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The Global Race for Sustainable Energy - The U.S Needs to Get Back on Track

By Sandip Sen, Managing Director & Global Head of Alternative Energy at Citigroup

There is a global race for sustainable energy development underway and it would appear that the U.S. is satisfied being a mere spectator. Driven by global concerns about climate change and the universal objective of energy security, global policy-making is expected to continue to encourage investment in the renewable energy industry. A generational change is afoot and it is critical that the U.S. stay in the race.

More than 96 countries have national policy targets or comprehensive energy plans. In addition to being a planning tool, these plans incentivize renewable energy development. This list includes economic powers such as Germany and Japan as well as developing nations like Moldova and Tanzania. Astonishingly, The United States is absent from this list.

China continues to hit milestones and via its Five-Year Plans, is seemingly challenging itself and the rest of the world by setting ambitious long-term targets. The most recent Five-Year Plan sets an unofficial target of 150 - 200 GW of renewable generation capacity by 2020. In comparison, the U.S. has yet to adopt a comprehensive energy policy. Helpful mechanisms like the production tax credits have been allowed to expire; the cash grant will expire at the end of this year; and the logjam in congress has all but eliminated any chance of a federal energy policy initiative in the near term. In the global context, this situation is embarrassing and unacceptable. The U.S. cannot just stand by and watch the parade go by. The U.S. must get back in the race and it must craft a plan to be a leader. The world expects this. In this regard, the country's elected officials must adopt, as an immediate priority, the establishment of a comprehensive energy plan.

The plan should incentivize the deployment of renewables via supportive and consistent policies. It should also promote technological innovation via grants and/or guarantees. The plan should also seek to level the playing field for both fossil-based industries and alternative energy providers. For renewables to ultimately constitute a meaningful percentage of the power generation mix, they need to be cost competitive with existing generation technologies. This parity is only achievable if renewable energy technologies are manufactured and deployed in scale. This requires investment from both the private sector and the public sector.

Before surrendering to the recent criticisms of federal incentives for developing renewable energy - like the DOE's loan guarantee program - it is essential to examine the facts. The goal of the loan guarantee program is to enable the commercialization of new technology. Like any investment in something new and unproven, there exists the risk of failure. The loan to Solyndra, which has received much publicity, represents just 2.0% of the total loans issued under the DOE loan guarantee program. While a post-mortem of the Solyndra situation is arguably warranted, it is equally important to acknowledge the benefits that the program has bestowed on other companies and projects. The federal support has resulted in much-needed job creation and it has enabled the start of commercialization of many new technologies. The effectiveness of the loan guarantee program should be judged by the performance of the entire portfolio and not the success or failure of one individual investment. If the U.S. is serious about developing long-term sustainable energy sources - and it cannot afford to not be serious - it should be accelerating support for these types of programs instead of dismantling them.

As it has throughout the course of history - on all important matters -  the U.S. must show leadership in this critical area. It must lead by example and it must work to ensure a sustainable energy future. If policy-makers continues to avoid their duty of formulating a long-term energy plan, the U.S. will find itself in a race we cannot win.

*The views expressed in this piece are those of Sandip Sen, not those of Citi.

Sandip Sen is the Global Head of Citi's Alternative Energy Group.

Private Sector Investment in Renewable Energy -- a Good Business Decision?

Investments in renewable energy have received a great deal of attention in the last several months.  Between the media and political interest surrounding the Solyndra bankruptcy and the degree of support given to clean technologies by China's 12th Five Year Plan, investors in cleantech seem to be facing either a nuclear winter of uncertain duration or a pleasant spring in the East. 

Winter is often a good time for reflection and for building renewed energy for the upcoming spring. It is a time to contemplate the advice of Warren Buffet: "Be bold when others are fearful and fearful when others are bold." In that regard, now is a terrific time to be sitting on a pile of unused cash, as bargains are to be had and good times do lie ahead.

Those of us who invest in cleantech were originally motivated by one or more of the following: (i) concerns about climate change; (ii) concerns over secure access to energy resources; (iii) concerns about ongoing industrialization and GDP growth and that growth's impact on finite resources; and (iv) the natural need and desire to modernize the technologies involved in bringing us energy, water and valuable materials.

