“Long-term technological transformation”

Wednesday, May 31st

A rabid dog with an old bone, Competitive Enterprise Institute won’t drop the anti-climate change science diatribe.* Instead of carbon constraints, CEI and its major backer, ExxonMobil, extol “long-term technological transformation” and “resiliency in societies by increasing wealth.”

What might that mean, precisely, when it comes to a technology like ethanol, to these purveyors of the ‘free market’?

Ethanol is not disruptive; it fits comfortably into the industrial system: consistent, mechanized, predictable, interchangeable and economically scalable. (It’s not threatening in the same way as the fuel-switching electric car, now the subject of the film “Who Killed the Electric Car?) In The Omnivore’s Dilemma, A Natural History of Four Meals, journalism professor, Michael Pollan, writes, “everything about corn meshes smoothly with the gears of this great [industrial] machine.”

Ethanol from corn is no exception…or it shouldn’t be. The American Petroleum Institute, ExxonMobil’s trade association, intimates in the press that ethanol can’t perform; it supports the alternative fuel, but only as an additive to petrol. To drag feet on ethanol but champion technological transformation and resilient wealth is to jabber gibberish.

Ethanol was a golden queen showered with accolades at U.S. Senator Ken Salazar’s Renewable Energy Summit this year in Denver. It is fast on the lips of Senator Lugar Richard Lugar and New York Times columnist Thomas Friedman. It is an old technology (the first Model-T was built to run on ethanol), and with a still from Dogwood Energy, says Dogwood, you can make ethanol at home for 75 cents per gallon. Oil refiners will accept E85 (petrol that’s 85% ethanol). The balancing act between supply (the gas station owners who must pay for retrofitting pumps for ethanol) and demand (the number of drivers seeking ethanol at the pump) has begun. Marketplace drivers are priming getting-cheaper-than-petrol (and subsidized) ethanol to compete with volatile (and heavily subsidized) petrol.

And it will help farmers, right?

Crack open Pollan’s The Omnivore’s Dilemma. Corn takes up the entire first chapter. Dilemma is not about bio-fuels – cellulosic or otherwise – yet it goes a long way to explain the farming system in the U.S., and why it will be large corporations who (corporations being persons under the law) will benefit from refining corn and corn stalks into ethanol.

“Beginning in the 1980s, big buyers of grain like Cargill and Archer Daniels Midland (ADM) took a hand in shaping the farm bills, which predictably came to reflect their interests more closely than those of the farmers…It’s not all that clear that very many American farmers know exactly what hit them, even now. The rhetoric of competitiveness and free trade persuaded many of them that cheap corn would be their salvation, and several putative farmers’ organizations have bought into the virtues of cheap corn…So the plague of cheap corn goes on, impoverishing farmers (both here and in the countries to which we export it), degrading the land, polluting the water, and bleeding the federal treasury, which now spends up to $5 billion a year subsidizing cheap corn. But though those subsidy checks go to the farmer (and represents nearly half of the net farm income today), what the Treasury is really subsidizing are the buyers of all that cheap corn. [Says Iowa farmer George Naylor], ‘Agriculture’s always going to be organized by the government; the question is, organized for whose benefit? Now it’s for Cargill and Coca-Cola. It’s certainly not for the farmer.”

And one day, certain oil companies.

First, the hard work gets done by most everyone else: grassroots early adopters retrofit “flex-fuel” vehicles and home-distill fuel; alternative fuel activists on non-profit salaries lobby politicians; mid-western governors mandate E85; millions are spent on “flex-fuel” car advertising; Team Ethanol NASCAR races cars; farmers invest in farmer-owned bio-refineries. When the risks of the technology wane and the last easy-and-cheap-access drops of oil are pumped from the ground, the champions of “technological transformation” and “resilient wealth” will come around to ethanol. They will look to the money to be made in fertilizers and ethanol processing–and perhaps owning bio-refineries outright in competition with ADM and Cargill. Perhaps they’ll buy ADM or Cargill.

Ooh, la la! This is what CEI is jabbering about. Transformation (like transforming corn into ethanol) means resilient wealth for corporations, but not necessarily for farmers. It means a ‘free market’ that drags its feet…holds out a hand for subsidies…supports import tariffs…blocks stricter CAFE standards…and drives farmers and nature to the bottom. Rising like cream on corn-based ethanol profits–after years of obstruction–the likes of ExxonMobil will, in turn, funnel funds to the likes of CEI or some other ‘free market’ chirper to advertise the wonders of unfettered consumption, transforming technologies and resilient wealth. “Hooey on global warming, hooray for America’s birthright to consume,” it will exclaim. “Look at ethanol!”

Implausible? It’s a parable for making a market for cleantech, even for a technology like ethanol that fits neatly into the industrial systems. Imagine the difficulty in making markets for cleantech that does not transform but disrupts.

* CEI’s ad campaign looks even more like the corporate chimera it is when juxtaposed with a straightforward British Petroleum print ad: “Fuel made from corn adds less CO2 to the atmosphere. That’s biofuel for thought. In 2005, BP fuels contained more than 575 million gallons of biofuels in the U.S., eliminating about one million tons of carbon dioxide. It’s a start.”

More Capital Markets Stories for Cleantech in Ethanol

Ethanol stories, along with solar, continue to drive the cleantech market upwards, securing aggressive valuations. Unlike the solar industry, with many of its major IPOs overseas, ethanol still has big appeal as a homegrown US industry. Check out some of the numerous ethanol posts on Cleantech Investing blog, investor debate, ethanol IPOs.

Last week Pacific Ethanol, Inc. (Nasdaq:PEIX) announced a $145 mm PIPE.

