A Critical Analysis Of Alternative Renewable Energy

Introduction

In this chapter I will provide brief overview and scope of the dissertation. I will present the highlights of the major topics that will be covered in this dissertation and summary will be presented of the later chapters. The dissertation will be research based and the research sources will be from journals, books and internet articles. Through this research I will explain the aims and objectives of the dissertation which will be covered in this chapter. Furthermore I will also look upon the need for alternative renewable energy in this chapter and the benefits alternative energy brings to the environment, society and corporations. The growth in the alternative energy industry will also be mentioned along with theoretical framework and research methodology.

Aims and objectives

The main focus of the dissertation will be on the benefits of alternative renewable energy. The supply of traditional energy resources such as oil, gas and coal are depleting and ever increasing demand of these energy resources is drawing our attention towards alternative renewable energy thus one of the aims of my dissertation is the need for alternative renewable energy. Alternative renewable energy doesn’t impact the environment, society and climate in a negative way thus the second aim of my dissertation will be the advantages of various forms of alternative renewable energy sources. The investment in development of alternative energy sources is very limited primarily because of the perception that this investment will not match the profits generated by investment in traditional energy sources. Contrary to this popular opinion I have designed another aim of my dissertation which will be the benefits of alternative renewable energy to corporations. Since there is lack of confidence in big corporations so I will also consider the limitations in development of alternative energy industry and will present the solutions to these limitations in my dissertation.

Justification of the subject:

In the recent past the world has heavily relied on traditional energy sources such as oil, gas and coal. The growth in industrialization in all parts of the world particularly India and China and in developed parts of the world U.S, Japan and Europe has increased the global demand of oil and made these countries net importers of oil. The supply of oil by OPEC and Non-OPEC members is decreasing and there are not sufficient oil resources to meet the ever increasing demand of energy. Moreover oil has huge impacts on the society and the environment particularly in the form of oil spills. The dependency on oil is changing the climate of this earth and increasing the threat from global warming. I believe to meet the demand deficit of energy it is time that the world should consider investment and growth in alternative renewable energy sources. The decreasing supply of oil and its adverse impacts on the environment and society increases the need for alternative energy sources. Alternative energy sources bring along benefits to the society, environment and corporations and thus it is the need of this hour that upcoming and large oil and gas companies shift from traditional energy to alternative renewable energy.

Some background to the problem:

Need for alternative energy:

As Hasan stated in his report “Introduction to alternative energy” on page 1 that the world’s dependence upon oil and the decrease in traditional sources of energy such as oil, natural gas, coal and nuclear power is changing the structure of this world. The world is heavily oil dependent rather I will say addicted to oil and the growth in industrialization in all parts of the world is increasing this dependency on oil. However at the same time there is decrease in the supply of traditional energy. The resources of traditional energy are limited and due to depletion these resources cannot match the demand of energy and thus it is believed by every authority that without alternative energy the growing demand of energy in the future cannot be met. The global supply of coal, oil and gas is limited while nuclear energy is dangerous and thus the discovery of alternative renewable energy sources is of utmost importance to meet the energy challenge. The traditional energy sources such as oil, gas, coal and nuclear power are not renewable and produce a lot of waste products and harm the environment. The smoke and chemicals produced by these sources pollutes the air and affects global warming. On the other hand alternative renewable energy doesn’t impact the environment and for these reasons the need for these sources is at its peak. Alternative energy sources are environmental friendly and technologically advanced and at the same time renewable energy will strengthen the core businesses of oil and gas companies. It is believed by all that alternative renewable energy will replace the traditional energy in years to come.

1.4.2 Growth in the Renewable Energy Market:

With time the world is seeing the growth in alternative renewable industry and greater investment is coming in this industry from public and private sector e.g. the investment in renewable energy capacity rose from $30 billion in 2004 to $38 billion in 2005 (Alternative energy: A global survey, 2007 pg 4). According to survey on alternative energy conducted by Goldman Sachs in 2007 the increase in investment can be attributed to following factors:

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The supply of traditional energy resources is uncertain and at the same time the energy cost is high which increases the cost of production. On the other hand the cost of renewable energy is low and the supply is unlimited.

