Energy alternatives could boost economy, but face problems as old-fuel prices fall and credit tightens

Savings in energy spending translates to gains in other parts of the economy, according to a new study from the University of California. But the current financial landscape is making it less profitable for companies to invest in alternative fuels that could lower energy costs.

According to the study, "energy-efficiency policies created nearly 1.5 million jobs from 1977 to 2007, while eliminating fewer than 25,000," writes Felicity Barringer of The New York Times. Since most U.S. energy production comes from burning fossil fuels, most studies have concentrated on the cost of adapting existing infrastructure to handle energy from cleaner sources. This study looks at how energy technologies have affected the state since it adopted green policies in 1978. Researchers found that the new technologies lowered payrolls in the energy sector but increased overall payroll in California's economy. As "consumers were able to reduce energy spending, these savings were diverted to other demand," Barringer reports. (Read more)

However, the capital required to build new energy infrastructure is threatened by the credit crisis, the Times' Clifford Krauss reports today. Another challenge to alternative fuels is that more researchers will be competing for less federal grant money. At the same time, falling price for traditional fuel sources like oil and gas have made the need for alternative fuels seem less imperative. Clifford Krauss writes that the same thing "happened in the 1980s when a decade of advances for alternative energy collapsed amid falling prices for conventional fuels."

The general consensus on Wall Street is that wind-energy stations are more profitable to build than natural-gas plants when gas prices are higher than $8 per thousand cubic feet. Prices have recently fallen from $13.58 at the beginning of July to $6.79. "Natural gas at $6 makes wind look like a questionable idea and solar power unfathomably expensive," said Kevin Book, a senior vice president at FBR Capital Markets. (Read more)