2005 Recap

Ah, the usual pundit’s retrospective at the end of the year. Here’s my take on the top 10 most significant developments in 2005 for the cleantech industry, in the usual descending Letterman format:

10. The Energy Policy Act. Sure, it’s a dog’s breakfast of incoherent and often contradicting provisions. And, it’s the most painfully arduous and boring reading imaginable. Wikipedia Summary of EPAct. But, the EPAct will ultimately have numerous important ramifications on the cleantech sector. Biofuels mandates, extensions of the renewables PTC, accelerated tax depreciation, and gobs of grant pork. It will take years to sort it all out and see the effects trickle out into the market, but the aggregate impact will be significant. Unfortunately, not as significantly helpful as a well-thought-out energy policy would be, but alas.

9. Utility CEOs “getting” climate change. The CEOs of Duke Energy (Paul Anderson) and Cinergy (Jim Rogers) made news earlier this year when they took public stands in support of a clear government policy to address the growing concern of global climate change. (These two CEOs also made news by agreeing to merge their respective companies. Coincidence?) Clearly, most of the rest of the utility industry is scared to death of the climate change issue, as they are amongst the biggest contributors of greenhouse gas emissions. However, the fact that two prominent CEOs broke ranks suggests that the tide may be turning, albeit sooooooo slowly. Board resolutions on climate change by serious institutional investors are also helpfully putting pressure on the issue. Once a majority of utilities embrace the need to do something about climate change, something material will finally happen in the U.S. on this critical front.

8. The “Peak Oil” debate. An increasing number of observers are projecting that the peak of Saudi oil production (and hence the peak of conventional oil production) will occur in a rapidly approaching timeframe — by some estimates, within the next 10 years. Perhaps the most eloquent and credible of these observers is the oil/gas investment banker (and adviser to the Bush Administration) Matt Simmons, whose 2005 book Twilight in the Desert has received considerable notice. Twilight in the Desert. Personally, I believe the so-called “peak oil” debate is framed incorrectly in some important aspects, but its key point — that oil production as we now know it has a finite remaining duration — holds a lot of validity. And, the troubling implications of this conclusion have captured the imagination (fears, actually) of many influential people, with significant incipient benefit to those of us in the cleantech community.

7. $60 oil, $3 gasoline, $10 natural gas. High energy prices piss people off — and get them to take notice. “How can I cut my energy bills?” “What can I do to reduce my driving?” “Should I buy a hybrid?” The pocketbook can drive powerful changes in behavior, which should in the long-run have major environmental benefit. High energy prices also make economic room for new clean technologies, as well as provide impetus for further R&D and proactive public policy. For these reasons, let’s hope these high energy prices stay with us.

6. Katrina (and Rita). Hurricanes have been happening for millenia. Only now, it seems like there are more of them, and stronger ones. Hmmmm, could it have anything to do with climate change? Not provable, but worth considering — and many people are now beginning to connect the dots. Katrina was a truly dark tragedy for the U.S. on many levels, but perhaps something good can come from it if mass public thinking about environmental matters has been shaped positively.

5. Wal-Mart goes green. Everyone’s favorite whipping boy, Wal-Mart made a splash in October by declaring serious environmental commitments: 100% supplied by renewable energy, zero environmental waste, all products environmentally sustainable. These lofty goals come from a major policy statement on Wal-Mart’s future in the 21st Century by CEO Lee Scott. Wal-Mart’s 21st Century Leadership Speech. Being the commercial behemoth that it is, when Wal-Mart throws its weight around, the rest of the economy listens. If Wal-Mart is sincere about these environmental goals, and can light a fire under its entire supply chain to drive them to help Wal-Mart meet its goals, big things are afoot.

