It was just last summer that SunEdison was a red-hot company in a red-hot space - renewable energy. Its market capitalization reached nearly $10 billion. Its goal was to become the world's largest renewable energy development company. Its goal was to become the world's largest renewable energy development company. Among those betting on its stock was the hedge-fund heavyweight David Einhorn of Greenlight Capitol. With plans to buy Vivint Solar for $2.2 billion, SunEdison seemed unstoppable.1
And then the bottom fell out. Its shares fell to 23 cents in the first week of May from around $32 last summer. The collapse raises the question: Can renewable-energy companies be profitable?
The answer, of course, is yes. Just as soon as they cross over a fundamental hurdle: finding a strategy that actually works. "We haven't totally figured out what the business models are going to look like, for who wins and who loses," said Jason Bordoff, director of the Center on Global Energy Policy at Columbia University in New York.2
Significantly, though, the sudden decline in oil prices isn't largely to blame. There is a unifying problem the various green-energy companies have yet to overcome: Finding enough customers to support the costly infrastructure they must first build.
SunEdison is far from alone in its struggles. Abengoa, which grew from a small electrical equipment company to a multinational solar and biofuel giant is in restructuring proceedings. The American company Solazyme, a maker of algae-based biofuels, has abandoned the energy markets.
What's remarkable is that these leading energy companies are struggling at a time when regulatory, public and investor support for the industry has arguably never been greater. Moreover, investors across the globe sank hundreds of billions of dollars into clean-energy technologies last year even as the prices of competing fossil fuels - oil and natural gas - tumbled.
Though development in renewable energy climbed in the last 15 years, the industry is still widely considered to be in its early stages. Nonetheless, there has been a race among companies to develop, commercialize, and eventually prosper from what many see as one of the largest economic shifts in decades.
Last year, China started construction on a massive solar farm in the Gobi desert that is expected to generate enough power to light up one million homes. Dong Energy is developing a multibillion-dollar wind farm off the Yorkshire coast that could power even more. And in America, a major new transmission line is on track to move wind-generated electricity east from the Great Plains.3
What is happening in renewable energy now has similarities to the telecommunications bubble of the 1990s. Led by hard-charging executives seeking big paydays, giants like WorldCom, Global Crossing and Adelphia started far-reaching acquisition and capital-expenditure programmes - burning through billions of dollars - to buy cable companies or bury fibre-optic cable under land and sea. They were all chasing expected high demand and soaring revenues from the dawn of the Internet.4
Those revenues eventually materialized, but they came too late for the first movers of the revolution. After creating a broadband glut, and buried under a mountain of debt, companies collapsed. But the infrastructure they created lived on. Even before SunEdison, the landscape was littered with failed strategies. Dozens of solar-focussed firms around the globe have disappeared, through bankruptcy or insolvency, since 2009, when prices for solar panels plunged as competition from China increased.
The most effective way to cut costs has been to grow, to take advantage of economies of scale, certain forms of financing and generous subsidies that were set to expire, But with all that growth has come debt, and an inability to show a profit, even if the companies are creating value. "Clearly in a market that has had a lot of growth, you are going to have some companies - and in this case many companies - that try to do too much, too fast," remarked Shawn Kravetz, founder of Esplanade Capital, which invests in solar power.
Still, the future for renewable energy is bright. Take First Solar, which develops solar farms. By adopting a slower-growth strategy and keeping debt under control, First Solar is a rarity in the industry. It is profitable. Last year, the company made $546million on 3.6 billion in revenue.
"This is going to be a big industry globally," said Erik Gordon, a professor at the University of Michigan, "but we're stumbling and bumbling to get there."
Both Sides Show Bias on Climate
Are liberals impairing our ability to combat climate change? That may sound like a strange question. Today conservatives are the ones blocking any effort by the U.S. to curb its emissions to greenhouse gases.
Yet as progressive environmentalists wring their hands at the Republican Party's climate change denial, there are biases on the left that may stray just as far from the scientific consensus. "The left is turning anti-science," states Marc Andreessen, the creator of Netscape who as a venture capitalist has become one of the most prominent thinkers of Silicon Valley. He was reflecting broadly about science and technology. His concerns ranged from liberals' fear of genetically modified organisms to their mistrust of technology's displacement of workers in some industries. "The left has become reactionary," he said.5
Still, liberal biases may be most dangerous in the context of climate change. For starters, they stand against the only technology with an established track record of generating electricity at scale while emitting virtually no greenhouse gases: nuclear power.
Fixing climate change won't just require better science. Eliminating the roadblocks against taking substantive action may require somehow dissociating the scientific facts from deeply rooted preferences about the world we want to live in, on both sides of the ideological divide.6
1 Julie Creswell and Diane Cardwell. "For Clean Energy, Profitability is Elusive,"
The New York Times International Weekly (May 7-8, 2016): 8
2 Ibid
3 Ibid
4 Ibid
5 Ibid
6 Eduardo Porter, "Both Sides Show Bias on Climate" The New York Times International Weekly ( May 7-8, 2016): 8