VeraSun, which had filed for an IPO in March for $150 mm, has announced it has upped its IPO proceeds to $300 mm. It is anticipating pricing at $18-20/share. See my previous blog on an analysis of VeraSun's IPO. I still think this one and most the others are priced on the high side.

Also, check out the Energy Blog's article on Goldman Sach's investment in Iogen. Iogen is a fully-integrated cellulosic ethanol play.

Interestingly enough, I had an opportunity to review the ethanol case investment model being developed by scientists at NREL last week. They are looking to model the way investors analyze investment into ethanol technology and plants to evaluate future supply of ethanol and the ability of the private sector to meet the DOE's 30/30 target for ethanol production (30% of current gas use by 2030). The discussion gave me a great overview of the issues surrounding the growth of the ethanol industry. The NREL team has obviously done a lot of homework. A couple of interesting concepts we discussed made me come away from the discussion with a greater respect for corn-based ethanol, and a healthy skepticsm for cellulosic ethanol.

Item 1: The DOE (and others) are pushing cellulosic ethanol because of a concern that corn supplies available for ethanol production will top out at c. 10 to 20 billion gallons per year based on on current corn supplies available without signficant increase in food costs.

Item 2. The logic runs that therefore, cellulosic ethanol will be needed to fill the gap, not withstanding the fact that while corn ethanol currently is somewhat on par with gas prices based on c. $50 /bbl of oil, cellulosic is still well out of the money. This alone made me ask why we are even bothering with cellulosic ethanol, when corn-based is working economically today.

Item 3. Part of my comfort with corn is that I do not buy the limit on corn-based supplies that are driving the push for cellulosic ethanol. We produce something on the order of 11 billion bushels of corn per year. Currently about 80+% of that goes to animal feed - cows and sheep predominantly. According to NREL's model, to meet the 30 billion gallon per year target, we would need on the order of 50+% of that 11 billion bushels per year. However, animal feed is a very price sensitive market, and while we do not import corn today, we do import beef. My feeling is that the market is quite able to substitute a reduction in corn for animal feed to support corn as a fuel feedstock, with a price rise of well less than 50%+ increase the NREL models say would force us towards cellulosic. Basically, instead of importing foreign oil, we'd import foreign beef (or export less), or run more cows on winter grass and hay, and switch that corn supply to feedstocks. Having grown up with a family cow-calf operation, I can tell you that substitution happens at a much lower price increase than NREL is concerned about.

Item 4. The NREL team pointed out a few facts that I consider serious threats to cellulosic (though NREL does not currently consider them as critical as I do). While we think of corn as a regional commodity, corn is a very transportable feedstock relative to things like switchgrass and residual biomass that are expected to be the major feedstocks for cellulosic ethanol. The cellulosic feedstocks are extremely costly and difficult to transport. The general rule of thumb is 50-75 miles. And in that 50-75 mile radius, even a small scale plant (well less than the size of the corn ethanol plants today), will need c. 10-20%+ of the total productive land planted in its feedstock to maintain its supply. That's a lot of risk for an operator of a cellulosic plant. Imagine a 3 year drought wiping out the economics on your plant. And keep in mind, we are still talking plants on the scale of 5-10% of the size of typical oil refinery. Unless feedstock transport becomes a lot cheaper, all ethanol plants, but cellulosic ethanol in particular, will have a very hard time reaching economies of scale at any given plant.

The parallel is biomass power. Today biomass is the largest non-hydro renewable power source in the US. Like cellulosic ethanol plants, biomass power plants are out of the money on cost, and have signficant feedstock transportation issues (limited to a similar size range). The industry's answer? Virtually all of the biomass power plants in the US are captive. They are built adjacent to a pulp mill or carpet mill or other facility with its own long-term supply of fuel, eliminating fuel and transport risk.

Bottom line: the corn market is extremely liquid, has lots of ability to hedge price, ability to secure supply in a spot market, and is much, much more weather proof than the cellulosic feedstock will become anytime soon. And its cheaper.

My Predictions on the Ethanol Market:

The corn market will likely be able to handle significantly more corn based ethanol production through substituting corn from the animal feed market than is currently anticipated.

Cellulosic ethanol will come on line to replace a lot slower than anticipated - even when the technology arrives.

The early cellulosic plants will likely be residual based, perhaps corn stover from fields already producing for corn ethanol - NOT purpose planted fuel crops.

Cellulosic technologies that allow fuel switching and co-firing will have an advantage.

Because of the transport issues - cellulosic ethanol will be relegated primarily to vertically integrated plants like the biomass power industry for the near future (where the operator owns its own fuel supply). They will struggle to compete on price with corn based ethanol.

And if ethanol succeeds like DOE expects, our beef prices are headed up.

New Nukes

Of all subjects in the energy industry, few inspire such controversy as nuclear energy.

The facts about the current nuclear fleet are worth revisiting:

• The existing plants were generally very expensive to build. Most of the plants had significant cost overruns – some due to required design changes in the wake of Three Mile Island, some due to construction management incompetence. What was portrayed as “too cheap to meter” turned out to be “too expensive to imagine”.
  
• Now that the plants are almost fully amortized, their operating costs are very low. The variable cost of nuclear generation is generally less than 2 cents/kwh – lower than pretty much any other baseload (i.e., dependable 24 x 7) generation source.
  
• Operating performance and reliability have dramatically improved. Whereas capacity factors during the 1980's were below 60%, the nuclear fleet now runs nearly 90% of the time. Few powerplants run at this level of availability, and it is due to impressive overhauls in operational and management practices during the 1990’s.
  
• CO2 emissions are nil. Even environmentalists must agree that nuclear power contributes nothing to the climate change issue. Only renewables (such as wind and solar) can also make this claim.
  
