Fifty Years

Earlier this month, I turned 50 years old.  Such milestones are natural occasions for reflection.

Beyond recalling many of the phases and individual episodes of my life, my reflection included a consideration of how the world had changed in the 50 years in which I had lived.  And, naturally, given my profession, I pondered what it would have been like to have been a “cleantech” practicioner 50 years ago, in 1962.

Frankly, it’s not really possible to imagine “cleantech” back then.  50 years ago, there wasn’t much “clean” and there wasn’t much “tech”.

In the U.S., the Clean Air Act and the Clean Water Act hadn’t been passed, and there wasn’t even an Environmental Protection Agency.  Silicon Valley was still mainly apple orchards, and computers less powerful than your smartphone barely fit into large warehouses.

In the energy sector, the U.S. still dominated the petroleum industry.  Not only did Americans consume more petroleum than anyone else (accounting for about 40% of world demand), U.S. oil production was still a major factor, representing almost 30% of worldwide production.

The oil industry’s operations would still have been very recognizable by John D. Rockefeller:  production was mainly from “conventional” onshore seesaw pumpers dotting the countryside; remote locations such as Alaska hadn’t yet been touched, nor had any material production yet been achieved from offshore wells.

Other than perhaps by watching the recently-released “Lawrence of Arabia”, few Americans paid much attention to the deserts of the Middle East in 1962.

Though unnoticed by most Americans, important forces in the oil industry were already beginning to shift in the early 1960s.  Although Texas oil production had been decisive in fueling the Allied victory in World War II just two decades previously, by 1962, the U.S. had become a net importer of oil.  Yet, only King Hubbert projected a future waning of American supremacy in oil production.

Oil prices in 1962 were a little less than $3/barrel, largely due to the price-setting powers of the Railroad Commission (RRC) of Texas, then still the source of a significant share of world oil production.  When a hitherto little-noticed group formed in the early 1960s called the Organization of the Petroleum Exporting Countries (OPEC) assumed the dominant influence in pricing oil a decade later, the world would change forever, as oil prices would never again be anywhere near below $10/barrel.

It’s almost quaint to summon up memories of the oil sector of the era.  Remember what filling up at a gas station was like in the 1960s?  The attendant would come out, put the nozzle in the tank (always with the filler behind the rear license plate), cheerfully wipe the windshield and ask “may I check your oil?”.  Looking out the window, I remember seeing “29.9” on the gas pumps.  That’s 29.9 cents per gallon — which seems almost surreal to us now, but remember, oil prices were then only a few percent of what they are today.

Of course, given the now-unbelievably appalling gas mileage of those Detroit beasts, usually under 10 miles per gallon, you still had to fill up about as often then as you do now.  Back then, it was all about horsepower — it certainly wasn’t about efficiency, nor about cleanliness.  (Nor, for that matter, reliability.)

Every once in awhile these days, I find myself behind a 1960s-vintage car at a stoplight, most often on a sunny summer afternoon.  When the light turns green, I am left in a thin cloud of light bluish smoke and the fragrance of octane and unburned hydrocarbons.  Odors of my youth.  You don’t see and smell that anymore — and I don’t miss it.

Thank goodness for a plethora of cleantech innovation during the past decades:  unleaded fuels, pollution controls and fuel injection systems.

And, let’s not forget that these advances were pushed by, only happened because of, foresightful proactive policies.

While the financial bonanzas and corporate/family dramas enabled by oil discoveries and production had thoroughly captured the American imagination by the early 1960s — consider everything from “Giant” to “The Beverly Hillbillies” — natural gas in 1962 was an afterthought.  Other than some use for power generation in Texas and Oklahoma (where there was no local coal resource), natural gas was mostly flared at the wellhead.  In many ways because (and many people now forget this) natural gas prices were then regulated at depressed levels, the companies that produced gas as a side-consequence from oil production didn’t see much value in making the investments necessary to collect it and transport it to markets.  In fact, natural gas was widely considered a nuisance in 1962.

Certainly, gas is no longer considered a nuisance.  In fact, it’s now being touted by politicians across the U.S. as the Godsend:  providing lower energy prices, lower emissions, higher domestic employment and reduced dependence on foreign energy sources.

No, the oil/gas industry — and those two fuels are today inextricably intertwined — is now much more aggressive in capturing and processing every Btu that courses through the markets.

In the late 1960s, our family lived in the Philadelphia area, and I remember being awed – almost scared, really – by the immense flames emitted by the refinery near the mouth of the Schuylkill River.  All those now-valuable hydrocarbons…gone, wasted, up in smoke.  You don’t see that anymore at refineries, thankfully.

Oil company practices have massively changed in the past 50 years to capture everything of possible economic value.  Of course, that’s the effect of a 30x increase in oil prices, driven by a worldwide search and race to find and produce new reserves to replace five decades’ worth of depletion of much of the cheap/easy stuff in the face of a tripling of global oil demand (mostly from outside the U.S.), counterbalanced by technological progress on a host of fronts over the span of five decades.

Today, oil is pretty consistently trading between $80-100/barrel, and while U.S. oil production has rebounded a bit to approach early 1960s levels, American production now accounts for less than 10% of world oil production.