Alternative energy reduces cost and thus increases competitiveness and at the same time it allows small players to match the threat from big players. Traditional energy doesn’t bring economies of scale not energy efficiency.

Various governments through laws are promoting the use of alternative renewable energy e.g high tax on coal and at the same time grants for companies expanding in the alternative energy sector.

People these days are more aware of impacts of traditional energy on the environment and thus for better future the support the alternative energy sources.

Moreover the global survey conducted by Goldman sachs in 2007 also identified certain macro factors are also increasing the importance of alternative renewable energy and among them include:

• Continued global economic growth: The world is seeing the emergence of new economic powers in the form of Brazil, China, India and Russia and in order for these countries to continue grow economically new alternative energy is required.

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• Continued population growth: The world’s population is growing and moreover people from rural areas are shifting to urban areas. In order to meet the energy challenge of this growing population new cost effective alternative energy sources are required.

.• Climate change: the traditional energy is a great threat to the climate particularly in the form of GHG emissions associated with fossil fuel and thus in order to protect the climate environmental friendly renewable energy is required.

1.4.3 Various forms of alternative energy:

Alternative renewable energy is a form of energy that is renewed by the natural processes of Earth and is environmental friendly such as sunlight from the sun or wind from the air. In this section I will consider various forms of alternative renewable energy sources available which were presented by Hasan in his report “Introduction to alternative energy” on page 2, 3 and 4.

Solar energy:

Solar energy comes from the light of sun and it can be harnessed through the use of solar power cells. Sunlight is free, easy to harness and accessible to everyone. It is difficult to harness solar power on a larger level and thus solar power has more usage in home electricity production. The only cost involved in creating solar energy is the cost of solar panels. Apart from the low cost of solar energy, the power is environmental friendly and no waste byproduct is produced through the creation of this power. At the same time solar power promotes a greener future. Sun light from the sun can be used to create solar power at a domestic level and at the state level. Currently many households and companies create solar energy by putting solar panels on the roof of their buildings and thus protect the environment from unfriendly waste material and at the same time benefit from low cost of energy.

Wind Energy:

Wind power is another form of renewable energy which protects the environments and creates electricity at low cost. Wind power is harnessed though the use of wind turbines which are turned by the wind to produce electricity. Wind is vulnerable to weather conditions but in costal offshore and high altitude areas there is a steady supply of wind. Wind power can be used to produce electricity at a large level by using multiple turbines and at the same time at a household level. Critics of wind power claim that the generation of wind power through use of turbines result in ugly noise and kill birds however the benefits in the form of low cost and friendly environment outweigh the disadvantages.

Geothermal energy:

Geothermal energy is another cost effective renewable energy which draws energy from the planet’s core through thermal power stations. The heat from planet boils a liquid which evaporates to turn turbines, producing the electricity. The cost is low because the heat is free and only cost incurred is of a thermal station. Geothermal is an environmental friendly energy that doesn’t pollute or produce waste material and it can be used for heating and cooling purpose.

Hydroelectric energy:

Hydroelectric power is created through water and it comes from dams which harness the power of rivers. The water passes through turbines at base of dam and thus electricity is generated. Hydroelectric energy is created on macro level by the state of or companies and not at a household level. Hydroelectric energy produces no pollution at all and promotes a greener world.

Tidal Power:

Tidal power is another form of renewable energy that can provide clean and free energy in the future. It is created when water from the ocean flows through the tidal stations and thus turbines create the energy.

Biomass technology:

Any form of renewable energy that can be created from biological matter is biomass technology. Biomass can be in the form of biofuel and biogas. Through biomass technology any material e.g. dead vegetable, crops, meat and plants can be converted to create biofuel and biogas. The transformation of these materials into electricity will save the cost and the material which if unused will be a waste product and spread pollution. Biofuel will be in liquid form while biogas will be in the form of natural gas. This technology is very cost effective and can be used to create electricity or satisfy any needs from oil or gas.

