From the Ash's

There is no doubt in my mind that we're entering a new energy market, and that our experience in the last oil shock in the 1970s does not apply to the new rise in energy prices.  This fact stems from the rapidly increasing demand in places like India and China - a demand that oil production cannot hope to meet with current energy prices - that did not exist in the 1970s.  This knowledge has led a lot of people, particularly investors, to seek opportunities in renewable energy technologies.  However, most of these are doomed to failure for the same reasons they were the first time, and - as noted by my friend Kurt Keville - it is important to realize that most of the old players from the 1970s renewable energy field have decided to pass on this opportunity.  If nothing else, that should tell you something.

Ethanol is the darling-child of renewable energy buffs everywhere.  However, it has a long way to go before it will ever be a serious force in the marketplace.  Here are some reasons why:

• Distribution of oil moves in a river-delta format - it starts with a fat pipe at an oil field, moves down the pipeline to a refinery, the refinery pipes to a distributor which then sends it down the tendrils to all of the gas stations... only at the end do the logistics leave serious arteries.  Bio fuel must first aggregate from a number of small sources then disseminate, roughly doubling the logistics involved.
• Ethanol is significantly more corrosive than gasoline, which means it is ill-suited for use in normal vehicles, even as more than a 10% additive.  Aside from the corrosion, when it's concentration in fuel is greater than 10%, toxic fumes from the ethanol will seep from the fuel system of most cars.
• Modern, non-flex-fuel cars are optimized for gasoline consumption.  Switching the fuel will significantly degrade both the performance and the fuel efficiency (not including ethanol's reduced power-per-gallon in the next point) of those vehicles.
• Ethanol has significantly less power-per-gallon, which means that you have to burn more of it to get the same performance - even in the best of conditions.  It also means that a full tank won't get you as far down the road, so there have to be more fueling stations and it will take more of people's (already dwindling) time.  Hybrid technologies may find a huge opportunity in improving the performance of ethanol vehicles, but this application is likely close to a decade away.
• There is a chicken and egg problem inherent in this industry.  In essence, the petroleum companies are asking the question: "If we build it, will they come?".  Note, this isn't the case for American car manufacturers because there has been a long standing tax break to encourage them to produce "flex-fuel" cars, which is a hold-over from the fallout of the oil shocks of the 1970s.
• There is not enough production capacity, nor even potential production capacity (ie. all arable land), in the world to produce the corn crops necessary to shift all vehicles to ethanol and other biofuels.  Hence, the "ethanol economy" is inherently a non-starter.
• Many non-vehicle technologies, such as plastics and fertilizers, require petroleum for production.  Ethanol won't be able to replace petroleum in fulfilling the needs of these industries.

These seven reasons are just some of the top ones for why ethanol is a non-starter.  However, other darling-children of the renewable energy crowd are also doomed to a supporting role.  Solar power, which relies heavily on metals and silicon for the production of solar panels (not to mention, extremely toxic chemicals), has too low a power density to replace lots of energy generation systems.  Also, throw in the fact that you have to extract the silicon and metals needed for its production from mines, which requires petroleum. 

Likewise, wind power has a limited role, since the average windspeeds required for consistent power production make only a small percentage of available land well-suited to wind production.  Used in concert, all of these technologies will help ease the stress on current energy supplies; however, they're not going to solve the issue.  Ever.

So where does the path lie?  Well, in the short term it's simple: conservation.  There is incredible inefficiency everywhere in the world, borne of oversupply of power for so many years.  That means that we can reap a lot of value out of getting better at keeping what we have.

What else?  This is going to make me pretty unpopular: nuclear.  There are new nuclear technologies, pioneered in part by my alma mater, MIT, that are completely safe and very efficient.  Such technologies offer the energy densities necessary for practical use in a macroscopic application.  I predict that China, and maybe India, will be front-runners in exploring the use of new nuclear technologies... Why?  Simply because they need it for growth, and they have to be more pragmatic about their situation than the populations of developed nations.

I also predict that the new oil - the new driver of our economy - is something we haven't seen yet, or have relegated to the back of our minds.  It's obvious with just a few BOTEs that current renewable energy technologies are not going to meet our energy needs, so it's time for savvy investors to look farther out into the fog to see what's really going to save the day.