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Sustainable energy infrastructure a winning investment - The Red and Black : Columns

Sustainable energy infrastructure a winning investment

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Posted: Monday, March 4, 2013 7:00 am | Updated: 4:24 pm, Mon Aug 12, 2013.

There’s been a lot of philosophical and theoretical talk about fossil fuel divestment lately. As an investor, I don’t care for philosophical debates, and I don’t like getting bogged down in abstract concepts. I like money. I like account numbers that get bigger. I like putting my money where my mouth is and winning. It seems fitting, then, that one consider the investment side of the issue.

For those of you who don’t know: the University of Georgia has an endowment of around $550 million. Donors give the University big checks, the checks turn into big numbers in the endowment fund and smart guys and gals at the Board of Trustees use those funds to build an investment portfolio — think hedge funds, stocks, bonds, et cetera. Simply put, the name of the game is to make money.

Taking a quick look at the breakdown of the endowment portfolio, I can make a safe bet that UGA has a decent position in a notorious fossil fuel corporation: Southern Company (SO). To be honest, SO is a great investment: the stock price doesn’t change much, the company has the Southeast on lock and they pay you 4.4 percent a year on your holdings in the form of a dividend.

Now let’s say, hypothetically, UGA has $10 million invested in Southern Company common stock. Keeping the stock price constant and reinvesting the dividends, over the course of the next ten years that holding will yield us about 54 percent, or $5.4 million. This is assuming no major stock crash in the next ten years, which, let’s face it, is highly improbable.

The question now is: can we find an alternative investment with a risk level equal to SO stock that can beat the 54 percent return on investment? The magic total to beat here is $15.4 million.

If I were investing my own money, I would reinvest that $10 million in sustainable energy infrastructure on campus. By overhauling old building AC/ventilation systems, replacing old light fixtures with cutting-edge new ones, installing solar thermal water heating units on residence halls and educating the campus about smart energy practices, we can obtain a six-year payback on our initial investment, according to findings from the National Renewable Energy Lab. Returns would come in the form of decreased electricity, natural gas and coal purchases.

At the end of that same ten-year period, we would end up with $16.7 million. In other words, we would outperform the fossil fuel stock by more than $1.2 million with less risky investments.

I urge the University administration, chiefly President Michael Adams, Provost Jere Morehead and Vice President of Finance Tim Burgess, to consider the above scenario. As a land-grant university, we have an obligation to invest morally. As a taxpayer-supported institution, we have the need to be as capital-efficient as possible. As Bulldogs, we have the obligation to invest in ourselves and in each other.

Though it will take considerable political pressure and some clever legal maneuvers, fossil fuel divestment should play an important role in UGA’s brighter future.

—Tyler Faby is a sophomore from Milton majoring in finance

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4 comments:

  • Tyler Faby posted at 12:31 pm on Wed, Mar 6, 2013.

    Tyler Faby Posts: 3

    KipLacy,

    I used the following as my documented source: http://www.nrel.gov/tech_deployment/climate_neutral/energy_efficient_building_management.html

    I added a year to the 6 year payback figure so as to factor in the average payback of solar thermal water heating installations, which is usually anywhere from 4 to 8 years.

     
  • KipLacy posted at 8:21 am on Wed, Mar 6, 2013.

    KipLacy Posts: 1

    The link is broken to the NREL's findings.

     
  • Tyler Faby posted at 6:24 pm on Mon, Mar 4, 2013.

    Tyler Faby Posts: 3

    TeeWee,

    Thank you for your post. I'd like to address some of your concerns.

    First, solar thermal water heating panels are up and running on a high-rise dorm at UNC Chapel Hill. They supply all of the base load hot water needs and can meet about 70% of peak demand. The payback for that project is 6 years. Also, generated hot water remains in the heating loop and can be used when the sun is not shining.

    I did not count on wind in this article. The coast of Georgia actually has tremendous wind capacity, though. There's a lot of literature on that if you're interested.

    When I refer to lighting fixtures, I'm referring to T-8s and LEDs. T-8s are fluorescents and do have some hazardous material in them, but the T-12s we have now pose the same risks. LEDs are coming down in price and are good candidates for new buildings.

    My proposed sustainable energy infrastructure is actually highly based in maintenance. Investment in regular maintenance actually has massive returns on investment. Deferred maintenance actually costs us a lot more in the long-run because we have inefficient buildings as a result.

    I'd like to stress that energy conservation measures will almost always have more attractive paybacks than say photovoltaics or biomass boilers.

    Just for fun: Germany also heavily invested in green energy, and they are currently holding the eurozone afloat. I blame severe austerity measures and the frankly silly monetary policies of our developed world for Spain's economic troubles.

    Best,
    Tyler

     
  • TeeWee posted at 5:45 pm on Mon, Mar 4, 2013.

    TeeWee Posts: 44

    Tyler:
    Stick with Journalism because you would not be very good as an investment advisor. Perhaps your journalism might need a bit of work also.

    The failure to define "Sustainable Energy Infrastructure" is the first error. What is sustainable energy? You mentioned 'solar thermal water heaters' and indeed these do work in tropical and sub tropical climates. The problem is that the sun doesn't always shine. Your hot water might be welcome for doing the supper dishes,  but the sun will not produce head after about 7:00 PM (and that's generous) to about 10:00 AM (ditto). Good luck with that nice hot morning shower I hesitate to mention dealing with several overcast days. 

    Don't count on the wind, it doesn't always blow either nor hard enough to generate necessary power. Sustainable energy isn't, and has not lived up to it's promise. 

    The expensive Chinese made 'Curly Q' light bulbs are dubious at best, They wear out quickly and have you read the 5 EPA warnings if a bulb breaks? The one about clearing the room of all human and animal life is number 1 and then it gets worse. Better to remove all Frisbees, footballs, baseballs, basketballs, golf clubs, etc from campus. 

    Most conventional generators do not cool off quickly. The heat chambers are as big as houses, lined with fire brick and must cool slowly or they will crack. If Athens totally turned off all power, it would take the generator perhaps a week to reduce output. And, the power company will increase prices to pay for the infrastructure. I see no saving here. 

    You also assume your sustainable energy infrastructure will need no maintenance to receive this 6 year return on investment which is a gross over estimate. If a solar panel seal leaks, glass breaks, or a electrical component needs replacement, your return time is moved back.  It's very expensive to call the guy with the tool belt, but this is factored in on the conventional system. 

    The Spanish invested heavily in Green Energy. They wanted the jobs and the returns and their economy is now in shambles. So, if you are still convinced your undefined sustainable energy is a good investment, I've got a nice bridge in Brooklyn for sale.