Goldman Sachs Declares The Renewable Sector One Of The Most Compelling
Originally published on RenewEconomy.
Investment banking giant Goldman Sachs has declared the renewable energy sector to be one of the most compelling and attractive markets – and is backing up its talk with $US40 billion ($A46 billion) of made and planned investments.
Goldman Sachs is not the first big bank to talk up the renewable energy sector, or even “sustainable” investments. But it is one of the first to put real money behind it.
In 2012, the bank made a commitment to invest $US40 billion in renewable energy, and it has made a number of large equity investments, over and above the normal advisory and fund-raising work that is the usual bread and butter revenue for investment banks such as Goldman Sachs.
“Goldman Sachs finds this market incredibly compelling,” Stuart Bernstein, who heads the bank’s clean-technology and renewables investment banking group, told Recharge in a recent interview in a story titled Goldman goes Green.”It is at a transformational moment in time.”
Bernstein said the bank is taking a decades-long view and is convinced that renewable energy will be an important component of global GDP growth.
He dismissed suggestions that it was part of a PR campaign – such as BP’s infamous “Beyond Petroleum” pitch of a decade ago where it appeared to spend more in marketing than it did in new technologies.
“It will be important from a societal perspective, and it will be good business for us and our clients,” Bernstein told Recharge. “We want to be extraordinarily focused, involved and have the best franchise in the area. That’s how we think about it.”
Among Goldman Sachs’ key investments are a recently-approved $1.5 billion investment for a near 20 per cent stake in Danish offshore wind energy developer Dong Energy.
It has also a substantial investment in BrightSource Energy, which is about to bring its huge Ivanpah solar power project (pictured) into full production – it will be the largest in the world.
Goldman Sachs also provided $500 million of finance to SolarCity, to allow the biggest solar installer in the US to expand its solar leasing business. Goldmans is one of a number of banks to do that –the latest was Bank of America/Merrill Lynch.
It has also been an early investor in First Solar, the largest solar PV manufacturer in the US, SunEdison, and made big money from the sale of Horizon Wind Energy to Portugal’s EDP for $2.15 billion in 2007.
Goldman’s commitment of $40 billion is based around a number of assumptions – that costs will continue to decline as efficiency improves, that solar and wind will reach grid parity without subsidies in the not-too-distant future, and that energy storage issues will also be solved.
It also believes that the position of coal at the top of the global fuel mix is eroding – something that it highlighted in a recent report that said the window for thermal coal was closing rapidly.
According to the Recharge article, much of Goldman Sachs’ investments will be focused on the emerging economies of Brazil, China, India and Mexico —along with developed economies such as Japan and South Korea that have also made a large commitment to renewables, and are reliant on expensive fossil fuel imports.
In Japan, Goldman Sachs has established a new independent power producer called Japan Renewable Energy (JRE) — to develop, build and operate solar, wind and other renewables projects. It is backed by the bank’s $3.1 billion GS Infrastructure Partners II fund (GSIP). It has already committed to a 250MW solar project in Okayama and a 40MW PV plant near Tokyo.
Goldman has paid more than $3400 million for a majority stake in an Indian wind energy business called Renew Wind Power, which plans to build 1GW of facilities within two years, and it is looking to build solar energy plants to supply mining operations in Chile, where even companies such as BHP Billiton are looking at alternatives.
Bernstein also heads Goldman’s venture-capital group, which has a key office in California’s Silicon Valley and which is focusing on late-stage venture companies. Recharge says it is also using its convening power to host conferences and forums for sector stakeholders.
Other investments include the FloDesign Wind Turbine, a start-up that was developing an experimental high-efficiency shrouded wind turbine, and South Korean wind turbine manufacturer CS Wind, which plans an IPO this year.
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Combined with the growing fossil divestment campaign, a clear picture is emerging.
The question is how fast the shift will come.
I would say, move your money while you still can. As soon as a broad perception takes hold that fossils are a dead end and renewables are the future (environmentalists have known this for quite a while), stock prices of fossil fuel companies will tumble to never recover. And it may be surprisingly quick. You don’t want to be left holding the bag and miss the boat at the same time.
They’re pretty much fully on board with the new conventional wisdom as enunciated by cleantechnica.
Much as I admire the tech people, my own background is in the arts so if I may be forgiven a few possibly nerdy metaphors:
To me its like watching a slow motion version of the conclusion to Lord of the Rings, only a thousand times better because its real life. For some time the dark towers of the fossil fuel industry have been feeling shudders through their foundations as the green energy revolution slowly gathered strength. Shudders that were passed off as nothing before a return to business as usual.
