No Climate Deal? No Problem, Say Clean Energy Firms

Carbon Emission
Carbon Emission

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.

Investment Shifting

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.

The Carbon Challenge - A CNBC Special Report - See Complete Coverage
The Carbon Challenge - A CNBC Special Report - See Complete Coverage

One utilities sector lobbying group says it’s still on board with some kind of federal carbon policy, but that today’s reality means acting at the state level, too.

“In our sector, we’re still pushing for a [federal] legislative solution,” says Jim Owen, spokesman for the Edison Electric Institute, EEI, a organization representing the majority of the country’s investor-owned utilities. “We have not abandoned hope for a good piece of legislation coming out of Congress next year.

Nevertheless, he expects much of the legislative action will continue to happen at the US state level.

“This conversation is taking place in every state capitol,” says Owen. “The focus on [renewable energy and energy efficiency] across the board shows our members are ‘with the program.’”

Shayle Kann, energy analyst at green technology research firm, GTM Research, agrees, saying that while the “magnitude and certainty of emissions reductions by the United States and China” will be the main issue at Copenhagen, “for the domestic electricity sector, the rubber hits the road on domestic energy and climate legislation.”

Both Owen and Kann expect any national climate change legislation to be delayed until spring 2010. But Kann adds that President Obama’s recently suggested targets of cuts of 17% of 2005 emissions levels by 2020 are similar enough to those passed by the House earlier this year that everyone—the White House, the House and the Senate—seems to be on the same page.

This get-it-done-already approach to emissions policy goes to the heart of how US energy and utilities firms—and, increasingly, any publicly traded company—see the drivers of change; in particular, investment is less about cap-and-trade and more about potentially bigger issues, like national infrastructure and energy source security.

Energy-Efficiency Technology

The Cleantech Group expects energy efficiency to be grow even more quickly, as technologies that cut the core costs of energy don’t need government incentives or cap-and trade to be effective and profitable.

“We’ve gone on record that energy efficiency investment could eclipse solar in 2010,” he says.

A maturing solar sector and a potential boom in the energy efficiency sector points to increasing agnosticism about carbon policy, with industry expecting something down the road from Washington on climate change, but without really being fixated on the details.

The energy sector, Kachan says, “is optimistic about a carbon policy eventually. But in the short term, there’s work to be done.”