It bears no resemblance to the Internet bubble or recent real estate speculation. For Dr. Robert Bell, author of The Green Bubble, the future of renewable energies is assured. These technologies are continually improving, producing practical applications and laying the foundations of our future.

The opinion of Robert Bell

Robert Bell is Chair of the Department of Economics at Brooklyn College, New York. In his previous books, Dr. Bell explained how new technologies tend to fuel speculation. He authored The Green Bubble¹ in February 2007, giving his explanation for the stampede towards renewable energies. For him, climate change will turn our economies upside down. We are about to enter an era of intense capital investment and speculation surrounding green energy. But the growth is not without basis, because it is these technologies that will free us of our dependency on oil.

With some 55 billion euros invested worldwide in 2007, incl u d i n g 46% in wind power², the green energy market has surpassed investment in the Internet and will soon overtake that of the telecom market. While the financial crash of the fall of 2008 may slow things down, there can be no doubt that the market is close to its peak. A speculative bubble is unavoidable at the end of the game: financial markets in the United States always generate unsustainable bubbles. But we’re not there yet. Far from it! Hedge funds liquidated their “green investments” to raise cash in October 2008, causing an even harder crash for these stocks than for the rest of the market. But they’ll rebound quickly. I don’t expect to see a “green bubble” in the next few years, at least not to the extent of the Internet and telecom bubble of the nineties. The main difference today is that demand for green energy is real, rising, and a growth engine for manufacturing and production. And demand for wind turbines is still growing. In fact, it has been so strong that the industry’s backlog now represents two years of production – or at least, it did before the financial crisis. Since then, Gamesa, a wind turbine manufacturer, has halted production and is no longer prepared to announce specific goals for 2009-2011.

The landscape was different for the photovoltaic sector. Price/earnings ratios, or the ratio between a company’s market capitalization and its earnings, were soaring just before the crash. In July, U.S. companies First Solar and SunPower had P/E ratios of 100 and 255 respectively. These levels are consistent with a speculative bubble. On October 23, their P/E ratios had dropped to 42 and 52.

Recent technical innovations are very promising

Financial experts continually cite these P/E ratios to compare what is happening in renewable energies today with the Internet bubble. They forget that photovoltaic cell manufacturers doubled their sales each year before the crash. In my opinion, it’s completely wrong to believe that every new technology eventually means that the bubble must burst. This is far from the truth. Some technologies do in fact change the world in which we live. Renewable energies fall into this category. The only question now is whether the technologies being offered by companies can meet our needs today, not those we might have in forty years – or even in ten years. In this respect, fuel cells don’t have a very bright future. Not only is the technology too expensive, it needs coal, oil or natural gas to produce the hydrogen it uses as fuel.

Wind power doesn’t have this problem, and the main obstacle to photovoltaic solar energy will soon disappear, with the price of silicon, the main component of solar cells, about to drop. At least, that’s what the CEO of Q.Cells said to the Financial Times in late June, predicting that the market would be awash with silicon. Soon, we’ll also be able to store electricity on a large scale, which is necessary to make up for the intermittent nature of green energies. NGK Insulators of Japan is now capable of manufacturing sodiumsulfur batteries that can store large amounts of electricity. I think this will cause renewable energies to take off completely and even to surpass nuclear power. Just take a look at the wind power projects announced by developers in recent months. One of them, Mesa Power, is about to build 4 GW of generating capacity on a single site in Texas, to be completed by 2014. The project is expected to cost $10 billion, or $2.50 per GW. This is a rather attractive capital outlay compared with more capital-intensive projects like nuclear power plants. Will this give wind power an edge in the current economic crisis? Only time will tell.

America is switching to hybrids

Biomass has a bright future as well. Installed capacity quadrupled last year, if one includes energy from waste incineration and biogas from treatment plants. These resources also offer a response to rising fuel prices. First-generation ethanol fuel is available, and the controversy over the use of corn as fuel or as food is overblown, in my opinion. But second-generation ethanol made with cellulosic ethanol (produced with the entire plant) is the real key to a transition to electric vehicles. Because hybrids are clearly the solution for the future. I truly believe that in ten to fifteen years more than 70% of all automobiles in the United States will be hybrids. The exact timing of the switch depends on government action, but we’re headed in that direction. Climate change combined with the economic crisis gives governments a tremendous opportunity to push in this direction, no matter what the price of oil may be. We’ve seen this al ready: for the second year in a row, gasoline consumption was down 4% in California in 2007. This trend will continue.

All of these technologies are just entering a period of growth. We’re not on the eve of a green bubble, but rather at the start of a period similar to what the French call “the Glorious Thirties”. This may not prevent crises from happening, or periods of recession, but the gen - eral trend will be upward. Green energies are laying the foundations of true industrial growth.

1. The Green Bubble, Robert Bell, Abbeville Press,2007.
2. Data from SEFI, New Energy Finance.