But then cracks start appearing. Warren Buffet putting a billion into wind is a crack. Then with Goldman-Sacks first pulling out of a major coal port then turning around and putting a half billion into solar City, the crack widens. Now the eyes at the top of the towers grow uneasy. They start looking around to see what’s wrong. They find their surrounds slowly getting boxed in. Extraction cost are growing but a gathering electric vehicle market on the horizon inhibits them from major price hikes at the pumps. In the distance solar panels and wind turbines they never noticed before are glistening and churning. Its clear that more shocks are soon to come.
The crucial moment will coincide with Peak Oil – not a peak in supply as was long thought but a peak in demand. We cannot say for sure when this moment arrives only that it feel like its getting closer. When it finally comes it will be a sight to behold.
(Yes, all this fossil fuel schadefreude . . . I’m a bad person.)
“Extraction cost are growing but a gathering electric vehicle market on the horizon inhibits them from major price hikes at the pumps”
Good observation. I expect oil prices to move horizontally for quite a while. The lower end is constrained by production costs, the higher end is capped by competing technologies (EV’s in particular).
Exxon recently ran some rather ham-fisted TV adds directly pitting the gas tank against the car battery. They must know their predicament. Should be interesting if Toyota can roll out promised solid-state lithium by end of decade. It would double current range.
BTW I’m not so deluded. The green energy revolution is coming but likely not fast enough to avoid major climate consequences. Nevertheless, any gains made now can only help mitigate the worst of what is too come.
Update on solid state lithium: Wiki says they will deliver 3x charge of 2011 lithium ion at 1/2 the cost per kwh. Field testing to begin in 2015. Simplified details: thin sheets of solid battery material are easier to cool therefore easier to pack into a smaller space.
Question: What does OPEC do when its becomes apparent that EVs are gaining new sales dominance? This already exists in Norway but that’s a special case. Still probably at least 10-15 years away for N. America but I’ve often wondered. Do they hold a fire sale on remaining easy oil or what?
They will sell for something more than cost of production for as long as they can.
It seems to me that OPEC was organized enough back a few decades ago to drop their prices and crush the move to more efficient cars but those days are gone. Now we can drive with electricity far cheaper than the oil industry can cut the cost of fuel.
We’re probably no more than five years away from affordable higher priced batteries (my guess) that will make EVs very practical and no more expensive to purchase than ICEVs.
It will take a few years, perhaps up to five, for the public to understand what has happened. At that point the market will quickly shift. But it will take another 10 – 15 years to get most of the ICEVs off the road.
Oil companies probably have a good market for another 15 years or longer.
Will the oil companies transition themselves into another type of business? Some probably will.
Will the oil companies fail to transition and ride their stock value into the ground? Some probably will.
“We’re probably no more than five years away from affordable higher priced batteries (my guess) that will make EVs very practical and no more expensive to purchase than ICEVs.”
I’m betting sooner, current batteries can do it if the price goes down another 50% which Swanson’s law says can be done in 3 doublings.
“It will take a few years, perhaps up to five, for the public to understand what has happened.”
I’d say less then a year, take a look at the awareness that’s grown in the past five.
“At that point the market will quickly shift. But it will take another 10 – 15 years to get most of the ICEVs off the road.”
Again I’d say faster, the financial benefits will be huge, fuel, maintaince, and insurance will be much less. And governments are going to be serious about stopping Climate Change at that point.
OK, so not so easy to ward off the electrics. The ever astute Bob Wallace.
I’m making an assumption. I’m assuming that batteries will at least double in capacity and prices will continue to fall.
If that doesn’t happen then all bets are off. And in that case I’d bet we move largely to PHEVs, driving our first 30 to 50 miles on electricity and then switch so some sort of fuel. Will that be gas, diesel, biofuel or hydrogen? No real guess there. It will depend on how concerned we are about climate change and how cheap each of the options become.
If climate change creates some sort of price signal then I assume we’ll use either biofuel or renewable electricity hydrogen.
Can the oil companies stop the transition? I don’t think they have a chance in hell. It’s not just finances driving us away from oil, there’s also a very serious concern on the part of many about what we’re going to subject ourselves to if we continue to use fossil fuels.
I think we’ll get there with the batteries. From what I gather the science on solid state lithium is well, pretty solid and has been in the works for some time. It will triple range of current lithium ion by weight at half the cost per kwh.
That takes care of passenger vehicles but still leaves heavy transport. We also need a stiff carbon tax that renders biofuel competitive. Also syn fuel systems that directly utilize atmospheric CO2.
