Random investing in green tech to result in a bubble that will burst within 3-5 yrs – Per Wimmer
With climate change upon us, green technology is becoming all the rage. But are we being overly enthusiastic about renewable energy? Financial guru and philanthropist Per Wimmer shared his view.
Sophie Shevardnadze: Per Wimmer, welcome to the show, it’s great to have you on our program. So clean energy is being pushed upon us, it seems, with climate change now doing things we can no longer ignore. But you sound skeptical about green energy as a whole, calling this a green bubble. So when will it burst - in a year, in a month? Should we give up on green energy before it’s too late?
Per Wimmer: It’s true, I’ve written a book called “The Green Bubble”, and the whole purpose of the book was to really illustrate that if we are not careful about how we allocate subsidies and taxpayers’ money it will become a bubble that is very likely to burst costing lots and lots of money for the taxpayers. However, I do put forward a proposal where we focus on the technologies and the types of green energy that are likely to be commercially sustainable within the short to medium term. And if we do that we have a solid future for green energy. I do want to see more green energy, but I want to see it implemented in a commercially sustainable way.
SS: But if the world doesn’t listen to you and it’s not implemented the way you see it, when do you think the bubble will burst?
PW: I think if we do it wrongly the subsidies will just accumulate and build up and build up, because there are the most noble political desires to have more green energy. But if implemented in a wrong commercial way over the next few years, within a timeframe of 3-4-5 years, you will have such a mountain of subsidised projects etc. that are unlikely to be able to stand on their own two feet within the next sort of 15 to 20 years. And then there will come pressure from journalists, pressure from lobbyist groups and also just from normal taxpayers just saying: “What am I getting for my money? We are pumping in so much and we are not getting enough!” Therefore it is very important to be commercially disciplined.
SS: If we look back 10 years ago - green energy was quite a costly endeavour. But with tech advances in wind and solar energy, it's now getting cheaper - former UK Energy Minister Charles Hendry told me it has dropped by half in 6 years. So if costs are coming down, these green technologies have a chance of becoming commercially sustainable, no? Or am I missing something here?
PW: It is true. We’ve got to separate the green technologies into two groups: the group A, which is the group that are likely to produce commercially sustainable energy i.e. without subsidies within the medium term - call it 7-8 years; and the other group which is very unlikely to do so in that period. Now, solar energy specifically is a good example of category A, where actually subsidies have helped - courtesy of, in particular, German taxpayers who have effectively subsidised it so much that the cost of it came down. And you can in certain places have solar energy standing on its own two feet without subsidies, for instance, in certain parts of Spain. And that’s where we need to get to; the solar energy is a great example of that. Onshore wind in part also, in particular if you use big turbines like 6-megawatt turbines you will, in certain places, be able to generate so much energy, so much wind, that it can actually be economically viable without subsidies. And that’s exactly where we need to get to.
SS: As a whole you’re blaming politicians for giving green technology subsidies without really looking into whether they can be economically sustainable. Why do you think governments do that? Blind hope or political calculation?
PW: I think there is a general sort of desire amongst politicians to be front-page news, and as long as it’s green and it looks good, and there is an attachment with this good image. I am not sure all politicians look through the actual economics of it, and that’s what I’m asking for. We need more commercial discipline here. But that’s just political life, political life is usually a cycle of 4 to 5 year depending on the country, and therefore there is this desire to do good, or to be seen to do good. But here I come in as a businessperson, saying: “Listen, it might not be so good for the long term for the taxpayers, so therefore let’s be disciplined about how we spend all money.”
SS: The International Renewable Energy Agency says a rapid scale-up of investment in renewable energy infrastructure is needed. Head of the agency Adnan Amin told me the total investment has already reached 2 trillion dollars, but it needs to double before the end of the decade to grow further - to more than three times current levels in the 2020s. Is this a realistic goal?
