Cleantech Business

Better ways to spend $100 billion

2012-01-20T22:41:00.001-08:00

The $100 billion, 22-year projected cost of the proposed California High Speed Rail system should be enough to kill it. But this week, Governor Brown vested his full support — and personal credibility — in this project, hoping to persuade (or overrule) the sentiments of a majority of the state’s voters.

I am a transit fan, second to none. I spent college taking pictures of mass transit systems in Boston, Washington and San Francisco. The one success of my (brief) career as a UPI photo stringer was a picture of the inauguration of the San Diego Trolley that ran on the front page of the San Diego Union. I’ve ridden high speed trains in Japan and Europe, including the Eurostar from Brussels to London. And — unlike most Americans — I’ve even taken cross-country Amtrak trains overnight, both with and without a sleeping car.

Still, $100 billion is a lot of money for one state to cover. That’s assuming that the system could be built for this price, even though major public works projects always run over budget (cf. the “Big Dig”).

Even if an electric train generates less pollution than an internal combustion engine car, is it necessary to put down a $100 billion bet that the system will be economically viable?

Charles Lane of the Washington Post thinks not:

On the merits, high-speed rail would be a questionable investment even if California could afford to build it.

…[B]oosters marvel at bullet trains in Europe and Japan, insisting simplistically that we need them, too.

But the sprawling, decentralized cities of the United States do not make convenient destinations for train travelers. International experience shows that high-speed rail entails expensive debt service and large operating subsidies. This would likely be the case here as well, since, for better or worse, rail must compete with well-established air and car options. Business travel is one ostensible purpose of bullet trains in California, but increasingly people meet via video conference.

For these and other reasons, high-speed rail in the United States would lower carbon emissions and reduce traffic far less cost-effectively than would alternative solutions.

In the past decade, videoconferencing has made huge strides in replacing business travel. No transit system — in fact, nothing short of teleportation — is going to be able to compete with videoconferencing for efficient use of time for short meetings.

Meanwhile, as Lane says, are there budget priorities that could improve the state’s environment far more cost-effectively? The California Solar Initiative is a $3.35 billion cross-subsidy (1/30th the cost of the CHSR) by electricity users that has already brought the installation of more than 1 gigawatt of renewable energy capacity for the state.

In Memoriam: 2011 solar shakeout victims

2012-01-16T09:41:00.001-08:00

As part of updating a research paper I’m writing on solar policy, I’ve been catching up on the state of the solar business. (Regular readers will note that since I joined KGI, I’ve been paying a lot more attention to biofuels).

To start, I thought I’d look at all the solar firms that died (or otherwise were mortally wounded) in 2011. I traced down the announcements of the firms mentioned in various stories, and here is what I found:

Company	HQ	Stock	Tech-nology	Date	Action	Current Status
Soliant	Monrovia, CA	private	CPV	Mar. 29	Liquidated	Liquidated for 1.5¢ on the dollar
Evergreen	Marlboro, MA	ESLR	ribbon Si	Aug. 15	Chapter 11	Liquidated
SpectraWatt	Hopewell Junction, NY	private	Si	Aug. 19	Chapter 11	In liquidation
Solyndra	Fremont, CA	private	thin film (CIGS)	Aug. 31	Chapter 11	Liquidated
Stirling Energy Systems	Scottsdale, AZ	private	thermal (Stirling engine)	Sep. 23	Chapter 7	In liquidation
Solon AG	Berlin, Germany	SOO1.F	Si	Dec. 13	Insolvency	Seeking a buyer
BP Solar	UK	(division of BP)	Si	Dec. 20	Announced plans to close	Winding down
Solar Millennium AG	Erlangen, Germany	S2M.F	CSP & PV solar farms	Dec. 21	Insolvency	Selling solar farm projects

Most of these were solar system manufacturers, making panels, tubes (Solyndra) or stand-alone thermal generating dishes (Stirling). The mainstream companies (like SpectraWatt) might have IP that’s useful for other PV companies, while the oddball companies (Evergreen, Solyndra, Stirling) had unique technologies of little or no value to other firms.

BP Solar’s decision to get out of PV marks the latest realization by oil companies that biofuels (not solar) fit their existing business model. I hope to blog on this another time.

Solar Millennium is unique in that it was a large solar farm developer, and thus its projects (if they still make economic sense) might be bought by other companies. One of its largest projects is the 1 gigawatt Blythe Solar Power Project that won a $2.1 billion loan guarantee from the DEO and was praised by DOE Secretary Steven Chu and California governor Jerry Brown. It appears that the Blythe and other US projects are being sold by Solar Millennium’s majority owned US subsidiary to SolarHybrid AG.

Biofuels from 5000'

2011-11-04T23:59:00.000-07:00

Biofuels are being used at 30,000' as airlines (and aircraft manufacturers) explore options for growing rather than drilling for Jet A feedstock. (They will actually be used at much higher altitudes if the DoD’s efforts to develop bio-JP5 and JP8 for military aircraft bear fruit.)

However, this week I gave a 5,000' overview of the biofuel industry to first year students at KGI, the Keck Graduate Institute of Applied Life Sciences. Although our college is primarily oriented towards biotech and big pharma, there is a substantial pocket of interest in biofuels.

The one hour talk was intended to help students understand the various economic, technical, and political issues regarding biofuels. It started with an overview of US energy usage, and the factors driving interest in renewable energy in the 1970s and today. It reminded students — some of whom are in their first semester of business classes — that preferences for commodities like energy are usually driven by price.

Why Biofuels? Why Now?

Even more so than solar, biofuels compete directly with oil. As a nice chart from oilism.com illustrates, the big issue is that across the past 40 years, almost every attempt to predict oil prices from the past has failed.

I still need to understand the technology better. My students are helping me learn more here, since our grad students with undergrad biochemistry or chemical engineering majors know far more about the science than I do. (Some of them are leveraging this expertise to get internships and jobs in the industry.)

In pulling together the talk, the one thing that was striking was how dependent the industry is today on policy. For example, on Wednesday Jim Lane of Biofuels Digest listed the 10 hottest topics facing the biofuels industry today — of which only four (or five) are under the control of private industry:

RFS. Hold or Fold? Critics want to scrap the Renewable Fuel Standard. …
Can Obama find the $510 million? The DOE, USDA and US Navy each pledged $170 million toward scale-up funding of advanced biofuels, for defense purposes. …
Elections. … Numerous Republican candidates … have decided to oppose ethanol subsidies.
Fuels, or chems, or something else? There’s been such a proliferation this year in target products, it hardly seems apt to call this publication Biofuels Digest anymore. …
The EPA’s attitude on waivers. WIll the EPA continue to enforce the RFS mandate for advanced biofuels based on production capacity …
RIN prices. Ethanol RINs remain at prices so low they hardly matter, but biodiesel RINs have been on a roller coaster…
BRICs and mortar. [interest in BRIC countries.]
Freshwater, arable land, potassium, phosphorus, nitrogen. … what about the looming shortages in freshwater, and nutrients such as phosphorus?
Feedstock development. … Where is all the low-cost camelina, jatropha, algae and so on? …
Money. … [As Phycal’s Kevin Berner said, “at scale, any advanced biofuels project is a capital pig.” For $100 million, you can finance maybe 20 strong pilots

At KGI, we’ve had two biofuels speakers so far this year, and expect another 3 or 4 before the year is out. I’m sure we’ll have more to report in the coming months.

Putting eggs in the wrong basket

2011-09-23T02:14:00.001-07:00

The DOE’s loan guarantee program is coming to a close — going out with a bang and not a whimper. Today particularly it’s proving to be “news that’s fit to print,” as the old Grey Lady motto goes.

The political posturing in Congress over the Solyndra ”scandal” has its latest act today when the Solyndra CEO and CFO are scheduled to take the fifth today rather than tell what honestly happened. Meanwhile, the DOE Loan Programs Office is rushing to process the remaining Section 1705 applications in hopes of giving away $9.4 billion before the program expires a week from today.

The New York Times covered both stories on Friday, with Solyndra on the front page — above the fold — and an update on the LPO buried on page B7. Going with the politics angle, the NYT got its priorities backward — as did the LPO.

The article inside was the real bombshell:

First Solar Says It Won’t Meet U.S. Loan Guarantee Deadline
By Matthew L. Wald

First Solar, a major solar panel manufacturer, said Thursday that it would not be able to accept a partial loan guarantee of $1.93 billion for a giant solar farm in San Luis Obispo County, Calif., because it could not meet the statutory deadline of Sept. 30 to complete the Energy Department’s requirements.

To be fair, the NYT may have buried the story because it was scooped by TheStreet.com.

As the NYT and others reported, First Solar still expects to be funded for two other projects: Desert Sunlight (500MW) and Antelope (350MW). However, the 550 MW Topaz Solar Farm is one of the largest (global) PV installations ever planned, and is also an important project for California (specifically PG&E’s) efforts to meet RPS quotas). It would be located near the existing Diablo Canyon transmission lines, and also would also increase geographic diversity as one of the most westerly solar farms in a state that since the 1980s has sited generating capacity in the southeast (Mojave) desert.

First Solar shares are down 25% in the past week — both because of the specific concern about the loss of the loan guarantee and hit to projected earnings, but also the pall over the entire industry caused by the Solyndra scandal.

Testifying last week before Congress, LPO head Jonathan Silver emphasized that the DOE was emphasizing solar (and other RE) generating facilities over manufacturers (35+ vs. 4 IIRC) because the former have more predictable cashflows and thus are better investments. Particularly with power purchase agreements in place, once completed there is no market risk akin to what took out Solyndra.

Perhaps First Solar wasn’t going to get the loan for other reasons (such as environmental controversies). Still, leaving unfunded major solar farms is a big problem for industry, for society, for taxpayers and for greenhouse gas reduction.

It’s not that the Page One Solyndra story was uninteresting, as it noted all the warning signs available to the administration before the loan guarantee was issued. The online version released a series of documents showing various doubts about Solyndra’s application, impending commoditization, and then concerns by career officials about the process being rushed both in March and September 2009 for political reasons. It also shows the doubts that arose after the loans were granted, as well the successful efforts by Solyndra execs and lobbyists to convince officials to ignores these warning signs.

However, the DOE is rushing out the projects it can most quickly review which are not necessarily not the best projects. The problem of the frantic rush in the final month to commit half the loan balances — after badly investing the first loan guarantee — suggests a problem of prioritization.

A VC, startup or even a multinational knows that it can’t do everything and thus has to prioritize its efforts. Perhaps with the heady funding of stimulus windfall — plus an academic as department secretary — the DOE failed to have the market discipline and realism to focus its attention on the most important priorities. (Or maybe Congress just screwed up, by not allocating it as $6 million/year over three years.)

There’s the old saying: “put all your eggs in one basket — and then watch that basket.” With $18 billion available to invest, the LPO was not limited to a single basket, but there were other, safer investments it could have made that would have supported the cleantech industry.

Who lost Solyndra?

2011-09-17T21:06:00.000-07:00

For the second time this summer, I found myself watching a C-SPAN congressional hearing on a major issue of economic policy. This time, the hearing was about the $535 million Federally guaranteed-loan to the now-bankrupt Solyndra, this time before a subcommittee of the House Energy and Commerce Committee.

The hearing was called by the (obviously hostile) GOP majority to compel testimony by two Obama administration representatives: Jonathan Silver (head of the loan guarantee program for the Department of Energy) and Jeffrey Zients, acting director of the Office of Management and Budget.

Silver, a former McKinsey consultant and private equity manager, didn't want to be bossed around by mere representatives with 1/10th or 1/100th of his net worth, but eventually settled down. Zients — with far narrower legal exposure — was much more cooperative and even a little more sympathetic to fiduciary concerns.

Some aspects of what happened were clear and undisputed:

January 2009. The final decision of the DOE (under Bush) is to reject the loan without prejudice
February 2009. After the stimulus bill passed, Obama's new DOE secretary wants to push through funding
March 2099. The DOE offer a conditional loan commitment to Solyndra
September 2009. The DOE approves the loan to Solyndra
September 4, 2009 — Vice President Biden announces approval of the $535 million loan guarantee to allow Solyndra to build Fab 2.
August 31, 2011: Solyndra declares bankruptcy, laying off 1100 employees

Before the hearing, the Washington Post published leaked e-mails that the approval was rushed so that Biden could make the announcement, although the Democrat majority argued it was quoted out of context. In one memo, a government analysts said the economic models forecast that Solyndra would go broke without additional funding.

The level of questioning by both sides was disappointing. Perhaps it is because both sides are populated lawyers who (mostly) are clueless about economics. Perhaps it’s because I know something about the industry and have been to Fab 2.

The arguments boiled town to a handful of issues, with the two sides were broken records. Republicans were trying to find out who lost taxpayer money and fight against “picking winners and losers.” Democrats (including Silver) tried to argue it was equally Bush's fault (even though Bush never approved the guarantee) and were obsessed with national "competitiveness" of keeping up with Chinese subisides for their solar companies.

In the most quoted statistics of the day, Silver stated that US global market share in PV fell from 40% in 1995 to 6% today (2010) versus 6% for China in 2005 and 54% today.

The two sides argued about whether the government renegotiated the terms of the loan (in violation of Federal law) or allowed Solyndra a workout. (Either way, the government’s interest became subordinated to a new round of private lenders — making it unlikely that the US will see the 20¢/dollar that it would have recieved with a liquidation).

While Solyndra was burning cash at the time of the loan guarantee, Silver (correctly) noted that this was not atypical for a high-growth company. (The point was echoed by far less knowledgeable allies on the committee). But as one of the representatives pointed out, the appropriate risk profile for private equity is different than that for taxpayer dollars.

Both Obama’s friends and foes see this an increasingly embarrassing scandal for the president. Republican moderate (and former CBS news producer) Peggy Noonan wrote

[One thing I’ve admired about Obama] has been a relative absence of deep political scandal. It's been good not to have a Watergate, a Whitewater. But there are signs this week that could change with the Solyndra loan scandal. The White House apparently tried to rush almost half a billion dollars of taxpayer loans to a solar panel manufacturer that later went belly up and took a thousand jobs with it. The reason for the rush: The awarding of the loan would make good PR. This looks bad, and if it's true, heads should quickly roll. It's one thing to be branded as "out of your depth but not corrupt," quite another when it's "out of your depth and corrupt." That is much worse.

Meanwhile, on Thursday night Jon Stewart of Comedy Central told Obama’s enemies “That Custom-Tailored Obama Scandal You Ordered Is Finally Here.”

The Daily Show With Jon Stewart

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As ABC quoted Stewart:

“You know, stories about incompetence in government are only going to get you so far though. For this to truly become weapons-grade political fodder, you’re going to need incompetence with more than just a whiff of sinister cronyism,” Stewart said.

If this week’s hearing is any indication, we are unlikely to have any substantive discussion of the issues raised by the Solyndra default. Unlike Watergate, there was no bipartisan approach akin to “what did he know and when did he know it.”

The debate is a crucial one for the future of the American renewable energy industry. One side asks: can (and should) the government pick winners among American firms? The other asks: can the US industry survive without cheap government financing?

Ad hominem attacks over cleantech VC 'disaster'

2011-09-14T17:46:00.001-07:00

At a TechCrunch conference in San Francisco, PayPal co-founder Peter Thiel said (according to VentureBeat):

“Cleantech is an increasingly large disaster that people in Silicon Valley aren’t even talking about any more. …The failure in energy and transportation points to a larger failure in clean energy — we aren’t moving any faster, literally, than we were when modern airplanes first came out.”

In response, Greentech Media’s Eric Wesoff wrote:

Peter Thiel Doesn’t Like Cleantech VC, Mankind
Eric Wesoff

Peter Thiel, known as the "Don of the PayPal Mafia," declared clean technology a “disaster” at Venture Beat's TechCrunch Disrupt 2011 conference in San Francisco.

OK, folks, go on home. Stop all this saving-the-world, green-energy stuff. It just isn't working. Thiel has spoken.
…
Greentech Media is talking about it. And so are plenty of Silicon Valley venture capitalists. And Thiel, evidently, hasn't driven a Tesla.

So, he isn't a fan of cleantech -- or at least the way cleantech investments have progressed.

Judging by these quotes in a Cato Institute essay, other things that Thiel doesn't like include poor people and women.

I no longer believe that freedom and democracy are compatible.”
“Since 1920, the vast increase in welfare beneficiaries and the extension of the franchise to women [voting-ed.] -- two constituencies that are notoriously tough for libertarians -- have rendered the notion of ‘capitalist democracy’ into an oxymoron.”

Apparently his other disreputable choices (at least for GTM readers) include backing a libertarian for president and a Republican for California governor.

I have met and like Eric Wesoff and respect his knowledge of the industry. However, this sort of ad hominem attack is unseemly and (I would have thought) beneath Wesoff and a reputable organization like GTM. However, the green/cleantech/RE/solar press sometimes seem like they confuse their role as conveyers of accurate information with being cheerleaders for the industry.

There are thrree reasons why the attacks on Thiel are inappropriate (and unnecessary).

First, we all know that rich VCs are opinionated, have big egos and make claims supported by intuition, preferences (or self-interest) rather than facts. For every Peter “emperor has no clothes” Thiel there’s two Vinod "save the planet yesterday" Khoslas. As with any prediction, there’s no way to know which one will be correct— but eventually these investments either will or will not produce the huge returns expected by the VC limited partners.

Second, Thiel is hardly the only one making these criticisms. Respected academics and other analysts are pointing to the scale of investments and risks for cleantech that dwarf software, IT or even biotech investments — and were doing so a year ago. To me, cleantech (at least at the Solyndra level) seems to be a level even beyond Fred Wilson’s bifurcation between software and biotech. (There’s also additional analysis suggesting that VC may no longer be adequate for biotech).

Frankly, the solar industry doesn’t need a lot of new investments to start yet another me-too module company. After excess entry, the brutal price wars and associated shakeout are underway, and VCs have seen such shakeouts before in hard disks, PCs, software, dot-coms and just about anything else funded by the VC herd.

VCs that invested in capital intensive cleantech companies (also including autos and biofuels) will have to decide whether to continue to support their companies (pre-liquidity event) or pull the plug.

It may be that the near-term future for cleantech investing is smaller bets on niche players or companies that can become self-funding soon. Since VC euphoria is cyclical, that would only be a natural correction while investors wait to see how the current wave of investments play out.

An end to ethanol pandering?

2011-08-13T18:56:00.001-07:00

Subsidies for corn-based ethanol have for years been the third rail of politics in Iowa, home of the first presidential caucus. Just like social security in Florida, even suggesting that subsidies be cut has been the kiss of death for would-be presidential hopefuls. The Iowa Corn Promotion Board even has its own pro-Ethanol website.

Thus, it was very encouraging to see this article in Friday’s dead tree edition of the LA Times:

GOP presidential hopefuls take dim view of ethanol subsidies
Most of the candidates want to do away with the government subsidies, which cost $6 billion annually. The once-unimaginable message has support even in Iowa.

By Seema Mehta, Los Angeles Times

For decades, nearly every candidate who hoped to win the presidency has visited this state to pledge their allegiance to King Corn and to the government subsidies that have propped up its price and increased demand for it.

But for the first time, the GOP field is dominated by candidates who want to do away with such kickbacks. One even used his formal campaign kickoff in front of the gold-domed statehouse here to announce his opposition to such subsidies.

The reporter had chapter and verse about how the Republican presidential candidates were opposed to adamantly opposed to ongoing subsidies for corn-based ethanol. The reporter speculated that this might have to do with the importance of fiscal conservatism in the GOP primary this year, or even a decrease in the population of rural voters (who would presumably benefit from the subsidies).

The timing of the report might be a bit embarrassing to the NY Times, which in an unsigned editorial Monday called on Republicans to cut a $100 billion, 10-year ethanol subsidy. The NYT said that ethanol subsidies are being protected by House Republicans, even though (as it noted) the Senate has been unable to institute a reform that supposedly has bipartisan support.

I suspect what is protecting the ethanol subsidy is that the farm states are swing states in 2012 both for the presidency and control of the Senate. I suspect neither side wants to risk losing any votes in these states — since those who lose a subsidy are more likely to get upset than the general voting populace will be happy.

So despite the support of the GOP field and at least one former president, the corn ethanol subsidy is still with us — at least a little longer.

Runaway green jobs inflation

2011-08-09T07:41:00.001-07:00

Last month, the Brookings Institute published a report entitled “Sizing the Clean Economy” which promises:

The “green” or “clean” or low-carbon economy—defined as the sector of the economy that produces goods and services with an environmental benefit—remains at once a compelling aspiration and an enigma.

The report claims to offer a definition of green jobs, but that was done several years ago by a San Mateo consulting firm working for a Next10, a California advocacy group.

Of more concern is that Brookings is perpetuating — if not magnifying — the use of “green” as a political statement rather than an economic concept. For as reputable a group as Brookings — the most prestigious economic thinktank on the left — this is troubling.

In previous incarnation as a green jobs project director, I decided that the “green” jobs concept seemed like sausages — you didn’t want to see how they were made (calculated) or it would make you squeamish.

An article from the Mackinac Center for Public Policy (in Michigan) shows how we should ignore the command to “pay no attention to that man behind the curtain” — because (as in the movie) he is no wizard. (Yes, Mackinac is trying to unmask the wizard while Toto is just a naïve little dog, but…)

I was aware of one of the problems in the existing definition. Suppose a building contractor switches from installing inefficient windows to energy saving windows? Voilà! We’ve created a green job!

At least that building contractor (or roofer or electrician) is doing something to make the world a greener place by reducing the need for carbon-based fuels. However, what happens if a janitor switches from traditional chemical cleaning solutions to natural ones? Voilà! Another green job!

Jack Spencer of Macinac interviewed one of the authors, Brookings analyst Jonathon Rothwell, and it gets worse.

First, all mass transit jobs are counted. So if we had bus drivers 20 years ago or Pullman porters 75 years ago, they were working in green jobs and they didn’t even know it.

Then there’s the unappealing matter of garbage. As Spencer puts it:

Regarding the matter of waste industry jobs being included as part of the “clean economy,” did the report include everyone from the designer of a landfill to the person who picks up the trash from the curb?

“Yeah, that's pretty much it,” Rothwell said.

In other words, much of what is counted as “green” jobs are jobs that already exist, have existed for decades, and (unless we have gross labor inefficiencies) are not really growth areas of the economy.

If you add up all the bus drivers and trash truck drivers, it certainly dwarves the number of people working in companies that make renewable energy products. It probably even dwarves the people in the building trades installing solar panels, double-pane windows and CFL light bulbs.

Meanwhile, advocates, politicians, and reporters are republishing these estimates without reservation or qualification. The politicians are intentionally misrepresenting the truth — because they want to claim credit for private sector job “creation”. VCs seeking government subsidies also want to exaggerate the benefits of their tiny little companies. I guess (as in other stories) the reporters are merely economically ignorant naïve.

This is not particular to green jobs, but is a problem anywhere politicians get involved. The arguments for attracting sports teams and their stadia are similarly suspect, both because of the “multiplier” effect but also because money visibly spent at a pro football game is money not spent on a college game, movie, or just a 24-pack of beer. (The problem of unseen substitution is exactly as predicted by Frederic Bastiat 160 years ago).

Again in my efforts to develop renewable energy jobs, we found there weren’t all that many in California, and that the perception this was a growth area exacerbated the mismatch of supply and demand by attracting more job seekers than there were jobs.

One of these days people will realize how much fewer jobs have actually been created (as opposed to shifted) by green technologies. I look forward to the day when we measure such jobs the same way we measure IT jobs or aviation jobs — in specific (identified) companies and industries. Certainly that’s the only measure that matters to entrepreneurs, employees, investors and others that have real skin in the game.

Livin' On A Prayer

2011-07-10T10:31:00.000-07:00

While I was out of town at a conference, one of the big RE stories in California was the 2010 year end report of the California Solar Initiative. California added 194 MW of solar generating capacity in 2010 (vs. 132 MW the previous year).

As Dana Hull of the Merc explained it (with my commentary inserted inline)

In January 2007, California launched an unprecedented $3.3 billion effort to install 3,000 megawatts of new solar over the next decade and transform the market for solar energy by reducing the cost of solar-generating equipment.
…
The California Solar Initiative's road map calls for 1,750 new megawatts of solar power to be installed on residential and commercial roofs in the state by 2016. [Presumably the other 1.25 GW is utility scale. But does state really require that they be on rooftops rather than (say) a carport in a high school parking lot?]

Through the end of the first quarter of 2011, California had an estimated 924 megawatts of rooftop solar installed at nearly 95,000 sites -- putting it more than halfway toward meeting the solar initiative's goal.

Overall, the report left me puzzled as to the efficacy (or expected outcomes) of the CSI program. If in 4.25 years we’re about halfway to the residential/commercial goals — but incentives are almost entirely depleted — where will the remaining adoption come from?

This called to mind the refrain of the Bon Jovi hit that should be familiar to anyone who’s been to a teen dance in the past 25 years:

Whoa, we’re halfway there
Whoa-oh, livin’ on a prayer
Take my hand, we’ll make it I swear
Whoa-oh, livin’ on a prayer

I don’t be able to predict the future, but I can see two possible scenarios for how the remaining 5+ years of CSI will play out.

One is that the price of the equipment is close enough to grid parity that the additional 800 MW will be installed over the remaining years without resort to subsidies (despite calls for California to institute a feed-in-tariff).

The other possibility is that with subsidies gone, adoption will plummet. In that case, the people hoping for success without money behind it inhaled a few times too many when attending rock concerts.

Commodity competition: good for buyers, bad for sellers

2011-06-22T10:32:00.001-07:00

Except for those favoring symbolic consumption, electricity is by definition a commodity. For most intents and purposes, the sale of equipment that produces electricity is also commoditized.

Through technology improvements, manufacturing improvements, scale economies and good old fashion competition, prices are getting lower — bad for sellers, good for buyers.

One data point on wind comes from a GE executive, speaking Tuesday at the Renewable Energy Finance Forum-Wall Street. The quote comes from Kevin Walsh, who the GE website says is “Managing Director and Leader of Power and Renewable Energy at GE Energy Financial Services” — in reality the GE spokesman for its RE businesses, part of the $18b/year “Ecomagination” line of products and services.

