Green consumers - they want to, but...

Interesting study from the marketing agency EcoAlign on consumer perceptions of clean technology (1,000 online survey respondents):

A new report on consumer perceptions of clean technologies in residential areas finds that 54 percent of the respondents surveyed have not adopted some form of cleantech largely because they don't understand it…

…Asked to rate cleantech products, most non-adopters considered the products expensive (53 percent), difficult to understand (72 percent), and difficult to maintain (76 percent). Cleantech adopters surveyed agreed with these assessments, though their negative scores were 10 percentage points lower. 60 percent of adopters also said they found the technology reliable, but only 44 percent considered the products beautiful.

The survey itself (the second one conducted by the company) makes for a good read (a quick sign-up is required to download).

The second EcoPinion Survey provides further evidence of a green gap between willingness to adopt or purchase green products, services and technologies, and consumer value perceptions around those offerings. While concern for the environment is at an all time high, consumers think that many forms of green technology (renewable, energy efficient or recycled materials) are cost prohibitive, difficult to understand and maintain, and aesthetically unappealing…

…This green gap in consumer perceptions offers insight into the dichotomy of customers’ stated intentions, e.g., their desire to be more green or frugal with energy consumption, and their actual behavior….The second EcoPinion survey results point to the clear need for companies to work harder to connect their products and services with the customer’s value chain around convenience, comfort, cost and design.

This has long been a point of concern among the environmental community, and those selling “green” products or services. While polls tend to show consumer interest in environmentally conscious and/or energy saving products is rising, specific action has been muted at best (albeit with some successes also, such as Prius sales topping the Ford Explorer).

Joel Makower has long hammered this point home, with a great post last week:

This just in: pretty much every consumer is concerned about the environment and is thinking conscientiously about what they buy — how it's made, under what conditions, and by whom….sound too good to be true? It is, of course. But you wouldn't know it from the marketing studies I've been seeing — and the breathless headlines that result.

Other great posts from Joel on the same topic are here and here.

As I wrote in a post a couple weeks ago:

Perhaps the single most important aspect of marketing is "authenticity". Be it tweens, 18-34 men, housewives or NASCAR fans - know your audience and be real to them. The same of course applies for companies trying to reach consumers interested in the environmental practices, perhaps some of the toughest critics around.

No post on marketing to green consumers would be complete without the requisite “next steps”. And while that sounds snarky, I think EcoAlign does a good job with theirs, offering simple, concrete steps that may be marketing 101, but tend to be forgotten by people who should know better:

1. Invest the necessary money in market research. Market research is the skeleton of any successful marketing effort, and creating memorable, measurable campaigns that are grounded in core business, and customer expectations around the company’s brand and the value created.

2. Go deeper and articulate more compellingly the reasons why people should care and act in regard to the green tech offering. Energy tech companies are dominated by an engineering-centric, product-oriented view of the world, yet customers are more attuned to emotional appeals. This approach must be achieved through careful messaging segmentation and utilizing the full range of delivery channels, including new media.

3. Align design with functionality. While customers are satisfied that most green technologies are “reliable,” meaning that they will work as advertised, more attention needs to be paid to how these technologies look and feel to the customer. Sustainability can be beautiful, and command a premium for that value.

Morning links - wind, PEVs, green business, transportation and smart-grids

Various items I've come across this morning that I thought I'd share.

Size Matters: Good round-up on wind development and investment in the U.S. from the WSJ's free blog "Energy Roundup". Several new developments are noted in this post, including the first-time use of 3MW turbines in the U.S., competitor collaboration among Enel and GE, and increasing industry consolidation.

Race to Make Electric Cars Stalled by Battery Problems: Long front-page story on the challenges plug-in hybrid and electric vehicle makers face in sourcing batteries that are safe and reliable. Very good overview, and adds some necessary context to my post yesterday on PEVs.

Wal-Mart faces hurdles in green electronics: Wal-Mart's sustainability push, and the sizable impact of that decision on manufacturers, other retailers, supply chains, and ultimately consumers, has been reported and debated ad naseum. This article discusses some of the challenges electronics manufacturers (and Wal-Mart) are facing in meeting Wal-Mart's objectives. Depending on the outcome of next year's elections, we may finally see some kind of federal legislation that consolidates the wide-ranging standards for energy efficiency, sustainability and recycling.

27 electric cars companies ready to take over the road (h/t Earth2Tech): An interesting list of electric car manufacturers. There are enough cars here for every taste and desire imaginable.

Moving Billions of People on a Still-Green Planet?: Rather fascinating piece from the NYT's blog on environment, focusing on broad trends and scenarios in transportation. A lot of links and research here to digest.

News Flash: 110% of Consumers Shop Green!: Joel Makower is one of my favorite thought-leaders in this space, and his new post on the environmental consumer and greenwashing has far-reaching implications. I covered a similar topic (sparked by an earlier Makower post) here.

What's so smart about smart metering?: Its a couple weeks old, but an informative interview with the CEO of smart-grid-focused company. I thought it wrapped up a lot of what I've been discussing recently here, here and here.

News and notes - Cleantech Investment, Green business and Oil issues

Few other quick links from today:

2007 energy tech VC totals - First look: Rob Day at Cleantech Investing takes us through a breakdown of cleantech VC investments in 2007. A lot of insightful commentary.

The Cleantech Revolution: a number of interesting articles in Goodwin Procter's custom publication entitled "Big Ideas in Technology". Cover story from pg. 8 - 14 is a good overview and has a number of interesting sidebars and there are various cleantech related stories sprinkled throughout.

Global Oil Supply Challenges Will Drive Crude Prices to US$150: (h/t The Oil Drum). Very bullish look at the oil markets from CIBC World Markets, focusing on supply issues. The actual research is here. Just one opinion, but a very pessimistic one.

GridWise Study: saving energy through smart grid management

A wonderful new study out of the Pacific Northwest National Laboratory on smart grid management demonstrates very effectively what this blog has discussed in detail here and here:

A yearlong study by the Department of Energy has concluded that when consumers are given the means to closely track and adjust their energy usage, power use declines by an average of 10 percent. In addition, the study found that households' electricity usage during peak times fell by up to 15 percent.

Additional reporting on this study provides more detail:

The demonstration project was as much a test of consumer behavior as it was of new technology. Scientists wanted to find out if the ability to monitor consumption constantly would cause people to save energy…

...112 homes were equipped with digital thermostats, and computer controllers were attached to water heaters and clothes dryers. These controls were connected to the Internet. The homeowners could go to a Web site to set their ideal home temperature and how many degrees they were willing to have that temperature move above or below the target. They also indicated their level of tolerance for fluctuating electricity prices...The households, it turned out, soon became active participants in managing the load on the utility grid and their own bills.

As I wrote here in my predictions for 2008: "Some smart people will begin applying the lessons of the most recent technological revolution to the consumption of energy". Key to the success of this study was Internet-enabled technology such as two-way, real-time communication and online banking:

Participants received constantly updated pricing information via the Internet. The ability to connect the homes with energy providers as well as the grid was made possible through IBM technology known as a service oriented architecture (SOA). A "virtual" bank account was established for each household and money saved by adjusting home energy consumption in collaboration with needs of the grid was converted into real money kept by the homeowners. With the help of these tools, consumers easily and automatically changed how and when they used electricity, for their own financial benefit and the benefit of the grid.

