Steven Chu, Secretary of the US Department of Energy (DOE) claims, “Plug-in hybrid electric vehicles could revolutionize personal transportation and cut our dependence on foreign oil, not to mention give us cleaner air and less carbon pollution.”

To say that federal and state support is crucial for this massive task will be an understatement. Even established automakers hesitate to take initiative on their own with government help. US federal government has initiated a number of stimulus programs including Advanced Technology Vehicles Manufacturing (ATVM) to encourage research in cleaner vehicles and fuels. The initiates are hailed by the automakers and suppliers alike. US government initiatives have resulted in Nissan expediting the launch of its LEAF electric vehicle in the US by at least two years, and has announced a truly attractive price: about $32,000, or $20,000 after federal and (most) state rebates. General Motors plans to launch its hybrid electric vehicle Volt by the end of next year. The company claims to have a 40-mile only electric range for the vehicle, enough for 90 percent of Americans to commute daily.
Healthy hybrid vehicles sales of Toyota Prius and Honda Insight have prompted skeptics to rethink their strategy towards electric powertrains.

Apart from doing brisk business in US, the hybrids have outsold traditional gasoline vehicles in Japan. As of late 2009, Toyota Prius had a 11.2% share in the Japanese automotive market. The vehicle has been bestseller in Japan since the launch of its third generation in May 2009. Hybrid vehicles account for 14.1 percent market share in Japan. The US is lagging behind but wants to attain same market penetration. Today, despite the global economic issues currently faced by the automotive industry, emission legislation holds a stronger focus.

Hybrid and electric vehicles promise immense reduction in fuel consumption and carbon emissions, as pure electric vehicles have no gasoline engines and produce no emissions. However, there are some issues with the widespread deployment of electrified vehicles. The biggest challenge for automakers to overcome regarding fuel efficient hybrid and electric vehicles are the cost and range. Electrified vehicles haven’t yet come down on cost curve, and consumers may be concerned about the range limitations — a phenomenon commonly referred as “range anxiety.”

Experts point to the divided opinion among the automakers regarding the cleaner vehicles. After announcing major plans of introducing hybrids and electric vehicles, Chrysler has recently dumped the plan in favor of traditional gasoline vehicles. Vehicle electrification was one of the pitches of the Detroit based automaker to receive federal bailout money.

Not everything is positive with the alternative propulsion systems such as hybrids and pure electrics. In particular, the vehicles suffer from some technological drawbacks. The current generation of clean transport options relies heavily on battery technology, which hasn’t advanced much during the years to accommodate the energy efficiency requirements of new age vehicles. Traditional hybrids including Toyota Prius, Honda Insight and Ford Escape use Nickel Metal Hydride (NiMH) battery technology. While the battery chemistry is very mature and reliable, it has inherent limitations regarding the energy storage capacity. NiMH contains toxic materials posing serious threats to the environment. The batteries also contain rare earth metals which are sourced primarily from China. Promoting EVs has the potentiial to shift dependence from declining oil reserves to already rare commodities.

NiMH technology is good for traditional hybrids but when it comes for new age hybrids and electric vehicles, lithium-ion is the choice of automakers. Lithium-ion batteries have relatively higher energy and power density to serve as motive power source for cars. However, the technology requires extensive use of lithium, a light metal found in abundance but rare to extract in an economic and cost effective manner.

Lithium based batteries are widely used in consumer electronics including mobile handsets and laptops. Since the demand for consumer electronic goods is increasing, lithium demand is also increasing. Automotive batteries bigger in size will require much more lithium than a typical gadget, which in turn will spiral the demand of lithium. Seconds Eichi Maeyama, Mitsubishi’s General Manager, “The demand for lithium won’t double but increase by five times”. Around 50 percent of the global lithium reserves are concentrated in Bolivia, a South American country. Bolivia is not a very capital investment-friendly country, and the government is trying to nationalize the reserves with the aim of creating a monopoly on the lines of OPEC.

