the globe.
Consequently, our investors were clear about the GEF mandate: promote clean
and renewable energy, for sure, but do not lose money, and do not invest in
technologies that are not mature enough to stand on their own without perpetual
subsidization. In 1990, of course, this was no small order. We are proud of the
fact that, from our inception 15 years ago, we have found exciting and
profitable renewable energy investments around the world. We were early
investors in 1991 in Compania Boliviana Electricidad, which within a very
unstable macro economic climate managed to provide nearly 40 percent of
Bolivia’s electricity from low-head, run-of-river hydroelectric facilities. Before
privatization of the energy sector in Brazil, we financed and helped create
Brazil’s only purely private electrical generating and distribution company in
1995, Companhia Forca e Luz Cataguazes, which still serves customers in Minas
Gerais and Rio de Janeiro with an expanding network of small-scale
hydrofacilities. We were investors in Magma Power, as that company grew in the
mid 1990s to become a leading developer of geothermal power in California, and
in The Philippines. In 1996, we participated in a private financing sponsored by
three Indian electricity companies managed by the Tata Group that provided
equity capital for the construction of a peak-load-shaving, pumped storage
facility that eliminated the need for a proposed coal-fired power plant to serve
Mumbai, India. In 1997, a company in which we were significant “venture
capital” investors, NEPC Micon, became, at least for one year, the largest
manufacturer of wind turbines in the world, driven by major government-backed
wind energy programs in India.
Nevertheless, the world has a voracious appetite, and need, for new energy
supplies. Even today more than one-third of the people on the planet still do not
benefit from the basic modern amenities that are availed by the fossil fuel
economy—electricity supply, refrigerators, automobiles. The World Bank
We at GEF believe estimates that two billion people do not have access to an electricity grid. The
cost of extending power to remote areas is often prohibitively expensive and
that the forces of
difficult to finance for most developing nations. China and India, alone, will
technological change likely double or triple the amount of electricity they produce, and the amount of
will, in coming years, total energy they consume in the next 30 years. Car ownership per capita in
China, while growing by double digit percentages every year, has barely reached
transform the profile
the level that prevailed in the United States when the first Model T rolled off the
of energy use and assembly line! What will happen to the planet as China, India, Indonesia and
other developing countries drive up the demand for more of the world’s
electricity production
dwindling oil reserves and continue to fuel their still-nascent industrial
in the global economy revolution with their large domestic coal reserves?
We at GEF believe that the forces of technological change will, in coming years,
transform the profile of energy use and electricity production in the global
economy. This transformation will be facilitated by governments and
international finance agencies which, in addition to supporting traditional
energy production, have fostered policies to commercialize and financed new
technologies and cleaner ways of utilizing energy supplies around the world.
This climate of change in the global energy industry will create significant
opportunities for private sector investors interested in investing in cleaner, more
efficient and decentralized energy generation technologies that are rapidly
attaining commercial viability.
solar power, ocean To assist us in scoping out new technological developments and the range of
new investment possibilities they may pose in the renewable energy industries,
power, and biomass
GEF commissioned this report from Clean Edge. We are grateful to Joel
are increasingly being Makower, Ron Pernick and Clint Wilder of Clean Edge, who took up the task of
preparing this report for GEF. In addition, Samrat Ganguly and Michael Leonard
employed to meet
of GEF made significant contributions. Their collective efforts provide a good
new electricity staging point for the GEF investment team, as we continue to scour the globe for
private financing opportunities that will, at once, enable us to stimulate greater
demand
utilization of renewable energy and achieve appropriate, risk-adjusted, private
equity returns.
Jeff Leonard
President
Global Environment Fund
Clean energy supplies—in the form of liquid fuels and electricity generated from
renewable, recycled, or other benign sources—are also more widely available,
and more cost-competitive as a result of technological improvements,
government incentives, and economies of scale. These trends—the growing
demand for clean energy sources, and the increased availability of clean energy
supplies—will likely continue and accelerate in coming decades
According to some analyst estimates, global markets for clean energy fuels and
electricity already exceed $50 billion annually, with the deployment of some
clean energy technologies in the electricity generation sector expanding by more
than 30 percent a year. The clean energy industry has also rapidly become a
competitive arena for big business. Global business giants such as ABB, BP,
Caterpillar, DuPont, FedEx, Fuji, General Electric, Kyocera, Sanyo, Sharp, Shell,
Toshiba, UPS, and most of the world’s leading automakers have made major
investments in developing and deploying clean energy technologies in recent
years.