But think about how low U.S. oil production would be and how high oil prices might be today if not for offshore oil production, directional drilling, 3-D seismic, and an untold number of other innovations produced by the oil patch in the last half-century to enable production from hitherto undeveloped places.

Of course, beauty is in the eye of the beholder, and not all of these developments are viewed positively by everyone.  The current debates about fracking and development of the Alberta oil sands would have been unimaginable in 1962.  At the time, fracking barely existed as a practice, and the Alberta oil sands were then hopelessly uneconomic as a source of fuels.  Moreover, there was virtually no environmental movement to give voice to the concerns of citizens.

It wasn’t really until Rachel Carson published Silent Spring just a few weeks after I was born that much attention was paid to pollution.  Later in the decade and into the 1970s came the grassroots emergence of the environmental groups, such as Greenpeace and the Natural Resources Defense Council.

If you are about my age or older, you may well remember this 1971 commercial.  The tagline (“People start pollution, people can stop it”) and the image of the Native American shedding a tear remain indelible decades later.

Before this, there was virtually no accountability placed on emitters, and anyone could pretty much dump whatever they wanted, wherever they wanted, whenever they wanted.  And, in the early 1960s, no set of interests benefitted from ongoing inattention to environmental considerations in the U.S. more than the coal sector.  For those with coal interests, the times before environmentalists were truly the glory days — and in 1962, the future for coal in the U.S. at that time was terrifically bright.

Sure, trains had just moved from coal steam to diesel-electric, but over half of all the electricity generated in the U.S. in 1962 was based on burning coal.  With burgeoning demand for electricity (especially to keep pace with the exploding utilization of increasingly-ubiquitous air conditioning), coal was poised for significant growth, as thousands of megawatts of new coal powerplants would be added to the nation’s energy grid each year during the 1960s.

While coal is certainly no poster-child for the cleantech sector today, back in 1962, coal remained a particularly brutish and nasty form of energy.  288 American miners were killed on the job in 1962, and all of the coal burned was subject to minimal pollution control – no electrostatic precipitators or baghouses to capture particulates (i.e., soot), much less scrubbers for sulfur dioxide or selective catalytic reduction for nitrogen oxide emissions.  You pretty much didn’t want to be a coal miner or live anywhere near a coal-burning powerplant, as your health and longevity were seriously at risk.

Indeed, some observers speculate that the uncontrolled emissions from powerplants (not to mention other industrial facilities, such as steel mills) threw up such large amounts of material into the atmosphere that the 1970s became a period of unusually cold temperatures — to the point that many scientists were projecting a future of damaging global cooling.  (Although the then-common theory of global cooling is now mainly forgotten, climate change deniers are quick to employ this prior dead-end of thought as one reason for dismissing the strong likelihood suggested by climate scientists that global warming is probably occurring today.)

Of course, the U.S. still mines coal, lots of it, to fuel lots of coal-fired powerplants.  Production in 2011 was 1.1 billion tons, more than double 1962 levels.  However, employment in the coal industry had fallen by over 40% during the same period.  (And, mercifully, annual fatalities have decreased by a factor of 10.)  The primary factors for these changes:  productivity increases due to new technologies (e.g., longwall mining), lower rates of unionization, and a shift from underground to surface mining (now accounting for nearly 70% of U.S. production).

With respect to the latter factor, Wyoming coal activity has exploded — now representing more than 40% of U.S. production — at the expense of Appalachia, whose coal sector is now but a shell of what it was 50 years ago.  The causes are simple:  the subbituminous Powder River stuff from Wyoming is much more abundant and cheaper to mine, and generally has much lower sulfur content to boot, than what is available from Appalachia.

On a broader level, coal is on the retreat in the U.S.:  while coal still accounts for almost 50% of power generation, this share is dwindling.  It seems as though U.S. coal production levels have plateaued at just over 1 billion tons a year.  While so-called “clean-coal” technologies may at some point provide the basis for a resurgence in the industry, the possibility of future growth certainly seems far from obvious today.

Many legacy coal powerplants – some of which remain in operation from well more than 50 years ago – are fading away.  Tightening emission requirements, particularly on toxic emissions such as mercury, are just one  competitive disadvantage facing coal; coal power is increasingly uncompetitive with cheap and cleaner natural gas powerplants and (in some places) wind and solar energy.

“Wind energy” and “solar energy”:  50 years ago, these would have been oxymorons.  Other than the minute niches of sailboats and waterwell pumping in the Great Plains, a good wind resource had virtually no commercial value in 1962.  At the same time, Bell Labs scientists were wrangling some with solar energy technologies — primarily for satellites – although a lot more attention was being paid to a related device called the semiconductor.

For energy, scientists were mainly working on nuclear power, moving from weapons and Navy submarines to powerplants.  The nuclear era was dawning:  electricity was going to be “too cheap to meter”.

The very first commercial nuclear powerplant, the relatively puny 60 megawatt plant at Shippingport in Western Pennsylvania, had been running for only a few years in 1962, though dozens of nuclear powerplants were just coming onto the drawing boards.  Visionaries were even talking about nuclear-powered automobiles in 1962.  (“Electric vehicles?  Puh-lease.  Batteries are for cheap portable Japanese radios.”)

