A Clean Energy 'Reality Check' At BofA's Energy Transition Conference

The iShares Global Clean Energy ETF ICLN is one of a number of clean energy investments that has performed extremely well in recent years. So far in 2021, the Energy Select Sector SPDR Fund XLE has left the ICLN ETF in the dust.

There’s no question clean energy is the long-term future of the global energy market. At the recent Bank of America Energy Transition Conference, Mark Mills, senior fellow at the Manhattan Institute, a conservative nonprofit think tank, and faculty fellow at the McCormick School of Engineering at Northwestern University, discussed the limitations of today’s clean energy systems.

Related Link: Why There Could Be More Recovery Upside To Oil Prices Than Stock Prices

The Material Problem: First, Mills said today’s clean energy technology creates a major materials problem, particularly when it comes to wind and solar.

Access to the materials needed for large-scale wind and solar generation and storage will have a major economic, environmental and human rights impact, Mills said.

For example, wind, solar and hydro-dams require 10 times more tonnage of materials — such as concrete and rare earth materials — to be mined and moved to deliver the same energy production as a single natural gas plant.

In addition, the intermittent nature of these renewable energy sources requires overbuild and battery storage, which demands even more materials.

While Mills said there are plenty of materials in the world to meet large-scale renewable energy demand, obtaining these materials in an ESG-friendly manner will be much more challenging than many investors realize.

The Cost Problem: In addition, Mills said the potential of wind and solar is often misrepresented, and the idea that the two have reached grid cost parity is “a myth.”

The intermittent nature of wind and solar requires storage measures that make those two particular energy sources the most expensive form of electricity today. As technology gets better over time, Mills said these costs will drop.

Yet he said expectations for how quickly and how far they will drop may be misunderstood.

In the meantime, Mills projects total global oil demand will continue to rise under current government policies. Even in the event that certain governments ban oil usage outright, global oil demand will at worst flatten through 2030.

Oil prices, on the other hand, will likely continue to rise due to market dynamics. Mills cited International Energy Agency projections suggesting that global oil and gas production will decline much faster than any potential drop in demand, a perfect recipe for higher prices.

Benzinga’s Take: The global shift from fossil fuel to renewable energy will not occur overnight, and the world will continue to need energy in the meantime. There’s certainly plenty of money to be made investing in alternative energy in the long-term, but there will still be big profits in the oil and gas industry for at least another decade.