World events in the recent past have brought continuous support for every one of those motivations.  Between the oil disaster in the Gulf; the tsunami and nuclear disaster in Japan; the unrest in northern Africa; and the limitations on nuclear usage in Germany, Switzerland, Italy and Japan world events have borne out the validity of the concerns driving the cleantech agenda. Hedge fund investor Jeremy Grantham published a report outlining a fundamental paradigm shift in the availability and cost of critical resources and ever-mounting evidence of climate change. In fact, absent one major reality, cleantech investors could not have hoped for a better global climate for their companies.

Unfortunately, that one other reality is a big one: ongoing economic woes in the U.S. and Europe. The result was as if at least the G8 countries collectively said: "We'll get back to you about energy, water and materials, just as soon as we figure out a way to save ourselves out of our collective budget crises." 

The result has been a very significant cutback in government support for solar, wind and other forms of renewable energy both in Europe and in the U.S. These cutbacks came at almost the same time as China dramatically increased its lending for factories to build solar, wind and other renewables. This, in turn, resulted in dramatic price drops in solar panels and in the stock prices of almost all renewable energy generating businesses. So, while the first half of 2011 certainly looked hopeful with a number of successful renewable energy IPOs, the second half has more than given back those gains and introduced a decidedly nuclear-winter-like investment outlook, at least in the United States.

Those of us who make a living investing in the innovation economy have been here before. Investments in biotechnology took an almost five-year tailspin in the early 1990s (leading a number of investment entities to walk away from the sector), before turning the corner into a continuing 15-year upward trend. Similarly, investors caught up in the late 90s boom of internet and data communications stocks were handed their lunches in 2001 and 2002, only to see those sectors rebound continuously to the point where we are wondering if the lessons of the 2001 crash were really learned at all, at least with regard to some internet stocks. Even renewable energy has its prior periods of boom, bust and revival, look at the wind sector in the late 1980s, its downturn in the 1990s (leading to bankruptcies and massive consolidation) and its return to health post 2000.

In 2000, less than 1% of innovation finance went into energy, water, and materials-related investments. Today, more than 15% of venture capital goes into cleantech startups, and more than $40 billion of private venture capital has been invested in cleantech since 2002. The total dollars invested per year dipped after the 2008 financial crisis, but the cleantech deal count has climbed every year since 2002. As with prior new investment sectors, one can legitimately ask: has this been too much money too soon?

This - too much money too soon question - is one we ask at about this stage of virtually every wave of technological innovation. I, for one, see it differently: without an outpouring of creativity, entrepreneurial zeal and capital, little happens anywhere. Just because the early returns aren't good, doesn't mean that many of those early failures weren't a critical part of getting to real success, and that real success will ultimately more than compensate for the early failures (the rewards may, however, land in disparate hands). The collective degree of innovation that has taken place can no longer be reversed. Even though some now want to declare cleantech investing a failure, many of its inventions are beginning to take hold, from rooftop solar, to electric vehicles, to LED lighting, to the smart grid, to industrial biotechnology. Some, if not many, of cleantech's pioneering companies will one day be as much household words as Apple, Microsoft, Cisco, Google and Facebook.

It is important to recognize that cleantech is a long-term investment theme that is still in its teen (if not infant) years and is likely to play out in successive waves over the next 30-50 years. Any look at cleantech today should be juxtaposed against information technology in 1985 or biotechnology in 1990, a mere ten years into active venture financing of those respective technologies, and prior to their most active "investment heydays".

A straight index of all cleantech investments, if measured in aggregate today at the 10-year mark, would likely not have produced attractive returns to date. However, the majority of private venture capital investment in cleantech has taken place during just the last five years. There is also a wide range of experience and expertise among those who have made private cleantech investments to date. In some cases early investors have assessed technology poorly or have under-estimated capital intensity and scaling timelines; these investors have traded near-term returns for learning experiences.

Using a baseball analogy, for private cleantech investment thus far, there have been some hits, some strikeouts, and some runs scored, but it is far too early to "call the game." For the most part, we still don't even know what a real home run in cleantech looks like. We are still fairly early in the process of growing the first set of major global cleantech powerhouses, which serve some of the biggest industries on the planet. We have seen the birth and growth of some very meaningful companies in the wind, solar, and biofuels sectors, and yet these companies have by no means reached the zenith of their growth potential.