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1.4.4 Advantages of alternative renewable energy:

According to the article “Seven most beneficial alternative energy advantages” Alternative energy offers various benefits to the environment and society and these benefits have been explained below:

1. Municipal Solid Waste Elimination

The harmful fossil fuels will run out in the near future and thus to meet the energy demand the solid waste material can be used to create energy. The municipal waste or household garbage will be used to generate energy and it will be very cost effective and environmental friendly.

2. These Energy Sources Are Renewable

Through alternative energy there will be unlimited supply of energy as the sources are renewable. So whether it’s the solar power, wind power, biofuel or hydroelectricity it won’t get wasted and unlimited supply will be available for households and industries and thus there will never be an energy crisis. The oil, gas and coal resources will be finished one day however renewable energy will remain forever.

3. Local Production and Benefits

The traditional energy in the form of oil and gas are produced by big players such as BP, Shell and Exxon Mobile. These companies operate in various countries and use the local resources to supply oil and gas. Moreover these resources are sold to the local population at high prices and profits are returned to the shareholders. Thus there is nothing for the local economy and the local population. On the other hand alternative renewable energy can be produced by local investors in the form of large and small businesses. The local businesses, society and government will benefit from local production of renewable energy and benefits will be in the form of low energy cost, steady taxes, generation of jobs and returns to local investors. The renewable energy will be produced locally and the involvement of foreign companies will be minimal.

4. More Environmentally Friendly

Oil and gas result in creation of smoke and pollutants which impact the environment e.g. greenhouse gas emissions which harm the environment and contribute to global warming. Thus these energy sources are increasing the temperature of planet and making it a more dangerous place to live. On the other hand renewable energy does not have carbon emissions nor do they cause damage to environment. The environmental friendly renewable energy will make this earth a better place to live.

5. Better National Security:

The reserves of oil and gas are under control of some countries while they are explored and distributed by only a couple of companies this means that rest of the world are dependent and on mercy of some hands. A catastrophe, unstable government or war will heavily impact the supply of oil and national security will be at threat. However on the other hand renewable energy will secure the countries more and will enhance the national security because of domestic production.

6. More Price Stability

As seen in the recent past the fluctuations in the prices of crude oil resulted in financial crises and it also affected the economies of many countries and left some companies on the verge of bankruptcy. The high price of traditional energy also keeps the cost of production high. On the other hand renewable energy is very cheap which will keep the cost low and there will be no fluctuations in prices that will result in catastrophe.

1.4.5 Benefits to upcoming companies:

Oil and gas sector is dominated by a bunch of large companies and thus it becomes difficult for upcoming startups to compete with them. The high barriers to entry, limited resources and control over the production reserves by these large oil and gas companies makes it difficult for upcoming companies to enter the traditional energy industry. However on the other hand through favorable government policies towards renewable energy, unlimited supply and local production startups from emerging and developing economies can compete on the basis of cost with these large companies. The alternative renewable energy brings along various benefits for these upcoming companies which were identified by Goldman Sachs in 2007 during the survey “Alternative energy: A global survey” and they are explained below:

Feed-In Tariffs

In order to promote the alternative renewable energy sector the government purchases power from these upcoming companies at a fixed rate this is set above the market price. The fixed price creates stability and reduces financing barriers for these startups. Feed in tariffs result in stable long term payments for these companies and also gives the incentive to the producer to use the most efficient source of energy. Through long term stable cash inflows from the government the upcoming companies can compete with large firms and at the same time their liquidity needs will addressed and profits will be generated. The subsidy which the government provides to these startups in the form of feed in tariffs help them to grow and match the threat from competition.

Tax Credits:

In certain countries government offers two kinds of tax credits to companies that produce electricity through renewable energy. Production tax credit is based on amount of energy produced from renewable sources while investment tax credit is based on amount of investment in renewable energy projects. The tax credit can be in the form of income tax, sales tax or property tax. For upcoming companies the tax credits bring along a great opportunity to invest in renewable energy. The tax credits in any form will increase their liquidity position and allow them to expand more through money saved. The tax credits along with feed in tariffs will result in cost savings and organic growth for startups.