Electric vehicles, also called zero emission vehicles aren’t exactly emission free vehicles as they use electricity instead of fossil fuel. The electricity is generated by coal fired power plants. More electric vehicles will result in higher demand for electricity in turn driving carbon emissions at the electric utility’s end.

Despite the shortcomings, governments are promoting electrified transportation with a hope to reduce dependence on oil. The situation isn’t exactly rosy at the supplier’s end. Car battery market, once controlled by Panasonic and Sanyo is now getting crowded with a multitude of traditional and new players entering the market. Industrial conglomerates including GE, BASF and Continental have entered into battery manufacturing business directly or indirectly. Apart from setting up a Sodium Halide battery manufacturing facility in the US, GE has invested in a lithium-ion battery producer A123 Systems.
Chinese battery supplier BYD shot into prominence after billionaire investor Warren Buffett controlled Berkshire Hathaway bought 10 percent ownership in the company. BYD has also entered into an agreement with Volkswagen to develop hybrid vehicles based on lithium-ion batteries.

Besides established companies, many new firms have received grants from Department of Energy for manufacturing batteries in US. Experts claim many battery startups do not possess the required technical abilities and are set to go out of the business five years down the line. Hopefully, the industry will also have greater clarity about the most efficient and feasible technology.

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Pundits in the US natural gas industry have revised supply estimates in last few years. In effect, some companies claim to be able to increase sustainable production over the long term.

Exxon is a big player in energy by any standards and the company’s halo effect is likely to bring about the positive change for the market participants including natural gas explorers, producers and transporters. The deal has overnight changed the sentiments for shale natural gas. In a recent deal, Carrizo Oil & Gas sold some of its stake in a Texas shale project to Sumitomo Corporation for US$15.7 million.
Onshore produced shale gas with lower transportation costs is likely to be used in electricity generating plants (replacing coal), heating and cooling our homes and power automobiles. However, it would be wrong to conclude that natural gas is the sure shot remedy to all our energy issues. ExxonMobil has some synergies to justify a 25 percent premium on XTO Energy. Besides being an oil giant, ExxonMobil has a chemical business and thus can use the feedstock in any of its chemical facilities.

In the US, shale gas resources are very large and relatively evenly distributed over several states unlike oil. Some analysts claim that the shale gas could contribute up to half of the US total gas production by 2020. Such a scenario would be highly satisfying for US with reduced dependence on not just foreign oil, but also from greener sources which are highly dependent on specific countries for key components (Read rare earth metals in China and lithium supplies in Bolivia).

A recent run-up in the stock prices of shale gas companies warrants for a caution. Like other times, it appears that Wall Street has underestimated the real cost of shale gas, and overestimated how fast its production can be expanded. Some studies point towards the overestimation of shale gas supplies by some companies. Also, there are some concerns regarding the long term viability of shale gas extraction in a lucrative manner.

Empirical data tells us that the production in shale formations drops off rapidly after two to three years of high production. However, it will be too early to write off this option only on the basis of high price, that also when a lot of other energy sources are getting federal grants for relatively expensive technologies. The competitive landscape is expected to become clear in next two to five years after the production of shale gas starts on a mass scale. In due course of time, we’ll come to know if all this hype is real or just fizz.

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Needless to say, renewables aren’t trouble-free. Two of the major renewable sources, wind and solar both cost more than gas or coal. Prices are coming down with advances in technology, but intermittent nature of the energy production from renewable sources adds another dimension to the problem and puts the total cost of generating one unit of energy way compared with the fossil fuels. Wind speed becomes optimum for operating turbines at the height of around 800 meters, but creating a tower that high isn’t feasible. Furthermore, current wind turbine installations require around ten times concrete and steel that is required for generating the same amount of nuclear power.

Similarly, solar energy isn’t always available and the solar energy to electricity conversion ratio is just around 25 percent in most efficient crystalline silicon technology. Thus, instead of just focusing on renewables, options including a blend of fossil fuels with renewable sources or less polluting fossil fuels are being considered.