The quote was in a Renewable Energy World Twitter tweet:

@REWorld: "Cost of wind down 40% in the past 3 years. Call it grid parity -- it's happening folks and that's exciting. " Kevin Walsh of GE #reffws

I looked for RE World to post a real story but so far it hasn’t happened. Still, 40% in 3 years is pretty impressive: not quite Moore’s law (50% in 2 years), but (at 80% every decade) well ahead of the historic PV trend of 50% a decade.

Still, on an annualized basis, PV can top that — both for the past month and the past three years. Prices plunged recently for the upstream supply of crystalline silicon, at least according to Bloomberg New Energy Finance:

The June issue of the Bloomberg New Energy Finance Solar Value Chain Index shows that the spot price of solar grade silicon fell by 28% month-on-month to $53.4/kg, relieving some pressure on downstream manufacturers of wafers and solar cells.

The price of 6" multicrystalline silicon wafers dropped by 23% in June to a record low of $2.39/piece. At the next point in the production chain, multicrystalline silicon cell prices were down 15% in June to $0.92 per Watt.

Module prices are also falling, though at a slower rate, with a 6.5% decline in June bringing crystalline silicon modules to $1.68/W. Chinese manufacturers are offering modules at significant discounts, with prices at $1.49/W, while modules manufactured outside of China are still priced higher, at $1.79/W. Prices for solar modules are now 58% lower than in the third quarter of 2008.

The “June” results are based on a survey conducted between June 2-8; “The Solar Value Chain Index started in May 2009 and the Module Price Index was launched in November 2010.”

Why the precipitous fall?

Martin Simonek, solar analyst at Bloomberg New Energy Finance, said: “Currently the markets are oversupplied with modules, as manufacturers seek to reduce their inventories in markets that are demanding cheap modules because of reductions in subsidies. Producers are preparing for a painful consolidation that could see several players exit the solar industry.”

Naturally, price cuts are a double-edged sword for the industry: lower prices spur adoption and total industry volume, but hurt (or kill) profits.

Or as another speaker at the REFF Wall Street conference remarked this morning:

@REWorld: Solar system costs cut by 1/3, now they don't like the stocks. People still aren't happy but we'll get there. -- Amy Smith #reffws

Note: I interviewed Simonek today for additional clarification. More in my next post.

Rational non-adoption of PV

2011-06-15T07:26:00.000-07:00

On Monday, Matt Hunter of CNBC asked provocatively “Does the Solar Industry Have a PR Problem?” The story was based on a fall study done by students at the SJSU Sbona Honors Program, and as someone who helped mentor the students, I was proud to see it published.

However, the conclusions reported by CNBC were different than those of the March webinar that discussed the report. To quote from Hunter’s report:

Jim Nelson, CEO of solar manufacturer Solar3D, says that, true to the perception, solar technology is not quite ready for prime time.

The problem, says Nelson, is that solar is generally still not price competitive with fossil fuels for energy generation, says Nelson. Paradoxically, government efforts to subsidize the purchase of solar panels actually slow down the adoption of innovation that should ultimately make renewable energy more affordable.

By encouraging consumers to buy immature and inferior solar technology right now, government subsidies risk locking people into solar systems that are inefficient, expensive, and may or may not ultimately pay off to the consumer. “They’re encouraging people to use things that don’t work,” he says.

At current kilowatt-per-hour rates, solar energy costs about 4 times more than power drawn from the grid, says Nelson. (Energy Secretary Steven Chu aims to bring down the cost by 70 percent to 75 percent by 2020.)

Reduce that by another quarter, and solar becomes attractive for both residential and industrial customers. (10 cents a kilowatt hour is the average cost of electricity in the U.S.)

Hunter quoted another expert that noted the payback period for residential PV is normally 10 years or more.

The reality is that today, solar makes economic sense for some people but not for others. (As Hunter notes, some people who are affluent or “passionate about green energy” may buy it even if it doesn’t pencil out.)

There are five things that drive the economics o PV adoption:

cost of the system
subsidy for the system
amount of sun
cost of capital to finance the system
the price of the substitute (grid power)

The press tends to focus on the first three. However, in talking to people in industry, the real action is where electric rates are high: with PG&E’s tiered rate structure, running an air conditioner in the Central Valley is prohibitively expensive and thus even an expensive PV system looks attractive.

Certainly the “grid parity” curves on PPT decks for the past decade assumed increasing fossil fuel prices (which may be a false assumption). In places like the Central Valley — or especially Hawai‘i — the substitutes are already expensive enough to make solar cost-competitive.

As it turns out, on Monday I had a farewell lunch with one of my coworkers, Gita Mathur of the SJSU College of Business. Gita noted that her 1985 first doctorate (of two) was on GaAs photocells, and the lab efficiencies she was demonstrating 25 years ago were almost the same as those for commercial products today. In her view, the subsequent innovation was mainly in the packaging — reducing the balance of system costs (including labor) to get those cells installed and available to generate power. This is certainly the area where industry continues to make strides, and in fact the basis of the low cost (and low efficiency) thin film startups.

Green vs. Green

2011-06-02T21:55:00.001-07:00

USA Today updates the rest of the USA today on the fight in the Mojave between the supporters of Tortoises for Global Warming™ and the anti-AGW environmentalists.

The headline and the first paragraph say it all:

Solar plans pit green vs. green
By Keith Matheny

Plans to create huge solar energy plants in the deserts of California, Arizona, Nevada and elsewhere in the West are pitting one green point of view vs. another.

The There’s really nothing new for those who have followed the controversy for the past two years, but the article does update the score: 9 projects approved and 2 pending (plus 2 approved in Nevada). It also mentions “More than a dozen other utility-scale solar projects are in the permitting pipeline in California, Nevada and Arizona.”

The article does briefly mention the controversy over Ivanpah — as well as its $1.37b in Federal loan guarantees — but not the planned IPO of its intended operator, BrightSource.

I’d commend Matheny (of the Palm Springs Desert Sun) for bringing this to a national audience, but Ivanpah alone has been covered a few dozen times in the New York Times. Still, any publicity on the issue is good for the public policy debate over the serious tradeoffs here between the predicted (although not provable) impacts on AGW or certain endangered species.

What counts as renewable energy?

2011-05-31T00:00:00.000-07:00

While working on a paper, I was looking through my notes about eligibility for California’s Renewable Portfolio Standard.

The California PUC has an interesting and comprehensive taxonomy of what counts as renewable energy:

Biomass - any organic material not derived from fossil fuels, including agricultural crops, agricultural wastes and residues, waste pallets, crates, dunnage, manufacturing, and construction wood wastes, landscape and right-of-way tree trimmings, mill residues that result from milling lumber, rangeland maintenance residues, sludge derived from organic matter, and wood and wood waste from timbering operations.
Biodiesel - Biodiesel is a type of biofuel made by combining animal fat or vegetable oil (such as soybean oil or recycled restaurant grease) with alcohol and can be directly substituted for diesel. (Source: MTC/link)
Fuel cells using renewable fuels – electricity produced from the creation and breakdown of hydrogen. If the hydrogen source is a renewable fuel, this technology is RPS eligible.
Digester gas - gas from the anaerobic digestion of organic wastes.
Geothermal - natural heat from within the earth, captured for production of electric power, space heating, or industrial steam.
Landfill gas - gas produced by the breakdown of organic matter in a landfill (composed primarily of methane and carbon dioxide), or the technology that uses this gas to produce power.
Municipal solid waste - solid waste as defined in Public Resources Code Section 40191.
Ocean wave - an experimental technology that uses ocean waves to produce electricity.
Ocean thermal – an experimental technology that uses the temperature differences between deep and surface ocean water to produce electricity.
Tidal current - energy obtained by using the motion of the tides to run water turbines that drive electric generators.
Solar Photovoltaic - a technology that uses a semiconductor to convert sunlight directly into electricity.
Small hydroelectric (30 megawatts or less) - a facility employing one or more hydroelectric turbine generators, the sum capacity of which does not exceed 30 megawatts.
Solar thermal – Use of concentrated sunlight to produce heat that powers an electric generator.
Wind - energy from wind converted into mechanical energy and then electricity.

Does anyone notice what’s missing? (Hint: it’s only the largest source of renewable energy in California, the US and the world.)

BFD: Biofuels boom or bubble?

2011-05-26T01:43:00.001-07:00

The next few weeks will bring two more IPOs by California biofuels companies: Solazyme (of South San Francisco) and Ceres (Thousand Oaks.)

Francis Gaskins of Seeking Alpha analyzes the Solazyme IPO (SZYM, due Friday) while Jim Lane of Biofuels Digest (BFD) analyzes that of Ceres. By my count, this will mark five IPOs by US biofuels companies in 15 months, following Codexis (CDXS, April 2010) Amyris (AMRS, Sept. 2010) and Gevo (GEVO, Feb. 2011). All but Gevo are based in California.

Gaskins is bullish on Solazyme while Lane has a healthy skepticism about the industry, especially the pre-revenue companies. In fact, Lane’s treatment of the Ceres S-1 is the funniest (or at least snarkiest) S-1 analysis I’ve seen in years. (Lane was equally through but a little less cynical when he analyzed the Solazyme S-1.)

The best part of Lane’s analysis of Ceres is when he reads between the lines on the discussion of risks:

In IPOspeak: We have a history of net losses; we expect to continue to incur net losses and we may not achieve or maintain profitability.
In English: Our investors are tired of losing their money, and may wish to lose some of yours before reaching profitability.

In IPOspeak: The markets for some of our dedicated energy crops are not well established and may take years to develop or may never develop and our growth depends on customer adoption of our dedicated energy crops.
In English: If biofuels and biopower do not scale globally, we are toast.
…
In IPOspeak: We are at the beginning stages of developing our Blade brand and we have limited experience in marketing and selling our products.
In English: Sir Richard Branson doesn’t work here.

In IPOspeak: Our principal competitors may include major international agrochemical and agricultural biotechnology corporations, such as Advanta, Dow Chemical, Monsanto, DuPont and Syngenta, all of which have substantially greater resources to dedicate to research and development, production, and marketing than we have.
In English: Big Ag may swoop in and take away all our toys.

In IPOspeak: A significant portion of our revenue to date is generated from government grants and
continued availability of government grant funding is uncertain.
In English: Uncle Sam is out of money.

Profits are scarce among this crop of young companies:

Ceres is in the business of developing seeds for sweet sorghum that are optimized for making biofuels; it is essentially pre-revenue.
Gevo was also pre-revenue.
Amyris IPO’d after it had significant revenues.
Codexis had revenues but with $150+ million in accumulated losses, about 3x that of Solazyme.

As it is, at the close of business Wednesday, Amyris was up 80% from the IPO price, Gevo up 20% and Codexis down 30%. Three is not a large enough N to generalize, but it does suggest the risks of the segment.

Solazyme has a better story to tell than Ceres. In 2010, it had losses of $16.2 million on revenues of $37.9 million. So the “history of net losses” comment from Ceres (and Lane’s translation) might also apply to Solazyme, but their revenue growth certainly provides more of a track record for investors. Solazyme is also #2 on the Biofuels Digest top 100 list of 2010, or #4 in the expert’s list — after Amyris, LS9, POET and ahead of Gevo. (Ceres is #13 on both.)

While biofuel IPOs are happening now without profitability, for most of the past 30 years, a new company had to be at least cash flow positive (or positive EBITDA) to IPO. A firm that’s coming out pre-revenue (or at least pre-profitability) suggests it believes that it’s more urgent to get the cash sooner from newer investors rather than waiting to solve its profitability problems and thus command a higher multiple. That also suggests that the current owners think there is a chance that the company won’t make it to sustained profitability, or (as Lane put it) “we are toast.”

The only time I remember that tech company IPOs were dominated by money-losing (or pre-revenue) companies was the late 1990s. And we all know how that turned out: there were a few winners and lots of losers. A case can be made for any of these companies being the survivor, but the odds are most will be gone (or merged away) in 5 years.

A call for government inaction

2011-05-16T08:05:00.000-07:00

A recent S&P report suggests that the US electric utility industry would be better off if the US government picked consistent inaction over inconsistent intervention in the energy sector.

The report, “U.S. Electric Utilities Seek Clear Direction From Washington On Energy Policy,” suggests major uncertainty for US utilities until more coherence is achieved. (I haven’t seen the report because it seems to be only for RatingsDirect subscribers unless you want to pay $500.)

Energy policy is of course one of the messiest examples of government intervention in the entire country, with national, state and municipal policies that include direct regulation, taxation, subsidies and land use. A consistent policy is essential for industry to make long-term capital investments, whether it’s a 10 year search for oil or gas, a 20 year lifespan for solar panels or a 30-40 year lifespan for a power plant.

A posting by Mimi Barker on RiskCenter summarizes the problem:

Standard & Poor's Ratings Services believes that U.S. electric utilities and their bondholders would benefit from a clearly articulated, comprehensive, and consistent U.S. energy policy.
…
Any energy policy evolves from a complex and intertwined system of legislative bodies, executive departments, and courts, not all of which are federal, that influences how the private sector develops energy resources and allocates capital. So when we say energy policy, perhaps what we mean is political leadership that coalesces and shapes public opinion in a way that supports long-term investment in energy assets.

"In some ways, overall regulatory risk in the sector has moved slightly from the states to the national stage as big-picture issues--with big price tags--like climate change, economic stimulus, and the reliability of the transmission grid threaten to overtake the mundane matters of rate cases and earned returns as the key factors supporting credit ratings," said Standard & Poor's credit analyst Todd Shipman.

Sheila McNulty on the FT offers another quote from the report:

Making resource decisions and committing a utility’s balance sheet to support those decisions has never been more complicated or littered with more potential pitfalls, and diminishing credit quality is a result.

And, as she notes, industry is starting to feel the confusion.

John Rowe, chairman and chief executive of Exelon, the power producer, spoke about this issue in a recent speech when he said US energy policy has been driven by a mess of mandates and power subsidies for nuclear, cleaner coal, gas, wind solar and other renewables – a constant urge to pick winners and losers. In his words: “Congress needs to slow down. We are already doing enough to give all of these things a chance.”

We have a fundamental collision between the political world — where the goal is a 15 second soundbite on tonight’s new and long term is an election 2 years away — and the long-term time horizons of all companies in the energy sector.

In the US, we’ve come to take a steady reliable supply of electricity as a given, something that distinguishes us from, say, rural India. The mismanagement of California’s electricity deregulation shows us that policy that can make the system less reliable and more expensive. And the recent contraction of Japanese industrial production due to electricity shortages shows us the broader economic impact of an unreliable energy infrastructure.

It would be nice if that would be enough to make the politicians pick stable rules and then butt out, but of course that’s not going to happen. This is one of those rare cases where I wish we had a Lee Kuan Yew.

A testament to the power of bureaucracy

2011-05-13T20:29:00.001-07:00

While many Californians seek to promote green power, there’s an even strong and more renewable form of power: government bureaucracy.

On behalf of SolarTech, the PV trade association, our SJSU business honors students have completed one study on overcoming permitting obstacles for residential solar in the state, and are about to finish another.

Meanwhile, the Sacramento Bee shifts the problem from an insider’s concern to a broader political audience in an article entitled “Permit Process Clouds Solar Energy Project.” It notes that politicians have talked about streamlining permitting for utility-scale solar, but not residential solar. This oversight calls into question the goal of a “Million Solar Roofs” by 2018.

A few paragraphs capture the heart of the problem:

Solar providers often complain about having to wait hours in line to submit permits and weeks to get final approval.

The result: Installing rooftop solar panels often takes two to three months from start to finish. In contrast, installing a central air conditioning system, which requires about the same amount of work, can take two weeks, Hahner said.

PV may have some safety issues. The industry clearly needs a technical solution — say UL certification of computer-controlled panel/inverters — that would make connecting a solar panel as foolproof as plugging in a refrigerator or room-sized air conditioner.

Even more crazy is when these regulations apply to solar hot water, which as my colleague Jim Mokri pointed out, is not high technology but 19th century plumbing.

The Bee offers this vignette:

Ed Murray, president of Rancho Cordova-based Aztec Solar Inc., said he ran into a number of hassles trying to get a permit from San Joaquin County for a simple $5,000 solar water heater.

Usually these kinds of permit applications are handled over the counter, but this one turned into a drawn-out process. Murray said he and his employees had to drive to the unincorporated Stockton area three times as part of the review.

"The customer was about to pull out of the project because he was so frustrated that it was taking so long," said Murray, who noted that the permit was approved Thursday.

This is one of the main reasons that I see California’s RE policy as mereley Grand Kabuki by publicity-seeking politicians, rather than a serious attempt to reduce carbon emissions or the use of fossil fuels.

Politicians can’t change the cost of silicon, the efficiency of CIGS, the cost of capital or the scale efficiencies of the big five Chinese manufacturers. They can, however, change regulations — if they really want to. But obviously they don’t want to.

The one and only century of fossil fuels

2011-05-11T00:01:00.000-07:00

In doing research for a paper, I came across a really helpful review paper by Vaclav Smil, published in 2000, that summarizes the trends of mankind’s energy consumption in the 20th century.

The abstract (accurately) promises a broad overview:

Civilization’s advances during the twentieth century are closely bound with an unprecedented rise of energy consumption in general, and of hydrocarbons and electricity in particular. Substantial improvements of all key nineteenth-century energy techniques and introduction of new extraction and transportation means and new prime movers resulted in widespread diffusion of labor-saving and comfort-providing conversions and in substantially declining energy prices.

The paper was published at a time when concerns about depleting natural resources and polluting the environment were long established, but before the recent emphasis on renewable energy sources and reducing carbon emissions.

Smil offers a particularly vivid illustration about how changes in our lifestyle have changed per capita energy consumption

In 1900 even a well-off Great Plains farmer holding the reins of six large horses while plowing his wheat field controlled—with considerable physical- exertion while perched on a steel seat and often enveloped in dust—sustained delivery of no more than 5 kW of animate power. A century later his counterpart driving a large tractor effortlessly controls more than 250 kW while sitting in the air-conditioned and stereo-enlivened comfort of his elevated cabin.

In 1900 an engineer operating a powerful locomotive pulling a transcontinental train at a speed close to 100 km/h commanded about 1 MW of steam power, the maximum rating of main-line machines permitted by manual stoking of coal. In 2000 a pilot of a Boeing 747-400 retracing the same route 11 km above the Earth’s surface merely supervises computerized discharge of up about 120 MW at a cruising speed of 900 km/h.

He notes that the shift to fossil fuels actually only happened late in the 19th century, and supplanted biomass only in the 1890s: “The twentieth century was thus the first era dominated by fossil fuels, and the 16-fold rise of their use since 1900 created the first high-energy global civilization in human history.”

No matter what happens on RE policy, global warming and related issues, it’s clear that the relative (if not absolute) contribution of fossil fuels to the operation of society will be considerably diminished at the end of the 21th century. Since I won’t be around to see it, I can only speculate on what Smil’s successor will write in 2100.

Worst case, we’ll run out of energy (or it will become so expensive) that our standard of living crashes to 19th century levels or below. Best case, we both reduce per capita consumption (through insulation, online meetings, transportation improvements) and increase our supply of renewable electricity and fuels that a larger fraction of mankind enjoys a high standard of living while the total consumption of fossil fuels falls dramatically.

Dr. Smil is a prolific author on energy and the environment, with 22 books to his name. I’ve already purchased one book from Barnes & Noble (for my NookColor) and will look into others.

References
Vaclav Smil (2000) “Energy in the Twentieth Century: Resources, Conversions, Costs, Uses, and Consequences,” Annual Review of Energy and the Environment, Vol. 25 (2000) pp. 21–51. DOI: 10.1146/annurev.energy.25.1.21

A new class of carpool cheaters

2011-05-07T06:56:00.001-07:00

The Merc reports that the Prius and other California hybrid owners are finally losing their carpool cheating stickers. Come July 1, the 85,000 privileged owners of a yellow sticker will no longer be allowed in the carpool lane.

Instead, the $1,500 subsidy to affluent buyers of expensive high-mileage cars will pass to those who buy an EV such as the Nissan Leaf. (Chevy Volt owners need not apply). We are repeating the mistake again, just with another class of privileged few.

Transportation writer Gary Richards found at least one honest Prius owner who recognizes the mistake:

“I am happy to see the carpool access experiment come to a much-deserved end,” said Ted Coopman of Santa Cruz, who never applied for stickers for his 2005 Prius. “While I support inducements for buying hybrids, granting carpool access was a major mistake. Hybrids don't get people off the road, and reducing traffic is the primary reason for carpool lanes.”

If gasoline prices remain high, California is going to need the lanes for actual carpoolers. So lets hope that the state doesn’t fill those lanes with 85,000 single-occupant EV owners.

RE: viable niche vs. subsidized mass market?

2011-05-04T22:25:00.001-07:00

In Wednesday’s WSJ, engineering consultant Josh Prueher argues that the way to promote renewable energy is to encourage adoption in self-funding niches rather than proffering government subsidies to help spur adoption in mass markets.

Prueher points to the inherent problem with any subsidies:

In the renewable energy industry, subsidies typically involve federal and state governments imposing a small tax or an electricity rate hike on each one of us. The government then awards the proceeds to a few winners that, in the best case, have demonstrated the technical and business potential to grow into competitive companies. In the worst case, they've demonstrated little more than superior lobbying capability. In all cases, subsidies deny the market its proper role of directing capital. It's important to note that the traditional energy industry also receives billions of dollars in government subsidies each year; perhaps it's more effectively hidden from public scrutiny.

The PV entrepreneurs and managers say that subsidies are a necessary evil in the short term but they look forward to when they are no longer necessary. Some seem more sincere than others.

Instead of these subsidies, Prueher notes that we already have a fully functioning unsubsidized market where RE has a cost advantage: the off-grid market. This market — whether rural US or military outposts — is typically served by diesel generators.

The logistics cost of supplying fuel to these generators — whether on an offshore platform or the military front lines — are “staggering”:

For instance, unlike you and me, who pay on average from 3 cents to 16 cents for a kilowatt hour of electricity from the grid, these large consumers pay between 50 cents and $2.

From this, we already know what an unsubsidized RE market looks like:

Those high costs are sending a strong, clear price signal to the energy market to provide cheaper and more reliable sources of electricity and fuel. Namely, we need to develop renewables, energy storage and energy-efficient technologies that do not require expensive logistical support. While the off-grid market is small relative to the on-grid energy behemoth, it is of sufficient size and depth to justify strong competition, private investment and product development—without subsidy.

While he’s right in principle, in practice I don’t see how we get from here to there. The venture-funded SV PV companies and the Chinese-funded Big Five are addicted to purchase subsidies, whether as taxpayer rebates or (as in feed-in tariffs or RPS standards) mandated wealth transfers from electricity users.

If I were doing a bootstrap startup, I’d make a self-funded startup that targeted a cost-effective niche. But the nature of venture-funded startups that their founders/owners have to bet it all on double-zero — to swing for the fences — because it’s better (at least for venture investors) to have a small chance of huge success rather than a good chance of a modest success.

Total eclipse of independent US solar companies?

2011-04-29T23:28:00.000-07:00

The purchase by Total SA of a controlling interest in Sun Power is sending shock waves through the solar industry.

The investment in 60% of the Class A (SPWRA) and Class B (SPWRA) shares would value SunPower at around $2.3 billion — up about 40% from the pre-offering price.

Even with the jump, Sun Power is only the second most valuable US solar company. First Solar (FSLR) now has a market cap of $12b. Of course, First Solar is the world’s second largest solar company (by 2010 PV capacity) and thus is nearly in a league by itself.

Various reports position this as a decision by oil companies to diversify their energy business against future shifts in supply and demand. Here’s the Dow Jones version:

Total, which has had an active solar focus since 1983, decided to invest in SunPower after a two to three-year search "for a strategic partner in the solar business," Philippe Boisseau, head of Total's gas and power division, said in an interview. He added that solar power will become a crucial energy source in Europe and North America and that Total intends to become a global leader in the solar industry, in addition to its core oil and natural gas businesses.

"Solar will gradually take its share" of the world's energy market, Boisseau said. "We want to be there when this happens."

Of course we’ve been down this road before — oil companies bought solar companies in the 1980s but didn’t do a terribly good job of running them.

Given the IPO difficulties faced by other solar companies (like other other tech startups), the idea of acquisition by big oil companies has raised the market value (and hopes) of other solar companies — both private and public. For example, Motley Fool wonders whether LDK Solar might be undervalued.

But will there be any US solar companies a decade now? Will they be subsidiaries of oil companies (or Chinese solar companies)?

I would think that a company that manufactures a high-volume, high-demand product should be able to create a positive cashflow self-funding business. The real problem is how much capital does it take to get to that point?

The seven large Chinese crystalline silicon PV companies got $30b in government money to create scale. There’s no US company that’s going to get $4b in private venture or debt financing. Being acquired by a big sugar daddy is the only way they can get this kind of money.

At $4.2b, Total SA’s recent quarterly profits are only the fifth largest of the world’s oil companies, leaving four other companies with even more cash to fund expansion of a PV manufacturer.

Cashing out on Mojave solar bonanza

2011-04-26T22:25:00.001-07:00

BrightSource Energy — the Oakland-based builder and operator of California solar thermal plants — has filed for a $250 million IPO. The S-1 doesn’t say how many of the 94.3 million shares it plans to sell

According to its S-1, the company was losing $40+ million/year but last year losses rose to $71.6 million with cumulative net losses of $177.3 million. The company did end the year with $37.8 million in cash equivalents on hand. But the S-1 says “executing on our pipeline and expanding our business requires significant additional capital.”

The S-1 said that it‘s signed 14 contracts with PG&E and/or SCE to deliver 2.6 GW of solar capacity. The first of these is the Ivanpah project, with a gross capacity of 392 MW on 3,600 acres near Baker in the Mojave Desert, on the I-15 between Los Angeles and Las Vegas.

