In the eight years that have elapsed since, Liebreich and his staff have solidified their position as impartial providers of information on clean energy, energy policy and renewable resources to a broad audience of financiers, investors, industry insiders and government officials.
Although Liebreich sold the company to Bloomberg L.P. in 2009, he continues to serve as its CEO and guiding light, and the infusion of Bloomberg money -- estimated to be in the vicinity of £45 million -- has afforded him the opportunity to dramatically expand the business -- it now has 200 employees -- and to travel the world speaking on issues he cares deeply about, including climate change and health.
But his recent activities are just the last chapters in what by any measure has been a remarkable life and career.
Born in Northolt, West London, in 1963, Liebreich graduated with honors from Christ's College, Cambridge in 1984 after pursuing studies in mechanics, fluid dynamics, thermodynamics and nuclear engineering.
He then switched gears dramatically, earning a Harvard MBA while also serving as a member of the British Ski Team (his event was Moguls), competing in the World and European Cups, the World and European Championships, and the 1992 Albertville Olympics.
From there, he moved into the business arena, working as a consultant at McKinsey & Company, before making the leap to the venture capitalist area, and later, serving as commercial director of Associated Press Television and founding director of Sports News Television.
By now, the outlines of how Liebreich came to found New Energy Finance are fairly well known:
Taking a time out to decide what challenge he wanted to take on next, Liebreich went on a climbing holiday in Bolivia. The year was 2003, and at the time, protesters in the country were up in arms over a plan to pipe billions of dollars worth of natural gas to the United States.
Flying home, he also saw firs hand the stresses being put on Brazil's electricity infrastructure by globalization and the tremendous growth associated with its becoming one of the world's leading emerging economies.
The experience of the trip convinced Liebreich that the world's energy system needed to change. Arriving back at home, he was surprised to find nobody was really following renewable energy as a business and financial enterprise. With that opening, New Energy Finance was born.
In this, the first installment of an extended, two-part interview, Liebreich offers his perspectives on the current state of the industry, renewable energy finance, and what he sees as the way ahead as nations try to grapple with the twin challenges of climate change and, for some, seemingly intractable financial crisis.
As we speak, the aftermath of the global financial crisis finally seems to be easing in some countries, while Europe continues to be rattled by concerns about Spain and its economy. In light of that, where does the renewables sector stand today? Is everything higgledy-piggledy? Are we back to square one?
The way I see where we are the moment is that it’s a very difficult time in certain countries, and particularly, in certain sectors.
If you take the current state of US wind, for instance, I wouldn’t say [the sector] is in disarray; in fact, I'd say it's in fine shape at the moment, knowing full well that next year will be an almost complete bust.
On the other hand, you’ve got countries like Mexico, where a deal just closed for 400 MW of wind capacity and the people who worked on that deal are understandably quite happy.
So how you define how things are is a matter of sector, location and the particular lens you’re looking through.
We just produced figures for the first quarter of this year that showed that investment activity is down 22 percent on last year, and 28 percent on the last quarter of last year. Those are global figures, and they are indicative of a difficult time.
Now, in terms of the lenses I just referred to, you’ve essential got three: short-term, medium-term and long-term.
In the short-term there are some real challenges in Europe due to the financial crisis, and in the US there are some real problems with the economic cycle, the expiration of the stimulus programs, and just how partisan the whole sector has become.
Medium-term, the industry has got some extremely exciting fundamentals because the costs keep coming down.
The other thing I see medium-term is, in a sense, the [crystallization] of the vision that I’ve had for the sector since founding the company eight years ago, which is that this stuff only becomes more and more attractive over time, and the drivers only become stronger and stronger, and the players become more and more professional, and the regulators become more and more educated. That’s what the medium-term future looks like to me and that's pretty exciting.
I think if you look at the really long term, I think that’s also a perfectly healthy picture – unless you look at it through a climate lens; because then you start having a different aspiration for what clean energy needs to do.
If you just want it to be a big and healthy industry, I can absolutely, categorically guarantee you that after the next couple of years of sort of shake outs and policies being adjusted, etcetera, etcetera, it will be a perfectly big, healthy, dynamic, vibrant successful industry.
The problem is if you look at it through a climate lens and you want [the renewables sector] to be big enough and healthy enough to reduce [greenhouse gas] emissions by 50 percent by 2050, and also achieve an 80 percent reduction in emissions from electricity production. According to the scientists, and based on the latest research, we are not going to get there on the current path we’re on or through any evolution thereof.