One need only look to the biofuels and renewable chemicals space to see the danger of "calling the game" too soon in cleantech markets. Just a few years ago, biofuels were seen by many as a failed sector within cleantech - a black hole of sunk cost that was unlikely to generate interesting returns. But leading chemical producers and other industrial product companies have become increasingly focused on their need to find renewable substitutes in order to avoid the price volatility of petrochemical inputs, driving significant interest in renewable chemical companies. The future for biofuels is also growing brighter and brighter, with policy shifts in both the United States and Europe putting in place greater support for renewable fuels (in addition to the support of regions like Brazil). We have seen a recent crop of successful public exit activity in both renewable chemicals and fuels - e.g. Amyris, Codexis, Gevo, Kior, Solazyme. These companies are still growing and for those investors who had the fortitude to keep investing past the supposed death of cellulosic fuels should find their way to attractive outcomes.

The last decade saw a period of increasing bullishness about all sorts of investment in cleantech, and recent events justify that a greater sense of fearfulness might have been wise. Equally true, however, is that history teaches us that now is the time when the masses are highly fearful and the last ten years of investing are beginning to mature, when the bold can make their fortunes by picking up bargains being left behind by the suddenly fearful masses. One can only hope that it is more than China's ruling elite that sees this reality and seizes upon it, for they surely have already signaled that move.

Stephan Dolezalek is a Managing Director and CleanTech Group Leader at VantagePoint Capital Partners. He has led VantagePoint's CleanTech investment group since its inception in 2002. VantagePoint manages more than $4 billion, with more than $1 billion dedicated to energy innovation and efficiency.

 

Freedom is an Electric Car

Sarah A. W. Fitts, Co-Chair, Energy and Natural Resources Practice Group, Debevoise & Plimpton LLP 

What if you had the solution for the United States' dependence on imported oil parked in your garage? Elected officials and wanna-be-elected presidential candidates lament the dependence on imported oil, the price of gasoline and the alleged costs of subsidizing the clean tech industries, but the solutions they propose remain mid-twentieth century: more oil drilling, maintaining subsidies and other benefits for oil and gas producers, pipelines across irreplaceable farmland and aquifers, and rolling back environmental regulations that protect health and safety to reduce costs. Meanwhile, programs to promote the twenty-first century solutions, such as the electric car and other advanced technology vehicles, have been targeted for dramatic cuts in the latest round of budget fights.

The facts are straight-forward and compelling, and if they were better understood, the push for wide-spread development and adoption of the electric car and other alternate fuel vehicles would be bi-partisan and not controversial. The simple logic is this: the United States spends billions of dollars per month buying oil, much of it from regimes we do not consider to be our friends. Roughly two-thirds of the oil used in the United States is used in transportation. Almost no electricity in the United States is generated from oil. Therefore, by shifting transportation from gasoline to electric power we can give up oil without giving up our cars. That is why organizations like Securing America's Future Energy and its affiliate the Electrification Coalition, an organization supported and led by serious U.S. multinationals such as FedEx, are championing the electric car. It may be the simplest and most cost effective way to reduce our dependence on imported oil.

The global competition to develop the best batteries and electric car technologies is off and running. China, Korea, Japan and others are all making significant investments in developing the technology and manufacturing capacity. The United States, through the Department of Energy's Advanced Technology Vehicle Manufacturing Incentive Program has made loans to companies like Ford, Fisker, Tesla and Nissan to increase battery and advanced technology vehicle component manufacturing in the United States. Vehicle manufacturing in the United States is not just about creating jobs. It is about nurturing and growing an entire industry that starts with intellectual property, including patents, know how, skills and includes the supply chain necessary to carry out the rapid innovation in this field. If next generation transportation is not developed here, it will surely be developed elsewhere, probably with assistance from other governments that want to build an industrial backbone, as we continue to allow ours to atrophy.

The electric car is not pie in the sky. The electric car is real and you could buy one. The Chevy Volt is already available in dealerships near you. Other cars are on their way. Some are new American car companies: Tesla or Fisker. Others are names you already know: Ford and Nissan, for example. These are large companies that are making a significant bet on technology.

The electric car has some attractive advantages in its own right. First, we already have a fuel distribution system -- every garage with an electric outlet could become a "filling station" every time a car is plugged in. Electric vehicles have limited or no tail pipe emissions, which could have significant positive benefits in congested areas. (The total air quality improvements, including green house gasses, will, obviously depend on what fuels are used to generate electricity, which is a separate but worthwhile discussion.) Finally, the cost of operating an electric car may be much cheaper than buying gasoline. FedEx's Gina Adams, in a keynote address at the RETECH 2011 conference in Washington DC in September, reported that FedEx operates vehicles in its electric fleet at the equivalent of 50¢ per gallon. If the front-end price can be reduced, the lifetime cost of car ownership could drop meaningfully.

