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Wednesday, December 23, 2009

Route 66 views are more important than clean energy

The NYT report Tuesday covered several angles I hadn’t seen on Sen. Diane Feinstein’s bill to block solar energy development in the Mojave Desert.

First, it said that Feinstein’s concerns is not protecting flora and fauna, but aesthetics — having solar panels out there would look ugly. Of course, to renewable energy advocates the prospect of large facilities satisfying the energy needs of entire cities is quite attractive — and this is certainly not something that has discouraged the Germans or Spaniards. (Perhaps the senator should travel more). But this is also the argument that is often made against windmills on ridgelines.

Secondly, the article noted that even the prospect of legislation has killed the idea of developing solar farms in that part of the Mojave. In the face of uncertainty — high political risk — solar entrepreneurs have stopped working on projects for the area. When we teach business, we normally think of political risk as something that happens in third world countries, but of course it’s a problem in any context where the government is heavily involved in the market.

The article summarized a visit by Feinstein and her entourage to prospective solar sites in the Mojave:
As conflicts over building solar farms in the Mojave escalated earlier this year, Mrs. Feinstein trekked to the desert in April. …

The presentation over, the entourage rolled on to the next solar project site to hear the developer’s pitch. Mrs. Feinstein gave the developers a hearing but was not moved by their arguments, according to five people present on the tour. The senator seemed concerned about the visual effect of huge solar farms on Route 66, the highway that runs through the Mojave, they said.
Third, while this is an awful idea — legacy-building by a US senator who will be 79 when her current term expires — few Californians (union, solar, environmentalists, government officials) are willing to say so for fear of political retaliation. (Again, another example of why governing based on political influence and whim rather than policy is a terrible idea.)

Fourth, despite what renewable energy advocates said about George W. Bush, a Bush-era effort pushed for more solar development in the Mojave and other Southwestern deserts to meet society’s energy needs with renewable energy. (I guess the common thread is that if there’s something private industry could build to provide more energy, the former oilman was in favor of it.) The NYT makes it clear that Obama and particularly Feinstein are placing much more emphasis on conservation than Bush did.

So in the end, the indictment of the Feinstein plan comes from one of the few people who’s powerful enough to stand up to the senator — the namesake of a martyred US senator and nephew of the most popular Democratic president of the past 50 years:
“This is arguably the best solar land in the world, and Senator Feinstein shouldn’t be allowed to take this land off the table without a proper and scientific environmental review,” said Robert F. Kennedy Jr., the environmentalist and a partner with a venture capital firm that invested in a solar developer called BrightSource Energy. In September, BrightSource canceled a large project in the monument area.
This proposal is among the worst examples of NIMBY-ism. Society wants and needs renewable energy, but various interests game the system to say “sure, but not in my back yard.” Laws are passed based on the intense opposition, overriding a more diffuse public need; hearings will be about saving the views and the flora and fauna, not the difficult it creates for meeting the state and country’s renewable energy goals.

As RFK Jr. notes, the Mojave is the best solar land in California and perhaps the world. There are many other scenic desert vistas in the United States — but further from large power-hungry metropolitan regions.

Perhaps Californians might have to drive to Utah or Arizona or New Mexico to see such vistas — or into one of the thousands of acres of existing monuments in California. But if it were put to a vote of California voters, I think the decision would be overwhelmingly in favor of using the desert for renewable energy rather than a monument to one senator’s political clout.

Monday, December 21, 2009

Feinstein strikes a blow against renewable energy

Setting up a fight with Governor Schwarzenegger, Senator Diane Feinstein (D-Calif.) today introduced legislation to restrict development on more than 1.3 million acres of the Mojave Desert. (WSJ says 1.7 million). The proposed legislation would create two new national monuments, national wilderness and extend two existing national parks.

Fights over the appropriate use of the California desert are as old as the modern environmental movement — at least 40 years. The fight has traditionally been to protect flora, fauna and their associated habitat from traditional enemies such as military tanks (at the sprawling Army’s Fort Irwin and the Marine’s Twentynine Palms bases) and off-road vehicles.

However, what’s new is that these proposed restrictions are aimed squarely at using the California desert for renewable energy generation. With few clouds, southerly latitudes (35°-36° North), and located 50-100 miles from downtown LA, the Mojave is ideally situated for providing solar power for the 13 million people in metropolitan Los Angeles, as well as the larger five-county Greater Los Angeles that holds half the state’s population.