Perhaps as a psychological defense mechanism to drown out the anxieties associated with potential Armeggedon from a Cold War missile exchange, such was the sense of optimism in the possibilities of the age.

Apparently, no-one could foresee Three Mile Island, Chernobyl or Fukushima at the time.

The future held boundless possibilities.  Back then, who needed to recycle?  To think about efficient utilization of resources?  To care about water quality or air quality?  There was always more and better, somewhere, to be had.  And we Americans would surely obtain it, somehow and someway.  It was Manifest Destiny, ever-onward.

This American philosophy may have confronted its limits early in my lifetime with the ultimate realization, brought home so vividly at the end of the 1960s by the first-ever images of the solitary Earth as provided by the Apollo program, that we’re all utterly dependent upon a finite planet in an infinite sea of otherwise-unpopulable space.  Earth Day followed in April 1970.

To commemorate this first Earth Day, I remember our second-grade class picking up scads of litter along the side of a section of highway.  Upon reflection, I am glad to note how much litter has declined in subsequent years — a case of how values can be reshaped and behaviors can be changed, if people are just a bit more conscious.

That’s a positive take.  However, one can reasonably look back on 50 years of the evolution of the energy sector and say, well, that not that much has really changed in America.

True, the basic structure of American life may not have changed too dramatically.

We still primarily live in single family dwellings, in suburbia, dependent upon cars that look more or less the same, fueled by gasoline available at stations just down the road.  The power grid is still there, powered by central-station powerplants; the light switches and outlets haven’t changed, with refrigerators still in every kitchen and TVs in every living space.

By all measures, Americans are still energy hogs, relative to the rest of the world.

Even so, I would assert that a lot has changed, at both the macro and micro-level, that have consequentially altered the trajectory of resource utilization in America from the path determinedly being travelled 50 years ago.

Admittedly, some of the changes we have experienced are a bummer:  niceties like summer evenings with the windows open are much rarer.  Nevertheless, I claim that most of the changes of the past half-century are positive – and can be attributed to a significant degree to what we now call “cleantech”.

Our energy bounty, improved so significantly by technological innovation, has been achieved while simultaneously improving environmental conditions in almost every respect.  Notwithstanding the substantial increase in carbon dioxide emissions, almost all other manifestations of environmental impact from energy production and use have dramatically improved in the past half-century.  Standards of living enabled by modern energy use, here in America and even more so in the rest of the world, have dramatically improved.

Moreover, the trends for further future improvement on all these fronts are favorable.

With the proliferation of improved technologies such as LED lighting, energy efficiency continues to advance.  Renewable energy continues to gain share:  wind and solar energy represented about a quarter of new U.S. electricity generation additions in 2010.  Citizen understanding of energy and environmental issues continues to become more sophisticated.

Beyond the forces specifically pertaining to the energy sector, a number of broader influences in U.S. society are improving the prospects for accelerating cleantech innovation and adoption.  Entrepreneurship is booming, consumerism is increasingly being called into question, capital markets are more amenable to investment in this sector and more capital is arriving accordingly, and the Internet makes an immense and ever-expanding pool of information freely available to enable better decisions.

Not to mention:  much of the opposition to a transition to the cleantech future emanates from people in generations that are older, that will die out in the next couple of decades, to be replaced by younger generations that are generally more supportive of increased cleantech activity.

So, while it’s easy to get discouraged by the impediments to cleantech progress on a day-to-day basis, over the long-view, it’s pretty apparent that big positive things can happen and in fact are happening.

50 years from now, in 2062, I hope to be alive and well at 100 and still contributing to the cleantech sector.  That may be overoptimistic.  But I don’t think it’s at all overoptimistic that we’ll see more changes, and more changes for the better, in the cleantech realm over the next 50 years than in the previous 50.

How About A Sane Energy Policy Mr. Obamney?

It’s Presidential Election year.  Ergo, time to discuss our 40 year whacked out excuse for an energy policy.  Royally botched up by every President since, umm?


Make US energy supply cheap for the US consumer and industry, fast growing and profitable for the American energy sector, clean, widely available and reliable, and secure, diversified, environmentally friendly and safe for all of us.


Cheap, Clean, Reliable, Secure, Energy


An Energy Policy that leaves us more efficient than our competitors

An Energy Policy that leaves us with more and more diversified, supply than our competitors

An Energy Policy that leaves us more reliable than our competitors

An Energy Policy that makes us healthier and cleaner than our competitors

An Energy Policy that makes us able to develop adopt new technologies faster than our competitors

An Energy Policy that makes it easy for industry to sell technology, energy, and raw materials to our competitors

An Energy Policy that keeps $ home.

A Sane Energy policy


Think more drilling, less regulation on supply, lower tariffs, more investment in R&D, tighter CAFE and energy efficiency standards, simpler and larger subsidies for new technologies, less regulation on infrastructure project development.


