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Seeking Alpha: Renewable Energy: Approaching Grid Parity?

February 27, 2008
Nick Hodge: Bio & more articles

I seem to remember an e-mail going around not too long ago about different politicians and oil CEOs “going into the confessional,” so to speak.

First up was ConocoPhillips (NYSE: COP) CEO Jim Mulva, who said he did not believe the global oil supply would ever surpass 100 million barrels per day because of production constraints and new laws limiting greenhouse gas emissions.

I love how Peak Oil can be cloaked in such nebulous terms as “production constraints.”

According to ConocoPhillips, the International Energy Agency has forecast that supply will expand to 100 million barrels of oil per day by 2020.

And then there was President Bush, who, during an interview with a European reporter, had this to say about the price of oil approaching $100 per barrel: “I believe oil prices are going up because the demand for oil outstrips the supply for oil. Oil is going up because developing countries still use a lot of oil. Oil is going up because we use too much oil, and the capacity to replace reserves is dwindling. That’s why the price of oil is going up.”

That too sounds like Peak Oil, with a little guile on the side.

So that’s it then. The leader of the Free World and the head of one of the largest oil companies in the world say, albeit not explicitly, that oil demand is outpacing supply and finding new sources is going to be difficult and expensive.

So renewables are going to reach grid parity soon, right?

Not if Royal Dutch Shell (NYSE: RDS.A) CEO Jeroen van der Veer gets his way.

Last week, in speech entitled “Shell Scenarios for the 21st Century,” van der Veer said the world faces a doubling of energy demand by 2050 but renewable sources are still too expensive and will take decades to make a big impact.

He also outlined what he called the three hard truths facing the world:

1. A big rise in demand as the global population rises from around six billion to nine billion by mid-century

2. Most renewable energy sources are still far too expensive, even compared with higher prices for oil, gas and coal.

3. The reserves of oil and gas that are easily accessible and close to the markets where they are required are depleting.

He added to his third “truth” that extracting new supplies would require much larger investments per unit than in the past.

So to summarize: We need more energy. Oil is more expensive and harder to get. Yet renewables are not competitive, even with the rising prices of fossil fuels.

What is this guy smoking?

More on Grid Parity

If I’m right, and I am, recent developments in renewable energy mean that solar is already achieving cost parity in locations that don’t have easy access to fossil fuels.

Hawaii is the perfect example. And just so you know I’m not making it up, here is a quote taken right from the BP(NYSE: BP) website: “In the USA, parity with the electricity grid at peak charging rates has already been achieved in northern California and Hawaii.”

Their website also states that Italy, Germany and Spain are good candidates to achieve parity in the near future. That should mean in the next year or two, as major solar producers are preaching grid parity by 2012.

Of course, we’ll continue to need oil and coal, but in lesser and lesser quantities. And here’s what I don’t get.

Why are most of the major players (company executives, politicians, et al.) so divisive when it comes to the energy issue? It’s either “We need to open up more oil drilling.” or “Nuclear is the way to go.” or “Renewables are the answer.”

When, in reality, there is going to have to be a mix of available fuel sources for years to come.

Point is, renewables have the most market share to gain. And they’re doing it because costs are falling, interest is rising and the world is finally starting to realize that renewables can be a viable source of energy not only on a decentralized level, but on a massive scale as well.

Last week at the Piper Jaffray Clean Technology and Renewables Conference, most of the major solar companies, as well as a few energy storage, wind and alternative fuel cast members made their case.

But they weren’t making it to just anyone. In the audience of every session were hedge fund managers, investment bankers and several private equity guys. They’re all trying to get a piece of what they know is going to a major part of the energy market going forward.

The universal verdict: All major solar module producers (think FSLR, SPWR, STP and others) are ramping up production and driving down costs.

In fact by the end of 2009, First Solar (NASDAQ: FSLR) will have a production capacity of over 1 gigawatt [GW]. And they’re all but guaranteeing electricity at $0.08-0.10 per kilowatt hour [kWh] no later than 2012.

That was the mantra throughout the entire conference–from a variety of companies.

So sorry Mr. van der Veer. Unless by “decades” you meant less than five years, I’m afraid you’re off the mark.

And as these companies ramp up output, there is going to be some serious money to be made. We’re truly on the ground floor of a massive opportunity.

The savvy investors that load up now on the right solar, wind, geothermal, energy storage and battery stocks are going to be the titans of the 21st century.

Disclosure: None and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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