We humans are facing a tsunami of hardship this century if we don’t figure out a way to get renewable energy to beat the price of coal. That bogie is hard, but important, because of the consequences for humanity of we don’t. Our seemingly limitless, cheap supply of energy is so fundamental to prosperity in the world, we don’t realize how painful life would become if we lost it. And yet, with the population of the planet steadily growing, we are going to either run out of natural resources, or face skyrocketing energy prices that cripple our economies. To prevent these catastrophes, we need to convert people to renewable energy sources. But we will only successfully switch to renewable energy sources when we provide a solution that is economically the same price as coal. Unfortunately, most people won’t pay a premium to “be green”, and we cannot rely on government subsidies to save the planet.

The energy business is the biggest in the world, dwarfing nearly every other business in size, scope, revenues, and profits. The picture below shows a breakdown of how we in the United States get and use our energy. We have a bunch of energy inputs on the left, much of it from around the globe, and then we convert it for our homes, business, and industry and for our cars (and other transportation). Basically, almost 70% goes into electricity, heat, and industrial processes, and the remaining 30% is for transportation.

(Click here to enlarge figure 1)

The picture is pretty representative of the rest of the developed world today as well. We can safely assume that demand for energy is going to double in the next 50 years as the world’s population grows and we continue to lift people out of poverty in record numbers in China, India and everywhere else in the developing world. The people in those countries will expect to live in the same relative comfort, or close to, what we have been living at. What that means, simply, is that we’re going to run out of the stuff that forms the bulk of the inputs on the left; and even if you don’t believe we’re going to run out, the price because of supply and demand is going to start skyrocketing — look what has happened to the price of coal in the past year(going from about $40 per metric ton to over $100 per metric ton) and the price of oil breaking $100 per barrel. Right now the cheapest (and unfortunately the dirtiest, and most dangerous) input on the left is coal, and it accounts for most of the electricity produced on the planet. All the other fossil fuels (largely used for transportation) are more expensive, and even scarcer.

To address this we only have two places to turn — using what we have more efficiently, and finding alternative sources of fuel instead of the fossil stuff in the form of renewable energy. We have to do both. But in both cases, we have to shift consumer behavior by creating energy alternatives matching or beating the price of coal and other fossil fuels.

The best source of fuel is the sun - the sun provides us more than 170,000 times as much energy as the entire earth needs. Of course, we need to take advantage of every other resource as well, whether it’s wind, nuclear, hydro, or biomass, but all of those combined can only make up a fraction of what the sun can give us. Only by putting together all alternative solutions will we be able to replace coal — and eventually fossil fuels — completely. And the resource will be renewable, allowing us to make it as we use it, so hopefully the energy resource wars can end.

Fortunately, there is huge investment going into this right now. There are hundreds - if not thousands - of different angles to beat coal that we need to undertake. We are excited to see entrepreneurship across the whole spectrum of the renewable energy sector and to see that it is growing by such leaps and bounds. People see the economic reward and opportunity, and thus risk capital is flowing to solve the problem. In the past, virtually all of our energy generation was fossil fuel based and centralized, and done at huge scale. It was not possible for a startup to enter that arena. Renewable energy, on the other hand, can be decentralized; not only can it be done at smaller scale, it can actually be more cost effective at smaller scale, especially if used near where it is produced. That means that entrepreneurs can and will make the difference in this revolution. There has often been talk of a “Manhattan Project” that is necessary to solve our energy problem. We actually believe it’s a “Million Little Manhattan Projects” that will end up making the difference.

Since costs matter so much, here’s a final point on costs — these are all approximate, because they depend on region, pollution control, tax credits, and other factors — but these are representative and relative:

• $0.05 per kw/hr — the cost of electricity generated from coal (the dirtiest fossil fuel)
• $0.10 per kw/hr — the cost of electricity generated from gas (more expensive, but quite a bit better than coal)
• $0.16 per kw/hr — the cost of electricity generated from solar thermal (many people are working to beat this now)
• $0.24 per kw/hr — the cost of electricity generated from photovoltaic panels on large scale solar farms (many people are working to beat this too)
• $0.40 per kw/hr — the cost of electricity generated from photovoltaic panels on rooftops of homes and businesses

The important thing, in my opinion, is for all these new efforts to be focused on beating the price of coal, with either no or equivalent subsidies, and when we do, we have a chance to cause the widespread/wholesale adoption that will really change the world for the better.

I woke up this morning to read some of the best news for the planet I’ve seen in a long time. On page 1 of the WSJ was an article proclaiming that China’s wild demand for energy has finally spurred a coal-price surge.

(Click here to read the Journal article.)

Finally, the demand for coal is driving up the price. Forever, it seems, China has been a net exporter of coal to the world, and finally their insatiable appetite is making them a net importer. This has triggered a huge rise in the price of coal (see graph above). I think this is actually a good thing that supply and demand is working. I think this is a great thing for the planet because I believe the only way we can beat coal is to make electricity by renewable means that actually beats the price of coal. That’s a VERY tall order, but now is made easier with the price increase. Further, I think the ultimate solution to the energy demand is to make electricity renewably for cheaper than coal, eventually, with NO subsidies. This is only possibly, I believe, if the full externalities of coal usage are priced in. But they are not. Until they are – and I’m not holding my breath until they are, if they even ever are – then the best way to compete is for supply and demand to properly set the price. And this is the first move in a long time that I’ve seen to reflect that, and I think it’s a good thing for long term, albeit painful to energy consumers in the short term.