A couple of key action items:

  • Support the development of new marginal options for fuel supply, and support options that improve balance of payments, whether EVs ethanol, solar et al
  • Make crude oil, refined products, Gas, LNG and coal easy to import and export
  • Drive energy efficiency like a wedge deep in our economy
  • Support expansion and modernization of gas, electric, and transport infrastructure
  • Support long term R&D in both oil & gas, electric power, and renewables
  • Reduce time to develop and bring online new projects of any type (yes that means pipelines, solar and wind plants, offshore drilling, fracking and transmission lines).
  • Support policies and technology that enable  linking of energy markets
  • Challenge the OPEC cartel like we do EVERY OTHER cartel and break the back of our supply contraints
  • Support the export of our energy industry engineering, services and manufacturing  sectors overseas
  • Incorporate energy access into the core of our trade policy
  • Support deregulation of power markets
  • Support long term improvement in environmental and safety standards
  • Broadly support significant per unit market subsidies for alternatives like PV, wind, biofuels, fracking as they approach competitiveness

Or we could do it the other way:

  • Leave ourselves locked into single sources of supply in a screwy regulated market that involves sending massive checks to countries who’s governments don’t like us because that’s the way we did it in the 50s?
  • Keep massive direct subsidies to darling sectors so the darling sectors can fight each other to keep their subsidies instead of cutting costs?
  • Keep a mashup of state and federal regulatory, carbon and environmental standards making it virtually impossible to change infrastructure when new technology comes around?
  • Promote deregulation in Texas, and screw the consumer in every other market?
  • Every time there’s a crisis, we can shoot the industry messenger in the head, stop work, and subsidize something.
  • Continue the Cold War policy of appeasing OPEC so they can keep us under their thumb for another 30 years
  • And drop a few billion here and there on pet pork projects

Come on guys, stop the politics, let’s get something rational going.  Oh wait, it’s an election year.  Damn.

And in the meantime how about making energy taxes (a MASSIVE chunk of your gasoline and power prices) variable, so they go DOWN when prices go up.  Then at least the government’s pocket book has an incentive to control cost, even if they’re incompetent at putting together a policy that does so.

The End of Nuclear Power? Or Just the Beginning?

This week’s news: US NRC freezes decisions on new reactor, license renewal applications

“The US Nuclear Regulatory Commission voted unanimously Tuesday not to issue final decisions on granting licenses to build new nuclear power reactors and 20-year license renewals to existing ones, pending resolution of the agency’s waste confidence rule overturned by a court in June.

The commissioners, however, also ordered that NRC review of these license applications continue and that the agency’s Atomic Safety and Licensing Board Panel not accept or deny new challenges that may be filed in these proceedings relating to waste storage issues.”

Nukes in the US not dead of course, but the revival still on hold?


The post Fukushima nuclear future in Japan?  Still shut down, the replacement generation fleet still a patchwork.  The future is . . .?


And Germany?  Trying to get out of nukes puts intense pressure on gas (from Russia), renewables, and the grid.  As well as adds costs. Prognosis unclear.


Has Fukushima changed China’s nuclear energy ambitions? Or just its technology choices?


And exactly what are the costs for nuclear?  I will say generally, that on a cents per kwh basis, the broad lowering of interest rates benefits nukes better than any other form of power but hydro, given the combination of high portion of the of costs from the capital, and the high capacity factor.


So is the end of nuclear power’s 50 year challenge to coal power insight?  Or are we on the verge of a resurgence?  Situation unclear at best.

Thoughts from Intersolar 2012

By Guest Blogger Charles Waitman

I spent a day at Intersolar North America in San Francisco, considered by some to be North America’s premier exhibition and conference for the solar industry.  My career, to date has been in the oil industry.  This was my second Intersolar conference.  These are my observations.

PV dominated the conference.

Mark Pinto of Applied Materials gave an excellent presentation.  He forecasts that innovation will support continued growth in the rate of PV installation.  Dr. Pinto forecasts a 20 to 20% growth rate in annual solar installations, with annual installations reaching 250 GW/yr  and installed capacity reaching perhaps 800 to 900 GW by 2020.  He described total installed cost approaching $4/w today.  As an interesting perspective the installed cost of 250 GW, at $4/w, is about one third of worldwide expenditures for oil.  Other interesting perspectives, at the level of 800 to 900 GW, PV solar would represent 15% of worldwide generating capacity, 5 or 6% of annual generation, and a little less than 1% of energy use.   The US Energy Information Administration’s 2011 forecast (International Energy Outlook 2011) differs sharply from Dr. Pinto’s.  EIA forecasts a 16% annual growth rate for solar capacity (16% first derivative vs 20 to 30% second derivative for those of you who love calculus) from 2008 to 2020 with a 2020 capacity of 86 GW.  Pinto sees panel costs dropping below $1/watt.  Balance of system costs are coming down as well, but the progress here is slow.

I talked briefly with a representative of the EV Group about their non-reflective coatings.  The marketing strategy has been increased efficiency.  From my perspective the most significant benefit of these coatings might be expedited permitting since glare is a common concern.

I listened to several presentations at the PV Energy World Stage.  California Assembly member Skinner and Arthur O’Donnell of the CPUC reported on the California a legislative mandate to introduce storage with as yet unspecified physical requirements in 2015 and 2020.  The remaining presentations caused my head to spin thinking about load and generation profiles, distributed vs central generation, smart grid requirement – or perhaps things will just balance out.  However, the point that registered clearly in my mind is that $4/w for the installation isn’t the cost of PV in a very large scale and mature setting.  Storage, transmission, resources for load balancing, etc. will be big cost centers when we reach the point that PV power from the roof top impacts more than the firing rate of a peaking turbine.