PW: I think so. It is certainly a goal to be desired. We certainly need more green energy production on Earth, and today it is still a low, small, single digit percentage of the total energy produced. So there is a mammoth of a task ahead of us. If we don’t do it we will run into problems of CO2 emissions, we have seen it already - the effects of melting of the ice cup and the global warming etc. So the symptoms are there, so we do need to push a head on it. But it is a mammoth task, it is going to cost a lot of money globally. Fortunately, we do see some countries really powering ahead now. I mean look at China, for instance, who is talking about making diesel and petrol cars banned before 2025 or something. You see France, you see Norway putting forward initiatives in that regard. So certainly the whole transportation sector has seen a massive shift in political sentiment and desire and even legislation to move our economy towards more green driving economy. And I think that’s a very good thing.
SS: The U.S., directly and indirectly, subsidies fossil fuels more than green energy. Direct subsidies worldwide are bigger than those for renewables. So if we apply the same logic here, are we in an oil bubble as well?
PW: You could argue so. I mean energy politics, obviously, is very strategic for the country; it’s a very sensitive energy pricing. I mean, look at India, for instance, where those massive subsidies that is clearly due to politics, because your fuel cost is something very important just as well as your living standards. So you have seen it also in the area of fossil fuels, there have been massive subsidies. I think we need to get into an area where we have a more equal level playing field. But in the short term if we face the challenge of making green energy more attractive we do need subsidies. I do acknowledge there is a need to assist giving birth to this massive new sector, but it is in a long term interest of people on Earth effectively, because we are not getting less and less. Quite on the contrary - it is more and more people, consuming more energy, so we do need to have more and more green energy in this world. And it does require investments. So that part is good, but we just need to get more bank for our buck and more return of our tax dollar invested per megawatt if you like.
SS: Now, Per, you know a thing or two about both money and natural resources. What’s your opinion - which green technologies in particular are now worth putting money into?
PW: Well, one area we like a lot is the whole area of efficiency i.e. technologies that basically make you use less energy, for instance, LED lighting. By using that you effectively cut your consumption of energy by 90%, it’s huge. Now, these LED light bulbs will cost you a bit more in the beginning, but over time you’ll end up saving so much energy. And what is saved you don’t have to produce. So actually if we look at the whole green energy market efficiency and smart house solutions, LED lighting, such things actually account for about up to 50% of the whole market. So I think that is a fantastic area to focus on. Secondly, we do like hydro a lot, hydropower energy. Why? Because it’s baseload, it’s big, it’s gigawatts and it’s green. Unfortunately, you can only do it where you have rivers, so you do need to be lucky enough to have a big river running somewhere, but hydropower is fantastic. And finally, nuclear power - we consider that to be green. Yes, there is a disposal problem to a degree on the waste, but other than that, it is still a green technology that today has become so much more safe over the years. And it is a technology that delivers big gigawatts. So if we can construct these power plans at the reasonable cost, which seems to be a bit of a challenge sometimes around the world, then I think that would also be part of the energy mix. Those three things – hydro, nuclear, and efficiency - those are the ones that will move the needle big time in terms of green energy production globally.
SS: You’ve said before that we are having huge infrastructure problems that hinder green energy development - what do you mean, is the existing electricity grid infrastructure not adaptable to green energy sources?
PW: It is true, the infrastructure problem is a big issue, to be honest, because take something like wind, the wind usually doesn’t blow exactly where it is consumed. The consumption is in big cities, the wind would typically be out by the coast or in areas where there is a lot of wind. So you’ve got to transmit the energy from where it’s produced to where it’s consumed, and somebody has got to pay for that. Typically, it’s been the state or it’s been the infrastructure providers, but somebody has got to do it and it has to be economically attractive to do it unless the state is doing it. But if you look at the build-out of what is required if you want to switch, for instance, go to 10% or 25% wind energy production in a country like the U.S., you will have to build a massive amount of infrastructure in terms of transmissions, and that is vastly expensive. So this is a big challenge.
SS:Why do you think that’s a problem? Because I’m thinking a hundred years ago, there was no infrastructure for electricity, and it had to be built and it was built. Can’t that happen the same way now?
PW: You can make it happen and that, certainly, requires political will to make it happen, because somebody has got to foot the bill. As to green energy the unfortunate thing is typically the production of the energy is much further way than if you use fossil fuel. If you use fossil fuel you can build a gas powered, fire powered station or, indeed, an oil energy producing station close to the big cities, just outside. So, therefore, the need for infrastructure is much less. Whereas if you have green energy initiatives like solar, wind or, indeed, hydropower it typically is far away from where the energy is consumed. So you are going to have to build it up, but that is the price of green energy, I’m afraid.