Another study conducted in parallel looked at allowing appliances to automatically adjust their power use based on elevated or reduced demand stresses on the grid, thus serving as a “shock absorber” for the grid:

The Grid Friendly appliance project fitted 150 homes in Oregon and Washington with "smart" dryers and water heaters equipped with circuit boards to detect when the power grid is stressed. When that happens, the appliances curtail power use for a minute or two.

Grid friendly" circuit boards could be put in refrigerators, and other big appliances...If every big household appliance in the country were so fitted, the U.S. could cut electricity use by 20 percent.

The study further predicts that in five years, GridWise-type smart system for appliances will be available in 10 to 15 percent of U.S. homes. Currently the cost of installation is $500 and falling.

More information on the study is available directly at the PNNL GridWise website. A good recap of the study is here, while those with extra time on their hands can read through the two 150 page reports that accompany this study. They are dense reads, but the conclusions and additional readings sections are definitely worth a look.

Still, there are many challenges to overcome before this type of participatory strategy can be put into practice:

Many utilities are experimenting with this so-called smart-grid technology, but most are using it to upgrade their own networks, not to let households manage consumption. One big hurdle is that in most states, utilities are still granted rates of return that depend mainly on the power plants and equipment they own and operate instead of how much energy they save.

What’s also incredibly interesting in this study is that rather than focus on subsidies and mandates (yesterday's WSJ article on PG&E $117 million program to subsidize CFL purchases) this project relied on real-time market information and direct price signaling to encourage natural human behavior.

Further, this study adds to the growing body of evidence, such as this IBM report, this SmartPower study, and this So. Cal Edision experiment, that all demonstrate a key principle: The individual energy consumer will actively participate in their energy use with appropriate incentives, tools and information. The question then becomes, are we willing to make them a direct and engaged part of the solution?

UPDATE: couple of great additional readings from the PNNL report Part 1:

Energy efficiency: Super savers: Meters to manage the future
The Path to Perfect Power: Galvin Electricity Initiative

UPDATE II: this post is a definite must-read, offering several different perspectives as to the potential of the concepts outlined above:

Want to Manage Your Energy Usage? How Badly?

Other links from today - market transformation, cleantech investing, and global risk

A few other items of note today:

Utilities amp up push to slash energy use: Great article in the Journal today (subs. required) about the California "carrot/stick" approach to incentivize utilities to push energy efficiency, mandating a reduction of equivalent to three power plants...or else:

The state has designated $2 billion in utility customers' payments to be spent over three years on conservation programs. The utilities need to spend that money to find ways to avoid another $2.7 billion in energy costs, by reducing demand enough that they can buy less power or build fewer plants. If they come close enough to the target, regulators award them a cut of the savings; if not, they pay a penalty...

As one would expect, PG&E (California's biggest utility) is emphasizing the easiest and cheapest method to reduce energy consumption: compact fluorescent lightbulbs. So far the utility has spent $116 million on rebates and subsidies, which has helped contribute to CFLs selling for $0.25 to $0.50 (10 to 20 times less than in 1999). All told PG&E subsidized the sale of 7.6 million CFLs last year, and up to 20 million this year.

No doubt the outcome of this experiment in market transformation will be extensively studied. If it proves successful in generating long-term, sustainable energy reductions, while allowing CFLs to finally supplant incandescents, this is a good example for other market-based renewable efforts to follow.

F.T.C. Asks if Carbon-Offset Money Is Well Spent: following up on Monday's post about the FTC hearings on green marketing, the carbon-offset portion received a good deal of press. Some good examples of green business within the article.

Cleantech funding rising, may overvalue sector: I always enjoy the articles that rely exclusively on anecdotal evidence to prove a headline. I definitely believe certain sectors are over-valued, but I'm not ready to call it a "bubble" just yet.

WEF warns 2008 uncertainties may hurt climate fight: I mentioned this here, and its something I'm looking at closely. What happens to the momentum around climate change, renewable energy development, green business, if a particularly nasty recession hits? The report itself has a scary list of risks for 2008 focused on four areas: financial security, food security, supply chains and energy.

Plug-in Electric Vehicles

For whatever reason, I came across a number of developments today in the plug-in electric vehicle space. In that PEVs are another example of technology that empowers the individual energy user, (and I just posted on a similar theme), I thought I'd highlight them here. Apologies for the lack of structure or continuity in this post.

"Smart charging" plug-ins

Some estimates place the number of plug-in vehicles by 2015 at 500K to 1.5 million. Unfortunately, for utilities, if plug-in electric cars achieve anywhere near this level of penetration, the electricity usage could be enormous.

For example, in an ACEEE study last year, a typical electric-only car might have an efficiency of 4 miles per kWh. If you assume an average 1,000 miles per month driving (and possibly more with the anticipated reduction in fuel prices) one car could “consume” 250 kWh per month. According to the EIA, the average household used about 900 kWh back in 2001 (their most recent data). Thus, acknowledging the multiple caveats associated with back of the envelope calculations such as this, switching from a gasoline-powered car to a pure electric would increase household energy usage by over 25%.

Therefore, while the actual fuel savings (and accompanying emissions reductions) would be significant, plug-in electric cars would need large amounts to draw large amounts of electricity from already over-stretched utilities and infrastructure.

This is where companies such as V2Green come in. V2Green is an early-stage venture focused on developing both the hardware and software necessary for utilities to efficiently manage the rate, pace and timing for charging plug-in vehicle. Its technology would allow thousands of vehicles to wirelessly communicate with utilities in order to determine the optimal charge time. The company faces a number of challenges (need for outside capital, partnering with both utilities and vehicle manufacturers, small current market size), but believes it is poised as the leader in a new market opportunity. Today, it announced a transition to a new CEO who will focus on V2Green’s growing business responsibilities (a typical process for most new technology ventures).

Over the past few months, Earth2Tech has written a number of smart posts focused on the company, and the broader challenges and opportunities in managing the electricity needs of plug-in vehicles and the potential for this new technology. Recommended if you're interested in learning more, and also here (h/t Earth2Tech).

Rapid charging of plug-in electric vehicles

Along a similar vein comes this commentary from Leonardo Energy today.

When screening the data sheets of prototypes electric vehicles and electric vehicle batteries, you often come across some spectacular recharging speeds…What the data sheets don’t say is that the electric connection must be capable of supplying sufficient power for this rapid recharging....Consequently, rapid charging would be impossible at home. Moreover, it would create a serious challenge for any grid connections for electric recharging stations located along the road…

…That is why some experts, like Andrew Burke, an electric vehicle engineering pioneer at the University of California, see the rapid charging of plug-ins as a technological dead end. Others, like Alan Gotcher, CEO of Altair Nanotechnologies, see those barriers merely as challenges that need to be overcome. Watch this space to see which of these two visions prove right.

The articles and study within the post add context, and are an informative read if this is of interest.

Boosting batteries

Finally, I wanted to close on a couple of developments that involve the actual batteries with the vehicles. While this should be a much longer post, I am including these two links here to highlight the fact that many technological advances that could impact PEV's are coming from parallel industries. This article (from several months back) helps explain the value of the two potential advances below:

Nanowire battery can hold 10 times the charge of existing lithium-ion battery

Stanford researchers have found a way to use silicon nanowires to reinvent the rechargeable lithium-ion batteries that power laptops, iPods, video cameras, cell phones, and countless other devices.

The new technology, developed through research led by Yi Cui, assistant professor of materials science and engineering, produces 10 times the amount of electricity of existing lithium-ion, known as Li-ion, batteries.