The electric car has its skeptics, and appropriately so. The models currently available have range limitations and cannot be charged fast enough to suit the needs of some drivers. In many parts of the country, the electric grid is decades old and some worry that it is not capable of serving the increased usage demands of electric cars. Electric cars remain expensive, relative to other cars, and reliability and maintenance are untested. And some people simply have a hard time imagining a car not run on gasoline. These are challenges that the car manufacturers and electric utilities will need to address to sell their products.

The twenty-first century car is electric. If the U.S. wants energy independence and doesn't want to cede its role as technology leader of the future, the rapid development and deployment of the electric car, and other alternate fuel vehicles, should be a national priority. As President Obama and Department of Energy's Secretary Chu have said "This is Our Generation's Sputnik Moment". The administration's push for wider investment in and adoption of energy efficient "green" technologies, including the electric car, should be a bipartisan effort. Contact your representatives and let them know that you want America to be energy independent, that you want to drive the car of the future and that you want that car to be developed and made in America. It would be a sad day for the United States if the only way to reduce our dangerous and expensive dependence on imported oil, is to replace it with a possibly dangerous and equally expensive dependence on imported batteries and electric drive components.

Sarah A. W. Fitts co-chairs the Energy and Natural Resources Practice Group at the law firm Debevoise & Plimpton LLP. The views she expresses are her own. She is based in New York City.

Take Leadership Where You Can Find It

By Mark Mizrahi, President and CEO, Enlink Geoenergy Services

The prospects for a comprehensive national energy policy that shifts the U.S. dramatically toward renewables seem to shrink with each day that we get closer to the 2012 elections. Amity and collegiality are not renewable resources in Washington, D.C., and right now there simply isn't enough of either to permit Congress to deal with anything as complex as energy.


As the CEO of a company that has built more than 100 geothermal heat pump systems in states from the Pacific to the Atlantic, the lack of a coherent energy policy at the federal level would be depressing if we weren't so busy keeping abreast with all the progress being made at the state and local level. While the feds talk endlessly about doing something someday, states, counties, cities and utilities are making things happen now. Today there are more than 30 states with a renewable portfolio standard (RPS) of one sort or another. Five states have voluntary programs, but more than 25 states have requirements that range from Maine's 40 percent to Pennsylvania's 8 percent. Just two months ago, California's increased its 20 percent RPS to 33 percent. It took nearly two years to get the law passed and signed by the governor, but it is now law for the country's biggest state. The state has set a 2030 deadline for meeting the new goal. Cities have also been a great source of leadership when it comes to going green. Dozens of cities, large and small, have adopted green building codes or energy efficiency requirements. Cities like Los Angeles, New York, Boston, Austin, Chicago, Seattle, Oak Park Illinois, and Atlanta just to name a few, have adopted some kind of green building programs.


One good example of local action is the City of Phoenix, which recently adopted its own "green building" code. According to The Arizona Republic, the program will award points for environmentally friendly features and will award bronze, silver, gold or emerald status based on how many points are accumulated. The voluntary code requires a minimum of two percent on-site generated renewable energy, and encourages the use of highly-efficient technologies, such as geothermal heat pump heating and air conditioning systems. California was the first state in the nation to develop a "green-building" code, which went into effect on January 1, 2011. In the meantime, Oregon and New Mexico have also adopted green building codes, as have local governments around the country. While these codes don't necessarily require renewable energy, they are indicative of a need and a desire to build green.


I'm hopeful that these state and local efforts will continue, and even broaden over the coming months, but there are troubling signs this may not be the case because of political interference, the way we've observed it at the federal level. In New Mexico, for instance, there are efforts to overturn the green building code that was implemented just last year after several years of work. We have seen ballot initiatives trying to strike down renewable standards and emission reduction standards in different states. This is a time to pour on the green, not cut it back. The green sector of our economy is one of the few bright spots during these days of depressing economic numbers. We should build more effective energy efficiency programs, continue our support of renewables, and implement those measures which will benefit the country's economy, environment and global competitive position.


