Investing in Green Energy

Investing in Green Energy

In the past century or so, the industrial activities of mankind have added immense amounts of carbon dioxide (CO2) to the Earth’s atmosphere through the burning of carbon-based fossil fuels such as coal, oil and natural gas, as well as through burning limestone to make cement. The pace of adding CO2 to the atmosphere is increasing due to worldwide industrial and other human activities.

Carbon dioxide has also been identified as the chief culprit in global climate change. While the science of CO2 induced climate change can be argued, the fact is that governmental and community organizations continue to impede the development of fossil fuel projects. And with global energy demand increasing, other sources of energy that don’t produce CO2 will need to be developed.

Energy production that does not produce CO2 as a byproduct is commonly called green energy. Enterprising investors quickly recognize that an epic shift from “dirty” or “brown” energy (such as coal and oil) to “green” energy creates an opportunity for profit. Investing in green energy sources, such as solar, wind and geothermal, offers the potential for fantastic gains.

Investing in Green Energy: Solar Power

According to solar energy authority Steve Strong, solar power has the immediate ability to replace immense amounts of fossil fuel now being burned for electricity, heat and transportation. Strong has been in the solar business for about 30 years, and has a very long list of accomplishments to back up his claims. According to Strong, if only the roof area of every shopping mall in the U.S. were used to gather photovoltaic electric power, it would be possible to provide electricity to every home in the country.

In recent years, as production of photovoltaic cells has increased, the costs have come down to where solar photovoltaic technology is cost-competitive with coal-generated electricity. (In the event that “carbon taxes” become commonplace, photovoltaic systems will be among the relatively cheapest sources of electricity.) Yes, a photovoltaic system requires more upfront cost, but it should last for 25 years or more under normal service demands. So after a payback period of between four-six years, the subsequent electricity is “free” to the owner for the next 20 years or so, if it is not “sold” back into the grid at a profit to the owner.

Thus are both the technology and the market-based economics in place to support a growing switch away from the traditional coal-fired (or oil- or gas-fired) electric generation paradigm to a solar photovoltaic paradigm. This would mark the beginning of the end, over the long term, of using large amounts of fossil fuel to generate electricity, with the reduction of the accompanying carbon load that is otherwise being added to the atmosphere.

Look for solar power to become an increasingly important source of electricity supplies. And investing in green energy firms that produce photovoltaic cells, solar panels and solar heating systems or develop solar energy projects will offer spectacular returns.

Investing in Green Energy: Wind Power

The current worldwide production of electricity from windmills breaks down along the lines that over 86% of world generation capacity is split between Europe (72%) and the United States (14%). But wind power still generates only 0.7% of the world’s electricity. This will have to change, and change dramatically, as it dawns on leadership cadres and entire populations that global warming is a reality.

Already, nations as diverse in traditional energy sources as Iran and Costa Rica are investing in wind power. A nation such as Jamaica, favored by year-round trade winds, could reduce its use of imported oil by as much as 80% or more if it made an aggressive effort to install a base of wind power for electricity generation. And as another example, according to figures in the 2006 edition of the BP Statistical Review of World Energy, in China, wind power generates less than 1% of electricity, but use of wind power has increased by over 28% per year since 1995.

The overall targets in Europe for wind power growth are substantial, even without taking into account Sweden’s ambitious program to move away from fossil fuels. By 2010, wind power is projected to deliver 33% of all new electricity generation capacity and provide electricity for over 86 million people.

The offshore wind turbines currently on the market can operate at a higher efficiency than their land-based counterparts. With blade rotors that sweep an area as large as a football field and reach as tall as a 30-story building, these offshore wind turbines can be developed in large-scale “wind farms.” These wind farms can provide power for large coastal population centers, where available land area is limited. A 100-megawatt wind farm over the course of 20 years will displace the need for nearly 1 million tons of coal or nearly 600 million cubic meters of natural gas.

Using the installed windmill base of one manufacturer alone as a basis for comparison, using wind turbines, versus traditional fuel generation, provides the benefit of keeping more than 11 million tons of greenhouse gases from being emitted each year. This company’s installed base of wind turbines provides the same amount of electricity annually needed to power about 1.5 million U.S. households. These turbines can generate an amount of electricity comparable with the energy produced by 9.5 million barrels of oil.