Cui said that a patent application has been filed. He is considering formation of a company or an agreement with a battery manufacturer. Manufacturing the nanowire batteries would require "one or two different steps, but the process can certainly be scaled up," he added. "It's a well understood process."

A Better Battery for Laptops

Boston-Power says that it's poised to enter the market for portable power, with a notebook battery the company claims is safer, lasts longer, and can be charged faster. The Westborough, MA, startup recently announced that it is more than tripling production of its high-performance battery, called the Sonata, after receiving $45 million in a third round of venture financing. The move puts the company in a position to mass-produce and commercialize its next-generation lithium-ion battery within months…

While focused on laptop computer batteries, there are hybrid-electric vehicle applications as well:

The unmatched safety benefits available from Boston-Power's technology apply in …other applications such as hybrid electric vehicles (HEVs). With existing notebook computer batteries containing roughly the same power as hand grenades -- and HEV batteries representing far greater than that -- Boston-Power's proactive, preventative safety features overcome the issues challenging current Lithium-ion batteries.

News and notes - electric cars, solar, CCS, ethanol, marketing and more

Charged up by electric cars: Tyler Hamilton's interesting new column on electrification of cars covers what large automakers and small entrepreneurs are doing in this space, and also speculates on the accompanying importance of load management software. More here on his blog. (he's a one person media conglomerate)

SunPower’s solar power plant building boom: details on SunPower's multiple new solar installation deals in Europe (especially Spain). Given that Spanish PV sector grew 500% in the last year, perhaps this is not surprising.

Solar-energy sector seems primed to grow. Nothing new, but some good P/E numbers on some very highly valued solar stocks - First Solar is at 130 time earnings, SunPower 60x, while others are lower (e.g. Trina at 18x).

Archer Daniels Midland to Bury Carbon From Ethanol Plant: ADM is working with a number of state and national government agencies to inject 1 million tons of carbon underground. Project is expected to cost $84 million, with almost $67 million coming from the Department of Energy.

Canon Unveils "Generation Green" Brand: at first, I was writing a snarky little post about this, until I remembered that Canon ranked number one on the Climate Counts scorecard, put together by Clean Air. Perhaps it was the company's environmental bona fides, that explained why a rather plain announcement got quite a bit of media attention.

Open Source Free Energy Tech: given my interest in leveraging successes from the Information Age, I thought this a wonderful example of energy technology development using the open-source method.

Deeya Energy Raises $15 Million Series B Financing for Energy Storage: yesterday, I linked to a great interview with two DFJ VC's. Deeya is one of their cleantech investments.

Switchgrass shows promise for ethanol production study: finally, some good news for pro-ethanol folks on the cellulosic ethanol front. Apparently, native North American prairie grass produces 540% more energy than energy consumed, compared to previous estimates 343% net. According to the article, this is due to higher yields from new breeds of switchgrass.

Could renewables supplant 100% of traditional electricity generation?

As I first wrote here, managing intermittency of renewable energy through geographic diversification could be a key driver of large, utility-scale adoption of renewable power beyond the 10%-15% threshold typically assumed. It also featured in my predictions for 2008.

Now, the Combined Power Plant in Germany is putting all of the theory into practice. (via The Sietch Blog, h/t Gristmill)

In an pilot experiment featuring 36 renewable energy power sources (11 wind, 4 biogas CHP units, 20 solar systems and a pumped storage power plant) all linked by a central control unit, the Combined Power Plant project demonstrates that most, if not all energy demand can be met exclusively by renewable energy. From the background paper:

Wind turbines and solar modules help generate electricity in accordance with how much wind and sun is available. Biogas and hydropower are used to make up the difference: they are converted into electricity as needed in order to balance out short-term fluctuations, or are temporarily stored….

…Cutting edge technology is already able to forecast energy yields reliably. The Combined Renewable Energy Power Plant makes use of this technology and regulates electricity needs just as securely as conventional, largescale power stations…

...These power plants are intended to meet one ten-thousandth of Germany’s electricity needs – roughly equal to the electricity requirements of a small town with 12,000 households (such as Stade in Germany). The Combined Power Plant therefore shows in miniature what is also possible on a large scale: 100 per cent provision with renewable energy sources at all times.

The Technical Summary has more.

I recommend first starting with the 7 minute video which does a wonderful job explaining the program and underlying reasoning.

Certainly, a national roll-out of this project would require the development of several enabling and ancillary technologies, including the build-out of an extensive high voltage power transmission infrastructure, and sophisticated demand response technology and networks. But coupled with improved energy efficiency and individual power management initiatives, this could potentially represent a quantum leap in a renewable energy powered future.

New climate study explores national security and social change

Fascinating new study out of the entitled "The Age of Consequences: The Foreign Policy and National Security Implications of Global Climate Change."

Using a scenario planning method, the study explores what's "plausible" as it relates to climate change as opposed to what can be established with scientific certainty.

For each of the three plausible climate scenarios, we asked a national security expert to consider the projected environmental effects of global warming and map out the possible consequences for peace and stability. Further, we enlisted a historian of science to consider whether there was anything to learn from the experience of earlier civilizations confronted with rampant disease, flooding, or other forms of natural disaster.

Real Climate has a much better breakdown, so I'm just sending you there. The potential outcomes are downright catastrophic (on practically a biblical scale):

The “expected” scenario calls for 1.3 °C of warming globally, by the year 2040. Changes in precipitation and sea level prompt migration at a scale sufficient to challenge the cohesion of nations...

...In the “severe” scenario, the globe warms by 2.6 °C by 2040 and sea level rises about a half a meter. Scientists in 2040 conclude that the eventual collapse of Greenland and the West Antarctic ice sheets has become inevitable in the centuries that follow. Agricultural production declines in the arid subtropics and in increasingly flooded river deltas. Again to pick a random example from the report: the river systems in the American Southwest collapse, leading to impoverishment of Northern Mexico and increased migration pressure in the U.S. Resource stress in Latin American leads to a tendency toward populist, Chavez-type governments, and more extensive regions of de facto anarchy such as found today in parts of Colombia.

I won't even bother posting the "catastrophic scenario" as I'm sure you get the hint. A compelling study and read.

The difficulty in predicting oil prices

I’m going to stray a bit outside my comfort zone to offer some thoughts on oil prices.

Excluding renewable fuels and transportation, evidence demonstrating a correlation between the price of oil and either renewable energy investment or renewable energy stocks and is somewhat anecdotal. Research demonstrates a link, but others disagree. I imagine it’s a difficult relationship to tease out, given the numerous variables underlying price movement, many unrelated to each other.

[of course, the boom in ethanol, biodiesel and other renewable fuels, as well as the new CAFÉ standards and interest in plug-in and gas/electric hybrid vehicles are all directly tied to the high price of oil. But that’s a different post.]

I’m more interested in the prevalent assumption among the media and general public, that oil prices directly impact interest and/or investment in all renewable energy (for a variety of economic, behavioral and political reasons). I find it an interesting potential paradox that while a long stretch of $100 bbl/oil might have a psychological and economic influence that could ultimately boost renewable energy finance and R&D, there would be considerable negative macro-economic impact in the short-term (which would damage those renewable energy opportunities).

As one of my assumptions for 2008 is that there will be a short-term pause in the “green movement”, I’m specifically interested in the prospect of higher oil prices in 2008 and more importantly, if the outcome can predicted with any certainty.