According to some Cost Competitiveness. A key driver of the clean energy industry is the
simple fact that the economic cost of most renewable energy technologies has
analyst estimates, fallen in recent years. In the next few decades, the cost of generation for most
global markets for renewable energy sources is expected to continue to fall—abetted by
technological advances, new investment, and governmental incentives around
clean energy fuels
the world. This trend is gradually making renewable energy technologies cost-
and electricity already competitive with traditional sources of energy. According to Navigant
Consulting, most renewable energy options should eventually be cost
exceed $50 billion
competitive with grid power in the U.S. without any tax incentives or
annually governmental subsidies. Already, in some areas, wind-generated electricity is the
cheapest energy source, at 4 cents per kWh, according to the U.S. Department of
Energy—an order of magnitude lower than it was in 1980. Electricity from solar
photovoltaic (PV) cells has dropped from approximately $1 per kilowatt-hour
(kWh) in 1980 to below 20 cents per kWh in some areas today.
hybrid, fuel-cell,
running vehicles
Wind Power
Wind-generated electricity is one of the fastest-growing clean energy
technologies—a $7.5 billion industry in 2003, expected to reach $47.6 billion by
2013, according to Clean Edge research. In fact, the European Wind Energy
Association has just released a blueprint demonstrating how wind power is
capable of supplying 12 percent of the world’s power by 2020. BTM Consulting
recently released a report showing that the wind industry has grown by an
average of 26.3 percent for the past five years.
In the U.S., the wind industry is poised to continue its healthy growth of the past
several years. New wind installations grew an average of 28 percent annually
from 1998 to 2003, according to the American Wind Energy Association,
including a record 1,700 new MW of capacity in 2003. Furthermore, the U.S.
Department of Energy is in the process of implementing a three-phase
technology development project for wind power. The first step, opening
negotiations for 21 public-private partnerships, has already begun. Assuming a
reduced annual growth rate of 18 percent, wind would still account for 6 percent
of all U.S. electricity by 2020.
Both environmental and economic imperatives are driving the growth of global
bioenergy, especially in the developing world. The Pew Center on Global Climate
Change calls biofuels like ethanol and biodiesel the most promising alternatives
for reducing greenhouse gas emissions over the next 15 years. Economically,
ethanol has been a boon to corn growers in North America; the same crops-into-
fuel strategy can have huge economic benefits in developing countries. The UN’s
FAO, for example, is working with agricultural agencies in China to produce new
strains of sorghum for ethanol production, and has comparable projects
underway in Brazil and Nepal. Ethanol can also be produced from other crops
grown widely throughout the developing world, such as sugar cane, cassava, and
rapeseed.
Solar Photovoltaics
Solar-powered electricity has been steadily bringing costs down while ramping
up production and installations. Solar PV is expected to reach cost parity for
many regions in the next decade, spurred by a host of technological
improvements in PV cell composition and manufacturing processes, in addition
to the market momentum. This will occur both at the local level in many U.S.
cities and states, and in large developing economies such as China and India.
Germany, due to the success of its generous feed-in tariffs, which permits
customers to receive up to 45.7 eurocents/kWh for solar generated electricity,
has a number of much larger “solar farm” developments, some currently
reaching 4 MW in size. Japan, due to strong government and industry support,
has installed more than 100,000 residential solar PV systems, in the process
making Japan the current leader in global solar PV installations and production.
The U.K. Energy Savings Trust has offered to give homeowners grants worth up
to 50 percent of the total installation cost of a residential solar PV. In South
Africa, the government has begun accepting bids in accordance with its plan to
invest about $2.5 million to provide 40,000 homes with solar power systems.