What I didn’t see was discussion of end of life issues for panels and batteries.  While these issues are later (as in sooner or later), nickel, cadmium, lithium, magnesium, cobalt, tellurium, indium, selenium shouldn’t accumulate in stockpiles and permiate into the ground and water.  Everything has an end of life.  Disposal (or hopefully recycle) isn’t exciting, it is often expensive, it is hard to enforce.  PV isn’t the first promise of an almost infinite supply of clean energy.   Real thinking and robust policy regarding end of life issues should accompany the technological development that is proceeding at such a furious pace.

I am almost in the PV camp (a big deal for an oil industry guy).  PV is bigger than I thought, growth is faster than I thought (EIA is also a few years behind), and it will be a major part (as in Coal or Oil or Gas not domestic hot water) of the energy balance.  Balancing cost (including changes to the grid, and storage) and environmental impact (end of life) of PV against shale gas (abundant and likely cheap but faces groundwater issues) and combined cycle generation (pretty cheap and pretty clean but still a large source of greenhouse gas) will be no small challenge.


Chuck Waitman has extensive experience, within the oil industry, with synthetic fuels, refining, hydrogen production, cogeneration, energy procurement, energy contracts, and energy conservation.  For the last 5 years he has worked on implementation of California AB-32, the California Global Warming Solutions Act.  He presently consults on issues related to energy and greenhouse gas management.


Rethinking the Role of Government in Cleantech

Another year, another wringing of the hands over tax credits and incentives for clean technology.

Lobbyists and vendors in the U.S. are once again singing the blues, calling for continued and expanding government investments in clean technology. At the same time, political challengers continue their Solyndra hootenanny, raking the current administration for how it spent hundreds of millions of taxpayer dollars.

One can’t help but wonder whether it’s time for a different tune when it comes to government involvement in cleantech.

Perhaps conversations about policy support should be less about giving more taxpayer money to prop up the space, and more about elected officials setting long term market stability and enabling the private sector to deploy capital to assume risk in cleantech.

Why? First, some background…

Down with incentives
Every time U.S. tax credits for renewable energy development come up for renewal, the cleantech sector cringes at having to once again “play chicken” with whichever administration is incumbent at the time.

The U.S. Production Tax Credit (PTC), which provides a 2.2-cent per kilowatt-hour benefit for the first ten years of a renewable energy facility’s operation, was born in 1992. But it’s had a hardscrabble life, clinging to life support after seven one and two-year extensions bestowed alternately by Republican and Democratic Congresses. Neither major American party has been willing to show long term incentive support for renewable energy.

The PTC for incremental hydro, wave and tidal energy, geothermal, MSW, and bioenergy was extended until the end of 2013. But the production tax credit for wind expires at the end of 2012. And that’s got wind lobby groups girding up. In a recent statement, American Wind Energy Association (AWEA) CEO Denise Bode cited a study suggesting Congressional inaction on the PTC “will kill 37,000 American jobs, shutter plants and cancel billions of dollars in private investment.” The same study suggested extending the wind PTC could allow the industry to grow to 100,000 jobs in just four years. Expect this battle to simmer all summer.

The unpredictability around cleantech incentives is taking its toll. “The U.S. is hitting a brick wall with the cessation of benefits,” remarked John Carson, CEO of Alterra Power, on the subject at a recent cleantech investment conference I co-chaired in Toronto. He wasn’t happy, and do you blame him? Nobody likes living hand to mouth. But that’s what happens when you rely on credits and incentives like the PTC or its loved and loathed counterpart in the U.S., the Investment Tax Credit (ITC).

And then there are the cleantech subsidies provided by the American Recovery and Reinvestment Act of 2009 (ARRA), which are now winding down.

If it feels that clean technology vendors and lobbyists are spending an undue amount of energy and resources chasing such subsidies worldwide, they likely are.

Up with mandates and standards
Rather than funding and administering subsidies to help the clean and green tech sectors find their footing, a case could be made that governments should focus on passing aggressive policy mandates, standards and codes.

Instead of using taxpayer money to make technology bets, regional and national governments could focus on passing laws, including broad brush stroke ones like the renewable portfolio standards in the U.S. that mandate a certain percentage of power from renewable sources by certain dates, and then step back and let the private sector figure out how to deliver. Or mandate change more granularly—for example, that coal power plants need to meet certain efficiency or emissions standards by certain dates, and, again, let the private sector figure out how. (Ironically, if there were more public support to actually clean up coal power instead of simply disingenuously parroting, beginning in 2008, that “there’s no such thing as clean coal” and throwing up our hands because environmental ads told us “clean coal doesn’t exist today”—and if that translated into political will and a mandate—cleaner coal power could exist today. Yes, there’d be a penalty on the nameplate capacity of plants’ output, but there’d also be billions saved in health care costs. But we digress.)

Taxpayers should take their politicians to task for trying to play venture capitalist, i.e. by investing their money in trying to pick winners (a la Solyndra) in complicated markets. Professional venture capitalists themselves, who focus on their game full-time, barely pick one winner in 10 investments.

