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Michael McDonald

Michael McDonald

Michael is an assistant professor of finance and a frequent consultant to companies regarding capital structure decisions and investments. He holds a PhD in finance…

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What Is Holding The Green Revolution Back?

What Is Holding The Green Revolution Back?

In all the press that alternative energy sources get, one fact is often omitted. While Green energy has been around for years, today there are no alternative energy companies that come even close to rivaling the size of the oil majors. Why is this? Solar power, wind power, and other renewable energy sources have made, at best, incremental progress in overtaking conventional energy sources even as governments around the world have pushed renewables with all their might. At the end of the day, the simple fact is that renewable energy sources have not caught on and resulted in a wave of new jobs as many once expected they would.

The reason for this incontrovertible fact is controversial. On the one hand, some people like former Royal Dutch Shell employee Adriaan Kamp suggest that oil companies have simply failed to see the writing on the wall and are too myopic too move beyond their area of expertise. Related: Is Solar Energy Ready To Compete With Oil And Other Fossil Fuels?

If the reason that green energy has yet to become a major money maker is that mainstream companies have not yet embraced the technology, then there is still a vast fortune to be made in the space. German energy giant E.ON appears to think there is some value in green energy. The firm announced last November that it was going to focus on renewable energy, power distribution and customer solutions. E.ON announced that its legacy conventional power generation, energy trading, and exploration & production assets would be spun-off as part of a new company. This strategy is novel among major energy firms and could presage moves by other major energy players in the future.

Yet E.ON’s actions may never catch on at other firms. The alternative explanation to the myopic conventional energy executive argument is that renewable power sources simply do not provide enough profit to be worthwhile for serious corporate investment. Even with today’s low oil prices, hundreds of companies are looking for opportunities to buy oil rights in high producing areas around the globe. Related: US Postal Fleet’s $6 Billion Upgrade Could See Switch To EVs

In contrast, renewables projects are slow to develop, fraught with bureaucratic red-tape, and characterized by low margins. Given the much higher levels of profit in conventional energy, there is a real question as to whether major energy companies will ever be interested in shifting their resources to renewable fuels. Indeed, the irony of the green power revolution is that it has been accompanied by historically high conventional energy prices, which in turn has resulted in even greater interest in conventional energy.

Companies like British Petroleum, under John Browne, moved to go “Beyond Petroleum” and explore profit opportunities in renewable energy. But all of this effort and energy ultimately did not lead to substantial new business lines or a dramatic increase in profits. Instead BP, Chevron and others have sold off their renewables businesses and redoubled their efforts in conventional energy generation. At the end of the day, it just does not look like renewable power is profitable enough to displace serious investment in conventional energy sources. Related: This Development Could Revolutionize Renewable Energy

While there may be truth in both the myopic oil company and unprofitable alternatives stories, ultimately the reality is that many forms of alternative energy have been part of mainstream business for fifteen years now. And in that time, very few big companies have developed that are built around the renewables business. This suggests that oil companies like Exxon Mobil know what they are doing when they buy back their own stock rather than invest in renewable energy projects. It’s possible that Tesla, Solar City, and other innovative companies will ultimately be able to find a way to make big profits in new areas of energy. But that will probably require a completely different skill set than the one found at most energy companies today. At this point, the world has not figured out an effective business model for renewable energy, and until we do, the green revolution will remain unfulfilled.

By Michael McDonald of Oilprice.com

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  • whirlwinder on May 05 2015 said:
    Alternative energy is far too expensive to compete with fossil fuels. This will be known when government subsidies finally die out. At least for the electric energy sector, wind power will never be a stable source of power, when fossil fuel plants are needed to provide power when the wind stops blowing. Green energy is a huge scam. It is government transferring our tax dollars to their crony brothers.
  • joe on May 05 2015 said:
    While I agree that the technology has not developed to a level that makes the products affordable or efficient enough yet , to say it is a scam is a display of ignorance. In my lifetime oil companies will die out and be replaced , just like coal died out for oil. The world evolves , people evolve and humans have adapted since our existence. your comment was stupid and please do the world a favor and not say anything else.
  • James38 on May 09 2015 said:
    This quote summarizes most of the article:
    "renewables projects are slow to develop, fraught with bureaucratic red-tape, and characterized by low margins. Given the much higher levels of profit in conventional energy, there is a real question as to whether major energy companies will ever be interested in shifting their resources to renewable fuels."

    The problem is that while this is a true statement, it omits the single most important part of the global energy equation - the irrefutably solid evidence of ever accelerating climate change driven basically by the CO2 output of burning fossil fuels.