The S-1 says this is the first of the company’s projects, with construction begun in October 2010, the first phase due in 2013 and the remainder in 2014. The project received a $1.6b loan guaranteed by DOE, as well as $300 m in equity from NRG Solar, $168m from Google and $130m from BrighSource.

Veteran solar scribe Ucila Wang sees this as a multi-million dollar bet on Ivanpah — and that seems like a good way to interpret it. The success of Ivanpah (and Coalinga Solar-to-Steam) are essential to getting financing for the remaining projects.

Some have questioned whether solar thermal (such as the BrightSource solar tower) can be cost competitive with PV in the long run. That’s not the real question: can BrightSource execute on its current plans (without internal or external delays) and deliver the contracted energy reliably?

Assuming there are no loopholes in the contracts, the Power Purchase Agreements are (by design) bankable revenue sources — representing the desperation of California utilities with the RPS gun to their head, buying from (thus far) the only gigawatt-scale game in town. Still, it’s hard to see how a successful IPO for BrightSource helps any of the PV companies, or for that matter those of the solar thermal operators who lag BrightSource by several years.

California PV: at what price?

2011-04-22T18:03:00.000-07:00

With Gov. Brown’s assent, the California legislature has formalized the 33% in 2020 Renewable Portfolio Standard imposed by Gov. Schwarzenegger. Even without a feed-in tariff, the state is marching towards having more RE usage than the rest of the US or Western Europe.

A quick glance at the California Solar Initiative data — back when the CSI incentives were relevant — shows that residential solar is relatively inconsequential in the state’s RE energy footprint. The real action is on large commercial and utility scale installations.

Last year saw a huge rush of utility scale plants being started in the Mojave before before federal subsidies expired.

However, energy writer Richard Nemec wonders whether these plants ever made economic sense. Earlier this week he wrote in the Los Angeles Daily News:

nine projects were given the green light, collectively totaling enough megawatts to equal about two San Onofre nuclear plants. Three months into 2011, however, two of the largest projects slated for the Southern California desert regions have been sold, utility contracts canceled and their futures put in doubt.

To date, three of the major projects are under construction, but a lot of that work is preliminary, awaiting more complete financial backing.

In addition to problems completing projects, there is also the price that the utilities (and thus businesses and consumers) will be paying for their power:

The state regulatory commission's consumer unit report concluded that approved solar contracts for the state's major private-sector utilities have collectively been about $100 million overpriced. This sort of largess does no one any good.

One reason for paying inflated prices is the RPS standard. Another is the expiring federal subsidies which caused firms to rush deals to regulatory approval before key issues were resolved.

This is perhaps the Achilles heel of utility scale: the small-numbers irrationality. When you have nine deals, it takes only a few bad decisions to have one-third or half of the projects collapse.

For residential and small commercial, some owners may behave irrationally, but in the long run we’ll expect buyers to act in their own self-interest: if the systems make sense, people will buy them and if they don’t, they won’t. (Yes, some consumers will pay a green premium to save the planet, but most probably won’t.)

The CPUC report looked at 184 projects — you would think enough to see a pattern in the proposals, and perhaps for the industry to figure out what’s feasible and not feasible. But I think the combination of RPS and federal subsidy deadlines induced an irrationality into the process.

The legislature (and the new governor) has made it clear that it wants more RE power used in the state. It remains to be seen whether they will pay attention to the inherent flaws in their mandated approach — rushing adoption ahead of grid parity — or will just ignore the wasted millions (if not billions) because it doesn’t show up as a tax that they can be blamed for.

US: the once and future PV market

2011-03-30T14:53:00.000-07:00

Once upon a time, the global PV market was a US market.

Some 60 years ago, AT&T created the PV market. The industry was sustained during the 60s from military and space applications.

This is not just PV. Meanwhile, during the 1970s energy crisis solar hot water became mainstream (at least temporarily) as Californians replaced water heaters and pool heaters with rooftop collectors. In the 1980s, California created SEGS, the largest facility in the world that once comprised more than 90% of the world’s capacity.

As any reader of this blog knows, the German feed-in-tariff (and similar subsidies in selected other EU countries) has created huge growth and shifted the bulk of the global PV demand to Europe. In 2010, 80+% of the global demand was in Europe — and of that Germany was by far the largest with 8+ GW of capacity added in 2010.

Wednesday at the SolarTech 2011 Solar Leadership Summit, Shayle Kann of GTM Research talked about the growth of US PV demand, based on a state-by-state survey it did in cooperation with SEIA.

First off, Kann said "There is really no such thing as a US market. There’s a loose collection of 50 state markets” or even 3000-utility-specific markets.

In 2010, the US installation of PV reached 878 MW (volts DC, i.e. pre-inverter), up from 290 MW in 2008 and 435 MW in 2009. While US growth has been explosive, so has the US share of the global market , flat at 5-6% over the past six years.

However, GTM is expecting the US market growth will now outpace global sales — continuing to double annually, with global growth only 17-18% per annum. If these trends hold, the US share of the global market could triple to 16% by 2015. With European growth slowing, PV companies are seeking growth elsewhere and Kann said they're targeting the US for that growth.

The top 10 states account for about 85% of the US market. According Kann's data, 2010 was the first year that California did not garner for the majority of the US market: from 50.3% down to 29.5%. NJ remains number two (up to 15.6%), but Nevada (6.9%) and Arizona (6.2%) leapfrogged Colorado (6.2%) within the top 5. Florida fell both in absolute and relative terms (from 8.3% to 4.0%).

One key element of growth will be utility scale systems: 6.4 gigawatts (7 years of demand) of utility scale capacity is contracted — with all of that online by 2015. Another 13.6 GW are announced but do not have a signed PPA.

Interestingly, US manufacturing (per GTM numbers) has remained constant at around 38-40% of the market. While Chinese makers have gained share, it’s been at the expense of Japanese makers rather than US ones.

Still, PV remains a drop in the bucket for US electricity generation: PV to date totals 2 GW peak capacity, whereas 50 US power plants (mostly hydro and nuke) have 2GW capacity each. So, as Kann noted, it will be a while before PV actually has a meaningful impact on US electricity generation.

The Tohoku Earthquake and the future of nuclear power

2011-03-15T15:52:00.000-07:00

Both the Mercury-News and the LA Times had articles today on whether the problems of Japanese nuclear plants after the Great Tohoku Quake of 2011 (now upgraded to a 9.0 on the Richter scale) could happen in California. This of course is part of the renewed stirring of the nuclear controversy in the light of this tragic quake.

The Merc story was disappointing. After noting that two plants provide 4.7 GW (12%) of California’s electricity, it quoted PG&E (operator of Diablo Canyon) and Southern California Edison (operator of San Onofre) saying predictable things and opponents saying predictable things. It also (as is want around here) gave undue credence to fringe critics rather than actual experts.

Perhaps the most interesting thing in both articles is the discussion of the seismic fault under Diablo Canyon that was discovered after the plant was built. In particular, the Merc quoted the hometown state senator, Sam Blakeslee, who has a Ph.D. from UCSB and various published papers on seismic issues. It quoted Dr. Blakeslee as asking experts to study fully the safety implications of the new fault.

On the other hand, the LA Times quoted actual independent experts (i.e. university scientists) saying that a 9.0 is not very likely to happen near either plant, with “low 7s” being the largest quake expected at either plant. Big tsunamis won’t happen here either because we don’t have offshore subduction zones.

However, as an engineer, I found troubling two questions that were not directly addressed.

The Great Tohoku Quakeis larger than any in Japan’s recorded history. This reminds me of Katrina, which was a large hurricane than was anticipated — after the fact, the Army Corps of Engineers called it a “400 year” storm, but the city had planned for a “100 year” storm.

The largest earthquake in California’s history is the Fort Tejon quake of 1857 (magnitude 7.9). However, the largest earthquake in US history was the 1964 Alaska quake (9.2) which also caused a tidal wave in California, killing 11.

When it comes to record high and low temperatures, record wind or rain, record earthquake magnitude — these are always a first. If every city plans for a 100 year storm, some will not see that 100 year storm over a 100 years, and others will see the 200 or 400 or 1000 year storm. (And, of course, many cities are over 100 years old.)

This suggests to me that planning for earthquakes — at least when there’s a high safety implication — should be planning for more extreme events. If NorCal doesn’t have a 200 year quake in the 21st century, perhaps SoCal will.

Estimating the size of the largest quake is not a policy — or political question — but a scientific question. Of course, science is so politicized nowadays (particularly due to the impact of groupthink on access to funding) that a purely scientific evaluation may be impossible.

Finally, the biggest lesson of TEPCO plant in Fukushuima — the one that will cause power engineers to rip their plans and start over — is that what happens outside the dome is as important as what happens inside the dome. The engineering failure was not nuclear or structural, but in systems design.

The 40-year-old Japanese reactor containment vessel did its job, holding up to the largest earthquake ever. However, the emergency cooling plans depended on the availability of power from outside the plant, and the infrastructure did not survive the quake well enough to provide power for the cooling pumps. Apparently the backup diesel generators worked, but did not survive the tsunami.

The LA Times article talks about gravity fed emergency cooling reservoirs located onsite at Diablo Canyon and San Onofre. Will those reservoirs (and their piping) survive a direct 8.0 earthquake? Will that onetime supply of water be enough to keep the reactor cooled if there is no electric power for 7 days? 14 days?

Again, these are engineering problems, not political problems — Californians should hope that PG&E and SCE will share their revised emergency plans after the lessons of Fukushima have been fully studied.

A smarter way to deploy smart meters

2011-03-05T09:59:00.000-08:00

It’s no secret that PG&E has created an enormous controversy in California — encouraged by the PUC — with its aggressive push to force smartmeters on its customers. The newspapers and TVs have run story after story on the controversy, there have been hearings and a state investigation, and still cities are “banning” smart meters on a variety of grounds.

The imposition of smartmeters is the ultimate manifestation of a technocratic view of energy management, fueled by $3 billion in stimulus money. On the one hand, smart meters allow demand management and time-of-day metering, and are seen by many as the lynchpin of $200 billion in worldwide investment on bringing the electric distribution grid from the 19th century into the 21st.

On the other hand, customers are seeing their bills increase — both to pay for the meters and for time-of-day use — without any increase in the available energy. The meters are being fought on the left over price increases and on the right over the invasion of privacy.

Now a Texas utility wants to try a different approach. As VentureBeat reports:

It’s interesting to see that one pilot happening in the U.S. is coming at the game with a new approach: Focus on the making the consumer happy about the smart grid. In particular, it wants to demonstrate that the smart grid can improve the quality of consumers’ lives, much in the same way apps add value to the lives of iPhone and smart phone users.

Brewster McCracken, director of the Pecan Street Project in Austin, Tex., says its smart grid demonstration project is unlike any others in that is most concerned with the value to the customer, and not the utility. Part of the project’s goal will be to study how — and whether — the smart grid can provide value to the customer.

How about that? A public utility working to do something that benefits customers? (I’m guessing they came up with this on their own, without any help from the Public Utility Commission of Texas.)

The idea of being customer-driven is not something that comes naturally to big monopolies, particularly utility companies who get their revenues by spending money by lobbying for rate increases, then increase their rate base that is multiplied by guaranteed rate of return. (NB: This culture proved to be a disaster for the phone companies during the 1980s and 1990s when they actually had to compete for customers.)

This also applies to the big suppliers to the power companies, who wouldn’t know a consumer if one bit them on the backside. Even GE — with more than $90 million spent on its Ecomagination consumer PR blitz — isn’t really interested in listening to customers, but instead wiring its meters into local smart grid procurements.

With their assumption of all-knowing, all-seeing command-and-control planning, the top-down government bureaucracies are even worse than the top-down ones at the utilities or the industrial manufacturers. If you want to see Soviet-style central planning in North America 20 years after the collapse of the Soviet Union, this is where you’ll find it.

So the Austin public-private collaboration and its leaders should be applauded for their initiative. The old “small is beautiful” Jerry Brown would have loved and trumpeted a decentralized initiative like this, but I guess the state budget quagmire and its $25 billion deficit are occupying 110% of his attention right now.

Solar Leadership Summit coming to Santa Clara

2011-03-01T13:37:00.001-08:00

The annual Solar Leadership Summit is being held here in Silicon Valley March 28-29. The theme of the conference is “Solar 3.0--A Path from Policy to Profitability.” Speakers include the president of the Public Utilities Commission, CEOs of REC Solar, Cleanpath Ventures, Serious Materials and SolarNexus, and other public and private RE leaders.

The summit will be held at the Santa Clara Hyatt and is sponsored by SolarTech, the solar energy industry trade association. For more information, including pricing and a detailed agenda, see the SolarTech website.

Thank you, Mr. President

2011-02-25T12:35:00.001-08:00

The retired POTUS on Thursday voiced his own concerns about the effect corn-based ethanol is having on food prices and political stability in the developing world. As the AP reported:

WASHINGTON (AP) — Former President Bill Clinton on Thursday warned farmers that using too much corn for ethanol fuel could lead to higher food prices and riots in poor countries.
…
He said the United States needs to look at the long term, global effects of its farm policy.

“I think the best thing to say is we have to become energy independent, but we don't want to do it at the cost of food riots,” Clinton said.

In doing so, he was somewhat less decisive than his vice president, Al Gore. (Perhaps Bill’s wife still expects to run for president in Iowa some day.) Still, this is moderating his position clearly in support of ethanol three years ago, as expressed in his book, Giving.

Despite this equivocation, corn ethanol’s most adamant opponent, the Wall Street Journal, offered rare praise for the former president:

America's political addiction to ethanol has consequences, from raising the price of food to lining the pockets of companies like Archer Daniels Midland. So we're delighted to see another prominent booster—Bill Clinton—see the fright.

Actually, the effect of American ethanol consumption on overseas food riots was noted last month by critics on both the left and right, tied to UN statistics showing skyrocketing food prices to record highs over the past six months. The pressure and evidence have been building ever since.

A Princeton researcher, Tim Searchinger, published a thoughtful commentary in the Washington Post two weeks ago, which was followed up by articles in Time and a scathing editorial in the Chicago Tribune entitled “Burning Dinner.” The rebuttal to Searchinger (a former EDF activist) was to call him a “Gasoline Whore.”

While the unrest in the Middle East is new, the opposition to shifting food for use in fuel is not, as 2007 articles in Business Week and Technology Review make clear.

What’s changed in the last four years has been an increasingly wide range of biofuels that can provide a greater quantity of fuel without this impact on food prices. (Some of these alternatives would be very good for California.) Overseas food riots have raised the urgency enough to spark interest in ethanol alternatives across a wide political spectrum.

Given this elevated level of discourse, the time has come for Energy Secretary Steven Chu to re-emphasize that corn-based biofuels are only “a transitional crop” and for the budget-cutting Congress to start the phaseout of subsidies for them. The country has less than a year to forge a new national consensus before the 2012 presidential election prompts a new round of farm state pandering.

Wind: commodity prices, commodity pressures

2011-02-18T22:22:00.000-08:00

Last year was not a good year for Denmark’s Vesta, the world’s largest manufacturer of wind turbines. Like the German PV companies, it grew its business based on home country government support, but like the PV companies is facing tougher competition in the global marketplace.

In 2009, publicly traded Vesta announced layoffs of 1900 workers, and last October axed 3000 more, closing four factories.

Now Renewable Energy World has a 2,500 word profile that’s supposed to be an upbeat update on the company’s fortunes, but to me sounds like more bad news. Europe faces overcapacity and 2010 sales were down because government buyers realized they’re broke. The industry’s trade association says their only hope is more aggressive GHG reduction mandates by EU governments.

At the same time, uncertainty in the US — the world’s largest installed base — is increasing.

Meanwhile, the article notes that Vesta faces increasing competition from Europe (Spain's Gamesa, Germany’s Siemens) and the US (GE) which are offering improved products and increasing European production.

If that’s not enough, Vesta — like the German PV companies — faces increasing competition from low cost producers in China and elsewhere in Asia. The money quote of the paper:

"You could say we have been too optimistic for too long," Ditlev Engel, chief executive of Vestas said last October as the company cut its workforce by 15%. He later qualified these words, saying it was right to study the markets before taking "tough decisions" to close four production units in Denmark and another in Sweden, but it was inevitable this phrase would make headlines, sending shockwaves across the industry.

Vestas' move was in response to shifting fortunes, and shifting global markets. "If you can make a turbine in Asia and deliver it to Europe at a comparable price to making it in Europe, we have a problem," said Engel. "So we have to make sure we can always compete with what we call 'Asia plus freight'."

In the comments section, one reader wrote:

He said it all in the beginning...
"Asia + shipping"

The wind folks like to think they’re a tech industry (not really) or a growth industry (depends entirely on subsidies and mandates). The reality is that they make equipment for producing commodity electrons, which makes theirs a commodity industry as well.

Thin film on thin ice

2011-02-16T23:55:00.000-08:00

Solyndra’s well-publicized annus horribilis was usually explained as being specific to the company: their technology didn’t improve quickly enough, they didn’t execute, they weren’t able to scale commensurate with their sizable capitalization.

Others see it as part of a broader problem of Silicon Valley’s cleantech infatuation, in particular the inability of high-cost American firms to use technology to compete with low-cost Chinese rivals to produce commodity electrons. I think the jury is still out on that point.

A clearer picture is the failure of the thin film experiment. (FirstSolar excepted.) Cheap low-efficiency thin film panels are losing to cheap average efficiency crystalline silicon panel, as the volumes of cSI drives ongoing cost reductions.

DowJones has an (apparently exclusive) report about a cramdown for MiaSolé, the Santa Clara-based maker of CIGS thin film panels. According to DJ’s sources, the $100+m Series F round closed with a pre-money valuation of $550 million, versus $1.2 billion three years earlier.

The article identifies a pattern of troubles for similar companies. Companies seeking a valuation above $350m will find few takers. The price of panels has plummeted since 2008, in part because the temporary spike in polysilicon materials has passed. However, the biggest problem seems to be economies of scale — or lack thereof — in a commodity industry where cost savings are driven by scale.

Although MiaSolé has achieved enviable efficiency for a thin film maker — planning to ship panels with a 13% efficiency later this year — the company and its technology are fighting the scale economies of its mainstream rivals. Or as the final paragraph put it,

By moving into efficiencies in the mid-teens, the company is beginning to compete directly with polysilicon-based modules. But the small scale of production means that costs are still high. Miasole's 22 MW last year is a drop in the global photovoltaics market that was around 18 gigawatts last year, according to Barclays Capital.

I can see one other problem for the go-it-alone, technology-based Silicon Valley thin film startups: there’s no exit strategy.

Companies with capacity aligned to the mainstream silicon market can merge and combine with other companies to increase their scale economies. But the firms building their own processes and technologies and production have no potential mate — and with falling valuations, no IPO options either.

Once the world’s leading solar manufacturer by volume, in 2010 First Solar may have slipped behind China’s Suntech to become number two, but it’s still the first company to ship more than a gigawatt of capacity in two consecutive years. That makes it the only thin film maker to achieve scale on its own, and the latest news continues to suggest that its US rivals will be hard pressed to match that scale.

All biofuels not created equal

2011-02-07T00:02:00.001-08:00

Efforts to replace fossil fuels with renewable energy are proceeding on two parallel tracks. Solar, wind and other technologies are being deployed to generate grid-connected electricity (instead of coal or natural gas) while biofuels are being developed to replace petroleum-based transportation fuels.

In addition to concerns about (net) greenhouse gas emissions, biofuels have also attracted support from those who want to reduce U.S. imports of foreign oil.

Biofuels are thus one of the major research areas of the U.S. Department of Energy and its National Renewable Energy Laboratory. A 2006 NREL brochure summarizes the various alternatives.

Two major types of biofuels are being developed — alcohol and biodiesel — to replace petroleum-based gasoline and diesel respectively. (For safety reasons, efforts to test jet fuel replacements have so far used blends of regular jet fuel and biodiesel.)

While next-generation alcohol fuels are under development, the current generation fuels are mainly ethanol. The most widely used (and most controversial) biofuel in the US is corn-based ethanol, which is sold today at many gas stations as a 10% (soon 15%) blend with conventional gasoline.

Ethanol is a grain-based alcohol that has numerous disadvantages when compared to gasoline. It has lower heat content, is miscible with water and highly corrosive. However, for more than a decade, some “FlexFuel” cars have been designed to run with (and resist corrosion from) E85, i.e. 85% ethanol. My 2000 Ford pickup says it is compatible with E85, although I’ve never seen it for sale here in California.

Corn-based ethanol also poses economic challenges. After the U.S., the second largest producer of ethanol is Brazil, which refines its ethanol from sugar cane. Brazil’s ethanol industry is pushing for trade sanctions against the U.S. over our net 99¢ subsidy for use of domestic over imported ethanol. Because ethanol consumes one-third to 40% of American corn, some also blame it for the recent increase in food prices.

Cellulosic ethanol offers a way to overcome these food vs. fuel problems, because it uses crop residue, grasses and other organic material that do not require prime farmland. However, these feedstocks pose greater technological problems in processing to produce fermentable sugars. To overcome these challenges, cellulosic ethanol is attracting hundreds of millions of dollars in government and industry investment to develop commercial-scale bioprocessing facilities.

Broadly, there are also two categories of feedstocks for biodiesel. One category includes the existing oilseed crops — such as canola, jatropha or palm oil — which were used in some of the earliest bio-jet fuel experiments two years ago. Indigenous to the Sonoran Desert, varieties of jatropha have become a popular fuelstock for growing in arid areas such as the U.S. Southwest, Africa or India.

The second category of biodiesels are algal biofuels. Microalgae can be grown in non-arable land — or even saline or brackish water — and produce a higher concentration of oil than more the complex oilseed plants. They also can be genetically engineered (or selected) for characteristics best suited for fuel production.

Both forms of biodiesel still require manufacturing process improvements necessary to build commercial refineries of scale and efficiency comparable to decades-old petroleum-based technologies. The microalgae approach also requires additional research into developing (or screening) and then cultivating the most suitable strains.

In California, San Diego has become the state’s (if not the nation’s) hub for algae-based biofuels, with two major firms as well as the San Diego Center for Algae Biotechnology, a large university-industry research center headquartered at UCSD. Venture investors, the Federal government, and even oil companies like ExxonMobil have bet heavily on the future prospects for algal biofuels.

Smart Grid: a primer

2011-02-02T23:55:00.001-08:00

So far I've been to one Smart Grid event and read only a few articles that were at all useful. All of the best stuff has been from the IEEE Power and Energy Society, which not surprisingly has a major emphasis on educating society about plans for a 21st century distribution system.

For those not up to speed, there is a good primer in the IEEE December newsletter, The Institute, which I get as an IEEE member. (At the end of the semester I get behind on my mail and journals, so I just caught up today.)

Here are a couple of opening paragraphs from the article:

The electricity grid is made up of four main components: generation, transmission, distribution, and customers. Generation refers to the production of electricity from sources of energy, such as coal and natural gas. The transmission system carries the electric power from the generators over long distances to a distribution system, which brings the power to the customers. Distribution systems can include power stations of their own.

Developing countries often have antiquated systems. But even more modern systems, which in a developed country such as the United States can be 50 years old or more, are typically inefficient, unreliable, polluting, incompatible with renewable energy sources, and vulnerable to cyberattack.

It’s a little rah-rah on the technology, but then what do you expect from a bunch of engineers? At least — unlike GE or PG&E or SDG&E — it’s not peddling a specific product or service.

The Department of Energy has a website and a 2008 report that seem even more rah-rah. The latter is a propaganda piece worthy of a political campaign (or lobbying for increased appropriations) rather than a textbook or scientific article.

Still, the smart grid issues are essential for instituting distributed generation with unpredictable interruptions such as residential rooftop solar and small scale wind. So even if smart grid is not an RE fight, it’s one that RE depends on.

Solynda losing raison d'etre

2011-01-30T13:34:00.000-08:00

Solyndra had a terrible 2010: it cancelled its IPO, announced plans to close a factory and cancelled its ambitious hiring goals. Many analysts started asking whether the government would ever get back the $535m in Federally guaranteed loans — over and above the $1b in private capital.

Solyndra was once the poster child for green jobs in the Bay Area, with its factory rising only a few miles from the old GM (later Nummi) plant. Instead, it’s looking like California’s answer to Evergreen Solar — except that Evergreen IPO’d early enough to bail out its VCs.

Will 2011 be any better? Not according to Dana Hull of the Merc, who normally offers an optimistic bent on local cleantech companies. Today’s story on the website says “Fremont's high-flying Solyndra hits a rough patch.” However, as lead business story in the dead tree Sunday paper, the headline is more blunt: “Cloudy future.”

Looking at the story, this is one of those balanced stories where the reporter strained mightily to suggest a possible happy ending. The company has money (for now), a top flight team, and has completed some successful installations. It’s still hoping to make a dent in its niche, commercial rooftops.

As for any PV maker, the challenge is the price: if the commodity PV panels aren’t cheap enough, no one will buy them. This is particularly true for most thin film producers, that hoped their lower manufacturing cost would give them an advantage against the established crystalline silicon.

The problem is, crystalline silicon prices continue to fall — driven by an explosion of capacity and scale economies achieved by Chinese makers. Except for First Solar, thin film makers have been unable to keep up.

The prognosis in Hull’s article is grim:

Many low-cost Chinese manufacturers, which benefit from massive government support, are manufacturing at costs in the $1.10 to $1.20 a watt range. Thin-film leader First Solar, based in Tempe, Ariz., manufactures at 75 cents a watt and aims to be at 53 cents a watt by 2014. Solyndra says its current manufacturing costs are about $3 per watt..

"Our manufacturing cost per watt is coming down every quarter," Harrison said. "By the end of 2012 we should be at the $1.30 to $1.40 per watt range, or $2 a watt if you include installation."

But even if Solyndra hits that goal, analysts such as Jeff Bencik of Kaufman Brothers warn that competitors are similarly racing to drive down their costs -- and have a head start.

"It's a moving hurdle," Bencik said. "It will be really difficult for Solyndra to match (other manufacturers' costs) at this point. I'm not saying they can't do it, but I haven't seen it."

Evergreen took a dramatic step — moving production offshore — but did so too late to save the company. Solyndra is fighting the same commoditization, low cost producers and laws of economics.

