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Alternative Energy: What’s the ROI on Investments?

As the US prepares to choose its next president, there's a lot of analysis being done on what the current administration has accomplished in the past four years. One of the platforms of the first Obama campaign was a commitment to renewable energy. High tech was to be a beneficiary of government investment in alternative energy and energy conservation. It hasn't been a bust, but neither has it been a boon.

The most visible failure during the past four years was an investment in Solyndra, a now-bankrupt solar panel maker that was backed by government loans. Several other high-profile solar companies have stumbled. In electronics, component makers are active in solar, energy storage and conduction technologies are in demand, and electronic manufacturing services (EMS) companies benefit from the manufacturing of panels and panel systems. Overall, all component categories support alternative energy development as well as energy-savings technologies.

Within the electronics supply chain, renewable-energy-related boons have been spotty. Leading vendors in LEDs — an industrial lighting technology that's penetrating the consumer market — traditionally have not sold through electronics channels. Distribution companies in particular have taken advantage of the LED opportunity and in many cases have created specialty lighting divisions catering to customers unfamiliar with the technology and vendors new to the channel. Solar panel makers — the end customers for chip companies — also work with channels atypical to electronics vendors, such as construction companies.

So where is the growth? Overall, the electronics industry's sales in second quarter 2012 have been lackluster across the board, although lighting was cited as an exception by a few companies. By all accounts, the US continues to invest in renewable energy: In 2011, US investment in renewable energy was roughly $51 billion, according to a USA Today report. CNN reports the government provides roughly $24 billion in subsidies. China's overall investment was $52 billion, USA Today reports. The Chinese government heavily subsidizes renewable energy efforts in the nation which has recently led to a tariff spat between the US and China over solar technology.

Solar is forecast to slow down in 2012 after two years of rapid growth. The photovoltaic (PV) market — a gauge of solar technology use — grew in 2011 based on the number of new solar installations, according to market researcher IHS. Solar installations climbed 40 percent in 2011 to an estimated 25.0 gigawatts (GW), up from 17.9 GW in 2010. The outlook for 2012 isn't so bright:

The two year run of notable growth, including the blistering 146 percent expansion of 2010, will end this year when solar installations dip 6 percent to 23.3 GW. Given budget difficulties and political blowback, governments in many countries are expected to slash tariffs and reduce support, which would have the effect of discouraging builders and investors. But PV potential remains outstanding after 2012 as growth continues in emerging territories, with new installations forecast to reach 61.3 GW by 2016.

LED will continue to be a bright spot — literally — for the supply chain. According to market research firm Strategies Unlimited, the global high-brightness LED market grew from $11.3 billion in 2010 to $12.5 billion in 2011, a growth rate of 9.8 percent. Demand for LED components in the lighting market grew 44 percent, from $1.2 billion to $1.8 billion.

On the supply side, 10 companies accounted for almost 70 percent of the LED market, Strategies Unlimited reported. Top 10 suppliers in the LED market for 2011, by revenue of packaged LED components, were:

  1. Nichia
  2. Samsung LED
  3. Osram Opto Semiconductors
  4. LG Innotek
  5. Seoul Semiconductor
  6. Cree
  7. Philips Lumileds
  8. Sharp
  9. TG
  10. Everlight

Most of these vendors have a presence in the electronics supply chain. {complink 577|Avnet Inc.} has recently expanded its services offering in LED with the establishment of a lighting lab in Chandler, Ariz. The lab allows customers to test and measure a wide range of LED applications.

George Kelly, technical specialist and LightLab manager, Avnet Electronics Marketing Americas, said in a press release:

The demand for LEDs has reached an explosive growth phase. Avnet LightLab's capabilities coupled with Avnet's national team of LED-focused illumination engineers ('illumineers'), substantially reduces our customers' design time and provides a means to weigh various design options; ultimately optimizing their end-products' performance and extending their competitive edge.

One other market that provides a growth opportunity for electronics in the US is the smart grid, which has received a total of $4.6 billion to date from the Smart Grid Investment Grant (SGIG) program. Electronics is pervasive in all aspects of deployment, as illustrated below:

Analysts estimate more than $23 billion will be spent in the US on IT for utilities. Avnet Technology Solutions, Avnet's computer and systems business, has established a vertical sales group focused on smart grid. Services include utilities data management, utilities infrastructure optimization, asset, and device and service monitoring, utilities risk management and compliance.

Clearly, the promises of alternative energy are considerable and opportunities abound in the supply chain. However, government grants, supply chain players report, take a while to filter down to component suppliers and distributors. Implementation is spotty, largely depending on cities and locales that are investing in infrastructure. In the near-term, private corporations seem to be holding back on large investments in any kind of upgrades pending an economic turnaround. Therefore, it's unlikely electronics will see either a large or fast infusion of cash anytime soon.