    This means that the cost of climate change damages in the future will be solely the responsibility of the fossil fuel energy producers and the political decisions that are being made to allow this process to continue. With sea levels expected to rise by a meter or even tens of meters by the end of this century, just that fact will have a global cost of many trillions of dollars.

    That cost must be added into the expense of continuing to do business as usual with fossil fuels. When this is done, "renewables" (usually meaning wind/solar) look far more feasible - or even essential - and that becomes more glaringly obvious when the fact that sea level rise is only one of the inevitable results of our present energy industry.

    Another less well known but equally devastating change that is coming at us is from Ocean Acidification. This results from the absorption of CO2 by the oceans, which increases as atmospheric levels rise. CO2 becomes carbonic acid when it dissolves in water, and in the oceans this acid reacts with the available calcium dissolved in the water. This calcium is essential to the formation of skeletons and shells, and by 2050 at present rates of increase in CO2, all ocean mammals, fish, and shellfish will begin an irreversible slide toward extinction.

    The resulting loss of food from the oceans will cause global food shortages and starvation, and when this is added to the retreat inland by billions of people displaced by ocean level rise, will cause such pressure on civilization that survival of humanity may become dubious - and there are other major problems headed our way, as shown by the severe droughts in California and the Southwest.

    Taking these facts into consideration is essential. To fail to do so is utter madness.

    The only technology that can replace coal, oil, and natural gas as an economically equal energy source is Generation 4 Nuclear Power, meaning the MSR/LFTR (Molten Salt Reactor/Liquid Fluoride Thorium Reactor) technology. This reactor type is completely fail-safe, is far more efficient that standard SFPWR (Solid Fuel Pressurized Water Reactors), has none of the proliferation danger, and can use present stockpiles of Nuclear Waste as fuel, eliminating the storage problem.

    The "Fukushima Panic" is based on two factors - one is ignorance of the fact that even the present solid fuel nuclear industry has a better safety record than any other large scale energy production method - with Coal being the worst by far, and second is ignorance of the safe and much less expensive MSR/LFTR technology.

    MSR/LFTR can provide energy cheaper than coal - at a cost about equivalent to the most economical fossil technology, the CCGT (Combined Cycle Gas Turbine). The basic MSR/LFTR process was built and tested for 20,000 hours at Oak Ridge in the 1960's (see MSRE - Molten Salt Reactor Experiment), and was cancelled in one of the absolutely worst bureaucratic mistakes ever made.

    For excellent information read:

    "Super Fuel - Thorium, the Green Energy Source for the Future" by Richard Martin

    "Thorium: Energy Cheaper Than Coal" by Dr Robert Hargraves

    And see:

    www.timothymaloney.net

    For several fascinations presentations including a complete graphic description ot the MSR/LFTR, much more detailed information about Ocean Acidification, and many other related topics.
  • SamB on May 12 2015 said:
    The world is on the cusp of a paradigm shift...worldwide.
    The world's largest oil fields are situated in regions that are..... #1 increasingly violent and unstable....and #2 are next to impossible for the USA to impose a strategy to control the flow of oil.
    The Persian Gulf is no longer under American Control,,,,,it is becoming lawless. And what is not in chaos....is increasingly controlled by the larger financial power....China.
    In the near future, the USA will need to make some judgement calls to ensure the survivability and success of the American way of life.....
    #1. Will we sacrifice our drinking water and irrigation water to serve the purpose of extracting more and more oil/gas from our own inaccessible reserves?? At what cost fracking??
    #2. Will we rearrange our finance rules to allow the Solar/Nuclear Technologies to be more universally used in our Power Grids? At present the Federal Rules for tax loopholes, subsidies, etc are tilted heavily in favor of inefficient oil extraction techniques.......and are designed to prohibit large scale implementation of proven technologies in PV Solar Roofs, Thorium Reactors, etc, etc.
  • Unpacified on October 30 2015 said:
    We need a carbon negative society 10 years ago, and without oil takeover Henry ford was already doing it in 1941. The current state of the planet should be on everyones mind everyday as we conform to the chaos of it's destruction. Btw james38 the dieoffs have already started, nuclear power is not safe, and we don't need it. Anyone wondering why industrial hemp(one of the most carbon negative most versatile plants in the world is illegal in America??? End the Petrodollar system, end the war. If $ collapses, end the Fed. We could even be using the same methane hydrates that will cause extinction otherwise as a superfuel. The only reason people still use the most inefficient fuels in the world is blatant corruption between government representatives and special interest.

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