SS: Now, there have been green bubbles before, let’s say in the 90s, and then during the financial crisis, and during Obama’s time as well. Maybe there’s nothing scary about a green bubble, since it seems to always bounce back?
PW: There is something scary about bubbles in general in the financial markets. I’ve written another book about that called “Wall Street” about all the ups and downs of the financial markets. The sad reality is when you build up big bubbles like that and they burst somebody is going to pay for it and typically it ends up being Main Street, as opposed to the Wall Street, who pays for it. So there is a political aspect to this. The good news is you can actually prevent some of these bubbles; the bad news is that we, as human beings, tend to create them, maybe out of right motivation but wrong implementation. That’s the challenge what we face here. But there have been green bubbles in the past; they have not been as big as this one we are building right now, because now there is a huge amount of political will, maybe outside the U.S. partly, with the current administration, to really make this thing happen. Just look what’s happened to the electric car market and what’s going on there in the moment. People generally really want a change and that creates huge opportunity and huge challenges. Big subsidies are required and therefore we’ve got to be really careful about this mountain of subsidies we’ve built up, so that it doesn’t suddenly burst and crash.
SS: Climate change and all things green have become a cultural staple. I mean, think about it - taking a subway, not taking a plastic bag in a grocery store, keeping your tires inflated - those used to be mundane, usual things, and now they’re environmental statements. Being green is becoming a fashionable thing to do, it’s a fashionable lifestyle, will that drive the demand for green energy up as well?
PW: I think that’s true; this certainly has become more fashionable. I would even push it a bit further saying that consumer has become more conscious about the consumer behavior. So we all think a little bit more about saving a bit more water, maybe taking public transport if that’s easy and is the best way to get somewhere. I think there is more consciousness about it and therefore there is a drive amongst a lot of populations to do good, to have a clean environment. We’ve all suffered a bit from coughing if we’ve been in a very polluted city and it’s not very pleasant, I mean, it goes to certain big cities in China or, indeed, here in London where we’ve recently put on a £10 extra charge for old cars that pollute more. So there is definitely this political drive and that’s in turn as a reflection of increased consumer awareness, which ultimately is a good thing, because whatever the politicians do, whatever we do through legislation, ultimately it’s down to human and consumer behavior, so that is a very good thing that we are becoming more conscious about it.
SS: You know, Elon Musk believes “the laws of economics will drive civilization toward sustainable energy inevitably.” Do you believe him? Doesn’t that make long-term green investment wise?
PW: It’s nothing better if you can put up an economic incentive without subsidies for entrepreneurs to get involved. If an entrepreneur sees an opportunity, whether there is a decent return to be had and that return can be gained over time without subsidies, I bet you that entrepreneurs around the world will roll up their sleeves and get on with it. That’s exactly what we have seen in the space of solar energy in those places where solar doesn’t need subsidies. If it does make a decent return in its own right they will get on with it, and that’s what we need to get to – bring down the cost, find the technologies that actually has a true chance of working in its own right in a commercially sustainable way within 5- to 8-year timeframe – that’s what we need to get to. Because then entrepreneurship will start to take life of its own, you will see projects being produced, entrepreneurs will want to expand the businesses, make more money, which is a good thing if it drives a green energy revolution forward, in addition to the consumer behavior that also puts up extra demands for products to be more green, for transportation to be more green etc. That becomes a competitive edge and a good branding.
SS: Per, I know, it’s not only green tech that is moving forward, fossil fuels are refusing to get stuck in the past as well, and fracking technology has let the industry tap into so much natural gas in America, they say it will last a century. It’s cheap, less polluting than coal or oil, how can renewables, actually, compete with that?
