By Ann-Marie Fleming, www.RenewableEnergyStocks.com     
September 2005 

As the nation and the world face the implications of the rising demand for energy and the subsequent high oil and gas prices that accompany this trend, the necessity for renewable energy technologies becomes clear. Traditionally, coal has provided the energy industry with the most cost-effective means of producing electricity, which when combined with the already existing fossil fuel infrastructure has shown renewable energy technology as a more expensive alternative. However, this gap in affordability has been rapidly closing due to the soaring prices of oil and gas resulting from the increases in demand and shortages of supply.  

As Alan Nogee, Clean Energy Program Director for the Union of Concerned Scientists explains, “Historically prices of renewable energy have been higher than fossil fuel generating alternatives, but fortunately that is rapidly changing and more and more renewables are either already cost effective at current fossil fuel prices, or becoming so.” 

A significant challenge that the renewable energy industry has faced over the years is the lack of adoption by the utilities. “A clear primary obstacle today is a continued lack of commitment by electric utilities to purchase renewable energy based on its long term value,” describes Nogee.  

The current utilities environment, while evolving, still maintains its commitment to traditional energy production. Marchant Wentworth, Legislative Representative for Clean Energy for the Union of Concerned Scientists explains this hurdle as fundamentally being about long term contracts. “One of the advantages I see from fossil fuels is that you can write a contract with the utility company for years in advance, for delivery of coal for example, and lock that price in. For reasons that are not clear to us, utilities seem to be more reluctant to lock in a long term contract with a hedging energy source,” states Wentworth.  

Solar Technology: 

The market for solar photovoltaics has made strides in recent years in reducing the historical constraints of high costs and regulatory barriers. Solar technology has become more affordable as a result of higher demand stemming in part from the nation’s pursuit of energy independence, security and quest for alternatives to the increasing costs of fossil fuels. This increase in demand has led the industry to higher volumes for PV products and the ability to take advantage of economies of scale. Manufacturing processes have been streamlined and continue to become more cost efficient with government subsidies, consumer rebates and tax credits also contributing to its affordability. 

"The growing affordability of alternatives such as Solar, in addition to economies of scale, is tied to a consistent increase in the cost for delivering electrical power via traditional hydrocarbon systems," stated Tom Djokovich, CEO of XsunX. "There is a constant and inevitable aspect to this convergence between the cost of conventional and alternative energy costs. At XsunX we believe that this convergence has launched a movement and opportunity in the development and application of new energy sources for the next century. Our plan to address this opportunity has been to focus on the development of improved solar efficiency through innovative broad applications in the building integrated PV market." concluded Mr. Djokovich. 

Wind Energy:

This year will be a record-breaking year for the U.S. wind industry, according to Christine Real de Azua, Assistant Director of Communications, American Wind Energy Association, with estimates of 2,500 megawatts to be installed and anticipation of two strong years to follow. The main constraints that the wind sector faces impacting its development are some of the regulatory systems currently in place and the lack of a long-term incentive for wind energy (the wind energy production tax credit expires in December 2007). Examples of the constraints posed by today’s environment are seen in transmission and interconnection rules that can discriminate and be inefficient. In addition, as Real de Azua describes, “our transmission system is not yet geared towards bringing a lot of clean, renewable wind power from windy areas in the heartland to urban centers where there is large demand for electricity.”   

Despite the constraints on wind power, there are also powerful drivers fueling this technology. Wind energy benefits from public support for renewable energy development with its potential for helping the nation strengthen its energy independence, security and movement towards a cleaner environment.  

According to PPM Energy, Scottish Power’s competitive U.S. energy business, there is an industry wide realization that wind is a boom or bust cycle because of the Production Tax Credits (PTC) expiration. “Given that it is a two year PTC you are seeing builds in 2005 and 2006; the two year renewal was signed into law August 2005. That allows us some certainty about how the cycle will go this time. Now what that does is it puts everybody in a position of needing turbines at the same time, therefore turbine availability especially post PTC signing, tends to be one of the main challenges we have in the wind arena,” stated a company spokesperson. 

While the PTC credits do provide incentives, the cycle of short-term expirations and extensions for wind energy creates a disruptive environment and forms a constraint on the industry. “A stable planning horizon including a long-term extension of the PTC, is needed for businesses to plan for strategic growth in the years ahead and expand their wind energy operations on a large scale,” states Real de Azua.  

Helping to spur the acceptance of wind technology is the attractiveness of wind energy’s stable costs, which like that of solar, is an undeniable advantage as it is entirely predictable at a consistent pricing level of zero. “The limits to wind power’s expansion are not the resource potential as that is vast, nor the state of the technology since no breakthroughs are needed, but lie mainly in the policy and regulatory realm,” explains Real de Azua. 

Fuel Cell Energy:

Historically, fuel cell technology has been challenged by high capital costs, which have proven to be a limiting factor for market penetration. These high costs have led to greater focus in several areas to help achieve cost reduction. According to the National Fuel Cell Research Center, material reduction and exploration of alternatives for lower-cost material; improvements in manufacturing process efficiency; reduction in the complexity of systems and increased production to reap the benefits of economies of scale constitute key cost-saving opportunities. 

The good news for fuel cell production is the availability of state subsidies and now a federal subsidy as a result of the federal tax credit that contributes to the reduction of costs to the end user. However, the less reliant a company is on these subsidies, the quicker the sales cycle will be due to the process involved in state and federal incentive programs, describes Steven Eschbach, FuelCell Energy’s Director of Investor Relations and Communications.  “We view these subsidies as a bridge to make our fuel cell power plants competitive in high cost regions of the world, such as California, the northeastern U.S., Japan and Korea, until our cost-reductions are implemented to enable us to be less reliant on the incentive programs to penetrate the market,” he added. 

Despite these cost challenges, fuel cells represent ideal resources for power in areas where energy usage levels are high, such as urban areas, but where emissions, noise and reliability are significant factors of consideration. 

In an environment of low volume, and high costs, companies such as FuelCell Energy, Inc. have implemented aggressive cost reduction programs. “What we are doing is aggressively going through each component that is in the power plant, every aspect of the manufacturing, delivery, installation, and servicing of our fuel cell power plants in order to reduce product and service costs,” states Eschbach.  “And, this strategy has been successful for FuelCell Energy. We’ve been able to reduce product costs by 20-25 percent each year for the past two years, and we’re on target to do the same for 2005.” 

Infrastructure Vulnerability:

With the recent tragic events caused by Hurricane Katrina and Rita, our instability in maintaining adequate power sources throughout disasters is apparent. Moving forward towards improving our level of preparedness, renewable energy offers multiple alternatives for protecting and preserving our physical networks. “Katrina has certainly focused people’s attention on the vulnerability of our energy infrastructure as well as the direct effects of the horrible tragedy itself,” discusses Nogee. As power outages plagued rescue attempts, relief efforts and impeded the area’s ability to supply water and remove waste, the need for reliable energy sources and back-up systems was compounded; problems that renewable energy technology may prove to solve.

Ann-Marie Fleming
Ann-Marie Fleming completed her MBA in the United States, where she attended Webster University. She also holds an Honors B.A from the University of Toronto. She has over fifteen years of experience within the financial industry to include retail banking and brokerage, investment banking, and mortgage brokerage within the United States and Canada, with a firm background in corporate research. 

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