So it’s kind of a game of three parts: short-term, tough; medium-term, very positive; long-term, as seen through a climate lens, not good enough.
What will it take to get from the tough short-term to the much better medium term? What’s the catalyst? New government support regimes? New technology?
Time. It’s just time. You’ve got to be realistic. In the political cycle in the US, for instance, there’s no point arguing for “transparency, longevity and certainty” in policy, as was discussed in one of your recent articles. There’s no point in standing up and saying, “These subsidies are our birthright because nuclear got subsidies” or “We need these support mechanisms because we’ll create millions of jobs.” We’re at the point in the cycle where that doesn’t resonate.
At [BNEF]'s most recent summit, which is a gathering of all the clean energy and clean water policy makers, investors and executives, my keynote focused on the need to improve – and change – the messaging that's associated with renewable energy, and I said they need to sort of own the airwaves and the politicians.
I wanted this to be a memorable point in the conference and also, I wanted to get it tweeted, so what I said was, “Look at what you are up against. Oil, gas, mining, and the utilities are spending $300 million to $350 million a year on lobbying, and that doesn’t include political action committees.
“Meanwhile, you guys are spending around $30 million a year. So if you want to be a really big, serious industry, you can’t soar like an eagle and poop like a canary.” But I added, “Before increasing what you’re spending on these efforts and trying to raise your profile, you need to fix the messaging.”
All this stuff about “long loud and legal” and “transparency, longevity and certainty” is essentially saying, “We need subsidies now and forever,” and that’s just not an acceptable position. Given the political cycle in the US and the economic cycle in both the US and Europe, there are no checkbooks that are going to be waved around. Therefore, it is not acceptable – or credible – to make that the main plank of your communications. Instead, you should be talking about issues, like energy security and health.
I mean, we’ve not internalized as a society the monstrous costs to health of the coal industry, in terms of increased asthma rates, in terms of mercury pollution, in terms of accidents in the mines, in terms of accidents on the roads, particulates and so on. So we have got to change the debate.
We’ve got to say, “Look, there is a better way." This is not against what people consider "the American way." This is not about a bunch of people who want to pretend that they are Danish and ask for money from the state. This is about how does the US have a vibrant, resource-efficient, independent economy – and it’s not just the energy sector we are talking about. We’re talking about the whole economy with new services, new technologies for buildings that are healthier for the occupants and also cheaper to build – and oh, by the way, they can be operated with lower energy usage. That’s how you are going to move to the next stage of growth of the sector.
How close are we to this?
At the moment I think renewable energy has grown to the point of being about 19 percent of global primary energy, but a lot of that is large hydropower and traditional biomass. If you look at nontraditional renewables – wind, solar and so on – you’re talking about somewhere around four or five percent of the world’s energy mix. Now, that’s nice. That’s big, big, big business. Let’s not make any mistake about that. There’s been a trillion dollars invested in this sector over the last eight years.
But, it’s five percent. Now you want to get to 20 percent or 40 percent, but you won’t do it with the tools that got you to five percent. That’s kind of where the industry is, I think. [Now], I’m convinced the sector will eventually get there; the question is, Will it get there quickly? And also, will it then go beyond the 20 percent or 40 percent and really become the dominate paradigm of energy provision in the world?
That’s that long-term third piece which I’m much more dubious about.
It sounds like your almost talking about a shift in philosophy; a kind of evolution in the philosophy of infrastructure…
I don’t know if it’s a new philosophy. I would say that it’s a mind shift, but it’s not just a mind shift; it’s also a systems shift. It’s taking a holistic view of the cost of energy. Academics write about it, they talk about pricing in externalities, and they all sound totally academic. They can go to conferences until they are blue in the face. But what does it mean?
There’s a wonderful piece of work by the Rand Corporation that says, “Suppose Persia – Iran – was not a hostile nation. Suppose there was no threat to the Straits of Hormuz. We simply no longer had to police the Straits of Hormuz and the Persian Gulf. Then the savings to the US defense budget would be about $80 billion a year."
So the Rand Corporation has really done a proper exercise, not just saying what we spend on the Fifth Fleet in Bahrain, but also how much could we save if we didn’t have to worry about that specific waterway. That’s $80 billion. But, now, here’s the beauty of this: Americans are paying for that not at the pump, but with their taxes that go to the defense budget.
Now, $80 billion is more than the entire global subsidy for clean energy, simply on that one water way, and what’s even more astonishing about it is those are not even American tankers going through the Straits of Hormuz, they’re Chinese tankers.