If the price and volatility of oil drives renewable energy decision-making (as an investor or financier, politician or typical consumer) then having some confidence and clarity about the price of oil would be immensely valuable for a variety of stakeholders.

Thus I found the multiple articles on oil prices in Thursday’s Wall Street Journal to be especially interesting as much for what they said about the staggering impact of high oil prices as for our inability to determine what we might see occurring in the oil industry.

Interestingly the Journal already ran this article two months ago before an oil summit. Back then, I wrote:

If you view $95 oil as the result of speculation, a deflating dollar and a war/risk premium (as opposed to simple supply/demand issues), you can now, according to this article, also add as drivers of high oil prices:

• Resource nationalism
• Limits on oil field access
• Billions of dollars in infrastructure underinvestment
• Declining production levels in existing fields
• Oil field damage due to over-depletion
• Revenue surplus which limits extraction investment
• Labor, construction and equipment bottlenecks
• Booming commodity markets
• Overestimation of near-term potential in alternative supplies

Yesterday’s article took more of a longer-term view, but still offered the same perspective:

Economists, Wall Street commodity traders and even seasoned energy executives were caught flat-footed by oil's dizzying rise. Looking back, several factors came together at the same time to help oil shoot up roughly tenfold in less than a decade and briefly touch $100. Those factors are likely to stick around -- and perhaps push prices up further.

Reading through the article, I was able to add the following to my list of drivers for higher oil prices (responses edited):

• Unexpected surging oil demand in China, the Middle East and other developing countries
• Chronic underinvestment in oil fields in the past decade
• Wall Street penalizing risky extraction efforts
• Insensitivity of U.S. and global oil demand to rising oil prices
  
• Price volatility sparked by 24 hour NYMEX trading, hedge funds and financial traders

In addition, via an email exchange with Lou Grinzo from The Cost of Energy, I confirmed several of these trends and added two other price drivers:

• Rise of national oil companies (NOCs)
• Inability/unwillingness of some exporters to keep pace with demand.

Accordingly, in the process of gathering this information for this post, I ultimately wound up collecting almost two dozen reasons why oil prices are as high as they are today. Which, for me, then begs the question: why has $100 bbl/oil been so hard to predict? And should recent developments really be all that shocking? And in future, can we say with any confidence if these trends and drivers will continue indefinitely?

I feel there is a relatively simple reason why so many investors and analysts have been (and continue to be) caught by surprise with the oil price increases over the past five years. In predicting oil prices over the past twenty years, there hasn’t been much need for innovation in either modeling or research. Oil fluctuated gradually between $20 and $30 (occasionally drifting to $10-15), demand grew consistently and steadily, except in times of recession or the occasional war, and supply was essentially infinite. [as this great chart demonstrates]

To this end, most oil experts and analysts I’ve met tend to be old-school traditional guys, with solid relationships in the Middle-East and a belief that oil supply would forever top demand, and the US would always find a way to smooth pricing through invasion, regime change, sanctions, etc. I have a number of examples which I’m prudently withholding.

Meanwhile, those who predicted peak oil, or that demand could eventually outpace supply have been consistently marginalized, and (for about 20 years) wrong. I would imagine most left the industry. And I would further assume that few young or contrarian individuals ever entered oil trading or analysis, perhaps due to the lack of excitement or change (given the absence of volatility in pricing and need for “physical trading”).

And thus now, as we face a suddenly new and volatile era, we are left with experts who possess a great deal of expertise and experience, only in doing the same basic thing and never really needing to innovate. While I have no doubt as to their economic and mathematical brilliance, we unfortunately need experimentation and non-linear thinking. I imagine it must be paradigm-shattering for some old-timers to have to consider current developments while imagining a world of finite supply and a U.S. unable to “encourage” increasing production. To this end I would expect most oil analysts and investors to have little clue about what to do next, and to continue to be surprised by an oil market that they’ve never really had to consider or model before.

Take for example one senior energy analyst at a large investment bank, who I enjoyed meeting recently. Unlike many of his peers, he's been bullish on oil for several years now. And yet, while he expected high oil prices for 2008, by 2010, he assumes supply constraints will ease considerably, leading to a significant decline of oil prices past 2009.

What struck me in discussing this with him was his reasoning. He ignores most of the 20+ reasons I listed above as to why prices have sparked so high in the past few years and focuses mostly on supply and demand. Moreover, in terms of supply, he thinks OPEC has the capacity to grow up to 3.0 mmbpd, which he believes will easily match average global demand growth of 1.5 mmbpd for the near future.

Beyond this, he has aggressive projections for alternative and non-conventional fuels. He expects ethanol and biodiesel to see incremental growth to almost 0.7 mmbpd by 2010, while Gas to Liquids/Coal to Liquids, oil sands and condensate splitting will add another 1.2 mmbpd by then. This, coupled with additional refinery capacity coming online and an assumption of calming political issues, means that while he expects $80 oil through 2008, after that, he is fairly bearish, and assumes prices will fall significantly.

Unfortunately, to me, this analysis ignores the myriad price drivers described above. And should the OPEC supply growth prove optimistic, the increase in capacity is heavily reliant on the scale up of the alternative fuels mentioned above to match growing oil demand. Meanwhile, forecasting the price of oil, already an immensely difficult exercise given the aforementioned variables in this post, becomes yet more complicated by 2009 if additional oil capacity doesn’t come on line.

In pricing oil, an analyst today needs to consider all of the above challenges and then include a host of new variables associated with the production of alternative fuels (price of corn, tar sand oil extraction, etc). So oil, already incorporating political risk premiums, economic risk and at least two dozen other new variables referenced above, now must factor in variables around the capacity, expense, production and pricing for at least five different unproven fuels, which are necessary to meet growing oil demand.

All of which explains why oil price forecasting is so difficult to get right. And why many "experts" continue to be surprised. And so where does this leave me? Apparently throwing darts and making a blind guess about the average cost of oil in 2008 and beyond.

UPDATE: I only touched on this above, but check out this piece today linking the rising price of oil to a weak dollar, and then some in-depth analysis here.

Free research - carbon markets, renewable energy, climate change and more

Missed this a couple of weeks ago, but it's such a great idea, I had to share. If you're like me, you just lost 4 hours on this site. Or not, if you have a life. Either way is fine. But a great source of information and thought-leadership if you have some time to explore.

Investment banks, research institutes and the City of London authority have collaborated to release a public collection of investment research relating to climate change, to help inform investors about the issue...

...The institutions contributing reseach include ABN Amro, Bank Sarasin, Barclays, Canaccord Adams, Cheuvreux, Credit Suisse, Forum for the Future, Herbert Smith, JPMorgan Chase, Merrill Lynch, Morgan Stanley, Société Générale and WestLB.

I've long been a fan of investment research for broad industry coverage, and there are a number of good reports here. But you can also find some cutting edge academic and NGO work as well.
Enjoy.

2008 Predictions from others - UPDATED

Predictions are an especially fun post. Opining about the future with no real consequences, connecting historical trends with forecasts and projections, seeing how it all fits into the ever-evolving social, economic and political context…what’s not to love?

Unfortunately, the difficulty with year-end recaps and predictions is that they tend to put a finite cap on certain trends, and artificially inflate others. So for example, 2007 becomes the year when the business community took global warming seriously, or the year when the stock market finally profited from renewable energy, or the year when the biofuel boom ended, and so forth. A similar philosophy is applied to 2008, which can lead to predictions which are in fact just continuations of existing trends, or ignoring new developments which may become large-scale phenomena down the road.

