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Energy player Karl Miller predicts renewable energy market will crash
24 August 2009
Karl W Miller, a senior energy executive and institutional investor, has slammed the idea that the US economy is now showing signs of meaningful recovery and says the energy industry will not go by unscathed.
Miller points to the weak US real estate sector and the fear that further 150-200 US banks could fall victim to the recession as signs that the country is not yet on a path to recovery.
Despite players pointing to growing Chinese demand for cleaner sources of energy, Miller does not believe this will be enough to buoy the US market and continues to retain a sell recommendation of renewable energy companies.
‘We will see many of these names, which are highly levered fail and/or be purchased at distressed prices when the bust comes, and it is sure to come,’ Miller said.
The energy player urged investors to adopt a prudent approach and wait patiently for opportunities.
‘The real opportunity will come. Do not confuse Warren Buffett’s statements regarding deployment of capital with intelligent timing of investments, especially in the energy sector.’
Read Miller’s full report here.
Copyright © 2009 NewNet
Tags: renewable energy
33 Responses to “Energy player Karl Miller predicts renewable energy market will crash”
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After reading Mr. Millers report and biography I understand.
He is obviously just like the rest of the banking CEO’s as well as others which stand to loose a lot if the renewable energy market succeeds.
He does not take into account the intangible value of renewable energy. I think people are getting tired of the pollution and destruction around them. It has gotten so bad that it is now unavoidable. Now because we didn’t plan ahead and start putting renewable energy in place years ago we are all suffering. We will continue to suffer the consequences of our actions and lack of planning until we change our ways and start looking to the future. We will start running out of resources quickly, then what will we do?
Such a crash is inevitable, if for nothing else than because so many ill-informed VCs poured so much money into the industry. After the crash there will be a few unglamorous workaday companies making an unremarkable living and most of us will be using oil, coal or nuclear power, just as we have for the last half-century.
Clean energy? Next time around, perhaps.
Wonderful Diatribe
Interesting Diatribe
The demand for investor capital weakens as new, growing companies are realizing the benefits of seeking internal sources and cooperative approaches to funding to avoid the imploding classic investor markets. Power utilities that are not embracing renewable energy sources will largely represent a weak investment as the benefits of renewables become widely realized. Read the report for how the crash of old energy markets is making way for new ones.
Not a popular prediction to make, but makes a heck of a lot of sense.
I’m keeping my fingers cross for better times ahead. Hoever, having been out of work for nearly six months already and seeing no employment prospect in sight, I am not optimistic about the future for myself and for others in the same boat.
The alternative engery hype is over rated for those of us who are looking for a job. There is no specific meaningful path for career transition. There are many people cashing on alternative enginery training but there is no path to jobs – how sad.
Hi Karl, I am more of an inventor/innovator than i am an economist, i understand that profit is a greater drive than survival when it comes to renewables, but believe the new attitude that power is a world issue/problem which should be tackled by all the governments working together is very valid. As an industry, renewables is a double edged sword, it claims to be driven by world climate change yet from personal experience in the industry, i see it as just another money machine and often the climate is affected more by the production of the device which is being sold as a solution. Profit will not buy us a new sky or replace the ice at the poles, this is the real cost that the world should be considering.
On a slightly different note, we are currently installing wind turbines in the areas that are windy and solar where it is sunny. There is a possibility that with continuing climate change the resources could shift to different locations more quickly than we can move the machinery that harnesses them.
Mr Miller,
I am completely agreed with you.
Please get a shot on EER.
EER – Energy Equivalent Return means to be able as a producer, distributor or consumer to return the energy equivalent of any product to its right source by its right quality and quantity.
EER might concern the energy equivalent of your car, your flat, your breakfast and many other products around but EER might concern your job too.
chavdarazarov@yahoo.com
New energies firms’ profitability will largely depend on how serious the governments (not only the U.S, but also European and Chinese gvts.) take the climate change and contamination challange seriously. If yes, new energy related firms will prosper wherever they are located, and perhaps we can save our planet. If not, obviously we will be using oil and coal for a very long time and most likely our children will have to clean up the mess if there is anyting left to clean up.
Miller´s business plans don´t take into account the intangible value of renewable energy because they don´t know how to quantify it. They make a mistake underestimating wishes of people
I agree somewhat. There are scads of renewable energy companies out there. Sadly, too many are there because “that’s where the money is”. They have nothing to add to the technology or renewable energy equation. All they are good at is writing proposals and raising capital. We have already seen some sizable PV companies go into chapter 11 after years of spending money like drunken sailors. There are many more to fail. I believe the good technologies and implementations will prevail. In the meantime there are too many companies talking the talk but just taking your money. I look forward to these companies going away.
