While world leaders meet in Copenhagen next week to discuss carbon emissions targets, the energy sector will keep moving into a cleaner energy future with or without them.
The United Nations Framework Convention on Climate Change, or COP15, as the conference in Copenhagen is known, remains “focused on emissions and not how we reshape the global economy,” says Dallas Kachan, managing director at the Cleantech Group, a cleantech research and consulting firm.
Lessons Of Solar
The maturing solar energy sector is an example. According to Kachan's firm, $451 million in private equity deals flowed into the solar sector in the third quarter of 2009, with service companies getting more attention than manufacturing or research-oriented ones.
“We’re seeing investing in smaller customer service firms,” says Kachan. These firms, for example, would batch together agreements to buy excess power from larger-scale, rooftop solar systems and sell that power to a utility or provide one-stop installation and service to residential solar panels.
Though that investment is down sharply from the $1.2 billion of the third quarter of 2008--when solar peaked--it partly reflects the massive downturn in the world economy.
More importantly, since renewable energy growth in the past several years has been spurred by concerns over climate change, declining investment may be reflecting a move from trying to find new technologies that are generally capital intensive and toward bolstering the stability of the current participants in that market.
This could be a sign of sector maturity, suggesting that solar can be profitable regardless of what happens in Washington—something that’s still missing from other green energy plays, like biofuels and battery technologies.
Since hitting an investment peak three years ago, oil giants like BP and Chevron , among others, have made multi-billion-dollar investments in solar. New market participants flooded the sector, and this rapid growth, combined with the economic downturn, prompted a drop in the price of solar panels.
Like any maturing market, this oversupply, compounded by cheaper competition overseas manufacturers, drove out many firms. Meanwhile, dedicated solar manufacturers like Canadian Solar and SunPower have grown quickly and have swallowed their smaller competitors or watched them close up shop.
While solar is just one example, research from firms like Cleantech Group and others shows capital momentum shifting from firms that are creating the products and services to help their energy sector clients manage or avoid emissions to the new technologies that save these clients money via efficiency, while also potentially reducing carbon emissions.
“We’re seeing the innovation community taking matters into its own hands,” says Kachan of Cleantech, which also tracks tracks investment flows into renewable energy, “smart grid” and energy efficiency technologies, among others.
Even when energy sector players factor government policy into their decisions, the focus is on the changes in the patchwork of existing state and regional regulations, from nascent cap-and-trade programs, to renewable energy mandates and energy efficiency goals.