The emission plan rolled out by President Obama this month is expected to serve as another boost of confidence for the booming renewable and clean tech sector but most analysts warned it wouldn’t be a “game changer.”
Analysts agreed that solar, wind and to a lesser degree, hydro and biomass, should be well positioned to take advantage of the Environmental Protection Agency rules which call for emissions to be cut 30% from 2005 levels by 2030. The EPA would set the carbon dioxide emission goals, but over the next two years states determine how they would make those cuts.
But most analysts doubted there would be a rush of investment into this sector, partly because most renewables are already growing, and the plan only calls for only modest reductions over the long-term. Utilities have already cut emissions 16% since 2005 so future cuts only have to be around 1% a year.
“It shouldn’t drive any immediate radical changes in the deployment of these technologies,” said Rob Day, partner at Black Coral Capital, a clean tech private equity firm.
“The targets are imminently hittable with a lot of the current plans, and there is a lot of flexibility given. This isn’t forcing any massive change to the generation mix overnight,” he said.
“Also from an investor standpoint, I don’t know if this will necessarily change how people invest in the sector simply because it seems it’s not a final round but a mid round of the fight as it were,” said day. “I also think a lot of investors got so burned by the cap-and-trade fight (in 2009) and what happened after that. I don’t think people are jumping up and down to follow regulatory leads into where they put their dollars these days.”
Pavel Molchanov, an energy analyst with Raymond James, said the plan was a long time coming and offered few surprises.
“I don’t think anybody is investing in renewable or energy efficiency because of an EPA press release from June 2,” Molchanov said. “These are trends that are taking place not just domestically but across the industrialized countries and increasing visible in emerging markets too.”
Cleantech’s Sheeraz Haji was more bullish, suggested that the rules would “accelerate an already fast-growing market.” The proposed regulations, he said, would give investors some level of certainty which they have long-craved while staying away from a prescriptive approach which they despise.
“I think this has an impact certainly in the next 12 months and certainly over the two- to three-year time frame,” Haji said.
“These new proposed rules will lead more global enterprises to both consider and then to actually invest in clean tech segments,” he said. “That will absolutely be a positive to investment in the space.”
Haji also said he expected the rules will reward states that have already begun addressing their emissions like California, which has set up a cap and trade system among other environmental initiatives. There will also be winners from the utility sector, with those that are already investing into renewables like National Grid (NGG), Calpine and Exelon (EXC) benefiting against those who are heavily dependent on coal.
Natural gas will enjoy a continued surge due to these rules, as would energy efficiency, which is among the cheapest ways for states and utilities to comply with the regulations. As a result, energy efficiency companies like Opower, Gridium and First Fuel will get a closer look from investors.
“There are a couple of areas that should get a pretty nice boost at least in certain states by these regulations, and one is definitely energy efficiency,” Day said. “They [the EPA] have clearly indicated that, hey, utilities if you are willing to get behind actually pushing energy efficiency in areas where you haven’t in the past done it, seriously that can be as valuable to your accounting under these regulation as getting rid of a coal-fired power. Since it’s a cheap way to do it, I expect that is the way a lot of states end up going.”
Other areas that will benefit are companies that produce gas-fueled technologies such as fuel cells from the likes of Primus Power and General Compression as well as the solar sector, with roof-top solar taking off if utilities decide to embrace them as part of the solution.
“If [utilities] start pushing [roof-top solar] in a way where they get credit for it under whatever carbon regulation get pushed in their states, that could blow the doors off that market,” Day said.
The Obama plan could also be “catalysts” for good for companies that produce technologies for capturing carbon from coal-fired power plants—known as carbon capture and storage, Molchanov said. For years, the sector has struggled to develop any projects on commercial scale due to funding shortfalls and uncertainties about its safety.
The one renewable that is likely to gain little from the Obama plan, all analysts agreed, was nuclear, which remain dogged by cost and safety concerns.
“The real challenge with nuclear is that it’s really expensive to build those things, and it only makes sense under the most optimistic assumptions versus other forms of power,” Day said. “The reason utilities are moving away from nuclear is not because of perceptions and safety but simply because it cost too much.”