I expect to see more movement in Cellulosic biofuels made from non-food sources because oil it’s a more expensive commodity and rising in price than in solar or wind technologies. In my county Miami Dade, the goverment does not even look at your paper work for small wind projects simply because it is not in the South Florida Building Code.
Mr. Miller’s assessment is sobering. You have to appreciate a successful business man’s conclusions when he does the math.
I’m afraid that solar, wind, biofuels, etc. will never achieve a $/watt that can compete with other power sources without oppressive governmental intervention and control. Whether you think that this intervention is spot on or misguided, it willeventually be voted out when Americans feel its full negative impact to their standard of living.
I place a lot more faith on curtailing demand vs increasing green power supply. For those interested in Green career options, I think it’s better to get your LEED Green Associate credential and look at improving the efficiencies of building techniques(insulation, HVAC, lighting, controls & smart-metering, etc). One thing is for sure, energy is going to cost more in the future so the value (read payback) on efficiency measures will only increase.
I think that Joe Strauss has a good call on this. I think a big problem is that the world economy tanked at the same time renewable energy was getting started. One big thing that the USA needs to keep in mind is energy independence and the military cost of keeping Middle East oil flowing.
You need to consider the source. Karl Miller is a Nat Gas guy through and through. He sees energy needs as being met by natural gas and doesn’t want to hear about alternative sources until the Nat Gas supply is good and dry (and expensive). Not suggesting he’s lying, but everyone has an opinion.
I see that Mr. Miller is another “It will never fly” mentality. I wonder how much he has invested in the status quo (and his clients). As long as we believe we can’t do it, and are told we can’t do it, we won’t do it. There are trillions of dollars at stake for the oil companies both here and abroad. I am sure they will over run themselves with garbage and misinformation to sway public opinion. They will spend tens of millions because they stand to lose trillions. It’s easy to do the math. When can we, as a people, get off the greed train. These people will ride us into the ground and think nothing of the enviroment, the common people, or even the future of their own kids.
I agree, it is the next big bubble, driven for many of the wrong reasons. We waste more power than we need for the future of North America, and we should make conservation a priority, not subsidizing generation. Technology exists to build homes the consume little energy, even in colder climates. It used to be global warning, but then the stats disproved that, now it is climate change.Climae change, of course the climate changes, it has for billions of year with or with out mankind and will continue to do so. But can we stick to real data and not the emotion.
I have been conserving, a lot longer than the Green movement has existed. I do not believe in wasting anything period. IF there is an evil, is is consumerism that fosters waste, but if we did not have it, most of us would not have jobs. Another double edge sword.
Sorry to be blunt to the last post, but LEED won’t get you anywhere except being on a level playing field with those who have it. Supply of LEED folks is high and demand relatively low; it is also becoming a household name antonymous with actual innovation.
Ok…to the root of this discussion: the fact that Americans haven’t hurt badly enough. We needed a depression, and rioting in the streets to bring down the corporate environment that repeatedly (and unfortunately) is shocked back to life by same-as-usual practices. Too, as one responder already alluded to, wealth distribution remains in the hands of those who often profit directly from unsustainable industries. Like the NRA, that control and power must be pried from a cold, dead hand…
Several months ago Harper’s published an interesting article explaining why renewable energy would be the next bubble…to burst. But, this doesn’t mean RE isn’t necessary for us as a society to invest in it – it’s just a new market and a shakeout is inevitable.
Mr. Miller’s assertion that we ought to be planning now for new coal and nuclear plants when demand returns, shows that he really doesn’t get it, as does this sentence: “for renewables to survive long term, they must be able to compete with fossil fuels, primarily natural gas and coal economically without government assistance.” First of all, has Mr. Miller not noticed how heavily subsidized fossil fuels are? One teeny item, the billion dollar government handout to the coal industry for Carter’s synfuels program was on the cover of Time in the 1980s. It produced nothing, and the industry just pocketed the money. Renewables have never gotten a billion dollars! Take the Iraq war for example. Imagine if we included that cost in the price of gasoline. But you and I are paying for the Iraq war, not the oil companies. Our government has been staking out foreign territory for the oil companies since the 1940s and we have all been paying for that. How can a guy who appears to be a serious businessman also not NOTICE the external costs associated with coal burning? Externalities that we taxpayers foot the bill for, but not in the price of our electricity. Like, billions of dollars in increased asthma costs, dead fish and forests, and of course the mother of them all, global warming. Why have the world’s largest re-insurance companies been the earliest supporters of renewable energy? Because they’re going to have to pay when everything goes under! Yes, our energy markets and prices are totally distorted by decades of subsidies for fossil fuels and nuclear, and we need to even the playing field on that. So, there is another story here entirely, which is that regardless of whether institutional investors can make money on it, we NEED to invest in RE, and to start replacing fossil energy with wind and solar immediately. Unfortunately, Mr. Miller, being a Wall Street type, didn’t get the memo.
