Credit Crunch Could Dull Appetite For Green Tech
US: November 11, 2008
BOSTON - The global credit crunch and easing oil prices may take some of the
immediate wind out of the sails for investing in green energy, a major
growth initiative for General Electric Co, but it is unlikely to reverse a
long-term trend toward renewable power sources.
Concerns throughout corporate America that the volatility of energy prices
will remain and a new, Democratic administration in Washington that is
expected to take a stronger stance on environmental policy than its
predecessor will keep some momentum going in the market, experts said.
"As the global economy slows down, so will demand for green energy," said
Scott Sklar, president of Stella Group Ltd, a Washington-based green energy
consulting and design firm. "There is going to be less of a push to expand
generation capacity."
GE has made its "Ecomagination" initiative -- a broad umbrella that covers
businesses from electricity-producing wind turbines to energy-efficient
refrigerators and washing machines -- a key part of its corporate branding
campaigns since launching the drive in 2005.
The venture has been growing quickly and is on track to hit $17 billion in
revenue in 2008, a 21 percent annual rise that puts the initiative on track
to represent about 9 percent of GE's total revenue. Windmills alone account
for about one-third of that $17 billion. Earlier this year the US
conglomerate said it expected solar panels to be the next big growth
vehicle, growing tenfold to $1 billion in revenue over the next three years.
The Fairfield, Connecticut-based company aims to grow Ecomagination revenue
to $25 billion by 2010.
"We have a nice backlog that is holding up," said GE spokesman Peter
O'Toole. "We are not seeing any broad or extensive order cancellations."
SCALING BACK RENEWABLE GROWTH PLANS
But the credit crunch has caused some big users of renewable energy
technologies to cut their growth plans.
FPL Group Inc, the largest US operator of wind turbines, late last month
slashed back its 2009 capital spending plans, saying it would boost capacity
by a third less than planned as a result of the economic slump.
Likewise, Duke Energy Corp cut by half a $100 million plan to put solar
panels on customers' roofs after North Carolina authorities raised concerns
about the plan's cost to homeowners.
"The economics are going to change," said Mike Gandrud, senior analyst at
Optique Capital Management in Milwaukee, which owns GE shares and manages
about $1.2 billion in assets. "The attractiveness of wind was oil at $147 a
barrel, it's now a heck of a lot less than that. Some of those numbers are
going to look a lot different."
Still, other experts point to the extreme volatility of energy prices --
like that of oil, which has gone from about $90 a barrel to almost $150 and
back to $65 in the last 12 months -- will help keep corporate America
interested in green alternatives, which can offer more stable pricing.
Natural gas prices have similarly spiked and retreated over the past year.
"At $60 oil some of those projects don't look as dramatic as they looked at
$120 to $150," said Dan Rogers, a partner and energy specialist at
Houston-based law firm King and Spalding. "There has been a dulling of the
pain with the retreat in oil prices, but most people that we have talked to
in the oil industry are of the view that it is a temporary phenomenon."
While the credit crunch has made it difficult for developers to secure
financing for new wind farms and solar fields, experts said most in the
industry regard this as a temporary roadblock. Denmark's Vestas Wind Systems
A/S, the world's No. 1 wind turbine maker, said Thursday it expects sales to
continue to grow next year despite the credit squeeze.
Renewable energy projects are also more scalable than large traditional
electric plants or nuclear power plants, meaning that a developer can erect
a moderately sized 200 megawatt wind farm -- enough to meet the needs of
160,000 typical American home when the wind is blowing -- for about $200
million, rather than investing billions in a coal or nuclear-powered plant.
"The magnitude of investment is really different," said Sklar, the
consultant. "You have the ability to make smaller, incremental investments,
which are generally less risky."
Investors also said the incoming US president, Democrat Barack Obama, will
likely take steps to encourage continued investment in green energy sources,
which can help reduce greenhouse gas emissions and reduce the nation's
dependence on imported oil.
"Obama obviously is very keen on alternative energy, wind infrastructure,
etc.," said Gandrud, of Optique. "We'll see what incentives he puts in place
for that."
(Reporting by Scott Malone, additional reporting by Nick Zieminski in New
York; editing by Patrick Fitzgibbons and Phil Berlowitz)
Story by Scott Malone
REUTERS NEWS SERVICE
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