It is thus not surprising that America’s first significant utility-scale solar energy plant — the Kramer Junction Solar Electric Generating System — was developed in the Mojave more than 20 years ago. In addition to this 165 MW solar thermal facility, a new 553 MW facility is planned by the same operators to sell renewable energy to PG&E.

Other parts of the Mojave are well suited for wind energy. The Tehachapis (at the west end of the Mojave) are one of California’s two major wind energy producing regions, along with the Altamont Pass east of Oakland.

Some might wonder whether renewable energy is an unintended victim of restrictions aimed at off-road vehicles, but public statements in the LA Times report make it clear that the damage is quite intentional:
During a tour of the area Sunday, David Myers, executive director of the Wildlands Conservancy, scrambled up a rocky hill at the base of a row of snaggletoothed mountains freckled with clumps of brittlebush.

"Heroic country, isn't it?" he said. "Just a few months ago, there were plans to cover this entire landscape with solar and wind farms. Instead, with this legislation, we are striking a balance with the insatiable demands of population growth."
Establishing a national monument or wilderness is one of the most bureaucratic approaches that could be imagined to restrict renewable energy development: it’s not “striking a balance,” but slamming on the brakes. With the Federal protections in place, environmentalists will be able to delay or block renewable energy development for years if not decades.

California has told utilities they need to buy one third of the state’s electricity from renewable power sources by 2020. Thus the state has the proper motivation to strike a balance between two competing environmental goals — carbon-free energy production and habitat protection — in the way the Feds never will.

It would have been nice if California could have created its own state park in this region to mediate such a balance. However, that approach might have suffered the same problem as the federalization of the Mojave. Last summer, the legislature passed SB 679 (vetoed by Gov. Schwarzenegger) which would have required any land taken for non-park use be replaced by additional land — also discouraging use of the land for renewable power generation. As the governor wrote in his veto message:
Under existing law, the Director of Parks … may sell, exchange, and acquire State Park property deemed necessary for the extension, improvement, or development of the State Park system. Whether it is roads, water and energy infrastructure, or areas necessary for the installation of renewable energy facilities, maintaining the flexibility of the current process is absolutely necessary as the state continues to strive to meet its infrastructure needs for a growing population.
Up until this point, the interests of wildlife environmentalists and global warming environmentalists have usually been aligned, with rare exceptions like birds dying in the Altamont Pass windmills. These two sets of competing values — habitat protection vs. renewable energy production — need to be reconciled through open debate and our public policy process. I think the proper place to do so is at the state level, not in Washington DC. California has a proud record of being at the forefront of the environmental movement for more than a century (think John Muir).

Utility scale solar power stations will be an essential part of any realistic effort to achieve the mandate of 33% Renewable Portfolio Standard energy by 2020. Such an effort — harnessing private industry to replace fossil fuels burned every day to support our society — is more concrete than all the hot air spewed by so-called “green” politicians over the past decade. Saying you support restrictions on greenhouse gasses and renewable energy but blocking renewable energy development is dissembling even by the low standards of career politicians.

Update 4:30pm: The actual map released by Sen. Feinstein today makes it clear that most of the area being restricted is on the Eastern edge of the state. (The exception is the proposed “Sand to Snow National Monument” (an odd name) west of Joshua Tree, which seems to include ridgeline land that could be a potentially valuable wind generation region just north of the existing Palm Springs wind farm.)

The proposed national wilderness and the Mojave Trails National Monument border the Mojave National Preserve and the east side of Fort Irwin, including plots of sunny land near major electric transmission lines. As the WSJ reports:
The Mojave is particularly attractive because it not only offers nearly uninterrupted days of bright sunshine in a sparsely populated area, but lies near a major electric-transmission corridor from California to Nevada.
In addition to the I-15 corridor to Nevada, the restrictions would overlap the I-40 and Route 66 corridors to Arizona. If, as the WSJ notes, a major environmental concern for large renewable energy plants is building new roads to access the plants, then the corridors along these three national highways should be a high priority for energy development.

We’ll see how “balanced” this proposal is when we hear from the governor and electric utilities. My guess that solar entrepreneurs will be too scared to openly oppose the Feds, in case the legislation passes and they have to beg the Feds for the right to develop in one of the national monuments.

Tuesday, December 15, 2009

Reality hits California high-speed rail

Today, the Merc reports more up-to-date figures on the California High-Speed Rail project, based on the 2009 “business plan” released Monday by the California High-Speed Rail Authority.

The price of the system has gone up from $33.6 to $34.9 billion in 2008 dollars. However, the stated price tag is now $42.9 billion: for the first time, the authority is reporting the cost in nominal rather than real dollars.

