Green Energy Koyal Group Inc: Three reasons the oil price slump presents a daunting challenge for the green economy

The collapse in the price of oil leaves green business advocates with little choice: we need to find a better way to talk about climate change

And so, it continues. Oil fell below $45 (£30) a barrel yesterday morning, futures falling another 4.1 per cent on the back of fast-inflating US stockpiles, and indications from the United Arab Emirates that it has no intention of curbing production just yet. The oil price graph now resembles nothing so much as a cliff face or a Lib Dem leader's approval ratings. The analysts who singularly failed to predict this slump are now rushing to predict how long it will last and how low the price can go – we should be forgiven for questioning what qualifies them to keep making confident predictions.

You will no doubt have read much of the analysis detailing how the slump has been caused by US fracking or competition from clean tech or Machiavellian OPEC manoeuvrings (delete as appropriate). You will also have read about how the slump will either prove shortlived as supplies are trimmed and demand recovers, or an epoch-defining event as OPEC's influence dwindles, shale plays redefine the energy landscape, and clean tech leads to a permanent drop in fossil fuel demand. And you will have read how the oil price collapse is great news for green businesses as investors ditch unproductive fossil fuel assets and flock to cleaner alternatives, or terrible news for green businesses as cheap oil obliterates the financial rationale for low-carbon technologies.

The breadth of the spectrum of analysis on almost every aspect of the oil price slump – not to mention the manner in which many people's understanding of this phenomenon appears to be informed as much by their ideological world views as the changing nature of the market – again underlines the extent to which no one can really say with any confidence what will happen next. Once again we are forced to reach for the old Hollywood adage, nobody knows anything.

However, amid the recent avalanche of analysis, a handful of important points are in danger of being missed.

The first is that the green business community is in danger of hyping up the benefits that will come from a sustained period of low oil prices and underestimating the significant harm that could be wreaked on clean-tech firms.

There has been a tendency among green business commentators in recent weeks to highlight how oil and gas firms will suffer more from the oil price crash than their clean-tech competitors. This is undoubtedly the case. Much depends on the longevity of this period of low oil prices, but it is clear that if it continues for any length of time, the oil majors face a period of retrenchment, job cuts, and axed projects. The outlook for clean-tech firms that are supported by decarbonisation policies and are benefiting from falling cost curves is far more encouraging. But that does not mean clean tech firms can expect to be fully insulated from the challenges that come with having to compete with fossil fuels that are now nominally cheaper.

If the low oil price is sustained – admittedly, a big if – the short to medium-term implications for clean tech will prove significant and largely negative. The cost of clean energy will become more expensive relative to gas (or simply less competitive in those lucky regions where clean energy already undercuts fossil fuels). Meanwhile, electric car and energy-efficiency investments will all be left looking less financially attractive compared with recent years.

The policy implications of this new reality would be widely felt. Taking the UK as just one example, the promise to set wholesale prices for clean-energy generators through the new contract for difference regime becomes a lot more expensive if gas wholesale prices fall. If the government persists with its cap on the amount of funding available to support clean energy, which it will, fewer projects than previously thought will be able to be built with the budget. Controversial projects such as new nuclear, carbon capture and storage, and offshore wind developments will become even more contentious. Meanwhile, politically Labour is tying itself in knots this week explaining how its energy "price freeze" was always in reality a "price cap".

Some green campaigners have boldly and reasonably argued that the fall in the oil price offers an opportunity to introduce a more effective carbon price that businesses and consumers will be more likely to accept. You can't fault the logic, just as you can never fault the logic of proper carbon pricing. But can you envisage a mainstream politician today who has the nerve to take the cost of living get-out-of-jail-free card they have just been handed by the global oil market and then erode its impact with higher carbon taxes? Have you met George Osborne or Ed Balls?

