The Crisis Is Now
June / July 2004
Volume 2 Number 3
Roaming blackouts in California, the Enron scandal, bottlenecks in transportation of natural gas, among other energy problems in the United States, are making one point very clear: Now is the time to focus financial and political resources on developing alternative energy and technology to strengthen the existing electricity grid.
This point was driven home recently at the North American Energy Summit, held in Albuquerque and sponsored by the Western Governors Association. Hundreds of politicians from western states, national energy experts, and entrepreneurs gathered to discuss how to support and create initiatives to increase the supply and improve the transportation of energy in the U.S.
Representatives of the Federal Energy Regulatory Commission (FERC) discussed the need to clean up the bureaucracy that's impeding clean energy technology from making it to the marketplace. Venture capitalists talked about increased interest in alternative energy from the investment community, and politicians discussed the importance of passing legislation to support the development of renewable sources of electricity. For entrepreneurs and scientists, events such as this conference highlight the fact that more money and political support is now available for the development and commercial use of alternative energy technologies.
"The United States has run out of excess capacity margins (referring to natural gas)," said Senator Jeff Bingaman, D-N.M., ranking member of the Energy and Natural Resources Committee. "In the 1990s we were operating on borrowed time. As long as energy supplies were plentiful, the flaws in our energy grid were not readily apparent."
However, he says roaming blackouts and rapidly increasing gas prices have been a reality check for the energy industry and government, forcing them to take seriously the idea of developing clean, renewable sources of energy. He says new technologies, such as those being developed in the national labs, are key to fixing the problems.
It is estimated that by the year 2007, consumption of natural gas—€”a major source of power—€” will outpace supply, according to statistics from the Energy Information Administration. This means that each year the supply/demand gap shrinks, prices will increase. Currently, natural gas sells for more than $5 per MMBtu, up from approximately $2 per MMBtu a few years ago. The cost of oil is $40 per barrel and rising, up from an average of $22 in 2001.
According to Patrick Wood, FERC chairman, the energy crisis is teaching very specific lessons. In the case of roaming blackouts he says market design matters and there needs to be increased attention placed on strengthening the energy grid's infrastructure. Enron taught the industry of the need for market transparency, timely oversight and corporate accountability. And rising gas prices show that energy markets are independent; the industry needs to pay attention to supply and fuel diversity such as the development and use of wind, solar and biomass. So how does the energy crisis equal opportunity for the entrepreneur and scientist? Most energy experts agree that more emphasis needs to be placed on the development of renewable energy technologies and those that will boost the efficiency of the existing grid.
"We have seen the interest in clean energy pick up in the last two years," says Tom Williams, director of technology transfer at the Colorado-based National Renewable Energy Laboratory (NREL). "In the past 12 months, especially, we have seen a lot of interest by venture capitalists in the types of technologies we are developing."
In 2003, venture capitalists invested $433 million into alternative energy technologies in the United States, up from $28 million in 1995. Venture investments reached $850 million in 2001, before the economic downturn. Spending on renewable energy technology is 2 percent of the total amount invested in the U.S., according to statistics provided at the Energy Summit by Nancy Floyd of San Francisco-based Nth Power Technologies.
Alternative sources of electricity, such as wind, solar and biomass are finally becoming competitive with other forms such as natural gas, coal and nuclear, which should make them viable investments. For example, wind energy has dropped in price from 40 cents per kilowatt hour (kw/hr) in 1980 to 2 cents per kw/hr today. Solar has dropped from $1 per kw/hr in 1980 to 20 cents today. Solar is expected to reach 10 cents per kw/hr by 2010.
Williams says a number of major corporations and small startups are interested in spinning out niche technologies from NREL, such as manufacturing technologies for photovoltaic and fuel cell design. He is also seeing some play in nanotechnology, hydrogen and transportation-related technologies. NREL is spinning out an average of 25 alternative energy technologies per year; this includes both licensing technologies to companies and some research and development.
On the other end of the spectrum there is a demand for technology that will better the existing energy grid. For example, Nancy Floyd notes that transformer failures happen at least once a week in the U.S. There are problems with how the industry tracks and manages the efficiency of transmitted power and there is a lack of real-time information about chokes and bottlenecks in energy transportation. These problems can be fixed with the development of new technologies.
"We face big challenges [in bettering the energy grid], but there are big opportunities for developing clean sources of energy," says Dan Reicher, president of New Energy Capital, Wellesley, Mass. He says the elements of success boil down to blending the development of new technologies with increased capital and more enlightened governmental policy. Many states are implementing laws that require energy companies to have a portfolio of renewable sources of electricity. The federal government hopes to have 30,000 megawatts of clean energy being used by 2015. That amount is expected to increase by 20 percent by the year 2020.
Some states offer tax incentives for companies that are developing alternative energy technology. For example, New Mexico offers energy technology startups forgiveness of gross receipts taxes for three years. Companies can also likely qualify for a high-wage tax credit by offering jobs that pay above the average wage of a given area.
FERC Chairman Patrick Wood says his agency is working hard to clean up bureaucracy that has historically slowed the process of technologies entering the marketplace. According to Williams, however, the energy industry fallout of the past several years has put the need for alternative energy at the forefront of peoples' minds.
"We see investors change their perspective when there are fundamental geopolitical shifts in the world," he said. But transferring to renewable energy won't happen overnight. It's a long-term proposition, but Williams says the process is well underway.
Eric Billingsley is a freelance writer based in Albuquerque.
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