4. GE’s Ecomagination initiative. In the summer, GE’s CEO Jeff Immelt announced that products/services addressing environmental concerns would become a major platform and organizing theme for the company’s growth.Jeff Immelt on Ecomagination. This is a seismic shift from a company with unparalleled respect in and impact on the global industrial marketplace. GE probably figured that, if it can make a killing in the wind turbine market, there are lots of other opportunities to be found in cleantech. Good for them. Make it happen. If anyone can, GE can.

3. BP doubles down on renewables. As noted recently, BP is increasing its commitment to renewables by pledging to invest nearly $2 billion in the coming years on a variety of wind, solar and hydrogen initiatives. BP will form a new business unit called BP Alternative Energy to hold these initiatives, making more true the company’s tagline “Beyond Petroleum”. BP Alternative Energy Announcement.

2. Kyoto Protocol implementation. True, the U.S. stayed out of the Kyoto treaty. Nevertheless, Kyoto did go into effect early in 2005, and the signatories around the world are now “officially” (whatever that means) bound to its provisions. Accordingly, a robust carbon trading market is now beginning to emerge, especially in Europe. As carbon trading takes off, it will spur entrepreneurial developers to accelerate adoption of clean technologies for cost-effectively capturing trading value, while reducing carbon emissions. Somehow, some way, someday, the U.S. will get into the game too.

…and finally, the most important thing to happen to the cleantech sector in 2005…

1. The launching of Cleantechblog. Surely, this new forum for discussion will rapidly revolutionize the energy and environmental sectors! Kidding aside, congratulations and thanks to Neal Dikeman for his vision and leadership in launching this site this past summer. I appreciate the opportunity to contribute.

All in all, not a bad year for cleantech, but not good enough for my tastes. We still don’t have a sane energy policy that discourages pollution and promotes cost-effective efficiency and clean supply options, by eliminating egregious subsidies and protective barriers on mature segments of the energy sector and instead structuring market rules with appropriate pricing signals that reflect competitive forces while internalizing the economic costs of emissions and security risks associated with fossil fuel use. We still have enormous apathy by the American public on energy and environmental matters, and opposition by most consumers and many of the major energy companies towards anything but a “cheap energy” strategy — emissions be damned. We still don’t have enough private investment capital flowing to the sector — in part because we still haven’t had a big success story in cleantech like Microsoft or Dell.

While we’re moving in the right direction, let’s hope for better in 2006. Happy holidays everyone.

Chinese Solar Company Headed to the NYSE

Catching in on two booms – the boom in Chinese firms headed to the US stock exchanges, and the boom in solar IPOs, Suntech Power, has filed to list on Nasdaq.

They are raising $300 mm in ADRs, and reporting revenues of the last 9 months of $137 mm 13% profit. That puts them in the top 10 in solar production worldwide.

SEC filings

A couple of interesting comments:

  • It’s mostly export business, with Chinese solar sales maybe a fifth of total. So while the Chinese domestic solar business is growing, and solar is a part of the future power mix China is trying to build, the market there is still extremely small.
  • The firm is less than 5 years old, and has grown extremely rapidly. I have been espousing the danger the US and European solar manufacturers are facing from the major Japanese competitors for some time. Now it looks like we have to add Chinese manufacturers to the list.
  • The company was profitable at c. 25 MW/year of annual capacity. That is a lower volume breakeven than most the US firms have been able to achieve.

The long and the short of it is Suntech looks like a company to keep an eye on whether you are an investor looking to get in on the IPO, or a competitor trying to watch the fast changing market dynamics.

Has Broadband over Power Lines Finally Made it?

