A Schematic of Decision Making: Corporate Finance and Capital Markets
Beyond Alternative Energy
Whilst the notion of being a passenger on a solar-powered airplane may be a bit unnerving, the evolution of our energy mix from industrial, utility to propulsion is certain. A solar-coal hybrid plant operated by a nuclear and offshore wind provider is just one example of the shift in energy portfolio composition.
A recent article in The Economist (May 28th pages 11, 81-83) conveys a new era of planetary existence, Anthropocene– ‘The Age of Man’. It suggests our collective responsibility is the application of technology and innovation to manage the potential harmful environmental effects of growth—‘Geoengineering’. Benchmarking the rate of change in atmospheric carbon levels by baselining the earth’s geological characteristics against the measurable impact of societal and industrial development results in an arguably strong correlation. The use of stochastics on current data results in an easily identifiable ‘overbought’ status, though the relationship is construed by some as ambiguous (e.g., the earth’s natural propensity to breath). The obvious issue in this debate is the concern that the data will become untethered.
Outstanding is the need for greater transparency, paramount to rote out the contradictions with respect to man’s carbon footprint. A longstanding hypocrisy, the retail sale of mountain spring water is akin to selling air plus the petrochemicals utilized as inputs (plastic bottles) and the hydrocarbons consumed in the manufacturing process, associated transportation and product distribution. A carbon neutral posture requires a commitment greater than just recycling.
The principled actions of leading nations have not been deterred by the failure of positional negotiations seeking a Kyoto replacement (ref: volume limitations to carbon emissions advocated by the United States versus a per capita bound proposed by China). The necessary international incentives for private industry to continue capital investment in energy efficiency and renewable energy are in force, exemplified by the public referendums affirmed by a majority of US states and the national energy policies of both Germany and China. Geopolitical, macroeconomic and sovereign issues aside, a default interim accord has been forged.
The strategic allocation of government resources, production tax credits (if continued) and R&D grants coupled with the fundamental principles of finance and economics (free markets) will likely supplant the need for one carbon price and a global exchange (cap and trade) in the near- and intermediate-term. Evidenced by price pressures (lesser government subsidies, reduced short-term demand, overcapacity and lower average selling prices), the commoditization of wind and solar may initially have an adverse impact on the earnings of multinational players with undifferentiated companies on the backside of the cycle forced to shutter. However, volume will ultimately offset price declines and the need for economies-of-scale in order to realize a lower cost per watt will act as an impetus for industry consolidation spurring mergers and acquisitions. The promotion of grid parity is clearly a prerequisite to the long-term feasibility of renewables.
Alternative Energy is already sustained by many Industry Groups (GICS)—Automobiles & Components, Banks, Capital Goods, Commercial & Professional Services, Consumer Durables & Apparel, Diversified Financials, Energy, Food Beverage & Tobacco, Materials, Media, Pharmaceuticals Biotechnology & Life Sciences, Retailing, Semiconductors & Semiconductor Equipment, Software & Services, Technology Hardware & Equipment, Telecommunication Services, Transportation, Utilities—and will continue to be mainstreamed. The definitive subindustry catalysts have not been altered in structure or intent and resultant applied technologies are utilized in our every day. Beyond Alternative Energy is a concept proposed to advance the development of an energy equation and acknowledge the many positive byproducts of this endeavor.
Human innovation, from the first windmill to the space program, attests to the inevitability of energy and environmental solutions. In 10,000 years today’s scientists, anthropologists and investment bankers will be recorded as the nouveau-cavemen who succeeded in another ‘quest for fire’. Rest assured, the climate issue is already in the process of being solved. Yet to be suggested—nuclear-powered cars . . . full coverage, mandatory.