And good-old fossils aren’t letting us down. Although considered most benign of the pack, natural gas only emits around half as much as coal. On a grid level, probably it makes more sense to promote natural gas instead of counting on renewable as instruments to knock coal. Natural gas turbines can accommodate round the clock electricity generation unlike renewable thus helping in bridging the supply and demand gaps.
Last year witnessed a rare confluence of triggers resulting in a year with one of the lowest economic activity since Second World War. Quite predictably (in the hindsight), manufacturers ran high inventory levels with significantly less demand. As it turned out, Solar panel prices nosedived and so did the prices of natural gas. Natural gas prices are still depressed with futures currently trading at around 60 percent below last year’s high in US.

However, looks like the sector is in for a makeover. Apparently, ExxonMobil is betting big on natural gas. The oil giant has made a US$31 billion bid to acquire US natural gas player XTO Energy in an all stock deal. In addition, the company will assume debts amounting to US$10 billion. XTO Energy is an unconventional natural gas play. XTO has rights to large reserves of natural gas in shale, coal bed methane and tightly compressed sands. Shale gas is natural gas contained in shales, a type of sedimentary rock with low porosities and permeability.
But the extraction of gas is both difficult and costly. The extraction process includes drilling of several thousand feet and horizontally drilling through the shale. The process also involves large quantities of water up to 2 -4 million gallon along with sand and chemicals to break open the rock and release the gas.

However, technological advancements such as formation fracturing and horizontal drilling have made it possible to extract gas in an economic manner. The market’s first brush with new technology came in 2004 when natural gas giant Range Resources drilled the first modern well in the Marcellus Shale, spread across Pennsylvania, Ohio and West Virginia.

More on this soon.

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Exxon

The big oil firm was looking for projects with high returns to exploit its industry knowledge and infrastructure. Exxon chose bio-fuels and geothermal energy. The company invested US$600 million in the sector through a partnership with Synthetic Genomics. While the company acknowledges that the real challenge is to create economically viable algae bio-fuel in large volumes which will require significant advances in both science and engineering, it remains positive about the investment.

Solazyme

The company is leading in terms of producing algae fuel at scale. Solazyme was founded in 2003 with US$80 million in venture capital backing. The company had one of the first development deals with Chevron. The company now expects to be able to commercialize its technology by 2012-2013, with a production cost target at US$60 to US$80 per barrel.

Chevron

Chevron announced a collaborative research and development agreement with the DOE’s National Renewable Energy Laboratory (NREL) to study and advance technology to produce liquid transportation fuels using algae. Chevron and NREL scientists are trying to identify and develop algae strains that can be economically harvested and processed into finished transportation fuels.

Shell

The company established a joint venture with bio-fuel company HR Bio-Petroleum in 2007. The joint venture, named Cellana is investigating different strains of algae, by cultivating them in ponds and seeks to process the algae into oil that can be used as a raw material for fuel.

ConocoPhillips

In July 2008, ConocoPhillips signed a US$5 million, multi year research agreement with the Colorado Center for Bio-refining and Bio-fuels (CCBB). CCBB is a joint venture of the University of Colorado at Boulder, Colorado State, Colorado School of Mines and NREL. Together they plan to develop new ways to convert biomass into low carbon transportation fuels.

BP

In February 2007, BP joined hands with University of California, Berkeley, the Lawrence Berkeley National Laboratory (LBNL) and the University of Illinois at Urbana-Champaign. The parties are developing technology to produce bio-fuels, including those made from algae. The collaboration formed the Energy Biosciences Institute (EBI), and BP has announced to support the Institute with a ten-year, US$500 million grant.

OriginOil

The objective of OriginOil is to break down the barriers to algae’s development at all the levels, that is, from plant growth to oil separation. The company has developed a novel, patented process for growing algae that introduces all the inputs — carbon dioxide, water, and nutrients — on a micron level. The company uses electric pulses to break down the algae cells and extract the oil using simple gravitational force. This system could save 90% of the energy used by traditional methods.

There are a lot of companies like the ones mentioned above who have already invested or are ready to invest in algae fuel. It is interesting to see big oil funds diverting towards research and development of an upcoming technology.

