Alternative Energy Warnings
Delusions: The Secret to Lost Opportunities
This past Thursday, as we sat down to yet another Thanksgiving feast, the obligatory What are you thankful for? question surfaced.
To be honest, I've never been a fan of playing this game.
After all, if you're thankful for something, why do you have to wait until November 24th to talk about it?
Nonetheless, I played along that afternoon and decided I was thankful for all the great thinkers over the years that enabled progress and allowed us to enjoy the many comforts and conveniences we take for granted today.
As well, I'm thankful that many of these great thinkers succeeded in the face of intense criticism and scrutiny.
After all, change is sometimes hard for the masses to accept — even if those changes are in our best interests and can instigate economic growth.
Look at rail travel, for instance. Think about the impact the advent of rail has had on this country...
The transcontinental railroad united the nation and allowed for the increase of commerce between states.
Think about all the freight we ship on our rail system: the coal, the grain, the chemicals, the scrap iron, and the thousands of other things that keep this nation fed, clothed, and operational.
Every dollar invested in freight railroads yields $3 in economic output. For every $1 billion of rail investment, more than 17,000 jobs are created. Freight railroads generate almost $265 billion a year in economic activity.
Railroads are four times more fuel efficient than trucks, and last year, U.S. railroads moved a ton of freight an average of 484 miles per gallon of fuel.
The importance of freight rail to our nation's economic health is undeniable.
So it's a pretty good thing rail travel didn't die on the vine when it was first being created, especially since there were quite a few folks who disparaged it in its earliest stages of development.
In fact, it was Dr. Dionysus Lardner, the famous professor of natural philosophy and astronomy at University College in London, who once said: “Rail travel at high speed is not possible because passengers, unable to breath, would die of asphyxia.”
That, my friends, is just one example of the ridiculous and irrational things “new” technologies often have to contend with in their early days of development.
Hell, back in 1903, the president of the Michigan Savings Bank told Henry Ford's lawyer, Horace Rackham, that the horse was “here to stay” and the automobile was only a novelty, a fad.
Fortunately, Rackham didn't listen. He invested $5,000 in Ford stock, which he later sold for $12.5 million.
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A Clean Energy Illusion
As a long-time modern energy advocate and investor, I've heard every excuse in the book as to why things like solar, wind, and electric cars will never pan out.
Even some colleagues whom I find to be quite smart and successful have sunk to a level of irrationality by referring to solar and wind as “scams,” pushing the illusion that cleaner energy alternatives are inefficient and costly.
Of course, I hold no grudges. We all have an axe to grind. I'm just not a big fan of trashing something you don't fully understand in an effort to push something you do.
In other words, while I fully enjoy being a part of (and profiting from) the earliest developments in clean power generation and electrified transportation, you'll never find me cheering pipeline delays or second-guessing the role oil plays in the global economy.
Because as any right-minded objective capitalist will tell you, that pipeline's a done deal.
As well, the further production of domestic oil is lock.
But just as we will produce unconventional liquids in Canada and the United States, we will also continue to integrate more cleaner energy.
Irrelevant Perceptions Won't Help You Profit
While some like to subtly mock wind power by referring to wind turbines as “windmills,” it is very likely that by 2030, 20 percent of our power generation will come from wind.
The 20 percent by 2030 has actually been an industry goal since former president George Bush signed off on a DOE report detailing how the U.S. could achieve that kind of wind penetration, and do so without any major technology breakthroughs.
The cost: about 0.06 cents per kilowatt-hour of total generation by 2030, or roughly $0.50 per month, per household.
But again, that's based on no technology breakthroughs, of which there have been many over the past few years — including a few that have enabled increased efficiencies and lower production costs.
Even Bloomberg's New Energy Finance recently released a report indicating the best wind farms in the world already produce power as economically as coal, gas and nuclear generation, and the average wind farm will be fully competitive by 2016.
Here's what lead analyst Justin Wu had to say:
The public perception of wind power tends to be that it is environmentally-friendly, but expensive and intermittent. That is out-of-date – in the best locations, where generation is already cost-competitive with fossil fuel electricity, and that will be the case for the majority of new onshore turbines installed worldwide by 2016.
Wu also went on to say:
The press is reacting to the recent price drops in solar equipment as though they are the result of temporary oversupply or of a trade war. This masks what is really going on: a long-term, consistent drop in clean energy technology costs, resulting from decades of hard work by tens of thousands of researchers, engineers, technicians and people in operations and procurement. And it is not going to stop: In the next few years the mainstream world is going to wake up to wind cheaper than gas, and rooftop solar power cheaper than daytime electricity. Add in the same sort of deep long-term price drops for power storage, demand management, LED lighting and so on — and we are clearly talking about a whole new game.
A Bigger Piece of the Pie
Look, I get it. Some folks like to mock environmentalists.
They think all that “let's make sure our air and water is clean” rhetoric is just a recipe for economic disaster and socialist agendas... or they just need a villain to help them sell their wares.
Whatever it is, rest assured the integration of clean, modern energy technologies is not being facilitated by Greenpeace or a secret society of tree huggers worshiping at the altar of Al Gore...
It's being facilitated by nothing more than the quest for wealth and security.
The future of energy will not be one completely dictated by fossil fuels. Rather, it will be one that utilizes a variety of resources.
In 20 years, we will still be very much reliant on fossil fuels.
But don't kid yourself.
Because while natural gas will likely be our main source of power generation for decades to come, wind, solar, and geothermal will also be getting a bigger piece of that pie.
And while we'll suck every last ounce of oil from anywhere we can economically produce it, we are actively developing alternative modes of transportation right now that will either require less oil or no oil at all.
From natural gas trucks and buses to more efficient internal combustion engines to electric cars, this is happening right now.
And this is our opportunity to make a choice...
Either embrace it and profit from it, or miscalculate the enormity of the change that is about to take place — much in the way the former Michigan Savings Bank president did when he insisted the automobile was nothing more than a novelty.
When it comes to energy in the 21st century, the only novelty or fad is the outdated and delusional mentality that the world is not transitioning its energy economy to one that will rely less and less on finite resources.
To a new way of life and a new generation of wealth...
Editor, Energy and Capital
P.S. For the sake of clarification, windmills are machines designed to mill grain or pump water. The word windmill is also used to describe a cardio exercise that requires you to swing your arms around in a circular motion. Wind turbines, on the other hand, convert wind energy to mechanical energy that is used to produce power. Just something an energy investor might want to know in case you encounter the incorrect usage of the word “windmill” in any past or future analysis you may read.