Yes, a low oil price that continues into the medium term harms the oil industry more than the emerging clean-tech sector, but that does not preclude green businesses facing a period of weakened investment cases and policy uncertainty. This precariousness will be further fuelled by the manner in which virtually every mainstream political player in every oil-producing country in the world appears to remain wedded to prioritising short-term action to prop up the faltering oil sector over long-term efforts to engineer an end to the oil sector. Chancellor George Osborne provides Exhibit A.

The second key point is slightly more encouraging for green businesses and centres on the way in which clean energy offers a much more stable alternative to the demonstrably volatile oil price. The oil price will spike again at some point, we just don't know when. Consequently, just as the oil majors are attempting to argue that high-capital projects will still be needed in the future, it is clear that clean-energy developers can present precisely the same argument.

Plenty of businesses are happy to pay a current premium for the clean energy they use because they recognise the value of having long-term price stability. Even in a period of low fossil fuel prices this argument can resonate, particularly when you consider how oil price volatility can be contrasted with the falling price of renewable, and particularly solar, power. The past few months might have demonstrated that the goal of grid parity for clean energy is a moving target, but that does not mean clean tech firms can't reach it.

However, while the 'stability versus volatility' argument can work, it is abundantly clear that it is less compelling than the 'renewables are cheaper' argument, which has just taken a shellacking at the hands of oil price collapse. As ever, there is an unanswerable long-term argument for investing in renewables and there are reasons to remain confident they will prove nominally cheaper than oil, coal and gas eventually. But in the short term plenty of businesses will be focused on trying to work out how they can exploit low oil prices. Green firms need to recognise that reality and work out a marketing approach that can still appeal to customers who have just seen one of the financial triggers for switching to clean technologies disarmed.

The narrow financial challenges that low-carbon firms now face leads to the third problem presented by the oil price slump: the need for an even more sophisticated articulation of the merits of the green economy.

If the oil price remains in the doldrums, supporters of the green economy will have to expand upon some of the narrow economic arguments that have dominated green business discourse in recent years, and start talking more explicitly about climate change.

For several years a high oil price enabled the simplistic argument that cleaner technologies made more financial and economic sense than fossil fuel incumbents. A low oil price still requires an economic argument, but it is a more sophisticated one that draws heavily on the need to recognise the economic costs that come with the climate impacts, air pollution, and price volatility that result from fossil fuels, as well as the myriad benefits that come with genuinely clean technologies.

Clean energy is still cheaper than oil when you consider the full costs of fossil fuels. The biggest subsidy in the world remains the one handed to the fossil fuel industry that allows it to offload the bulk of its environmental costs onto society as a whole. In the absence of a meaningful carbon price and in the presence of a low oil price, green business supporters need to find a way to make this case. In short, they need to identify an approach for talking about climate change risks and the transformation they necessitate, regardless of what is happening to the oil price this month.

Here is the daunting reality that we all too rarely wrestle with. Oil, coal, and gas could be as free as the (often dirty) air we breathe and we would still have to stop using it. In fact, if global decarbonisation efforts are successful, the long-term trend for the oil price is towards $1 a barrel as alternative technologies result in an eventual collapse in demand. The oil price can plummet to historically low levels, but it will not make one iota of difference to climate science and the warnings that come with it. We need to find a way to leave these assets in the ground. Ultimately, the only way to do that is to deliver alternative technologies that are demonstrably better than fossil fuels.

The global effort to tackle climate change centres on the development of technologies that will allow future generations to ignore coal the way we now largely ignore the flint and bronze that first enabled the development of human civilisation. In this context, the vagaries of the oil price should be seen as a sideshow.

Green Energy Koyal Group Inc: Wave energy has potential to be cheaper than wind

Wave energy could be cheaper and easier to integrate into current energy systems than other forms of renewables because of its relative consistency, according to new analysis.

The study, a collaboration between researchers at Oregon State University, the University of Victoria, and private industry, estimates that the cost of integrating wave energy into the system would be 10% or less than the costs of integrating wind energy. However, the researchers noted that integration is just one component.