However, what’s noteworthy is that this is not the first time the oil companies are trying to wash away their much maligned image. For a long time now, oil firms are aware of the need to diversify the business portfolio as the market is likely to bet on renewable energy sources. Conspiracy theorists would be quick to point the possibility of the investments being made with the intention of sabotaging the technology. Chevron is still best known as the killer of the electric car in some circles by taking exclusive control of Nickel Metal Hydride (NiMH) battery licensing rights back in 1990s.

The principles that hold true for big oil firms as investors are equally true for other investors. Since the technology is in development phase and still not prime for applications in real world, investors putting their money into algae stocks might be risking their investment. The companies operating in this space might be garnering some brownie points such as Valcent Products’ vertical farming technology was named one of the best Innovations of 2009 by Time Magazine last month, but when it comes to hardcore financial numbers, companies don’t have anything else to offer except hopes of hitting it big-time. Some eventually might end up making superior returns, but 9 out of 10 companies look set for a shakeout. Who knows, big guys like Bill Gates and Exxon Mobil might be losing out on their investments in algae startups.

The option of perfecting a technology with long gestation periods doesn’t come without the risks. Almost invariably, the markets have managed to figure out replacements for the materials or technologies crossing their fair value. Algae fuel technology is running this risk and the long gestation period is already evident to be irksome for some investors. Vinod Khosla, one of the prominent cleantech investors maintains that he hasn’t found even one viable algae technology plan after looking at many options. “The economics of algae don’t seem to work” Khosla adds. What happened with the corn based ethanol technologies is matter of public knowledge now. These are still hay days for the technology, but the billions pouring into solar and wind energy could prove to be fatal for algae.

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In the light of the need to reduce in carbon emissions, there have been lot of attention to bio-fuels, especially those made from algae. There had been a flurry of venture capitalists (VCs), company investments and lots of attention from politics as well. Algae had been quite a promising option for preparing bio-fuels. It is assumed to be a low cost way to transform our current fleet so that they emit less carbon. The government is promoting algae fuel in a hope that it will cut down on the usage of mainstream fossil fuels.

Algae fuel production is a process in which during photosynthesis, algae and other photosynthetic organisms capture carbon dioxide and sunlight and convert it into oxygen and biomass. Up to 99% of the carbon dioxide in solution can be converted in large scale open pond systems.

Recently, the US Department of Energy (DOE) announced that they would offer up to US$85 million in funding for the development of algae based bio-fuels. The funding comes as a part of the funds released from the stimulus package, also known as the American Recovery and Reinvestment Act (ARRA). The objective of the fund is to bring together a group of leading algae and advanced bio-fuels. Scientists and engineers from both universities and private firms are attempting to bring new technologies and fuels to market in an accelerated time frame.

The technology has its share of criticism as well. Researchers argue that algae fuel would not reduce atmospheric carbon dioxide because CO2 taken out from the atmosphere by the algae is released when bio-fuels are burned. However, they eliminate the introduction of new CO2 by displacing fossil hydrocarbon fuels. Algae fuel, due to some high profile investments in the recent past, is now being given utmost attention. However, researchers warn that too much shouldn’t be read into the future as of now. Despite all the efforts, algae fuel lags behind in the economies of scale.

Tomorrow, we’ll look at what some of the major players are doing in this space.

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Governments have spent billions of dollars investing in wind energy projects and will continue to do the same. The companies working on wind energy projects make false promises, present false proposals and commitments of generation of clean energy and governments believe them. In return, the companies are gaining lavish subsidies and lucrative funds out of these projects. Governments, on the other side, are busy displaying to the people of their respective nations, that how much concerned they are for the environment and the public. In the entire episode, the true objectives are lost.

Out of the funds being deployed for green energy this year, the US government has invested 42 percent in wind energy. But the truth is that currently wind energy meets only 3 percent of the total energy requirements of US. Government has invested too much in wind technology and is unable to generate expected results, which in turn is raising the operating costs of such projects. The situation calls for an extensive research before setting up a wind farm as it has to be an area where winds flow in abundance at a speed enough to spin the blades of wind mills to generate energy.