• Wastes from these plants have been an intractable problem. The Yucca Mountain repository has been in the planning stages for over 20 years, with no opening date in sight. A solution like Yucca Mountain (deep underground inert storage) is necessary for our nuclear plants, not so much because of the radioactive products (half-life of 300 years) but because of the “transuranic” heavy metals that are highly toxic for 10,000 years.
  
• Security concerns are also a major problem. The nuclear cycle used in the current fleet, based on U235 (uranium 235 isotope), inevitably produces weapons-grade material that would be exceedingly dangerous in the wrong hands.
  
• Public perception of nuclear is skittish. The Three Mile Island incident effectively shut down the nuclear industry in the U.S.; Chernobyl in Europe. People will need a lot of convincing that nuclear powerplant designs are truly “inherently safe”.

Clearly, the existing nuclear plants will run as long as they viably can, but the question remains: is there a viable future for new nuclear plants?

Most observers would say that any new generation of nuclear plants would require a very different design. While uranium generally is not particularly scarce, U235 will become much scarcer in coming decades as its supply is depleted, putting significant upward pressure on the currently low operating cost structure, and thereby making the already dubious total economics of nuclear even more challenging.

This past week, I participated in a very interesting discussion at NASA’s Glenn Research Center of novel advanced nuclear energy designs. These designs address the full set of current concerns about nuclear: economics, environmental, and safety.

There were two main possibilities covered:

• One is to modify the design of the nuclear cycle so that spent fuel is reprocessed rather than merely used once and then stored for disposal. The efforts of the DOE’s Global Nuclear Energy Partnership include the development of Advanced Burner Reactors that will produce energy during fuel reprocessing, return usable fuel, and reduce the amount of toxic and radioactive wastes to be stored. This program is large and long-lived, with billions of dollars of research dollars anticipated through the next 12+ years.
  
• In my view, the other angle was much more promising: to start from a “clean-sheet” and employ a fission cycle based on thorium. Note that the current nuclear fleet based on U235 was the result of an explicit decision to create a commercial nuclear industry as a direct synergistic pairing with the weapons-production programs of the 1950’s. Thus, the current nuclear approach inextricably poses nasty proliferation and waste problems. On the other hand, the thorium cycle is fundamentally benign. It produces a waste product without any heavy metals that have long-lived toxicity. It does not produce any weapons-quality fission materials. It is a “slow” process, at low temperatures and a negative criticality gradient that ensures it shuts itself down with a failure, rather than a “fast” process (as is the case with U235) that can “run away” in failure mode. And, unlike U235, thorium is incredibly abundant in its supply.

A lot of people think the thorium cycle is too exotic to take seriously. It does sound almost too good to be true, but it ought to be worth a lot more investigation than it seems to be getting -- which is approximately none. If success were to be achieved with thorium, many of our energy problems could be solved.

DOD Reduces Dependency on Oil

the Department of Defense (DoD), is exploring the use of hydrogen and other forms of clean transportation. One major motivation is that the fuel which runs U.S. Defense operations comes from oil. That oil is increasingly controlled by countries that have declared their animosity to the United States. If military fuel is controlled by the enemy, then our ability to defend this country is crippled.

World War II provides a valuable history lesson. On December 7, 1941 Japan attacked the United States at Pearl Harbor. The United States entered World War II. It quickly became apparent that worldwide natural rubber supplies were limited, and by mid-1942 most of the rubber-producing regions were under Japanese control. Military trucks needed rubber for tires, and rubber was used in almost every other war machine.

In 1942, synthetic rubber was considered too expensive for wide usage just as hydrogen is now considered too expensive. The US government launched a major effort to increase synthetic rubber production. By 1944, a total of 50 factories were manufacturing it, pouring out a volume of the material twice that of the world's natural rubber production before the beginning of the war.

Now at Pearl Harbor, history is in a sense repeating itself. Hickam Air Force Base is putting into service a hydrogen fuel cell bus and a hydrogen fuel cell van. This hydrogen is sourced from U.S. natural gas reformed with steam. This hydrogen and other uses of alt-fuels are steps towards energy independence.

Energy independence is a key objective of the U.S. military. Military vehicles can broadly be classified as either tactical or commercial. Tactical includes all the vehicles that are deployed in war and expeditionary environments including humvees, tanks, amphibious vehicles and helicopters. Commercial vehicles handle much of the transportation and goods movement here in the USA. DoD is taking major steps towards energy independence with commercial vehicles

An obstacle to being free of dependence on foreign oil is that all tactical vehicles have been required to use an oil-derived jet fuel JP-8. In some ways, the use of this single fuel simplifies logistics. But using JP-8 creates serious problems. Consider this irony. Fuel from oil constitutes 70% of the U.S. military’s total weight that must be transported into battle for transportation and stationary power. Our battles are increasingly about the oil that is converted into that fuel. We now have an opportunity to transition to hydrogen that is lighter to transport, does not make us vulnerable to foreign suppliers, and is not a cause of war.

In California, U.S. Marine Corp Camp Pendleton, as part of the Department of the Navy, demonstrates the shift to using less oil. I recently spent over two hours at Camp Pendleton with Gary Funk, Regional Fleet Manager for Marine Corps West. Camp Pendleton follows the EPAC objective that 75% of commercial garrison mobile equipment purchases will be alt-fuel. With long-term buying contracts and five-year planning cycles, 75% will not happen overnight, but the shift to clean vehicles is taking place. At Camp Pendleton, there are over 320 electric vehicles (EV). Over 200 are electric scooters. 120 are GEMs, the 35 mph General Motors vehicle. The EVs use an 8 station charger that is solar powered.

