Posted by: Dr Pano Kroko Churchill | September 8, 2013

Carbonomics = The economics of Coal vs Solar Energy

Today China announced that it will offer certain strong tax rebates to manufacturers of solar energy production equipment and related units of renewable energy production in order to replace coal power generation, therefore cutting pollution levels in their cities and also help the Solar Industry overcome it’s slump.

Never has Public Policy been so clear about doing Good and doing well…

Manufacturers will be refunded 50% of the VAT [value added tax] generated from the 1st of October 2013 to the end of December 2015.

It is now abundantly clear that Chinese firms have emerged as key players in the global solar power sector in recent years and have won the Lion’s share of the Solar Energy markets. Yet, weak demand and trade rows have resulted in overcapacity, leaving leading firms with huge debts — since today the country’s top 10 solar panel makers have up to 100bn yuan ($16.3bn; £10bn) in debt.

Consolidation and working through it’s debt the industry moves forward towards a healthier state quite rapidly, because earlier this year, China’s Suntech Power Holdings, the world’s biggest solar panel maker, defaulted on its debt and launched a massive restructuring.

That restructure of debt was followed by a default by LDK Solar Company, the world’s largest producer of solar wafers — a company that grew to a staggering pace as many countries embraced Solar reaching parity with coal resources over the past few years. It is now evident that  economies across the world, especially developed nations, have looked to increase the use of renewable energy sources and are looking to China to supply the Solar technology and products.

Chinese public policy towards emerging Solar Energy has been written into the last three successive Five year plans of the Politburo and has had tremendous impact upon the world of Solar Energy globally creating the undisputed winners. Now it is always Chinese firms that have been keen to tap into the growing global Solar market and have naturally emerged as the leading players in the sector.

Still a sharp decline in prices, coupled with the recession-caused slowing demand, has further depressed prices per unit and thus hurt all global solar panel makers and first the American and then the Chinese firms have borne the brunt of the offensive.

The US and European panel makers have also blamed Chinese firms for playing a big role in that, calling for anti-dumping protections, since they have accused the Chinese companies of flooding the market and of selling the panels below fair price. {An industry practice known as “dumping”]. There have also been claims that China provides subsidies to its firm, which helps them keep their costs low and as a result they could sell their wares and their goods at cheaper prices. This escalating trade tension has resulted in tariffs from the US.

And although China has denied these allegations, these disputes coupled with falling prices have hurt Chinese firms and even fanned fears over the long term future of some of the companies.

Prompted by these concerns and the rising pollution levels in the country, China has been trying to boost domestic demand for solar panels. Yesterday, the Xinhua news service reported that “despite the support policies, China’s bloated photovoltaic industry still faces a difficult outlook, because even if the domestic market is expanded, China’s production overcapacity can not be fully digested and some manufacturers must be eliminated, analysts have pointed out, expecting the industry to see drastic eliminations and accelerated integrations in the coming months.”

These seemingly bad news for companies are great news for consumers and developers of Solar Energy projects worldwide because now we have over thirty countries globally where Solar Energy has hit and surpassed parity levels with coal energy generation plants. And today’s solar industry is growing drastically every year — while fossil fuel and especially coal plants for electricity generation continue to be phased out.

This is why it’s frustrating to hear people say that renewable energy is not ready to compete with fossil fuels as a means to power our economies, our countries, and our homes.

And as an aside here are the Seven Top Reasons why solar energy is already winning the World’s Energy markets….

1. Jobs: There are more people in the U.S. employed in the solar energy marketplace than mining coal. The banal argument that transitioning to a clean energy economy will cost us jobs is simply false. Solar is growing more than 10 times faster than the American economy.
Solar already employs more than coal, and that gap is widening. In 2012, solar added 14,000 new jobs, up 36 percent from 2010 and the industry will add another 20,000 jobs this year. The fossil fuels industry cut 4,000 jobs last year. So when it comes to employing Americans, solar is winning.

2. Price: Solar panels have a seen a consistent drop in prices over the last three decades, and in the last few years that drop has been meteoric. In the last 35 years prices have gone from $75/watt to around $.75/watt. Since 2008, the cost of coal has risen 13 percent. In some parts of the market, solar has already reached parity with coal.  I’m sure you’ve heard the argument that solar is economically effective only by relying on government subsidies. Currently this may be true, but if solar prices reach Citigroup’s prediction of $.25/watt by 2020, subsidies may not be needed. And then there’s the glaring fact that oil, gas and coal receive subsidies that dwarf those of renewables to the tune of more than $3 Trillion of tax abatements, incentives and economic support given to companies for extracting, promoting and transporting dirty fossil fuels vs. $60 billion for renewable energy sources globally.
And that’s ignoring the extra costs that burning fossil fuels impose on the rest of society, that aren’t paid by fossil fuel companies (called externalities by economists). The Harvard Medical School estimates that burning coal in the U.S. costs $500 billion in environmental and health damage (and then there’s, you know, the whole climate change thing). If those costs were taxed onto coal plants, the price of coal would more than double.