Drawbacks of incentives
How could government grants, loans, tax credits and other subsidies possibly be bad in cleantech? Free money is good, right? Here’s a list of drawbacks to these incentives, some of them not as obvious as others:

  • They can go away and cause market disruption – to wit, the points earlier in this article.
  • The existence of loans and grants silences critics – Few speak out against pots of free money, because they might want or need to dip into them in the future.
  • Incentives favor only those willing to apply for them – and therefore are often missed by companies working on disruptive, fast-moving tech, or who are focused on taking care of customers’ needs.
  • Criteria are often too narrowly defined – Criteria for incentives often favor certain technology (solar photovoltaic over other solar, or ethanol over other biofuels), and as a result, lock out other legitimate but different approaches.
  • Picking winners means designating losers – Recipients of government grants or loan guarantees get capital and an associated halo of being an anointed company. Those that don’t are comparatively disadvantaged.
  • Not the best track record – Incentives go to companies best staffed to apply for and lobby for them. And those aren’t necessarily the companies that could use the capital the most effectively, e.g. to compete in world markets, or create the most jobs.

What governments could and should be doing
In the cleantech research and consulting we do worldwide at Kachan & Co., we’ve come to believe that governments are best focused on activities to create large and sustained markets for clean technology products and services.

Doing so gives assurance to private investors that there will be continued demand for their investments—one of the most important prerequisites to get venture capital, limited partners and other institutional investors to write large checks.

Given that objective, governments should, in our opinion, pursue:

  • Setting mandates and standards – e.g. the amount of power generated from renewable sources, new targets for fuel efficiency, green building or other dimensions.
  • Improving codes and other regulations – making building codes more stringent could drive energy efficiency, green building and smart grid investment.
  • Building the talent pool
  • Stabilizing the economy
  • Fostering political stability
  • Commitment to infrastructure projects – including water, transportation and grid.
  • Building showcase projects – regions wanting to foster local cleantech can do as Abu Dhabi has done with itsMasdar initiativeas Saudi Arabia is now doing with solar, or as China has done with hundreds of green development zones; in doing so, all three of these countries have sent strong signals to large corporations and investors that they view clean technology as strategic.
  • Rolling back so-called perverse government subsidy support today of the fossil fuel industry, including direct and indirect subsidies.

Cities as test beds of policy innovation
Interestingly, cities are emerging as petri dishes of progressive cleantech policy, and are increasingly where such innovation is taking place.

For instance, Barcelona has established that large companies need to create as much as 30% of their power from solar thermal technologies. The city of Berkeley, California pioneered what is now known as Property Assessed Clean Energy (PACE) financing, wherein property owners are able to pay for energy efficiency and renewable energy improvements on their property taxes. This month, Phoenix, Arizona introduced what it calls the largest city-sponsored residential solar financing program in the U.S. And New York City is taking the lead in residential demand response by trialing a program to curtail the consumption of 10,000 room air conditioners at times of high demand.

Given the world’s current financial malaise, and especially in light the Occupy momentum globally, I’m surprised more folks aren’t questioning how their governments spend their money in cleantech. Because, as described above, there are other arguably more effective ways elected officials can help usher in a cleaner, greener future than throwing around billions in incentives.

After all, how much fun would a pristine planet be if we’re all destitute because governments have crumbled under crushing debt?

This article was originally published here. Reposted by permission.


A former managing director of the Cleantech Group, Dallas Kachan is now managing partner of Kachan & Co., a cleantech research and advisory firm that does business worldwide from San Francisco, Toronto and Vancouver. The company publishes research on clean technology companies and future trends, offers consulting services to large corporations, governments and cleantech vendors, and connects cleantech companies with investors through its Hello Cleantech™ programs. Kachan staff have been covering, publishing about and helping propel clean technology since 2006. Details at Dallas is also executive director of the Clean Mining Alliance.

The Geopolitics of Energy

“The Geopolitics of Energy”:  that was the title of a talk given at the Opportunity Crudes conference in Houston last week by Guy Caruso of the Center for Strategic and International Studies.  It’s an endlessly fascinating and urgent topic, as very few sectors of the economy shape the world in which we live as much as energy — and particularly, oil — does.

Highlights of Caruso’s presentation — many of which are not novel or unique, but are worth restating:

Oil is currently inseparable with transportation:  virtually 100% of mobility — whether by car, truck, rail, boat or plane — is fueled by petroleum-based products.  Demand is flat or even shrinking in the U.S. and Europe, but this is more than offset by explosive demand growth in the developing world — especially China, but also India, and the Middle East.  “The center of gravity of the oil industry is moving East.”

Most of the lowest-cost endowment of oil resources on the planet are concentrated in the Middle East, subject to great political instability.  A scary thought:  many leaders, especially in the lynchpin Saudi Arabia, are over 80 years old — what happens when they die?

Reliability of delivery is threatened by geogrpahic chokepoints.  For instance, over 15 million barrels per day — nearly 20% of world oil supply — passes through the Strait of Hormuz.  Although most of the oil passing through goes to Asia, the U.S. military remains the key protector of this vital trade route.

Meeting global demand growth in the face of declining conventional resources means two things:  a shift towards unconventional resources (which are more expensive to produce, and face significant environmental/technical challenges) and an almost insatiable need for ongoing additional capital investment.