So if this article is the hometown paper putting the best face on things, I guess we should expect a major (but unsuccessful) reorg in 2011, and a liquidation or other forced exit within 18 months.

Natural gas: the cleanest practical alternative

2011-01-27T00:01:00.000-08:00

The bad news for adoption of renewable energy generation is that natural gas is increasingly cheap and requires relatively small capital investments.

The good news is that natural gas is increasingly cheap and requires relatively small capital investments.

A great discussion of the latter perspective can be found in the fall newsletter of the MIT Energy Institute. In summarizes “The Future of Natural Gas,” a report summarizing a two-year MITEI study.

Some excerpts of the newsletter article:

“Much has been said about natural gas as a bridge to a low-carbon future, with little underlying analysis to back up this contention. The analysis in this study provides the confirmation—natural gas truly is a bridge to a low-carbon future,” said MITEI Director Ernest J. Moniz in introducing the report.

Moniz further noted, “In the very long run, very tight carbon constraints will likely phase out natural gas power generation in favor of zero-carbon or extremely low-carbon energy sources such as renewables, nuclear power, or natural gas and coal with carbon capture and storage. For the next several decades, however, natural gas will play a crucial role in enabling very substantial reductions in carbon emissions.”

To cut to the quick, the best way to reduce carbon emissions is to find a way to retire the dirtiest coal-powered electric plants, and the only way to do that in the near term is to replace them with natural gas. The MIT researchers assume the switch will be complete by 2050.

The price of natural gas has been quite volatile over the past 40 years, so let’s hope for the sake of the economy — and the environment — that it remains cheap enough to enable such widespread adoption.

California has already gone down this path, with (according to 2008 EIA statistics) natural gas accounting for a majority (57.7%) of the state’s electricity generation. For the rest of the country, coal accounts for the plurality (48.2%). Unlike our current fiscal fiasco, this is one case where California remains a model for the rest of the country.

Imagine no fuel from food - I wonder if you can

2011-01-22T21:44:00.000-08:00

The Wall Street Journal this morning notes that 39.4% of US corn went for ethanol in 2010, up from 7% in 2001. Corn prices are up 67% from a year ago.

US corn growers account for 39% of the world's corn production. Converting all the country’s corn to ethanol would replace 4% of US oil consumption. As a fuel, corn ethanol is distinctly inferior to gasoline: it creates more smog, is a less efficient fuel and damages car engines.

Even Al Gore has sworn off ethanol pandering to farm state voters. But this didn’t dissuade the lame duck Congress last month, when it extended the $5 billion tax subsidy by a year.

It would be nice to think we could end the lunacy of converting fuel to food — either based on economic logic, or as other biofuels (such as cellulosic ethanol or algae-based fuels) take off.

Instead it appears the corn subsidy won’t end until the politicians can replace it with some other gift to farm state voters. Perhaps the Feds can overcome Eastern opposition to Midwestern exports of wind-generated electricity, which would certainly be popular in Iowa. (Or maybe the two parties can just move the date of the Iowa presidential primary.)

Cartoon Credit: Science Cartoons Plus by S. Harris

Sunny and dark side of deregulation

2011-01-20T00:01:00.000-08:00

10 years ago, the California energy crisis came to fruition. Blackouts and shortages rocked the state, made us a mockery of the country and brought down a governor.

Since that time, it’s been tough to find a balanced appraisal of this event. Leftists blamed evil corporations, rightists blame inept government while accounts that consider both perspectives are few and far between.

Economist Seth Blumsack of Penn State offers the rare exception, writing in December’s issue of IEEE Spectrum and posted to the public website this month. (The website comments are also helpful.)

Against the government, there was only partial deregulation which never engendered real competition. Against business, a few companies (notably Enron) were able to game the system for their own ill-gotten gains.

As Blumsack points out, electricty markets are not (and perhaps never will be) fully competitive. In this regard, the last mile resembles wireline telephone companies and other “natural monopolies.” Meanwhile, all energy markets are plagued by demand that is highly inelastic in the short run. (If gas prices double, over time I can buy a smaller car or move 15 miles closer to work, but I can’t do it tomorrow morning.)

Overall, the results are mixed. The partial liberalization has increased efficiency. On the other hand, increased pressures for efficiency have changed the energy grid from a cooperative effort to a zero-sum battle.

Blumsack contends that deregulation means higher cost of capital and thus higher project costs. It’s also possible that deregulated developers have more incentives to cut costs while regulated utilities — like a government entity — will quite freely spend money not their own.

Finally he points to the role of markets in promoting green energy. Markets can be used to buy anything, and most American states are using them to procure geen energy.

A green way to fight EVs

2011-01-15T20:34:00.000-08:00

The general public and the media hype machine seem to assume EVs are good for the planet, even though that assumption is dubious at best.

Still, I was unaware of environmentalists passing policies to reduce the use of EVs here in California — until now.

A Purdue study (forthcoming in Energy Policy reported by the LA Times) notes that the state’s aggressively tiered electricity rates — plus our electricity prices — make the state one of the most expensive (i.e. least desirable) places for a consumer to charge an EV, perhaps 35% above the national average.

Philosophically similar to a progressive income tax, California’s tiered electricity rates charge more per kWH for big users than small users. It’s designed to encourage energy efficiency (but also also sock it to the rich.)

A PHEV would increase a homeowner’s electricity consumption by 60%, thus pushing even the most efficient homeowner into a higher tier.

The study from Purdue’s Energy Center pointed to another problem: California’s average electricity price is among the highest in the country: 4.4¢ per kWH vs 8¢ for a low cost state like Indiana.

In short, the economics of the Chevy Volt don’t work, according to the Purdue press release:

The researchers determined the plug-in hybrid would be less economical than the Toyota Prius, a hybrid that does not charge its battery through a plug, or the Chevrolet Cobalt, which uses only an internal combustion engine. When oil prices are high, the Prius would be the most economical, with the advantage going to the Cobalt when oil prices are low.

Tyner said to make the Volt more economical than either the Prius or the Cobalt, oil prices would have to rise to between $171 and $254 per barrel, depending on which electricity pricing system is being used. That's because the Volt has a higher purchase price and will cost more in electricity than gasoline over the life of the vehicle.

Even with $7,500 in Federal subsidies, the numbers just don’t pencil out:

"People who view the Volt as green will pay $10,000 more over the lifetime of the car because it's green," Tyner said. "Most consumers will look at the numbers and won't pay that."

Perhaps this explains the dismal sales of the Volt (and its competitor the Nissan Leaf).

Of course, this is a job for the controversial SmartMeter™!! With time of day metering, excessive energy consumption at night (which isn’t going to be air conditioners) could be charged at the base rate rather than the peak rate.

There’s no evidence of a CPUC ratemaking proceedings yet, but I’d bet money that our local EV company and its allies will request starting one soon.

EVs' dirty clothes

2011-01-10T00:01:00.000-08:00

The assumption of those buying, selling and seeking subsidies for EVs is that they are somehow cleaner than existing internal consumption engine cars.

The premise has numerous largely unexamined assumptions. One is that the alternatives are a stationery target — that there’s no progress on competing technologies (e.g. hybrids, diesels, fuel cells, etc.). Another is accounting for the energy cost of creating the batteries and the pollution cost of disposing of them.

And — as with any environmental investment — there is the question of whether this is the most efficient way to spend billions or trillions to save the planet. If (hypothetically) it takes $5 trillion to replace the global transportation infrastructure to not emit carbon but only $1 trillion to sequester carbon, couldn’t that extra $4 trillion be used to cure malaria, provide safe drinking water, or other alternatives that improve the health of the planet and its residents?

However, these are second-order arguments that don’t seem to be getting traction.

A much simpler argument is: is generating (and distributing) the electricity to the new generation of EVs cleaner than currently available gasoline-powered cars?

Increasingly, evidence suggests that the answer is “no”. As I noted last May, outside of New Zealand, few countries have green enough aggregate energy generation to reduce CO2 emissions if you shift from gasoline to grid power.

If you look a little deeper, the US picture is even worse. There are two types of electricity — cheap baseload and expensive (or more variable) peak load, used when lights are on and air conditioners are running. Solar obviously is a daytime peak load source, natural gas (the cleanest fossil fuel) is expensive and used only at peak load, and who knows when wind will be available.

However, smug homeowners with their non-polluting EVs are plugging into the grid at night, when there’s no solar. According to John Petersen (writing at Renewable Energy World) those kilowatt-hours will come from baseload power — which in the US means either coal or nuclear power. His article draws on a 2008 Rand study of the lifecycle comparison of HEVs vs. PHEVs.

The Rand study says that if you use natural gas to generate electricity, a PHEV is cleaner than a HEV but if you use coal it’s dirtier. (What about CNG cars? Petersen doesn’t say). Running coal plants to charge “clean” EVs is obviously somewhat of a contradiction in strategies.
From my analysis of 2008 EIA data, coal accounted for 48.2% of US electricity consumption and nuclear 19.6%. (In California, it’s 57.7% natural gas, 15.6% nuclear but only 1.1% coal.) Of course, shifting transportation from liquid fuels to the grid would require incremental increases in electricity generation — retiring fewer coal plants or even building more of them.

The one gap in Petersen’s analysis is that hydro can be shifted to be used whenever power is needed, so that increased electricity consumption at night could be fed by hydro. Of course, that takes away from its availability at (the more valuable) daytime peak load. More seriously, US hydro is only 6.2% of consumption and pretty much capped in absolute terms.

So this comes back to the fundamental systemic innovation problem: changing our century-old transportation system to be more green is complex and expensive. If we don’t use market forces — or distort the market by favoring one approach over another — there are likely to be suboptimal choices made.

In this case, it appears that it would be better to shift the grid to renewable energy first, and then put cars on the grid, than to add EVs to the grid at a time when renewable energy is a relatively small part (<10%) of our electricity supply. The only encouraging news is that when they spend their own money, consumers are thus far resisting the EV hype machine and going with more economically efficient alternatives.

Are VCs giving up on RE? Should they?

2011-01-07T23:55:00.000-08:00

Cross-posted to Engineering Entrepreneurship.

Statistics released Friday by the Cleantech Group say that “cleantech” VC investments in 2010 hit a record $7.8 billion, up 28% from the $6.1 billion in 2009 for North America, Europe and Chindia. The N.A. data was even more impressive, up 45% to $5.28 billion. Worldwide, solar continued to account for the largest share of the investments, up 52% from 2009 to $1.83 billion.

Although this sounds encouraging, Iris Kuo of VentureBeat had a different take. First, cleantech VC investment has been declining for the past two quarters. Instead, the capital-intensive have been going to government sources, including BrightSource, Solyndra and Tesla.

However, analysts are just beginning to realize that cleantech businesses may be fundamentally unsuitable for VC investment. A series of clues have emerged in the past 6 months.

Exhibit A was the whole debate started by VC Fred Wilson and his “two venture capital industries” thesis:

The first VC industry is investing in software based businesses. The software VC business has been fundamentally altered by the massive decrease in the cost of building and launching a software based business.…

The second VC industry is investing in cleantech, biotech and other capital intensive tech businesses that have economic models that have not been fundamentally altered. This VC industry operates largely the same way it has operated for the past twenty or thirty years.

The statistics were supported by TechCrunch data from the first 8 months of 2010: an average of $5m for web/ecommerce vs. $31m for cleantech.

Exhibit B was the decision of Kleiner Perkins to pull back from cleantech investing and go back to its roots in IT. Of all the major Silicon Valley VCs, KPCB had made the most aggressive bet on cleantech — particularly green energy. This is the firm that in 2007 made a partner out of a former presidential candidate and Nobel Prize winner.

Exhibit C are the observations of one of the most respected IT industry executives, analysts, inventor and entrepreneurs: Bob Metcalfe (MIT ’69), inventor of Ethernet and founder of 3Com. Having finished a decade as a venture general partner, last month Metcalfe said that the VC model (so far) does not fit cleantech:

Q: What did you learn from your investing in clean-tech, or as you call it, enertech?

A: I’m still in the process of learning – this is complicated stuff. But I learned that the innovation environment in the energy space is not there yet. The problems we see are a mismatch between the asset class called venture capital and the innovation opportunities in energy – it takes too much capital and it takes too much time. But I claim that’s only because the innovation environment in energy hasn’t developed, say, the way it has in pharma. Drugs take a lot of money and a long time, but there’s a lot of venture capital activity in drug discovery. That’s because the drug-discovery business has grown into being able to exploit the venture capital model. The partnerships that big pharma has with drug companies in stage one, stage two, stage three [clinical trials] allow venture capitalists to do what they do and get the returns that they need. The energy space has not quite developed, but it will.

This entire debate was anticipated by Prof. Martin Kenney of UC Davis, the editor of Understanding Silicon Valley — perhaps the leading academic expert on Silicon Valley and a longtime expert on hightech VC.

In July 2009, Kenney wrote a book chapter entitled “Venture Capital Investment in the Greentech Industries: A Provocative Essay” that will be published in the Handbook of Research on Energy Entrepreneurship. He notes a number of warning signs:

investors have been pouring money into green energy without being able to get it back from IPOs;
market growth may be slow, since “clean” technologies are competing with established (and cheaper or better) incumbents;
the cleantech bubble investing bubble parallels the Internet bubble;
thus far, the most successful cleantech businesses have been self-funded: either bootstrapped (e.g. Danish wind turbines) or internal green ventures from existing multinationals like Siemens and Sanyo.

Kenney tries to offer a positive scenario, suggesting that VCs could learn and adapt like they have in biotech. However, in the past 18 months have been signs that biotech VC may be facing similar problems (if the returns to pharma R&D are becoming less certain).

While the scale of investment in energy is enormous, the VCs have various reasons to actually favor larger deals (and often pension funds throwing money at them to invest). While VC worked great during the 1990s with relatively small investments followed by quick exits via IPO or acquisition, but both are much harder in renewable energy.

The first problem is the time scale. If (as Zider’s 1998 classic HBR article suggests) VCs seek a 10x liquidity event after 5 years (to cover their losers), then doubling the delay to 10 years cuts the IRR by more than half (and the NPV even more than that). For a 10 year exit — and ignoring the increased risk of failure — the same IRR would require a 100x return.

The other problem is that the size of the investment reduces (if not eliminates) the opportunity to exit via acquisition. A 10x return via acquisition was common for $50m dot-com investments, but such exits are going to be much rarer with $500m invested; a 100x return is going to be out of the question.

If VC can’t find a way to make money off cleantech investments, then cleantech entrepreneurs are going to have a hard time bringing their businesses to scale. Without VC, new businesses will have a hard time competing with self-funded multinational incumbents — or government-funded enterprises in large centrally-planned economies.

EVs good on MPG, HPM

2011-01-01T17:05:00.001-08:00

A big debate recently on EVs and PHEVs has been how to measure the miles per gallon given that a) sometimes they use no gas at all; and b) electricity is an energy cost, even if it’s not a gallon of gas.

But now I think it’s time to focus on HPM (hype-per-million): misleadingly high press popularity that masks underlying revenue model problems. Electric cars seem to be heavy on the hype — by the vendors, the business press, the general press and even politicians — while sales are barely improved from the first great coming of the EV. (And this time, there’s no one to blame for poor sales but the invisible hand of basic economics.)

An AP report Friday was stark in its assessment:

GM sold 250 to 350 Chevy Volts this month, and Nissan's sales totaled fewer than 10 Leaf sedans in the past two weeks. Production for both is slowly ramping up.

It will be well into 2012 before both the Volt and Leaf are available nationwide. And if you're interested in buying one, you'll need to get behind the 50,000 people already on waiting lists.

It's still unclear just how large the market for electric cars will be once those early adopters are supplied. The base sticker price is $40,280 for the Volt and $32,780 for the Leaf, much higher than most similar-size, gas-powered cars. If those prices rise, it could make them even more of a niche product than predicted. Buyers also are worried that advertised lease deals may not last, and a federal tax rebate of $7,500 could disappear if Congress decides battery-powered cars are no longer a priority.

According to the story, Nissan can build 50,000 Leafs a year while Chevy hopes to sell 10,000 Volts in 2011 and up to 45,000 in 2012.

By comparison, Chevy sells more than 200,000 Malibu sedans a year (for a price that’s half that of the Volt.) Of course, price is everything — now more than ever. And with the new Congress, expansion or even extension of generous Federal subsidies seem less likely than ever.

Edmunds is predicting HEV/PHEV/EV will rise from 2.4% in 2009 to 4.8% in 2013, with EVs only a small fraction. Of the 14-17 million passenger vehicles sold every year in the US, that would be an increase from about 350,000 to 700,000 vehicles a year. Most of those are probably the Prius, which is selling about 400,000 units annually (worldwide).

This is consistent with the November prediction made by Daimler AG CEO:

In 10 years’ time, the overall market share of electric cars is likely to be still in the single-digit percentage range. … In principle it’s similar to President Obama—first, expectations are being raised externally and then people are surprised they don't get fulfilled. From today's perspective it's already clear [that] we won't earn high returns with electric cars in the years to come. And that's the optimistic wording.

Even the 4.8% forecast may be optimistic: selling 70,000 Leafs and Volts would be only 10% of the US market. Given Toyota is driving most of its HEV demand to the Prius, category growth is going to depend on other makers (most likely Honda and Ford) offering their own hit HEV/PHEV/EV models.

Both Honda and Ford have offered credible products, but neither has made much of a dent: even in a good month (October 2010), Honda only sold about 4,000 units in the US. Honda promised to be aggressive in pricing its HEVs and EV models, but the Fit EV (due in 2012) is priced at $30k, only about 10% below the slow-moving Leaf.

So where is the growth going to come from? Yes, $150/barrel oil would increase EV sales (even if it has no direct effect on renewable energy, which instead competes with coal and natural gas.) But that’s not really a business strategy — unless you have the geopolitical connections to arrange a third Arab Oil Embargo.

My own purchase intentions reflect this reality. At one point, I thought my next car would be the $20k Honda Fit Hybrid, until Honda decided not to sell it in the US. Instead, it’s more likely to be $15k for a Ford Fiesta (37mpg), Mazda2 (35mpg) or Honda Fit (33mpg). Ignoring the time value of money, a $15k purchase price differential (vs. a Leaf or Fit EV) buys 5,000 gallons of gas — enough to cover the fuel costs for the entire life of the car. Plus there’s no battery to put in the landfill, or coal-generated electricity to pollute the planet.

The end of the solar house fad

2010-12-10T02:12:00.000-08:00

Residential PV is a core segment for the industry, solar hot water in California dates back 100 years, and passive solar design can be traced back to Roman times. So the use of solar energy for houses is both an ongoing market and nothing new under the sun.

However, the idea of college teams competing to build solar houses is a fad that’s just about run out of steam: the business model is fundamentally broken.

The way it’s supposed to work is that students work together to build an energy efficient house that runs off renewable energy. SJSU has its ZEM House. Students learn not only about principles of EE/RE design but also get a chance to put those principles into practice. A side benefit is that the tangible artifact creates visibility both on and off campus for the students, the school and the overall green movement.

The reality, however, is that making a tangible artifact costs money: the numbers I’ve heard are between $800k and $2 million, depending on the competition, team, local costs etc. For example, the 2009 Team California house (produced jointly by Santa Clara University and California College of the Arts) cost $1.3 million to participate in the Solar Decathlon, sponsored by the Department of Energy.

A million bucks is a lot to spend on a house that isn’t really going to be used, and may in fact be torn down or soon forgotten. A lot of that money will go to contractors and PV suppliers and other, but that’s not the most efficient way to use public money.

Meanwhile, $1 million could do a lot of good in many other ways. It could pay for 50 student-years of scholarships at a public university. It’s a good start for endowing a professorship of PV or RE or EE (which can range from $1-5 million, depending on the school). It could install 100 KW of PV capacity on the school roof, or at city hall, or on local residences. (BTW, designing and installing that capacity would be almost as instructive as building a throwaway house).

One local college, Santa Clara University, participated in 2007 and 2009 in the national Solar Decathlon. My understanding is that they won’t be back. The reality is that schools have only so much fundraising capacity (and donor base) and that is better used for either more direct student benefit or a more permanent infrastructure.

So what will replace it? Virtual design competitions? Electric car races? Prototype-scale systems? As with any other business — clean or otherwise — these pedagogical approaches need to be cost-effective and supported by a viable business model

Some observations on global solar adoption

2010-12-07T11:55:00.000-08:00

I just spent two days at a workshop for solar equipment producers sponsored by Festo AG. (I was invited to support its efforts to build a Festo-sponsored open innovation community.) Several of the speakers offered great statistics, history and other facts about the development of the industry.

Below are a few “stylized facts” about where PV is being produced and used.

1. Solar Price is Relative

Substitute costs are the key driver of solar adoption. If energy is cheap, no one wants expensive RE. If energy is expensive, RE may not seem all that expensive. European adoption is high due to high fossil fuel prices, while US has historically had cheap energy. However, with our high insolation and high (Tier 4 or Tier 5) utility bills California is almost break-even without subsidies today, Hawaii too. Germany is a long way off, China will be decades away at 5c/kWH.

2. Roadmaps Help

The PC industry grew for 40+ years with a a technology roadmap based on Moore's Law. There is evidence that PV cost cuts also provided a predictable roadmap. According to consultant Ruurd Boomsma, the prices generally fell 5-6% per annum, much more slowly than LCD prices over the past decade. (However, prices fell more dramatically in 2009 and it’s not clear if that’s the new normal or a one-time shock.)

3. US is Inherently Messy

It is clear that the US policy regime is more fragmented, confused and contradictory than either Germany or China. Although Germany has Federalism, the RE policy is mainly at the national level, not the staaten. In most other countries, the states/ provinces are relatively weak and the RE policy is made at the national level. Also, RE policies (eg. for residential solar) are better understood in countries with national policies than in the US (where the major policies are at the state level).

4. Jobs Follow the Entire Value Chain

There's been a lot of discussion (and hand-wringing) on the huge shift of PV production to China and elsewhere in Asia. However, the major shift has been for cells. Modules are more expensive to ship and to inventory, and may continue to be produced near (or closer to) actual use. Installer jobs will also remain in the developed economies and perhaps the balance of system too.

5. California isn’t Serious About Green Jobs

California has spent lots of money on RE subsidies and is proud to lead the nation in such subsidies — just as it led the nation in regulating tailpipe emissions for years. However, the state has been trying for 20 years to destroy the local manufacturing base through regulation and taxation. If not for the dot-com boom, this would have been pretty obvious a decade ago, but the lagging recovery (and 12% unemployment is making them visible now.)

Mayors, legislators and governors claim to want green jobs, but their bureaucracies tie up new manufacturing efforts with red tape through opaque discretionary approval processes. (I heard a few choice examples Tuesday). It’s no coincidence that the silicon has left “Silicon Valley: that Santa Clara-based Intel is building factories in Oregon and Arizona and New Mexico but has closed its last factory in Silicon Valley. SV alumni and VCs start companies here because it’s convenient, but the manufacturing is going elsewhere.

Five years from now, I predict there will be no large-scale solar manufacturing in California. The PV manufacturing growth for California and the Southwest will be in Nevada (no income tax), Arizona and New Mexico.

The Sputnik fallacy redux

2010-11-30T23:55:00.000-08:00

In his speech Monday to the National Press Club, Energy Secretary Steven Chu said that clean energy represents a new "Sputnik” for the US. In this remake of the space rate, the Red Chinese are playing the role of the USSR.

To quote from the official press release:

A New Sputnik Moment
Secretary Chu said that China's investments in clean energy technologies represent both a challenge and an opportunity for the United States. While China's experience with rapid, large scale deployment of technologies makes it an important global testing ground and creates opportunities for scientific partnerships between our two countries, it also means that America cannot afford to take our scientific leadership for granted. Secretary Chu stressed that our economic competitiveness depends on jump-starting the next round of American innovation in clean energy.

Dr. Chu’s slides even more explicitly make the Sputnik analogy, quoting Dwight Eisenhower.

As CNET reported his remarks:

Chu said that the U.S. needs to fund research in clean-energy technologies in order to stay apace and take advantage of the economic opportunity that cleaner energy technologies represent globally.

"America still has the opportunity to lead in a world that will need a new industrial revolution to give us energy we want inexpensively and carbon free," he said during his presentation, which was Webcast. (Click for PDF of slides.) "I think time is running out."
…
He said there are risks in the status quo which were detailed in a report called Business Plan for America's Future which was authored by business leaders including Bill Gates, venture capital investor John Doerr, GE CEO Jeff Immelt, and former Lockheed Martin CEO Norman Augustine.

The report said there are many benefits to moving to a cleaner energy system in the U.S., including public health, protection from climate change, and cleaner air, but none of these are recognized by the free market. Also, the scale of investment required in new energy technologies in beyond the scope of commercial companies, which is why the government should fund research and development.

As I noted six weeks ago, there are two problems with this line of reasoning.

First, the cheap Chinese manufactured goods are helping reduce CO2 outputs even if they take market share from US and German firms: Western leaders have to decide which is more important, saving jobs or saving the planet.

Secondly, the idea that renewable energy policy can be approached like a moonshot is a fallacy that was demolished by three leading innovation economists (who all have strong environmental sympathies). (Official Research Policy article here, working paper here).

Dr. Chu’s answer is to throw more money at federally funded technology development. I realize that Dr. Chu is a scientist who spent years spending DOE R&D money, but the answers are going to found in industry, not federal labs.

Yes, the US is and remains the innovation leader of the PV world. But the problem is not technological innovation, but in business models and manufacturing efficiencies. I don’t know what kind of business advice Chu is getting, although both Doerr and Immelt have shown their priority is to get the government to subsidize their EE/RE bets.

Nothing that Chu suggests will change the fact that China has 4x as many young people and will someday have 4x as many science PhDs as the US. Nor will it change the fact that the cost of capital and land and labor (and energy) is so much cheaper for Chinese manufacturing that none of his proposals would bring back US manufacturing in any significant way.

If the US is not going to be exporting manufactured goods to any significant degree, what can it do? It can try to imitate Germany of a decade ago and sell lots of goods to its domestic market before that market is swamped by imports. Or it can try to export technology, services and other innovations that are not so manufacturing- and cost-sensitive.

