By Jenny Hou, National Council of Asian-America Business Associations
During the State of the Union speech, President Obama hit the mark on our energy future. He challenged us to reinvent ourselves through less reliance on oil, real increase on energy diversification, and more innovation on clean and renewable energy.
The centerpiece of Mr. Obama’s new energy agenda is a proposal to double the share of electricity generated from lower-emission sources, including nuclear power, wind, solar and natural gas. The idea is to provide clear energy policy and government incentives to encourage utility companies to switch to cleaner fuels and to drive innovation by creating a predictable market for advanced energy technologies.
From an investor perspective, all investments can be compared and benchmarked via return on equity (ROE) across capital markets. That is, investors use ROE to analyze different asset risk profiles. In capital market, investors are always looking for answers for the following questions for any investment across all industries:
- What are the costs of investment capital?
- What is the ROE?
- What is realization rate of collecting revenue?
Energy projects need upfront capital and take a long time to develop. Here, risk becomes involved. Any change of regulation rules from federal and state down the road may easily tilt the playing field, which is why investors are very cautious about putting money into a clean-energy project. After two years of legislative standstill, we need the President to work with the Republican-controlled Congress to develop a robust and consistent energy policy to mandate a mix of clean energy sources (nuclear, wind, solar). This in turn will force utilities to focus voluntarily or involuntarily on the benefits of the clean energy technology business, and the legislation certainty will push the utility and investors to put their capital in the field.
To stay competitive in the modern world, especially in a critical time when emerging economies like China, India and Brazil are rising to compete for a fair share of limited energy resources on earth, we have to radically transform the nation’s energy policy to change our addiction to foreign oil and reduce the use of coal. To meet these daunting tasks we face as well as manage the great challenges ahead of us on climate change, we have to understand what the nation is facing in the current energy arena:
- Aging transmission systems to transmit power from generation sources to energy-hungry, distant population centers;
- Large portion of existing oil and coal-fired generation fleets;
- Greater needs to finance a growing array of renewable or clean energy projects;
- High unemployment rate – less affordable population for the nation’s ever-growing capital investment on energy infrastructures
But to a utility company, new investment in clean energy is a competing capital consideration against existing generation fleet upgrade, transmission system expansion, and power-distribution investment. The only way we are going to be able to move forward with clean energy development is through a strong and clear political mandate because everything else will take priority.