TXU just announced that it is spending $150 mm over 10 years to roll-out power line carriage or BPL (broadband over power lines) – delivery of broadband internet access of powerlines. TXU Article. This a major win for cleantech investors, and could add a new player to the crowded world of highspeed internet access.
The technology behind this roll-out is provided by privately held Current Communications, www.currentgroup.com, backed by investors including Cinergy, EnerTech Capital, Goldman Sachs, Google, The Hearst Corporation, and Liberty Associated Partners.
The idea of delivering broadband access over power lines has been around for years. It has generally been one of those technologies that has “lots of potential, and always will have lots of potential.” Code for never going to actually make it.
The big knocks technically on BPL are these:
  • Getting quality over the powerlines tends to be a trickier problem than at first blush, so delivering the higher level speeds (and voice over IP) can be problematic.
  • The electric transmission “pipe” delivers into the last mile, we have power lines going to every home, but the technology typically requires “routers” of a sort, to get around things like transformers. In case you missed it, the US has A LOT of transformers. And there are typically lots of those things right before the our houses, so the last mile becomes costlier than expected.

That being said, these are engineering challenges that companies like Current have been working hard to solve.

But perhaps the real challenge is that the window for powerline carriage is shrinking. The big advantage is obvious, if you can make it work well, BPL allows electric utilities to deliver data and communications services over a massive already in place infrastructure, possibly substantially reducing costs. However as cable, DSL, satellite and wireless broadband make bigger and bigger inroads, reduce costs, and gain market share, the window for BPL to make its mark will get smaller and smaller. If BPL is to become a major player in the broadband world, it needs to get some big wins on the board.

Personally, I would love to see BPL roll out and put more pressure on telecom providers. So keep your fingers crossed.

Kyoto, Carbon Credits, and a Big Market for Cleantech

I have just returned from a trip to London to evaluate some business opportunities in carbon trading stemming from the commencement of the Kyoto protocol. I was surprised by the level and intensity of interest in this market.

A few relevant trends I noticed:

  • Significant interest by investors in carbon and emissions trading. Including numerous private equity style investment funds being raised to trade carbon credits and develop carbon offset projects.
  • Deep government support for technology, trading mechanisms, and public awareness. For more information, check out www.thecarbontrust.co.uk, the site for a government funded independent organization focused on reducing the UK’s carbon footprint.
  • A broad-based industry interest in clean technology, far surpassing what we see in the US. This trend is illustrated not the least by massive advertising campaigns from industry and government about the need for cleaner fuels, lower emissions, and more environmental and sustainable awareness. One of the most notable ad campaigns, which Americans will also be aware of, is British Petroleum.
  • And perhaps of real concern for us in America, a broad distrust of the US government and the Bush adminisitration, especially its motivations when it comes to the environment.

Energy Executive Survey Findings

The consulting firm Capgemini recently polled 125 senior energy executives on a variety of topics concerning the future of the energy industry.

Capgemini Energy Executive Survey Press Release

Among the interesting questions and responses in the poll were:

1. “What is the technology that has the greatest potential to transform the energy industry by 2015?” 41% responded with clean coal technology, 27% said advanced meter reading, 25% said fuel cells.

2. “What will be the price of oil ($/barrel) in 2010?” Fully 80% thought that oil prices would remain higher than $40, with 34% predicting prices above $70, and 9% expecting prices over $100.

3. “What is the best way that an energy company can demonstrate industry leadership?” 33% suggested customer care, 24% said environmental record, 22% said safety, and only 21% responded commercial success.

4. “What is the top threat to the growth of the energy industry?” 51% responded with government regulations, 27% were most concerned with an aging workforce, 16% were concerned about consumer backlash to rising energy prices, and only 6% raised terrorism as the greatest threat.

Of course, these results don’t really mean anything, because they just represent opinions about how the future will play out, and energy industry executives have historically shown no special aptitude for making accurate predictions on the future of their own industry. But, it is interesting to get an insight on the current collective state of mind of the leaders of the companies that arguably have the biggest impact on the environment.

Auto Efficiency: A Huge Opportunity

Last Tuesday night, I had the pleasure of attending the holiday party and opening celebration for the Boulder office of the Rocky Mountain Institute.

Rocky Mountain Institute Web Site

For those who may not be familiar, RMI was founded by Dr. Amory Lovins, one of the few people in the energy arena who truly deserves the label “legend” and “guru”. At the party, Amory treated us to an extemporaneous 20 minute talk focused on RMI’s latest research project, funded in part by the U.S. Department of Defense, entitled “Winning the Oil Endgame”.

