Good News from Goldman Sachs?

Wind PowerGoldman Sachs, a financial behemoth once famously referred to as a giant “vampire squid” by Matt Taibbi of Rolling Stone, has long been accused, and rightfully so, of providing no real value to society generally and existing only to maximize profits by extracting wealth from the economy, oftentimes at its own clients’ expense. While Goldman certainly has no plans to alter the way in which it does business, it recently announced plans to make an investment that flies in the face of conventional conservative wisdom. The company plans to invest at least $40 billion into the alternative energy market over the next ten years, even in the face of expiring tax credits and incentives. The company exists, and will always exist, to make money. Truckloads of cold hard cash and huge numbers of gigabytes of 1′s and 0′s. So, why is Goldman Sachs investing so much into a sector that nearly each end every Republican views as expensive and impractical? Recent statistical evidence suggests that certain alternative energy sources are closing the cost gap with traditional coal and natural gas electricity generators, and it appears that Goldman, as Taibbi argued, isn’t all that interested in politics, instead it only seeks out new sources of profit. Goldman evidently wants to be out front and entrench itself as a major player in the energy sources of the 21st century.

President Obama, for all of his flaws, has consistently been a supporter of alternative energy. He has pushed for significant commercial and residential tax credits and has made use of government funds to make low-interest loans and grants to producers and researchers of green technology and power generation. However, may of the tax credits and investment programs aimed at bolstering the infant green energy sector are set to expire at the end of 2012. It is increasingly unlikely that the programs will be renewed by a Republican controlled House of Representatives. The recent up-tick in more cheaply–and dangerously–extracted natural gas has also forced serious debate of the need for renewable and alternative energy sources onto the back burner. So, while little doubt exists as to Obama’s cozy relationship with Wall Street and the financial sector, he fearlessly remains at odds with many in his own party, as well as Republicans, who are loathed to support green technology under threats of reprisal from the immensely powerful oil and natural gas lobbies.

Goldman Sachs can quite obviously be an imminently evil company. However, it does one thing well: make money. It is this understanding that must lead to the conclusion that alternative energy is on the cusp of not only competitiveness, but profitability. Contrary to widespread propaganda concerning “peak oil,” the world has more than enough oil in reserve to fuel industrialized society into the distant future, and coal a-plenty. Goldman is most assuredly not making significant investment in green energy because it fears depletion of oil, gas, and coal reserves. It is investing in alternative energy to make a profit. Perhaps it is also making a political calculation. As attitudes change and the destructive consequences of hydrofracking, coal mining, and oil drilling become less palatable to the public, political sentiment is sure to follow and shift to cleaner sources of energy. Goldman wants to be right there at the front of the line when it does, with a giant vacuum cleaner to suck up all the revenue it can get its tentacles into.

A recent study by Bloomberg Energy Finance found that solar electricity generation costs no more than traditional energy generation in terms of daytime power rates in several of the world’s major economies. It also found that given the environmental and health costs of traditional energy, it is actually less expensive than oil and gas. A host of other studies have found that wind power can and is being produced at a rate that rivals coal and natural gas, and will be fully competitive by 2016. Geothermal power–power generated from the earth’s natural heat sources–has been found to be not simply competitive with, but cheaper than, producing electricity through coal.

While the $40 billion investment is relatively modest when spread over the entire ten-year time frame, many analysts expect it to grow as opportunities for investment and profit expand. Still other analysts accuse Goldman of undertaking a “charm offensive” in an effort to mitigate some of the recent damage done to its reputation. Honestly, it would be a strange about-face for Goldman, as it has rarely provided the public with any evidence that it is concerned with its reputation. It has unabashedly gone about making profits for as long as it has been in operation, and little evidence exists that a critical New York Times op-ed is worth $40 billion to the investment bank. It is more likely a savvy investment with an unintended side order of good public relations.

With new emissions standards in emerging economies like Brazil, and less reluctance across Europe and in developing nations to explore alternative means through which to deliver electricity to its people, Goldman is shrewdly positioning itself to profit in foreign markets even as the United States stumbles and bumbles its way toward less reliance on oil, coal and natural gas. Just recently, the U.S. Senate rejected a proposal to allow the military to explore alternative sources of energy if the short term costs exceeded traditional fuels, further placing the country behind the energy curve. Goldman is almost certainly prepared to invest in areas with the most upside profit potential, rather than depend upon the United States to follow the lead of the rest of the world. Many nations already have energy feed-in tariffs in place that require utilities to purchase excess power produced by households and businesses at the prevailing rate, and in some cases pay a rate for each unit of energy produced even if consumed, thereby encouraging investment in alternative energy at the micro and macro level. Emerging and developing economies that do not have entrenched fossil fuel industries supplying electricity are looking to alternative sources of energy as a real alternative as they prepare to build significant energy infrastructure. This trend is almost certain to grow as evidence of the devastation caused by oil, coal, and gas increases, and the economic and environmental costs of extracting the fuels expands.

In the United States, the fossil fuel industry is extraordinarily large and politically  influential. Even as alternative energy tax credits and incentives are set to expire, no serious debate is taking place in government to do away with subsidies and tax incentives provided an otherwise healthy fossil fuel industry. The industry also employs millions of people across nearly every state and every congressional district. Goldman is well aware of this conundrum, yet it is investing in alternative energy nonetheless. Goldman understands that although significant numbers of people will be required to build out alternative energy infrastructures across the globe, that once constructed and operational, alternative energy will require far fewer employees per kilowatt hour produced. The number of employees and the cost of heavy equipment required to extract oil, coal, and natural gas is staggering. A solar or wind farm requires little attention other than routine maintenance, as does a geothermal power generating plant or a solar farm. Technical expertise will replace brute strength and employment costs will come down. Both Goldman and the government of the United States understand this fact, yet the government and its elected incumbents, not Goldman, will suffer the consequences of lost jobs as employees of the oil, coal, and gas industries retool and move into alternative energy generation. With alternative energy predicted to account for nearly 1/3 of all energy production in the world by 2035, political influence and political fear continue to encumber the United States while much of the globe speeds past it.

Goldman is not pursuing increased investment in order to buttress its philanthropic image. It is investing in alternative energy because it makes economic sense, and because it looks outside the borders of the United States’ Tea Party saturated ass backward energy policies for profit. Goldman is looking ten, twenty, thirty years ahead with this and subsequent alternative energy investments. If the United States government and its people would see fit to make these investments, the people could benefit from new technology and a potential partnership with commercial enterprises might flourish. Instead it has left development and research to private industry almost entirely while at the same time stacking the odds against it by subsidizing its traditional fossil fuels competition. It has hardly been the recipe for entrepreneurship, creativity, and inventiveness that can be seen in China, Germany, and other forward-thinking countries.

Goldman is doing nothing more than following an industry to its logical end, and seeking to profit at a later date by investing early and placing itself among the pioneers of alternative energy. If Goldman knows anything, it is that those who innovate, profit. It should speak volumes to those in power in the United States that Goldman is willing to move forward with its green energy investments, and now, and in this limited instance, it should follow Goldman Sach’s lead.