As this blog is theoretically a long-term endeavor, I’ve collected a lot of other (smarter) bloggers’ predictions as well in this post. Partly I wanted an easy collection point for future reference, and to see what others were saying, but I also wanted to rank myself against others. A few of my favorite prediction posts (and 2007 trend recaps) are below ranked in quasi-order of enjoyment, followed by my own thoughts for 2008 in a separate post. Each post here takes a different perspective on 2008, but all are fascinating to read.

2008 Clean Break Lookahead
The World of Energy in 2007
The Top Energy Stories to Watch in 2008
Renewables and the New Year
Looking ahead to 2008, pt. 1: Finally the exits?
Eight Cleantech Developments to Watch for in 2008

Reviewing these various predictions and trend recaps (and many others that weren’t included here), I’m struck by a few things.

There is a good deal of interest in ocean power and/or offshore wind, energy efficiency and capturing carbon for storage. A lot of people are targeting electric cars and battery storage. Many are focused on the potentially gigantic impact of China, both as a manufacturer and a market, and the resurgence of nuclear power. Others are looking at the authenticity and strategy of the corporate environmental response (versus charges of “greenwashing”).

What I found even more interesting however, was what was missing. Almost no one was interested in carbon markets, advanced biofuels or infrastructure investment, capacity constraints, the U.S. political environment or the impacts of a weakening economy, a reduced interest in coal and an increased interest in design.

You can see my own thoughts for 2008 here.

UPDATE: A few more posts on the same subject are below. Some of these are really good:

10 green tech predictions for the new year
The top green stories of 2007
Three Financiers Foretell 2008
The Green Year in Review
Earth2Tech’s Predictions for 2008
Photovoltaics: 2007 Post Review and 2008 Trends to Watch – Part 2

EIA Outlook - continuing frustration

I quickly linked to this article a few days ago, but I wanted to return to it as it points out a continuing source of frustration.

Two weeks ago, I wrote:

The unfortunate thing about the Energy Information Administration's (EIA) Annual Energy Outlooks is that reporters tend not to understand (or at least write about) the assumptions underlying these forecasts. Most articles I've seen on this topic over the past few years tend to highlight the very low levels of growth forecast in future renewable generation capacity. As the EIA is touted as "Official Energy Statistics from the US Government" I've always been troubled by this.

Just to offer one more example, this US News & World Report article makes the same mistake (ruining what is otherwise a solid piece).

[in discussing the potential of renewable energy supplanting fossil fuel-derived energy] This grand goal is not remotely in sight, even with wind and solar energy and ethanol growing at a breakneck clip. These renewables now provide just 3.6 percent of the nation's energy, and the government predicts their share will grow to a grand total of 4.2 percent by 2030. By those calculations, it sure looks like a fossil fuel future for America.

As a result, the meme continues: a fossil-fuel-based energy future is inevitable, and renewables will amount to nothing more than a drop in the bucket. Some restated version of the EIA assumptions wouldn't be that difficult to include, would it? From the EIA Outlook:

As in previous editions of the Annual Energy Outlook (AEO), the reference case assumes that current policies affecting the energy sector remain unchanged throughout the projection period. Some possible policy changes—notably, the adoption of policies to limit or reduce greenhouse gas emissions—could change the reference case projections significantly.

Individual Empowerment and the Consumption of Energy

This is a longish lead-in to the first post (of many) on how consumers are growing increasingly empowered in their ability to directly manage their individual energy usage and consumption. As always, I welcome any thoughts/feedback in the comments section.


The tremendous advances of the telecommunications, computing and Internet industries have wrought far-reaching economic, political, societal and behavioral changes, many of which we’re only just beginning to see. To list all of them would take a lifetime and is far beyond the scope and expertise of this blog.

However, there is one development which I believe directly relevant to what I discuss here daily. I’ve long been fascinated by how in many industries (e.g media, retail, communications, entertainment) “the Individual” has been empowered at the expense of the larger corporate entity, but to the benefit of the industry. One recent example I came across yesterday:

People once believed that the Net was going to transform where we shopped—that it was going to make physical stores obsolete. It hasn’t…What it has changed is how we shop…

…The results of this shift are obvious. First, consumers know a lot more about prices than they once did... It’s harder to create a sense of urgency around short-term sales…And the wealth of online product reviews and commentary has made the cues that stores use to shape shoppers’ perception of quality and value far less effective.

This doesn’t mean that consumers are impervious to retailers’ tricks…Still, there’s no disguising the fact that power has shifted from sellers to shoppers.

For other examples, think TiVo, NetFlix, open-source software, blog aggregators, eBay, Wikipedia, etc. Each allows its users to enhance and reshape their consumption experience while increasing the utility and efficacy of the products/services in question. More importantly, consumers, especially younger generations now anticipate and expect this capability to become available in a much broader swath of industries.

I know I’m generalizing excessively, but moving forward, I will be extending this concept of “individual empowerment” to energy generation, distribution and consumption as a key theme of this blog. Ultimately, this idea of individual empowerment is where I believe many of the most important opportunities in renewable energy lie.

To this end, I'm extremely interested in the policy, research and business models that reshape the Individual’s experience with energy – giving people demand-response technology so they can monitor their consumption, providing affordable and effective distributed technologies so they can generate their own power and sell the rest back to the grid via net-metering, powering their hybrid vehicle directly from this distributed generation rather than going to the gas station and recycling their garbage and waste for both power and profit.

Ultimately, the Individual is empowered, actively engaged in their own power consumption and generation, to their profit and the profit of the industry (and society and our environment) as a whole.

Research is beginning to bear this out. Consider this recent report from IBM:

Historically, the relationship between utilities and consumers has been rather lopsided – utilities had the power, both literally and figuratively. But the confluence of climate change concerns, rising energy costs and technology advances leading to greater consumer involvement is now radically redefining that relationship. Our recent surveys of 1,900 energy consumers and nearly 100 industry executives across the globe reveal major changes underway – a more heterogeneous consumer base, evolving industry models and a stark departure from a decades-old value chain. We believe companies need to prepare now for a participatory network that enables customers to choose from a wide variety of suppliers, actively manage their consumption and even sell back surplus power they generate. ..

….We anticipate a steady progression toward a Participatory Network, a technology ecosystem comprising a wide variety of intelligent network-connected devices, distributed generation and consumer energy management tools….

…Within five years…we believe sufficient supplier choice will allow meaningful consumer switching to emerge in most major competitive markets. Also…we expect utility demand management initiatives to expand dramatically and electric power generation by consumers to make tremendous inroads within ten years.

If you buy the concepts underlying this post, then this report is a must read. The accompanying survey is also insightful, although it makes me feel as though I’m putting a little too much faith in the typical energy consumer.

Other surveys point to similar findings. In one recent poll of 1,004 U.S. adults:

49 percent said they plan to make an eco-friendly New Year's resolution. Out of those making green pledges, 75 percent said they would most likely reduce energy use in their homes, 74 percent plan to recycle more, and 66 percent will cut their use of harmful chemicals.

A recent study by SmartPower on how best to motivate consumers to conserve energy draws some very similar conclusions:

Like any typical consumer, the participants in SmartPower’s study want to know what is in it for them. They yearn to be inspired. They do not want to be preached to. They want to feel that they are a part of a “we” approach. They want to understand and feel the real-world ramifications of their actions. They’re busy. They’re over worked. They want quick, simple tasks they can do that will make a difference. They want to feel smart and cool. They want to feel empowered and knowledgeable about saving money and saving energy.