11 comments on “Alternative Energy: What’s the ROI on Investments?

  1. mfbertozzi
    September 6, 2012

    Thanks Barbara for this very interesting article on a key topic; speaking for myself, I believe the point is well outlined at the section

    In the near-term, private corporations seem to be holding back on large investments in any kind of upgrades pending an economic turnaround

    Renewable energy as alternative to oil (the most important source, for now) brings strong impact on whole production chain (it doesn't matter the sector we are telling about); a financial crisis is still in progress – no doubts- but it needs that key players involved in the process will be really determined in adopting alternatives to oil by splitting their views towards long terms horizons.

  2. Mr. Roques
    September 7, 2012

    There are two aspects to alternative energy ROI… one is from the suppliers point of view, and the other for companies that implement alternative energy at their own industries. Do both benefit from tax breaks? 

  3. stochastic excursion
    September 7, 2012

    Whatever their virtues in the fact that they are ubiquitous, the usual suspects in renewable energy sources, solar, wind, hydro and geothermal; lack either the abundance or power density to approach fossil fuels as a substitute energy source.

    Renowned engineering innovator Buckminster Fuller had remarkable views on the place occupied by fossil fuels in the scheme of things.  He compared the energy made available to mankind in the form of fossil fuels with the nutriment provided to a chick that enables it to break out of its eggshell.  There's just enough to get it out of its shell, and after that, it's hunt and peck.

    Whether or not you agree with Buckminster Fuller's worldview, the problems seen, when forcing renewable energy into the same business model as coal and oil, are inescapable.–but I don't think it's necessary to despair that we will be back in the 19th century when, sooner or (probably) later, we run out of gas.  Soler batteries power calculators and engineering marvels along these lines are bound to make our way of life worthwhile.  

  4. mfbertozzi
    September 8, 2012

    @Mr.Roques: thanks for this additional topic to discuss; I have experienced a mixed scenario, depending on the country. Personally I believe both players involved in given migration to alternative energy, would receive tax breaks benefit. This approach from Governments, for instance, could also encourage corporations and end users in considering that adoption.

  5. mfbertozzi
    September 8, 2012

    @stochastic excursion: if we could elaborate just a little more the item you have reported, do you believe it is a matter of education? The more people are informed and the more these doubts should disappear

  6. stochastic excursion
    September 8, 2012

    I think it's more a matter of leadership, the maturity to consider views outside the status quo, and act on them if necessary.  Reminds me of a cartoon I saw recently, with a newspaper seller holding up a paper with headlines: “Politicians Agree!”

  7. mfbertozzi
    September 10, 2012

    Nice analysis and at the end, it is true, at least for my experience; anyway, if I may…I'll do my best for watching “Phineas & Fearb” toon and learning from their inventions just a bit more about (joke)

  8. prabhakar_deosthali
    September 11, 2012

    It is a known fact that the  ROI for an investment in alternate energy has to be taken with a long term view. Whether it is Solar or Wind energy, it takes years to get positive returns from your investments. But the indirect benefits of savings on the consumption of fossil fuels, clean environment and less dependence on oil & gas are the intangible ROI that should be weighed in favor of alternate energy investments

  9. Mr. Roques
    September 12, 2012

    Shouldn't the government create (or continue) to provide tax breaks and other forms of subsidies to shorten the ROI period? 

    They should take the risk out of the private investors in order to make sure there's innovation and growth.

  10. ksarocky
    March 3, 2013

    You've missed the point.  Alternative Energy doesn't have any return on investment, because all forms are dependant on government subsidy.  The only thing an investor cares about is, how long will our government continue pouring borrowed money into the Green toilet, and can I exit with a profit?  It's easy to calculate the true cost of Solar Energy, for example: wholesale prices of Chinese panels are advertised widely on the web.  Installation costs typically double that, and government mandates force local utilities to pay over-market prices for the energy generated.  Bottom line is, Solar Power costs about 4x the conventional power that it supplements.  When the panels wear out in 25 years, they will have paid back only a fraction of their cost.  If solar panels cost zero, they'd barely be worth the trouble to install.  There's a similar cost structure to wind generation.  It's all about politically-motivated giveaways, and borrowed money is NOT a renewable resource.

  11. Brian Fuller
    March 3, 2013

    @ksarocky, well, let's be honest: All infrastructure gets some form of government subsidy. In the case of “green energy” sources, it's really about the generation efficiency. And there, the efficiency doesn't come close to coal and gas fired plants or nuke plants. So no reasonable ROI even factoring out the subsidies. 

    My two cents, at least. 

     

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