Finding a good niche

2010-11-29T11:44:00.001-08:00

As in any other industry, the success of new cleantech businesses usually depends on finding a good niche. Yes, the big oil companies would like to start with billion (or trillion) dollar market segments, but most other companies need to start with a small, well-defined, highly motivated and easy to target segment.

Today the Merc offered a profile of an intriguing electric vehicle company that seems to be taking a different tack than Tesla, Fiskar and the other big VC-funded firms. Green Vehicles Inc. of Salinas (an hour south of San Jose) is selling the Triac, a tricycle commuter car for $25K, with a top speed of 80mph and a “real” (not best case) range of 100 mph round trip.

The $25K MSRP does not include the $7,500 Federal subsidy and a state subsidy (under AB 118) of up to $5,000. So you pay the 10% sales tax on the full $25k, but still the car is cost-competitive (to buy, before operating costs) with conventional cars selling for around $13,500 — and there aren’t a lot of cars in that range. It would get me the 12 miles to work, or the 4 miles to the LRT to work or the CalTrain to San Francisco.

The car is severely limited in size (two people) and like other pure EVs, in range. But to me, this could be the ideal commuter car to throw into the portfolio as a third car, say for households with a teen driver that has a 2-5 mile one-way trip to high school or the mall job.

More importantly, the low up front cost will allow someone to experiment with this restricted-capability vehicle — inherent in pure EV models — to see if it fits their lifestyle. Even if it only holds two people, I think a $14k vehicle (after incentives) has a much bigger audience than the $57k ($35k after incentives) Tesla Model S sedan.

An honest (ex) politician

2010-11-23T23:06:00.000-08:00

Corn-based ethanol makes no sense from the stand point of economics, food policy, energy policy or land use policy. Monday, former senator and presidential hopeful Al Gore admitted this reality: even as a former politician, it puts him in a select group who will admit this Emperor Has No Clothes. (It also confirms the speculation at the time of his divorce that he never plans to run for president again).

As Reuters reported:

"It is not a good policy to have these massive subsidies for first generation ethanol," said Gore, speaking at a green energy business conference in Athens, Greece. First generation ethanol refers to the most basic, but also most energy intensive, process of converting corn to ethanol for use in vehicle engines.

"First generation ethanol I think was a mistake. The energy conversion ratios are at best very small," he said, referring to how much energy is produced in the process.

The U.S. ethanol industry will consume about 41 percent of the U.S. corn crop this year, or 15 percent of the global corn crop, according to Goldman Sachs analysts.

Alas, half of the GOP senate thinks they’ll be a presidential nominee in 2012 — about the same number of Democrat senators assume it’s possible for 2016; pandering to foolish farm state subsidies is a bipartisan effort. (Perhaps the GOP House members will live up to their budget-cutting claims.)

So while it would be nice to end the ethanol craziness, it seems like things are going to get worse before they get better.

Tortoises for Global Warming (tm)

2010-11-17T13:47:00.000-08:00

I’ve previously written about the perverse goals of some environmentalists and politicians to block RE development protect wildlife. or, worse yet, to save views in Cape Cod or the Mojave Desert. Some of the same activists who want government to force through spending and approval on RE facilities cringe when there’s a tradeoff between reduced CO2 emissions and other environmental goals.

The NYT’s green blogger, environmentalist Todd Woody, does an unusually good job of capturing both sides of this dilemma in his blog posting and article today about how more than 4 gigawatts of newly-authorized capacity (mostly solar thermal) will likely transform the Mojave Desert — despite repeated objections by the Sierra Club and other environmentalists.

The flashpoint of the Mojave controversy is the California Desert Tortoise. As Woody writes:

The protected desert tortoise has become the totemic animal for environmentalists fighting to ensure that the huge solar farms don’t eliminate essential habitat for the long-lived reptile and other wildlife, like the bighorn sheep and flat-tailed horned lizard.

The tortoise has been in decline for decades, and the rampant development of the desert – from casinos and strip malls to subdivisions and off road recreational vehicle areas – took their toll long before construction began late last month on the Ivanpah solar power plant, the first large-scale solar thermal project to be break ground in the United States in 20 years.

However, as Woody also notes, the new plants will provide resources, funding and data to better understand the tortoise and how to preserve it. (In other words, much as building a shopping center sometimes funds archaeological digs that otherwise would not have happened.)

The article suggests that the controversy is far from over. In the short run, it may get stronger as Gov. Brown appoints one or more wildlife environmentalists to replace Schwarzenegger appointees who consi entire favor RE over wildlife. In the long run, the actual evidence gathered by the newly-funded scientists should resolve the debate one way or the other.

Profiting from environmental catastrophe

2010-11-11T13:07:00.001-08:00

The Chicago Climate Exchange has collapsed and is going out of business. It originally announced last month that it was scaling back, but now the plans are apparently to close up shop in December.

The exchange was created to trade carbon emission credits, in anticipate of a US cap-and-trade bill, but the bill died in the 111th Congress and its prospects are non-existent in the 112th.

Popular Science sees this as a bad thing: if the US won’t trade carbon credits, other countries will. Investor's Business Daily sees it as a good thing, further evidence that “job-killing” environmental regulation is temporarily on the back burner.

Like anything profiting from a government-created market, the major investors were among the most politically well-connected. According to IBD, the financial losers in the death of the CCX are its two main investors,Al Gore's Generation Investment Management and Goldman Sachs. Also losing out is Franklin Raines, Fannie Mae CEO during the subprime fiasco, who owned a patent on trading related to trading carbon emissions of residences.

Perhaps with the retrenchment of the CCX, the investors and regulators can solve the inherent problems of the carbon-trading schemes, including their potential for money laundering and the risk of fraud in countries with low transparency and/or weak legal enforcement.

Never believe a politician

2010-11-08T09:40:00.001-08:00

The NY Times ran a story Saturday (picked up by the Merc) about the dedication of the new BMW electric car factory in the former East Germany. If nothing else, it proved that political hyperbole is not just endemic to the US but apparently a disease that afflicts the would-be ruling class the world over.

Just as our president has visited the shiny new PV plant of the (now-troubled) Solyndra, so Chancellor Andrea Merkel was on hand for the opening of the Leipzig plant scheduled to crank out EVs starting in 2013. Merkel’s picture was used in the dead tree Merc (I don’t get the dead tree Times).

There were no quotes from Merkel in the story, but the Times found the prerequisite hyperbole from the local governor:

“We’re at the beginning of an auto revolution,” said Stanislaw Tillich, the prime minister of the state of Saxony.

Despite this glowing prediction, NYT Germany correspondent Jack Ewing interpreted the company’s announcement as predicting limited production of only tens of thousands of units each year. Politicians notwithstanding, BMW appears to see this as a limited niche for now. (Various web sources suggest that BMW sells about 1 million cars/year, the majority of those 3-series sedans.)

Also, the new car seems like it will be less of a BMW and more a new subbrand, Megacity, a sister to the BMW-owned Mini brand. The factory already produces the BMW economy car, the 1-series, that we don’t see here in the US. I don’t know if this is to start a new brand for electric cars or (more likely) protect the performance reputation of the main BMW brand.

The Merc headline (but not the story) also trumpeted this as competition for Palo Alto-based Tesla Motors. While the rumored volumes dwarf anything yet demonstrated by Tesla, it’s hard to see how an electric econobox will draw demand from the existing Roadster.

We would have to see the actual list prices of the vaporware Megacity — as well as Tesla’s planned sedan — to predict whether the former will cannibalize sales of the latter. Based on what I’ve heard so far, this would be like asking whether Camry drivers will trade down to a Yaris — it’s possible if there’s a $30k difference but probably not if there’s a $10k difference.

However, a planned BMW PHEV sounds like a direct competitor for the Roadster:

BMW said it had also decided to produce a plug-in hybrid sports car known provisionally as Vision Efficient Dynamics. The car, which has been displayed at auto shows as a design study, will accelerate from zero to 60 miles per hour in less than five seconds, but be more fuel-efficient than most economy cars now on the market, BMW said.

The fabled BMW image, engineering and track record (in both senses of the phrase) could give it an edge over the fledgling Silicon Valley firm.

The three-cylinder diesel BMW would not be available until “2013 or 2014” at a price above €100,000. So for now, the limited-range all-electric Roadster has some breathing room.

An expensive way to not save the planet

2010-11-01T17:00:00.000-07:00

In Monday’s Washington Post, Robert Samuelson wrote about administration plans to make a $10.5 billion down payment on a $200 billion cost of constructing 13 high speed rail corridors (including $19 billion for California).

A few choice quotes:

What would we get for this huge investment?

Not much. Here's what we wouldn't get: any meaningful reduction in traffic congestion, greenhouse gas emissions, air travel, oil consumption or imports. Nada, zip. If you can do fourth-grade math, you can understand why.
…
We are prisoners of economic geography. Suburbanization after World War II made most rail travel impractical. …Trip origins and destinations are too dispersed to support most rail service.

Only in places with greater population densities, such as Europe and Asia, is high-speed rail potentially attractive. Even there, most of the existing high-speed trains don't earn "enough revenue to cover both their construction and operating costs," the Congressional Research Service report said. The major exceptions seem to be the Tokyo-Osaka and Paris-Lyon lines.

President Obama calls high-speed rail essential "infrastructure" when it's actually old-fashioned "pork barrel." The interesting question is why it retains its intellectual respectability. The answer, it seems, is willful ignorance. People prefer fashionable make-believe to distasteful realities. They imagine public benefits that don't exist and ignore costs that do.

Samuelson predicts economic disaster for California if it spends $43 billion to build a high-speed rail system it can’t afford to operate. Or rather he predicts that the current economic disaster will get worse.

America's RE problem: consistency, not dollars

2010-10-31T23:59:00.000-07:00

Over the weekend, the NY Times ran an article summarizing the great building boom of utility-scale solar projects for the Mojave desert that has been approved in the past 60 days.

It minimized the difficulties the developers have faced getting federal, state and local approvals, and instead focused on the gun to their head: the looming expiration of federal subsidies.

As reporter Todd Woody wrote:

The Ivanpah plant is the first of nine multibillion-dollar solar farms in California and Arizona that are expected to begin construction before the end of the year as developers race to qualify for tens of billions of dollars in federal grants and loan guarantees that are about to expire. The new plants will generate nearly 4,000 megawatts of electricity if built — enough to power three million homes.

But this first wave may very well be the last for a long time, according to industry executives. Without continued government incentives that vastly reduce the risks to investors, solar companies planning another dozen or so plants say they may not be able to raise enough capital to proceed.

“I think we’re going to see a burst of projects over the next two months and then you’re going to hear the sounds of silence for quite a while,” said David Crane, chief executive of NRG Energy, on Wednesday after he announced that his company would invest $300 million in the Ivanpah plant.
…
With both Democrats and Republicans promising to rein in the federal budget, it is unclear whether lawmakers will extend the programs in any form. “That could stall a number of projects and even lead to the failure of some,” said Ted Sullivan, an analyst with Lux Research, a consulting firm in New York.

Reading this in my Sunday Merc was eerie, because it exactly echoed what I read Saturday night about the beginning and end of the first wave of Mojave solar thermal development during the 1980s, where the nine plants of the Solar Electricity Generating Systems developed by Luz International once accounted for 95% of the world’s solar electricity generation capacity.

Writing in a technical report for Sandia National Laboratories, Luz’s former business development VP, Michael Lotker, summarized how the company was repeatedly forced to plan its projects in between the institution of subsidies (such as RE tax credits) and their expiration. Often this meant that a 18 month project had to be completed in ten months — and in one case seven months — as the company was squeezed between knowing that the credit was available and the deadline for generating electricity before the credit expired.

Knowing that Luz had a gun to its head, investors, suppliers and even the unions exploited the company’s desperation knowing that it had to agree to almost any terms to make the project happen. As a result, the company ran out of money, which helped discourage any future company from taking the risks that it did.

If the government is paying for something — whether directly via procurement contracts or indirectly via tax subsidies — it has a strong interest in helping its suppliers (in this case of renewable energy) improve their efficiency. More efficiency is a win-win — either the government can get more of it supplied or it can get the same quantity at a lower price. So with the unpredictable, irregular or erratic policy — such as “temporary” credits renewed one year at a time — pushes up costs both for the firms and the society that is subsidizing those firms.

Both Woody’s story and the earlier report by Lotker highlight an important point for US renewable energy policy: the most important thing (as with any policy that impacts business) is consistency and predictability.

GE: green energy or greenwashing?

2010-10-28T00:01:00.000-07:00

For more than five years, GE has been branding its green/environmental/sustainability efforts as ecomagination. It has custom domain, a Twitter feed and a prize contest (using open innovation ideas). It event spent nearly $3 million for a 2009 ecomagination SuperBowl ad.

When GE rolled out the campaign, a grad student writing in Monthly Review (which proclaims itself an “Independent Socialist Magazine”) was more than a little skeptical

As environmental degradation continues to expand in tandem with global capitalism, environmental consciousness becomes a new marketing strategy. GE's newest invention is to present itself as an environmental crusader. "Ecomagination" is its latest moniker, proclaiming that one of the world's largest corporations has gone green, embracing environmentally-friendly policies and promising to provide the world with solutions to environmental problems. All we have to do is trust the company and continue our lives, preferably as its customers, and it will bring us the clean, pure world shown in its advertisements.

An anti-envirnomentalist’s op-ed in the New York Sun was equally skeptical:

Environmental activists are cheering General Electric's new "Ecomagination" initiative. That's a hint that the rest of us should beware of the gimmicky-sounding program.

"Ecomagination is GE's commitment to address challenges such as the need for cleaner, more efficient sources of energy, reduced emissions and abundant sources of clean water," CEO Jeffrey Immelt said. "And we plan to make money doing it. Increasingly for business, 'green' is green."

Skepticism or not, there is a substance behind the ad campaign of the $150 billion/year conglomerate.

After selling its first turbine in 1901, GE quickly moved into renewable energy by selling a turbine for hydroelectric power generation. Its turbine expertise also led to its involvement in nuclear plants, as well as a range of fossil fuel power generation systems. Its decades-long experience with power transmission has also made it one of the most aggressive corporate backers of smart grid — the subject of the 2009 Super Bowl ad.

GE’s position in wind is more recent. In 2002, it spent $358 million to buy the wind energy assets of the bankrupt Enron Corporation, which had bought the business five years earlier. Founded in 1980 by Jim Dehlsen, Zond Energy shipped its first turbine in 1981. (Early on, Zond also purchased turbines from Vestas to install in its pioneering Tehachapi wind farm).

While GE’s wind business is the market leader in the US, 80% of its sales are in the US — perhaps a legacy of the lack of global focus by Zond or Enron. In its home market, it seems to be losing share to foreign competitors like Siemens of Germany and Suzlon of India. Like other Western makers, it has minuscule share in China due to trade barriers, and so last month formed a 51/49 joint venture with a Chinese partner.

GE also entered the PV industry via acquisition, with its 2004 purchase of the bankrupt AstroPower and its process for thin-crystalline silicon cells. More recently it has invested in various thin film processes, including CdTe and CIGS. A year ago, a GE R&D exec said solar was “the next wind for us.”

GE mentions solar thermal as a line of business but doesn’t say much about it publicly.

The contribution of these RE efforts to GE are a mystery, as it doesn’t break out wind or solar financials. Overall, the energy infrastructure segment of GE accounted for 24% of its $155 billion in 2009 revenues — but 62% of its $11 billion in profits. In mid-2008 it predicted $1 billion in solar revenues by 2011, but no progress report on how close it is to reaching that milestone.

To nuke, or not to nuke?

2010-10-25T08:44:00.000-07:00

Nuclear power’s disadvantages — technical, economic, social acceptability — will probably prevent it from making much difference in solving climate change problems. Energy, both literal and metaphorical, spent on nuclear power is energy not spent working on other parts of the menu of choices for addressing climate change issues.”
— Lee Clarke, “The Nuclear Option,” in Routledge Handbook of Climate Change and Society

In a countries like France and Japan, the lynchpin of efforts to reduce carbon emissions (and imports of fossil fuels) is electricity generated from nuclear power. Overall, Clarke says that fission reactors generate 14% of the world’s electricity, and 20% of that in the US.

In the US, proponents of nuclear power argue that it’s a proven technology, it substitutes directly for the dirtiest of electric sources (coal), and the greenhouse gas emissions are zero. This option is particularly salient for moderate environmentalists (or at least liberal Republicans) who worry about GHGs but consider the nuclear question long since settled.

Of course, opposition to nuclear power in the US dates back more than three decades. I recall rock concerts and traffic jams in a futile effort to block PG&E from building the 2.2 gigawatt plant in the isolated Diablo Canyon — opening in 1985 as one of the last new nuke plants in the US.

Some of the environmental opposition is dispassionate and logical, focusing on the lack of political will (and technical uncertainties) regarding storage of spent nuclear fuel. Other opposition is hysterical, right up there with the anti-vacinnation campaigners who worry about imagined mercury risks (from vaccines that no longer use mercury as an antibacterial).

Similarly, some of the economic arguments are more sound than others. Nuke plants have huge capital budgets, long approval processes, and require complex and expensive technical and security training to operate safely. As with all economic policy arguments, the arguments against (or for) plants are subject to the usual lies and distortions because no one checks who was right 30 years later.

Some try to combine the approaches. Just as death penalty opponents claim (rightly or wrongly) that death penalty litigation is more expensive than 40 years of room and board, some environmentalists say that whether or not the plants are safe, they put too much of a rate burden on ratepayers.

In his chapter from the Routledge Handbook of Climate Change and Society, sociologist Lee Clarke is openly skeptical of environmentalists (such as Stewart Brand) who believe the threat of global warming is greater than the threat of nuclear power. While not anti-corporate like some authors in this edited volume, he clearly has the same objections to nuclear power today as did leading environmental groups 20 years ago long before IPCC, Kyoto and “An Inconvenient Truth.”

Still, one doesn’t have to agree with the motivations of people like Prof. Clarke to agree with his conclusions. Even if nuclear power is the right solution, is it a feasible one? Even with a major push, given the restrictions on where plants can be placed American voters and regulators are unlikely to approve more than a modest increase in the number of reactors. Another complication is the need to replace 40+ year old reactors as they come up for decommissioning, perhaps (as in Southern California) building them alongside the old ones.

Meanwhile, US (and IAEA) policy is not going to promote putting up fission reactors across South America, Africa, Asia and the Middle East.

If politics is the art of the possible, then the reality is that nuclear power (at best) will make a small difference. While those who want to reduce manmade global warming might want to support any proposed nuclear projects, they can’t be counted on to solve the entire problem.

Meanwhile, from a business standpoint, the stagnant industry already concentrated with four manufacturers consolidated to three: GE Hitachi, Westinghouse and Areva NP of France. What business there is will go to incumbents, not new entrants.

And even these companies recognize the long odds: none are placing all their eggs in a nuclear basket. GE has leveraged its turbine skills to remain (for now) the dominant seller of wind turbines in the US market, one of five major players overall, while Hitachi is concentrating on turbines for the Japanese niche market. It also has a solar business, as does Westinghouse (through its partnership with the company formerly known as Akeena) and Areva (which bought the SV firm Ausra in 2009).

Apollo metaphor: crash and burn

2010-10-22T09:12:00.001-07:00

The Merc’s website (but not the dead tree paper) had a story Thursday afternoon about the California branch of the Apollo Alliance, a lobbying effort by “business, labor, community and environmental leaders” for policies to support cleantech companies and cleantech jobs. The story wasn’t picked up by other outlets because there isn’t much new: the Apollo Alliance is based in San Francisco, already had a rollout effort in California in October 2008, and the group issued a press release three weeks ago supporting AB32 and attacking Prop 23.

The Merc story highlighted the support of cleantech businesses, but the website and the group’s publications suggest that the Apollo Alliance is more of a political group run by an alliance of labor and environmentalists. The New Apollo Program manifesto lists a 14-member board chaired by longtime legislator (later state treasurer) Phil Angelides, and the board also includes the head of three environmental groups, two labor unions and noted environmental activists Van Jones and Robert Redford.

While the Alliance seems intended to win clout through its big name backers, it seems an otherwise unremarkable example of the three factions to lobby for government regulation and spending to support cleantech companies and onshore jobs. For example, the Merc story says:

"We've seen energy policies stall at the federal level, and it makes what's happening in California all the more important," said Cathy Calfo, executive director of the Apollo Alliance. "It's important to have a comprehensive strategy to move toward a clean energy future."

However, there is the matter of the name. To the question of “Why do we call it the Apollo Alliance?” the group’s website says:

Like JFK’s Apollo Project, which put a man on the moon in under a decade, an Apollo project for energy freedom must be big, bold and fast. Here’s the speech President Kennedy gave when he announced his Apollo project at Rice University in Houston, September 12, 1962 …

The problem is, renewable energy or energy efficiency are not suited to an Apollo-like project. That’s not my conclusion, but that of three of the world’s leading innovation economists — David Mowery of Berkeley, Dick Nelson of Columbia and Ben Martin of SPRU — in an article they wrote just to rebut such policy silliness, who share the goals of the Apollo Alliance but explicitly reject its policy metaphor (if not its specific policies).

As they begin:

Many supporters of government action argue that the problem is so great, the need for new environmentally friendly technologies so urgent, and the time remaining for implementation of solutions so limited, that a “Manhattan Project” or an “Apollo Program” is needed.

and then note how the two metaphors have been around for more than a decade. From that, they summarize four reasons why the metaphors not only are wrong, but will lead to policies that won’t work

We emphasize at the outset that we share the broad concern of these authors about the immense risks of global climate change, and we agree that strong, well-resourced government technology policy is part of the solution. However, proposals to model such a policy explicitly on the Manhattan or Apollo projects are, as this paper will argue, wrongheaded, and if adopted could waste resources and limit the prospects for success. Although the prospect of global warming raises technical and economic issues that are, if anything, even more daunting than those posed by a lunar landing or the crash wartime program to develop an atomic bomb, the nature of these challenges is quite different. Most importantly, both the Apollo and Manhattan projects were designed, funded, and managed by federal agencies to achieve a specific technological solution for which the government was effectively the sole “customer”.

By contrast, technological solutions to global climate change must be deployed throughout the world by many different actors, and these deployment decisions will require huge outlays of private as well as public funds. Both the industries developing and producing these solutions and the sectors in which the technologies will be deployed comprise a very heterogeneous group, ranging from wind power to internal combustion and from electric-power generation to dairy farming. …

Another point of contrast between the R&D programs that will be needed to combat global warming and these earlier federal “models” is the relatively high degree of administrative centralization in both the Manhattan and Apollo projects. As we note below, the tension between centralization and decentralization in large-scale R&D programs is an important issue in program design for which broad prescriptions are likely to be unrealistic or vacuous. But government R&D programs to combat global warming will involve numerous organizations, and consequently mechanisms for the coordination of priorities, resource allocation, and performance evaluation will be essential.

Lastly, unlike the development of an atom bomb or of a manned space vehicle, halting or reversing global warming almost certainly cannot be achieved solely through ‘supply-side’ policies and the development of technological ‘solutions’. Indeed, one of the largest dangers created by the Manhattan or Apollo metaphor is that it may be adopted by politicians seeking to avoid the far more painful demand-side policies aimed at changing human behavior and halting the ever growing demand for energy previously regarded as a prerequisite of ‘human progress’.

I can’t possibly summarize a 14,000 word research article in a brief blog post, and I encourage people to read the article in its original — either the official version at the Research Policy or the working paper published by Britain’s equivalent of NSF.

However, this is yet another reminder (as if we needed another one) that innovation policy is too important to be left to politicians or lobbyists, but instead needs to be handled by people who know something about the subject.

End to solar thermal? Not so fast!

2010-10-19T23:03:00.000-07:00

September and October have been great months for utility-scale solar thermal projects in California, as the state (with cooperation from the Feds) approved six projects with 2.8 gigawatts of capacity in the Mojave desert. Five of these are proven trough systems, while the sixth plans to use a Sterling engine.

However, Michael Kanellos and Brett Prior of GTM speculate it’s the beginning of the end for solar thermal. Their argument is sound in principle, but I wonder if their timing is premature.

Most of the advantages of the solar trough systems are also its disadvantages: it's low tech, decades-old proven technology that works well at scale. For years, the world’s largest solar facility — and California’s entire utility scale solar capacity — consisted of the nine SEGS sites totaling 354 MW in Eastern Mojave. The GTM argument is that the main solar thermal systems — both trough and tower — are about to lose to PV on cost per watt and LCOE, and that the price of PV technology will continue to improve more rapidly than that for thermal.

I think the latter is certainly true — PV costs have been coming down for decades, while many of the thermal parts are mature and proven. Also, the moving parts on heating water and running turbines guarantee significant operating costs that are not seen by PV, which are essentially semiconductors covered by glass windows that need to be washed.

Has it crossed over yet? I think the crossover is coming, but the fact that all six utility scale systems are thermal rather than PV suggests it’s still a ways off — or at least that PV manufacturers can’t ramp up production capacity quickly enough to generate gigawatt-capacity plants.

While the costs are attractive, PV clearly has more risk in the short term than the proven thermal technology. That (as they argue) other utility scale systems plan to use PV suggests the crossover is coming, but I don’t think we’re there yet.

The other thing about the argument is that it says little about the economic viability of thermal systems either operating or under construction. If utilities have signed a PPA with the RPS gun to their head, they still need the contracted capacity at the agreed-upon price.

In fact, if both Jerry Brown gets (re) elected (even odds) and Prop. 23 fails (it’s outspent 3:1), then utilities are going to need whatever capacity they can get to meet the RPS standard of 33% by 2020. Keeping the 33% requirement will give an extra 2-5 years of life to the solar thermal market (beyond whatever its natural lifespan is) as buyers wait for PV manufacturers to ramp up capacity to meet a global — not just California — demand for renewable energy.

Renewable energy is a capital-intensive commodity business. At some point solar thermal companies will have a hard time competing for the bulk of the market, but for now they can — in best Monty Python fashion — note that “I’m not dead [yet].”