Camp Pendleton also uses hundreds of CNG vehicles. Camp Pendleton is the nation’s largest buyer of biodiesel with annual purchasing of over one million gallons of B20. These one million gallons from virgin soy is a million less gallons of diesel from oil. The use of B20 has been relatively problem free. Some commercial vehicles, such as buses, have fewer problems with B20 than JP-8.

Full Article

“Carbon Dioxide. They Call it Pollution. We call it life.”

Wednesday, May 24

Competitive Enterprise Institute, a non-profit funded by several large foundations and corporations such as Coca-Cola and ExxonMobil, announced on its website that it “has produced two 60-second television spots focusing on the alleged global warming crisis and the calls by some environmental groups and politicians for reduced energy use.”

Myron Ebell, the Institute’s Director of Global Warming, also chairs the Cooler Heads Coalition which “comprises over two dozen non-profit groups in this country and abroad that question global warming alarmism and oppose energy rationing policies” – and snagged the URL, globalwarming.org.

Says Competitive Enterprise Institute (CEI): “Although global warming has been described as the greatest threat facing mankind, the policies designed to address global warming actually pose a greater threat. The Kyoto Protocol and similar domestic schemes to ration carbon-based energy use would do little to slow carbon dioxide emissions, but would have enormous costs. These costs would eventually fall most heavily on the poorest nations in the world. Luckily, predictions of the extent of future warming are based on implausible scientific and economic assumptions, and the negative impacts of predicted warming have been vastly exaggerated. In the unlikely event that global warming turns out to be a problem, the correct approach is not energy rationing, but rather long-term technological transformation and building resiliency in societies by increasing wealth. CEI has been a leader in the fight against the global warming scare.”

The ads are airing in 14 U.S. cities from May 18 to May 28, 2006: Albany, NY; Albuquerque, NM; Anchorage, AK; Austin, TX; Charleston, WVA; Dallas, TX; Dayton, OH; Denver, CO; Harrisburg, PA; Phoenix, AZ; Sacramento and Santa Barbara, CA; Springfield, IL, and Washington D.C.

CEI has trotted out this aging tactic of dis’ing the science of climate change with the intent of provoking public uncertainty – and counts on an American revulsion to “rationing.” (Note, CEI does not use the term, energy efficiency, or even the other “C” word, conservation.) Yet, climate change isn’t the real issue at hand; the issue is any science, belief, fact, fiction, or new technology that threatens, or appears to threaten, the system by which CEI’s members make money. Calling themselves ‘free marketers,’ they are, more accurately, pro-big business. (‘Free marketers’ chirped the virtues of free markets at high-profile sustainability meetings in Washington, DC in the ’90s. They were, almost all, hefty white males, easily identified in their dark suits, and for whose benefit I would quote Amory Lovins: “Markets are meant to be efficient, not sufficient; greedy, not fair.”) The free market ought to compete on a level playing field. CEI’s members have lots of advantages on an uneven field and lots of reasons to oppose a disruptive grazing – like government policies around climate change. Therefore, global warming is bunk. And, energy-efficient cleantech might as well be, too…

Were it not for the likes of CEI, we might have enjoyed an English Isles’ placidity in the face of climate change, bereft of icons, idolatry, aspersions against scientists, and the Jaws-like music of An Inconvenient Truth. But this is America where critical concerns about our way of life must erupt volcanic before they can be heard above the fat cats of growth and consumption (and a decibel higher again above the MP3 players and game stations). It’s clear who has engaged the entertainers, produced the fanfare, evoked an enteric scare, and elicited the laughs, and who is more likely heard by younger generations. Take Al Gore on Saturday Night Live. (Now imagine CEI’s Myron Ebell on SNL. Can’t!) Gore dishes up facetious and humble humor to a savvy audience. The message about climate change and the state of the nation is clear even when dripping with irony. In contrast, we have CEI with its video stream of beautiful blue-skied sunny days and its “long-term technological transformation” and “resiliency in societies by increasing wealth.”

What do those words mean, exactly? To an ExxonMobil or a Coca-Cola when it comes to a new technology, what constitutes technological transformation, and who's getting resiliently wealthy? I thought I'd apply their words to ethanol...next week.

Deutsche Wind

In the past month, I’ve visited not one but both of the major wind energy trade fairs in Germany, in Hannover and Hamburg. Why there are two trade shows targeting the same audience less than a month apart is a long and silly story – suffice it to say that Americans have no monopoly on pettiness.

Germany has about 20,000 installed megawatts of wind capacity. There’s a wind turbine seemingly every kilometer in the northern half of the country. Many of the world’s major wind turbine manufacturers are either based in Germany or have a major factory there. Thus, Germany can be fairly considered the epicenter of the wind industry.

From this central vantage point, what’s up in wind?

1. Continued consolidation of the manufacturers is expected. There are many manufacturers, but relatively few with long-term staying power. The survivors could include GE, Siemens, Vestas, Gamesa, Enercon and Suzlon. But, even six majors is probably too many in a fully mature market, meaning that it’s even more difficult to see less well-capitalized players as Nordex, REpower, Fuhrlander, Ecotecnia and the like as remaining independent.

2. Can newbies succeed? The most visible newcomer to the wind party is Clipper, founded by Jim Dahlsen, who previously founded Zond (which became Enron, and is now GE). Dahlsen is back and has what he claims is a better mousetrap for many different reasons. However, no matter how good the promises, developers and financiers are leery of buying/installing new wind turbine designs, until they’ve been shown to work well in the field for extended periods. In a market of this type, it’s very hard for new entrants to penetrate. Good luck to Clipper: they may in fact succeed because of Dahlsen’s track record, which has enabled them to raise enough capital to finance some of their own wind projects to demonstrate their technology. Other potential entrants may not be so fortunate – unless the market remains desperate for turbine supply, in which case some buyers may be inclined to take a risk on a new turbine design.

