Archive for September, 2009

As posted to Huffington Post

Earlier in September, a group of investors from around the world with more than $13 trillion under management issued a statement calling on governments to agree at the United Nations Climate Change Conference in Copenhagen in December to require greenhouse gas emission reductions of 25 to 40 percent below 1990 levels by 2020.

$13 trillion. That’s a lot of money. It’s the kind of money that makes decision-makers sit up and take note.

This money is telling world leaders that maintaining the status quo – of essentially doing nothing substantive to mitigate the prospects for human-induced climate change – will be expensive and risky relative to undertaking prudent and prompt action to reduce greenhouse gas emissions.

Since investors are the engine of the global economy, without which productive growth cannot occur, you’d think that industries seeking to be major players in world markets for decades to come would want to be arm in arm with the big sources of capital.

In few industries is access to capital as critical as the conventional energy industry. It takes billions of dollars to make a major oil discovery or build a new baseload powerplant. Energy requires massive amounts of capital, no two ways about it. And in a world where energy demand growth has resumed and is likely to continue unabated to satisfy the increasing appetites of China, India, and other developing economies, many trillions of dollars will need to be obtained from the world’s capital markets by energy industry players in the decades to come.

Yet many of the main purveyors of fossil fuels – the bedrock of the energy sector – are fundamentally at odds with the growing ranks of investors clamoring for global government action on climate change.

For instance, here in the U.S., an “astroturf” (i.e., false grassroots) organization called Energy Citizens, backed (according to this recent article in The Economist) by the American Petroleum Institute and other oil/gas interests, is sponsoring rallies around the country denouncing the American Clean Energy and Security Act that passed the House a few months ago – a bill that would lead to substantially fewer emission reductions than the aforementioned investors want to see.

Now it must be said that the fossil fuel industry – oil, gas, and coal – represents one of the strongest aggregations of political muscle on the planet. And though maybe not as much as the financial centers of the planet, the energy companies have plenty of financial resources to throw at an opposing “call to inaction.” After all, consumers worldwide spend roughly $5 trillion per year on energy, putting lots of dough in the coffers of the energy suppliers.

So over the coming months running up to Copenhagen, it will be interesting to see which side can amass more force: finance or fossil fuels.

In the U.S., it is doubtful that any climate change bill will become law this year, with Congress being mired in the ongoing health care debate. Without a U.S. climate bill passed in Congress, representatives in Copenhagen will be challenged to achieve anything meaningful. Thus, the fossil fuel folks may well win this round of the battle.

But the energy companies must remember that they will need to go to the capital markets, hat in hand, many times in the coming decades if they want continued successful growth. And investors are going to be less and less willing to fund management teams for business growth if the same management teams are stifling progress on something that represents a bigger wealth-destroying factor for their overall portfolios.

Energy companies like to say that they fuel the economy. That may be true, but capital fuels the economy at least as much – and fuels the energy companies, to boot.

In the long run, I’d put my bets on the money managers making change happen rather than on the energy industry preventing change from happening. Because when money walks away from them, all that fossil fuel interests will have are declining resource extraction businesses starving for capital. All they will have left is talk. And talk is cheap.

As posted to CleanTechBlog.com

Every two years, the European Wind Energy Association (EWEA) holds a major conference on offshore wind energy.

The last time EWEA convened its offshore event, in December 2007 in Berlin, the mood was relatively somber. Several major offshore wind projects had been completed, but they had run into unforeseen technical and economic challenges. European policies and regulations for the next phase of offshore wind energy were in flux. Although everyone was convinced that offshore wind was going to be a significant growth sector in the European energy mix, there were real doubts as to when such opportunities would actually come to fruition.

Last week, EWEA held its 2009 offshore event in Stockholm, where 4,750 attendees (up from about 2,000 in Berlin two years ago) congregated to celebrate what is now clearly emerging:  a boom in offshore wind in Europe over the next decade. EWEA projects 50 gigawatts of offshore wind installed by 2020. With 20 gigawatts of projected installation, the United Kingdom is making a play to steal (or at least share) German leadership in offshore wind manufacturing and deployment.

Wind manufacturers are clearly bullish. Recently, Siemens has established a separate business unit for offshore wind, with well over 100 employees – and still hiring. Also, General Electric acquired ScanWind, a Scandanavian turbine manufacturer, to gain a product specifically designed for offshore application, thereby getting back in the offshore game after retrenching in the wake of its initial foray in Arklow, Ireland, a few years ago. At the exhibition, Vestas unveiled a new model, the V112-3.0, for the offshore market.

So the offshore wind industry seems to be really taking off – in Europe. Here in the U.S., as is the case with so many things on the energy front, we’re years behind.

In its industry roadmap, projecting how the U.S. could achieve the aspiration (set by both the Bush and Obama administrations) in which 20 percent of the nation’s electricity supply would come from wind energy by 2030, analysis by the U.S. Department of Energy indicates that about 50 gigawatts would probably need to come from offshore wind. This is not because there’s insufficient onshore wind resource in the U.S., but rather that most of this resource is too far removed from demand centers in the east, and access to transmission would be problematic.

Developers are increasingly exploring opportunities in U.S. offshore wind, mainly along the North Atlantic, because of favorable policies and market conditions in states like New Jersey, Delaware, Maryland, and Rhode Island. In the Great Lakes – likely to be a separate market from the Atlantic for geographic and logistical reasons – the Cleveland area is pursuing offshore wind, and so are parties in New York, Michigan, and Wisconsin.

While the private sector is most eager (and naturally so) to find lucrative profit opportunities, civic leaders in each of these areas are taking steps to encourage offshore wind from a job-creation perspective, aiming to attract manufacturing activity and all of the logistics services – shipping, engineering, installation, maintenance – that come with significant development of offshore windfarms.