China plans to invest $1.2 billion in solar technology and installations in the
next two years alone. Shell, which is already involved in the solar energy market
in China, has recently announced that it plans to increase its market share.
financing challenges With well-publicized “hydrogen highway” proposals from California Gov. Arnold
Schwarzenegger and the organizers of the 2010 Winter Olympics in British
for the transition to a Columbia, hydrogen infrastructure development has received most of the public
true Hydrogen attention in this sector. Though the technological and financial challenges
remain, progress is being made in the transition to a true Hydrogen Economy.
Economy remain,
The number of hydrogen fueling stations increased by more than a third during
progress is being 2003 to nearly 90, still a small fraction of the number needed before hydrogen
reaches critical mass. Quietly stealing the early lead from cars in terms of actual
made
use are fuel cell-powered buses, now operating in Chicago, Tokyo, Perth, and 10
European cities.
Transmission has replaced generation as the most profitable sector of the electric
power business and will see the most investment in the next five years,
according to consultancy GF Energy LLC. After years of neglect, the North
American power industry plans to spend $4 billion to $7 billion annually on
grid improvements. The federal government has jumped on board as well: the
U.S. DOE’s new Office of Electric Transmission and Distribution will help fund
billions in R&D efforts in this sector.
Small-Scale Hydro
Large-scale hydroelectric power remains by far the largest source of clean
energy, accounting for 90 percent of renewable energy worldwide. However,
increasing attention is turning to more nascent small-scale hydro technology,
Due to its ability to generally defined as turbines powered by water flows already present in the
serve rural villages at environment—sometimes known as “run-of-river”—often aided by low, small-
impact dams for seasonal water storage. Small-scale hydro ranges from 30 MW
a fraction of the
at the high end down to “micro-scale” installations of 100 kW or less, enough to
investment cost of power one or two homes.
large power plants, Due to its ability to serve rural villages at a fraction of the investment cost of
small-scale hydro will
large, centralized power plants, small-scale hydro will see most of its growth in
the developing world. China, for example, expects to install at least 1,000 MW of
see most of its small hydro each year for the balance of the decade. Asia overall is expected to
growth in the account for nearly half of the world’s small-scale hydro by 2010, according to
British research firm Atlas. World capacity of small-scale hydro at that time will
developing world
be about 55,000 MW, or roughly 5 percent of the global hydroelectric total.
Geothermal steam plants are not 100 percent clean, emitting some amounts of
global-warming gas CO2 as well as sulfur and nitric oxides. But the amounts are
roughly 50 times less than emissions from traditional fossil fuel power plants,
according to the U.S. National Renewable Energy Laboratory. Costs are
competitive, with geothermal-powered electricity currently being produced at 4
cents to 8 cents per kWh.
One leading tidal power technology is based on the Venturi tube, a pre-World
War II invention that uses pressure differentials to create an energy flow through
Fully harnessing the an enclosed space. (It is actually air, not water, that drives the turbine blades.) In
currents of San a closely-watched project, U.K.-based HydroVenturi is working with the city of
San Francisco to exploit the tidal flows under the Golden Gate Bridge, which are
Francisco Bay could
among the world’s most powerful. Fully harnessing the currents of San Francisco
theoretically produce Bay could theoretically produce 2,000 MW of power—more than three times the
city’s current daily power load of 650 MW.
2,000 MW of power—
In the private equity arena, clean energy investments in the U.S. have grown from
0.8 percent of total venture activity in 1998 to 2.4 percent in 2003. This threefold
increase represents a growing wave of clean energy activity.
ABB expects its share of the alternative and renewable energy solutions market
to reach $1 billion by 2005.
BP Solar committed $500 million over 5 years for clean energy development,
including the launch of BP Home Solutions.
General Electric acquired Enron Wind for $350 million in 2002 and turned it
into a $1 billion business by 2003. In 2004 it entered the solar PV business
through its acquisition of U.S.-based AstroPower.
Sharp doubled PV manufacturing output for each of the last three years,
exceeded 200 MW production capacity in 2003, more than a third of Japan’s
total solar PV output.
Toyota, the leading manufacturer of hybrid EVs and at the forefront of fuel cell
vehicles, will manufacture as many Prius vehicles in 2004 as it did in 1997
through 2003 combined—approximately 130,000 units.
