Dancing On the Grave of Failed Solar Energy Startups
If there is a symbol that illustrates economic policy in our time, it is the ancient Greek myth of Cassandra, who had the ability to foresee the future yet was saddled with the curse that no one would believe her. Likewise, we seem to stand powerless in the face of impending doom as we watch one Western democracy after another fiscally self-destruct, despite ample warnings that we are fast approaching the abyss.
I was reminded of Cassandra at a recent MIT technology breakfast series lecture given by former U.S. Director of Energy Research John Deutch, in which he described the ongoing natural gas revolution and why it will doom the current wave of renewable energy investments. At the conference, I was taken to task by my friend and mentor Bob Metcalfe for the dual crimes of solar Schadenfreude and editorial snarkiness. Don't expect people to listen to you, Bob advised, if you spend too much time rubbing their noses in their own folly.
His advice didn't stop there. "Imagine you are sitting on the board of a startup," something Bob and I both do, "And you are agonizing over a decision to take a promising but unproven technology and scale it up for production. Along comes a man from the government offering you $100 million in non-dilutive financing if you promise to go to market now, despite your misgivings. What do you do?"
The reality of $2.50 per 1,000 cubic foot natural gas, the wisdom of Bob's advice, and the horror of knowing that I, too, would take the $100 million have weighed heavily on my mind. How does one craft a narrative describing, first, how smart people with good intentions create malinvestment disasters and, second, what can be done to prevent it? And how do you make your point without alienating the very people you need to convince-the large and growing swathe of swing voters who decide elections, and, thereby, future economic policy?
Yet convince them we must. Destroying more wealth is the last thing we can afford, even if the climate is changing. To avoid going down that path, we need to put a spike through the heart of the idea that enough government subsidies can turn losers into viable, sustainable businesses. It is our best shot at escaping Cassandra's curse.
There is no way the infant renewable energy industry can compete with a proven, mature natural gas industry now that it has discovered more energy resources stored beneath our feet than in all of the Middle East. Yes, there are bona fide environmental challenges to overcome. But as John Deutch described, the rate of technological innovation to address the environmental impact of both fracking and the support infrastructure it requires are proceeding at a Moore's Law pace.
The number of wells per pad has soared from one to 10, vastly reducing the disruption caused by these massive installations, while natural gas production from each fracked well will soon double using half the amount of water. As the industry consolidates into the hands of larger and more accountable companies, displacing early wildcatters, the virtuous cycle of measure, disclose, and improve that the big players are cautiously adopting will do more to reduce adverse environmental impacts than an army of class action lawyers.
Meanwhile, nascent solar, wind, and biofuel technologies, which started the race economically behind, are falling further behind every day. The collapse of the Spanish solar industry stands as a stark warning to those who think government can pick winners-when taxpayer support is withdrawn, subsidy-gorging companies turn into stranded-technology victims.
Environmentalist zealots who have worked so hard to kill off coal in the belief that renewables would pick up the slack watch in horror as natural gas rushes to fill the void. For advocates of solar, wind, and biofuels who naively bought into the Peak Oil fallacy, as well as the most apocalyptic global warming models, the advent of fracking and horizontal drilling is their worst nightmare.
Sure, while the carbon footprint of natural gas is much smaller than coal, it's not as small as that of wind or solar. But it is a mistake to make the best the enemy of the good. Inherently intermittent energy sources can never be relied on to supply base grid power. Yet the senseless subsidies continue hoping to prematurely turn science experiments into sustainable businesses, even as the goal of competitive viability moves further away. As the bankruptcies and political scandals continue, columnists can't resist pointing out that "we told you so."
Face the facts, greenies-America's hydrocarbon boom has become an irresistible force that easily overpowers measly $100-million government subsidies. And, because underground mineral rights are owned by private landowners and not the state, a deluge of freshly minted natural gas millionaires is joining the growing chorus of free market advocates. As folks of a different persuasion like to say, that's what democracy looks like.
Because of our precarious fiscal condition, we don't have the luxury of sitting back and waiting for trends to prove that reality triumphs over hope. If we want to forestall the mindless backlash from enraged and embarrassed renewable energy advocates, we have to find a kindler gentler way to tell well-meaning, virtuous people that they are, in fact, behaving like imbeciles. Frankly, I've never seen anyone do that as deftly as John Deutch, who can graciously call your intelligence into question without you realizing it until the next day. If only I could learn to be so skillful.
