Clean Energy Trends 2003

The following is an excerpt from Clean-Energy Trends 2003. To read the full report, please download the PDF file by clicking on the link to the left.

It is, at once, an exciting and confounding time for clean energy.

In a world buffeted by the challenges of national security, global climate change, and sluggish economies, clean-energy technologies such as solar, wind, and hydrogen-based fuel cells offer a compelling array of benefits to individuals and nations alike. These benefits include energy security, stabilized energy costs, reduced emissions and public health risks, and the creation of millions of jobs.

But building a clean-energy future is filled with equal parts promise and pitfalls, particularly in the United States, where government commitments to clean-energy development over the past three decades have been tepid at best, frustrating companies seeking a sustained, orderly market to fuel their growth. The hundreds of early-stage companies offering breakthrough technologies that could dramatically lower the cost of clean energy represent unparalleled potential in this arena, but many have been stymied by the recent economic downturn. Many early-stage companies will likely wither on the vine for want of consistent policies and sufficient capital.

This represents a lost opportunity. Industry, regulators, investors, and other key players must take critical steps to ensure that these emerging technologies can reach their full potential and become integrated into the existing energy infrastructure. Support from these constituents will help develop and sustain a diverse portfolio of energy resources that will be far less susceptible to economic, environmental, or political disruption and that will help guarantee ongoing technological and market competitiveness.

Continuing Market Growth

Such gloom notwithstanding, market indicators demonstrate that many clean-energy technologies are on the rise, and a confluence of forces is making clean energy one of the few bright spots in an otherwise bleak economy.

While most industries, especially in the technology sector, are seeing sluggish or negative growth, many clean-energy technologies are experiencing double-digit annual growth rates. We believe that solar power, wind power, and fuel cells will continue to exhibit aggressive annual growth for the foreseeable future.

According to Clean Edge research, solar photovoltaics (PV) (including modules, system components, and installation) will grow from a $3.5 billion global industry in 2002 to more than $27.5 billion by 2012. Wind power will expand from $5.5 billion in 2002 to approximately $49 billion in 2012. And fuel cells for mobile, stationary, and portable applications will grow from $500 million to $12.5 billion over the next decade.

Combined, these high-growth technologies will grow by nearly an order of magnitude -- from just under $10 billion today to $89 billion by 2012 -- offering significant economic opportunities for companies, investors, and governments pursuing clean-energy goals.

Clean energy is growing in both size and scale. In 2002, more than 6,500 megawatts (MW) of wind-power generating capacity was installed around the globe. This represents the equivalent of more than six large-scale nuclear or fossil-fueled power plants. In many regions, wind power is now cost-competitive with conventional utility-scale power sources. And solar photovoltaics, with more than 500 MW shipped in 2002, continues to see a decline in costs. Some manufacturers now sell solar modules for $2.50 per peak watt wholesale, compared to around $6 just a decade earlier. Clean Edge foresees further decreases in costs as the solar industry scales into a mature manufacturing base and breakthrough PV-manufacturing technologies enter the market.

Venture Capital Investments

Venture capital investments in clean energy, while trending downwards with the rest of the market, have grown as a percentage of the total venture market. Overall venture investments in US companies totaled $21 billion in 2002, down from $41 billion in 2001 and a high of $103 billion in 2000. Amid this significant decline, clean-energy venture investments fared better, and now represent a larger percentage of total VC activity than ever before. In 2002, venture investments in US-based clean-energy companies equaled $488 million, compared to $774 million in 2001 and just over $1 billion in 2000. Clean energy now accounts for 2.3% of total VC activity, compared to 0.7% just three years ago.

Large corporations are investing, too. General Electric Co. last year acquired Enron Wind to establish GE Wind Energy, now the largest wind turbine manufacturer in the US. BP Solar is rolling out Home Solutions, an ambitious and aggressive effort to create mass markets for residential solar PV systems in the US and Europe. Japan-based Sharp Electronics Corp. has doubled its output of solar PV modules over the past two years. Meanwhile, Ballard Power Systems, BASF, Duke Energy, Mitsubishi Corp., Shell Hydrogen, and others have joined forces as limited partners in Chrysalix Energy Management, a venture fund focused on hydrogen and fuel cell investments. And ChevronTexaco continues to invest in clean technology through its Technology Ventures group as well as through its holdings in Energy Conversion Devices.

Despite the growing interest in clean energy, investors in publicly traded clean-energy companies have fared poorly over the past year. Most clean-energy stocks traded on North American exchanges are significantly off their 52-week highs, with many trading below their initial public offering prices. While these stocks are likely to remain volatile amid the uncertainty of war, unstable government commitments, and other externalities, we believe that several will prove to be valuable long-term investments.

Harnessing Public Policy

Increasingly, governments around the world are recognizing that their global competitiveness and future economic growth rest in part on their investments in clean-energy technology. For many, it has as much to do with economic vitality and job creation as with energy production and security.

Japan and the European Union have been among the most aggressive players, implementing a variety of policies and initiatives to grow their burgeoning clean-tech industries. Much of the growth of clean energy in Europe and Japan comes at the expense of the United States. For example, while solar PV and wind power were first

commercialized in the US, they are now the domains of other countries: Japan has become the leading producer of solar PV modules, while Denmark and Germany rule the wind turbine world.

In the US, government leadership on clean energy has come not from the White House or Congress but at the state and local levels. California has implemented and oversees a range of innovative and high-impact programs, including a statewide renewable portfolio standard (RPS), fuel-cell research and development centers, and progressive rebates and incentives. The city of San Francisco has embarked on an ambitious program to install solar PV systems, including on the roof of its convention center. Michigan, under Gov. John Engler, recently launched a roughly $50 million NextEnergy program that would make that state a leading developer of fuel cells for the transportation sector. Gov. George E. Pataki of New York recently announced a bold plan calling for 25% of the state's energy to come from renewable sources by 2010. Government-supported clean-energy incubators from California to Connecticut are helping to grow new companies.

More than a dozen US states now have renewable portfolio standards mandating that a portion of the state's overall electricity purchases come from renewable sources such as geothermal, solar, and wind. Such policies are having a salutary impact on the growth of clean energy in the US. And RPS are not limited to states: several nations are implementing similar policies, including Japan (targeting 3% renewable energy by 2010) and the entire European Union (targeting 20% renewables by 2010). The US does not yet have a national RPS.

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