Minimum GHG emissions:

Regulators in certain countries set standards for minimum GHG emissions and encourage companies to reduce GHG emissions. Those companies that exceed the minimum level are penalized while others that are below the minimum level are given incentives. Thus for upcoming renewable companies this kind of laws gives them a great opportunity to get incentives under such programs as renewable will result in minimum GHG emissions and companies will benefit from incentives. Similarly certain governments have imposed carbon tax and this kind of tax is discouraging for traditional energy companies and thus gives a great opportunity to upcoming companies to pursue a carbon free strategy.

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Loans, Grants and Subsidies:

In order to promote the alternative renewable energy many governments and authorities like World Bank or United nations offer grants and subsidies for upcoming companies. The grants and subsidies can be in the form of provision of land and technology, expertise or even low interest rate loan. Thus new upcoming firms can take this opportunity to address their capital requirements and though such grants and loans can step in the alternative renewable energy sector. These grants also offer great opportunities to companies in under developed countries in Asia and Africa to produce power from alternative renewable energy.

Other benefits:

There are various other benefits to startups investing in alternative renewable energy sector according to article “Dollars from sense: The economic benefits from renewable energy” and these can be later passed onto the society e.g. an investment in renewable energy project by the local investor will strengthen the local economy, help government in the form of taxes and at the same time create jobs for the local community. Secondly because of low cost of production and unlimited supply the prices will remain stable and thus this will ensure steady profits and cash flows to the company. On the contrary a sharp decline in oil prices result in losses to these big oil companies. Thirdly people now prefer energy from alternative sources because of less impact on environment so money invested in renewable energy will generate more returns than money invested in traditional energy. The increasing demand of alternative energy will result in high returns and high profits for shareholders.

Theoretical framework

To make the study more effective journal of corporate governance, journals of management in science and journals of industrial management were analyzed. The articles from internet were also analyzed and the theoretical framework is based on these journals and articles. In order to determine the benefits from alternative renewable energy to the environment, society and upcoming startups I will also consider the reports of various government agencies that support these programs. Many governments in developed countries offer subsidies and grants to upcoming companies planning to expand in the alternative renewable energy and moreover financial and technical assistance is also offered from international institutions like World Bank. The policy framework and benefits offered by these institutions will be analyzed in the literature review section of this dissertation.

Methodological framework

In order to make the dissertation fact based and reliable a lot of data was required. The research method I used to gather data was from secondary resources. Secondary resources were used first in order to understand the subject matter and validate the aims and objectives set earlier. The secondary resources that I used were journal articles, internet articles and reports from various government agencies. A lot of research has been done on alternative renewable energy in terms of benefits offered to the economy, environment, society and companies. This research from secondary data sources will be used and analyzed with literature reviews in the dissertation. The secondary research is cheap and easy to find moreover the information gathered is from reliable sources. The data was collected from library’s database and this research will be used to validate the research objectives. Quantitative and qualitative information is available on renewable energy sector and this information will be presented during the course of dissertation.

Outline of the following chapters

I have divided the dissertation in five chapters. Literature reviews will be discussed in the second chapter and published information from reliable sources such as books and journals will be analyzed. In the 3rd chapter I will explain the research methods, the process used to collect data and their limitations. . In chapter 4 I will critically analyze the information gathered earlier through literature reviews and recommendations and data analysis will be presented. The last chapter will provide the synopsis of the study, limitations and the need for future study.

Summary of the chapter

In the initial part of the chapter the aims and objectives of the study were mentioned which are based on the need of alternative renewable energy, the benefits to the society, environment and companies and limitations of this sector. While in the later part of the chapter the overview of various alternative renewable energy methods were presented along with the benefits to the environment and upcoming companies. Last but not the least the theoretical framework and the methodology was presented.