America’s oil comes from Venezuela and from Mexico and from Canada and from America, for obvious reasons. Think about it. The Chinese must be laughing up their sleeves because America is spending $80 billion on this. And the average guy on the street in America doesn’t see it.
Your president is talking about $4 billion subsidy for oil and gas, upstream, which he quite rightly wants to get rid of, but what is in effect, a big subsidy to the Chinese – this $80 billion – is treated much differently. It’s not talked about. But we need to talk about it. We need to realize that it is happening. And that’s the kind of holistic thinking that we need to adopt.
A few moments ago you mentioned that in giving your keynote at the most recent BNEF summit, you hoped that it would be tweeted. I’m intrigued by the fact you were thinking of that. Do you have any particular philosophy about the role social media can play in moving renewables forward?
I don’t know about that. I started my early career studying science – I wouldn’t call myself a scientist – but I studied science and engineering, and then I went off and studied finance at Harvard Business School, and I even taught finance when I was at McKinsey & Co.
I did an enormous amount of micro economics and then some macro economics, and then when I started this business, I became a policy wonk because you have to – you have to understand and keep track of feed-in tariffs, renewable portfolio standards, auctions and tax credits and so on.
And all the while, people continued to ask things like, “How do you get bio-fuels in Malaysia done right?”and “How do you get clean electricity in Texas?”
For any of these issues, the science is done, the engineering is done, the policy can be done, the finance will follow, and the economics will make sense because of all these huge hidden costs, all of these huge externalities, whether its climate or pollution or defense or economic concentration.
So what is the problem if it is all so straightforward? The problem is, basically, it’s not the policy, it’s the politics. And the politics is all bound up in the humans… the electorate… the people; because the two are very intertwined. Even in non-democracies. The politicians don’t do what the people don’t, in some way, fundamentally endorse.
The difficult bit, where the sector is hung up now, is on the politics, and I made that a core part of my keynote at our summit -- not because I have all the answers, but because we have to focus in a smarter way on that question. And I wanted to get a few debates going on what appropriate messaging is.
Let me give you a few examples on messaging. In the UK they just reduced the feed-in tariff for solar in a very dramatic and ugly and ill-executed way. Reducing that feed-in tariff was completely rationale. Of course it had to be reduced. The price of solar panels has come down 75 percent in three years. Obviously the tariffs had to come down, [but] the industry went absolutely nutso and they sued the government. They said, “You can’t reduce these tariffs.” And they won because it was done is such a poor way – the government had basically reduced the tariff before the end of the consultation period, which was really dumb. So they were forced to reinstate the tariffs for a certain period.
But do you know what’s going to happen? Of course, they are eventually going to come back and reduce the tariffs again. They’ll just wait, and then there will be a bunch of folks that get too much subsidy for a period of months, until the government catches up and can reduce them properly.
But here’s the problem: Meanwhile the UK solar industry has indelibly sent a message to the average person that the most important thing in their life is subsidy and that they are not viable without subsidy. The message sent, essentially, is they can only prosper if other people are paying too much for energy. This is entirely the wrong message to put out.
It’s the same thing in the US with the stimulus program. After the onset of the financial crisis and in the early years of the Obama administration, there was all this lobbying and enormous pressure to create a kind of protected status for clean energy within the stimulus package. There was all this talk about “green stimulus” and “green jobs” and so on.
The problem is that’s done two things. One, it’s communicated to everybody again that only through stimulus and only through subsidy can this sector ever survive, and that’s not the case. We know the best wind farms don’t need subsidies and we know the best rooftop solar, in sunny states, doesn’t need a subsidy.
The other thing it did was it captured the entire clean energy industry and made it a Democrat-identified sector, therefore making it impossible for any Republican with an eye toward his or her career to support any of the programs in this space. So what happened is the US Dept. of Energy became the Bank of DOE, through the grant program and loan guarantees. The world’s leading source of funding for clean energy last year was the US government.
The figures for 2011 indicate the US shot ahead of China [in terms of renewable energy investment] because of stimulus programs that are dispensed by the US Dept. of Energy and the US Treasury. So what you’ve got now is a situation where the Republicans are blocking everything and the Democrats are saying, “Why aren’t you being bipartisan?” Hang on a second, who started it? So this is a very toxic situation in the US.
We’ve got to understand that and we’ve got to take a step back and spend five years -- I believe -- fixing the messaging and the politics of the sector. When I say "we," of course, I mean the sector has to do that; I’m just a commentator.
