Clean energy has boomed in recent years, but to guarantee its continued growth investors need stable, long-term policy support, three of the Bay Area’s leading energy journalists told a Climate One audience on February 3. The panel also warned consumers to brace themselves for higher energy prices, predicting that California drivers could be paying $5 per gallon for gas as early as this summer.
“What you have seen in Silicon Valley is a maturation of the industry, and a growing understanding on the part of VCs that investing in energy is not like investing in software,” said San Jose Mercury News cleantech reporter Dana Hull.
“It’s a very capital-intensive, long-horizon kind of investment,” she went on. “People who thought they could invest in a company and get an exit three or five years later are realizing that that time horizon is more like seven or nine years."
State and federal regulatory hurdles and a lack of transmission lines are just a few of the challenges facing energy developers, she noted.
“The idea of a bunch of VCs putting $1 billion into a solar manufacturing facility – that’s not going to happen anytime soon. But you’re still seeing a lot of investment in other parts of the cleantech economy, like car-sharing,” she said.
Cassandra Sweet, a reporter for Dow Jones Newswire and The Wall Street Journal, noted that clean energy firms are increasingly able to attract serious investment – even from oil incumbents such as Chevron and French oil giant Total.
“Underneath it all,” she said, “there’s this expectation that government policy will support continued development of these markets. It can be really hard to see a future, particularly in the near term, without some kind of government support, in the form of tax credits or requirements for biofuels.”
Climate One’s Greg Dalton noted that some of the government support energy firms have benefited from over the past two or three years, including backing for energy projects in the stimulus, is running out.
“It’s not just the stimulus,” pointed out the San Francisco Chronicle’s David Baker. Also important, he said, are tax credits that offer investors a longer time horizon. “It’s more [investors] saying, ‘I need to know exactly how things are going to pan out over the next decade. Am I going to be able to count on these tax credits from you folks at the federal level? If so, how much is it going to be? Is it going to be the same year after year? Or, are you going to keep re-authorizing it every two years, stringing us along?’”
“That doesn’t work for any kind of energy company – oil, gas, solar, geothermal,” Baker said. “All these projects are very complicated, very capital intensive, and they need to know exactly how they’re going to be treated by the feds, by the taxpayer, over the next 10 to 15 years.”
Of course, even if U.S. policymakers were to succeed in implementing a stable, long-term energy policy, events outside our borders could upend energy markets. Baker noted that the price of oil has remained high – $85 to $105 per barrel – during the economic downturn, driven in part by surging demand in China and India.
“What if Israel does attack Iran?” he asked. “The price is going to go bonkers.”
“Or what if Iran closed the Strait of Hormuz?” added Hull. “I see lots of reasons why the price will go up by the end of the year,” Baker said.
“I think we could hit $5 [per gallon in California] by this summer,” said Hull.
Cassandra Sweet agreed. After citing the growing demand for oil in Asia and political turmoil in the Middle East, she said: “I don’t think it’s completely crazy that we could see $5 gasoline in the next year or so.”
– Justin Gerdes
February 3, 2012
Photos by Rikki Ward
The Commonwealth Club of California