The alternative-energy bubble
What do you get when you mix Al Gore, global warming, whacky environmentalists, skyrocketing oil prices, lots of venture funding, and irrational exuberance? An alternative-energy bubble.
What, you don't believe that there's an alternative-energy bubble? Then you're just not paying attention. It may not be the biggest bubble in the history of technology--yet. And it may not be ready to burst--yet. But it's a bubble, all right. All the signs are there.
In solar energy alone, hundreds of millions of dollars of venture funds have been poured into the likes of Nanosolar, SoloPower, OptiSolar, HelioVolt, eSolar, SolFocus, Solel, Miasole, GreenVolts, Hydro Green, Infinia, Sopogy, Cyrium, SkyFuel, BrightSource Energy--the list goes on and on.
All the usual suspects are in the game: big-name venture capital firms, investment banks, private-equity firms, energy companies, technology companies, individual investors, a new batch of investment companies focused primarily on energy, and even a hedge fund or two.
There are lots of recognizable names, as well, including Google founders Larry Page and Sergey Brin, Microsoft founder Paul Allen, and Sun Microsystems founder and ex-Kleiner Perkins partner Vinod Khosla.
Free Field Installation in Germany
(Credit: First Solar)On the public side, shares of First Solar have seen a Google-like rise to more than $300 since the company's November 2006 IPO. That translates to a $22 billion market cap on quarterly sales of just $200 million. At least it's profitable, but the price-to-earnings ratio of 100 is stratospheric in today's market. Incidentally, members of the Walton family (of Wal-Mart fame) own roughly 49 percent of the company.
GT Solar, on the other hand, raised $500 million less than two weeks ago in the nation's biggest alternative-energy IPO to date. But the stock is floundering, and the vultures are already circling around several securities class action lawsuits.
On July 21st, GCL Silicon Technology filed a registration statement with the SEC for an even bigger $863 million public offering. The Hong Kong-based company was founded just two years ago.
Still not convinced that it's a bubble? Let me explain how this kind of thing works.
When VCs smell a hot market, they fund a bunch of companies in that space and hope one or two make it. It's a numbers game. Sometimes they hit it, most of the time, they don't, but if they spread their fund around a bit, it usually pays off.
Now multiply that model by a few dozen VCs, throw in a host of corporate, institutional, and individual investors, and voila, you've got dozens of companies that are very well funded.
But that doesn't mean the market demand will support all those companies--and all the capacity they need to bring online for their business models to work. The principals of all those alternative-energy companies know that, but that won't stop them from doing what they're doing.
Still, no matter what they say publicly, they know they have to nail their strategy and business plans, if they hope to survive an eventual shakeout.
The magnitude of the shakeout will be proportional to the gap between market demand and supply. In the case of the dot-com bubble--which also included Internet and telecommunications infrastructure, fiber optics, and communications chips--the shakeout was huge, affecting the public markets by almost a trillion dollars. The nanotech bubble, on the other hand, has been largely localized to the VC community.
As for the nature of this particular bubble, I'm not sure if my crystal ball is better than anybody else's, but my gut tells me that we're already getting way out ahead of ourselves.
As bubbles go, I think this one's going to be big. How big? You got me. But I think that global warming, alternative energy--and solar energy in particular--like Al Gore are all overblown. The energy crisis, on the other hand, is real, but nuclear energy's the answer. And that's all I'm going to say about that here.
What does all this mean to you? It depends on your risk profile. If you're young, I say you need to take risks. Should a great opportunity arise with one of these companies, by all means, go for it. But if you have a good job with a good company, or you don't have enough working years left in you to take significant risks, I wouldn't jump ship for a hot solar start-up or bet too much of your portfolio on one of these deals.
You don't want to end up like Icarus, who got a little too exuberant and flew too close to the sun. Wings melt, bubbles burst--same result.
Steve Tobak is managing partner of Invisor Consulting LLC. He is a member of the CNET Blog Network, and is not an employee of CNET. Disclosure. 
When I was in college the "consensus option" was that the Earth was heading into a new ice age. I have no doubt that the world will look back at all the current global warming hand waving and declare Al Gore the P.T. Barnum of the 21th century.
"The longer the planners delay, the more difficult will they find it to cope with climatic change once the results become grim reality." - The Cooling Earth, Newsweek, April 28, 1975.
The "ice-age consensus opinion" story is nothing more than an urban myth, as any scientifically literate person would already know. See http://www.realclimate.org/index.php?p=94 for details.
So I say, if it's a bubble, so be it, as long as we come out of it with something that works in the long run.
Mr. Tobak, you missed a big point in your Al Gore comparisons here. The year before he launched his documentary he formed his own investment company for green tech. If that wasn't an indication that we were headed toward an over hyped artificial demand scenario I don't know what is.
