1. FEATURE
US renewable energy
investments set to crash
The US renewable energy industry is being hindered by unrealistic targets and flawed
financing strategies. Things could already have started to go bad, writes Karl Miller.
bout two years ago I decided to take a long, hard was benign and barely touched upon a direction, apart from
A look at this sector to see if there was any value
to be had in the assets. What I discovered was a
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avoiding the Kyoto Protocol. So how can we be expected
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subsidies the US government is offering and the second refers 6E4C 1D CD1D5 5F5 *? D?@ 9D 1 ?66 G5 1B5 ?D CE6Y395DI
to our need to change the face of the technologically developed.
carbon economy. I began in earnest
D? DBI D? Y7EB5 ?ED G85D85B D85B5 Unrealistic targets
will be meaningful input in the US
renewable sector, or if it will purely If we take California for example, it is
become a feel-good measure. C5DD97 9DC56 1
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feature
Unfortunately, a renewable energy achieved in a ten to 15-year time-frame.
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than government hand-outs, and way it can happen. One can only think
utilities are under pressure to meet the government has been counselled by
renewable energy targets and are someone who has no idea. And while it
therefore signing contracts with little continues to push this forward, we are
idea of how this will pan out. Many incurring debt which will eventually
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and environmental issues. After all 6??G 1 B?ED5 D? 49C1CD5B *85 F1CD
the analysis and forecasts, I came to majority of companies engaged in
the simple conclusion that the maths technology advancement should be
does not work. backed by venture capital money, not
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renewable energy companies in existence in the US, solely 91397 C8?E4 25 @B9F1D5 *85B5 B51I 9C ? B1D9?15
due to the subsidies on offer and their long-term viability for any organisation to be a public concern unless it is
is extremely thin. When attempting to get to a 100 from an acquisition company taking end projects and creating
nowhere in such a short space of time, you become reliant @?BD6?9?C G8938 755B1D5 31C8Z?G 6 9D 9C 9 D85 CD175
upon multi-million dollar subsidies, which involve creating a of RD or in the venture capital phase, it should be in
great deal of debt. Eventually, it will fall upon the utilities to private hands. If there are subsidies available, it should be
create rate increases which will, in turn, lead to many assets applying to the government as a private company because
being stranded. public company models do not work for an RD machine.
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European market, but more than 250 in the US, so there is securing venture capital money with higher rates of return.
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this to become a success, the US must have the ability to pass Pressure on institutional investors
through a substantial increase in rates to the end-user, which
is not going to happen. Instead, we will be left with stranded *85B5 9C @B5CCEB5 E@? 9CD9DED9?1 9F5CD?BC D? @ED 1
assets across the US which will become nothing but failures. certain amount of capital under management in the green
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expertise. What we inherited from the Bush administration but they are obliged to put a certain amount of capital into
8 October 2009

2. FEATURE
have to embrace natural gas as well as accept that we are
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companies engaged in
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coal technology that works right now. My concern is that
this has become a lobbying effort rather than a practical
plan. When executives such as myself, who buy and sell
assets, say we are heading for disaster – then we are
heading for disaster.
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technology advancement or good solar parks. It means that our policy and the
direction the money is going, coupled with the fact that
should be backed by we have hundreds of new companies accepting subsidies
venture capital money not with no hope of achieving anything successful, is creating
an abomination in the market. It means we will have a
government hand-outs heap of distressed energy projects and useless projects
out there very soon.
Europe has a different control approach to the US.
this area. It is an impractical approach and has already Europe has always employed much higher end rates so
failed in the ethanol and biodiesel markets. Out of all the from that perspective, the European consumer is better
ethanol and biodiesel companies that went public, there are indoctrinated than the US consumer. Over the past 15 years,
very few still surviving. the European marketplace has taken a staged approach to
development in the green sector. It is also questionable
New US energy policy whether Europe will be a success at renewables in any
meaningful way. It will be a very marginal component of
*85 5=?3B1DC 14 D85 (5@E2931C 81F5 ?G CD1BD54 D? the energy industry in Europe. Will a few windmills change
face facts and are looking for a new direction, but President the outlook of its energy generation?
feature
Obama faces a huge problem: he started off with a vast We cannot leap to 20 per cent renewable generation because
renewable energy plan which has now been usurped by it puts pressure on utilities to commit to unrealistic contracts.
healthcare reforms and is sitting on the wayside. Everyone In addition, it puts pressure on the public utilities commission
is scrambling to get the energy sector in order without a to agree to either funding the activities by rate increases or
clear direction. We simply do not have a great plan and the denying the utilities, which provides problems in the capital
Obama administration is freely admitting that they do not markets because they do not want to provide equity to utilities
have anyone in the White House who has any expertise or where rate increases have not been seen.
credibility in the market. We need to work systematically and create additions on
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bills from the stimulus package and healthcare reforms, transmission for new projects. I am a fan of environmentally
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and the coal question will continue to be scooted around.
Over the next 15 years there will be a handful of nuclear
Biography
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@1DC 7B?G97 2531EC5 D85I 1B5 56Y395D 14 81F5 1 Karl Miller is a globally recognised energy executive
lower carbon footprint than coal. !-$ )-12)232).-!+ )-4%12.0 5)2( ! !+!-#% . .2( :-!--
cial and energy sector expertise. He began his career
Europe leading the way? on Wall Street during the 1980s and has an extensive
background in banking, commodities trading and risk
Over the past ten to 20 years, Europe has systematically management.
implemented green initiatives. What it did not do is create Miller has a long history in the global energy busi-
5G D538??795C ?F5B978D *85 +) 81C CE445I 4539454 ness and has held a variety of executive management
that it needs to be green and expects that it can just happen. positions both within the US, Europe and Asia, and
It can’t. It is very simple – there are very few areas that can has bid on more than $25bn in energy-related assets
13895F5 7B94 3?53D9? 14 D85B56?B5 =1I G9 3B1C8 *85 during his career.
problem is that half the technologies are not commercially Miller has built, restructured and managed energy
C315125 *85 3?EDBI 554C @B?:53DC D81D G9 =1;5 1 businesses for major public energy companies on sev-
difference in the next-generation output of the grid and if eral continents, including PGE Corporation, Elec-
we cannot secure that, we are not really doing anything tricite de France, El Paso Energy, Enron Corporation
good for the industry or the economy. and JPMorgan Chase.
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www.EnvirotechInvestor.com 9