3. Vestas on the wane? Even though Vestas is number one in market share, it’s clear that Vestas is no longer viewed as the darling of the industry. It’s said to be having serial problems with one of its more recent and widely-used designs. Furthermore, by several accounts, Vestas is losing its corporate shirt from its recent offshore efforts (more on this below). Vestas has been talked about as a takeover candidate for a while now, but the most recent rumor has shifted from Shell to Chevron as the potential suitor.

4. Suzlon on the rise? In contrast to Vestas, Suzlon really appears to be seizing leadership in the industry. Its production in India enables a much lower cost structure (wages about 40% of German levels), and whereas most turbine companies in the industry are alleged to be making mediocre profits (or worse), even in a tight market where pricing is not under pressure, Suzlon is said to be able to generate operating margins on the order of 25%. If that's accurate, wow!

5. Improved US wind policy is expected. As everyone knows, the on-off nature of the PTC over the past several years has caused the entire global wind industry to go through booms and busts of tightness and slackness. Most everyone believes that the PTC will in fact be extended beyond 2007, although there is also a recognition that it will (should?) be on a declining basis, to wean the industry off of subsidy-dependency. Seemingly, that would be acceptable to the players – they just want predictability of policy rather than short fits and starts. For some reason, Bush’s almost passing comment a few weeks ago about the potential for 20% of US electricity supply from wind by 2020 seems to be viewed by the wind industry with a great deal of seriousness, as an indicator of a real and major policy shift. I don’t see it, but, OK, whatever.

6. More turbine manufacturing is likely in the US. While the US is still viewed with wariness, because of the inconstant history of the PTC, everyone recognizes the massive size of the potential market, and the limited remaining upside to the market in Europe. Right now, almost all turbines are manufactured in Europe, thus implying that all US windfarms are composed of imported equipment. If wind economics in the US are really to improve, the cost structure has to be lowered, and more of the major (heavy, difficult to transport) components must be produced domestically. I believe you’ll see several announcements of US facility decisions in the next year or so.

7. New (but well-proven) names likely coming to the US wind market. Some of the major European turbine manufacturers have been largely foreclosed to date from the US market by GE’s holding of a US patent that has been ruled (by the US PTO) to be infringed by several of the most common and successful European designs (especially Enercon, but also Nordex, REpower and Fuhrlander). The remaining time on the patent is running down, meaning that GE is probably more in a mood to negotiate. Further, with the US wind market being the world’s largest and with lots of remaining growth in the foreseeable future, any serious wind player cannot afford to be shut out for much longer. Thus, it would seem that commercial arrangements between GE and other players to accommodate their entry into the US can be anticipated.

8. Offshore recedes into the future. In Europe, offshore wind has been seen as the savior of the local market, as most good on-shore opportunities have already been captured. However, I got the sense from most of the parties and observers that the limited offshore efforts pursued to date have been far more challenging than expected. Vestas and GE are said to be suffering acutely from their high-profile projects, with Vestas specifically stopping those efforts to focus on its on-shore issues. Enercon’s massive 4.5 megawatt machine has turned out to be too heavy for offshore application and they are now repositioning it as an on-shore product (but where?!). By one well-placed veteran’s perspective, only Siemens has a credible offshore offering, but even then the economics are strained. As a result, most of the turbine manufacturers are backtracking, and now see offshore as a post-2010 phenomenon even in Europe, so expect it later in the US (where there are many more remaining onshore opportunities).

Nuclear debate rages on in Australia

This week the Nuclear debate is back on the table in Australia after Australian PM John Howard made recent comments to the Canadian PM . Various political proponents here in Australia have taken positions on the topic from "requires consideration" to an "outright no". My personal opinion for John Howards stance is that raising the issue may help fuel the worldwide interest in nuclear energy as an approach to reducing world wide emissions, but also to the benefit of Australia selling our uranium resources to the world.

As for Australia's domestic political reasoning, based on our markets I don't think nuclear is going to be a solution for the next 15 years for Australia. But something has to replace emission based coal generation in that timeframe. Initiating the debate is important in order to help determine where we should direct large scale energy financing over the next 10 years. A debate about nuclear energy is a debate about energy and will hopefully fuel a balanced discussion.

My opinion of what will happen in Australia is on the basis that:

• We have no existing nuclear energy generation, nuclear energy industry or personnel, asides from a small medical and research reactor at Lucas Heights
• We do not have an impending problem with supply of energy.
  
• We have 40% of the known reserves of uranium.
• There's no net technology export from Australia in nuclear
  
• We rely heavily on coal and petrochemicals for our energy production, yet only around 35% of our emissions come from electricity generation.

So given theres no impending energy problem what we are more likely to see in Australia is a repricing that will occur due to a emissions targets, carbon price or increasing demand. Hence our current cheap energy is likely to go up in price and that will influence the investment case for renewables, efficiency adoption in business, new research etc, which is good for the domestic renewable industry.

Looking at the rest of the world, in a recent article in New Scientist Magazine (22 April - apol: online article is paid sub) the question of the economics of nuclear came up and its a good read. The article states that a good deal of the resurgence in the US and UK at the moment into nuclear is to replace aging reactors around the world to avoid a gap in generation. Countries that are investing heavily are China, Japan, Russia and India.