It is not just about the kind of investment made in this field but beyond that as well. There are various factors which prove that wind energy is not a feasible option to be the future energy. For starters, one such variable is capacity factor, the ratio of the actual output generated by a power plant over a period of time and full capacity for the given time period. It refers to the time a plant is in operation as compared to the time it is offline. A typical wind turbine has a capacity factor of 20-40 percent which is the lowest among other power plants. The capacity factor for wind turbines does not include inspection or maintenance. In addition to this, turbines also have a cut-in and cut-out point, which means that mere blowing of the wind is not enough to generated energy. It has to blow at a speed, capable of producing energy economically or it will shut down automatically.

Size of the wind farms is another drawback of this energy technology. In order to make commercial farms viable, a certain number of turbines are required. The largest turbine stands up to 125 meters with a blade span of 45 meters. It makes quite an impact on the surrounding landscape as well. Turbines require a very strong foundation; hence they require tons of steel and concrete to be fixed into the ground to support the wind mill. The large areas with trees and green spaces have to be cleared for the installation of turbines. Accordingly, construction of wind farms also affects the ecological balance. It requires the installation of the structure itself with transformers and power lines throughout the area to carry the power to the grid.

Transmission losses can also be a problem. For ensuring proper transmission, large power transformers have to be installed. The output power could be varying and is not a steady source. In such cases, wind farm has to be near high power lines. And for a relief, the cost of long distance power transmission is not that high these days.

Another problem is that it is important to connect wind farms across the country in order to remove all natural variations of wind activity. As wind farms work on the basis of wind they receive, if one wind farm does not have enough wind blowing, the other may have it, as wind may be blowing somewhere else. It may seem to be quite simple to understand but it is equally difficult to implement. Each wind turbine of 1 MW or higher capacity requires about 65 acres of land on an average basis. Wind farms have to be at different locations as there are certain dangers involved with it such as windstorms, hurricanes, severe lightning. The difficult part is to connect these isolated wind farms. It can be estimated by the above facts that how difficult it will be to connect them.

Some researchers believe and have proved that such energy forms cost more than the conventional sources of energy generation. Also there are hidden costs involved in the form of down-time, maintenance, installation, expense of maintaining the areas around the wind farms so that the efficiency stays in the maximum form. It is debated upon, that the cost of wind power today is near about to be twice the cost of a coal powered plant. It is not quite evident as generous government subsidies overshadow the real truth. The subsidies are subtracted from the actual cost of wind power which shows that they are cheaper to implement and run.

Wind energy, which is known as a non-polluting energy source does create noise pollution. It affects the wildlife around the wind farm. A study revealed that the noise generated by wind farms can cause significant health problems for the people working there and even for those who live near wind farms.

Various studies also revealed that wind turbines are fatal for birds when the rotating blades of the turbines happened to kill them. A study published in the year 2001 by the US National Wind Coordinating Committee (NWCC) estimated that the about 15,000 wind turbines which were operating in the US at that time killed around 33,000 birds annually. It means about 2.2 birds per turbine per year. Although the figures could vary greatly from one location to other, still it could clearly reveal the impact on wildlife.

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Another drawback of tidal energy is the dependence on location for a successful project. As with most of other water based methods of energy generation, the location plays an essential role in harnessing the potential power source; site procurement costs gets high increasing the cost of the entire project.

Currently there are very few tidal power stations in the world. The largest and oldest is located in northern France at the La France river mouth estuary. The other sites suitable for the utilization of tidal power exist in many places around the world majorly in France, the United Kingdom, Former Soviet Union (now Russia), Canada, and the United States. Before setting up the plant, it is important to have a proper feasibility study.

The entire concept of tidal energy depends on tides, which means that energy can be generated only when there are tides in the water body. In other words, energy generation can be done for about 10 hours a day. Although, tides up to an extent are predictable, still the utilization of equipment may not be up to an optimum level and there could be times when tidal station may be out of action. The tides are not constant and occur in cycles. Tidal power is dependent on fetch distance, which is the distance the tide rises and falls. It is difficult to find suitable fetch distance and even if it is available, the project cost for setting up a plant with annual output of 3423 GWh may rise to as high as US$1.2 billion. In the US, many tidal areas only experience tides in the range of three feet between high and low tide. It means less potential energy.