Killing watts
Gentlemen,
The Earth is a beautiful planet and all of us we like it to remain so.
In our world many are speaking about Global warming and many scare about it but only few are in clear what it does mean “Killing Watts”. The meaning is related to production of alternative electricity independently from what kind of source it is coming: hydro, coal, nuclear, wind, solar or geo-thermal energy driven power plant.
The effect of induction heating the Earth crust is closely related to alternative electricity from its production by electrical generators via its distribution across the grid to its consumption by users.
The effect of induction heating is well described even in Wikipedia and this effect might lead to collecting of heat inside the Earth crust comparable to quantity of ever-produced electricity.
Please consider links below:
http://en.wikipedia.org/wiki/File:Structure_of_the_magnetosphere_mod.svg
http://en.wikipedia.org/wiki/File:Earth-crust-cutaway-english.svg
http://en.wikipedia.org/wiki/Electrical_generator
http://en.wikipedia.org/wiki/Faraday%27s_Induction_Law
http://en.wikipedia.org/wiki/Induction_heating
Lili F makes great point: that just because fossil fuels are woven into our society’s fabric and appear a successful “free market product”, doesn’t mean they actually are. Miller hasn’t taken the last 50+ years of subsidies into account, and it is a testament to his school of thought.
Americans in all political groups seem to agree that energy independence is important. even as the campaign trail has cooled and we have mistakenly shifted from this, I imagine most would agree the cost of non-RE sources is too high–be it war, outflow of wealth, or actual dollar cost. Wait until gas hits $4 a gallon again…then the public–and the politicians who represent them–will turn their attention back. That in itself may help curtail an RE bubble.
As well, electricity in my state is going “unregulated” next year. This means there are no rate caps on utilities. Ouch. The public will turn their attention to RE then, and hopefully provide the demand to stave off this “bubble.”
“This should remind one of the internet boom, in which hundreds of billions of dollars changed hands on the back of a paper napkin …” – Karl Miller
Yes. And what are we now experiencing from that period? Sustained growth in the internet market. We may have some bumps and bruises along the way, but there will be companies that survive – and thrive – in this burgeoning sustainable energy economy.
One number sorts this out: 6.7%. It’s the net annual global oil well production decline rate (IEA 2008). OK, lets say he’s right and there is a bubble and a bust. How long can we live with -6.7% oil production before we’re all screaming for other energy sources? The sooner the bubble bursts the sooner the solid renewable technologies can get ahead and bear real fruit. There’s a lot of froth out there, but “6.7%” is the reality we must measure such statements by.
I don’t agree with Miller’s thesis. The utility industry is quasi-governmental, Public Utility Commissions are under political control. As long as the costs of renewables can be passed through to consumers everything will work out fine, and it’s a cost that society seems prepared to accept.
Utilities would have gone bankrupt 30 years ago had they not been able pass through the costs of building nuclear costs to consumers. Further nukes will only be built within if the costs are in rate base or companies receive a government subsidy. Renewables are in the same boat, they are not economic on their own. Everybody knows this.
The construction boom of 2001 had more to do with a move away from regulation and a naivety in the power industry about how markets work. Commodity markets are prone to booms and busts. In the international coal industry mining companies are used to such cycles. People built plants and didn’t seem understand there would be a glut of capacity. Within an 18 month period reserve margins in Texas went from under 10% to over 30%. People were used to a world couldn’t pass the costs through and many people had this weird idea that everyone who built a power plant would get his money back. There are no guarantees in commodity markets.
Renewables rely on subsidies either in the form of tax breaks or PPA contracts. Lack of transmission will be a limiting factor and will keep a cap on construction. Transmission will mostly be in rate base and new lines will have to be approved by the PUC. Developers like Boone Pickens have been disappointed. Renewables are such a small part of the overall scheme of things, about 2% of actual generation that I don’t think this will be an issue.