According to energy investment banker Matthew Simmons and other independent forecasters, global crude oil production is now declining, from 74 million barrels per day to 60 million barrels per day by 2015. During the same time demand will increase 14%.
This is equivalent to a 33% drop in 7 years. No one can reverse this trend, nor can we conserve our way out of this catastrophe. Because the demand for oil is so high, it will always be higher than production; thus the depletion rate will continue until all recoverable oil is extracted.
Alternatives will not even begin to fill the gap. And most alternatives yield electric power, but we need liquid fuels for tractors/combines, 18 wheel trucks, trains, ships, and mining equipment.
We are facing the collapse of the highways that depend on diesel trucks for maintenance of bridges, cleaning culverts to avoid road washouts, snow plowing, roadbed and surface repair. When the highways fail, so will the power grid, as highways carry the parts, transformers, steel for pylons, and high tension cables, all from far away. With the highways out, there will be no food coming in from ?outside,? and without the power grid virtually nothing works, including home heating, pumping of gasoline and diesel, airports, communications, and automated systems.
This is documented in a free 48 page report that can be downloaded, website posted, distributed, and emailed: http://www.peakoilassociates.com/POAnalysis.html
I used to live in NH, but moved to a sustainable place. Anyone interested in relocating to a nice, pretty, sustainable area with a good climate and good soil?
As for the comment from Senza: If this is indeed a bubble, it will only hurt the goal of realizing sustainable energy. Energy is not an easy problem to fix, and the best solution is continual sound investments in good technology.
To cyjwirth: We have plenty of liquid fuels. It's called oil shale, and we have enough of it to meet our petroleum demands for over a century. It's just been too expensive to extract. If oil prices continue to increase, we will begin to use this resource of ours. Even if it is more expensive, at least the money would be staying in the US rather than to the Mid East.
And I agree with mallycett, too. It is by far not a bubble yet, considering that we are barely running on renewable energy at this point. It may be a bubble on a micro level, since a lot of startups that may not have good prospects are aggressively funded by venture capital, but we have a loooong way to go. There is a lot of money to be spent. I mean think about it - we are switching from our current source of energy. It's going to be HUGE.
OIL SHALE IS NOT OIL, NOR IS IT SHALE, AND THE ENERGY RETURNED ON EENERGY INVESTED FOR OIL SHALE STINKS IS NEGATIVE AND WILL ALWAYS BE NEGATIVE, EVEN WHEN OIL HIT $1,000 PER BARREL
The World Energy Council makes the following assessment about the potential of oil shale energy:
?If a technology can be developed to economically recover oil from oil shale, the potential is tantalisingly enormous. If the containing organic material could be converted to oil, the quantities would be far beyond all known conventional oil reserves. Oil shale in great quantities exists worldwide: including in Australia, Brazil, Canada, China, Estonia, France, Russia, Scotland, South Africa, Spain, Sweden and the USA.
The term ?oil shale? is a misnomer. It does not contain oil nor is it commonly shale. The organic material is chiefly kerogen and the "shale" is usually a relatively hard rock, called marl. Properly processed, kerogen can be converted into a substance somewhat similar to petroleum. However, it has not gone through the ?oil window? of heat (nature?s way of producing oil) and therefore, to be changed into an oil-like substance, it must be heated to a high temperature. By this process the organic material is converted into a liquid, which must be further processed to produce an oil which is said to be better than the lowest grade of oil produced from conventional oil deposits, but of lower quality than the upper grades of conventional oil.
With increasing numbers of countries experiencing declines in conventional oil production, shale oil production may again be pursued. One project is now being undertaken in north-eastern Australia, but it seems unlikely that shale oil recovery operations can be expanded to the point where they could make a major contribution toward replacing the daily consumption of oil worldwide.
Perhaps oil shale will eventually find a place in the world economy, but the energy demands of blasting, transport, crushing, heating and adding hydrogen, together with the safe disposal of huge quantities of waste material, are large. On a small scale, and with good geological and other favourable conditions, such as water supply, oil shale may make a modest contribution but so far shale oil remains the ?elusive energy?.?
The 2007 GAO study concluded that, ?it is possible that in 10 years from now, the oil shale resource could produce 0.5 million to 1.0 million barrels per day.? But the GAO noted that the development of oil shale faces key challenges, including: ?(1) controlling and monitoring groundwater, (2) permitting and emissions concerns associated with new power generation facilities, (3) reducing overall operating costs, (4) water consumption, and (5) land disturbance and reclamation.?
Walter Youngquist of the Colorado School of Mines provides a detailed history and analysis of attempts to develop Colorado?s oil shale. After spending billions of dollars, industry has terminated oil shale operations due to a low net energy recovery and a lack of water resources.
Finally, anyone with common sense who has seen oil shale can look at the little bit of dry carbon embedded in marmal rock and see this oil shale stuff ain't goin nowhere.