Faced with what amounts to a national energy crisis, we need leaders to step up with the vision and sense of purpose that will get the entire country moving in the same direction on energy policy in general, and renewables, in particular. If the country isn't moving forward, it's moving backward; there is no standing still. And as positive as all the state and local work is, it will take a strong leadership on the national level to find the big-picture, long-term solutions to our energy problems.

Mark Mizrahi is President and CEO of EnLink Geoenergy Services, Inc., a design-build contractor of geothermal heat pump systems. Mr. Mizrahi is co-chair of the Renewable Energy, Green Building and Energy Efficiency Committee for ACORE, and sits on the Leadership Council.

Renewable Energy Challenge - Intermittency is Not the Immediate Issue

By Daniel J. Foley, CEO, ACCIONA Energy North America

I hear a lot of talk about a great desire to include renewable energy into the national energy mix, if it weren't for the issue of intermittency. Sure, we can control the costs to build a wind farm or a solar plant, but the fuel supply is truly in the hands of Mother Nature whenever she decides to make the wind blow or the sun shine. As the CEO of a renewable energy company with more than 500 MW of wind and solar installed in North America, I know we only build renewable energy projects in areas with the best wind or solar capabilities within a given market. But still, it is not possible to know exactly when Mother Nature will smile on us. Unfortunately, this challenging characteristic of renewable energy has become the foremost excuse for utilities to restrict or block the addition of renewable energy resources to our energy mix. I would argue that intermittency itself is not the immediate issue for utilities, but rather how they are looking at the larger energy pool in total. Instead of focusing on intermittency roadblocks, utilities need to consolidate into more modern and broader markets that diversify management of the intermittency issue and ensure competitive access to the power grid.

The nation's power grid is actually a mesh of smaller grids owned and controlled by several large and small regulatory bodies. Some portions have been organized into markets that are controlled by relatively large independent market operators, but a patchwork quilt of many smaller utilities controls other portions. Each entity, large or small, is required to control its grid boundaries by matching its generation resources to consumer demand for electricity at all times, day or night. Consumption of electricity is also somewhat intermittent, changing minute by minute, influenced by random events and Mother Nature. It is generally much more challenging for a small utility to continually balance generation with consumption, minute by minute, hour by hour, season by season, than for a larger market operator. The intermittency of renewable energies like wind or solar introduce new challenges that are much greater for smaller utilities to manage.

Think of intermittency as a big rock being thrown into a small pond if you are a small utility. That same intermittency becomes a little pebble being thrown into a big lake or even the ocean if you are a broad independent market leveraging the advantages of consolidated grid operating benefits.

To realize efficiencies, some portions of our nation's mesh of power grids have consolidated and organized into broader market operating. These markets tend to span large geographic areas with centralized operating centers and highly integrated operating protocols. The result is that intermittency is diversified and managed across a larger market with a broader set of tools. The wind might not blow in one corner of the region, but maybe the sun is shining in the other corner. Diversifying the region tends to reduce the effect of (or cancel out) intermittency, allowing a larger portion of power to come from renewables instead of coal, gas or oil.

While clearly this makes a lot of sense in regards to integrating renewable energy, it makes even more sense in terms of driving down the cost of electricity. In 1999, a dozen or so utilities operating their respective grids formed the Midwest Independent System Operator and began to slowly consolidate key operating functions leading up to the launch of the Midwest ISO market in 2005 (other key centralized operating functions have been added or enhanced between 2005 and 2011 and the market continues to improve.) As the Midwest ISO market has evolved, it has demonstrated increasing efficiency and cost savings. According to MISO's 2010 Value Proposition Report, it realized adjusted total net benefits of between $648-$874 million dollars for their members as a result of the efficiencies realized by consolidation. Interestingly, $34 to $42 million of those savings are directly related to wind integration.

This is not just specific to Midwest ISO. Other markets that have organized in the U.S. and other countries issue annual reports that demonstrate that consolidation realizes greater day-to-day grid management efficiencies, reductions in overall seasonal and daily reserve requirements, and greater grid growth management efficiencies, resulting in annual savings of hundreds of millions, if not billions, of dollars.

Amid a national discussion of federal and local budget deficits, it's time we revisited the value proposition for the greater consolidation among grid operators as we discuss growth of renewables within the contexts of a cleaner environment and energy independence. There are federal power agencies conducting studies to increase their individual utilization of renewables, but not much talk of consolidating control into independent markets. Consolidation will help establish a modern foundation for a more diverse national energy portfolio, has the potential to save hundreds of millions, if not billions, of dollars over a broad regional area, and will more dramatically open up our grid to a cleaner energy future.