Lessons from greening Google's billions

2010-10-16T13:02:00.001-07:00

Although I don’t follow wind all that closely — if for no other reason that it will make a relatively small contribution to increasing California’s use of renewable energy — it was hard to miss news this week of Google’s investment in a planned $5 billion wind transmission line off the Mid-Atlantic coast.

The “Atlantic Wind Connection” (as it’s called) is interesting on several levels. The ownership is split between Google (37.5%), an investment company called Good Energies (37.5%), and the Japan trading company Marubeni (15%). The deal came about from a chance meeting between developer Trans-Elect Development and Good’s desire to find new projects to invest in.

The announcement is interesting on many different levels.

One is that this is a sizable bet among a series of ongoing RE investments by Google. It appears that it fits nicely with the founders’ philosophical support for renewable energy, as announced by Larry Page three years ago (and reflected in their personal investments in Tesla among other cleantech startups.) The announcement also reflects Google’s strengths at mass communications in web-enabled world, as much of the press coverage was just a paraphrase of the key details provided by Google and its partners in its posting and press conference. (A rare exception was the National Geographic story.)

The second point is that, as the Heritage Foundation noted, this is a rare example of a large RE project being funded by private investors rather than hefty government subsidies. They quote approvingly from the official announcement by Google’s “Green Business Operations Director”:

We believe in investing in projects that make good business sense and further the development of renewable energy. We’re willing to take calculated risks on early stage ideas and projects that can have dramatic impacts while offering attractive returns. This willingness to be ahead of the industry and invest in large scale innovative projects is core to our success as a company.

Third, this is a reminder of the importance of transmission infrastructure for any large-scale renewable energy projects: where the power is generated (wind coastal shelves, sunny deserts) is not where it needs to be consumed. The 350 mile transmission line would be built about 22 miles offshore, and come ashore in four places: Northern NJ, Southern NJ, Delaware and Southern Virginia. It would eventually have a capacity of 6 gigawatts of power. The project construction would take from 2013-2021.

Fourth, as an April paper in the Proceedings of the National Academy of Sciences points out, a wide geographic dispersion of wind farms can ameliorate one of the biggest disadvantages of wind power — dramatic fluctuations in output — by smoothing that output over a broader geographic base. The law of averages may make large scale wind generation more useful than the existing wind farms concentrated in a few localized areas like the Tehachapis and the Altamont Pass.

Fifth, the unique advantages of the Mid-Atlantic region point out the limitations of offshore wind more broadly. As the NYT article summarized:

The lure of Atlantic wind is very strong. The Atlantic Ocean is relatively shallow even tens of miles from shore, unlike the Pacific, where the sea floor drops away steeply. Construction is also difficult on the Great Lakes because their waters are deep and they freeze, raising the prospect of moving ice sheets that could damage a tower.

So if the plants have to be located far enough offshore to avoid objections over aesthetics but in shallow enough water to operate a fixed platform, there are limited opportunities to do so.

Sixth, it appears that local and state governments have conflicting motives between NIMBYism and a desire for local jobs — to the point of discouraging East Coast use of renewable energy generated in the Midwest. (A similar dynamic has occurred here in California). Again the NYT captured it nicely:

Nearly all of the East Coast governors, Republican and Democratic, have spoken enthusiastically about coastal wind and have fought proposals for transmission lines from the other likely wind source, the Great Plains.

“From Massachusetts down to Virginia, the governors have signed appeals to the Senate not to do anything that would lead to a high-voltage grid that would blanket the country and bring in wind from the Dakotas,” said James J. Hoecker, a former chairman of the Federal Energy Regulatory Commission, who now is part of a nonprofit group that represents transmission owners.

Finally, the construction of a transmission line does nothing to solve the daunting cost problems of offshore wind energy. Parochial governors aside, the cost of building and operating wind turbines in the ocean is higher than on flat dry ground: 50% higher is the estimate provided by the NYT.

More generally, the prices of wind generation are not falling as quickly as solar, and in fact ticked up last year at the height of a deep recession. (What’s up with that?) Blogger Tom Fuller argues that wind has a fundamental problem of lack of competition — where a cartel of a few large manufacturers controls the supply of generating equipment — and predicts an eventual triumph for solar:

There are a lot more [solar] manufacturers, and they are increasing capacity continuously. Each new generation of fab provides 20% performance gains, and the next generation of wafers is longer, wider, thinner and less likely to break. Innovations for their balance of system peripherals come from a variety of outside companies in their supply chain, and the inexorable march to grid parity is nearing its goal.

They both get the same level of subsidies, which amount to a pittance overall. So what’s the difference?

Solar sells to consumers, too. Residential, small business, offices and plants. Solar scales down as well as up. And their customers are you and me–cranky and demanding if things don’t work, unwilling to sign long term contracts, wanting to see bottom line improvements rather than brochures showing acres of installations.

So solar will win. Not because they’re nicer guys, but because their industry is more fragmented and they have more demanding customers.

Which, I believe, is the way the system is supposed to work.

So perhaps offshore wind will be the only local supply of RE available to the Northeast, but — as with everything else over the past 40-50 years — the region will remain an expensive place to live and work. In other words, not a good place to put a Google server farm.

Can we win the clean energy race? Should we?

2010-10-14T07:00:00.000-07:00

Browsing the WSJ.com website, I found an advertorial that proclaimed

China Becomes “Clean Energy Powerhouse”

China, determined to be on the forefront of green technology, “is emerging as the world’s clean energy powerhouse,” according to a recent study from The Pew Charitable Trusts, an independent non-profit organization based in Washington, DC

For the first time ever, China topped all nations last year in investments in low-carbon energy like wind and solar power. Over the past five years, environmentally friendly energy finance and investments in China grew from $2.5 billion to $34.6 billion, almost double the $18.6 billion in investments attracted by the United States.

And that is only one part of the country’s growing emphasis on environmentally friendly products and practices. Along with ambitious targets for wind, biomass and solar energy, China aims to spend 34 percent of its $586 billion stimulus package on green projects.

The advertorial, sponsored by Hong Kong-based Cathay Pacific, went on to note the airline’s involvement in carbon offsets and the other customary forms of greenwashing used by big businesses. (I don’t take the dead tree WSJ anymore, so I didn’t see when/if it ran in the real paper.)

Pew is an environmental advocacy group that got a lot of coverage when their study of G-20 countries (entitled “Who's Winning the Clean Energy Race?”) came out in March. A well-orchestrated PR campaign — tied to legislative hearings in Congress — brought the issue back to the forefront last month.

The numbers in the report compiled by Bloomber New Energy Finance seem accurate. However, the conclusions seem intended to stampede US public sentiment towards greater Federal spending (or mandated ratepayer spending) to subsidize the sale of RE equipment in the US. To quote from the executive summary:

This report documents the dawning of a new worldwide industry—clean energy—which has experienced investment growth of 230 percent since 2005. Demonstrating its strength, the clean energy sector declined only 6.6 percent in 2009 despite the worst financial downturn in over half a century. In 2009, $162 billion was invested in clean energy around the world. …

Within the G-20, our research finds that domestic policy decisions impact the competitive positions of member countries. Those nations—such as China, Brazil, the United Kingdom, Germany and Spain—with strong, national policies aimed at reducing global warming pollution and incentivizing the use of renewable energy are establishing stronger competitive positions in the clean energy economy. …

There are reasons to be concerned about America’s competitive position in the clean energy marketplace.

Relative to the size of its economy, the United States’ clean energy finance and investments lag behind many of its G-20 partners. For example, in relative terms, Spain invested five times more than the United States last year, and China, Brazil and the United Kingdom invested three times more. In all, 10 G-20 members devoted a greater percentage of gross domestic product to clean energy than the United States in 2009. Finally, the Unites States is on the verge of losing its leadership position in installed renewable energy capacity, with China surging in the last several years to a virtual tie.

The U.S. policy framework for reducing global warming pollution and promoting renewable energy remains uncertain, with comprehensive legislation stalled in Congress. On the other hand, America’s entrepreneurial traditions and strengths in innovation—especially its leadership in venture capital investing—are considerable, giving it the potential to recoup leadership and market share in the future.

Policy, investment and business experts alike have noted that the clean energy economy is emerging as one of the great global economic and environmental opportunities of the 21st century. …

Nations seeking to compete effectively for clean energy jobs and manufacturing would do well to evaluate the array of policy mechanisms that can be employed to stimulate clean energy investment. This is especially true for policymakers in the United States, which is at risk of falling further behind its G-20 competitors in the coming years unless it adopts a strong national policy framework to spur more robust clean energy investment.

In other words, the Pew argument is that there is a “race” and the US is losing. This is a proven rhetorical device: The “missile gap” was used during the Eisenhower administration and the Space Race during four administrations to build support for massive Federal spending on aerospace technology.

But perhaps the argument is less effective today. Some of a libertarian bent would argue against Pew by saying (roughly) “if other countries want to waste their money renewable energy, let ’em.” This is probably preaching to the choir — those who buy this argument weren’t going to listen to Pew and vice versa.

My own concern is: is it reasonable to believe that US mandates for RE will create jobs and a self-sustaining US industry? The success of Vesta and other Danish wind turbine companies is the best case. The NYT reported Wednesday about similar hopes by Silicon Valley companies using advanced technology to efforts to keep up with Chinese manufacturing costs.

Worst case is the ongoing collapse of the German solar industry (after years of the world’s best solar incentives). Another is the one-way shift of solar jobs by US designers to Chinese factories — in parallel to most other medium-technology manufacturing moving to China or other offshore locations.

But suppose we can win the race: Should we? The leading academic journal on innovation policy, Research Policy, ran a series of four articles this month on how innovation policy should respond to the global warming threat. The lead article by three of the world’s leading innovation economists emphasized the broad dissemination of clean energy technology to reduce global carbon emissions rather than hoarding to help domestic energy producers:

In recent years, the threat of global climate change has come to be seen as one of the most serious confronting humanity. To meet this challenge will require the development of new technologies and the substantial improvement of existing ones, as well as ensuring their prompt and widespread deployment.
…
Combating global warming, as we noted earlier, requires that technological solutions be deployed on a global scale as soon as possible. … Much more than “technology transfer” will be required, although support for the global dissemination of information and, potentially, subsidies for other nations to stimulate the adoption of technological solutions may be important parts of the international scope of such a program.

To put it in plain English: technological solutions to climate change must be shared and perhaps even subsidized for the rest of the world.

So for any US policy, I see at least a four-way tug-of-war of competing goals: helping the business growth and profits of US companies, providing US jobs, spending government (or ratepayer) money most efficiently, and saving the planet. When the US DoD invented the Internet we could have all four, but that outcome seems unlikely for today’s challenges due to both the capital investment and large number of foreign competitors and countries chasing these same clean energy jobs.

I don’t know which goal (or goals) will win out, and without knowing the specifics I can’t personally say which one should win out.

References

David C. Mowery, Richard R. Nelson, Ben R. Martin, “Technology policy and global warming: Why new policy models are needed (or why putting new wine in old bottles won’t work),” Research Policy, Volume 39, Issue 8, (October 2010), Pages 1011-1023. doi: 10.1016/j.respol.2010.05.008

Pew Charitable Trusts, “Who's Winning the Clean Energy Race? Growth, Competition and Opportunity in the World’s Largest Economies,” Pew Charitable Trusts, March 2010

Innovative technology, commodity electrons

2010-09-23T19:44:00.000-07:00

One of the points I make when teaching about solar energy — as I did for three classes this week — is that the economics of renewable energy are fundamentally different from that of IT, biotech, or earlier technology-based industries.

The challenge facing renewable energy entrepreneurs is that no matter how innovative a company’s technology, in the end it’s going to be used to produce commodity electrons. And even if the government has a policy that aggressively favors “green” energy over all others, makers of flat silicon panels have to compete with thin film CdTe, CIGS, CPV, solar thermal as well as wind, small hydro and anything else that comes along.

So in the end, really cool technology is going to be judged on cost and reliability during the long life of an expensive capital good. PCs may be thrown away after 3 or 5 years, but solar panels are expected to run 20 years or more. This means that high-volume, high-repeatability, low-cost manufacturing is usually more important than some great advance in science (unless of course that advance cuts costs or improves efficiency more than it raises costs).

Attacking this point is Thursday’s column in GreentechSolar by Tuan Pham, an energy analyst (and HelioVolt biz dev consultant) turned solar investment fund manager. The column’s subtitle says it all: “Considering the implications of the fact that solar is really an energy industry, not a technology industry.”

Some of his points are familiar: commodity electrons, the unsuitability of VCs to invest in capital-intensive projects, and unrealistic growth expectations. Others should be familiar, including the near-commoditization of high insolation land intended for solar farms:

Because we can site solar nearly anywhere the sun shines — solar resources at any given location have been studied for decades by NASA and the National Weather Service — our projects are much easier to develop than other energy projects. … Why would property owners expect to charge significant premiums for land if the sunlight is the same 50 miles down a transmission line?

Other points are more contrarian, including this:

Yet, despite all of the tech money that has flooded into solar in recent years, technological advances have not lived up to expectations. In fact, most of the "technology" that is being funded in solar projects is relatively old. Crystalline-silicon (c-Si) cells were invented at Bell Labs in 1954 and since c-Si efficiencies hit 14% in the 1960s, not very much has changed with the technology. Likewise, the other pieces (balance of systems) that go into a solar generating system involve fairly uncomplicated electrical work and few moving parts. These well-known and reliable generating assets, not an elusive magic technology bullet, are what energy and project investors will fund.

While some of Pham’s conclusions will create heartburn among solar activists, the nudge towards increasing accountability should not. Pham singles out “Pretend PPAs,” in which Purchase Power Agreements are quoted with unrealistic prices and costs that will eventually become obvious.

The recommended antidote for regulators and utilities being compelled to buy renewable energy:

Increase and enforce penalties on non-fulfillment of projects
Shorten execution time frames (at least for PV).
Enforce stiffer penalties on projects that are late.
Require bigger proposal deposits.
Expedite the interconnection process.

Accountability is good and necessary for buyers, sellers, investors and society. A lack of accurate information and accountability creates market distortions that lead to bubbles and crashes.

The solar industry is approaching a shakeout period, with the strong consolidating the weak. Many venture investors supporting a company with more than $100 million of equity funding will eventually seek other exits if the firms are unable to IPO in the next 18-24 months. (Don’t ask me which ones will go first — my Ouija board is on the fritz.)

Let’s hope that more accurate information leads to the survival of the most efficient and best run firms, rather than those who were lucky at the VC roulette wheel but who lack the resources and capabilities necessary for long-term survival in this competitive industry.

Feed-in tariffs: an idea whose time still has not come

2010-09-16T23:59:00.000-07:00

A group of renewable energy activists have been pushing for the US to emulate Germany by instituting a feed-in-tariff. The idea is that the more generous payment to RE generators would increase the installation of RE generating capacity.

The California Public Utilities Commission has been flirting with idea for years, with trial efforts at a smaller scale, and hosting a symposium endorsing the idea last year. The CPUC reportedly endorsed a FiT for systems from 1-20 MW in size, although the F-phrase doesn’t appear anywhere in its recent news.

Is this such a good idea?

A comparatively balanced article by veteran Eric Wesoff of Greentech Media earlier this year discussed the pros and cons of this approach. One important requirement — as with any government manipulation of the market — is predictability:

Gary Kremen, solar entrepreneur and founder of Clean Power Finance, had this to say on the subject: "FiTs are great if they are a long-term commitment on the part of government and utilities. Off-and-on FITs make planning and the mandatory required financing hard, if not impossible."

Those promoting feed-in tariffs tout the undeniable effectiveness of FiT in promoting solar adoption in Germany. However, as Wesoff notes, that comes at a price:

Germany is experiencing a bit of a feed-in tariff backlash as their citizenry reacts to FiT dollars going to Chinese, rather than German, solar module manufacturers. FiTs can also be construed as a tax -- and that's political poison in the U.S.

In other words, subsidies for inefficient power producers are politically palatable if it creates domestic jobs, but not if it ships domestic funds overseas.

The big disaster of FiT is that it doesn’t set prices right, because it uses government fiat rather than the market to match supply and demands. The €15+ billion fiasco in Spain is Exhibit A. Because they are expensive, even some progressive consumer groups oppose their use.

For more than a year, the state has been toying with a modified FiT that it now calls a renewable auction mechanism. The Aug. 24 CPUC decision to create this mechanism seems to be a compromise that pleases everyone and no one.

In particular, it’s design to correct the most egregious errors of the government-set pricing. As Nikki Chandler reported:

Some governments have used fixed-price feed-in tariffs to incentivize renewable energy development. One point of difficulty has been getting the fixed pricing right. If the price is set too low, it does not stimulate the desired level of market activity. If the price is set too high, ratepayers pay unnecessary costs, suppliers throughout the value chain are not encouraged to reduce prices, and the program can lose political support. In contrast, the CPUC program uses competition to establish a price that is both sufficient for project development and protective of ratepayers.

The plan seems to please one group (Interstate Renewable Energy Council) lobbying for a FiT and anger another (the FiT Coalition).

If the supporters are right, the RAM will increase solar adoption in California without paying too much (and also not violating federal restrictions on cross-subsidies issued in July by the Federal Energy Regulatory Commission.) If RAM opponents (or hard-core FiT supporters) are right, the market-oriented tariff won’t be enough to stimulate a supply of renewable power. I guess (as in Spain and Germany), time will tell.

A completely different Akeena

2010-09-13T23:44:00.001-07:00

Anyone who lives in the South Bay has probably seen or heard from Akeena. The company occupies a former car dealership in Los Gatos, and has been aggressively promoting sales workshops at our local wine bar. I kept telling my wife we should go, but apparently now it’s too late.

Last May, Akeena agreed to effectively become an arm of Westinghouse, which didn’t actually have to put up any money to buy the company. Instead of selling “Akeena” solar panels, the company agreed to sell its future panels under the Westinghouse brand, including those it’s already selling at the Lowe’s home improvement warehouses. Akeena Solar, Inc. is now doing business as (d/b/a) Westinghouse Solar.

(Akeena’s already-distressed stock has drifted off into penny-stock land, which will allow Westinghouse to eventually buy the company for less than 5% of what it was worth at its peak.)

Now two different blogs have reported that Akeena is getting out of the installation business to (it claims) avoid competing with dealers. As PV-tech reports:

"Expanding our channels to include authorized dealers in California will accelerate the growth of our distribution business," said Barry Cinnamon, chief executive officer of Westinghouse Solar. "California is the largest state in the country for solar products, accounting for approximately 50 percent of the U.S. market… As we transition to a distribution model in California and sign up new dealers, we will continue to focus on securing new distribution partnerships and adding dealers around the country. We will honor all outstanding installation obligations, and in many cases expect to work with new Westinghouse Solar dealers to take over our remaining backlog of California installation projects."

When GreentechMedia reported on the shift last week, it was generally optimistic. Akeena had already exited installation elsewhere in the US, because it was competing with its installers. However, as it also reported:

A strategic shift like this, however, also means layoffs. Employees said that began today.

Alas, no more sales seminars at the wine bar, and one less large-scale California installer. Some 19 months ago, Borrego Solar got out of residential installation, selling its California and Massachusetts operations to Vermont-based groSolar for an unspecified amount.

So according to a 2009 analysis, that’s two of the four largest California residential installers changing hands in the past two years. Only SolarCity and REC Solar are bigger in the state: while I’d like to say that’s the end of it, clearly more consolidation is coming to the installation industry — not just to panel manufacturing.

Update, Sept 14: Akeena later sold their installation backlog to Real Goods Solar.

Temporary pause in policy schizophrenia

2010-08-26T09:30:00.001-07:00

On Wednesday, the California Energy Commission approved the 250MW Beacon solar plant . This 2000 acre project about 17 miles north of Edwards Air Force base is in Kern County, at the West edge of the Mojave Desert.

The plan is the first utility-scale solar thermal project approved in California since 1990, and when complete would nearly double the 350 MW of solar thermal capacity near Kramer Junction.

On the one hand, I’d like to be encouraged. The CEC claims to care about greenhouse gasses, renewable energy, keeping generating capacity (and operating jobs) in state, etc. etc.

On the other hand, it’s far easier for a government agency to say “no” in our litigious, regulation-driven society. Whether it be the impact of wind generation on luxury home views or migrating birds, competing values often are used to sabotage reasonable efforts to create long-term green energy infrastructure.

The CEC is hardly done, as there are many other projects planned for the Mojave, with ideal insolation due to low humidity and low latitudes, and located near the demand (and transmission facilities) of the LA metropolis.

Even if the CEC is reasonable, there is still the threat of federal regulators (or politicians) making land use decisions to rule out these ideal locations for what should become gigawatts of RE capacity.

So this week's outcome is a step in the right direction. But it’s only one step of many.

Making money without relying on politicians

2010-08-08T22:03:00.000-07:00

Rob Day of Cleantech Investing raises the exact point that I’ve been making for years:

Now that Harry "Lucy" Reid has pulled the climate legislation football away at the last minute, cleantech investors can be forgiven for taking a big sigh and forgetting about climate policy for a while. After all, until a couple of years ago most cleantech VCs were adamant about purposefully ignoring policy efforts and effects, because of the randomness factor it would imply for their investments.

With Obama’s election, I think some cleantech investors and entrepreneurs assumed that Cap-N-Trade, a carbon tax or some other policy change would come along that would make their businesses more profitable.

Like any other special interest, these businesses are certainly free (at least for now) in advocating policies that support their special interest. But then they’re special interests and not real businesses.

I think it’s rational to plan a business based on existing policies that are unlikely to change. In California, RPS is the law of the land and even a Republican governor is unlikely to roll them back.

On the other hand, AB 32 (or the Prop 23 that would repeal it) is a measure that has passionate supporters, passionate opponents and a fairly large middle group that could go either way. So while I don’t agree with Rob Day that Prop 23 passing would be a disaster, I certainly agree firms for the next 90 days have to make long-term investing decisions based on the possibility that it might.

<p><p><a href="http://www.7is7.com/otto/countdown.html?year=2010&month=11&date=02&hrs=20&ts=12&min=0&sec=0&tz=-420&lang=en&show=dhms&mode=t&cdir=down&bgcolor=%23CCFFFF&fgcolor=%23000000&title=Countdown%20To">Countdown To</a></p></p>

Who needs inefficient solar panels?

2010-08-03T02:51:00.001-07:00

The IPO of thin-film solar module maker Trony Solar has been cancelled in the light of a lousy IPO climate that also claimed Solyndra’s IPO hopes. The Chinese firm had hoped to raise $200m.

In her story on the cancelled IPO, Camille Ricketts of VentureBeat notes this is in the context of other declines in the thin-film market, including Applied Materials discontinuing its SunFab thin-film integrated equipment line.

Buried near the bottom of her story is the heart of the matter:

Thin-film cells are generally less efficient than their crystalline silicon peers. Their main saving grace — which motivated a lot of investment in the market two years ago — is that they use less silicon. Back when the material was expensive, this made thin-film a compelling proposition. But silicon prices have since dropped, allowing crystalline silicon panels and the companies who specialize in them, namely SunPower, to remain on top.

This raises the question: if crystalline silicon prices continue to fall — as they have for decades — why would we think that thin film companies have any sort of future?

Low efficiency means greater spending per kWh on balance of system — including installation labor and permitting costs that seem more stubbornly resistant to experience curve efficiencies. There’s also the real estate question — due to the space limitations of a rooftop environment, behind-the-meter applications often have trouble generating enough power to meet local demand as it is.

Yes, solar remains an industry of a thousand niches. Flexible thin-film substrates will have a future in building-integrated photovoltaic and other niche applications where it is competing with no PV — rather than silicon PV.

Still, we’ve known that a shakeout is coming in PV, due not only to the high level of investment in solar startups but also the importance of scale economies to overcome increasing cost pressures. The shakeout is going to be brutal to makers of low-efficiency components and modules.

Green jobs: supply and demand

2010-07-30T11:55:00.000-07:00

In a year of anti-incumbent sentiment, the Democrat candidates for governor and senate here are planning on emphasizing their environmental policy and green jobs. The lead story in Friday’s Mercury was about the gubernatorial candidate;

Brown puts focus on green

was the five column headline above the fold. (The online headline was more boring.) The point of the story was that Jerry Brown wants Bay Area voters to know that unlike his GOP opponent, he supports California’s controversial anti-global warming policy:

Brown said the new law would create hundreds of thousands of clean-energy jobs, reclaiming from China leadership of the cleantech economy.

Also on Friday, the local ABC TV station ran a story about the party’s senate candidate touting green jobs:

Sen. Barbara Boxer, D-Calif., is talking up the benefits of stimulus spending. Friday, she was in San Jose at a job training center talking about green tech jobs, saying California is the hub of the clean energy economy for the entire country.

At the Center for Employment Training in San Jose, Boxer watched as students practiced mounting solar panels and solar power irrigation devices.

She told the students they are training for the jobs of the future.

"If we keep focused and we make sure that we don't go backwards we will see these workers here working all over the state putting those roofs on schools on office buildings and on homes," Boxer said.

The CET received $3 million from a stimulus grant. Students are confident their training will pay off.

The story was surprisingly intelligent and balanced for local television, perhaps because reporter Mark Matthews had 2:30 to make his point. The story quoted both blue collar workers hoping to get green jobs, those that have despaired, and Boxer’s GOP opponent as disagreeing with job training subsidies.

The argument for such training is straightforward. It would be nice to rely on the market to identify training needs and supply that that need, but perhaps there would be a lag in responding to that demand — or perhaps in times of tight budgets, firms and non-profits are underinvesting in worker training.

Still, by training workers for a specific industry, the federal government is either reducing the costs for companies in that industry, or shifting demand to the trained workers from whoever the firms were planning on hiring instead. (It’s also possible that by reducing the cost of acquiring new workers, that the government is slightly increasing the demand for such workers.)

However, as one of the TV interviews suggests, some of the workers may be trained for jobs that don’t exist. For example, last year California community colleges were training workers for solar installer jobs just as other installers were laying off workers. This is both a problem with the government picking job training based on environmental policy rather than proven demand, and — more generally — a problem of producing a supply of specialized workers in advance of demand. (In California in the 1960s and 1970s, there were some really bad times to start a 4-year degree in aerospace engineering.)