Subsidies can be viewed in detail in a report called” “Federal Financial Interventions and Subsidies in Energy Markets 2007″
Summarizing for subsidie per Megawatt
Regular Coal subsidy is 44cents/Megawatt hour
Refinded Coal (Clean Coal)is $29/Megawatt
Natural Gas/Oil is .29 Cents/Megawatt
Nuclear $1.59/MW
Wind is $24.37
Solar 24.24
Interesting article, and well presented. Current valuations may be extended as the author indicates. However, the big difference that I see is that the cost of production once the a solar plant is built is largely a sunk cost. Thus one would expect that should current incentives be removed, assets in place would continue to be operated. Thus a valuation correction may occur, but not the mothballing of facilities that occurred in Nat Gas cycle.
Mr. Miller would like to thank everyone who has responded with views on his research. He reiterates his conclusion that Renewable Energy market will crash, but that Mr. Miller does believe that renewables are important and will make up a small component of the US energy production composite.
Mr. Miller encourages all to reveiew his latest research regarding the fact that the US economy is much worse off today than the media and general analyst have portrayed.
This will have serious negative ramifications for the renewable energy industry and the Oil and natural gas industry as well.
Kind regards,
Janet, P.A. to Mr. Miller
“simple fact is that for renewables to survive long term, they must be able to compete with fossil fuels” – how ironic to use the term “long term”. This is the flaw in the logic of Miller’s article; there simply is no long term for fossil fuel.
As many others have noted there are hidden monetary costs, as well as political costs that US tax payers pay for fossil fuels. However Miller assumes that all we do is driven by (short-term) cost. Fact: oil will rise dramatically thanks to peak oil, now accelerated with China and India’s thirst for it. Once this plays out oil’s cost will be well above solar and wind. The government will have to ask is it worthwhile to replace oil with other fossil fuels or go to renewables. Any sane government has already made this decision since they would rather not bring on another oceanic anoxic event with rising CO2, they are after all responsible for the well being of the citizens that voted them to office. This is not a matter of money, it is a matter of welfare of humans. The only question is how rational is our government, and how much longer will the rest of the world tolerate short-sightedness and short-term economic thinking. One last thought – with CAFE in place I have a good feeling that GM would have been building EVs and hybrids had past “business friendly” administrations not killed it along with GM’s competitiveness. Do we want another destruction of these wonderful US renewable industries to take place due to weak government? If not, write to your representatives and demand that we enact mandates supporting renewable energy industries.
Well done class of 2009!,a High Distinction (ok Summa Cum Laude) for Lilli F (and parallel arguments) and a D minus for Mr Miller who clearly did not read the question on the exam paper titled ‘Sustainability 2050′
Cheers, Tony B Tungsten Blue technologies Ltd UK
Peak demand
Dear Mr Miller,
Smart grid appears to be difficult to prove.
Why it seems that provision of smart and cheap, home energy store for peak demand coverage would be more comfortable customer solution?
Why do not energize this local store during pick off time and avoid inconvenience for grid’s customers during pick on time?
Is that not sound cheaper or easier to prove?
The target to reach billions in energy savings and to reduce emissions might happen too.
It would be similar to overnight charging of EVs, wouldn’t it?
Hint: Parallel distribution of smart grid and smart-home energy stores.
Mr. Miller is currently on medical leave.
However, he encourages the robust discussion regarding the renewable energy industry as demonstrated in response to his research article; Renewable Energy: A Self Inflicted Crisis.
Mr. Miller has asked me to reconfirm his conclusions that the majority of renewable energy projects will become uneconomical or at a very minimum, financially distressed.
He encourages venture capital to continue with the small scale science experiments, which may lead to a small number of commercially scalable technologies, which can be developed over the next 5-10 years.
Mr. Miller also re-iterates that fact that a vast majority of the current public renewable energy companies will fail due to lack of sustainable cash flow, flawed business strategy, lack of commercial scalability, and poor management.
Kind regards,
Janet, P.A. to Mr. Miller
I have read most all of the comments and the wisest comment of all: scale back and waste nothing. The chips will fall where they may as with any new business. In any line of creation, there is alot that will fail, it has nothing to do with what is being made but everything to do with who is making it and for what reason and how will it be implemented. Period. Everything in the universe now is a wake up call to personal accountability. As with all things, there is alot of crap and when each of us tunes into our intuition (not our subjective opinions), we will find solutions. We, the unemployed to the CEO, are going into the Aquarian age and all angry, greedy people will fall by the wayside, until they choose another path. Tune in, explore, learn to follow your heart and let go of all judgements, this is the key to sustainability. Look, learn, listen and manifest a greater planet and allow for its’ success. Support positive energy and positive conversation!