Daniel J. Foley is the CEO of ACCIONA Energy North America where he oversees the operation of more than 700MW of wind and solar energy in the US and Canada and the development of more than 1,000MW of wind and solar energy.

The Mystery of The Levelized Cost of Energy, Revealed

By Chase Weir, CEO of Distributed Sun

This past month marked an unusual increase in chatter about LCOE --the levelized cost of energy. If the National Security Administration bothered to monitor signals for this traffic, the threat (read: opportunity) alert just rose. If measured against Nielsen Ratings, the audience (read:understanding) multiplied. Certainly, in search engine parlance, hits and rankings for LCOE spiked-- recently running apace three times the two year monthly average. Now, only the most sensitive ear picks up the sound of this chatter faintly come rapping, tapping at the door of power and finance. Faint whispers give way to slight murmurs. Something is there, something meaningful. The momentum behind the LCOE concept has the power to broaden renewable energy deployment and adoption.

From greenhorns to green gurus, this insiders' vernacular--"the language of financing power"--is becoming strangely popular. The term LCOE is still wildly misunderstood and misapplied, but a bit more popularly so in recent months. LCOE as a discipline can be most simply described as the cost range at which various technologies produce a unit of energy given certain sensitivities that include, but are not limited to: fuel costs, cost of capital, federal and state energy policy, and location specific costs and benefits.

All the while, the levelized cost of renewable electricity generation continues to enjoy a declining forward price curve. And while it is true, the levelized cost of conventional plant construction has nearly doubled in recent years, it is not true that the incremental, finite resource inputs of fossil sources are stable or currently declining. And no, renewable resource inputs are not unstable because they are just that--renewable, and essentially free. If we, as an industry, can accept these prima facie we can move along to the good stuff --reimaging the LCOE.

A few months ago, Distributed Sun began sharing confidential previews with industry analysts about a new way to apply the LCOE formula and making it usable and actionable. Today, LCOE is underutilized as process and method for project selection and banking. A more rigorous look reveals a powerful business intelligence tool combined with a rare opportunity to distribute competence and accelerate pace.

Questions remain to be answered; for instance, what about LSOE, the levelized subsidy of energy, and how it varies from state to state? When paired with LCOE, what does it mean to look at net LCOE comparisons among projects? What does levelized revenue and profit tell us in the context of different segments within solar? And, is anyone looking at the combined levelized impact to all counterparty balance sheets over the lifetime of a renewable energy facility? These are simple concepts, begging adoption. They pull us away from strict dollar and per watt conventions, take us around the corner from IRR and yield, and are deployed with a Rosetta Stone for translation. In order to use them effectively, old questions are asked in new ways. And, that's much of the point. The answers could be surprising, relevant and poignant.

Rumor has it that Levelizing the Field, a whitepaper exploring levelized metrics applied as business science, will be released later this year. Published in cooperation between industry policy and finance teams, with contributions from some of the leading thinkers and doers in the field, the work will be paired with two significant events at a public, nationwide webinar hosted by one of the leading media outlets for the clean economy, and a special-invitation, roundtable among the foremost practitioners in LCOE. We welcome this emerging discourse as it will foster better policy results, reveal new bankable approaches to reneweable energy, lower costs of capital, and brighten the prospects for renewable energy.

 Chase Weir is co-founder and Chief Executive Officer of Distributed Sun, and Managing Director at sunONE. Mr. Weir led the design of the company's proprietary financial and analytical tools, which evaluate risk and performance criteria during solar project selection and operations.

Jump Starting the Ethanol Industry With University-Based Technologies

By Geoffrey R. Morgan, Partner, Michael Best & Friedrich LLP

Americans should be keenly interested in alternative transportation fuel sources whether from a perspective of providing sustainable energy or preserving our national security (i.e., our being less dependant on foreign oil). Cellulosic ethanol offers the promise of solutions for these issues, but to date, the technology is not yet here: there is no commercial-scale production of cellulosic ethanol anywhere in the world. How can we perfect the technology and achieve commercial-scale biofuel? With President Obama's call last week for increased ethanol production, an excellent place to look for the spark to the movement would be within America's universities and research labs.