The linkage of Brown’s policy lever to local jobs was more tenuous than for the direct training model. Opponents of AB 32 say that the measure increases costs (and thus reduces money for workers), particularly with small firms.

The original argument for AB32 was that California needs to take the lead among Americans in reducing carbon emissions to do our part to reduce global warming. However, since the recession, AB32 proponents (like Brown) now say requiring more CO2-efficient technologies will lead to California jobs in creating and delivering such green technologies.

The problem is that the most aggressive and admired demand-side RE stimulation — the model for the global industry — has been Germany. Now, the general consensus is that manufacturing of solar panels is fleeing to China — just like everything else — and that both German buyers and sellers of panels will shift to panels made in China.

That’s the inherent problem with buyer subsidies: they cause people to buy things, but not necessarily things made locally. (Under WTO rules, subsidies for locally-made products are verboten.) So buyer subsidies — or mandates — will shift demand but not necessarily stimulate local employment.

This is not an argument to do nothing, but it is a reminder that the effects of government stimulus (or mandates) may be less than predicted and thus less cost-effective than proponents originally claimed.

San Diego's biofuels effort

2010-07-26T08:00:00.000-07:00

One of the two proposals to win the maximum $4 million grant from the Green Innovation Challenge was the San Diego Biofuels Initiatives, a partnership headquartered at UCSD. While I was in San Diego earlier this month, I was fortunate to meet with Prof. Stephen Mayfield of UCSD, one of the prime movers behind the initiative as well as development of San Diego’s nascent biofuel industry.

In addition to being a chaired professor in the biology department, Dr. Mayfield also is the cofounder and scientific advisor for Sapphire Energy, one of the region’s major biofuel startups. (The other major local firm is Synthetic Genomics, which has a famed genomics pioneer as a cofounder and Exxon Mobil as a major joint venture partner.).

Most importantly, Dr. Mayfield is director of the San Diego Center for Algae Biotechnology, which is the hub of the state-funded GIC project. The SD-CAB itself is a partnership of UCSD, Scripps Institute of Oceanography†, the Salk Institute and San Diego State. († Not to be confused with Scripps Clinic or Mayfield’s former employer, the Scripps Research Institute).

Three things stand out from the San Diego project and Mayfield's vision.

First, San Diego already has leading academic research, a nascent industry and strong ties between the two. The biofuels effort builds on the established biotech infrastructure — even more than solar PV builds on the semiconductor infrastructure. The local trade association, Biocom, established a subgroup to help support biofuel collaboration.

The biotech industry has deep roots in San Diego, beginning with the 1978 founding of the pioneering startup Hybritech. The biotech industry was largely a UCSD spinoff, and is responsible for the emergence of a local venture capital industry. (My own study of the parallel telecom cluster suggests that it is smaller and less durable than biotech).

The region’s efforts to become a biofuel hub are well along. At almost the same time that the state funded the worker training project, the SD-CAB got another $9 million in US Department of Energy funding for biofuel research — one of three projects funded nationwide by $24 million in Federal algae fuel research.

The second unusual point is that the project has an integrated educational strategy that combines efforts of three institutions of higher learning:

Biomass certificate: an AA at Miracosta College for those involved in growing biofuels
Biotech certificate: BS at San Diego State
Crop management: BS (biology) at UCSD
Professional master's at UCSD for entry-level researchers

and also possibly a bachelor’s degree for chemical engineers who work in biofuel refining. While UCSD is working closely with local industry, these graduates will also go to work at refineries and biofuel farms across the Southwest.

Finally, the goal of this effort is not to train some students over a two year period. It also goes beyond the necessary task of creating a curriculum and degree programs. Instead, the goal is to create a permanent educational infrastructure that supports industry needs in San Diego and elsewhere. As Mayfield told me:

We're not training 500 people, we're building a program that can train 50-100/year indefinitely, and can scale. We're building a program that can train for years.

Dr. Mayfield is quite optimistic about the pace of the science, the business and the fuel production. The DOE “National Algal Biofuels Technology Roadmap” is perhaps more cautious, listing challenges in scaling up cultivation, processing and refining.

Still, liquid fuels have the advantage of leveraging an existing distribution infrastructure to meet existing demand. The algae biofuels do not have the problems of ethanol absorbing water or being too corrosive for existing pipelines, tanks and vehicles.

Even more importantly, the algae-based biofuels avoid the problem of substituting fuel for food that our current ethanol subsidy policy engenders.

Applied Materials curtails thin film business

2010-07-22T23:55:00.000-07:00

Update 2:30pm. In response to a reader’s feedback, I’ve corrected the story.

The Merc this morning had a rather ambiguous story about the layoffs at Applied Materials that mark a retrenchment of its diversification from integrated circuits into PV.

GreenBeat (at VentureBeat) has a much clearer and more complete story that explains how the company is scaling back providing equipment to thin-film silicon manufacturers. (The Merc’s GMSV morning blog even acknowledges the superior VentureBeat coverage). PV-Tech also has a more precise story than the abbreviated Applied press release.

(Update: The press release itself says that Applied will no longer sell its SunFab integrated lines for manufacturing thin-film solar panels, but still plans to sell tools for thin film manufacturers. My original title “exits thin film business” was not true, but it’s hard to find what’s really happening behind the AMAT euphemisms.)

The VentureBeat story argues that Applied’s losses are just a matter of a bad bet, placing too many eggs on the future of thin-film amorphous silicon. The story predicts a cascade effect for two local PV manufacturers:

This is bad news for companies like First Solar and of course NanoSolar, which have both invested heavily in thin-film technology. Applied’s decision to migrate away from amorphous panels is yet another blow, a move that could raise the alarm among investors looking for smart, more capital-efficient investments in solar.

However, I think the GMSV commentary raises the broader and more important questions:

Others bring up that Applied CEO Mike Splinter indicated a few months ago that the U.S. solar industry was losing to China, which is building cheaper solar panels, and that the company’s latest move is symbolic of a broader problem for the U.S. energy tech industry. China is now the world’s largest exporter of solar panels, the Wall Street Journal says.

This seems to be one of the well-understood but little-remarked problems with America’s so-called “green jobs” strategy.

Consistent with the Vernon product life cycle thesis, in most tech industries the early production and manufacturing are in the developed home country, and it’s only later in the maturation of the industry that the production is moved offshore. Intel took 40 years to move manufacturing out of Silicon Valley, and similarly the software industry had a good run of several decades before penny-pinching American firms discovered Bangalore.

Today, even before American startups ramp up to meet domestic demand, they are shifting production (or contracting for production) to offshore locations. This not only has implications for the production workers, but also for the startup companies themselves: if the materials and production are offshore, is their value-add strong enough to preserve a permanent source of competitive advantage?

Of course, Apple successfully moved to contract PC manufacturing more than a decade ago — a pattern extended to the iPhone and iPad — and continues to post record sales and earnings. However, Apple is one-of-a-kind in the PC and cellphone industries, so it’s hard to say this is a feasible path to profitability for many companies.

The reality is that PV companies are producing technology-intensive, capital-intensive capital goods that produce commodity electrons. Because the substitutes — conventional electricity generation — are so cheap, they face commodity price pressures far earlier than in most tech industries.

So I think the GMSV concern is warranted: even if the irradiance and cost trends assure that California and the American Southwest will be powered by solar energy in 20 years, that doesn’t mean the profits for this infrastructure buildout will accrue to American firms. (NB: The $1.45b loan guarantee for a Spanish solar thermal producer.)

Perhaps it is my college-educated, college-teaching bias, but I also don’t think having American workers install foreign-made panels is the same as having US firms creating export-oriented manufacturing jobs in renewable energy.

Flash: Markets work better than governmental fiat!

2010-07-14T14:22:00.001-07:00

When Oregon’s feed-in tariffs sold out in 15 minutes, it unfortunately revived interest in a justifiably discredited approach to promoting adoption of renewable energy.

The issue came up today at the SolarTech-sponsored workshop “Accelerating PV Commercialization,” held next door to the InterSolar trade show in San Francisco. Fortunately for those in the room — if not the broader policy audience — Hal LaFlash of PG&E swatted down the idea as quickly as it came up.

Basically, there are two common ways that government force utilities to purchase of renewable energy that is not cost-competitive with conventional sources of power:

The feed-in tariff to set a specific price that utilities use to buy RE. This approach was pioneered by Germany and copied with disastrous results by Spain.
Force utilities (using regulation and penalties) to buy a certain amount of RE, and leave it up to them to figure ut how to do that most efficiently. This is the basis of the California Renewables Portfolio Standard.

As LaFlash pointed out, the latter approach works much better, because the utility has the incentive to buy the power, but at the most cost effective fashion possible. In response to PG&E’s periodic solicitations for proposals, the RE generators state how much they want for their power and the utility runs a reverse auction, picking the most efficient (cheapest) one.

(LaFlash also noted the utility is working to streamline the paperwork process for connecting projects under 20 MW, in which the transaction costs is disproportionate to the project size.)

Stimulating renewable energy generation is about buying a commodity to achieve a policy goal at the most efficient possible price. The problem with feed-in tariffs — as demonstrated by Spain, Oregon and elsewhere — is that they assume a priori analysis or some other state planner can do a better job of setting a price than the market.

That’s what markets do best: set prices. We call it the supply and demand, or capitalism. Despite the delusions of the economically illiterate, that battle was fought and won decades ago. So here it’s California providing a model for how governments can use market forces to achieve environmental goals.

According to Harvard economist Greg Mankiw, the Federal government is apparently in the process of ignoring (or intentionally unlearning) this lesson when it comes to sulfur dioxide emissions and acid rate.

End to most carpool cheating stickers

2010-07-09T00:00:00.000-07:00

On Wednesday, the Governator signed AB 1500, which extends HOV lane privileges for a small number of California EV owners. However, the vast majority of the 85,000 sticker owners — owners of Prius and other hybrids — will be losing their carpool heating privileges on January 1.

John Voelcker of Green Car Reports spells out all the nuances and implications of the plan, which is aimed at handing out the perks to the Nissan Leaf and other expected EV/PHEV models — and keeping the perk for the RAV4 EV and other existing EV and CNG alternatives.

The policy decision makes all the sense in the world. The yellow stickers were always intended to be temporary incentives. The hybrids offer a marginal improvement over gasoline vehicles, particularly with the increasing fuel efficiency of affordable non-hybrid cars like the Ford Fiesta, Honda Fit and Toyota Yaris.

The stickers provided a subsidy (with a market value of up to $1500/car) to fuel adoption of expensive hybrids by the affluent and upper middle class. Given their popularity — particularly in the urban areas where the HOV lanes are found — they’ve already served their purpose. Meanwhile, the 80,000+ (by one estimate) empty slots and lanes can be used to encourage adoption of a new round of lower emission vehicles.

Estimating the cost-benefits of solar energy

2010-07-08T13:41:00.001-07:00

The key question of renewable energy is cost-effectively producing commodity electrons. One of the most pressing questions for SolarTech, Silicon Valley’s solar energy trade association, is accurately estimating the financial returns of rooftop PV and other RE systems.

In the Spring 2010, SolarTech commissioned a consulting team of finance students from the Sbona Honors Program to look at the most commonly used tools for calculating solar returns. (I supervised a second team on local permitting, and initiated the cooperation between SolarTech and the SHP for both teams.)

The actual report is available on the SolarTech website and was announced Wednesday in a SolarTech press release, timed to next week’s InterSolar conference in San Francisco. Because it is a building block of the SJSU-SolarTech cooperation, I wrote more about the background and goals of the study in our new Solar Workforce blog.

The short answer: the students think the best alternative (of the four) is the NREL’s Solar Advisor Model. The caveat is that study was mainly on features and usability, and there still needs to be an audit (by subject experts) of the accuracy of the calculated results.

Still, this is a great example of how business schools (and undergraduate students) can be relevant to the emerging renewable energy industry. It also offers some insight to us in business schools how to bring the industry’s real business problems into the classroom.

Governator's $19 million green legacy

2010-07-02T17:40:00.000-07:00

On May 26, Governor Schwarzenegger announced that the state Employment Development Department would award up to $20 million in grants as part of his Green Innovation Challenge:

The intent of the grant funding is to encourage industry leaders to find innovative methods designed to meet the needs of businesses to not only fill immediate employment needs, but also for the development of a partnership and infrastructure flexible enough to support employment growth for up to 10 years.

Successful applicants will have business-led partnerships, which may include entities in higher education, workforce development, economic development, employee and scientific associations, along with venture capital entities or other organizations important to making the technology successful in the short and long term.

Applicants had 20 days to file a 10 page proposal in one of five areas: renewable energy, energy efficiency, alternative/renewable vehicle (and fuels), energy storage and water efficiency.

On June 29 — less than six weeks after the announcement — the state announced six winners totaling $19 million, of which three are from the Bay Area. The winners were:

SolarTech Workforce Innovations Collaborative (Sunnyvale): $4 million for renewable energy, with an emphasis on PV and solar thermal
Northern Rural Training and Employment Consortium (Chico): $3.5 million for renewable energy in covering 11 counties
San Jose/Evergreen Community College: $2 million to train workers to build new energy efficient home
San Diego Biofuels Initiative: $4 million for biofuels based both on crops and algae
San Mateo Community College: $3 million for EV/hybrid maintenance at three community colleges in the SF and LA areas
Los Angeles Valley College: $2.5 million to both survey existing water usage and develop best practices for water efficiency

Each of the teams has two months to convert their brief proposal into an implementation plan.

While the requirements of the CFP emphasized a role for community colleges, four of the six approved proposals also include university partners. All four are using campuses of the 23-campus California State University system: Chico State (NoRTEC), San José State (SolarTech), CSU East Bay (San José energy efficiency) and San Diego State (San Diego Biofuels). More significantly, UCSD and its San Diego Center for Algae Biotechnology is playing a leading role in the biofuels project. (I visited with the SD-CAB director on Thursday and hope to post more later).

If the other universities are like us, a major goal is to create a permanent, self-sustaining change in the curriculum that extends beyond the grant period. The San José State portion of the SolarTech project involves both the business and engineering schools, and (we hope) can serve as a model for other CSU campuses. We’ve started a blog to post news about our own efforts, the SolarTech-led project, and the overall Green Innovation Challenge. Look there for further updates.

Efficient vs. inefficient green jobs

2010-07-01T23:27:00.001-07:00

At the EconLog blog this morning, Economist David Henderson noted his response to arguments for government subsidies of green jobs. While I don’t agree with all his points, he does bring things back to the core problem often ignored in cleantech policy: as in any other government (or private) policy, more efficient policies should be chosen over less efficient ones.

The arguments were in a monograph called The Economic Benefits of Investing in Clean Energy, available free from its two sponsors: the Center for American Progress (a progressive think tank) and the Political Economic Research Institute, a research project focusing on progressive issues headquartered at the University of Massachusetts Amherst.

In turn, Henderson — who has a part-time appointment at the Hoover Institution — published his review in the Summer 2010 issue of Regulation magazine, from Cato, the leading libertarian think thank. While CAP and Cato might agree on free speech or military spending, when it comes to government regulation and domestic spending, they are continents apart.

Henderson begins provocatively enough:

Suppose that you want to build a house, and you solicit two builders for estimates. Builder A's eight employees can build the house in three months for $300,000. Builder B's four employees can build the same house in the same time for just $150,000. Which builder would you choose?

This is not a trick question. You would choose Builder B, right? But Robert Pollin, James Heintz, and Heidi Garrett-Peltier would select Builder A if they employ the same reasoning they exhibit in their recent monograph The Economic Benefits of Investing in Clean Energy.

In other words, if spending $10 billion on green jobs is good, $20 billion is better. If this weren’t OPM (other people’s money), no one would ever think that way: it would be “how can we best increase consumer welfare by spending $10 billion” or even “what policy will create the most jobs at the lowest cost?”

Really, Henderson could just cite the Frédéric Bastiat and broken window fallacy — which describes much of the waste in government spending today. Maybe Henderson assumes his readers know the story, but the principle is inviolate: money spent fixing broken windows is money not spent on something that would otherwise be a higher priority.

Attempts to abolish the laws of economics have (so far) failed, whether by Marx, Galbraith or EF Schumacher. The price system in free markets sends signals to consumers to make the optimal allocation of their resources, and no better system for decentralized coordination has yet been found. Thus, the efficient use of resources should be just as much a priority in creating “green” jobs as with ordinary jobs.

Every so often, when hiking in a national park or visiting the old downtown of a small city, I find a road, bridge or building built by the Civilian Conservation Corps. Whatever the original cost, the fact that these facilities are in use 70 years later suggests that the expenditure had a productive use, amortized over a long period of time.

Tesla's big day

2010-06-29T18:54:00.000-07:00

Today was a great day for Tesla Motors and its CEO Elon Musk. Both got tons of favorable publicity — opening the NASDAQ market this morning — and wads of badly needed cash as the company enjoyed a wildly successful IPO.

By any measure, the IPO was a huge success:

The offering was expanded from 11.1 to 13.3 million shares.
The offering price was raised from the planned $14-16 to $17/share; and
The stock rose 40% in the first day of trading to close at $23.89, creating a market cap of about $2.2 billion

All this on a day when the Dow fell 2.6% (the NASDAQ 3.8%) as common investors panicked in the face of worsening economic news, and in a year where IPOs are few and far between. (My theory is that the stock defied the market because TSLA stock buyers were a combination of rich environmentalists that buy the cars and hot stock faddists who buy the story.)

(As with most Tesla financial news, the best reporting came from VentureBeat reporter Camille Ricketts.)

By selling almost 909,000 of his own shares, the 39-year-old Musk grossed $15 million, while his remaining shares were worth more than $650 million. Once the lockup is over, this presumably will allow him to pay some of his bills and start to resolve his long-deferred divorce settlement. After going broke, it also amounts to a personal vindication of the vision of the billionaire serial entrepreneur.

In fact, the LA Times found an Edmunds.com analyst who saw this as more of a referendum on the Tesla and Musk star power than its business or the industry at large:

"It's all the hype that's been built up, the first-day craziness," [editor John O'Dell] said of Tuesday's stock surge. "I would not take what's happening as a referendum on the EV market overall. It's unique to Tesla and Elon Musk and his reputation and persona."

Now that they’re a public company, the real scrutiny begins.

Ricketts has a list of 10 key questions for the company and its investors. Some are the obvious ones — when will Tesla stop losing so much money and how will it support the stock (and the balance sheet) when its second product is two years out. Others are less obvious, including how will Tesla balance its two strategic investors — Daimler and Toyota — who gave the company legitimacy, technology and (competing) potential exit strategies.

Others are also asking piercing questions. For example, John Gapper of the Financial Times wonders why investors are (apparently) so sanguine about having a part-time CEO of a multibillion dollar (market cap) company. Yes, Musk apparently fancies himself the greatest entrepreneur (and perhaps greatest tech CEO) of all time, but even Steve Jobs only managed to run two companies (Pixar+NeXT, Pixar+Apple) while Musk has three (Tesla, SpaceX and SolarCity).

One of the other questions Ricketts asks is how Tesla’s planned Model S sedan will compete with rival offerings from Chevy and Nissan — two well-capitalized manufacturers with better distribution. There’s also Fisker, the other major startup EV company, which used $20m of its $529m in stimulus funds to buy GM’s shuttered Delaware plant — part of its plan to help stimulate Finland’s economy.

Right now, electric vehicles are niche products: Tesla has sold 1,100 cars in two years — less than the total number of cars sold every two hours by the incumbent vehicle makers. The Model S and its rivals all hope to be the Camry (or Taurus) of electric cars, albeit at a healthy price premium (even with subsidies).

Into this niche are coming GM and Nissan right away, Fisker and Toyota soon after, and probably Ford, Honda, Chrysler, the Koreans and the Chinese by 2015. So far, the cars are 20-50% more expensive than their internal combustion counterparts. Meanwhile, the economics and green footprint of these vehicles depend on both the cost of gasoline (retail or with externalities) and how that compares to the real cost of grid power.

Meanwhile, sales are flat for the rest of the auto industry (at least in the developed world) with too many companies and factories chasing too few buyers. Even if electric cars increase their share of the market, they’re not going to grow the overall market, and that existing capacity (both manufacturing and distribution) will chase wherever the market goes.
The best case: the EV market grows rapidly and the rivals are slow to enter (unlikely) or are unable to match Tesla’s innovative products. The worst case (pick one): the market grows slowly, the prices remain high, a political shift reduces federal subsidies, or rivals (such as GM or Nissan) reach the mass market first.

I think the Tesla team should celebrate a well-deserved 4th of July weekend. After that, it’s back to work on trying to stay ahead of what will inevitably become a price-sensitive commodity business.

Toyota-Tesla: less than meets the eye

2010-05-27T16:04:00.001-07:00

VentureBeat has analyzed the latest Tesla S-1 filing about its recent deal with Toyota, and found some interesting tidbits:

Toyota has not yet agreed to partner with Tesla to build a car;
Toyota made only a conditional promise to buy Tesla stock after an IPO;
Tesla did not buy any NUMMI production equipment.

Some excerpts of the story:

…the newly revised S-1 states very clearly:

“In May 2010, Tesla and Toyota announced their intention to cooperate on the development of electric vehicles. This may involve the production of vehicles or powertrain components. However, we have not yet entered into any agreements, including any purchase orders, with Toyota for such arrangements and we may never do so.”

This is surprising, considering that Musk is already enthusiastically talking about not just one joint Tesla-Toyota vehicle — due out in the next four to five years, he says — but multiple tandem projects using Tesla’s powertrain technology and Toyota’s components.

and

For now, all that is tying the major Japanese automaker to the venture-backed startup is an agreement to buy a $50 million stake in the latter if and when it goes public.… [However,] if Tesla doesn’t have a successful IPO by Dec. 31 of this year, Toyota is no longer obligated to the buy these shares. This puts even more pressure on the company to make it to an IPO at all costs.

The conclusion of reporter Camille Ricketts:

Tesla and [CEO Elon] Musk have a history of making announcements that sound sweeter than they really are upon closer inspection. Last July, when the company declared profitability — with a margin of just $1 million — a number of reports said the claim was all smoke and mirrors. And when Tesla first filed to go public at the end of January, it conveniently provided financial reports only through the end of 2009’s third quarter, omitting the fourth quarter’s dismal sales. That data has since been included, but there’s a trend here.

Update 9pm: If that’s not enough, Venture Beat reporter Owen Thomas also reports Thursday that due to personal liquidity problems — tied in part to his inability to stay married — Musk has been broke for more than six months. Musk once used his personal fortune to keep the company afloat for the first five years, but now it appears he no longer cover a negative cash flow exceeding $100 million/year. Thomas concludes that even with government loans, the Model S is unlikely to begin production unless Tesla completes a successful IPO in the next seven months.

(Most of the divorce story is already several weeks old, having been covered by Edmunds, Divorce Saloon and Musk’s ex-wife herself May 6 and May 8.)

The upshot of both stories suggests that Toyota seems to be first in line to acquire Tesla and its technology if it runs out of cash, but has no financial obligation to bail it out if it doesn’t like the terms.

Runaway Bride

2010-05-21T08:17:00.001-07:00

Thursday night, Palo Alto-based Tesla Motors announced that its long-promised Model S electric sedan would be built using a portion of the closed NUMMI plant here in Fremont. The announcement came with a $50 million investment from Toyota.

Given the 25-year NUMMI joint venture between Toyota and GM had established infrastructure, and its April 1 closing was a source of great embarrassment to Toyota, this seems like a no-brainer. However, apparently it only dates to an April meeting between the Toyota CEO Akio Toyoda and Tesla CEO Elon Musk, who made the joint announcement Thursday.

When I heard this, however, it reminded me of all the previous places that Tesla had promised to build a factory:

Albuquerque: promised 2007, abandoned 2008
San José: a greenfield site, promised 2008, abandoned January 2009
Palo Alto: a former HP factory, promised August 2009 — and apparently still on

This reminded me of the Julia Roberts movie “Runaway Bride,” about a woman who kept planning weddings but then abandoning them at the last minute.

Most recently, the company had been negotiating with Long Beach (the former Douglas Aircraft plant for making DC-9s) and Downey (a former NASA site) in the LA area:

"It's gonna be a tough decision, because I think frankly both Long Beach and Downey would be great locations," Musk said.

Downey officials had approved nearly $9 million in incentives to attract the factory. The facility had been once listed in Tesla’s proposal for a $465 million “advanced technology” federal loan. Needless to say, city officials were upset:

"We are shocked, upset and betrayed. We can see why the public is so upset with corporate America," said Downey City Councilman Mario Guerra, adding that Tesla had told the city it would sign the lease for the Downey plant on Friday.

According to proponents, the Fremont plant will create 1,000 jobs. The company has cumulative losses exceeding $200 million on sales of about 1,000 cars and total revenues around $100 million. For such a tiny car company — selling a niche product — it has been tremendously successful getting publicity and promises of subsidies from local governments.

Or as a Downey city official put it:

“I couldn’t be more disappointed. I feel like I was stabbed in the back,” Councilman Mario Guerra said yesterday. “We were promised all along that we weren’t being used and this is what happens.”

“Elon Musk personally gave me his word that we weren’t being used,” Guerra continued. “Somebody is a very good poker player and I guess that’s how you become a billionaire.”

Tesla had also been promised as the salvation of the American auto industry, which has lost 100,000s of jobs in the past three years. Now, with the strategic investment by Toyota, there is an increased possibility that its exit strategy will be to become a subsidiary of Japan’s (and the world’s) largest auto company.

EVs: An expensive way to pollute the planet

2010-05-03T00:01:00.000-07:00

I've always wondered about the green bonafides of electric vehicles: not because of the batteries, but because of the greenness of the electricity that it pulls off the grid to charge those batteries.

Sure, some people make themselves feel better by buying electricity from green sources — but then that reduces the supply of renewable energy available for others to buy. Meanwhile, if California (and other regions) is straining to achieve even 20% RE share, the marginal effect of increasing electricity demand will be to increase fossil fuel consumption from peak sources. It’s easy to ramp up electricity generation from peak natural gas (or coal) plants, but nearly impossible to quickly increase baseline generation of carbon-free sources like RE or nuclear power.