We could be in for significant drops in the price of oil. As electric and efficient hybrids become increasingly popular in places with high gasoline prices such as Europe and Australia this could lead to large drops in the price of oil as only a small oversupply can cause prices to plunge. Also, China, India and many other developing nations are not going to want their economies to be dependant on foreign oil imports if they have an option that is almost as cheap or cheaper than internal combustion engines and this desire could keep a lid on their demand. This could result in large declnes in oil prices which might then slow the spread of electric cars in places like the US, but electric cars will continue to fall in price and lower oil prices will make it easier for governments to introduce environmental taxes on gasoline and diesel which may stop prices falling so much for consumers. (Perhaps road and bridge repair taxes in the US.)
On the other hand, despite massive infrastructure investments, Saudi oil production is falling and its decline may rapidly accelerate. Russia could soon follow and Nigeria seems likely to export less and consume more of its own oil production, so prediction is hard, expecially about the future.
Don’t forget that a large chunk of oil production is unconventional.
When the price falls and it becomes unprofitable, they’re no longer produced and supply falls.
The price of oil was over $150 a barrel in today’s money and now it’s about $100. That’s quite a drop. How did this drop occur? Well, it wasn’t through increased production. Despite a vast amount of new drilling an unconventional oil development new production has only made up for declines in old production. The reason the price of oil fell from its peak has mostly been demand destruction. The US now uses something like 13% less oil than it did back when it was $147 a barrel. Will demand destruction rapidly continue pushing down the price of oil further or will declines in production force the oil price up? I dunno. To me it seems likely that declines in production as large oil fields become exhausted will keep oil prices high, but I am hoping that demand destruction will be so rapid we will see large drops in the price of oil. Note this is not crazy “We have infinite supplies of oil” talk, but optimisitic “Electric cars will be so good most people won’t want internal combustion cars” talk.
Note that any over supply of oil can cause oil prices to drop by a large amount. If the price fall isn’t expected to be temporary this will result in a halt in things such as the drilling of expensive tight oil wells, but since most of the cost is in setting up the well, existing oil wells may continue to pump oil as fast as they can. If it becomes clear to eveyone that the future belongs to the electric car then well owners would probably want to pump as much oil as they can before the price drops further and to delay the day electric cars dominate. People in charge of oil production may now be be less confident that they can leave oil in the ground and sell it for a higher price in the future. So a possible scenario, which is just a possibility, is we may end up with a rapid uptake of electric cars with improving technology and increasing volume dropping their price further and oil producers then competing for remaining oil demand and lower cost producers putting higher costs ones, such as the US, out of business. On the other hand, I think its likely that the declining production of many major oil fields is likely to keep oil prices high for quite some time but electric cars and other efficiency measures will keep prices under $150 a barrel for most of the time.
Something like 20% of oil production is unconventional.
Those are expensive to produce.
When the price falls, they become unprofitable and stop being produced.
That results in the price going back to where it was before.
That results in more EVs being sold and further demand destruction.
And so on and so on, until we’re off ICVs.
Yes.
Oil prices can only decline so much. They have to stay above production cost. If the price of oil falls modestly from where it now is then tar sand oil would likely not be worth extracting.
Gas prices are not going to drop to the $1.50 range level that would allow ICEVs to be competitive with EVs on a ‘per mile’ basis.
“Gas prices are not going to drop to the $1.50 range level that would
allow ICVs to be competitive with EVs on a ‘per mile’ basis.”
Not without EVs taking over nearly all transport anyways.
Can’t extract, refine and distribute oil for $1.50/gallon. We’ve used up the cheap supply.
It would be interesting to know the basement price. I’d guess it’s not far under $3/gallon. And by the time EVs are dominate we may have used up the currently cheapest sources making the basement price even higher.
In the longterm oil prices can’t go below the production cost, but in the short term they certainly can. Look at coal where high cost projects are being abandoned and a large number of mines look like they’ll never be profitable thanks to the decline cost of wind and solar energy. Fingers crossed the oil industry will fall on hard times. And by the way, with the Australian fuel excise tax, oil would have to drop to under $20 a barrel to beat the $1.50 range level. In Europe zero dollars a barrel oil wouldn’t be cheap enough.
Remain invested if you (not you specifically) believe they’ll adapt their business models to stay ahead of where the puck is going. 🙂
Nice. The signs of change are becoming visible. The Evil Empire(s) won’t go down without a fight, but it appears that they are starting to understand that they will be defeated.
it is too easy to go solar for every one.
and EV never fills up gas, just electricity from your solar. easy.
in Germany they add easy 3.3 GW Wind power a year.
change is blowing in the sun