The clean tech challenge

GELLERMAN: Hard times, green job, and the future of renewable energy technologies. Our fate and fortunes depend on taking the right road – or maybe it’s the left. To shed some light on the way forward, we turn to Lux Research and Matthew Nordan. He’s president of the independent firm. It analyzes emerging technologies.

Mr. Nordan, I want to thank you very much for coming into our studios.

NORDAN: Thank you for having me.

GELLERMAN: Get much sleep lately?

NORDAN: Not so much. Not so much. Been a rough couple of weeks.

GELLERMAN: Well, why?

NORDAN: Well, our clients are all chemical companies, private equity funds, other folks that have a vested interest in green technologies rolling out. And it costs a lot of money to be able to build a solar plant or a waste-to-fuel plant or a water plant. If you look at solar, a typical cost is about ten dollars per watt for utility. Which means if you’re gonna build a typical plant, you’re going to need tens of millions of dollars, maybe hundreds of millions. That money comes in the form of debt, which requires a credit market. Credit markets collapse, can’t build the plant.

GELLERMAN: So the clean technologies stocks on Wall Street have really been tanking along with the rest of the street?

NORDAN: Stocks got hammered. You saw that huge decline earlier; again at the same time the average solar stock was down twenty, twenty-five percent. There was a bounce back the next morning, but the impact on these emerging technologies was bigger than the impact on blue chips or the economy as a whole.

GELLERMAN: Well, let’s say we get beyond this a little bit. What becomes hot, what’s not in terms of the emerging technologies and what you see going forward?

NORDAN: I think there are a couple of things. To the extent that credit markets remain constrained, anything that you need debt to deploy, just gets iced. But that doesn’t mean that money in other forms doesn’t continue to flow in energy and environment. It just means that you can’t loan people money, you have to give them money in exchange for ownership of the company. So venture capital is probably just fine. That money is sitting in accounts, it’s already been called down, and those funds are required to spend that money in a certain amount of time. It’s the project finance to build the facilities and do these large scale deployments in things like solar and waste-to-fuel and water that’s going to be hard.

GELLERMAN: So it’s the early stage technologies which might benefit from this because the venture capital, the VC money, is relatively small, short money.

NORDAN: That’s right. And in fact, there are also some cases where you might see some technologies get more investment rather than less now. A good example is demand response, which is deploying sensors which let you turn down your electricity usage when the price of electricity on the grid is highest. If you’re a retail chain looking at that, thinking it might shave a tenth of a percent of operating cost, you probably might not have thought about making that switch beforehand. If you’re facing consumers that are not spending money, same store sales are going down, you probably care a lot more about saving that amount of money.

GELLERMAN: Let’s look at some growth projections for certain slices of the renewables. Solar: up or down?

NORDAN: Well solar, in a base case, where you’ve got access to credit, we think continues to grow about 30% a year, gets from today’s 21 billion to about 100 billion dollars in about 2013. Can’t get access to credit? All that goes out the window, could be flat, could even decline.

GELLERMAN: Wind?

NORDAN: Wind is a little bit different from solar in that it doesn’t depend so aggressively on subsidies in order to be cost competitive. But it still requires tens of millions of dollars to go out and build large-scale plants. Those deployments would get hammered too.

GELLERMAN: I may catch a little flack for this by grouping this in with those, but nuclear?

NORDAN: Well nuclear ? remember it takes about thirteen years to permit a nuclear plant in the United States. It takes about three years to build it. So these are so far out, that anybody who is currently in a permitting process for nuclear, is just going to keep steamrolling right on through, because by the time that they get done, it’s very likely that all this will just be a memory.

GELLERMAN: Electric cars?

NORDAN: Electric vehicles is a different case, because to the extent that oil prices remain reasonably high, to the extent that there are reasonable pressures on oil, there’s still gonna be a short term payback for hybrid electric vehicles and for pure electric vehicles. Particularly the commercial kinds, like big buses and trucks that happen to be really intense when it comes to fuel. That’s one area that I think is gonna be more isolated from impact. Certainly gonna get hit, just like anything else if there’s lack of credit, but if money’s gonna flow somewhere, is it more likely to flow to electric vehicles than PV, absolutely.

GELLERMAN: Many economists are anticipating a recession, if not worse now. And with a recession or downturn, you usually have a lessening of demand. Fossil fuel use would go down, the prices would go down, and that would make energy saving technologies, and renewable technologies less appealing.

NORDAN: You’re absolutely right. And since the middle of the summer, we’ve seen the price of oil drop precipitously. There are many people who think that that could reach $80 a barrel by the end of the year. That’s going to be an inhibitor for technologies of all types who basically had their profitability pegged to the price of oil.

GELLERMAN: But isn’t this a critical time for clean energy and clean technology. I mean we’ve got climate change. How do you balance that act?

NORDAN: I hear you, but climate change occurs over a very long period of time. Time scales that you measure in decades to centuries, not in years. And if you think about the impact that you’re going to have with a hiccup in credit markets that lasts two, three, four years at a time, probably not a huge effect. I disagree with that. If you end up with a Great Depression era type of phenomenon, which I don’t think many people project, but a case when you can’t get credit for ten or twenty years, then we start worrying about missing the critical window for clean technologies.

GELLERMAN: So, if you were a betting man, what budding clean tech would you invest in?

NORDAN: I think you’re going to see the investment go into efficiency technologies, things that are replacements or alternatives for what you use now that pay themselves back in a very short amount of time. Things like solid state lighting, LED light bulbs. You’re gonna buy light bulbs anyway, the question is just what kind. And people are more likely to get over the hump of having a big upfront cost in order to buy something if they care more about the savings that comes in the next year and the next and the next in an environment like this one, savings are going to get more important.

GELLERMAN: Mr. Nordan, thank you very much for coming in.

NORDAN: And thank you for having me.

GELLERMAN: Matthew Nordan is president of Boston-based Lux Research.