The actual study, although qualitative, is an interesting read.

Moreover, building on this study’s conclusions, there are a number of interesting products and services that I’ve come across recently that directly tie-in to both the study and the concepts underlying this post.

While it’s older than the rest, I was fascinated by an article in this past July’s WIRED Magazine, discussing a very simple way to engage consumers in reducing their energy consumption:

Mark Martinez couldn't get Southern California Edison customers to conserve energy…Then he saw an Ambient Orb. It's a groovy little ball that changes color in sync with incoming data…Martinez realized he could use Orbs to signal changes in electrical rates, programming them to glow green when the grid was underused — and, thus, electricity cheaper — and red during peak hours when customers were paying more for power. He bought 120 of them, handed them out to customers, and sat back to see what would happen. Within weeks, Orb users reduced their peak-period energy use by 40 percent.

The article goes on to cover a number of technologies and ideas that could make energy usage “visible”. Nathanael Greene goes into greater depth on one of them - the Wattson.

I’ve also come across a number of other technologies and ventures pursuing the same objectives (of course, the ones listed here represent a tiny portion of what must be thousands of opportunities):

• Get a Kit, Cut Your Home’s Carbon Footprint. “Earth Aid Enterprises…is offering…customizable Earth Aid Kits come with a variety of products to help you reduce the carbon footprint of your house, apartment or dorm room: appliance timers, oxygenating showerheads, compact fluorescent lightbulbs, LED nightlights that turn on and off automatically, faucet aerators, programmable thermostats, Smart Power strips and more.”
  

• Hooking up a greenhouse gas meter. [previously written about here] “[IBM] has collaborated with Evergreen Energy to create what they call the GreenCert greenhouse gas meter…an Internet-based software program designed to collect real-time emissions data from sensors and other sources. It calculates the volume of greenhouse gases being released into the atmosphere by a company and certifies any reductions as credits that can be traded on carbon markets."

• Kill A WATT – Watts Killing You? "Connect your appliances into the Kill A Watt™, and assess how efficient they are. A large LCD display counts consumption by the Kilowatt-hour just like utility companies. You can figure out your electrical expenses by the hour, day, week, month, even an entire year."

Ultimately, this idea of "empowering" the individual, so that they are cognizant of the impact of their energy usage and the value that they can create, is where I believe many of the most important opportunities in renewable energy and environmental sustainability lie. As I stated above, I plan on making these topics, and the many issues that surround them, a key focus of this blog moving forward.

UPDATE: It's a couple months old, but this is another great example: Gadgets to Spur Energy Conservation, about glowing lamps that manage and inform on energy consumption and conservation.

The Climate Group

In recent years, numerous business groups have sprung up, organized around tackling climate change (e.g. CERES, The Carbon Trust, Carbon Disclosure Project, US Climate Action Partnership, World Business Council for Sustainable Development, etc).

Having worked for CEO-driven social change non-profits in the past, I know these groups can be hit-or-miss affairs. Sometimes they serve solely as industry-boosting PR platforms, or old boy networks and are a waste of time. But if these groups can engage relevant and committed employees below the C-level at the member companies (while encouraging at least some CEO participation), I’ve found that they can accomplish a great deal – sharing ideas and best practices, building and fostering industry-wide networks and leaders, publicizing important industry-related milestones, etc. These business groups can have an especially significant impact if they address and help solve the lack of industry-standard “metrics” and/or industry-wide measurement platforms that are commonly missing in new or emerging industries.

So I wanted to quickly highlight a small bit of news from one of the good ones:

Four prominent corporations joined the ranks of The Climate Group this week to promote pragmatic climate change policy and demonstrate that companies can slash emissions but still make money. Goldman Sachs, Dow Chemical, Bloomberg L.P. and Florida Power and Light bring the organization's total membership to 44. The group was formed in 2004.

A press release with additional information can be found here.

I read The Climate Group’s report “In The Black” this summer, and found it insightful and useful. They've recently posted an executive summary that's a little more friendly. Their “Carbon Down Profits Up” series is also effective, especially as it focuses on the measurement challenge for companies involved in climate change. Finally, you may want to check out their “Viewpoint” section, which has a number of interviews with CEOs and thought-leaders in this space.

Coal power - more plant cancellations than anticipated? - UPDATED

Great post regarding 17 distinct coal plant proposals that have been canceled in the past fourteen months. A few things stand out to me - the growing momentum in the last few months, the breadth of states involved, and the variety of stakeholders that are influencing or making these decisions.

I took the liberty of aggregating this information into a table, and did some additional digging. In addition to the 17 coal-plant rejections referenced above, I located an additional five cancellations or postponements:

• Jim Bridger power plant, Rocky Mountain Power/Pacificorps, (Wyoming)
• Stanton IGCC project, Southern Power (Florida)
• Polk 6 IGCC project, Tampa Electric (Florida)
• Maine Yankee IGCC, Twin River Energy Center (Maine)
• Mesaba Energy IGCC Project, Excelsior Energy (Minnesota)
  

[click on picture for larger image]

All told, I count 14GW in projected capacity additions that have been canceled or significantly postponed in the past year (not including the 8 proposed plants canceled in the TXU deal). It is also important to point out that a number of these rejected coal proposals included new IGCC projects (as opposed to your traditional coal-fired facilities).

This seems to be to be a significant trend on which I have seen only limited reporting (here and here for example).

Overall, in 15 separate states, the decision has been made to reject thousands of MW in coal-based future capacity additions, and to use some other energy technology. At least 20 separate utilities and power generators have been affected. Moreover, I don't see this trend of coal-plant cancellations slowing, given that since July, there have been 16 cancellations or postponements alone.

Yet if this is the case, why do we still continue to see articles such as this from the Economist, only a month ago ("Coal Power - Still Going Strong"):

In America, more coal-fired generation is being built than at any time in the past seven years, despite the threat of emissions caps, according to the Department of Energy.

I suspect that this specific statement of optimism stemmed from the DOE's May release of its report: "Tracking New Coal-Fired Power Plants" (out of the Office of Fossil Energy's National Energy Technology Laboratory), which stated that 90 GW in new coal-fired power plant additions was on the way:

A newly released Department of Energy report shows that many power producers are turning to coal as the most economic and abundant national resource for electricity generation....Ninety (90) gigawatts of new coal-fired power plants are under consideration or have recently become operational.

Contrast this statement with an updated version of the "Tracking New Coal-Fired Power Plants" (this one released two months ago), which was a decidedly more downcast affair, and made a far different claim [quotes taken from various sections of report]:

Historically, new coal-fired power plant development announcements are not valid indicators of actual new capacity installations. Current power plant development status indicates that approximately 1/3 of announced megawatts have progressed through permitting and/or into construction.

Actual plant capacity, commissioned since 2000, has been far less than new capacity announced. Year 2002 report of announcements reflected a schedule of nearly 12,000 MW to be installed by 2005, whereas only 329 MW were achieved.

At some point, this capacity has to be made up, either on the demand side through energy efficiency and demand response, or on the supply side - natural gas, nuclear, or renewable energy additions. Given the unabated growth in U.S. demand for electricity, coupled with the billions in forecast ed revenues that could be lost by energy companies (AES, AEP, Duke, Entergy), this is a trend that will be watched.