South Korea, for instance, recently announced government support to the tune
of more than $500 million through 2010 for the development of fuel cell and
alternative fuel vehicles. The government of Japan invested more than $800
million for its hugely successful residential solar PV program. Germany recently
announced more than $600 million in low-interest loans to support renewable-
energy projects and energy efficiency in developing countries, in addition to the
hundreds of millions it is spending in country for solar, wind, and other clean
energy development activities.
In the U.S., twelve states operate funds whose objective is building markets for
renewable energy and clean energy resources. According to the Clean Energy
States Alliance, these state programs will make available approximately $3.5
billion to promote clean energy over the next decade.
Following are six significant and influential trends shaping the future of clean
energy.
overall costs, and Although the initial green-power premium is nominally higher than the utility’s
conventional price per kilowatt-hour, the rate is usually locked in for several
continued spikes in oil
years. That gives customers a hedge against increasingly likely fuel charge hikes
prices, combine to due to fuel price volatility. That is especially important to business customers
spell great growth
trying to forecast costs over the mid to long term.
potential for green Austin Energy, one of the leaders in green power pricing programs, offers the
longest lock-in period for its green power premium: a full ten years. That
power
premium is also the lowest charged to green power customers in the U.S.,
according to NREL. The current GreenChoice premium is 3.3 cents per kWh,
about half a cent more than Austin’s current fuel charge of 2.79 cents per kWh.
Austin’s green power is generated at Cielo Wind Power’s 61-turbine wind farm
in west Texas, with smaller amounts of solar and landfill gas generation
contributing to the mix.
Clean energy’s price stability and declining overall costs, and continued spikes in
oil prices, combine to spell great growth potential for green power—and, as a
result, for the clean energy technologies that produce it. Nearly 400 utilities in
35 states offer some form of green-power options. Two states, Colorado and
Minnesota, have declared wind the least-cost alternative for future power plants.
In Canada, the federal government released a study in early 2004 noting that its
wind power purchases from energy producers in three provinces from 1997 to
2002 cost less than conventional power at retail prices.
But what if technology could make the existing grid work so efficiently and
reliably that it reduced the need for additional power plants? Growing numbers
of researchers and companies are working on grid optimization, an umbrella
term for a wide range of networking and information technologies that monitor
and analyze what’s going on in a complex energy system, then making real-time
changes to optimize the system for maximum efficiency.
In the new “Energy Web,” as it has been dubbed, appliances will be integrated
with energy-management software that will automatically communicate with its
electricity provider. If the "grid" (though it may no longer be called that) gets
A marriage of the stressed, it may seamlessly power down select appliances—refrigerators, air-
conditioning systems, and others—that don't require always-on power. Rather
energy, telecom, and
than turning off an entire neighborhood or business district at a time—á la
software sectors is California's infamous rolling blackouts—the individual appliances will be turned
working to create a off and on again individually, causing less stress on the entire electric system—
and on its customers.
new breed of “smart”
Grid optimization can defer construction of new generation, transmission, and
appliances, buildings,
distribution capacity, better use of existing plants and grids, reduce financial risk
and vehicles for electric system investments, lower the risk of outages, and increase security
of the grid. The financial implications are staggering. Consider the savings grid
optimization can bring by reducing or deferring the need to increase the U.S.
electricity grid’s capacity. In 2003, the Pacific Northwest National Laboratory, a
federal research agency in Richland, Wash., estimated that just a 5 percent
deferral (55 gigawatts) of the forecasted necessary increase in grid capacity by
2020 could save the power industry and its customers a whopping $45 billion.
And a 25 percent reduction in outages would add another $15 billion in savings.
sources, including It’s not just a resource issue—it’s also a critical environmental and public health
solar PV, wind,
issue. Power generation takes a severe toll on China’s and India’s public health
and the environment. Seven of the world’s ten most polluted cities are in China
biomass, and small- and air pollution in some cities is more than ten times the standard proposed by
scale hydro the World Health Organization.