Moreover, the tidal power energy sources generate power almost equal to one fiftieth of total power required world wide. Hence, they could never be used as main stream modes of energy generation, leave apart solving the energy crisis in major parts of the world. Undoubtedly, it can provide assistance but it is just not suitable for large scale electricity generation.

Also, the tidal energy sources are a constant threat to the natural ecosystem. The construction of power stations causes a disruption of nature’s processes and brings about unwanted changes to habitat and behavior of the flora and fauna near by. The tidal energy system reduces the tidal flow that can cause environmental impacts on tidal basins by decreasing the flow of the tides and even reducing the process of formation of slits. Scientists and geologists warn that the over use of this technology can slow down the tides, posing a great threat to the environment.

Putting the environmental issues aside as the capital markets have little consideration for the issues, the biggest problem with tidal energy generation is the high cost involved. As often witnessed in the markets, it’s not the most efficient or most environment friendly technology that wins, but the one which is the most cost effective. Tidal power is taking a beating on the cost front as of now. However, the companies involved in producing equipments and establishing tidal power plants are hopeful of bringing down the costs.

There aren’t a lot of listed options for investors in the tidal power space. Ocean Power Technologies Inc, one of the pure play quoted companies in the space has posted narrower losses in its latest quarterly results. Reacting to the results, the NASDAQ listed stock has appreciated around 11 percent in the last week. The company remains a leading service provider with multiple projects and provides substantial upside in stock movement if the costs are contained.

The research on tidal energy proves that there are several disadvantages to tidal power. Until and unless some techniques are developed to get rid of the issues and cost factors associated with it, the technology may not be as cost effective to make it a mainstream alternative energy source.

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Despite of many companies making efforts in this direction, tidal power installations have been stuck in pilot stage and the bigger projects have faced technical difficulties and even lack of funding in some instances. For the generation of tidal energy, tidal turbines are used which are quite expensive. The startup cost is high and the construction of a tidal power station is a lengthy process. The construction may take as long as ten years to build the station. With addition to this, the entire process may gulp millions of dollars for the establishment. Not only the establishment cost, but the subsequent maintenance costs are also high. The Barrage system of the tidal plant requires a lot of maintenance and salt resistant parts. The purpose of development and generation of tidal power is to ensure the generation of clean energy in a cost effective manner.

On the contrary, tidal power is neither entirely clean nor cost effective. Tidal power stations add to the carbon content in the atmosphere as fossil fuels are needed to run these power stations. True, the usage of fossil fuels and resultant emissions are comparatively less, they are still in the picture. They are also expensive compared with natural gas and coal based power plants for generating energy. Some researchers believe that the biggest drawback of tidal energy is that it is one of the most expensive of all clean energy options. According to a study by consulting firm Black and Veatch (B&V) for the California Renewable Energy Transmission Initiative (CRETI), specifically in California, a marine current power generation can cost in a range of US$410 to US$450 for every MWh. On the other hand, renewable sources such as wind and geothermal energy generation projects would cost about US$150 per MWh. The comparison clearly shows the difference in the cost of various forms of energy generation compared with tidal energy.

More on this tomorrow.

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The intermittent nature of solar energy also raises questions on its feasibility in certain geographies. The Mojave Desert may get a lot of sun, but the same is not true for other parts of the country. Besides, most solar panels convert only 22 percent of the radiations they capture into electric energy. This means that a typical solar farm has to cover a big area to produce electricity in meaningful amounts, such as the one proposed by BrightSource Energy Inc. in Mojave.

The 600,000 acre solar farm never materialized as environmentalists opposed the idea of generating energy inside a national monument.
Even after much research, solar energy cannot solve energy problems singlehandedly. It is necessary to have continuous power supply which in turn means having to store excess energy. Many advances in solar thermal energy technologies are still unable to provide the required supply of strength.