"More renewable MW of wind generation were put into Spain and Germany in 2004 than MW of nuclear generation will be added from 2000 to 2010. Industry projections indicate that by 2010, renewable and low-carbon sources will offer 177 times as much added capacity as nuclear"

The other side of the coin is the 'negawatt' effect, or the ability to reduce consumption of energy. According to the New Scientist article energy some US states have had significant success with this, ie consumption in California has been flat for 30 years. I don't have any Australian Stats, but I believe that Australian industry can achieve the same savings.

The nuclear debate here in Australia is important to have and lets hope that we can broaden it to discuss investment into our clean energy industry and find a way to reduce our emissions, build export capability in Cleantech and maintain Australia's economic prosperity.

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Nick Bruse is the General Manager of Clean Technology AustralAsia Pty Ltd, the organiser of the AustralAsian Cleantech Forums and Dealer Forums, and the leading advocate of Cleantech in Australia. Nick does a weekly blog column on Cleantechblog profiling innovative Australian cleantech, energy, water and environmental technology companies.

Applied Materials & Solar - What's Going On in Cleantech?

On May 11 I did a blog Applied Material's stealth entry into the solar market. The column ended up being close to the mark, and was picked up around the blog world, including at Rob Day's Cleantech Investing blog.

On May 4, AMAT announced it was acquiring Applied Films for $464 mm. Big news for cleantech.

From the press release:

"The acquisition is also anticipated to provide growth opportunities for Applied Materials in solar cell as well as flexible electronics applications where our combined knowledge and capabilities will enable us to bring a new level of expertise to these expanding markets," said Mark Pinto, senior vice president and chief technical officer of Applied Materials. "In solar cell manufacturing, we expect to help customers deliver higher levels of output at lower production cost -- a critical step to making alternative forms of clean energy more available and affordable. By combining Applied Films' existing platforms with Applied Materials' broad process portfolio and global customer relationships, we can also accelerate a number of new applications for electronics on flexible substrates."

Remember, you heard it here first. In any case, this deal has been making the rounds in blog world, including on ChipShots, and definitely validates our earlier assertion that AMAT was entering the photovoltaic equipment end of the cleantech market.

Interestingly enough, I could find no US patents or applications by Applied Films mentioning solar. Perhaps their program is too new.

But that's not the end of the story.

Applied Films makes the ATON product line, a sputtering systems that uses Physical Vapor Deposition. But it's not my any means a large business for them yet, with a total installed base of around 10 systems, 15% market share, and only 5-10% of the company's revenues by it's own statements. At $2-4 mm/system, that's $20-$40 mm of total installed base, which represents a minisicule fraction of Applied Material's business. I cannot believe that AMAT has been spending time and money on a solar group just to evaluate an acquisition of a product line that small.

To follow on that information however, I received another rumour (unconfirmed) that Moser Baer, an Indian manufacturer of removable optical storage devices, is anticipating using AMAT to develop the production line for its announced 80 MW CdTe photovoltaic market entry, targeted in 2007. This would fit of AMAT's typical practice of entering new markets on the back of a joint development effort with an initial customer. Moser Baer announced its solar plans in October 2005, though no mention of CdTe. Moser Baer did announce that expected project cost was US$58 mm, and that they were investing $25 mm in a subsidiary to kick it off, expected $150-$200 mm in revenues by 2008. This would put them in the top 10 producers globally. A couple of side tidbits, in April 2005 SunPower hired PM Pai, the former President of Moser Baer India Ltd, as COO. Incestuous world, I guess. Also, like with Applied Films, I could find no mention of any US patents or applications by Moser Baer relating to solar.

An AMAT CdTe angle would be intriguing on a number of fronts. Number one, CdTe is a bit afar afield from the what Applied Films seems to have been doing, as well as the process engineer job descriptions that AMAT has out. The Moser Baer rumor and the job ads, as well as AMAT's patent solar portfolio would also seem to predate the Applied Films deal.

CdTe, a thin film solar process whose largest proponent currently is First Solar, has the theoretical advantage of being significantly lower cost than most solar processes. However, like many thin film processes, it has proven very tricky to do in volume while maintaining product quality, and does make not a particularly high efficiency cell. As most of the main issues in CdTe boil down to control and process consistency, areas where AMAT is particularly good, it would be interesting to see if AMAT were doing work in this area. That could be big news for the solar and cleantech industry.

It also continues to confirm my thesis that it is going to get harder and harder for venture backed startups to compete in solar. As big players enter the market, the window is tightening.

While I'm still trying to verify much of this information, my guess is Applied Materials is after a much bigger play, and that we should expect additional announcements over the coming months.

Neal M. Dikeman is a partner at Jane Capital Partners, a San Francisco merchant bank focused on energy technologies and cleantech.

Accelerated Cryogenics and Cryogenic Materials R&D Needed for Success of Superconducting Electric Power Technologies

Most of the considerable public attention, and more of the modest government funding on high temperature superconductor technologies for power systems, has centered on superconducting materials, wires, and device development. However, superconductors operate only at very low temperatures, typically below the boiling point of liquid nitrogen. I wanted to share a summary of an op-ed piece by Michael J. Gouge, Applied Superconductivity Group, Oak Ridge National Laboratory, that appeared recently in Superconductor Week discussing the need for an increased national focus on cryogenic technologies.

Michael J. Gouge writes:

Superconducting-based systems on the electric grid require three enabling technologies: the superconducting wire or tape, a cryogenic cooling system, and high-voltage cryogenic dielectrics. Most of the R&D effort is going into development of the superconductor, second generation (YBCO) tape in case of HTS. This is understandable as there are no grid-based applications without a cost effective and capable superconductor.

Little resources, however, are being applied to development of the other two areas: cryogenic cooling and high voltage dielectrics. In part, this is due to the perception that there are available systems and materials that can be made to work, at least in short term demonstrations. Lurking below the surface, however, are several technical issues that need to be addressed for utility acceptance of HTS grid devices.