The good news is that to meet a portion of those demands, and to stave off
environmental calamity, both countries are aggressively developing clean energy
sources. In June 2004, China pledged a goal of 10 percent of its power
generation by 2010 from clean energy sources, including solar PV, wind,
biomass, and small-scale hydro. In China, that 10 percent translates to a
staggering 60,000 MW—the equivalent of 60 giant fossil-fuel power plants. This
goal creates huge potential for companies outside China to provide clean energy
technology. In 2002 and 2003, China’s Township Electrification Program
invested more than $240 million to provide electricity for a million residents in
remote villages by installing solar photovoltaic, small hydropower and wind
generating systems. With the next phase targeting 20,000 new villages, China’s
rural electrification program is stimulating a huge new home-grown renewable
energy industry.
In April 2004, U.S. DOE committed $353 million to three areas of R&D research:
hydrogen storage ($150 million over five years), vehicle and infrastructure
demonstration systems ($190 million over five years), and fuel cell research ($13
million over three years). The goal of on-board hydrogen storage—the hydrogen
equivalent of a tank of gas—is 300 miles between refueling; the demonstration
systems goal is to see commercialized hydrogen-powered vehicles by 2015.
As the industry embarks on this rapid period of R&D activity, two key
technology trends are emerging, according to a 2004 report by industry Web
portal Fuel Cell Today. One trend is that fueling stations are becoming smaller
and more akin to traditional gasoline stations. Fueling equipment manufacturers
like Air Products, Plug Power, and Stuart Energy are building smaller and
cheaper units, capable of fueling just five cars a day or less. But the lower
capital costs will enable more demonstration locations, perhaps enabling
California Gov. Schwarzenegger’s goal of 200 hydrogen fueling stations in
California in the next five years. There are currently fewer than 90 such stations
worldwide.
Micro fuel cells, most of which run on liquid methanol, have significant—and
very near-term—applications in portable consumer electronics. A fuel cell can
potentially power a cell phone for a month without recharging. Like many other
technologies, this one is being powered by the military. The U.S, Defense
Department is investing millions in micro fuel cells that can make military
radios, infrared scanners, and other battlefield devices lighter, longer-lasting,
and less detectable in combat operations.
electronic gear, and Transportation in mobile military operations clearly places a high premium on
new high-tech light weight, nimbleness, and flexibility, so fuel cell-powered vehicles and
hybrids can reduce the need for hauling large amounts of gasoline, diesel, and
weaponry other fuels. But the military’s greatest interest may be in micro fuel cells, which
have huge potential to replace heavy batteries in portable communications and
electronic gear carried by soldiers in the field, as well as in new high-tech
weaponry. Soldiers typically carry up to 20 pounds of spare batteries to power
their gear.
Central to this effort is the Army’s $500 million Objective Force Warrior
Program, aimed at providing a panoply of high-tech improvements that would
reduce the weight load of 95-102 pounds per soldier in Afghanistan today to 45-
50 pounds by 2008-2010. In one example currently in the demonstration stage,
a 1.5-pound fuel cell recharger from MTI Microfuel Cells would be used in Harris
Corp’s widely-used Falcon II handheld tactical radio to replace the standard
three-pound BA 5590 military battery, which requires several spares because it is
not rechargeable.
Markets for clean energy technologies are increasingly generating big business
A confluence of forces
opportunities. While not without technical, financial and policy hurdles, a
appears to have confluence of forces appears to have created a “tipping point” for significant
created a “tipping private sector capital flows into the clean energy sector. Multinational
companies, governments, venture funds, and others are investing billions of
point” for significant
dollars in the sector to reap both profits and potential—working to build
private sector capital increasingly global and robust clean energy markets.
flows into the clean An interesting and telling sign is the degree to which major oil companies and
energy sector
large public and private utilities have begun to view renewable energy
technologies as providing a secure hedge against energy cost and supply
volatility in the form of stable, lower-operational-cost solutions. Clean energy is
also capturing the imaginations of the public and the news media—moving from
marginalized to mainstream. Indeed, with historical and projected growth rates
for some clean energy technologies exceeding 30 percent per year, clean energy
offers an increasingly bright future for investors, governments, communities,
and businesses alike.