Green Energy Investment is Risky without Government Backup

Source Article
Green energy plans in disarray as wind farm giant slashes investment | business.timesonline.co.uk (article)

Implications:
1) Alternative Energy is not able to compete with "Cheap" oil at this time.

2) Wind and Solar may be able to compete before Biofuels for Transport

3) There is no way to Project Competing Energy (Hydrocarbon) Costs reliably for the length of investment needed for Alternative Energy Infrastructure.

4) Government programs guaranteeing "Floor" pricing for alternatives and renewables only way to attract investment capital

Analysis:
The "Green Energy" movement - Renewables, Biofuels and oil substitutes like ethanol, are subject to energy market price volatility as a whole, and compete for capital with other energy projects.

The rapid spike and decline in oil prices over the last 18 months has shown that there is very little elasticity of demand for hydrocarbon-based energy. The infrastructure the world has invested in for the past 100+ years is based on the availability of hydrocarbon fuels (Coal, Natural gas, and Crude Oil derived refined products) as the primary energy source.

As long as the emerging "Green" energy sources cannot be guaranteed a "floor" price where government will make up the difference between production and market costs while the industry matures and is able to become competitive in the global energy free market, there will be very little incentive for private(NYSE:BBY) investment in these technologies and the infrastructures needed to support them.

The financial collapse of corn-based ethanol producers in the US is a prime example of why alternative and Bio energy will be a hazardous proposition for investors until a way to protect them from the bottom of oil's price swings can be initiated.

Relatively inexpensive oil will always be a threat to Green Energy business plans; they are building against a competitor that has years of investment and operating experience, in addition to loads of capital, with which to compete.

State oil firms pump based on how much cash they need to bring in to support the government that owns them, market lows are of little consequence to their plans. While the State-owned Oilcos love the high prices, the odds of a group of state-owned firms volume discipline being maintained at the expense of a bankrupt government is virtually nil.

The Super Major Multinational privately owned firms have been very selective about competing wit their core hydrocarbons businesses, they understand the economics better than anyone else.

Until some large governments embrace distributed-generation electrical production and the smart grid needed to make that model work, as a national security priority, the odds of significant amounts of electricity being produced by "Green" means is very slim indeed.

Biofuels for transport face an even tougher uphill fight without help to get the industry off the ground

Super Major Multinational Oil Firms Can Continue to Invest for the Future

Source Article: Shell Plans Major Investments in 2009, Tags Dividend Growth at $10 billion | www.rigzone.com (article)

Implications:
1) Recent big profits give them strong balance sheets
2) Can Source Capital inexpensively right now
3) World Still Hungry for Hydrocarbons at any Price
4) OilCo's can control bio and alternative fuel assets at discount now.

Analysis:
Shell's announcement of capital expenditures remaining at high levels should come as no surprise. All the Supermajor Multinational Oil firms have plenty of cash and strong balance sheets, access to capital at very low rates, and an inelastic demand vs price in hydrocarbon based energy. ExxonMobil(NYSE:XOM) and Total are doing the same.

While prices are down right now, the historic run-up last year showed just how inelastic the core demand for oil, natural gas and refined products really is. While alternative fuels and conservation measures like hybrid and electric cars will reduce demand in the long run, those developments are still way out on the investment horizon.

The oil companies can also exert influence and a degree of control on the future of biofuels right now, and Valero's(NYSE:VLO) announced purchase of bankrupt VeraSun's ethanol production assets this week shows. BP, Chevron(NYSE:CVX) and ExxonMobil are all featuring alternative technologies in their advertising right now.

The collapse of oil prices created an opportunity to purchase overleveraged bio and alternative fuel assets at a discount, as the market price the VeraSun's and the like used to justify investment fell apart.

So the future for the Oil companies isn't just about crude, but the alternatives and substitutes being developed to supplant the world demand for crude. The Supermajors are expert and efficient conduits for product and capital, as they diversify into the other types of energy alternatives, that isn't going to change.