Notwithstanding these issues, supporters claim that the issues aren’t with the technology but the implementation of the solar policies. Lack of a unified national policy is one of them. US has a piecemeal approach for the solar panel installations including different, local incentives on state level. An aggressive stance taken by the Spanish government last year caused a glut in the market. Companies lined up to take advantage of the generous government subsidies in Spain adding 2 GW of electric capacity in just 12 months. However, when the government announced to reduce the subsidies in September 2008, the move caused massive job losses and an eventual bust.

Quite opposite, US hasn’t implemented a unified, central policy. Experts claim that the lack of such a policy isn’t desirable. Instead, a cautious national approach such as the one taken by Germany is the best way to go about the solar equation. The German law requires utility companies to buy energy from solar plants at higher rates and to feed the energy into their grids, ensuring buying guarantees for solar plants. In US, California is one of the states with such a law. The state approved a feed-in tariff policy in October but the need for such a policy at national level is certainly felt in expert circles.

Absence of a national policy has also resulted in solar companies taking advantage of the taxpayer’s money by availing different subsidies from governments for same project. The state of Oregon had to enact new rules last month to make it difficult for companies to qualify for multiple tax credits.

Lately, the performance of solar companies has improved after the financial turmoil. Most of the solar companies have reported improved quarterly financials beating sales and earnings expectations. Although different formats of solar panels are emerging, both crystalline silicon and relatively new thin-film technologies are expected to flourish, crystalline silicon technology is expected to have an upper hand as far as installation on urban rooftops is considered due to higher energy efficiency.

ADRs of the China-based Trina Solar Limited, a monocrystalline PV module manufacturer have run up 46 percent in November. On the other hand, thin-film players might spring a surprise as the technology is blessed with lower cost of production.

In the long run, the emphasis on renewable sources including solar is likely to increase but in the medium term, the popularity of solar energy and other renewable sources is likely to remain a function of the availability of cheaper or easier alternatives.

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Solar energy comes in the form of radiations which are used to produce electricity in addition to heating applications. Silicone based panels are used to collect the radiation. Solar energy is environment friendly because it has virtually zero greenhouse emissions. Primarily, this is the reason that the energy form has been promoted by the government. Barring the initial capital cost, solar energy is maintenance free and doesn’t require any subsequent investment.

The government is encouraging the use of solar energy by giving federal aids to the equipment manufacturers and giving rebates to the end consumers through electric utilities. While the stimulus funds by government drives down the price of the solar panels on the manufacturing side, consumer rebates drive the retail market. In addition, solar photo-voltaic (PV) manufacturers are successfully tapping the capital markets to raise money. Two thin film solar technology companies raised more than US$400 million last week.

Electric utilities in the US have been giving rebates to the customers for installing rooftop solar energy systems. Even with a growing market, increasing consumer interest and rebates, the use of solar energy continues to be small compared to other forms of energy. Solar power generates only about 0.02 percent of the world’s energy supply.

A part of the problem lies with the cost. Traditional economics tells that mass production of a commodity leads to lower costs, but the companies involved in solar panel production have not been able to do so. Although, the production cost of solar panels has been decreasing over years, the industry has faced a new setback in the form of economic slump last year. It has become more expensive for a utility or company to raise capital to build solar projects this year than in the previous years. High cost of financing in this high capital investment industry is the proverbial straw which breaks the camel’s back.

Pressure on the margins has compelled the companies to look for the ways to cut corners. As happened with Evergreen Solar, the company started a facility in Devens, Boston (Massachusetts) this summer with much fanfare and promise to create green jobs. The state helped the facility to the tune of US$58 million only to see around 400 of the newly created jobs being shifted to China. While the company can be accused of backstabbing the government aid in light of having tripled its sales last year, the truth remains that the company lost as much as three times last year due to higher cost.

Quite similar was the fate of a planned facility in Auburn (Massachusetts) by Boston Power Inc. The company was seeking federal aid of US$100 million to build a factory creating 600 jobs. Boston Power, which makes advanced batteries to store energy generated by the solar panels, decided not to invest its own money after it failed to garner support from the government.

More on this tomorrow.

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