UPDATE: a couple months after I first wrote this post, I wanted to add a link to the most exhaustive list I've come across to date - Sourcewatch which describes 51 separate coal plant cancellations in 2007 (excluding the TXU deal)

Cost and performance assumptions for energy modeling

If you've ever had to model out costs and performance in renewable and traditional energy power generation, you know that finding data can be difficult - especially for the newer technologies.

To this end, I highly recommend this Technical Appendix from the Union of Concerned Scientists' recent analysis on the impact of potential national RPS ("Cashing in on Clean Energy"). The UCS report has made a number of modifications to EIA assumptions, and is far more aggressive (positively) in its treatment of renewable technologies' capital costs, capacity factors and learning curves and much less so for the traditional tech (coal, nuclear, natural gas).

Given my own concerns with some EIA assumptions and reports, I welcome the approach. Happy forecasting!

Diversification in renewable energy

Most individuals operating in the renewable energy sector are aware of the challenge of “intermittency” found in wind, solar, and other renewable sources - i.e. wind/solar electricity output is variable by nature and thus cannot serve as a guaranteed, baseload power source.

Below, I discuss some of the concerns that scientists have raised regarding PV solar intermittency specifically, and then cover new studies indicating the broad potential of wind power to mitigate these concerns.

One issue with distributed photovoltaic solar involves the “waste” of solar PV-generated electricity, which theoretically occurs if PV reaches large US penetration levels. According to two studies from Paul Denholm and Robert Margolis out of NREL (unfortunately only one is available publicly):

The intermittency of solar PV...presents a set of critical challenges with respect to integrating PV on a very large scale into the electricity grid. Ultimately, this intermittency may limit the potential contribution of PV to the electricity sector.

Once PV provides 10%-15% of the overall electricity portfolio of a traditionally structured grid, the inflexibility of the current baseload system ensures that any additional PV generation will mostly be wasted.

This is due to the nature of the current U.S. electricity grid system and the difficulty for PV solar to match volatile demand due to its intermittency. Large baseload plants are limited in how far and fast they can drop or boost capacity to match demand (due to various costs, efficiency and timing reasons) According to these studies, past a certain level of penetration (10%-15%) PV solar can only augment existing capacity, and not replace it. On moderate or low demand days, PV electricity would be wasted in order to avoid interfering with baseload plant operations.

The two researchers found that under high penetration levels and existing grid-operation procedures and rules, the [utility] system had excess PV generation during certain periods of the year that increased PV costs—that is, the PV electricity had to be dumped. The limited flexibility of baseload generators, which cannot respond to rapid changes in load, produces more unusable PV generation when PV provides more than approximately 10%-20% of a system’s energy. [source]

However, two wonderful posts at The Energy Blog pointed me to new studies that may challenge this conventional wisdom.

The first study, out of Stanford, makes the claim that connecting multiple wind farms with some amount of geographic diversity creates a large and diversified wind power resource with enough reliability to serve as a baseload power source.

Interconnecting wind farms with a transmission grid reduces the power swings caused by wind variability and makes a significant portion of it just as consistent a power source as a coal power plant. This study implies that, if interconnected wind is used on a large scale, a third or more of its energy can be used for reliable electric power….

…The researchers used hourly wind data, collected and quality-controlled by the National Weather Service, for the entire year of 2000 from the 19 sites. They found that an average of 33 percent and a maximum of 47 percent of yearly-averaged wind power from interconnected farms can be used as reliable baseload electric power. These percentages would hold true for any array of 10 or more wind farms, provided it met the minimum wind speed and turbine height criteria used in the study.

I’m reminded of both diversification theories in finance, and aspects of the Central Limit Theorem, in looking at these explanation. Is there a statistical theory involving variance in systems, and being able to mitigate that variance with diversification of inputs? If so, could one of my much smarter readers please fill me in?

The Stanford study also discusses the concept of interconnecting wind farms to a common point, which improves efficiency and cost. Essentially, this strategy recreates the centralized power generation and distribution model which comprises much of the current U.S. electricity system. Those seeking to rebuild American electricity grid infrastructure around distributed power models may be disappointed. But power generators, utilities, and the various government entities that oversee/collaborate with these groups, may be more comfortable with centralized energy concepts. Equating a portfolio of interconnected wind farms to a large 1GW coal plant (in terms of T&D issues, etc.) could improve understanding and acceptance in these circles.

However, I was even more fascinated by a recent study from the Cambridge-MIT Institute (again h/t The Energy Blog), which focused on the potential outcomes for strategic energy security from developing a diversified electricity production system. This highly readable study posited some insightful results:

• in order to explore the potential for geographic diversity, the study reviewed the correlation between wind speed and distance, and found that “sites far apart exhibit very low cross-correlation”. At 600km distance, correlation (r) was about 0.30, while at 800km, it dropped to 0.20.

• in exploring “the percentage of UK sites that have simultaneously experienced calm conditions for one hour” from 1982-2000, it found that “there has not been a single hour in the last 15-20 years when conditions of total calm were experienced right across the UK”. Meanwhile, calm conditions lasting one day, “affect less than 2% of the UK with the remaining 98% of the UK experiencing wind at these times.”

Thus:

By taking a planned approach to the development of wind power, the impact of distance on correlated output can be fully exploited within the UK, improving the reliability of wind power and minimising the additional backup capacity required due to the presence of wind power on the network. The additional backup required to support 20% electricity generation from wind is estimated at around 4GW.

However, perhaps most interesting to me was the attempt by the study to model the impact of various climate policy scenarios on electricity diversity.

Where no emissions target is imposed, there is a decline in diversity in all three scenarios. This decline is driven by an increase in the proportion of generation accounted for by natural gas. The implication of this fall in diversity is an increase in insecurity, as the electricity system becomes more exposed to one fuel source. By contrast, under an emission target of 60% there is a substantial increase in diversity under all three scenarios as the dominance of natural gas goes into decline.

These basic results prompt two observations. First, low carbon scenarios appear to be associated with higher diversity. Second, these results are largely driven by changes in the share of generation accounted for by gas.

Ensuring smart and strategic policy, and incentivizing markets appropriately can aid in the pursuit of energy independence and large levels of penetration for renewable energy.

Denholm and Margolis’ solutions for the PV solar penetration challenge include increasing the “flexibility” of the conventional system, meaning that base load plants can cycle down to lower levels, “dispatching” load more efficiently with smarter appliances or developing more effective energy storage system.

The Cambridge/MIT study suggests a “concentration charge” which could either “levy a surcharge on [energy supply companies] in proportion to the diversity index of their overall portfolio” or levy the charge “source by source to reflect the concentration of each source to the system.

So is the intermittency issue no longer a problem if you diversify your renewable energy “portfolio” across a geographically broad enough environment? Great news if so...

EIA 2008 Annual Energy Outlook

The unfortunate thing about the Energy Information Administration's (EIA) Annual Energy Outlooks is that reporters tend not to understand (or at least write about) the assumptions underlying these forecasts. Most articles I've seen on this topic over the past few years tend to highlight the very low levels of growth forecast in future renewable generation capacity. As the EIA is touted as "Official Energy Statistics from the US Government" I've always been troubled by this.

As in previous editions of the Annual Energy Outlook (AEO), the reference case assumes that current policies affecting the energy sector remain unchanged throughout the projection period. Some possible policy changes—notably, the adoption of policies to limit or reduce greenhouse gas emissions—could change the reference case projections significantly.

