OurEnergyOptions

WhyNewEnglandiswellpositionedforthenextenergy-ledboom

“We’reborrowingmoneyfromChinatobuyoilfromthePersianGulftoburnitinwaysthatdestroytheplanet.Everybitofthat’sgottochange.”

AlGore

Sun-Energy-Food-LifeTheSunprovidesourenergyinthreemajor“cycles”:

• TheLongCycle:Fossilfuels,fossilizedorganicmatter,essentiallyfossilizedsolarpower,storedformillionofyears

• TheFastCycle:Solarpowerforthewatertransport,fromoceanevaporationtoinlandprecipitation

• TheSlowCycle:Thestorageoffastcycleenergiesinaquifers,icebergs,lockingwaterforfutureuse,maintainingforestsandtopsoils

Whyisitimportant?

• WeareincreasinglyusingLongCycleenergy(fossilfuels)justtofeedandwaterourselves,thisisnotsustainable

0

2

4

6

8

10

12

1850 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000

OurUsageofLongCyclesources

“BigThree”Oil

Gas,Coal=78%P.Beretta

50%oftheOileverproducedhasbeenconsumedinthelast25years

Globalmixofprimaryenergyinthelast150years

Coal

Oil

Gas

Gtoe/yr=billionsoftoeperyear

Biomass

Hydro

Nuclear

Nuclear 5.5%NaturalGas 21%Hydroelectric 5.4%Oil 33%Biomass 11%Coal 24%Solar0.1%

ThePeakOilDebate• Morethan50%ofalltheoileverproducedhasbeenconsumedinthelast25years

• Productionhasexceededdiscoverieseveryyearsince1984

• Peakdiscoverywasin1965,wewereconsuming5bblperyearanddiscovering20-30bbl.Wenowconsume40bblanddiscover5-8bbl

• Overallproductionseemstohavepeakedin2006,exportsoftop5exportingcountriesfell4.5%in2007

• NorthSeafieldsaredown40-80%inthe10yearspastpeakproduction,Mexico’sCantarellfieldisdown24%inthepast12months,Saudi’sgiantGhawarfieldwillseeanestimatedproductionfall17%between2009and2013

• Oneofthelargestrecentfinds,Brazil’sTupifieldisestimatedattotallifecapacityof40bbl,thisisequivalenttooneyear’sworthofworldconsumption

ThePeakOilDebate

ThePeakOilDebate

Sowhatdowedo?

…Orwhatisthecostofswitchingover?

Costofswitchingover• Globallywehaveinvested330Bninthelastthreeyearsinalternatives,yet“renewables”,likesolar/wind,don’thaveavisiblemarketshare

• Morethan1/2oftheworld’sinstalledsolarcapacityisinGermany,yetthatgenerateslessthan1/2%ofGermany’selectricproduction

• TheIEAestimatesthatby2030theUSwillhave5Bwhperyearfromsolar,lessthan1.5%ofwhatwillcomefromcoal

• At$1/3Trnfor1%of“new”energyittakes$50Trnofinvestmenttoreplacefossilfuels.ThiscorrelateswithIEA’sestimateof$45TrntoslowCO2emissions

Themainroutesopentous,globally,aresolarandnuclear,windincertainmarkets

Costofswitchingover-Solar

• PhotoVoltaic(PV)isrelativelyinefficient(lowenergydensity)only26%oftheSun’senergyisconvertedinsingle-crystalPV

• 40%conversioncanbeachievedinmulti-layersemiconductors,buttheseareexpensiveandlimitedtospaceapplications

• Mostofthecostofmanufactureisinthesiliconitself,whichtodayusesthescrapfromthesemiconductorindustry

• Thereareestimatesthatamassivebuildingoutofsolaroverthenext20yearsisgoingtorequireatleast5yearsworthoffossilfuelproduction

Costofswitchingover-Nuclear• Nuclearisarelativelynewsourceofenergy,butithastaken40yearstoreach6%ofglobalenergyproduction

• Thereare435operatingreactorsworldwide,29underconstruction.USAhas103,France59,Japan55(+1inconstruction),Russia33(+7)

• Of30+countrieswithnuclearplantsthepercentageofpowergeneratedrangesfromahighof78%inFrance,54%Belgium,39%Korea,37%Switzerland,30%Japan,19%USA,16%Russia

• Indiaaimsat26%sharefromnuclearby2052,a10%growthperyear.Chinahas4plants,plansafive-foldincreaseby2020andyetwillachieveonly4%share

