perez named renewable energy czar, page-9

Thanks for that laugh Gindarra (source of U stat).

Here's another report in keeping with this thread.

‘Big oil’ pulls the plug on alternatives
By Tim Treadgold
April 1, 2009


PORTFOLIO POINT: Australia’s alternative energy investors are not concerned by Shell’s decision to exit wind and solar projects.
Making money in alternative and renewable energy industries has always been tough, but simply surviving has just become the key question after a decision earlier this month by Royal Dutch Shell to scale back its alternatives division.

Environmental groups were outraged by Shell’s decision to dump its involvement in wind, solar, and most other forms of alternative energy other than biofuels such as ethanol, which can be fed into its conventional oil and gas distribution channels.

Shell’s decision triggered an angry response from environmental groups. John Sauven, executive director of Greenpeace in Britain, said Shell had rejoined the ranks of the “dirtiest, most regressive corporations in the world”.

Investors had barely digested that news when the longer-term impact of the global financial crisis was made plain a second time after Europe's biggest alternative energy investor pulled back from a range of projects in the UK. The Times newspaper reported that Iberdrola Renovables of Spain would reduce its alternative investments by 40%. Iberdrola later issued a statement saying no current plans had been cut back, but a spokesman refused to reveal investment levels for this year and next.

What's happening? A slowing world economy and dramatically lower oil prices have combined to drain investment funds from alternative energy projects. Once big energy companies cut budgets it weakens wider projects often co-funded by government.

In the UK, for example, reduced ambitions for investment projects linked to Shell and Iberdrola Renovables have raised fears climate change targets will not be achieved.

In the end it comes down to investment returns. At Shell, where $US1.75 billion has been invested in alternative energy over the past five years, chief executive Jeroen van der Veer told an annual strategy briefing in Amsterdam that the oil giant was planning to drop all new investments in wind, solar and hydrogen energy.

“I don’t expect them to grow much at Shell from here, due to portfolio fit and the returns outlook compared to other opportunities,” The Times quoted him as saying.

Shell’s head of gas and power, and executive board member, Linda Cook, later said that Shell wanted to build a “material business” in alternative energy but would focus on biofuels.


What will it mean for Australian investors?

Curiously, despite the shudders sent through the sector by Shell, our local “big energy” sector leader, Woodside, is ahead of the trend having dumped the bulk of its alternative energy projects, which had been held in its Metasource division last year.

As well as exiting from a foundation shareholder’s position in Geodynamics, Woodside also opted to cut its stake in the high tech power systems developer Ceramic Fuel Cells, which has seen its share price fall by 2¢ (20%) to 8¢ since Shell’s announcement, and despite receiving a price rise query from the ASX after a sharp rise earlier in March.

Separately, there was last December’s decision by Shell and the mining giant Anglo American to delay the next phase of their $5 billion Monash Energy clean coal joint venture in Victoria.

That followed the dropping by Santos and General Electric of a “low carbon emissions” project in Queensland, and the abandonment in WA of a carbon dioxide geosequestration and hydrogen production plant by Rio Tinto and BP.

Still Australian investors may be spared the worst effects of any drawback by the energy majors on the basis that Australia's alternative energy sector has barely got going in the face of powerful performances from traditional energy sources such as oil and coal while coal seam gas – an energy source classified by some as “alterative” – has been very successful.

Alternative energy investors are downplaying the change in sentiment among industry majors. James Thier, an executive director of Australian Ethical Investments, a fund manager with strong exposure to the alternative energy sector, says Shell’s decision would not affect his company’s future investment decisions.

“This is an area which requires a different set of skills and expertise in regard to the technologies that are going to be future leaders, and maybe Shell has decided to stick to its knitting,” he says.

“We think a solid base is going to be put under a lot of the alternative energy concepts, particularly wind, which is already in the ballpark in terms of competitiveness. If government policies are supportive in any significant way then it will make the technologies more viable, more quickly.”

Supporters of alternative energy point to long-term over short-term demands. They also point to recent “wins”, particularly AGL's announcement in November last year that it would invest $166 million to fund a wind farm in Hallett, South Australia, which will eventually power 60,000 homes. The question is whether schemes such as Hallett represent the end or the beginning of serious investment entering the alternative energy market.

Offshore the alarm bells are ringing. Alternative and renewable energy industries were in trouble the day the oil price started its spectacular slide from last year’s high of $US147 a barrel, and the world was hit by the financial crisis. With oil trading at roughly one third of that peak price today money placed in alternative energy investments has to be regarded as riskier than it was a year ago.