Rail activist (Chairman of Californians for High Speed Rail, author of the California High Speed Rail Blog) Robert Cruickshank writes that the nominal dollar figure is misleading because it’s based on inflation estimates, but the actual cost could still go up:
Inflation could be much higher. Or deflation could continue and the final cost could be much lower.

What we do know is that this cost estimate is a more credible estimate. Assuming key elements of the project don’t change, such as route, there’s no reason to assume the final cost would be higher than $42.9 billion. That is, unless the Peninsula NIMBYs get their way and a tunnel is built from South San Francisco to Mountain View, in which case the cost would soar.
There is certainly an irony that the most concerted NIMBY efforts against CHSR is here in the progressive Bay Area, although this Peninsula stretch is also the most expensive real estate on the entire route.

More serious are the fare increases for the system. Here is a summary of the 2008 fare plan, taken from p. 64 of the report:
At the very beginning, a preliminary operations plan was drawn up with stations in major cities and trains running as often as in overseas systems serving similarly sized cities. Train fares were assumed to be somewhere between the cost of driving and of taking an airplane or train. Parking costs at stations were set at prevailing levels, and transit services that could connect at the stations were identified. Running times between stations were calculated from the specifics of the rail line grades and curves, the power, weight of the train, and top speeds of 220 miles-per- hour where the track is straight enough.
The new plan changes the basis of fares from 50% of "air fares" to 83% of "air fares", increasing revenue per rider but decreasing the number of riders. This is more realistic (or conservative), but even this figure seems based on some questionable assumptions.

Below are the new fares as compared to the old formula:
MilesTrain (new)Train (old)AirAuto
The problem is, today a discounted Southwest ticket from LA to SF is $135 r/t, or about $68 one way. Southwest raised fares about 15% earlier this year, or the numbers would be even worse. Yes, these are advance purchase discounted fares, but these are the reference price for leisure travelers.

Yes, the bullet train wins riders in Japan — because plane tickets are so expensive. But in Europe, with easyJet and Ryanair, the bullet trains are not cost-effective for any route with discount airline competition.

Interestingly, the data on page 72 suggested that perhaps a major thrust is avoiding direct airline competition. Of the projected 2035 annual revenues of $2.9 billion (in 2009 dollars) only 44% of the revenues is between the four major metropolitan areas served by Southwest and other airlines: Sacramento, SF-SJ, LA and San Diego.

Proponents hope that the $43 billion system will begin revenue service by 2020. Still, high speed rail — like so many other infrastructure projects — has a huge financial burden: most or all of the whole system before realizing revenues. The bulk of the projected revenues (73%) are on the LA-SF corridor — including intermediate stops — which requires building 400+ miles of track before most of that business is available.

I’ve been a rail fan for 30+ years, but this is a lot of capital at risk when the state’s budget and economy are in the tank. It’s hard to see how the original (or revised) forecast will hold up unless California can quickly fix its budget deficit and unemployment problem. Given the unresolved mess in Sacramento, the state’s credit rating is going to get worse before it gets better.

Sunday, December 13, 2009

Akeena advances retail PV

Located in a former car Los Gatos dealership a few miles from my home, Akeena Solar has been after me to attend their solar panel sales pitch to find out why I want them on my roof. (They used to host their seminars at our local wine bar, and I regret not signing up for one of those). I had not realized the company is public, with a thinly traded stock and a net profit margin of nearly -60%.

Still, its announcement Thursday of a do-it-yourself solar panel is a revolutionary (if inevitable) breakthrough for the industry. (The stock got a nice one-day bump — I’ll be curious to hear if insiders dumped their shares.) Oddly, the home page and branding have not been update to reflect the do-it-yourself message.

The Akeena Andalay panels will be available from 21 California locations of the Lowe’s big box home improvement stores. No word on whether this will spread to other locations in the Southwest, where the insolation is similarly favorable.

The product is a clever design, with a built-in micro-inverter that simplifies system design and installation. If nothing else, for the homeowner it means less time on the roof to fall off. (My wife's cousin fell off a roof doing a repair, was paralyzed, and never recovered.)

A Seeking Alpha reader notes that the system is likely a Suntech panel with an added micro-inverter. Another reader notes that the decision of BP to sell through Home Depot caused installers to drop it like a stone.

At a retail price of $893, that’s $5.10 per peak watt — not great, not bad. But having this go from a custom-installed product to a mass market one is an essential step to making PV widely used across California if not the rest of the world.

