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Thursday, September 10, 2009

Will RE ever be a regular business?

Wednesday I went to the wonderful SVPVS meeting, one of the best of the many Silicon Valley resources available for local cleantech industry employees, job-seekers and pundits.

One of the things that struck me was that the speaker, a senior manager of a publicly traded solar power company, at several points made appeals to ideological arguments rather than business ones. Decades ago, renewable energy was a cause not a business, but for some reason I was under the delusion that the industry had matured past that. (Here I’m not referring to the presentation of different industry futures based on different policy regimes — certainly something that any strategy analyst would do.)

While ideological arguments have their place in political campaigns or in lobbying for favorable government policies, I don’t see their place for justifying the business of renewable energy. In fact, emotional appeals seem a sign that the economics won’t stand on their own.

In the end, photovoltaic and other renewable energy power generation is about producing commodity photons using an expensive new capital-intensive technology. No matter how wide the evangelism, there will always be price-sensitive buyers who buy the cheapest photons.

Yes, the government can distort the market to make some sources of photons more (or less) attractive than others. In some cases, the arguments for pump priming are economically defensible, if a temporary subsidy accelerates the learning curve efficiencies of a technology that will eventually be cost effective on its own. (This is in contrast to permanently subsidizing a politically favored technology that will never be cost-competitive).

Various aspects of energy efficiency are already a regular business — with or without tax credits, there are energy efficiency solutions where the payback period makes investment a no-brainer. Yes, LED illumination may still need pump priming, but there are dozens of technologies (such as insulation for new construction) which are already economically viable on their own: adoption is widespread among true believers and non-believers alike.

So we can hope that RE will eventually become a regular business, like nearly all other products purchased by businesses and consumers. Perhaps that will happen sooner, due to economic recovery that means an end to unexpectedly cheap fossil fuels. Perhaps that will happen later, as the result of cumulative experience curve effects over years or decades. But if RE is to become a viable business — that survives cycles of rich powerful governments and poor bankrupt ones — it eventually needs to stand on its own two feet.

Update 9/11/9 9:11am: After attending another cleantech event Thursday, I realize that cleantech businesspeople are working at a difficult intersection between business, policy and politics. It will be decades (if ever) that PV is like IT; more in a future post.

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