What Wall Street wants

CURWOOD: It’s Living on Earth, I’m Steve Curwood.

Republicans have traditionally been considered to be the political party that’s friendliest to business, and the platform adopted at the convention that nominated John McCain broadly calls for more energy investment. And it declares that alternative energy sources such as solar, wind, geothermal and hydropower, quote, “must enter the mainstream.” But just how friendly is John McCain and the Republican Party to the development of new energy enterprises? Joining me now to shed light on what energy investors want from policymakers is Michael Hoffman. He manages investments in conventional and renewable energies for Riverstone Holdings LLC, a private equity firm with $15 billion under management. Michael Hoffman, welcome to Living on Earth.

HOFFMAN: Thank you.

CURWOOD: Now both Democrats and Republicans are doing a lot of talking this year about the importance of investing in renewable energies. Tell me, you run perhaps the biggest renewable energy fund in the world, just how big is this alternative renewable energy business right now and how big could it get in the future?

HOFFMAN: The amount of spending in a year, in 2007 dollars, in the conventional energy business worldwide is about $800 billion, and its about 200 billion for renewable energy. The conventional energy business is only growing at, like three or four percent per annum, and the renewable energy business, interestingly enough, is growing in excess of 20-25%, depending upon what area you’re talking about. And if it continues to grow with the 20-25% rate, it’ll take a while for it to be as big as conventional energy, but it will eventually get there if the pace continues.

CURWOOD: Now the Republican platform supports ending America’s addiction to foreign oil through more oil drilling, more nuclear power plants and a longterm energy tax credit for renewable energy sources. How does the investment community view this platform?

HOFFMAN: Well, I think in general positively. I mean, it’s a little bit like motherhood and apple pie. Of course, everybody wants energy independence, but what the Republicans and Democrats have done is both spoken about the need for renewable fuels and renewable power. But the details of what each of the Democrats and Republicans are arguing for is not really in the party platforms and, quite frankly, changes on a pretty consistent basis. At one point, it looked as though the McCain campaign was embracing global warming concerns and, therefore, really focused on carbon cap and trade programs. It’s not as clear at this point, and he picked a vice presidential candidate who doesn’t even believe in global warming as a serious threat. So, it’s not clear where the Republican platform is on some of these issues.

CURWOOD: Now the language of the Republican platform on climate change says specifically, “We can and should address the risk of climate change based on sound science without succumbing to the no growth radicalism that treats climate questions as dogma.” They are particularly silent though on the question of how they would do it internationally or even at home in terms of a cap and trade program or taxes. What’s your reading of that?

HOFFMAN: I think they’re hedging their bets. You’ve got different wings of the party saying different things. You’ve got somebody like Governor Schwarzenegger who, in California, has taken a very aggressive stance towards trying to deal with climate change and has put in place, at the state of California level, a requirement that 33% of all power that the utilities are run on is from renewable sources. Others — like the Governor of Alaska is obviously not so sure that’s a problem. So I think they’re trying to capture both ends of the spectrum in their working draft on the platform.

CURWOOD: So, policy-wise, in your view, what’s the best-case scenario for investors? What would your energy platform be?

HOFFMAN: I guess our energy platform would be developing the transmission grid you need to deliver alternative energy whether it’s wind or solar to the places where you need it. That’s one of the biggest bottlenecks. On the fuel side, you need really specific mandates in place and incentives in place that people can rely on.

And so I think there are some strategies that can be taken both on the fuel side and on the power side to maximize the success of renewables. You know, I think the investment community is looking for certainty. To the extent that there are real incentives in place that extend for a period of time that people can count on the development of new energy resources whether they are nuclear or renewable, that’s what Wall Street wants: certainty.

CURWOOD: And what about cap and trade?

HOFFMAN: Cap and trade is a very interesting question. Nobody’s building a wind farm or solar farm based on cap and trade, but they are debating whether or not to build a coal fired plant because it could be very costly. Cap and trade though will help elevate the competitive costs for nonrenewable energies, which make renewable energy more competitive.

The trick about cap and trade is where do the credits go? The devil is in the details. What is the cap and trade legislation going to look like? And until you know that, it’s kind of hard to see who the winners and losers are.

CURWOOD: Michael Hoffman is the managing director of Riverstone Holdings LLC and coauthor of the new book Green: Your Place in the New Energy Revolution. Thanks Michael.

HOFFMAN: Thank you.