A Folly in US Energy Financing

Jan. 9, 2013 - PRLog -- Ever wonder why gas prices at the pump have held steady around the $4 per gallon mark for the past two years, despite the global economic slowdown? The last time prices reached $4 was just after Katrina. Consumers then underwent sticker shock. Lately prices have pulled back a bit but come 2013, consumers may see $5 to $6 per gallon gas as the US economy rebounds. What is keeping fuel prices so high? Aside from the traditional market forces, there are many other factors that affect fuel prices too.

Certainly the conflicts in the Middle East (i.e. Syria, Egypt, Palestine) and the nuclear threats from Iran play a part. With the slightest inkling of a possible supply interruption, fuel buyers and speculators will jump into a buying or selling frenzy. Wars, threats of war, OPEC news or lack thereof are all likely triggers to set fuel buyers on edge creating havoc for companies and consumers alike. These erratic fuel price swings do more damage to an economy by spawning uncertainty and instability.

An important stabilizer for these lopsided market forces has been improved fuel efficient engine designs that presently deliver up to 40 miles per gallon (mpg). Already some designs are boasting 100mpg with their pilot models! - (ecomotors.com (http://www.ecomotors.com/)).  But, even if 100mpg cars were introduced to the US market today, fuel prices would most likely continue to rise because in addition to geo-political uncertainties, there are domestic ones as well.

MIT Energy Finance Forum
At a recent energy finance forum last month organized by MIT’s student run energy club (mitenergyclub.org (http://www.mitenergyclub.org/)), CEOs, thought-leaders, and entrepreneurs representing various facets of the energy industry discussed the many opportunities and challenges created by higher energy prices. Everyone agreed that moderate price increases backed by sound government policies could help boost a stagnant economy. They go hand in hand such that one could not exist without the other. Higher fuel prices stimulate new research for alternative fuel sources, encourage design engineers to do what they do best, and create public awareness on the importance of conserving energy. On the other hand, comprehensive government policies help companies and investors align their business strategies with US national interests as well as with each other. Having both in synch attracts new investors.

So when I heard panel members at the forum blame the high cost of energy on the Obama Administration’s lack of a national energy policy, I wondered if the Secretary of Energy, Dr. Steven Chu (http://energy.gov/contributors/secretary-energy-dr-steven...), had lost his way.  In 2012 Chu’s Department of Energy (DOE) invested in over 180 projects with ARPA-E, a new R&D agency for basic renewable energy projects. Chu’s ‘hit or miss’ approach to unveil the ultimate breakthrough without announcing a definitive national energy strategy has overshadowed the rest of the industry. Energy-sector CEOs have had to navigate rudderless relying on politically motivated investment tax credits and subsidy schemes (i.e. Renewable Energy Certificate (https://www.dom.com/dominion-virginia-power/customer-service/energy-conservation/pdf/renew-energy-cert.pdf) or RECs) to make ends meet. The following are a few examples of how some have coped with the current situation.

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