The more serious limitation is that the installation cost breakthrough does nothing to solve the ugly permitting problems facing the industry — a confusing welter of local requirements and bureaucratic obstacles. While a DIY-er can install a toilet or do other minor home improvements without a permit (perhaps under the radar), utilities won’t allow grid connection without a permit, obviating much of the benefit of the DIY approach. SolarTech hopes to solve the permitting problem in California, but any solution is years away.

Perhaps the availability of the DIY panels will cause a wave of grass roots activism and even civil disobedience to force municipalities to clean up their act. I could see homeowner-activists in Berkeley, SF or Santa Cruz pushing city hall to stop being such an obstacle for those who want to do the right thing. (I specifically exclude Palo Alto, since most of them are more concerned with their property values than anything else.)

Even so, there’s little to suggest that Akeena will be the beneficiary of any eventual shift to easier installation, approval and grid connection. Pioneers, alas, rarely are.

Thursday, December 10, 2009

Rough days for venture-funded cleantech startups

Tonight’s event hosted by the SJSU-affiliated Environmental Business Cluster (EBC) was officially about Creative Financing for cleantech startups. And certainly the speakers talked about strategic investing (CVC) and government grants in addition to normal angel and VC funds.

One of the panelists was Brian Sager, a VP and co-founder of Nanosolar, which had A-list Silicon Valley tech zillionaires as its angels, then did a Series A and B with VCs, Series C with private equity and Series D with strategic investors impressed by a $4b backlog. By the time it was done, it raised almost a half-billion dollars.

Still, this is not a great time for cleantech investors. Moderator Eric Wesoff of Greentech Media noted an excessive number of VC-funded entires in a wide range of PV technologies, and Wesoff and several panelists alluded to the shakeout now underway.

The final comment of the evening, by NREL CIGS researcher turned VC Andrew Willamson, noted that valuations this year for most series B,C,D were off 40-60% (or even 80%). Dr. Williamson concluded: “I’m not doing anything this year that I can’t get for half off.”

Still, there were some thing missing from the session — great speakers but a little more coherence was needed. (Admittedly, the audience was a mix of people who attend two of these events every week versus those who were at their first or second.)

Wesoff tried but skimmed through his slides to avoid boring industry veterans. One thing that would have been interesting was the observations of GTM coworker Rob Day last month on cleantech VC “conventional wisdom”:
  1. Cleantech only happens in Silicon Valley and MIT. If you look at the dollars flowing into cleantech from venture capitalists, and read the sunday NYT, that's the natural conclusion you would draw.…
  2. Cleantech is really only solar, "smart grid", biofuels and electric vehicles.
  3. Cleantech is really only about capital intensive business models.
  4. Cleantech startups are only for whiz-bang PhD researchers who have earth-shattering innovations. Business models like energy efficiency services, and other implementation efforts, need not apply.
  5. The only good cleantech startups are those backed by VCs. The fact that only 1% of startups get their initial capital from VCs simply means that 99% of new businesses are bad ideas.
BTW, of $864m of Q3 VC investing in “industrial/energy”, 60% went to SV vs. less than 5% for Boston. Wesoff noted there were more deals being done for smaller amounts in 2009 than 2008.

Still, I think the anecdotes of a few individuals would have benefitted by adding the perspective of an academic or researcher, to address several other points:
  • Where is the VC money going within cleantech? If you’re not in those areas, are you toast?
  • What models require VC (that “capital intensive” story) versus ones that are unlikely to get VC?
  • How do you scale without outside investment?
  • What do we know in general about sources of funds for high-tech startups, particularly during these difficult economic times?
With the current economy, I have seen a lot of SV events around bootstrapping in the past year. Admittedly, no one can build a $100m factory by bootstrapping, and many of the businesses that most excite the audience (especially VCs) are the ones that are going to grow fast or die trying.

Still, some of the people in the room seemed keen to get their business of the ground — to make a difference somehow — and perhaps sell out early to a larger firm that has the resources to take it the rest of the way. Perhaps a separate event could focus on getting early stage companies off the ground — to proof of concept — a topic that would be eagerly embraced by many in the audience and of course fits the EBC’s mission.

Sunday, December 6, 2009

Don't write off diesels yet

In having my students research the green strategies auto companies a few years back, it was clear that Toyota bet heavily on hybrids, Honda on fuel cell cars, and the Germans on diesels. Since then, the Prius has been on a tear, with everyone else scrambling to catch up — but the race isn’t over yet.

On Thursday, the Audi A3 TDI was named “Green Car of the Year” at the LA Auto Show. The judges included Jay Leno and Carroll Shelby (as well as the head of the Sierra Club and Jacquest Cousteau’s son.)