In a nutshell, “Winning” outlines a multi-decade strategy to wean the U.S. off of oil entirely — clearly, a laudable goal. The main elements of the “Winning” story are reasonably simple. The U.S. can cut its oil consumption by half through increased efficiency, and supply the other half with alternative fuels (biofuels, natural gas, ultimately hydrogen). The second part of the story is very interesting to examine in its own right, but it is the first part of this story that intrigued me: cutting oil consumption in half. Is this really possible?

Through compelling statistics, analysis and logic, Amory convincingly argued that, yes, such reductions in oil consumption are really possible. He noted the enormous energy penalty imposed by our vehicles’ weight: only about 5% of a car’s loaded weight is associated with the human cargo, and only about 12% of fuel burned to move the car’s loaded weight is transferred to the wheels, meaning that less than 1% of automotive energy consumption is truly useful in transporting the human being. Yes, that’s right, less than 1% of the energy content of all oil consumption produces the result that is desired. This is the best that a mature auto industry can do, even with untold billions of dollars of R&D investment over the past hundred years?

Therefore, the big lever on auto efficiency is to reduce the weight of cars. Of course, a behavioral switch away from SUV’s to lighter cars would be an easy start. But RMI doesn’t assume this as a requirement for their analysis. Rather, RMI claims that the technologies to cut any car’s weight (without downsizing) in 1/2 or more are available today. Of these technologies, the most important is the use of incredibly light yet incredibly strong composites in lieu of steel. Low-weight auto designs incorporating composites, if done in an integrated manner, can also reduce auto manufacturing costs dramatically. Detroit ought to be paying attention. I’m guessing the Japanese are.

This nugget is just one of dozens (hundreds?) of really interesting and provocative observations in “Winning”. Obviously, anything past a few years looking ahead in the energy and transportation sectors involves some major speculations. In the uncertain and volatile future that faces us, maybe not all of the projections and possibilities offered in “Winning” will ultimately be borne out, but I strongly suspect that many are very legitimate. The sponsorship of USDOD, combined with forewards written by George Schulz (ex-Sec’y of State under Reagan) and Sir Mark Moody-Stuart (ex-Chairman of Royal Dutch/Shell), give credence to the contents of “Winning”. It is not the work of a naive utopian, but rather deserves serious consideration by sober policy-makers, businesspeople, and citizens. Get the book.

Winning the Oil Endgame

In Praise of BP

In contrast to ExxonMobil (whom I’ve ripped in a previous post), BP recently announced a significant increase in commitment — meaning, capital investment — in alternative energy.

BP Press Release

In forming the new business unit BP Alternative Energy, BP CEO Lord Browne also indicated an expected $1.8 billion of investment over the next 3 years, spread across solar, wind, hydrogen and gas-fired power generation. This is not a trivial move on BP’s part, and further separates them from the rest of the energy incumbents.

Clearly, a firm such as BP is able to afford such a strategy because of the enormous profits that it is generating in a $60/bbl and $10/mcf world. But, then again, ExxonMobil, Chevron, ConocoPhillips and others are also making huge profits, without the same degree of interest and involvement in alternative energy. Let’s tip our hat to BP, and apply some peer pressure to the others.

And, while we’re at it, we’d like to see an electric utility take more decisive and significant action to boost alternative energy. In the past few years, utilities have rushed like lemmings back to the core businesses and abandoned any novel business growth idea. Perhaps this is supportable short-term thinking to shore up balance sheets in the face of Wall Street pressure, but utilities run the risk of abdicating their long-term future to players like BP who see an opportunity and aren’t afraid to stake out favorable positions.

As Lord Browne stated in a speech reinforcing the formation of BP Alternative Energy, its strategy is “focused on the power sector, and that is deliberate.” Sounds like a shot across the bow to me.

Lord Browne Speech