Although technological leadership may remain with the “supermajors”,15 of the 20 biggest oil companies in the world (i.e., the ones with the most reserves/resources) are now state-owned enterprises, such as Saudi Aramco and PDVSA.  While some of these companies like Lukoil (LSE:  LKOD), PetroChina (NYSE: PTR) and Petrobras (NYSE: PBR) do have minority stakes that float on stock exchanges, make no mistake:  they are not being managed for the purposes of shareholder value maximization.  These companies trade on stock exchanges solely to access global capital markets so as to finance immense expansion programs.  Otherwise, their motivations are far different than profit-maximization as expressed so effectively by the supermajors:  these organizations are arms of nationalistic pursuits.  In other words, the oil game of the future will be driven less by money and more by geopolitical moves on the global chessboard.

There are more upward pressures on oil prices than downward pressures.  Note that the oil industry is running at over 95% of capacity — there’s almost no spare or excess capacity to cope with any perturbations.  Even so, most companies are using $60-80/bbl as the reference price in determining long-term capital investments:  big bets require conservative assumptions. 

Shale gas is a game-changer — not just in the U.S., but in many parts of the world.  More gas will be used for power generation, which will displace coal.  Indeed, without carbon capture and sequestration, coal will be under threat for both economic and environmental reasons in most places of the world.  (Exception:  China, which is growing so fast that it will build as much as possible in a true “all-of-the-above” energy strategy.)

Caruso closed by noting, humbly, that in his 40 years in forecasting the energy sector, there was a consistent tendency to underestimate the impact of technological advancement, which in turn renders long-term predictions subject to big errors.  Not only will the finer points of his analysis be inaccurate, but some of the overarching conclusions — which seem so obvious today — will no doubt be wildly off a few decades from now.  The key is figuring out which ones will be right and which ones will be wrong.  Black swans are hard to see when they haven’t yet flown to the horizon.

A World of Hurt

Seemingly generating nary a ripple here in the U.S., the International Energy Agency (IEA) just issued its 2011 World Energy Outlook — its annual synopsis on the future of the global energy sector. 

If ignorance is bliss, then we’re certainly blessed by generally not bothering to confront the pretty-alarming conclusions of the report. 

A pastiche of the highlighted snippets in the Executive Summary, when stitched together, provide a glimpse of the world we’re now choosing to invent for ourselves and future generations:

“There are few signs that the urgently needed change in direction in global energy trends is underway.”

“Global investment in energy supply infrastructure of $38 trillion (in year-2010 dollars) is required over the period 2011 to 2035.”

“The age of fossil fuels is far from over, but their dominance declines.”

“The cost of bringing oil to market rises as oil companies are forced to turn to more difficult and costly sources to replace lost capacity and meet rising demand.”

“Factors both on the supply and demand sides point to a bright future, even a golden age, for natural gas.”

“Coal has met almost half of the increase in global energy demand over the last decade.  Whether this trend alters and how quickly is among the most important questions for the future of the global energy economy.”

“The dynamics of energy markets are increasingly determined by countries outside the OECD.”

“All of the net increase in oil demand comes from the transport sector in emerging economies, as economic growth pushes up demand for personal mobility and freight.”

“China’s consumption of coal is almost half of global demand and its Five-Year Plan for 2011 to 2015, which aims to reduce the energy and carbon intensity of the economy, will be a determining factor for world coal markets.”

“Russia’s large energy resources underpin its continuing role as a cornerstone of the global energy economy of the coming decades.  Russia aims to create a more efficient economy, less dependent on oil and gas, but needs to pick up the pace of change.”

“International concern about the issue of energy access is growing.  Around $9 billion was invested globally to provide first access to modern energy, but more than five-times this amount, $48 billion, needs to be invested each year if universal access is to be achieved by 2030.”

“We cannot afford to delay further action to combat climate change.”

“New energy efficiency measures make a difference, but much more is required.”

“Widespread deployment of more efficient coal-fired power plants and carbon capture and storage (CCS) technology could boost the long-term prospects for coal, but there are still considerable hurdles.”

“Events at Fukushima Daiichi have raised questions about the future of nuclear power.”

“The wide difference in outcomes between [the scenarios analyzed in this report] underlies the critical role of governments to define the objectives and implement the policies necessary to shape our future.”

When observing the dysfunctional nature of the current political ecosystems in the U.S., in Europe, and in world affairs (e.g., the United Nations), and the increasing imperative for economic austerity to resolve the shortfalls in public coffers, it is hard to believe that governments (other than autocratic places like China and Russia) will be able to take any meaningful action to nudge the energy sector from its trajectory of “muddle-along.”  The chaos that IEA describes in the world energy scene will thus likely only intensify.

Lots of challenges in this world.  But, then again, lots of opportunities too.

Environmental Regulation of Coal Power: Train Wreck or No?

Over the past several months — well, years, really — there’s been a lot of to-and-fro about various new environmental requirements that may or may not face coal-fired powerplants.

Some observers have called it a regulatory “train wreck”, arguing that some of the requirements run at cross-purposes to others, or are planned to be sequenced in a manner that are difficult to manage, so that it will be incredibly costly for owners of coal powerplants to comply, and will drive the retirement of a large portion of the U.S. generating capacity.  For this view, see this report from the American Legislative Exchange Council.