The findings, published in journal Renewable Energy, are based on a lower variability with wave energy. The researchers explain that the variability of alternative energy sources is one of the factors that holds back their wider use because if wind or solar energy decreases and varies widely, then other energy production has to back it up, adding to the overall cost of energy supply.

In comparison to other renewables, wave energy has a lower variability and by balancing wave energy production over a larger geographic area this can be reduced further. As a result, wave energy has the potential to provide cheaper and more consistent energy than both wind and solar.

“Whenever any new form of energy is added, a challenge is to integrate it into the system along with other sources,” explains Ted Brekken, an associate professor and renewable energy expert in the College of Engineering at Oregon State University.

“By producing wave energy from a range of different sites, possibly with different types of technology, and taking advantage of the comparative consistency of the wave resource itself, it appears that wave energy integration should be easier than that of wind energy. The reserve, or backup generation, necessary for wave energy integration should be minimal.”

Whilst wave energy is still in the infancy of its development, and as a result is not price competitive on an overall bases, costs are expected to fall further as technologies improve, systems are developed and the energy source becomes more widespread.

Green Energy Koyal Group Inc: Imagine if we used renewable energy to build a safer world

The UK government spends £37 billion on the arms industry every year. What if it invested in green energy instead?

What if instead of investing in the arms industry, the government backed renewable energy? Every year the UK spends over £37 billion on the military. What if that money was used to promote social and environmental justice instead?

Today the UK has the sixth largest military budget in the world, and fuels conflicts globally by selling arms to a number of the most aggressive and authoritarian regimes. In recent years British weapons have been used in Israel’s attacks on Gaza, and to repress democracy movements in Hong Kong and across the Middle East.

But the UK could use its international influence to promote green energy rather than militarism and war. Offshore wind and marine energy rely on similar skills to the arms trade. Both are growing fields, but are underfunded and in need of government support if their potential is to be realized.

Unfortunately the UK has been all too happy to promote war as a force for good. Following last year's NATO Summit the UK's Business Minister Matthew Hancock said: “As part of our long term economic plan, we are working closely with the defence sector to secure new investment, highly-skilled jobs and build a better and brighter future for Britain.”

This exposes the same flawed, militaristic outlook that has driven industrial policy for far too long. The reality is that if we are really to build a better and brighter future, and secure jobs, then the government needs to shift its priorities. We should be focusing on more positive, productive sectors.

Subsiding conflict or building a safer world?

The arms industry doesn't act in isolation. The government provides it with a disproportionate level of political and financial support. Every year the public subsidises arms companies by hundreds of millions of pounds. BAE Systems, for example, has long-term contracts that guarantee a minimum income of £230 million per year from the public purse.

Government ministers argue that this money is needed to protect high skilled manufacturing jobs and promote security. But such a narrow focus on military strength disregards the real security threats. The underlying drivers of national and international insecurity are climate change and the sustainability and security of our energy sources. Currently the UK is a large net importer of energy, with imports accounting for 47% of UK energy use in 2013.

In the UK there is a severe skills shortage in Science, Technology, Engineering and Maths. Many sectors would be grateful recipients of investment and displaced arms industry workers, and could do a lot more to tackle non-military threats.

The renewable sector is one such area. It is growing and its workforce uses many of the same skills as those in the arms trade. Yet in 2013 the government spent 25 times more on arms Research & Development (R&D) (£1.46 billion) than it did on R&D for renewable energy (£58.6 million).

The UK is in a strong position to play its part in tackling climate change. It has the largest wind resources in Europe and already has as much capacity installed as the rest of the world combined. It also has substantial wave and tidal resources that could be instrumental in creating a greener and better society. But an industry wide skills shortage and a lack of investment has lead to missed opportunities. At present only 25% of the parts that make up UK wind turbines are made in the UK, while three quarters are imported–meaning we are missing out on large numbers of supply chain jobs.

