Renewable Energy Sparks Industry Debate

 

Takeaway

  • Inconsistent policy standards make it difficult for companies to manage multiple projects at once
  • Efficient energy systems require fewer employees than conventional power plants, limiting job creation
  • Funding and scaling up clean energy projects requires far more capital than it takes to launch the average software startup

The natural gas boom and a growing pressure to transition into cleaner fuels are reshaping the U.S. energy market, and the industry is looking for ways to adapt. Many unanswered questions are complicating the planning process: How many permanent jobs will renewable energy technologies really create? Is there a way to make alternative energy a more attractive investment than it is now? Is the U.S. adequately positioned to compete in an increasingly competitive global energy market?

At the UT Energy Forum in February, industry leaders, financial experts, academics and policy makers came together to discuss the challenges and promises of emerging energy trends. Below are some highlights from some of the forum’s most spirited discussions.

Attracting Investment in Renewable Projects

One of the biggest barriers to the widespread adoption of renewable energy is investors’ reluctance to take the financial risk of backing emerging technologies. Industry leaders are evaluating strategies to lower the potential costs of investing in renewables, which would them more accessible to institutions, retail investors, and everyday investors.

“People are looking at a lot of ways now to continue to bring down the [financing] costs for renewables, so that they can become an even more established and competitive part of our overall energy portfolio,” said Michael R. Meyers, co-head of the Energy and Infrastructure Group at Orrick. “The real strive is to try and say, ‘Okay, can we get the cost of renewables to be equivalent to the cost of fossil fuels on the energy side?’”

Radu Tutos, finance director for EDP Renewables North America, said expanding the market for renewables would reduce capital costs for developers. Another hurdle is the state-to-state variation in energy policy and regulation.

“If we had a wish list, we definitely would like to see uniformity in the market. The programs are very different from each other,” Tutos said. “Some of them are almost impossible to finance, and that's not only a loss for the sponsor, but also a loss for the other states.”

Ken Alston, a special assistant for finance at the U.S. Department of Energy, said he agrees: “What's consistently been an obstacle is lack of standardized documents and differences in sorts of available data.”

Prudential Capital Group Director Panag Patel adds that private lenders are keeping their distance because the lack of standardization could require them to manage projects under 50 or 60 contracts with different rules. If that burden were reduced, he said, investors would be more likely to get on board.

“These are long-term capital assets that generate power for 20-30 years, if not more,” Patel said. “Equipment costs need to come down, as well as financing costs.”

But the absence of a national energy policy continues to make investment in renewables a risky venture, and the consensus among experts is that legislative and regulatory changes will be needed to help the industry raise capital in the future.

Creating Jobs in Energy Technologies

The clean technology industry is a rapidly expanding sector that is expected to create thousands of jobs in the years ahead. Business groups such as the Austin Chamber of Commerce and the Austin Technology Incubator are reaching out to attract and support these enterprises in hopes of strengthening their local employment markets.

Academic institutions are also doing their part to prepare students to enter the workforce with the skills they need to get renewable energy jobs. Michael Bettersworth, senior advisor to the chancellor and associate vice chancellor for technology advancement at Texas State Technical College, said his office works to “forecast emerging trends in energy for the sake of adjusting our curriculum.”

But while looking ahead to future energy trends is a core objective, Bettersworth said it is most important to keep programs rooted in actual market demands and employability in the shorter term. For example, TSTC has capped enrollment in its wind program, anticipating a saturated employment market. Meanwhile, the number of jobs associated with natural gas extraction continues to skyrocket.

“Overall, the bulk of jobs will be wherever the bulk of energy is. Right now that is still traditional sources,” Bettersworth said.

One factor that limits the growth of the renewable energy labor market is the fact that more efficient energy systems require fewer employees, which keeps jobs numbers low. Meanwhile, inefficient systems actually create more jobs.

“Job creation is fundamentally out of sync with energy efficiency,” said Gürcan Gulen, an economist with UT’s Bureau of Economic Geology.

Public policy could play a role in motivating companies to create more renewable energy jobs, but that strategy can only go so far if the market doesn’t come around. Gulen said institutions shouldn’t create job and degree programs in anticipation of certain policy changes, nor should they bet too heavily on early technologies that have not proven themselves in the market.

Doug Lewin, executive director of the South-Central Partnership for Energy Efficiency as a Resource, echoed that sentiment. He cautioned against overly specialized training that could pigeonhole future energy workers with skills that may not be relevant a decade from now. 

Incubators Jump Start Clean Tech Companies

Clean tech is a field that ranges across energy generation, efficiency, transportation, storage, infrastructure, environmental applications, advanced materials, and green retail. Launching a clean tech company is a difficult undertaking, because, like biotech (and unlike software startups), clean energy investments take a long time to come to fruition.

A number of industry veterans and academic institutions are working to make that process easier. The Austin Technology Incubator’s clean energy program is one such partnership, the first of its kind in the U.S.

ATI works with inventors, scientists and engineers who have an idea and need help raising money, finding legal and professional services, and hiring talent to build their team. It also trains UT students in technology entrepreneurship.

“We pick them up in the ‘valley of death’ funding phase, when they are either going to go up or die,” said ATI Co-Director Mitch Jacobson. “We look at every avenue for funding, from venture capitalists, angel networks and others. To accomplish that, we have to ensure that the companies are solid, with competitive products and strong management teams.”

Michael Webber, co-director of ATI’s Clean Energy Incubator, said the timeframe and scale of investing capital in clean tech is much different than that of the software industry, because companies must build expensive development costs into their cost structures.

“It is difficult to scale up clean energy projects,” he said. “This is not like software technology, where you put two software engineers in a room, feed them some Cheetos and pretty soon they have a product, and you send it to market by hitting the send key.”

U.S. Moving Toward Energy Independence

The U.S. is in a better position than many other countries to reap the benefits of a blossoming energy renaissance, according to Bud Brigham, CEO of Anthem Ventures and founder of Brigham Exploration Company.

“The center of gravity for energy production has shifted to the USA,” Brigham said. “We are creating jobs and prosperity, and the effects are cascading through the economy: jobs, GDP growth, less dependency on foreign sources of oil, lowering the U.S. trade deficit, lowering energy costs, boosting domestic manufacturing, and strengthening the U.S. dollar.”

Brigham identified a number of factors that make the United States a favorable environment for energy exploration companies:

Private property rights — In many other countries that have large oil and gas reserves, the government (rather than the landowner) owns the resources. And when that happens, Brigham said, it stifles innovation.

Rule of law — In countries that lack consistent, enforceable laws, companies have less of an incentive to explore for resources because the government can easily change the rules once oil is discovered.

Economic liberty — The ability to risk investment in areas of the investor's choosing allows funds to flow where the most opportunity exists.

Availability of resources — The U.S. has a comparatively steady supply of investment capital, equipment, an educated workforce, and support infrastructure.

With these advantages, the American energy sector is poised to grow more quickly than its global counterparts, Brigham said. This brings U.S. energy independence closer to becoming a reality.

 

Reporting by Tracy Mueller, Alayna Alvarez, and David Wenger

About The Author

Rob Heidrick

Writer, McCombs School of Business

Born and raised in Austin, writer Rob Heidrick has spent several years as a contributor and editor at local magazines and community newspapers. He...

Leave a comment

We want to hear from you! To keep discussions on-topic and constructive, comments are moderated for relevance and for abusive or profane language.
Login or register to post comments