Energy Transitions: Are We In One Now? Part Three, Investments

by Elliott Morss


In the first part of this series, I looked lessons learned from earlier energy transitions. In Part Two, I applied those lessons to the current scene. Here, I look at investments being made in the energy industries and reach conclusions on global warming.

Perspective – Let’s Keep It Simple

Right now, the financial world is as dangerous as it has ever been. But there are a few certainties one can build on. The global population is still growing: we are at 7 billion people now and are expected to reach 8 billion in the next few decades where it levels out. More people means the demand for food and energy will continue to grow. In short, energy is a growth industry.

Energy basics:

  • It would be great if all energy came from electricity since we have nearly unlimited fuels to make electricity from via: combustion, nuclear reactions, other fission, and fusion).
  • But electricity does not work for moving vehicles: no way to store electricity at reasonable costs and weights.
  • So oil, natural gas, and biofuels will have to be used to power moving vehicles for the indefinite future.

Renewable Energy

Renewable energy (wind, solar, biofuels, biomass, hydro, geothermal, and marine) is attracting a lot of attention. This is manifested in renewable energy investments. The latest Bloomberg New Energy Finance Report (BNEF) estimates renewable energy investments at $211 billion in 2010, an increase of 32% over 2009. Table 1 provides the project-specific investments by technology, along with their average annual compounded growth rates (CAGR) since 2004.

Table 1. – Renewable Energy Investments by Technology, 2010

Investment CAGR
Technology (bil. $) 2004-10
Wind 94.7 43%
Solar 26.1 91%
Biofuels 5.5 23%
Biomass 11.0 20%
Small Hydro 3.2 19%
Geothermal 2.0 12%
Marine 0.1 33%
Total 143 40%
Source: BNEF

Wind still leads boosted in particular by wind farm development in China, but solar is catching up, with rapid growth of small-scale solar PV installation on rooftops in Europe.

There are two ways to look at solar. First, a quote from BNEF: “No energy technology has gained more from falling costs than solar over the last three years. The price of PV modules per MW has fallen by 60% since the summer of 2008”.

My own interpretation? The solar industry is in disarray, with solar panel prices having fallen 93% in the last three years. Despite large government subsidies, there was over-production. In addition, new solar technologies are expected to increase solar efficiencies by 2 times or more, meaning existing solar panels will be worthless. I repeat the first historical lesson from my earlier piece:

During past energy transitions, much money was made and lost as various actors tried to guess which new technologies would succeed.

A lot of money invested in solar will be lost, just as was the case with US ethanol investments. Technologies are changing rapidly, with no clear idea where we are going. Will we finally figure out how to use fusion? Or will there be a breakthrough on batteries? Do you remember the NSF-funded study to look into locating a large mirror in space to catch rays of the sun? The plan was to concentrate the rays and “telescope” them to a location on earth which convert them to electricity. The plan was rejected as being too dangerous – what if the rays got “off target”?  But who knows what will be next?

According to BNEF, only 5% of renewable investments are going into technology development (government and corporate R&D, and venture capital). Most is going into existing technologies for projects. This makes no sense. In a couple of years, out-dated solar panels and windmills will litter the earth.

Just under 40% of all global energy is used in heating, cooling, and lighting buildings. My venture capital friends say the best bet for applied energy investments today are in energy saving technologies – better monitoring of heat, cooling, better use of the sun for heating, and greater use of new heating/cooling materials for buildings.

The Competition – Fossil Fuels

Another of the lessons from history:

Transitions take a long time. This happens in part because the infrastructure needed for new energy technologies is expensive. And as long as the old energy providers can make money selling their product, they will.

The oil, gas, and coal industries are not going away, and they have deep pockets. For example, Table 2 lists the current cash holdings of five publicly-traded oil companies. And keep in mind the 16 largest oil companies are state-owned, with the Saudi Arabian Oil Company right at the top of that list. They also have deep pockets. The oil companies control most oil and natural gas fuels. They have large inventories and they want to sell them.

Table 2. – Cash Holdings,

Selected Oil Companies, 2011

Company Cash

(bil. US$)

Exxon Mobil (XOM) 8.5
British Petroleum (BP) 18.6
Chevron (CVX) 14.1
Royal Dutch Shell (RDS-A) 19.3
ConocoPhillips (COP) 10.5
Total 70.9
Source: Yahoo Finance

As reported above, $211 billion were invested in renewables in 2010. The IEA World Energy Outlook projects upstream oil and gas investments at $550 billion in 2011, with another $100 billion to be invested in refineries and processing.

What Does It All Mean?

Bloomberg uses its investment data to project renewables’ share of total energy in 2030. In Table 3, I use those projections along with the International Energy Agency’s projections of total energy produced to determine what CO2 emissions will be in 2030. CO2 emissions data also come from the IEA, and I assume they will be the same proportion of non-renewable fuels as they were in 2010.

Table 3 – Energy and CO2 Projections

Item 2010 2030
Renewables (MTOE) 682 1,079
Non-Renewables (MTOE) 4,731 5,793
Total (MTOE) 5,413 6,871
CO2 Emissions (Mt) 28,999 35,507
Sources: BNEP, IEA

Two points:

  • The renewable share is projected to increase from 2% to 3%;
  • Currently, CO2 emissions are causing global warming. Table 3 suggests they will be 22% greater in 2030. One hopes this straight-line projection of emissions from non-renewables will overstate emissions because we are finding ways to reduce emissions from fossil fuels (coal in particular). But still, it is doubtful these “cleaning” technologies will reduce emissions by 22%. The conclusion: in the absence of a major new energy technology breakthrough – and this could happen, emissions in 2030 will probably be greater than they are today. An end to global warming? Forget it!

Government Subsidies

I start with the third lesson from the history of energy transitions:

Money-making energy choices are not always the right ones. Deep pockets, government subsidies and aggressive marketing can turn a bad choice into a winner.

The IEA World Economic Outlook (2011) reports that subsidies for renewable fuels reached $66 billion in 2010. Fossil fuel subsidies? $409 billion.

Open Secrets reports that the oil and gas industry has spent $111 million lobbying in Washington so far this year. Money well spent.


We are in an energy transition and where it will take us is unclear. But one thing is clear: fossil fuels will continue to be our dominant fuel source. And that means global warming will continue, probably at an accelerated pace. In my final piece in this series, I will examine the most serious problems resulting from global warming.

Related Articles

Energy Transitions – Are We In One Now? (Part One) by Elliott R. Morss

Energy Transitions – Are We In One Now? (Part Two) by Elliott R. Morss

From Coal to Nuclear – A Look at the Numbers by Elliott R. Morss

The Forgotten Renewable by Roger Conrad

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