New Energy, All Over The World, Where Is The Industry Going?

- Feb 21, 2019-

Since the beginning of the 21st century, due to the impact of the Iraq war and the dramatic increase in energy demand in emerging countries, international oil prices have been rampant. In 2008, crude oil futures pushed up to $140/barrel, and the window for large-scale application of new energy was opened. At that time, people of insight around the world believed that fossil fuels were unsustainable, and new energy sources were very likely to become new technological revolution engines.

The Western governments headed by the United States have therefore vigorously supported the new energy industry, giving generous subsidies and formulating complete development strategies and plans. This can be reflected in the dramatic changes in the amount of venture capital investment in the US new energy industry.

Before 2005, the new energy industry only appeared in laboratories and academic journals. It was far from commercial applications, and there were almost no government directly subsidized projects. The venture capital investment was only several hundred million dollars per year. From 2005 to 2007, after the US government passed several important energy bills, the new energy industry received tax cuts and loan guarantees. Venture capital in the solar industry alone climbed from $32 million in 2004 to $1.85 billion in 2008, while battery investment in the same period soared more than 30 times.

Subsidies from governments have further promoted the development of new energy sources. The annual subsidies provided by the United States to the new energy industry amount to $90 billion, which is equivalent to giving these companies 50 years of tax exemption. In contrast, the traditional energy industry receives only $4 billion in subsidies. Take the photovoltaic feed-in tariff subsidy policy as an example. Some leading countries in Europe and North America have clearly defined the solar power feed-in tariff subsidy policy to encourage solar power technology research and development, project development and wide application. These subsidies have become legal obligations in some countries. By subsidizing the difference between solar power generation costs and conventional on-grid tariffs, these countries have realized long-term stable and reasonable returns on solar power projects with immature technology and high development and operation costs, effectively attracting components, systems and operators. The active participation of investors has promoted the continued development of the entire industry.

The development of new and renewable energy is an important strategic move for China. In addition to government subsidies, China has also developed a grand new energy plan. According to the plan, by 2015, China's non-fossil energy will account for 30% of the total power generation capacity, the solar heat collection area will reach 400 million square meters, and the installed capacity of wind power will reach 100 million kilowatts. The Chinese government's support for clean energy is very strong, and the business community's enthusiasm for investment in new energy technologies is very high. At present, China has become the world's largest producer of solar panels, wind turbines and battery packs.

The bubble burst only overnight

However, with the advent of the financial crisis and the fall in international oil prices, the development of new energy has seen unexpected changes. Since 2011, a number of new energy companies such as Evergreen, Spectrawatt and Solyndra, which have been heavily funded by the US government, have closed down. In October 2012, the US government's heavily funded new energy battery manufacturer A123 also announced its application for bankruptcy protection. It is not an overstatement to describe the current state of the new energy industry in the United States.

After the financial crisis, especially since 2011, some countries in Europe have had to cut subsidies for some new energy industries due to the pressure of fiscal deficits, especially the subsidy adjustment of the photovoltaic industry, which has had a huge impact on this industry. China is no exception. Since the United States and Europe have successively launched anti-dumping and countervailing for China's new energy products in order to protect their own industries, China's new energy industry has also been affected. The development of new energy in the world seems to have been embattled. An industry that has been fully supported and valued by governments has faced a complete failure almost overnight. It is analyzed that there are several reasons:

First of all, the financial crisis has led to the withdrawal of investment and the break of the corporate capital chain. With the new energy market demand and venture capital booming, many researchers and new technologies have gone out of the university laboratory. The experience of Stanford University's semiconductor doctor Chris Groninger is a microcosm. He invented a high-performance solar panel with a cylindrical battery grille. No matter how it is placed, the sunlight will always be directly on some of the battery tubes. Based on this technology, Groney founded his own company Solyndra in 2005. In 2007, it has raised 600 million U.S. dollars, and its employees have increased to 500. It has won two large orders, and its subsequent development has been smooth.

However, just as Solyndra needed more money to expand its business, the boom in venture capital began to cool. In 2008, the financial crisis evaporated the income of the venture capital company from 2003 to 2007, and the loans were repeatedly cut by the government. This sudden shortage of funds made the company unable to expand its production capacity to cope with excessive production costs, the capital chain broke, and finally only filed for bankruptcy. Many new energy companies, such as the US and Europe, have suffered similar fate.