In the cryogenics area the three major issues are reliability, efficiency and cost. In the most important area, reliability, the performance of cryogenic systems to date has ranged from 95 to 99% reliable. This needs to improve significantly to 99.5 to 99.9% if the HTS devices are to be seamlessly inserted into the US grid.

The needed improvements in efficiency are also substantial. Present closed-cycle cryogenic cooling systems have thermodynamic efficiencies from 10 to 15% of ideal Carnot efficiency. This needs to about double if the overall HTS system efficiency gains due to superconductivity are to be realized.

Finally, the cost per watt of cooling needs to be reduced by a factor of 2 to 4, depending on the application. This can best be done with the economy of scale that should come from a large production base.

If HTS products are to be routinely accepted on the grid in the next 5-10 years, the level of effort in cryogenics and cryogenic dielectrics R&D by the government and industrial sectors should be expanded to address and solve the issues discussed above.

Mark Bitterman, Executive Editor, Superconductor Week
http://www.superconductorweek.com

Whole Brand is More than Organics

Wednesday, May 17, 2006 (my birthday!)

Connected Organizations for a Responsible Economy (CORE) is a Colorado cleantech and sustainability business trade organization. This week, its Boulder Business Breakfast topic was “Healthy and Natural Eating - Functional Foods, Dietary Supplements, and Organic Claims.” An attorney from Patton Boggs spoke on the three federal agencies (USDA, FTC, FDA) that govern and monitor natural and healthy foods, their claims and advertisements. This week, The New Yorker published “Paradise Sold, What are you buying when you buy organic?” which reviews three books criticizing the mainstreaming of the organic food movement and focuses on Whole Foods. The Wal-Mart announcement to offer organic food continues to get press. And, a Harper’s Magazine article, “Swine of the Times, The Making of the Modern Pig,” in the May issue is a stomach-turner that may keep you off pork until the details are banished to a recess of the brain. Little about the industrialization of mass food production will surprise if you’ve read “Fast Food Nation, The Dark Side of the all-American Meal” or some of Michael Pollan’s books and articles (“Power Steer” for starters).

The point in “Paradise Sold,” (and exemplified by Whole Foods and Wal-Mart organic food suppliers) is that organic, once counterculture, has attained “cultural legitimacy” and “cherished ideals have simply become part of the sales pitch.” Organics avoid synthetic fertilizers, as well as toxic pesticides, fumigants and herbicides, gene modification and irradiation. But compliance with the USDA’s standards for organic does not ensure the food is produced locally or with sustainable practices by a small producer.

Wal-Mart is to organic food as Kmart and Martha Stewart are to fine living: ersatz, lucrative. But what of Real Food, Whole Foods, Wild Oats and the companies they have gobbled up along the way (Fresh Fields, Bread and Circuses)? There’s something else in their brand and marketing – beyond organics and free-ranging chickens and pigs – that keeps me opening my wallet...wide. There’s something more to it than a cheaper bag of Earthbound organic lettuce (the Wal-Mart pitch).

I was raised a “foodie.” My mother, a gourmet, whips up hollandaise, boeuf bourguignon and sweetbreads as easily as other parents deliver dinner in a paper bag. She did treat us to McD’s now and then; Yodels and Ring Dings, New England processed food staples, weighed down the lunch boxes. Those treats were sanctioned no-no’s – so good and so bad for you; their unhealthy, sugary bad selves were never considered real food. My mother brought home metal milk cans of unpasteurized cow’s milk from the farmer in Waccabuc, New York – this, before a developer leveled the barn. She altered her commute home to stop at Maneros Steak House in Greenwich for filet mignon which she showed us how to thinly slice and eat raw. She introduced us to artichokes and steak tar-tar early on, instructing how to pull the leaves down to the heart of the artichoke and how to blend the egg yolk and capers into the raw red meat of tar-tar. Dinner themes were often influenced by the boyfriend du jour (kilbasa with the Polish guy, borscht – borş – with the Romanian tennis player). Cheese came from the local cheese shop in Katonah. With home-rolled sushi and a tasting dinner of abalone, squid, and octopus from the fish market in Mount Kisco, she expanded our land-locked horizons. She made sticky buns with guava jelly and popovers from scratch which we lathered with butter. Salad dressings started with garlic, olive oil, a wooden spoon and a seasoned bowl. Meat loaf started in the Hamilton Beach grinder. On her less-than-an-acre homestead just 40 miles from Manhattan, we had eggs from chickens, and lots of manure from her horses for a prolific garden of basil, tomatoes, Brussels sprouts, asparagus, zucchini, yellow squash, carrots and snap peas. We didn’t utter the words organic or natural. It just was.