PW: It is a challenge if you look at the cost per megawatt for renewable energy as a group to compete today with fossil fuel as a group. The reality is that the coal in particular, the price of coal per megawatt, dollars per megawatt is actually very cheap. So you’re going to have to impose in a short term certain duties or certain extra taxes, polluting tax and that sort of things to level the playing field, because otherwise you are absolutely right – it is challenging to compete today. However, the good news is going forward within the reasonable timeframe some of these technologies will be able to compete on their own right and that’s really good news. But we are still going to need fossil fuel whether we want it or not for a long period to come. Fossil fuel still accounts for the vast majority of our energy production today, so we are still going to have to invest in that because it is a part of life, whether you like it or not. And that includes shale technology, being able to go deeper into the oceans to take more oil and gas up etc. We are going to need it because you are not going to let your car stand there idle if your car drives on petrol. That’s just reality, you want to go from A to B, and the electric car has still a lot more of a revolution to show for itself.
SS: So, once we run out of oil and gas here, we’ll go look for resources in the sky - that’s what Musk thinks, at any rate. What do you think? Is it far-fetched dreaming that we’re going to go to space for some asteroid gold or something like that?
PW: I would beg to differ to that point. First of all, we are not going to run out of oil and gas any time soon, there is plenty available on Earth. Plenty! Yes, it’s true, we always say there are not so many years, 30 years left… But the reality is that it comes down to how much you want to pay for it, for the extraction. There is plenty available, but it will cost you more to extract from the Earth because now, if you look at big, elephant deposits, big deposits that are typically further out at the sea, that are deeper, the more costly to develop, that require big billions of investments. But we are there so we can get it if you want to, it’s just a matter of how much do you want to pay for it. When it comes to resources from space - mining asteroids or other planets and that sort of things – I think that’s a far-fetched dream for now, it’s just not economically viable. Yes, there are some good resources, the Moon, for instance, has a lot of Helium-3 which is a very scarce resource on Earth, but it’s just not economically viable to send a spaceship up there, do some drilling and then come back down again. The cost of space transportation today, even with SpaceX and all the low cost providers is simply prohibitive to make that activity economically viable. You are more likely to find the answer in going deep in the oceans to do undersea mining, underwater mining – that sort of things. That’s more likely to happen.
SS: Well, anyways, you’re going to space, maybe not to mine asteroid gold, but you are going. You’ve signed up for three trips to space with different private companies and completed your space training as well. I mean, this will be the first public space tourism flight – aren’t you scared at all? I mean, when you are doing it with NASA or you’re doing it with the Russians, at least you have the state guarantees of safety, do you feel just as safe with Virgin, for instance?
PW: Yes, it’s true, within WimmerSpace I have been preparing for some time to go to space. In fact, I’ve done some of my space training in Russia. I’ve trained in Star City together with your wonderful cosmonauts. I’ve been to Baikonur in Kazakhstan for the Soyuz launches and flown MiG fighter jets, so I’ve had a wonderful time in Russia executing my space training as well as I’ve done in America. And, to be honest, I am so excited, I can’t wait to go. Yes, there is a risk, but there is always risk when you do exciting things. I am an adventurer, I am a pioneer, I am not afraid of pushing the boundaries. And in 2008 I’ve set a world record by doing the first tandem skydiving over Mount Everest. So I’ve done things that are, in my view, much worse or have a higher risk profile in the past. Can’t wait to go to space! Probably you will follow me.
SS: If you take me maybe. I have the last question for you. Dennis Tito, the first space tourist, paid $20 million for his trip. 15 years later, you are paying a quarter of a million dollars for your ticket. So do you think that space travel will be equivalent to train fare in another 20 years?
PW: No, I don’t think so. I was actually on the launch pad in Baikonur when Dennis took off to the ISS. I was very excited on his behalf and he is a true pioneer in this regard. So it is fantastic to see that actually now civilians can go. It is even more exciting that the cost curve is coming down so much and that’s exactly what private enterprise brings to the equation here. Before, if we have NASA and all other national agencies around the world funding it, it tended to be less economically efficient. Bringing private enterprise like SpaceX and you just lower the cost base by 80% or so – that’s really good news. And that means that space will become more accessible, more people will get an opportunity to go into space and enjoy this fantastic experience of being an astronaut. I mean, who don’t want to do it? As a kid, lots of kids will want to go today, and this is truly inspiring that we can allow kids to dream for real about the prospects of going into space in their lifetime. Fantastic!
SS: Per, thank you so much for this wonderful interview. We wish you all the best with all your endeavors. We were talking to financier, philanthropist and to-be space tourist Per Wimmer about whether green technologies can provide answers to our future energy needs.