Interview with Michael Liebreich, CEO, Bloomberg New Energy Finance, on May 30, 2012 at The Ritz London.
While waiting for Michael Liebreich at the Rivoli Bar at The Ritz London, I tried to envision what he would look like in person. Would he be tall and imposing, erudite and impeccably dressed, or just a hunk with muscles bulging beneath his suit? Michael is not just a capital markets geek. He is also an Olympic skier and a pretty prolific Tweeter. As the founder and CEO of Bloomberg New Energy Finance, Michael and his team are the world's most comprehensive providers of independent analysis, data and news in the clean energy and carbon markets.
Michael entered, and was immediately escorted by the Rivoli staff over to my table, charging the room with his effervescent smile and confidence. Liebreich is that rare blend of common sense, impeccable schooling and hands-on business acumen. He has an informed view and very provocative suggestions for the way through the current clean energy "consolidation" that has wiped out firms like Solyndra. (And yes, you can tell that he's an athlete -- even in a suit.)
Clean energy is once again a hot button in politics. People wonder whether solar, wind, geothermal and electric cars are really cleaner or better than what we currently have. And there are pretty loud complaints that the technology will never be reliable or affordable. What do you say to this?
We've got to somehow get everybody to understand that a different and better energy system is not only just possible, it's inevitable. If there are issues of intermittency, well, they'll get resolved. Nobody ever talks about baseload telephone calls. It's not like we have nuclear-powered phone systems and then ones that only deal with the peaks. No, you have a network, and the resilience of a good network design.
How can we justify spending extra money on clean energy when cuts are needed to balance budgets? We don't want the U.S. (or the U.K.) to become the next Greece.
People are out there saying that solar is 10 times as expensive as any other solution based on data that is four to six years old. Manufacturers are complaining about the low prices that they get. This stuff is much cheaper than the commentariat would believe.
How cheap is cheap?
Solar used to cost 20 to 30 thousand bucks, and then you got a state subsidy and a federal subsidy, and somehow you managed to get the payback period down from 30 years to 11 years. Now you are looking at these systems costing $3 to $7 thousand and the payback, with the state and federal subsidies, coming down to four to seven years. Well, I don't know about you, but I'm getting about 2.5 percent interest, if I'm lucky, on any savings that I've got. So, if I can save money on my electric bill, and I don't get taxed on the savings, that's a fantastic investment! Where are you going to get a better return? This is risk-free. The sun shines. There is no asset manager who can lose it all for you.
That's great for homeowners. Meanwhile, however, investors who own clean energy stock are getting burned. The Powershares Wilderhill Clean Energy Portfolio ETF has lost 85 percent of its value since the October 2007 highs. What is the future of the industry for investors?
This is a young industry, which is consolidating. The year that Ford Motor Company was founded, in 1903, there were 500 car companies. Of course, that got whittled down. Some were acquired as brands of the Big Three. A lot went out of business. That doesn't mean the car was a dumb idea.
It sounds like you are rather bullish about the long-term prospects of solar and clean energy.
For every manufacturer who is finding the low prices extremely challenging, there is somebody buying that kit, who is getting cheap solar on their roof or in their project. The manufacturers are hurting, but the buyers are doing great.
Some of the companies with weak balance sheets are going out of business, as we've been saying for some years that they should and will. Think of all of the fiber that was put into the ground. Did people over invest in fiber? Yes. Did some companies go bankrupt? Yes. Are we using that fiber? Yes!
Everyone is worried that if President Obama is not re-elected, clean energy will lose funding and the industry as a whole will implode, just like it did under President Carter. Is this a do-or-die moment for the industry?
We've got to transition to a subsidy-free system. This means subsidy-free also on the fossil side. What got clean energy to 5 percent of the energy mix is not going to get it to 30, 40 or 50 percent. Clean energy companies think that they're going to get all of the policies straightened out and everybody behind them with more and more strident support. But they don't need it and they're not going to get it. The industry needs to move on and think about how they break down the barriers. How do you factor in defense costs, which are very considerable and are the true price of fossil fuels? Why not price in the external costs around health, particularly coal, and the insurance costs and risks around nuclear?
No one has put the picture together in that way. Fiscal conservatives clamor for more drilling, and forget that we experienced the most expensive oil spill in history just two years ago.
Right now, the U.S. is spending $300 to $400 billion per year importing oil. That has a few implications. It starves the U.S. of investment funds. It shifts money over to parts of the world, which are traditionally inefficient and unproductive.
Natalie's Note: According to the Bureau of Economic Analysis, the U.S. imported $331.6 billion of crude oil and $421.2 billion for all energy-related petroleum products in 2011.
We had an $11.2 billion monthly deficit to OPEC in May 2012. It was even higher in April. Why isn't this more widely known and openly debated?
It's very hard to see how you can have an efficient economy when hundreds of billions are leeched out of it and sent overseas. No country can develop with that sort of a drag on its economy.
Earlier this year, politicians tried to rein in Secretary of the Navy Ray Mabus' clean energy policies and Great Green Fleet.
It is an incredibly dangerous route to go. Ultimately, inevitably, these technologies will be deployed by other countries, but also by the military of other countries. It is extraordinarily irresponsible to squander the U.S.'s lead in some of these technologies. You are creating a future trap.
Conservatives clamor about the costs of alternative fuel, but never factor in the military, casualties, health care and economic drain associated with oil.
There is a fascinating piece of research by the Rand Corporation. They calculated how much you could save on the U.S. defense budget if the U.S. did not have to patrol and secure the Persian Gulf. And the answer is $83 billion per year.
The entire global clean energy subsidy that everyone is talking about, including the half a billion that was wasted on Solyndra, is $66 billion. That one waterway is costing 50 percent more than the supports of all clean energy in all of the world.
That's a fact that rarely gets quoted.
Even more than that, and absolutely astonishing if you think about it, whose oil tankers are going through the Strait of Hormuz? Very few of them are American, because America gets its oil from itself, Canada, Mexico and Venezuela, mainly. The tankers that are going through the Strait of Hormuz tend to be European, Chinese and Japanese. So, the American taxpayers are paying $83 billion a year to secure the supply chain of their economic, geopolitical rivals.
So, we spend $83 billion a year on the oil supply chain, plus we lose one soldier for every 50 convoys and then we also give the oil companies subsidies.
The president is saying, quite rightly, "Why do these subsidies exist?" It's true. It's quite obvious. But what about the $83 billion in subsidies that flows directly to your economic competitor's benefit? Those have to be priced in. If you cannot price them in, then you find an alternative way to produce a better outcome for your people. You move away from that energy source essentially.
Be sure to read the 2nd half of this interview in an upcoming blog, when I discuss electric vehicles, energy independence, alternative fuels and the Green Economy with Michael Liebreich.