New and better jobs

There are up to 170,000 jobs in the UK arms industry. This follows a long term decline in arms trade jobs and stands at less than half of what it was 20 years ago. The arms industry's trade association (ADS), estimates that of these jobs the number employed in arms exports is 55,000, which accounts for around 0.2% of the UK workforce.

It seems likely that the decline in arms industry jobs will continue. An international survey of arms company chief executives found that “the near-universal expectation is for a decline”, in spending and jobs.

In comparison, CAAT’s research shows that a move towards offshore wind and marine energy could benefit us all by providing greater security from environmental threats and by producing more jobs than the entire arms industry. Our estimate is that the right investment and government support could help to create over 300,000 jobs in offshore wind and marine energy alone. This estimate is based on building the domestic supply chain for renewable energy, including placing obligations on companies to locate and develop skills in local communities.

Like the arms trade, the renewable energy sector is highly skilled. It has a similar breakdown across broad categories of skill levels and employs many of the same branches of engineering. As Dr Sandy Wilson, the President of General Dynamics UK, told the parliamentary Defence Committee: “The skills that might be divested of a reducing defence industry do not just sit there waiting to come back. They will be mopped up by other industries that need such skills... You can think of the upsurge in nuclear and alternative energy as being two areas that would mop up those people almost immediately.”

A shift from arms to renewables could ensure that appropriate work is available in the main areas where arms workers are located, with thousands of supply chain jobs that could be located anywhere in the country. This would provide both better jobs for workers, and a better outcome for society as a whole. With fewer people personally involved in the war industries, we may also see public attitudes begin to shift away from militarism and conflict.

Making the choice

Even the pro-arms trade Foreign Secretary Philip Hammond has said that the opportunities offered by the green economy are "immense".

The government has to make a choice about the kind of society it wants to build. By halving the military procurement bill the government could save around £7 billion per year, with an additional £700 million being saved by ending arms export subsidies. This money could make a huge impact when it comes to developing the green economy.

These changes would not just transform industrial policy, they would also lead to a radical, transformative change across our society. The contrast between the waste and destruction of the arms trade and the potential benefits of the renewable energy sector is stark. The arms trade thrives on war, conflict and insecurity, with devastating consequences around the world. In comparison, an investment in renewables would show a shift in mentality and could create hundreds of thousands of new and positive jobs, allowing the UK to use its influence positively.

This change will need investment and concerted UK government effort at the level currently devoted to the arms industry. It will also need highly-skilled engineers – like those currently working for arms companies. But there is a role for all of us if we are to make the government shift priorities, create more and better jobs, and build a safer world for all.

Green Energy Koyal Group Inc: Ten Clean Energy Stocks For 2015

2015 marks my seventh annual list of ten clean energy stocks.  An equal weighted portfolio of the ten stocks in each year's list has outperformed my industry benchmark every year except 2013.  2014 was no exception, but it was a bittersweet victory in that the model portfolio was slightly down while the benchmark lost considerably more in a very challenging year for clean energy stocks.

I will publish a wrap-up article for the 2014 list in the next couple days, but I wanted to get the 2015 list out on New Year's day. 

Again this year, I will be providing a high and low target for each stock.  These are the range within which I expect the stocks to end the year.  In 2014, three of the picks violated the downside targets, and none violated the upside targets.  I've also included annual dividends and yield, and Beta, a measure of market risk for US stocks.  Low Beta stocks generally perform better than high Beta stocks in market downturns; the market average Beta is 1.

Finally, I include a discussion of insider sentiment: company insiders buying or selling the stock.  Since company insiders usually receive stock as part of their compensation, insider sales are generally more common than insider purchases.  Hence insider buying is almost always a good sign, and I consider it particularly important in the small capitalization stocks I favor.  These stocks are more likely to be mispriced than larger, more widely followed stocks for which there is much more information available to investors.  Company insiders are the ones most likely to see such mispricing.  Since insider trading information is much easier to find for US stocks than foreign stocks, I include links to my sources of information for insider trading.

Read Income Stocks here