Market Landscape

Many factors have converged to improve the outlook for global renewable energy adoption. In the U.S. alone, the size of the power and fuels markets has reached over $1 trillion in annual sales, of which renewable energy sources are estimated to account for approximately 7% of total energy input. The convergence of global macro concerns, such as fossil fuel supply, national security considerations and environmental policy mandates, have caused renewable energy demand to rise at double-digit growth rates. In order to comply with various federal and state mandates, forecasts show the need for an incremental 46 GW, or 150% of the 2006 installed capacity, of renewable power generation by 2020. As global demand for energy increases, USRG believes the renewable energy market could grow between 10-15% annually, with some sub-segments growing in excess of 20%, thereby creating a number of attractive investment opportunities in renewable power and clean fuels.

 

POWER GENERATION

In addition to renewable energy sources, the primary fuel sources of the global power market are coal, nuclear, natural gas and oil. However, to meet today’s current build needs, renewable sources are better positioned than traditional fuels. Nuclear capacity is not easily expandable due to the real and perceived environmental and security risks, as well as the 10 to 15 year development and construction timeframe. Natural gas capacity expansion has slowed due to the overhang from significant build-out in the late 1990s. With the focus on emissions levels produced from coal plants, the siting and permitting of coal-fired generation has stalled in many regions of the world, particularly in the U.S. Given the limitations of the traditional power sources, renewable sources of energy are favored by many states due to their cost advantage and environmental attributes.

 

FUELS

In the liquid fuels market, fossil fuels have come under increasing pressure due to concerns over supply and increasing concerns related to climate risk and air pollution. Unlike the electricity market, the fuels market is 97% dependent on oil for supply. This issue is compounded by the fact that little spare production capacity exists, and geopolitical risks in major supply countries in the Middle East, Africa and Latin America have curtailed supplies. Furthermore, the U.S. currently uses more than three times as much oil as any other country and approximately 25% of global supply. With the emerging economies of China and India expected to surpass U.S. demand by 2020, there is urgent market demand for new supplies. USRG does not expect this situation to improve significantly in the near- or long-term, despite the billions of dollars of investment in new oilfield development. As a result, and in order to continue to satisfy consumption growth, new supplies will be needed to replace declining existing resources.