The Audi has the same 2.0 diesel engine as last year’s winner, the Volkswagen Jetta TDI, but wrapped in a sportier package. The Audi gets 42mpg, 50% better than its gasoline equivalent.

For years, Volkswagen’s (and Daimler’s) big Euro-centric bet on turbodiesels seemed myopic as the rest of the world went a different way. Also, we couldn’t even buy them in California because of our own special emissions requirements.

However, with a nationwide shift to low-sulfur diesel in 2006, Volkswagen has been able to offer its “clean diesels” in the US. I think this is a great development, for three reasons.

First, as readers of my other blogs know, I’m a big believer in free markets and competition. Competition for the Prius and other hybrids will only make them better and more efficient, whether or not people choose them or something else.

Second, hybrids and particularly electric vehicles have some serious unresolved issues. They have a high up-front purchase cost — one the government cannot afford to subsidized forever. Their total lifecycle cost is unknown. There is the question of what to do with the battery when the car is junked.

Meanwhile, diesels are a proven 100-year-old technology and are known to last longer than the equivalent gasoline engine, with a lower purchase price than equivalent hybrids. Diesels also scale better to larger vehicles, something the hybrids really haven’t done (the GM “partial hybrid” SUVs notwithstanding).

Finally, if the question is reducing global CO2 emissions, the jury is still out as to what is the best way to do that. Diesel is certainly going to be the approach that Europe uses. Given their high fuel prices and interest in green policies, the penetration rate of high-efficency diesels suggests that they deserve a second look. (It could also indicate a nationalistic industrial policy. Sigh.)

Thursday, December 3, 2009

Picking a few EV winners

Economist Arnold Kling quotes a Wired article by Darryl Siry, which says
Of all of the Department of Energy programs intended to advance the green agenda while stimulating the economy, the Advanced Technology Vehicle Manufacturing incentive to spur the development of cleaner, greener automobiles is perhaps the most ambitious. But it has a downside.

The energy department has approved direct loans to Nissan, Ford, Tesla Motors and Fisker Automotive totaling about $8 billion out of a budget of $25 billion. The magnitude of this program dwarfs other DOE campaigns like the $2.4 billion given to battery and electric vehicle component manufacturers and the $4 billion disbursed for “smart grid” projects.

To the recipients the support is a vital and welcome boost. But this massive government intervention in private capital markets may have the unintended consequence of stifling innovation by reducing the flow of private capital into ventures that are not anointed by the DOE.
Kling complains that “The American people are being forced to participate in a venture capital fling in which they take most of the down side and none of the up side. And it is not being debated.”

Certainly the president campaigned on a plank that included aggressive government intervention to support green technologies, this is something that (under our system) was supported by a majority of Americans who voted. While voters endorsed a more interventionist economic policy, they didn’t vote for stupid deals: one way transference of risk — whether on Chrysler or Fannie Mae — would certainly count.

My gripe is more to Siry’s, on two fronts. First, the massive size of the grants distort the market — they are far in excess of the money available to private sources.

Secondly, most previous energy policy interventions have been more fairly distributed. Hundreds or thousands or millions of individuals/businesses get Federal/State tax credits for buying insulation or double pane windows or solar panels.

These tend to be non-discretionary, categorical payments that go to all class of applicants over an extended period of time. If the Westgate mall gets an energy conservation grant, the Eastgate mall can apply and get one on the same terms. (Let’s ignore the problem that around here, Westgate and Eastgate have the same owner). Of course, some of the stimulus money was pure pork, earmarked for pet projects by influential legislators — the opposite of a broad categorical grant.

Siry comments:
Startup companies that enjoy DOE support, most notably Tesla Motors and Fisker Automotive, have an extraordinary advantage over potential competitors since they have secured access to capital on very cheap terms. The magnitude of this advantage puts the DOE in the role of kingmaker with the power to vault a small startup with no product on the market -– as is the case with Fisker — into a potential global player on the back of government financial support.

As a result, the vibrant and competitive market for ideas chasing venture capital that has been the engine of innovation for decades in the United States is being subordinated to the judgments and political inclinations of a government bureaucracy that has never before wielded such market power.
After noting other innovative companies are dead in the water unless they get their DOE grants, he suggests an inherent conflict between casting a wide net to many firms and making bets on likely winners.

I’m not sure what should be done now. I’d like to think that a lesson has been learned and this mistake won’t be repeated, but as long as lawyers (elected by campaign contributions) are making economic policy, there’s no reason to be optimistic.