You say you don't care about Global Climate Change and the tens of millions that will displace as refugees? Well, then just care about the 40,000+ pre-mature American deaths each year from air pollution.
Or maybe care about the true price you pay for a gallon of gas - around $18/gallon when you count how much we pay in taxes for aid to oil producers, military protection of oil supplies, environmental costs, etc.
Space-Based Microwave Energy can.
http://www.p2pnet.net/story/16477
Very true. We could follow France's example with nuclear energy. I'm not sure why we need liquid fuel -- electricity is a lot better -- we just haven't learned how to store it efficiently. But, we are not very far away. Once we get the batteries to about 2x-4x efficiency of lithium ion batteries, we could have cars that can go upward of 400 miles on a single charge. When we figure out how to recharge those batteries in less than 15 minutes, we'll have a very viable alternative to gasoline-powered vehicles. By the way, electrical engines are over 90% efficient compared with 40% efficiency of regular combustion engines.
a kw hr. The author must have his thumb in the pie somewhere. Renewable energy solar,
wind, biomass, and eventually hydrogen is the road to take. Look at the plant in Germany
(nuclear) another outage and eventual shut for annual maintenance, very costly.
http://www.youtube.com/watch?v=LHD4U2q_p4c
- 1.8 to 6 Trillion barrels of oil are estimated in the U.S. Oil-Shale Reserves (DOE)
- 986 Billion barrels of oil are estimated using Coal-to-liquids (CTL) conversion of U.S. Coal Reserves (DOE)
- 175 to 315 Billion barrels of oil are estimated in the Oil Sands of Alberta, Canada (AGS)
- 100 Billion barrels of heavy oil are estimated in the U.S. (DOE)
- 90 Billion barrels of oil are estimated in the Arctic (USGS)
- 89 Billion barrels of immobile oil are estimated recoverable using CO2 injection in the U.S. (DOE)
- 86 Billion barrels of oil are estimated in the U.S. Outer Continental Shelf (MMS)
- 60 to 80 Billion barrels of oil are estimated in U.S. Tar Sands (DOE)
- 32 Billion barrels of oil are estimated in ANWR, NPRA and the Central North Slope in Alaska (USGS)
- 31.4 Billion barrels of oil are estimated in the East Greenland Rift Basins Province (USGS)
- 7.3 Billion barrels of oil are estimated in the West Greenland?East Canada Province (USGS)
- 4.3 Billion barrels of oil are estimated in the U.S. Bakken shale formation in North Dakota and Montana (USGS)
- 3.65 Billion barrels of oil are estimated in the U.S. Devonian-Mississippian Bakken Formation (USGS)
- 1.6 Billion barrels of oil are estimated in the U.S. Eastern Great Basin Province (USGS)
- 1.3 Billion barrels of oil are estimated in the U.S. Permian Basin Province (USGS)
- 1.1 Billion barrels of oil are estimated in the U.S. Powder River Basin Province (USGS)
- 990 Million barrels of oil are estimated in the U.S. Portion of the Michigan Basin (USGS)
- 393 Million barrels of oil are estimated in the U.S. San Joaquin Basin Province of California (USGS)
- 214 Million barrels of oil are estimated in the U.S. Illinois Basin (USGS)
- 172 Million barrels of oil are estimated in the U.S. Yukon Flats of East-Central Alaska (USGS)
- 131 Million barrels of oil are estimated in the U.S. Southwestern Wyoming Province (USGS)
- 109 Million barrels of oil are estimated in the U.S. Montana Thrust Belt Province (USGS)
- 104 Million barrels of oil are estimated in the U.S. Denver Basin Province (USGS)
- 98.5 Million barrels of oil are estimated in the U.S. Bend Arch-Fort Worth Basin Province (USGS)
- 94 Million barrels of oil are estimated in the U.S. Hanna, Laramie, Shirley Basins Province (USGS)
Shale Oil is still more efficientl than Ethanol:
Energy Efficiency of Strategic Unconventional Resources (DOE)
http://www.fossil.energy.gov/programs/reserves/npr/Energy_Efficiency_Fact_Sheet.pdf
Also egotripper Al Gore tells crazy things in his movie.
Our engineers and farmers guard the coast for 1000 years allready and we know that even the worst scenario means w e are save for another 200 years.
- by rdberg August 10, 2008 7:01 AM PDT
- "But I think that global warming, alternative energy--and solar energy in particular--like Al Gore are all overblown." Good for you! Bunch three or four ideas together so they can't be challenged. Global warming is probably underplayed by US media if anything. Climate scientists continually say that the data is outstripping their models, ice in polar regions is melting faster than predicted. Altenative energies are not up to snuff as yet. Solar energy continues to have potential, but is not yet economically viable, nor will it be able to supply more than a small fraction of our energy use.
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