A tremendous amount of renewable energy-related technology is being developed by our universities and major research institutions in the United States. In many cases these technologies are available for licensing by interested parties, and in almost all cases, there is interest by the owners of the technology in having the technologies developed and used in commercial-scale operations. These developments include biomass technologies as well as advanced clean coal and other fossil fuel technologies that will help fossil fuel-powered plants and facilities burn more cleanly.

Many might be surprised about the quality of work that is out there. For example, New Mexico State University (in Las Cruces) is part of a consortium that was recently awarded $44 million to research the commercialization of biofuel from algae. The University of Tennessee Research Foundation recently partnered with Dupont Danisco Cellulosic Ethanol, LLC to construct a pilot-scale biorefinery for the research and development of cellulosic ethanol technologies. There are hundreds more such inventive projects in university labs, and their knowledge and expertise could be an asset and a useful tool in bringing parties together to jump start commercial-scale ethanol production.

We need to bring these innovative ideas to the attention of venture capitalists and other early-stage financing sources that have expertise and interest in these industries as for example, in the medical device arena, wherea number of firms regularly partner with technology owners and universities to invest in and exploit the ideas that developed in research labs. The same kind of academic and financing partnership is not the norm in the biomass arena (or in other areas of the renewable space).

Universities and other research institutions should develop a methodical approach to identifying venture capital and private equity sources on a nationwide basis that have expertise in the particular technologies and industries in which the technology is being developed. Those sources could provide the financing necessary to advance commercial-scale licensing. To be successful, I believe financing sources should be made aware of newly developed technologies regularly, perhaps as frequently as every few months, in order to get the ideas to market as efficiently and quickly as possible. Perhaps the universities could create a national database that could house project information and availability.

This may not be a perfect solution but could prove a major step forward.

Geoff Morgan is a partner in the firm's Business Practice Group and former chair of that group. He serves as lead corporate counsel to many significant corporate and technology-based clients, particularly in the renewable energy area

The Renewable Energy Industry Deserves the Support and Consideration of Policy Makers;

The Insurance Industry and Renewable Energy By John McLane, President, GCube Insurance Services, Inc.

Insurance buyers expect their insurer to be able to return them to financial good health when something unforeseen happens. For that reason insurance companies are generally among the most conservative financial service institutions. Insurers don't address risks they don't understand or can't quantify. With this said, it is noteworthy that the property, liability and life segments of the insurance industry are all very active in their support on renewable energy today in two very specific ways.

First, as a direct result of the demonstrated improvements in manufacturing, construction, operations, and the overall risk profile of renewable energy, insurers now actively compete to insure the risks on the basis of pricing and coverage conditions. Today, there are at least 15 major international and numerous regional insurers addressing various forms of risks directly related to renewable energy projects, many of them with divisions now focused exclusively on renewable energy business. Insurance coverages are much broader, and costs are a fraction of what they were just 10 years ago. In fact, issues in financing renewable energy projects are driving some of the most innovative changes under consideration in property and liability insurance today. Finally, because renewable energy presents a clear opportunity for business growth, the number of insures competing for business is forecasted to increase, leading to an even more robust competitive market favorable for insurance buyers.

Second, insurers hold capital in reserve in order to be prepared to pay claims presented by the risks they insure. Those investments must be secure so the insurer is postured to meet commitments to policyholders. It is noteworthy then that insurers are also among the largest sources of capital for investment for renewable energy projects. Additionally, insurers include sustainability criteria in their investment strategy and are active participants in organizations such as Ceres. Consequently, their investment strategies take on two roles, a search for reliable investment return, and also investment in activities that will ultimately contribute to a safer and more sustainable economy, and contribute to lower losses which are funded by premiums paid by insurance buyers.

Renewable energy has been integrated extensively and permanently into the global economy. Insurance is just one of the segments of the economy that has seized the opportunity for investment in renewable energy ventures, sustainable safer business ventures that have a social return as well as a financial return. There aren't too many segments of the economy that provide that kind of opportunity today. Renewable energy deserves the support and consideration of policy makers.

As policy is debated today, it is important for participants in the debate to remember that all the segments of our economy have a policy infrastructure that has contributed to their current position in our economy. Those policies may have been put in place a long time ago, and today we may think they are non-existent or neutral. They aren't. Effective policy providing stronger support for renewable energy development is needed today to support a sustainable robust economy in the future. Our policy makers need to seize the opportunity for a safer, cleaner more sustainable energy supply presented by renewable energy in the same way other segments of our economy and society have. We need strong, stable national policies including a renewable portfolio standard and a mechanism to monetize carbon to enable the growth of the renewable energy industry.