• USAhaspotentialfor15-20newplantsby2020,ittakes10yearstobringaplanttooperation

Costofswitchingover-NuclearUSPerspective

• UScapacity=100Gigawatt

• Utilizationrate90%,upfrom75%inthemid90s

GlobalFinancialImpact• Worldoilexpenditureisnow8%ofGDP.Itwas4%lastyearand1%in1998

• Energyinefficientcountrieswillsuffermore,particularlythoseoperatingwithapredominantlowcapitaltolaborratio(lowwage,lowproductivity)

• Asiaisvulnerable,higherenergypricesreducetradesurpluses.Indonesiahassaidthatat$140blinternalsubsidieswilluse56%ofinFXreserves

• AccordingtotheIEAChinawillovertakeUSenergyconsumptionin2010.Energydemandisgrowing5%fasterthanGDP,decreasedcoalproduction(expected-40%over20years)willcost$100Binenergyimports

• SinceJuly2008,OilexportersholdmoreUSTreasuriesthanJapan.ThereisatransferofwealthfromAsiatotheMiddleEast/Russia

GlobalFinancialImpact

Asia’spredicament,increaseinstandardoflivingincreasesenergyconsumptionfasterthanGDP

GlobalFinancialImpact-Developedeconomies• USDebtat500%ofNationalIncomeisunsustainableandwillslowdowninvestmentinnewenergies.OnebrightspotistheUS’abilitytopayenergyimportswithgrainexports(44%ofworld’sgrainexports,2008bestcropever)

• Japanstillthe5thlargesttradesurplus(afterGermany,China,RussiaandSaudiArabia)andbyfarthemostenergyefficientcountry,shouldbeabletoaffordenergyinvestment

• Europerelativelywellpositioned,GermanyandFrancecombinesurplusesand“fossilfuelefficiency”,shouldbeabletoaffordnewenergygrid.UKwindpowerpotential.Complications:Spain’s9.5%currentaccountdeficit,Germany’sunwindingofNuclear.

• Scandinavia,alreadywellonrenewables(60%inNorway)

GlobalFinancialImpact-OilExporters

• MiddleEasternoilconsumptiongrowingfast,4.7%in2007

• SaudiArabianowbiggestoilconsumerpercapitaatmorethan38barrelsperyear

• 22%ofSaudiArabia’sproductionstayshome,upfrom16%inpastsevenyears.

• Overthenext5years,4%padomesticdemandgrowthand2%productiondeclineareexpectedtoreduceRussianexportsby50%

• ROW(World-OPECandformerSovietUnion)peakedin2003,accountsfor13.7%ofworldreservesbuthastomakeupfor41%ofworldproduction,atincreasinglyhigherproductioncosts

Costofswitchingover• Thescaleofinvestmentisnotunprecedented:• Manhattanproject0.25%ofGDP• NASApeakedat0.75%ofGDP• Vietnamwarcost9%ofGDP,Koreanwar14%,WWII38%

• EstimateforalternativenewenergyisaninvestmentsimilartoVietnambutover10-20years

• LevelofsocialeffortiscomparabletoGermanreunificationthatwaspaidwitha2.25%surtax

Summary

• Thedebatebetweennearterm(pessimistic)andlongterm(optimistic)fossilfuelspeakisirrelevantintheworld’stimescale,we’re“there”

• Wecanexpectmajormacroeconomictrendstowards:

• Gradualshiftofmanufacturingtowardsenergyefficientconsumers

• Continualtransferofwealthtoenergyexporters

• Gradualshiftofspendingfromconsumerdiscretionarytoenergytrades

• Theproblemislargeenough,potentiallya25%hitonGDP,torequireanuncommonlevelofleadershipandsocialinvolvement

ARoleforNewEngland• Thecountryisclearlytakingconsciousnessoftheenergychallenge

• Progresstowardsasolutionwillcomefromtheprivatesectorasmuchasfromthepublicsector

• Massachusettsisamongthemostadvancedstatesinenergypolicy

• Universities,GovernmentfundedResearchandVentureCapitalintheBostonareaareveryactiveinnewenergy,exampleofBiotechindustry

Lookforopportunitiesin: Regulatoryaffairs.Semiconductors.Intelligentcontrols.Systemsintegration.InformationandCommunicationtechnologiesin:Smartgrids(networking),roadtransport,smartbuilding.Energyefficiency,“behind-the-meter”…..

PierreJeanTechPointVenturespjean@techpointventures.com