Fossil Fuel Gloating Premature

Think of this as Volume 16, Number 19 of A-Clue.com, the online newsletter I've written since 1997. Enjoy.

These are tough times for the renewable energy business. But it's always darkest before the dawn.

People are writing about a “green tech crash” but that's after the fact. Most U.S.-based green tech companies are flat on their backs and the few that continue to trade, like First Solar (FSLR), are down so far it looks like up.

What the green bears are fearing is an end to federal subsidies of the space between now and 2014. They assume that, since the space was subsidized in 2009, and needed to be subsidized, it must always need to be subsidized, that it lives on subsidy and can't exist without it, that it will disappear without subsidy.

I know the Koch Brothers and their minions across the political world wish that were the case.  But that's not the case.

The purpose of subsidy was always to bring the costs of renewable energy close to the costs of fossil fuel extraction. This goal is now in reach. Rather than getting there by increasing subsidies to green energy, we can now get there quite quickly by simply removing subsidies for brown energy. We continue to spend your tax dollars on oil, gas and coal, beyond the fact that we ignore their external costs, the carbon in the air, mercury in the water, destruction of our water table.

And breakthroughs are continuing. As always in these cases, I just checked the latest headlines before writing this:

• Australian scientists are using a technique called “upconversion” to expand the range of light spectrum harvested by solar panels, which could get the efficiency of solar panels up to 40%.
• Concentrated Solar Power (CSP), which focuses on solar heat as a direct energy source rather than light as a pathway to electricity, is also seeing breakthroughs.  3M and Gossamer Space Frames claim their new technique brings the costs way down, as much as 25% lower, using lighter materials and new films. What's cool about CSP systems is that they can be used to make hot water and they can be made small enough to serve single buildings. We're not just replacing electricity here, but natural gas.

That's just in the last week.

Meanwhile, polysilicon prices continue to decline. Some think this will stamp the industry flat, but there will be demand – things just need to adjust. That adjustment is already happening in Europe, where merger activity this quarter is expected to be robust.

The main force used to try and drive out renewable energy, of course, is the huge investment made in oil and gas production since 2009. The Administration has given folks enough rope to hang themselves. Oil production has risen substantially, and natural gas is now in a glut, with prices hovering just over $2/mcf.

This is unsustainable. Even at $96/barrel, we're reaching the cost of new “last-barrel” production in our new fields. Most gas drillers think they can't making a living below $3.50. As bad as things may seem in the renewable space, they are much worse in the oil patch. And with the Administration having ordered a rise in margin requirements, aimed at reducing market manipulation by speculators, they won't be able to push things back up easily.

Iran has been taken back by the mullahs, production from Iraq is going to increase, new fields are being found in Africa and off South America. Global production and lack of global war is putting a thumb down on oil industry profits, and that's the Kochs' real lifeblood. While everyone else is focused on Congress or Wall Street, it's in small bits of market regulation that the death of the oil barons is being told.

So the costs of oil and gas are rising, even without accounting for the environmental damage they do. At the same time the costs of renewables are falling, due to new technology. These lines are going to cross, at which point demand for renewables will skyrocket here as it is skyrocketing elsewhere.

Subsidies? What subsidies? The dawn is still just ahead. Keep driving a little longer and you'll see it.