In my mid-teens in the mid-70s, I was a farm hand for two doctors in Pound Ridge, New York. Drs. Mary Alice White and Jan Duker (psychologist and psychiatrist, respectively) fertilized their extensive organic garden with chicken manure (I shoveled mounds of it from the back of the coop they cleverly designed). During my breaks, they fed me herbal tea and soy nuts by a wood burning stove (I lugged cords upon cords of wood to feed the stove and an outdoor sauna). They supplemented the chicken manure garden fertilizer with mail-order seaweed and manure from my mother’s horses (I hauled mounds of, what I consider to be the true, black gold.) When the doctors moved to Lakeville, Connecticut to an exquisite old farmhouse, the garden grew exponentially, as did Dr. Duker’s apiary. There, they fed me Skinner’s Raisin Bran with goat’s milk, drizzled with Duker-harvested honey. (Skinner’s Raisin Bran with local goat’s milk is as far from Cocoa Puffs and BHT cow’s milk as a girl can get, and I held my nose to get it down.) The doctors mail ordered their canned goods from Walnut Acres. And when their chickens stopped laying eggs, they were slaughtered, as humanely, they explained, as possible: the old hens were calmed with coos and hung upside down by their feet; the doctors slit the artery in the neck, and drove a knife up through the brain; once the blood drained, the bodies were dunked in a kettle of boiling water to loosen the feathers which were removed and the chicken was prepared for freezing. The night of my first (and only) chicken killing – 25 hens – the farmer across the road, a single woman, prepared fried chicken. I couldn’t eat it. The doctors chuckled and gave me a pass. Dr. Mary Alice White, now gone, is the mother of Christopher Kimball, the founder, editor and publisher of Cook’s Illustrated magazine and host of the syndicated PBS cooking show America’s Test Kitchen. It was a strained relationship (she was quite headstrong), but both Dr. White and her son express a grand appreciation for food quality, in ingredients, preparation and presentation.

So when I pass through the doors of a Whole Foods, I am reminded of the connection to the earth, to real food. The hyper-lit, hyper-sanitized, hyper-refrigerated aisles of Wal-Mart, Safeway, King Soopers, etc. contrast starkly with the abundant colors, soft sounds and alluring smells of Whole Foods – which may not sell the true-blue natural foods of the doctors and my mother. It may be a bit of marketing palaver and some of the real thing, but in a life where my gardens have come and gone in painful separations, where my choices to live close the earth are limited, Whole Foods is as close as I can get before mail-ordering my meat from, say, James Ranch, or driving 14 miles to my favorite boutique cheese shop, St. Killians, or waiting for the Cherry Creek farmer’s market to roll around in the spring and summer months. (And, hey, it’s not lost on me that those natural food vendors at the farmer’s markets drove a long way to get to here – whether it be Union Square in Manhattan or Cherry Creek in Denver.) It isn’t just about the food, either. Whole Foods purchases renewable energy credits (green tags) to off-set 100% of its electricity. I’ve yet to engage with an employee who is anything but pleasant and present. Grazing the aisles, particularly around holidays, is a filling and scrumptious exercise (and, great marketing, naturally).

I recently moved into my boyfriend’s house in southeast Denver. It’s in a 70s suburban development and the very idea of it made me cry (much as I love my boyfriend). But get this: I can walk to a brand new Whole Foods. Today I sat at its café counter and plugged into its (free) Wi-Fi – under a large sign listing the high performance (green) building principles used in the construction of the building…Marmoleum, 3-Form resin, low-VOC paints, toxin-free particle-board substitute. All materials found in my bio-bus…all reasons why it's more than organics that gets me through the door.

DOE SBIR Spending Light on Hydrogen, Heavy on Nuclear

I read through the award list for the DOE 2005 SBIR Phase IIs. Total dollars awarded was around $70 mm. What was really interesting, and a bit of change from previous years, little SBIR money in hydrogen or conventional oil & gas, and heavy in nuclear, fusion, high energy physics and carbon/greenhouse gas research.

Of the 120 awards, 51 were in nuclear, fusion, or high energy physics (42%). 13 were in carbon or greenhouse gas (11%), only 4 in fossil fuels, 6 in solar, and 7 in fuel cells/hydrogen (total of 14%).

The tremendous numbers of SBIRs in fuel cells and hydrogen of previous years appear to have tailed off significantly. Interesting enough, also a small handful of DOE SBIRs in ethanol or biofuels.

Check out the list here.

Vanity Fair's Green Issue

The May 2006 issue of Vanity Fair has been dubbed its first "green" issue. It easily stands out from the magazine racks -- the cover photo of Al Gore, George Clooney, Julia Roberts and Robert Kennedy is tinged in deep and pervasive green.

Inside the issue, VF trumpets 22 eco-heroes, including many of the usual suspects. Frankly, I'm exhausted of hero worship, and I find the celebrity idolatry of periodicals such as this one to be yet one more element of 21st Century American culture gone seriously awry.

Yet, this issue of VF does one very useful service: it paints a picture of what the world might look like in the future: specifically, how Manhattan might look, with sea level rise from global warming.

Manhattan Underwater from Global Change

They say a picture's worth a thousand words. If seen by enough eyeballs, disturbing images like these can perhaps shock the public into more serious thinking, conversation and action on the critical energy and environmental matters that face us for the foreseeable horizon. Have a look and forward it on.

Waves of Energy and Water

As a surfer, and with limited time on my hands im always checking the web swell forecast to see whether its worth heading down to Bells Beach (yes it's always busy). Luckily using swell maps and now dedicated surfer websites you can actively predict days its worth grabbing the board and heading out for a few waves. When your out on your board looking across the sea, its not hard to wonder just how much energy is wrapped up in each line of swell that stretches out to the edge of your vision. Im obviously not the only one to have thought this, because as we know there have been numerous attempts to capture this energy with wave conversion devices. Energetech, is the latest Australian company that is having significant success in this field.

Excluding tidal, ocean current and thermal ocean devices, the types of technology we have had (off the top of my head)

• Hinged systems that float on the surface driving hydraulic or linear generation devices as they flex (eg. Ocean Powers - Pelamic )
• Tethered systems that capture the forces generated by buoyancy and wave oscillation, and
• Blow hole devices that utilise wave oscillations and an air column to drive a wind turbine, or
• basic variations of the above

The latter type blow hole device has been attempted a number of times with limited efficiencies. This has been primarily to do with the challenge of extracting energy from a wind stream that varies in direction and power. Energetechs' system utilises a turbine blade with variable pitch control that