3. Capacity:  With the cost of solar dropping rapidly, installations are escalating at an exciting rate. Earlier this year, the U.S. became the fourth country to have 10 gigawatts of solar energy capacity, with installations increasing at a rate of 50 percent annually for the last five years, that rate is expected to increase to 80 percent this year.
Two-thirds of global solar capacity has been installed over the last two years. In contrast, 175 coal fired power plants in the U.S. are expected to be shut down over the next five years (more than 10 percent of total capacity). This reflects the rising costs of coal and the implementation of stricter environmental regulations.

4. Investment: While fossil fuels have been an omnipresent part of investment portfolios for decades, their reign may be coming to an end. Recently a number of reports have shed light on an impending carbon bubble. Fossil fuel companies are valued in the market based on their reserves of unburned fuel still in the ground. If international regulations are put in place to prevent atmospheric carbon dioxide levels from rising above 450 ppm (the estimated cap to avoid irreversible climate change), much of the listed reserves couldn’t be used.
This means that many fossil fuel companies are overvalued as they potentially have huge unburnable reserves of fuel. British bank HSBC estimates that once stricter climate regulations are put in place, the value of fossil fuel companies may fall drastically. Already, coal companies have dropped in value 75 percent over the last five years.
Firms like our own Green Capital, and the Green Bank of China, are amongst many others like Generation, Mercer, and WHEB investors,, who have shifted all their assets towards Solar and Clean energy and who are advising investors to move their investment capital and pension funds out of coal and dirty oil and into abundant Solar and all other renewables — not for ethical reasons but because the Economic rewards are far greater today.. Major investors are already making this move. Warren Buffett has invested in one of the largest solar farms in the world and has predicted the end of coal as an American power source.

5. Environmental Impact:  Environmental impact should be pretty clear, but here are some interesting impacts of coal extraction and burning that you may not be aware of. A) Acid Rain. Acid mine drainage and coal sludge pollutes rivers and streams. Air pollution causes acid rain, smog, respiratory illnesses, cancers. Toxins in the environment and coal dust from mining causes respiratory illnesses, asthma to children, allergies, autoimmune system deficiencies and death. Coal fires in abandoned mines put tons of mercury into the atmosphere every year and account for three percent of global carbon dioxide emissions.  Coal combustion waste is the second largest contributor to landfills after solid waste. Mountaintop removal coal mining causes flooding, destruction of entire ecosystems and communities.  The release of greenhouse gases emissions of 381,740,601 lbs of toxic carbon dioxide, methane, sulfur dioxide, mercury, radioactive materials and particulate matter annually are an enormous contributor to global climate change.

6. Investment Grade: All of our Solar Energy projects are coupled with a Power Purchase Agreement with a major Power & Utility company and therefore carry a triple AAA rating that allows us to have steady same returns of 15% and upwards for the lifetime of the project. That is usually a contract span of 25 to 30 years. Steady same returns that are consistently great. Something to cheer during the times of the starving cows. That is the really good news for our people…

7. Positive Economic Returns:  Over the last fifteen years we have accomplished an overall return of 17% throughout our funds. This was accomplished by blending Solar Energy Production Plant Investments with Solar manufacturers and Solar Industry growth ventures. Of course the bulk of the investments funds is mainly vested in Solar Energy projects and manufacturers worldwide but with a heavy concentration in China. And this is credited to the spectacular success stemming from all of our Chinese investments bearing an overall performance upwards of 17% in annual returns on the portfolio of our Solar Investments. This has been consistently the case throughout the Recession, the Consolidation, and Aggregation years of the Solar industry.

We’ve lived through it and we can now tell the tale… because I’ve just returned from China this week, and can certainly tell you that the Solar Energy race has already been won.

China is now the undisputed leader in that field and all of our Green Bonds and Green Bank of Shanghai & China — that I founded — are all renewable Energy investments and reflect this winning investment strategy.

How’s that for Progress and Change in our World Energy markets and Energy Investment outlook?

Yours,

Pano

PS:

The World is changing — Smart Investors get on board this fast moving train now.

My book CARBONOMICS will be released this December from Oxford University Press and it might make a good investment grade reading for the holidays for you…

 


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