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Hand in Hand

Green_Economics_lgChief Executive of Bloomberg New Energy Finance, Michael Liebreich, looks at the inevitable relationship between economics and going green

I didn’t start out in the energy sector.
I studied energy engineering at Cambridge, but started my working life as a generalist consultant, eventually joining Groupe Arnault as a venture capitalist specialising in technology and media. However, after the dotcom boom turned to bust I found myself unemployed, and I had time to travel, read and think.

As I travelled I kept seeing the effects of our dysfunctional energy system on society. In Brazil there were brownouts because the economy was growing so fast that they couldn’t provide enough energy. In the US there was a blackout which rippled through all of New England. I travelled back to Europe and there was a similar huge blackout due to ageing energy infrastructure. And of course that was the time of the second Gulf War. Suddenly, I woke up to find that all roads led to energy, the area I had studied 20 years before.

Climate change might not end up being as catastrophic as those who like to peddle theories of environmental collapse would assert, but it is real. You can spot changes in weather patterns which are consistent with the increases we have seen in global temperatures. I’m naturally sceptical, but I am also a scientist. I found I couldn’t just cherry-pick data and pretend these things were not happening.

Luckily, with my background in engineering and technology, I also spotted that renewable energy and energy efficiency technologies had become far cheaper and more reliable than the conventional energy sector realised. The wind turbines and solar panels of 2004 were already a far cry from the amateur kit of the 1980s.

What I had spotted was a mega-trend starting to take shape – a clean energy revolution – and I was determined both to play a part and to make some money.  I set out to create the leading provider of independent analysis, data and news for practitioners, from financiers to policymakers, working in clean energy and energy efficiency – information that would enable them to make better and smarter decisions. I knew I could create a great business, providing a superlative service, but I also always knew that when the time was right I would sell it, which I did. I set up New Energy Finance in 2004 and sold it to Bloomberg at the end of 2009. As an entrepreneurial company I knew we could dominate the sector as long as it was a niche. But I knew that clean energy would go mainstream, and at that point we would need to be part of something much bigger. Bloomberg has been the perfect parent – three years after the acquisition we will have doubled in size despite a difficult market.

The clean energy sector has changed beyond recognition since 2004.  When I started the business, the people I dealt with were often idealists turned investors, using the tools of finance but still essentially trying to save the world. There was a big debate about whether clean energy was part of corporate social responsibility, or whether one could expect normal levels of return. The only mainstream financiers thinking about it at the time were insurance companies worried about liabilities – if the Intergovernmental Panel on Climate Change (IPCC) reports were correct, they stood to lose a lot of money from extreme weather events.

From the start I talked about clean energy in terms of opportunity. If the world was to transition from dirty, centralised, insecure energy to  energy that was cleaner, decentralised and more secure, it was clear there would be huge opportunities to make money. I guess being an entrepreneur myself helped. Everywhere I looked I could see opportunities – every country, every technology sector. I think I helped shift people’s thinking: New Energy Finance became the bible for people looking to build clean energy businesses. Discussion stopped being about green activism and started being about returns on investment. Not everyone liked that; some of the old school felt quite threatened.

 By 2007, the markets had started to run ahead of themselves. Everything had to be green. Every venture capitalist was suddenly a clean tech expert. There was an enormous proliferation of clean energy and climate funds. At this point, I was taking caution. The sector is risky, capital-intensive, policy-driven and enormously complex. It has taken us 150 years to create the infrastructure we have today and it isn’t going to be a quick, easy and fun process to transform it. A lot of the new investors knew nothing about commodities, nothing about project finance, nothing about utility regulation, nothing about energy markets. And yet they were piling money into the sector.

Then came the financial crash, which hit the sector hard. Share prices crashed back to earth and haven’t recovered since. The policy-makers’ response came in the form of ‘green stimulus packages’ –  almost US$200 billion of additional spending focused on clean energy – which have done a good job in keeping the industry ticking over for the past few years. Sadly, the stimulus packages brought with them a wholly naïve focus on green jobs. You can’t simultaneously have clean energy competitive with fossil fuels, and at the same time load the sector up with expectations that it will employ vast numbers of people. Even under the most optimistic scenarios, the wind, solar and biomass sectors will only employ three or four million people worldwide at the end of this decade. What you have is an economy that is either dynamic or not, and an energy system which is either rapidly becoming cleaner or not. The two are not necessarily linked, but nor are they in opposition. The examples of Germany, China and Texas show that you can have the best of both worlds – strong economies and progress in your energy mix.

So for the past few years I have been talking a lot about the need for deregulation, entrepreneurship, removing barriers and being rational in our energy planning rather than grasping for quick fixes. We need to be hard-nosed about what works, be serious and logical, and not chase the easy solution. Governments have to create stable frameworks and let industry innovate and refrain from the temptation to pick winners.

Throughout these waves of sentiment one constant remains: the cost of renewable energy is declining and the technology is improving. Since 2008 the price of a solar panel has come down 75 per cent, driven by innovation, industry over-capacity and ruthless competition from China. Even without subsidies, rooftop solar is now cheaper than daytime electricity prices in a lot of sunny countries. The best onshore wind farms now produce power at the same cost as state-of-the-art coal-fired plants. Renewable energy already costs a lot less than people think, and it’s getting ever cheaper.

Investment in the sector continues to increase. Just under 50 per cent of worldwide investment into electricity generation capacity is renewable. For example, Germany has just hit a new record of 21 per cent of its electricity being renewable for the first half of 2011; China has improved its energy efficiency by 20 per cent over the past five years (it is the only country still building coal-fired plants, but fewer and fewer are being built and the rest of the world has practically stopped) and the first mass-market electric vehicles and plug-in hybrids are being made.

My central message is that the world’s shift to a cleaner energy system is not just necessary, it is inevitable, because of the economics. Fossil fuels are dirty, dangerous, insecure, and ultimately politically and economically corrosive. The interesting questions are how quickly it will happen and who will capture the benefit. If we all work hard together then the transition will happen more quickly and the benefits for people, communities and countries will be great. Those that work on it early on, aggressively but rationally, will benefit most. Those that resist and try to maintain the status quo will ultimately lose out. Furthermore, the shifts are so profound, so multi-faceted, that every single country can play the trend in some way – whether they have forests, or agricultural waste, or lots of sun, or rivers, or geothermal resources, great universities, car manufacturers, call centres, software developers, ports, shipping companies. There are opportunities everywhere.

The UN General Assembly has declared 2012 the International Year of Sustainable Energy for All (www.sustainableenergyforall.org) to raise awareness about the importance of energy access, energy efficiency, and renewable energy. It is not just about sustainable development – although it is clearly unacceptable that 1.3 billion people in the world today have no access to electricity and 2.6 billion are still using firewood, charcoal and dung for cooking and heating. It is about improving the lives of all people around the world, and making them more secure. So this is a call to action: the clean energy revolution is happening and we can all benefit from it.


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