The good news is that many of these jobs for offshore wind pretty much have to be done locally. The bad news is that, at least when it comes to technological leadership in offshore wind, the U.S. has been essentially absent from that game, with the massive 10MW Brittania design by Clipper Windpower being the only American exception (although, it should be noted, its initial deployment is planned for the U.K.)

The worse news is that offshore wind is not on a track to becoming a significant activity in the U.S. for at least five and probably more like 10 years. In the above-noted DOE study, offshore wind penetration only begins in the late 20-teens. This is because there’s nowhere near the degree of policy commitment to offshore wind in the U.S. as is seen in Europe. That, in turn, is because Europe has less developable land, greater renewable energy and environmental aspirations, and higher electricity prices than the U.S.

So, akin to Thomas Friedman’s “Have A Nice Day” op-ed piece in the New York Times last week, the U.S. has clearly abdicated leadership in offshore wind to other countries.

Until the profit prospects become significant, developers will find it challenging to explore offshore wind energy opportunities in the U.S. For the U.S. market to really bloom, this puts the burden on the suppliers of offshore windfarms – not just the turbine manufacturers, but also those who are working on foundation, erection, and shipping designs – to drive the costs of offshore wind down to competitive levels in a timely fashion (10 years?)

The private sector is likely to need a “carrot” in the form of some supportive public policy to make the investments in technological advancement for offshore wind energy that ultimately produce a self-sustaining growth industry.

As posted on CleanTechBlog.com

On Sept. 1, the Fund for Our Economic Future – a collaboration of philanthropic entities in Northeast Ohio – approved a $1.7 million grant to launch a new advanced energy initiative at NorTech, an organization that bills itself as the “champion” for growing the region’s high-tech economy.

This new initiative (stay tuned for a sexy name, to be announced soon!) will become the “center of gravity” or “focal point” for all things advanced energy in the 21 counties of Northeast Ohio. It will also play meaningful roles in coordinating or leading large-scale multi-constituency projects that offer the potential for transformational economic impact in the region.

Representing the Cleveland Foundation, I have worked with NorTech leadership for nearly a year to develop the plan for the initiative, and will be lent to NorTech by the foundation to serve as a principal for the initiative.

Although I am pleased with the successes achieved since I joined the foundation to lead its advanced energy work in March 2006, I am joining this new initiative with enthusiasm, as I am optimistic that the broad reach, resources, and support afforded by NorTech will enable an even greater degree of impact.

Given limited resources, we will be unable to pursue an unbounded agenda. Rather, we must remain focused, building on our strengths (which are substantial) and avoiding “me-too” strategies just because other areas are gaining good traction in attractive sectors. 

We know we’re joining an already active game. To illustrate, look at the organizations emplaced in Michigan (NextEnergy) and New York (STEP: Saratoga Technology + Energy Park) to pursue similar missions for regional economic development via advanced energy technologies.  Indeed, instead of viewing the others as competitors to which we might “lose,” we must view our colleagues elsewhere as potential collaborators, employing a “win-win” mentality, because we’re all on the same planet together.

I am more confident than ever that Cleveland and Northeast Ohio can be a major player in the advanced energy economy of the future. Even now, we are already a globally significant factor in fuel cell R&D, wind energy manufacturing, and efficient lighting technologies.  Not only can we extend and deepen these clusters, but we have already-extant seeds and shoots in other sectors – such as waste-to-energy, energy storage, alternative fuels, advanced nuclear designs, and power “informatics” (sensors, controls and intelligence) – that can serve as the nuclei for new clusters.

I thank the Fund for Our Economic Future for its significant grant to launch this important new initiative, NorTech for its recognition that advanced energy must become one of the key technological legs for the revitalization of the Northeast Ohio economy, and the Cleveland Foundation for its overall leadership in putting advanced energy on the region’s map of consciousness. All of us in Northeast Ohio – and elsewhere – should give similar thanks.

Northeast Ohio may not yet be a world leader in advanced energy. But at least we’ve got a growing number of oars in the water, paddling with increasing effectiveness in the same direction as the leaders, with whom we eagerly seek to partner.

As posted to CleanTechBlog.com

In my more cynical moments, I might quip that the phrase “smart utility” is oxymoronic.

For sure, most utilities remain captive to technologies that are decades old. And unquestionably, some utilities are managed by people and within cultures that seem to be stuck in the middle 20th century (or even more obsolete).

But some utilities are clearly more advanced than others. In an article published in the July/August edition of Intelligent Utility, Rick Nicholson and H. Christine Richards of IDC Energy Insights provide their assessment of which utilities are leading the pack toward a “smart grid.”

A clear pattern emerges: The first six utilities at the top of the list – Sempra Energy, Austin Energy, Edison International, Oncor, PG&E Corporation and CenterPoint Energy – are all based in either California or Texas.

In these two states, the combination of retail energy competition and policies to support renewable energy and energy efficiency has spurred these utilities to be ahead of the pack relative to their peers elsewhere in the country. In turn, this should serve them well as they build new models for the electricity business in the 21st century.

There are probably many observers who would claim that the significant electricity policy changes over the past 10 years have harmed Texas and California more than they have helped. Perhaps. However, longer term, legislators and regulators in Texas and California have arguably done their citizens and their utilities a great favor by pushing the policy envelope, because it is likely that customers in these states that will soonest benefit from the adoption of smart grid technologies.

Smart utilities are the future. Those utilities that didn’t show up on this list are at risk of being left in the dark as the electric industry transforms itself in the coming decades.