John McLane President, GCube Insurance Services, Inc.

As President of GCube Insurance Services, Inc. John McLane brings over 30 years of operating experience to all facets of insurance and risk financing programs for utility scale renewable energy projects. He is responsible for building and leading the organization as it provides of a comprehensive portfolio of insurance services for renewable energy projects in wind, solar, biofuels, wave and tidal around the globe.

Good Public Policy Drives Innovation at First Wind's Kahuku Project

By Paul Gaynor, CEO, First Wind

Later this month, Hawaii will be home to what could be the nation's most innovative wind project to date. While it seems that "innovation" has of late become the catchphrase for how Americans are going to dig out of the economic slump, we can't allow innovation to become a cliche. 

Making innovation a reality requires creativity and risk. The newest clean energy project on Hawaii's island of Oahu, First Wind's Kahuku project, is a case in point. In developing Kahuku, we at First Wind learned that a truly innovative project requires a cocktail of policy, market structure, grid integration, environmental protection, and financing to get steel in the ground and power to homes.

Let's start with policy. Hawaii is the most oil-dependent state in the nation, shipping in diesel fuel to burn in power plants. It's not only dirty, but expensive. State leaders decided to find a better way, agreeing to get 70 percent of the state's electricity from renewable sources by 2030.

To meet that goal, Oahu's only utility, Hawaii Electric Company, sought long-term contracts for renewable electricity. Doing so would not only help reach the policy goal, but also provide clean, affordable power for customers. This combination of supportive policy and market demand lead First Wind to begin development of the Kahuku project. But that was just the beginning.

While the trade winds at Kahuku are mostly steady, the tiny size of Oahu's grid means the grid is very sensitive to fluctuations in energy output. This unique situation on Oahu called for innovation, and that came in the form of a 15 megawatt battery built by Texas-based XtremePower. Fifteen megawatts of power, dispatchable in seconds, provides never before seen options for wind integration on such a small grid. To facilitate the fast dispatch, the Kakuhu project also has a cutting edge communications system, with a direct microwave link to the Electric Company.

With the integration issue solved, the project was starting to look like a reality. But still of concern was the issue of the fragile Hawaiian landscape with its dozens of endangered bird species that exist nowhere else on earth. Luckily, First Wind had already innovated in this area, creating the nation's first Habitat Conservation Plan for our first Hawaiian wind project, on Maui, where we successfully implemented bird protection plans that saved and even grew endangered flocks. That innovation worked so well that Hawaiian officials trusted us to do it again.

With innovative plans for integrating our wind energy and protecting birds while doing it, we turned to the challenge of project financing. And while being the "first" to try something sounds great to many people, Wall Street typically takes a dim view of the unproven. Fortunately, the XtremePower battery allowed us to qualify for a Department of Energy loan guarantee originally funded under the 2005 Energy Policy Act specifically for innovative technology.

But such a loan had never been granted for a utility-scale wind project. There's a first time for everything. We applied, and after careful evaluation by the DOE, DOE granted us a $117 million loan guarantee last July. Much of the project was financed despite the challenging economic environment and cutting edge technology integration.

In moving from concept to construction, we employed about 200 workers on-site, and engaged with more than 100 contractors and suppliers in 20 states. Now we're ready to provide power to the community.

To get a project like Kahuku built, it took some risks, creativity and innovation to fit all the pieces together. But it worked. Building wind projects is challenging, and it's not for the faint of heart, but the industry should be able to benefit from these innovations. The problem is that there is a wildly different climate for renewables based on state, region, market and utility boundaries --not to mention the fits and starts of short term federal tax credits and the loss of most of the funding for DOE loan guarantees.

We know what it takes to build projects. But until those elements are predictable and consistent, many projects will remain Herculean efforts, even in communities which want and need them the most. The Kahuku story started with policy-- it's what started the ball rolling. Good public policy sparks innovation, and that's something government officials should remember when they call on innovation to get our economy back on track.

Paul Gaynor has been CEO of First Wind since 2004. He has more than 20 years of experience in the energy field, encompassing leadership and finance roles in the energy, power, and pipeline sectors. In addition, he has been engaged in several landmark energy and power financings across the globe.

 

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