Q-Why are power investments in traditional fossil fuels so much more prevalent than alternative energy sources?

 

A-Investments tend to track the marketplace.  Currently, the market is driven on traditional fuel sources.  Even those that are heavily subsidized, are what is in place, they have been proven to work, and are what we have come to expect.  We talk about change, we talk about cleaner sources of energy, but the current structure doesn’t promote those yet.  Businesses and hence, our ability to invest in them, follow accordingly.

 

Between 2002-2008, the US subsidies of fossil fuels were well over double those going to alternative energy.  Of the alternative energy subsidies, well over half went straight into corn biodiesel fuel subsidies.  A small fraction was left, to be split between wind, solar, geothermal, wave, nuclear, hydroelectric, and other types of biofuels.  Producing energy as a company doesn’t require simply an engineer figuring out how to garnish power, store it into a battery, link it to already established grids, etc.  It takes a staff to set-up the company, find funding, work on proposals, sell the power generated, make the company public, sell shares, etc.

 

Subsidies come in a few forms.  Many are tax incentives.  They may be reduced import tariffs, reduced operating taxes, reduced land tax, equipment and facility renovation tax breaks.  Other subsidies are funding for research and development (R&D).  In traditional plants R & D funds may help with turbine efficiency studies, waste studies, etc.  In alternative energy companies, researchers may still be cutting ground with these funds.  Advances are constantly being made in solar panel size, storage capacity, etc.  Wind and wave plants have become more commonly known landscape features in some locations.  If you haven’t seen the farms in Madison County or on Wolfe Island , On., it may be worth the daytrip.  Most of us have noticed headlines about bio-fuel research for a few years; OCC has staff working on algal biofuel production. 

 

In addition to financial obstacles, companies have to overcome human perception obstacles.  Solar panels are much more en vogue today than they were twenty years ago.  Not everyone is willing to have a nuclear powerplant in their community.  Many are opposed to wind farms as unsightly, obstructive, and dangerous.  Making the change to alternative power sources involves making them fashionable.  Not every type of production may be right for every area.  There is no reason to expect the Niagara Falls area to switch to solar over hydroelectric.  Nor should water depleted areas such as the Southwest, be growing corn for bio-fuel production when areas like Upstate NY lend themselves to it more naturally.

 

As the global pressure on the United States to reduce fossil fuel subsidies increases, we will find a few companies that are able to stand out from others.  Pure efficiency can go a long way in making a great balance sheet in which to invest.  The less work needed to extract, store, and deliver energy, the higher chance of success, in the long run.  Cleaner energy should also thrive.  In the meantime, to help with your investment strategy, it may serve you well to watch where the funding opportunities in alternative energy are going.