In addition, the EIA AEOs have been rather...well...volatile in their predictions for renewable energy, as demonstrated by the change in the predicted annual growth rate for non-hydro renewables going back over the past 9 years of the Annual Energy Outlooks.






Again, given the assumptions above, one would certainly expect forecasts for US energy generation and consumption to change considerably in some years with the expiration of old policies and implementation of new ones. Just not every year. Thus, I've don't find AEOs useful in a predictive sense, but more as interesting indicators of the current government perspective on energy.

With this in mind the new 2008 EIA Outlook (an early release is available here) carries a few important changes in its assumptions:

As noted in AEO2007, energy markets are changing in response to readily observable factors such as the higher energy prices experienced since about 2000, the greater influence of developing countries on worldwide energy requirements, recently enacted legislation and regulations in the United States, and changing public perceptions on issues related to the use of alternative fuels, emissions of air pollutants and greenhouse gases, and the acceptability of various energy technologies, among others.

The AEO2008 reference case makes several important changes from earlier AEOs to better reflect trends that are expected to persist in the economy and energy markets. Key energy market changes identified by EIA analysts and reflected in AEO2008 include:

Higher prices for crude oil and natural gas

Higher delivered energy prices, reflecting both higher wellhead and minemouth prices and higher costs to transport, distribute, and refine fuels per unit supplied

Slower projected growth in energy demand (particularly for natural gas but also for liquid fuels and coal)

Faster projected growth in the use of nonhydroelectric renewable energy

Higher domestic oil production, particularly in the near term

Slower projected growth in energy imports, both natural gas and liquid fuels

Slower projected growth in energy-related emissions of carbon dioxide (CO2), which increase by 25 percent in the AEO2008 reference case from 2006 to 2030, as compared with a projected 35-percent increase over the same period in the AEO2007 reference case.

Most of the headlines on this year's report went to the considerable increase in projected oil pricing - as the EIA upped its 2010 oil price forecast by 13% and its 2030 price by 18%. But I did want to point out the stunningly large (relative) predictions for renewable energy capacity:

Excluding hydroelectric power, renewable energy consumption grows from 3.4 quadrillion Btu in 2006 to 6.7 quadrillion Btu in 2030, compared with 5.5 quadrillion Btu in 2030 in the AEO2007 reference case.

As shown above, excluding hydro, renewable energy generation (using kilowatthours instead of Btu) is now projected to grow at 5.5% annually through 2030. Compare this to last year's growth rate in renewable generation of 3.3% through 2030 and 2001's 0.70%. A significant change indeed.

Solar news and notes

I've been tracking the PV solar sector for a while, and have a report coming out on it sometime in the near future (the date keeps getting pushed back). After decades of false promises and missed opportunities, we are definitely witnessing a re-emergence of distributed solar technology, with astounding growth rates in demand and production capacity, innovative R&D, billions in capital investment, sizable annual cost reductions, and a changed political landscape.

I find it interesting that until this year, much of this progress appeared to be occurring under the radar. Now of course, you can't stop reading about solar (too many articles to link), or how to make money investing in it and the inevitable backlash has already begun.

"Why" this is happening is a complicated tale. Too much for this post. The recent McKinsey report had some very interesting things to say on the potential future for PV solar:

By 2030 the US could have somewhere between 28 gigawatts (low-range case) and 148 gigawatts (high-range case) of solar PV capacity [ed. note: this is actual capacity, not peak] depending largely on the degree of cost compression and learning rates achieved from production and installation. Solar PV could achieve growth akin to that of the semiconductor industry, if conditions are favorable.

And ultimately how does that happen according to McK? Grid parity - ie solar cost per watt being equivalent to traditional gas and coal generating sources without subsidies. I'll be writing a lot more on this, but for now, I just wanted to highlight some recent stories I've come across, which highlight some of the key themes in the solar space: policy, investment, and market economics.

• Solar Showdown in Congress: Green Wombat highlights something I'd discussed a few days ago, the fear that vital renewable energy tax credits won't be extended by Congress. This would severely damage the near-term prospects for solar - both on the large utility-scale segment, and in the residential market. Long-term extensions of these incentives would help to create stability in investment and manufacturing, moving away from the damaging volatility of past years. Everyone expects the subsidies to end at some point in the future, but their presence is vital now while the solar industry builds capacity, improves technology and reduces costs. On average, manufacturing costs come down 20% for each doubling of capacity. As highlighted above, eventually you reach the important level of grid parity. This article is a week(ish) old, so extension of these credits has been included in the House energy bill. But it is uncertain if they will remain in the final version of the bill sent to the President (if one gets sent at all).

• First Solar Buys Ted Turner's Green Energy Company: One issue I highlight in my to-be published report is the value and importance of marketplace consolidation horizontally and vertical integration up and down the supply chain. This is an example of the latter. It will be interesting to watch if the pace of this activity increases. Also, Ted Turner exited this investment after 10 months. I wonder if it was the return multiple or the industry itself.
  

• Chinese Solar May Trade Margins for Market Share: Two years ago, analysts and experts began forecasting that silicon pricing would return to normal in a few years. Recently, the timeline for this "decrease in price" continues to get extended. Over the past year, I've seen it move from 2007 to 2008 to 2009, and now some say silicon prices won't drop until 2010. Too much demand, too little supply, coupled with poor policy and manufacturing planning decisions. As this article states, nothing has changed to date with silicon prices and they continue to stay high. Those solar panel manufacturers best positioned are the ones signing long-term contracts. More importantly, you can expect consolidation among those companies least able to weather the shrinking margins. More on the silicon shortage here.
  

• German Subsidies Could Decline 9% in 2009: The boom in German solar interest caught everyone by surprise (manufacturers, politicians, investors, etc.). But I sometimes wonder what people expected, after giving feed-in tariffs for solar that were 55 eurocents per kilowatt hour generated - this was ten times the level of other renewable subsidies. The German proposal still needs to be voted into law, but given past statements from environmental ministers and politicians, I expect this to occur. Meanwhile, California is now contemplating a feed-in tariff. Feed-in tariffs concern me somewhat - they are wonderful at spurring demand, but can cause severe market disruptions, if they push demand too high too quickly. Germany is a prime example of this phenomenon.
  

• 2008 Cleantech Predictions: Solar. Interesting predictions from a solar VC: I think he's too aggressive in his forecast for the alleviation of the poly-silicon supply crunch (he says late 2008, I see this going well into 2009...excluding the possibility of a global recession of course). Completely agree and welcome his prediction that entrepreneurs will move outside cell and module production into various downstream aspects of distribution, installation, financing, etc. Squeezing costs out of distribution and installation could drop overall solar costs 20% and more. Compare Japanese costs to California for evidence. (about $6/watt versus $9/watt, with most of the difference coming on the distribution and installation side). Also, I understand his interest in focusing on China and India, but as the solar sector grew 500% in Spain in 2006, and Italy and Greece are making a lot of noise, I wouldn't stray too far from Europe (or the U.S.) next year.

UPDATE: One other article I forgot to add which I thought tied together several of the themes from above:

Solar Installers: Cutting Costs to Compete: As per the CEO of SunPower - 50% of the cost of solar is in its installation. This sounds high, but I'm not the CEO of a large solar power installer. So go with him on this one. Couple good insights from the panelists this article references, especially that solar installation on the residential level is just like any other consumer product: a lot of it comes down to trust and marketing.