Second, the rise of international oil prices and the rise of shale gas have changed the development environment of new energy. In 2008, the international crude oil futures price once rose to a high of 140 US dollars / barrel, but with the spread of the financial crisis, energy demand has been contained to a certain extent. After the crisis, the international oil price is still high, but the general trend is downward. Since 2012, it has fluctuated around $100/barrel, and the lowest was once below $80/barrel. The large-scale commercial operation of new energy requires oil prices to remain at a high level of more than $120/barrel.

Third, in addition to the oil price factor, the large-scale changes in the US energy industry have also impacted new energy. The US breakthrough in shale oil and gas exploration technology has changed the energy landscape, and the natural gas supply has caused the domestic natural gas prices to fall. Ten years ago, shale gas accounted for less than 2% of the US natural gas supply, and today it is about 1/3. In 2008, natural gas prices in the United States reached a peak of $13 per thousand cubic feet, but now they are down to $3 per thousand cubic feet.

Energy experts estimate that the total reserves of shale gas in the world can be used for a century. Since 24% of the electricity supply from US power plants comes from natural gas, this will reduce costs to just 10 cents/kWh, and natural gas is still environmentally friendly. Changes in oil prices and energy patterns have not only made the funds used to invest in new energy almost completely, but natural gas prices continue to fall, making the economic motive for the development of renewable energy no longer exist.

Finally, the new energy industry with low technology content has excess capacity. In the new energy industry, some are low-tech categories, such as the traditional solar panel industry, the entry barrier is low, the supply of polysilicon, the main raw material, is over-supplied, and the cost is reduced to less than $30/kg, resulting in blind investment in production. In 1995, more than 40% of the world's solar modules were produced in the United States, and now the ratio is 6%. In less than two years, at least eight solar power plants have been shut down or reduced. China's products now account for more than 60% of global PV production, and prices are more than 20% cheaper than the United States.

In addition, refusing foreign aid due to political factors is also one of the reasons why new energy is deteriorating. The United States has the most market-oriented economic system in the world, but it is equally difficult to escape the "policy-oriented" embarrassment. High government funding and loans have contributed to the glory of the new energy industry, but it is also doomed to its final decline. The support of policies has greatly reduced the financing costs of enterprises, coupled with the pursuit of private capital, so that the entire new energy industry completely ignores market risks and expands wildly.

After the European and American governments, which were hit hard by the financial crisis after 2008, cut the subsidies, the new energy bubble burst, and the smash hit star companies collapsed in batches. At this time, if they are willing to accept foreign mergers and acquisitions, they may still have a chance, but the US government refuses to let go because of political factors. In the first half of 2012, China's Wanxiang Group had planned to increase capital to the leading lithium-ion battery company A123. The US government is guarding against China and blocking it at various levels. A123 can only declare bankruptcy. Fortunately, in the new round of public bidding on December 6, 2012, Wanxiang experienced a wave of twists and turns, defeated Johnson Controls and successfully bid, and has now entered the final approval stage.

New energy is still the way to meet future energy needs

It is a controversial question about when the peak of fossil energy production will come, but no one has ever doubted the fact that this day will come sooner or later. There is no doubt that the world needs new energy to replace fossil energy. Therefore, the new energy industry, which seems to be no longer in sight, is not without the possibility of a new look.

As far as the current global economic situation is concerned, the new energy industry needs global communication and cooperation in order to achieve further development. This includes cooperation in both financial and technical aspects: First, cooperation in funding. The new energy industry in western countries is greatly affected by the market environment, and it is prone to shortage of funds. Some countries, such as China, can provide sufficient funds, and cooperation between the two will surely achieve a win-win outcome. The second is technical cooperation. The high-end technology of new energy is mainly in the hands of developed countries such as Japan, the United States, and Germany, and the new energy technologies in developing countries are still relatively backward. How to achieve satisfactory technical transfer between the two parties through financial cooperation is also a difficult problem to be solved.

All kinds of new energy sources have unavoidable shortcomings. The low energy intensity of wind energy, solar energy, tidal energy and the discontinuity of energy provided by them all make them unable to completely replace fossil energy. The safety of nuclear energy and waste disposal are also temporarily unsolved, and technological breakthroughs are still needed to solve the problem of high cost, low capacity and dependence on government subsidies. However, the technical circles of various countries are still trying to eliminate this bottleneck. Although it is the bottom of the development of the new energy industry, it is also the best time to keep a low profile.