How do you get beyond people’s short-term self interest?
I think it’s a five year challenge because nothing is quick. You asked before about my tweeting and what the point of it is; Well, the way I see it is, the number one thing I can do, with the team of 200 people I've got at BNEF, is to continue doing exactly what we’ve done for the last eight years, which is try to get to the bottom, dispassionately, of the economics, the policy, the finance behind this stuff.
The most important thing we can do is simply provide the clearest possible analysis of what is happening and what works and who is doing what. Because, people are competitive, policy makers are competitive, states are competitive, countries are competitive, and if you provide enough information, they tend to try to emulate the more successful amongst them. There tends to be a reversion to mean or the right policies tend to get mimicked and the right investment models spread. That’s our daily bread and butter – and we don’t do it as advocates, we do it as a service that we provide to our clients. They pay for it and we provide it.
Now, my role on one level is CEO of BNEF, but I am also acting in some ways as an executive chairman, and I’m getting involved in a lot of industry bodies. Because if the first order for success in our business is to provide the best damn services across the broadest spectrum to the most attractive client sectors, the second order is improving the business is to make sure that the industry is healthy, to make sure it’s moving in the right direction, that it sees itself the right way, that it is positioning itself well so that it can continue to undergo healthy growth, and of course, then be an actual benefit.
I enjoy this role, but there’s also a psychic or a spiritual payoff for me because I dislike seeing energy inefficiency. I dislike seeing mountain tops blown off to recover coal, which then contains mercury and gives kids asthma. It’s an appalling, wrong solution. So, nothing to do with BNEF, I as an individual like to work on these things and move them in what I consider to be an ethically and morally right direction.
That’s what I do. I try to provide that information, and I also try to work with groups that are helping the sector to move on. For instance, I am on the high level group for the UN Secretary General's Sustainable Energy for All Initiative, where we are trying to create an umbrella for a lot of sub-initiatives in different sectors, in different countries, at different stages of maturity in terms of solutions, to accelerate the fulfillment of the initiative’s three goals: energy access, renewable energy and energy efficiency.
We want to operate, in a sense, everywhere. We want to be legion. And that’s a great umbrella initiative which will sort of build throughout the year. I’m going to be down in Rio for Rio+20, and I do that as pro bono work. There’s nothing in it for BNEF, except that if we are successful, it will help to position my clients’ industry correctly, and improve the understanding of the politicians and the general public. So I’m using part of my time to do that.
You talk a lot about change and the future. With that as context, do investments we're making right now in renewables run the risk of ossifying bad decisions and bad policy?
Wrong is a normative word. I don’t tend to think like that. My view of what happens is there’s an ecosystem and the ecosystem has developed in a certain way in response to the pressures on it. For instance, if you really don’t care about particulates, you go and do a bunch of diesel. If you don’t care about the climate, you do a bunch of coal.
Of course some of the things that have been done or are being done are wrong, but they are only wrong in retrospect. Everybody is trying to do the best they can. They are trying to build the best infrastructure. Energy ministries were trying to gain access to cheap and reliable forms of energy. They were doing the best they could.
However now there are various incongruities. The biggest and most important one, frankly, in terms of driving this stuff is that we are now in a high cost energy environment. Look at the oil price. When I started the company, the oil price was $28 a barrel. When I look at that I think, “My God, Michael, how lucky you were.” I never thought of the oil cost as being a driver of my business. That’s how dumb I was.
But do you think we will ever see $28 a barrel again? Now, there’s a specific thing going on in the US with gas, but other than that, every resource and every energy resource, other than the clean energy sources, is now in a high cost environment.
The second big discontinuity is the cost of clean energy technologies have come down and efficiencies have scaled up. Solar panels have come down in cost by 75 percent in three years. In 1985, the average yield from a wind farm was 21 percent; now it’s 34 percent. There’s beautiful and very poorly understood economics at work here.
Most policy makers around the world don’t realize that big wind farm in a windy location with a well-designed grid to accept the energy is cheaper than building a new coal-fired power station. And not only are they cheaper than building a new coal-fired power station, you’ve got no exposure to rising coal prices, which is what is happening in Asia right now.
So you’ve got a discontinuity on the cost of fossil fuel, you have a discontinuity on the cost of clean energy, and then you’ve got other things going on like climate change and the Arab spring. To me the logic is already strong enough without climate change to say that we are in a new world here. So the decisions that were right in the old world are now, in retrospect, wrong, and what you’ve got is a colossal fight going on because people don’t want to accept that they’ve built a huge system of stranded assets.
