?Government incentives, new infrastructure and consumer demand are required to promote growth of alternative energy sources, according to speakers at an Ernst & Young LLP program in Houston.


John Hofmeister, founder and chief executive officer of Citizens for Alternative Energy, says increased domestic drilling is only a near-term solution for reduced dependence on foreign oil. Long-term solutions must include solar, wind, nuclear and other alternatives, but those energy sources are not supported by a cohesive energy policy.


“The free market is a myth,” he says. “Alternative energy, without government incentives, is not a free market. Today, most consumers can’t choose alternative energy because it’s simply not available.” Capital and tax incentives and rate-relief programs are needed for alternative-energy development and new infrastructure, he says.


Meanwhile corporate venture capitalists (CVCs) are footing the bill. According to a recent Ernst & Young study, 41% of their venture capital has been allocated to clean-tech investments and 44% of CVCs plan to increase these investments during the next five years.
“The investment capital is going to both mature and emerging technologies,” says Joseph Muscat, partner and director for E&Y’s Americas Clean Tech division. Mature technologies include corn ethanol, wind, solar photovoltaic and energy efficiency. New technologies include thin-film solar, hydrogen, enzymes, algae, cellulosic ethanol, batteries and transportation.


However, CVC investment may be reduced if government support is not forthcoming. The credit crisis, a weakening economy and carbon costs could cause CVC capital to slow.


Today, alternatives provide 7% of global energy supply, representing some 16 million barrels of oil equivalent per day, says Dan Pickering, co-president of Tudor, Pickering, Holt & Co. Securities Inc. Of that, the overwhelming source is hydropower. Only 10% is derived from solar, wind, geothermal and others.


By 2015, even if non-hydro alternative energy grows 10% per year, it will only represent some 2% of global energy supply, says Pickering. If it grows 25% per year, it will make up some 7%. However, with government support and new capital investment to push growth to 50% per year, it could provide some 32% of energy supply by 2015.


Oil and gas producers need have no fear, Pickering adds. “Alternatives will never replace conventional energy,” he says. “Alternatives need conventionals. No alternative source is completely reliable, except wave power.” Hydropower and biofuel energy are lost during droughts, solar power falls during cloudy days and wind power slacks off in calm seasons. “Only the moon is reliable, as it generates wave-power action.”