Even if you go for average — rather than marginal — CO2 emissions from grid power, the federal Energy Information Administration predicts that fossil fuels will account for 65%of electric power generation in the US even in 2035.

Now, a veteran British auto journalist has attempted to calculate the lifecycle CO2 cost of electric vehicles. Building on a team of consultants working over a three year period, the report, “The Emperor’s New Car,”was authored by Clive Matthew-Wilson of the auto review site Dog & Lemon Guide.

As Matthew-Wilson writes:

Claims that electric cars are ‘emissions-free’ are simply a lie; they merely transfer the pollution from the road to the power station. Not only will electric cars not reduce emissions, they may actually increase emissions, because burning coal to make electricity to power an electric car creates more pollution than if you simply powered the same vehicle using petrol.

Renewable energy sources may be growing fast, but they’re still a tiny percentage of the world’s electricity supply and they’ll stay that way for the foreseeable future, because renewable energy sources tend to be far more expensive than fossil fuels.

The study contrasted the Tesla Roadster with the Lotus Elise (petrol-fueled) car that it’s built from. It concluded that the Tesla produced less CO2 emissions if used in New Zealand (where grid power is primarily hydro) but more emissions in the US, UK, China and Australia.

The report also concludes that the EVs are likely to be produced mainly at Chinese factories with far less environmentally friendly production and energy generation than those of the developed world.

Such errors are hardly accidental. As the Toronto Globe & Mail summarized the report:

The report says car makers, not environmentalists, are prematurely pushing electric cars. Car makers want electric cars because of the enormous subsidies they will generate.

This is hardly the final word on the subject, and it would be naïve to think this will end the hype and exaggeration. However, one can hope it will engender more accurate estimates among environmentalists and policymakers as to actual ways of reducing CO2 emissions.

Instead of cutting edge, technologically risky and expensive EVs, the report concludes that the best way to reduce CO2 emissions in populated areas is by using a proven (100-year-old) technology: mass transit.

Here in Silicon Valley, we’re heading in the other direction. In Santa Clara County, we have a mediocre bus network and a limited light rail system. Meanwhile, the three-county commuter rail (Caltrain) is about to disappear as cash-strapped local governments end their subsidies. Meanwhile, Googlers and other members of the Silicon Valley elite buy Teslas rather than depend on mass transit.

To me, it seems like stimulating EV usage before we have a large supply of RE is putting the cart before the horse. In 2009, both RE and EV manufacturers won generous Federal subsidies, but if the government some day decided to adhere to a budget, the data suggests subsidizing RE now and EVs later.

Which way is the wind blowing?

2010-04-29T01:01:00.000-07:00

The most controversial wind project in the US, the 400+ megawatt Cape Wind planned off Cape Cod, was approved by the Federal government Wednesday. Many considered this a surprising development, because of the adamant opposition of the Kennedy family — and other affluent members of the Massachusetts economic and political elite — who objected to the impact on their views of the Nantucket Sound.

As with solar energy in the Mojave Desert, this controversy found unlikely adversaries between pro-RE environmentalists and anti-development environmentalists. The Obama Administration, represented by Interior Secretary Ken Salazar, came down (mostly) on the side of renewable energy.

The NY Times captured the tension of this conflict in its own backyard:

Friends and foes have squared off over the impact it would have on nature, local traditions, property values and electricity bills; on the profits to be pocketed by a private developer; and even the urgency of easing the nation’s dependence on fossil fuels, a priority of the Obama administration.

Opponents argued that Cape Wind would create an industrial eyesore in a pristine area; supporters countered that it was worth sacrificing aesthetics for the longer-term goal of producing clean, renewable energy.

Developers say that Cape Wind will provide 75 percent of the power for Cape Cod, Nantucket and Martha’s Vineyard — the equivalent of that produced by a medium-size coal-fired plant. It would also reduce carbon dioxide emissions by the equivalent of taking 175,000 cars off the road, officials said, and provide 1,000 construction jobs.

The project has also made for some strange bedfellows. Cape Wind is backed by both Greenpeace and the United States Chamber of Commerce.

It has been opposed perhaps most prominently by members of the Kennedy family. Senator Kennedy was a longtime sailor on Nantucket Sound and fought the project up until he died.

President Obama himself on Tuesday toured the Siemens factory in Iowa where the turbines would be made. (No mention whether Iowa’s pivotal role as a swing state played any role in the factory location or the presidential visit.) The administration expects a string of future offshore wind farms up and down the East Coast, as part of a plan to raise wind to 4% of electricity generated in 2030.

In my memory, renewable energy was last in ascendancy in the 1970s and early 1980s around the time of the two Arab oil embargoes. Of the influential politicians of the day, Jimmy Carter probably would have sided with green energy (and energy independence) over Kennedy views — particularly when Sen. Kennedy began his very public nomination challenge leading up to the 1980 election.

I suspect that another Carter primary rival in 1976 and 1980 — Edmund G. Brown Jr. — would have come down another way. Then at the peak of his “Small is Beautiful” (ala EF Schumacher) infatuation, Jerry Brown was then about building less things, using less, spending less and consuming less.

What about today? In his adamant support for AB32 — the California precursor to national cap-and-trade legislation — Brown today is clearly about consuming less energy. While his campaign website brags about tax credits in the 1970s that brought windmills to California (mainly in the Altamont Pass,Tehachapis, and near Palm Springs), it doesn’t say how he’d come down on an RE vs. environmental preservation issue.

Our current Governator has strongly favored RE over environmental protection, implying that favoring the latter is something only a “girly man” who do. Given their moderate records on green energy, I suspect both of Brown’s GOP rivals — Meg Whitman and Steve Poizner — would also come down in favor of renewable energy (ala the Chamber of Commerce), particularly if there’s little government money involved.

But what would Jerry Brown do? I guess it depends on which way the wind is blowing. For the Obama administration, it appears that making progress on long-term renewable energy goals is more important than satisfying a small number of avid supporters in its base. This is good news for the wind turbine industry, and renewable energy advocates more broadly.

Three cheeers: Facebook favors EE over RE

2010-04-26T00:01:00.000-07:00

The Merc Sunday carried an AP story (also in Business Week) about how Greenpeace is upset at Internet companies for not using clean power on their datacenters. The BBC had a version of the story last month.

The Green peace criticism is particularly harsh for Facebook for building a datacenter in Prineville, Oregon, because the local utility uses coal instead of the hydro power commonly found elsewhere in the Pacific Northwest.

Datacenters are certainly important: the AP reports an EPA estimate that in 2006 they accounted for 61 billion kilowatt hours, or 1.5% of the nation’s grid power.

The charge is somewhat spurious: in the short term, having company X buy more RE means that there is less RE available to sell to company Y (or consumer Z). In the long term, it’s possible that greater demand for RE will push up the supply of RE, but in the near term the supply of RE — particularly hydro, solar and wind — seems to be growing as fast as is possible.

(Of course, firms like Google etc. that add their own onsite generating capacity are certainly increasing the supply of RE and reducing the demand for grid power overall).

Instead, Facebook is choosing approach both reduced costs and power purchased from the grid. By building its datacenter in a location with good natural cooling, it hopes to dramatically reduce its AC bill.

As the AP reported:

In most data centers, cooling the servers takes nearly as much electricity as running the servers themselves. Facebook hopes its new cooling system will take only 15 percent as much power as the computers. Facebook is also shooting for a gold rating from the green building standard known as LEED.

The climate is important. Even in summer, nights are cool. The center can take in outside air for free. When temperatures rise, a high-tech swamp cooler blows dry air over water, and the evaporation lowers temperatures. In winter, hot air from the servers is blown into office space.

In other words, by emphasizing energy efficiency, Facebook will pull less power from the grid (from any source), leaving that power (both RE and non-RE) available for other sources. In the long term, that will do more to provide a net reduction in CO2 emissions than any effort to shift some uses to RE.

As Matthew Humphries of geek.com concluded:

I don’t think any of the tech companies are dismissing renewable energy and trying to save power. The fact is, energy is expensive so any way it can be saved is thought about and implemented. Datacenters are starting to ditch air conditioning in favor of natural airflow through buildings, for example.

Hydropower, solar, and wind are all being used if they are accessible to a datacenter, and Google has also started experimenting with wave power and creating floating datacenters. Some datacenters route their waste heat to act as heating or a power source for other buildings. There’s also the introduction of Bloom Energy, which relies on natural gas, but uses significantly less fuel to generate energy. It’s a power source of the future, but is already in use at a number of technology campuses.

Greenpeace are right to highlight the need to focus on renewable energy, but I believe this is one area where the companies running these centers will jump to renewable and clean energy wherever possible because it is cheaper and more reliable going forward.

EE is decidedly unsexy, but every kilowatt-hour saved is one less kWH that has to be generated. Efforts by datacenters to reduce energy consumption — whether from servers, networking equipment, A/C or anything else — are a win-win proposition for the operators, the grid and the environment.

Rooftop wind turbines

2010-04-08T23:55:00.000-07:00

The San Diego newspaper had an interesting story about a developer of small wind turbine.

The company, Helix Wind, appears to be struggling, but the product description was fascinating:

Helix Wind makes turbines small enough to be mounted on homes or commercial buildings. Its core products spin on a vertical axis and look like soft-serve ice-cream cones.

It reminds me a little of the story about Adobe installing wind turbines on roof of its skyrise HQ in downtown San Jose. The latest round of turbines generate about 50 kWh per year. The installation was finished last month.

We put solar panels on roofs due to scarce real estate, so at some level wind turbines on commercial or residential roofs make sense. The Merc story implies they get more energy per square foot than the equivalent solar panels.

To me, this seems to renew the (often unseemly) rivalry between the two main renewable energy growth areas. (Hydro is certainly renewable, but the recent growth has been in the wrong direction from a RE standpoint).

Green Technology Entrepreneurship Academy

2010-03-23T23:13:00.001-07:00

From Andrew Hargadon’s blog:

Green Technology Entrepreneurship Academy
June 28 - July 2, 2010 @ the Tahoe Center for Environmental Science
Lake Tahoe, Nevada

Moving Sustainable Technologies Out of the Lab and into the World

The one-week intensive academy is open to science and engineering faculty, graduate students, post-doctoral researchers, and senior undergraduates working on research in green technologies. The academy combines seminars and networking sessions in an innovative format to help you learn how to commercialize your technology.

The workshop is presented by UC Davis. The application deadline is May 14, 2010.

For more information, see the complete posting in Prof. Hargadon’s article.

Green before our time

2010-03-14T23:55:00.000-07:00

Last year, some of my students in my business plan class proposed creating a business to build “green” houses. They made it to the semifinals of the SVBPC, although ultimately the plan fell apart because it’s hard to start up a business building spec homes (particularly nowadays) if you don’t already have the capital to carry the houses while they are under construction. (Talking to a builder friend, the construction finance lenders have either withdrawn from the business or gone out of business).

One of the things I pushed them to do, however, is get their message straight. “Green” is so broad and vague that it doesn’t mean anything to buyers — particularly given all the drek out there in the name of green-ness. I encouraged them to focus on energy efficiency — very cost-effective and a clear message. Add a few other wrinkles, perhaps as optional features — water reclamation here, solar power there — but keep the message focused.

On Sunday, our local TV station ran a feature encouraging homeowners to buy or remodel their homes as “green,” largely focusing on energy efficiency. On the one hand, it validated my former students’ plan and the advice they came them, including the suggestion that such features could only command a 3% (or was it 2%?) premium. On the other hand, some of the ideas seemed pretty old hat. (Even ignoring that the EE story of the day was clearly the Merc’s coverage of Serious Materials’ multi-million dollar EE retrofit for the Empire State Building.)

The one that made me smirk was the suggestion that homeowners should buy a whole house fan rather than air conditioning to drastically reduce the electricity cost. Been there, done that.

The Bay Area home we bought in 2002 didn’t come with air conditioning, and summer heat was certainly a problem. The average high in July-August is usually around 85°, but many days are over 90° and 10-15 days a year it’s above 100°. As with most of California (except the Central Valley), hot days are rarely humid.

So before our first full summer, we installed two whole house fans, and nearly seven years later, we couldn’t be happier. It’s perhaps difficult to go to sleep 3 or 4 days a year — when the temperature remains above 80° after 9pm — but otherwise the fan (and good insulation) solves most of our cooling needs. Perhaps a few more days, I decide to work downstairs after 2pm rather than in my office, but with a laptop that’s no great loss (particularly since my least productive part of the day is between 1-5pm.)

What I’m particularly proud is that we were the first on our block to get a high-efficiency, (relatively) low noise whole-house fan, the 1000 CFM Tamarack Technologies HV1000. The fan had three winning features:

It was much quieter than a standard whole house fan.
It was almost trivial to install, because it fits between the ceiling joists.
Unlike most fans, with a self-closing R38 cap it doesn’t leak out warm air in the winter.

The PBS tv show “This Old House” featured the faster, noisier HV1600, but we decided to go with two smaller HV1000 fans in our 2F hallway. It gives us better control over the air flow, and it’s possible to sleep at night with only one fan running.

The fans were about $500 apiece, and they don’t seem to be much more expensive today. If I recall, it was about a day’s worth of labor to cut the ceiling, run the wires, and install the switch.

When we retire back to Oceanside in 10 or 20 years, we probably won’t need a whole house fan given that the temperature rarely reaches 90°. However, if we were to relocate to another part of California, I would certainly order more of the fans as a cost-effective, energy-efficient solution. (The one exception would be Palm Springs, where I’d check out the efficiency of the swamp coolers we used in my childhood rather than conventional AC.)

Clean vs. semi-clean

2010-02-26T22:12:00.000-08:00

Exploding out of stealth mode after 10 years and $400m of VC, Bloom Energy got great press Wednesday (at least here in Silicon Valley) on both TV and written form on the front page of the Merc.

Of course, it didn’t hurt that CEO K.R. Sridhar got to unveil his new technology earlier in the week on 60 Minutes. The company has done a great job of PR. Apparently Kleiner Perkins partner Al Gore has been whispering its praises for years.

For its rollout, the TV cameras came because it was able to attract A-list celebrities like Colin Powell (a Bloom Energy advisor) and the Governator (who will come for anything at the intersection of two of his passions — green and jobs).

The company has also lined up an A-list bevy of customers for its industrial fuel cells like Google, Coca-Cola, eBay, Wal-Mart and Bank of America. I assume this is because natural gas is becoming ever cheaper, and because in the Banana Republic of California you never know when the state is going to screw up electricity generation. (Conveniently, taking these industrial users off the grid would reduce PG&E’s overall electricity load would make it easier to meet its RPS quotas.)

However, what is puzzling to me is why this is trumpeted as “green” or “cleantech.” Like all fuel cells, the Bloom cells would produce pure water if fed hydrogen, but when fed hydrocarbons, will produce CO2 with the water. Before global warming became a concern, this would have been a big plus over burning the gas (which produces other pollutants like nitrous oxides), but now of course CO2 is the driving concern when it comes to environmental impact.

Sure enough, Fast Company has run the numbers to compare the CO2 output of the fuel cells with other alternatives:

Bloom's device generates electricity at 50% to 55% conversion efficiency. In comparison, solar generally produces power at between 10% to 15% efficiency. But unlike solar panels, the Bloom Energy Server produces CO2 as a byproduct. According to the Energy Collective, "CO2 emissions when running on natural gas would be just under 0.8 pounds/kWh, which compares favorably to electricity from central station coal-fired plants (2 lbs/kWh) or natural gas plants (roughly 1.3 lbs/kWh) and the national average for on-grid electricity (around 1.3-1.5 lbs/kWh)." If the box runs on landfill gas or biogas, it produces net zero carbon emissions.

So from a “green” standpoint, using a fuel cell to convert the natural gas produces about 40% less CO2 than burning, which of course is a good thing.

So that’s half the equation: what about the other half? The Achilles heel of renewable energy generation is high upfront capital costs. Wired notes that each “Bloom Energy Server” generates 100kW and costs about $700-800k. Various estimates say that the capital costs range 9-10¢ a kW-hr.

A couple of savvy GreenTech Media readers do the math and suggest that the servers will never be cost effective against a simple natural gas boiler. (As readers note, relevant unresolved questions also include the useful lifespan of the fuel cells, and how quickly the firm can improve its manufacturing efficiency.)

So is it worth paying more (or paying government subsidies) for a more expensive way of converting natural gas to electricity for slightly less CO2 output? From an economic standpoint, clearly not. How about from an environmental standpoint? I suppose it depends on the environmental impact of the extra cost — materials costs, transportation costs, commuting by engineers etc.

Be Green! Aloha!

2010-02-16T13:08:00.000-08:00

Earlier this month, the LA Times ran an interesting article about EE/RE in the Hawai‘ian islands. The Merc ran it prominently Tuesday in its Business section, but many people probably missed it since that section is now buried inside local news.

The short version of the story is that Hawai‘i is doing more than most states to promote energy efficiency and renewable energy, it’s bragging about it, and the reporter bought their story hook, line and sinker.

The facts are interesting, but unfortunately the story is so badly written with cliches and misleading statistics that you have to look at it sideways to figure out what’s really going on. Here’s an example:

Although Hawaii's efforts to green itself won't make much of a dent in the world's total carbon emissions, environmentalists hope the state can prove what's possible. The goal is to transform the nation's most energy-dependent state into its cleanest and most sustainable.

"We're adopting policies and technologies here that can serve as a model for the rest of the globe," said Jeff Mikulina, executive director of the Blue Planet Foundation, a Hawaii clean energy advocacy group.
…
The policies stem from an agreement Hawaii signed with the Department of Energy in 2008. The state pledged to obtain 70% of its total energy needs by 2030 -- 40% from renewable electricity generation and the remaining 30% from energy efficiency. Known as the Hawaii Clean Energy Initiative, that agreement has since been strengthened with binding legislation that exceeds California's mandate to get 33% of its electricity from renewables by 2020 (though Hawaii has an extra decade to get there).

In other word, 40% by 2030 is better than 33% by 2020. It seems like a silly distinction, since California has been ratcheting up the goal every decade and it seems unlikely that it will decide to do nothing from 2020-2030. (There’s also the minor matter that either state’s “goal” might fail in its implementation.)

The Times continues:

About 6.5% of Hawaii's electricity came from renewable sources other than hydroelectric power in 2007, according to the National Renewable Energy Laboratory. That's about half what California -- the nation's solar champion and a major player in wind and geothermal energy -- has achieved.

But experts said Hawaii's small size and unique geography could prove advantageous in the race for energy independence. With just 1.3 million inhabitants, its energy consumption is small. The islands have abundant solar, wind, geothermal and wave resources. And Hawaiians are less likely to object to the cost of renewables since they already pay high energy prices.

"It's easier for Hawaii to pull this off than anyone else," said Alison Silverstein, an independent consultant and onetime energy regulator. "They know how bad things can get, and they are highly motivated . . . to take action."

Uh, yeah. There’s nowhere in the US with more favorable conditions for solar power. Plus the cost of substitutes for RE are much higher there than anywhere else, resolving the chronic problem of cheap fossil fuels faced on the mainland. Sounds like a dog-bites-man story to me.

But “race”? What “race”? Is there an X-Prize for most successful state EE/RE policy? Or is this just press hype?

Where is the mention of the failed South Point wind farm, where the tax subsidies rewarded building the turbines but not maintaining them and keeping them running? (By comparison, the contemporaneous Kramer Junction solar plants in California’s Mojave Desert were the largest solar field in the world for almost 2 decades and still remain in active use.)

And the article reflects a profound ignorance about California EE mandates that have led the country for decades, whether it be Title 24 (which dates back to 1978) standards for new construction or the Governator’s latest retrofit plan. It doesn’t sound as sexy as adding 30% to 40% to get a misleading number, but in reality California’s existing conservation has already saved more carbon emissions and fossil fuels than anything Hawai‘i will ever do.

I’m sure there’s something that can be learned from the Hawai‘i experiment: that’s one of the major advantages of the US (and German and Canadian) model of federalism. Heck, I have some money left in my research budget, so perhaps I need to do a field visit to investigate for myself.

However, as with many such stories, there is a tendency to put too much stock in the boasting of the local sources, rather than put the local efforts into a broader context — in this case of US EE/RE policy.

Note to international readers: One of my favorite childhood TV shows was Hawaii Five-O, which offered most Americans their first glimpse of life in the 50th state. The preview of next week’s episode always closed with Jack Lord saying “Be there! Aloha.”

Green incentives: incentives vs regulation

2010-02-11T07:00:00.000-08:00

While football is my favorite sport, this was one of those years where I watched the Super Bowl more for the ads than the game. (It turned out to be a surprisingly fun game.)

As in previous years, many of the ads turned out to be more entertaining than effective. Our family’s favorite ad — got us all to laugh — was the Budweiser ad that satirized the TV series “Lost” (now in its final season). But no amount of advertising would get me to drink Bud, or my wife or tween to drink beer under any conditions whatsoever.

But an ad that closely linked the message to product — and one that’s stirred a controversy for several days afterwards — is the “Green Police” ad for the Audi A3 TDI turbodiesel. (I originally thought it was for VW, but since they have the same corporate parent and similar powerplants, the confusion was understandable.)

If you happen to have been on Mars, the ad shows teh Green Police busting citizens for various far-fetched environmental transgressions. It was accompanied by a redub of Cheap Trick’s hit “Dream Police” to sing the words “Green Police” to the original music.

USA Today’s green blogger Wendy Koch endorses the ad:

The ad is not just another pot shot at greens. It's an appeal to a new and growing demographic that isn't hard-core environmentalist -- and doesn't particularly like hard-core environmentalists -- but that basically wants to do the right thing. Audi's effort to reach them, however clumsy, is actually a bit ahead of the curve.

While it’s just an ad — and a funny one at that — there’s still something about the satire that hits a little too close to home. As one blogger put it, “it feels eerily like a near-future dystopia.”

The ad was made in San Francisco, which has an actual composting mandate as in the ad. Koch notes that Israel, UK, New York state, Vermont have special police authorities to sanction CO2 emissions or other anti-green crimes.

Whether the green police are real or not, I think there is a broader question of using regulation rather than prices to encourage socially desirable behaviors in a market economy.

In a great triumph of hope over realism, we hoped that centralized command-and-control bureaucracries (ala 1984 and Des Lebens des andres) died with the Berlin Wall in 1989. Alas, the once-free liberal democracies seem to be approaching central planning quicker than the former Soviet republics are approaching free markets.

It’s not that market approaches are unavailable. Most of the problems of the US EE and RE industry — long payoff periods, unpredictable substitute costs, uncertain investment climates — could be solved quickly and simply by tripling or quadrupling the price of fossil fuels via a fixed carbon or extraction tax — and returning the money via individual and corporate income tax cuts. More complex systems (like cap and trade) have proven they are amenable to fraud and political payoffs .

The one minor problem is that any politician voting for such an increase in the cost of gasoline, natural gas, heating oil and electricity would be unemployed at the next election. So those who advocate European-style or Japanese-style oil prices will never see their theories tested.

Cost-ineffective "green" investment

2010-02-01T11:59:00.000-08:00

The NY Times reported Sunday plans for a $133 million renovation of the Portland (Ore.) Federal building. By using innovative technologies to make the building more “green,” the government will save $280,000 a year. At that rate, it will pay for itself in 475 years.

Even by relaxed standards of Federal pork-barrel spending, this is ridiculous. Was the government unwilling or unable to find a lower bidder? Did it not have some higher priority project to fund instead? Or is this a payoff to local politicians?

Many energy efficiency retrofits have payoffs of 2-10 years: with tax credits some claim payoff of only 17 months. In fact, a 5:1 ratio was implied by a 2009 announcement by energy secretary Steve Chu of a $454m energy efficiency program. Even LED lightbulbs might have a payoff of 5-10 years.

It’s an abomination that such a project was even considered, let alone proceeding ahead. There are no shortage of buildings in this country awaiting improvements in efficiency. This same $133 million could produce annual savings of $10, $15 or even $25 million, instead of 1/10 or 1/100 of that.

Given that the wastefulness has been long known, why is it continuing? The Green stimulus money will at some point be gone — perhaps after FY2010 — and wouldn't it make sense to prioritize the money to achieve the greatest impact? Y’know, to spend it the way an concientious individual, business or nonprofit would do it?

Merc belatedly discovers efficiency

2010-01-25T23:47:00.000-08:00

The front page story in Monday’s San Jose Mercury is about how the latest trend in cleantech is energy efficiency. (That story is about 6 months behind the times, but better late than never).

Of local companies, it mentions Serious Materials, a VC-funded firm in Sunnyvale that makes energy efficient windows and drywall. It also mentions Recurve, a 65-person company that does energy audits. It also mentions national trends, such as increasing VC investment in energy efficiency and the rumored “stimulus 2” bill that would encourage more spending on retrofitting homes.

But is that all there is to efficiency? Why didn’t the Valley’s hometown newspaper talk about LED light bulbs being developed locally by hitech companies young (Bridgelux) and old (National Semi, Micron)? (To be fair, last week the Merc reported the expansion and $50m additional VC landed by Bridgelux for its move to Livermore).

OK, so no story can cover everything. I’ve heard Serious CEO Kevin Surace point out that his decidedly unsexy efficiency product can have a payback period of 1-2 years. Meanwhile, the PV world is worry about performance degradations, cost of capital and subsidies to make a 20 year payoff term work.

Still, the Merc’s coverage of EE/RE seems pretty superficial — about like the Internet in 1994 or 1995. Just as CNET was the place to track the Internet, cleantech readers do better with Greentech Media (and not just because senior analyst and RE guru Eric Wesoff is a LinkedIn friend who’s saying nice things about my latest iPhone blogging effort.)

Unfortunately, that plays into the template of the overall decline of general interest media. The niche media (online version of trade journals) offers better, faster, cheaper coverage of important developments, leaving local papers to offer an occasional simplified version of the story.

Route 66 views are more important than clean energy

2009-12-23T07:47:00.000-08:00

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.