Alternative Energy Sector: The New Source of Energy

Posted on January 3, 2010 in Entrepreneurship

The world just witnessed one of the biggest summits on one of the most important issues faced by the mankind — climate change. Just a few days back I talked to my parents back in Punjab, India, who told me that it’s just mildly cold out there when it used to be chilling cold just 6-7 years back when I was a teenager. July showers were observed in late August and winter peak is expected only after mid-January and that too for a very short period.

Working on a project on the financing of renewable energy sources with a major bank here in Singapore, I realized that the nations are yet to understand the urgency of this issue. It was correctly pointed out in the latest Hollywood flick, Avatar that “there’s no green in our world. They kill their own mothers.”

Industrialization of the nations and a race to get ahead of everyone else spoiled the sons of the land who never cared about clearing the forests for setting up industries that further polluted and depleted the environment. From my childhood, whenever I’ve been asked to draw a factory, it always had a smoke chimney releasing black smoke at the top of that factory and a water pipe releasing waste acidified water at the bottom.

Thankfully, we are much more aware about the consequences of our actions now. Environment ministries world-over have sprung into action and given confidence to the people that it’s in their own interest to help in putting a barrier to this climate erosion. One of the most important steps in this context is the encouragement being given to Renewable Energy projects that have got an equally overwhelming response from the private sector. There are various kinds of tax benefits that are being provided to the renewable energy projects in different forms by respective countries. In US, it is the Investment Tax Credit and Production Tax Credit that is the form of tax benefits to RE projects. India and China also have similar tax credit schemes along with power purchase agreements (PPA) for the RE projects. Today, India is one of the leaders in Solar Power in the world and is catching up fast in Wind Power.

Companies like GE Energy, Vestas, Suzlon and Mitsubishi have come up in the forefront to invest heavily in R&D to develop efficient wind turbines for the world. Since the largest damage was done by the industrialized countries like US and European nations, they were the ones who had to take the lead to reverse the trends, and they rightly did so. Today, Germany and US are the largest wind power producing nations in the world. But the developing world, as mentioned earlier, has not remained far behind in the league.

Besides wind and solar energies, another source of alternative energy that has become popular recently is the nuclear energy. Though India isn’t in a very good position in terms of nuclear energy, China already has planned to construct at least 100 nuclear reactors by 2020. The US also has a considerable number of nuclear reactors under construction and even countries like Pakistan are working towards the same. Nuclear energy, as is obvious, has a very high upfront capital cost. But the new parameter that has evolved to measure the relative performance of power projects is Levelized Cost of Electricity (LCOE) which is an indicator of the per unit electricity cost from a project over its lifetime. On this measure, nuclear energy projects are just as economically viable as any other source of energy. This has given a boost to the investments in this sector with many private players entering this arena as well.

Another major milestone in the journey of alternative energy development or the clean energy initiative was the carbon trading that was conceptualized and legalized in the Kyoto Protocol of 1997. The major constraint of this carbon trading is that US, the largest emitter of CO2 and other greenhouse gases, is not a signatory to Kyoto Protocol and hence, is not a participant in the carbon trading. If Copenhagen would’ve been successful in persuading US, under the regime of Obama, the carbon trading would’ve become stronger and encouraging factor for the world markets. Though the risk of speculations and exotic derivatives is attached with this form of trading, but returns are much higher than the risks. A major chunk of the revenues of RE projects is being provided by the carbon credits earned, that earns somewhere in the range of $15 to $25 per ton of CO2 avoided.

There are supporters and critics to the carbon trading in the market, but then there’s no technology, no innovation, no celebration in the world that doesn’t attract criticism. I believe that the road that we have chosen is correct but the destination is moving at a faster speed away from us than the rate at which we are moving towards it. We have an obligation to prove it to our future generations that there is a green world out there, out here, out everywhere.

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