Thus, there is no question but that wind power, with its ability to reduce the need to emit carbon dioxide into the atmosphere, is an investment opportunity for the future.

Investing in Green Energy: Geothermal Power

Geothermal energy is the energy contained in the hot rocks and fluids that fill the fractures and pores within the rocks of the Earth’s crust. Under the right conditions, geothermal energy can be utilized to generate electricity while emitting little or no carbon dioxide, and this is why we are interested. And due to a variety of geological processes, some areas of the Earth, including substantial portions of many Western U.S. states, are underlain by relatively shallow geothermal resources with huge energy potential.

The uses to which these geothermal resources can be put are controlled by temperature. The highest temperature resources are generally used only for electric power generation. Current U.S. geothermal electric power generation totals approximately 2,800 megawatts (MW), or about the same amount as five large nuclear power plants.

There are two basic types of geothermal power plants in operation today: steam and binary plants.

Steam plants use very hot (greater than 200 degrees Celsius) steam and hot water resources, such as are found at The Geysers complex of plants in Northern California. The steam is captured and is used to turn turbines, which drive generators that generate electricity. The only significant emission from these plants is water vapor, in the form of steam. But there are very minute amounts of carbon dioxide (CO2), nitric oxide (NO) and sulfur emitted, as well, which are natural products from the underground fluids – usually less than about 2% as much as come from a traditional fossil-fuel power plant. Currently, electric power produced this way costs about 4-6 cents per kilowatt-hour (kWh).

Binary plants, on the other hand, use lower-temperature, but much more common, hot water resources (100-200 degrees Celsius). And because these lower-temperature reservoirs are far more common, binary plants are the more prevalent. The hot water is passed through a heat exchanger in conjunction with a secondary fluid (hence, “binary plant”) with a lower boiling point, such as isobutane or isopentane. The secondary fluid vaporizes, which turns the turbines, which drive the generators. The remaining secondary fluid is simply recycled through the heat exchanger. The geothermal fluid is condensed and returned to the reservoir. Because binary plants use a self-contained cycle, there are, essentially, no emissions. Currently, electric power produced by binary plants costs about 5-8 cents per kWh.

Now that we have looked at the basic geology and engineering of geothermal power, let’s look at the business and policy sides of things. First, you should understand that extracting the Earth’s heat and selling geothermal power is subject to the same regulatory structures as almost all other energy generation and transmission entities in the country. Also, geothermal energy is capital-intensive; hence, it takes time to pay off any major investment.

Additionally, geothermal power competes against the rest of the electric grid, within the rate structures established by each state’s public utility commission. This means that the cost basis for a geothermal power plant has to be competitive with plants that produce electricity by burning coal, natural gas or even oil (such as in Hawaii), as well as the recently growing solar thermal energy industry.

Still, there is plenty of good news for geothermal energy. Once a plant is up and running, geothermal power is quite reliable. Geothermal plants offer a continuously available (24/7) base-load power source, with historic reliabilities in excess of 90%, which is comparable with the reliability of many nuclear plants. Compare this with wind-generated power (25-40% reliability) or solar-generated power (22-35% reliability). Investing in this green energy has the potential of providing you with steady reliable profits.

There is more good news for geothermal, in the form of what the regulators call policy support. Of late, geothermal has been on the receiving end of many very positive government actions, including production tax credits. Additionally, geothermal energy doesn’t deplete like oil and gas reserves. Many of these hot springs have been bubbling or producing steam since prehistoric times. And with little “exploration” in geothermal energy occurring in the last 30 years, future efforts in the field of exploration and development will undoubtedly refine the older knowledge base and expand the resource base.

Investing in Green Energy: The Trend Is Your Friend

So if you are an investor, can you spot the trend? Very simply, within the next few years, we will see distinct movements in world energy markets. There will be less investment opportunity in the growth of energy supplies from sources that emit carbon dioxide and other greenhouse gases. And there will be more investment opportunity in the growth of energy supplies from sources that do not emit greenhouse gases. Investing in green energy today gets you a stake in companies that will be the primary energy sources of tomorrow.

The Daily Reckoning Staff

The Daily Reckoning