Isn’t it extraordinary that the opinions of people who think that Canadian tar sands are an abomination, and the people who think they are God’s work, are almost entirely aligned around whether they have an economic interest in tar sands or not. That’s not a coincidence. So I don’t use the word “wrong”; I just believe the ecosystem is shifting and I do have a worry that the slower it shifts, the more stranded assets we will have built, and the more likely it will be that we end up with a less than optimal outcome.
For example, the thing that will kill the allure of tar sands is they will ultimately grow more expensive. But you know what, once you’ve invested a huge amount and you’ve got pipelines, Keystone or whatever, then suddenly the cost of the tar sands comes down and they become much more competitive and it becomes much harder to get in the box, to put the lid back on them.
So the worry is, if you don’t move clean energy as fast as possible – expanding the sugar-based ethanol, moving to second generation bio-fuels that don't compete with global food supplies, moving to energy feed-stocks like food waste, agricultural waste, waste CO2, algae, arid-lands type crops -- and if you don’t move to electric vehicles as quickly as possible, then we would have invested even more in the fossil architecture, which will then be yet another reason to try to slow down any shift. At that point, there will be even more players resisting the movement away from fossil fuel, and even more of my pension and your pension will have been invested in not making a change.
So I do think there’s a lack of urgency that worries me. I think the shift is inevitable, but I would rather see it in 25 years rather than 50 or 75 years.
If you’re an investor now, how do make sure that you’re not investing in what will eventually become stranded assets?
What I would urge anybody who is investing in energy to do is to take a hike up into the mountains somewhere, sit somewhere quiet, and think about risk. Ignore all the analysts calls and what you did yesterday. Just think about risk.
I am constantly hearing how risky clean energy is because it is policy dependant. But, you know, first of all, with the cost coming down, it becomes less and less policy dependant all the time. Secondly, there are plenty of sectors that are policy dependent. Take Telecoms for instance, if there wasn’t policy to divide up the bandwidth, there ‘d be no telecoms industry. Another example is air travel – completely policy dependant in terms of who gets the airport slots and who doesn’t get the slots. The point is that when there is a new sector, the policy is very volatile and scary, but you know what? These things settle down. So the policy risk is overrated.
Then think about this: How many investors woke up one morning last March, checked their blackberry or newsfeed or switched on cable TV, to learn that their investment in the Tokyo Electric Power Co., owner of the Fukushima Daiichi nuclear plant, had been wiped out by an earthquake and tsunami?
How many with a stake in BP felt the same pain when they woke up to news of the Deepwater Horizon mishap in the Gulf of Mexico?
So my answer to those who talk about the risk associated with investing in renewables is, yes, there is a lot of policy dependence in clean energy right now, but there is less of other kinds of risk.
Then start to think about the long term, because clean energy technologies, for the most part, biomass being an exception, don’t have fuel costs. They have high capital costs, but low operating costs, and they are insulated from resource price shocks associated with fossil fuels.
And of course, the other thing you have to keep in mind is climate change. I find it very hard to believe that people still argue against the evidence that warming is going on. I find it hard that people can argue against the evidence that it’s being driven, in some large part, by greenhouse gas emissions.
But I do find it understandable that there can be controversy about what happens next, because there are always multipliers and feedback loops and I think that’s it’s possible to say, "Well, I think there might be some attenuating mechanisms through vapor" and somebody else might say that there are accelerating mechanisms through methane loss from permafrost.
Okay, so there’s uncertainty about what happens next. It’s legitimate to debate that. And even legitimate to debate whether it’s going to be two degrees or four degrees or whatever the figure. I think it’s legitimate to debate how much we are going to invest against that particular set of problems versus malaria, or poverty or whatever.
But as an investor, you don’t know where that debate is going to end up. There could be five bad hurricanes in the US, and suddenly there will be this emphasis on really doing something dramatic to accelerate the shift to clean energy. At that point, what are your shares in Peabody worth? And the answer is, probably very little. What is the value of your coal- or gas-fired power station worth? And the answer is, less than you paid for it.
So I think you’ve really got to work through this question of risk. Now, I am not going to be the Cassandra that says, "All fossil assets are stranded assets." At BNEF what we try to do is educate people so that they can make their own investment decisions in full appraisal of the facts, and the risks and the returns that they might be facing. So what I’d say to people is: subscribe to BNEF and then go on that trip up to the mountains and have a deep think.
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