In August, the Congressional Research Service released a report largely refuting this view.  As noted in the Executive Summary, “supporters of the regulations assert that it is decades of regulatory delays and court decisions that have led to this point, resulting in part from special consideration given electric utilities by Congress under several statutes.”  Or, put another way, the fix that coal powerplant owners are in is substantially of their own doing.

As Ezra Klein of the Washington Post asks, “Who’s right?” 

Maybe the more interesting take is from Ken Silverstein of EnergyBiz, whose article headline says it all:  “Coal’s Woes Run Deeper than EPA Regs”.  In particular, mining in Central Appalachia is experiencing significant declines due simply to depletion of the lowest-cost reserves there.  Coal production is not only shifting west to larger and cheaper reserves, but is being threatened by low-cost natural gas due in large part to the boom in shale gas production.

Coal is an industry in retreat and on the defensive, ornery — notwithstanding the sector’s efforts to portray itself to the public in a positive light, such as at America’s Power.  The promise of advancements in so-called “clean coal” technologies involving carbon sequestration has largely failed to bear fruit.  The economic supremacy of coal over other fuels is under seige.  Mining safety incidents and mountaintop removal practices continue to give the industry a black eye.

Yes, coal is abundant, and many of the premises about coal’s enduring place in the energy economy put forth by the seminal MIT study “The Future of Coal” no doubt remain true.  But, as tough as it’s been for the nuclear and renewables sectors, it’s also going to be a rough ride for players in the coal industry.  I wouldn’t want to ride that train, whether or not a train wreck ensues.

The Great State of Uticana

Last week, at the stunning student union of The Ohio State University, Battelle convened a meeting entitled 21st Century Energy & Economic Summit on behalf of Ohio Governor John Kasich, who both opened and closed the conference with some observations.   The agenda covered a wide spectrum of energy issues facing Ohio, and didn’t lack for interesting moments.

One of the hot issues in Ohio energy policy is whether the renewable portfolio standard and energy efficiency provisions of the last major energy act, SB 221 from 2008, are vulnerable.  Indeed, some of Kasich’s fellow Republicans in the Ohio Senate recently released SB 216, a bill to completely eliminate the renewable and efficiency requirements of SB 221 — although it is widely viewed that the bill has no chance of passage.  Acknowledging this, as reported by The Columbus Dispatch, Kasich said in his introductory remarks that several parties are “trying to get me to say we don’t need renewables here.”  But, he continued, “of course we need renewables.  Of course we need solar and of course we need wind.”  In his concluding remarks at the end of the two-day event, he reiterated that “I believe in renewables.  My kids believe in renewables.”

Kasich also had a kind comment for his predecessor, noting that the Strickland Administration had done “a number of good things on energy efficiency for the state” that needed to be built upon.

Nevertheless, expect some retrenchment that will not fully please renewable and efficiency advocates:  in his closing remarks, Kasich circled back and noted that he thought SB 221 would probably benefit from some tweaking, using as an example his exasperation that cogeneration hadn’t been given appropriate eligibility.  All signs point to hearings in the Ohio Assembly later this year to re-evaluate SB 221, although the Governor’s stated position providing some cover to renewables and efficiency seems to indicate that SB 221 at least won’t get entirely discarded or thoroughly trashed.  Stay tuned.

Indeed, one of the central themes of Kasich’s comments was that all players in the energy sector need to get along, that there’s a place for everyone, albeit maybe not to the degree that any one segment would ideally like.  As the Dispatch termed Kasich’s comments, “company executives in gas, solar, coal and other energy sectors needed to agreed to give up some turf as his administration crafts its policy.”  In kicking off the event, Kasich asked for “natural gas to work with coal, and coal to work with natural gas, and renewables to work alongside fossil fuels, and for the utilities to get along — well, that might be too much to ask,”  a perfect segue into the electric utility panel.

Attendees got to see some pretty feisty verbal jousting between Tony Alexander, CEO of First Energy (NYSE:  FE), and Mike Morris, CEO of American Electric Power (NYSE:  AEP), who differed strongly on whether competitive markets or regulated rate-base recovery mechanisms led to the best outcomes for electricity prices to consumers.  Not surprisingly, First Energy favors competitive markets — as they’ve spun off all their generation into an unregulated subsidiary and can earn attractive margins on their deeply-amortized powerplants — and is therefore unenthusiastic (to put it mildly) about renewable energy and energy efficiency requirements.  On the other hand, AEP believes that only regulation can provide enough price certainty and stability to ensure investments in new generation capacity that are both prudent for investors and customers alike. 

Keith Trent of Duke Energy (NYSE:  DUK) tried to split the difference, arguing for competitive energy markets to induce operational efficiencies and regulated capacity markets to foster capacity investment decisions that avoid boom-and-bust cycles of tightness-and-glut.  Perhaps even more striking was the different stance of American Municipal Power (AMP), the generation and transmission cooperative serving several municipal utilities in the Midwest.  To be sure, they do have a significant reason to have a different perspective:  as a non-profit corporation, they are exempt from regulatory oversight by the Public Utilities Commission of Ohio and not subject to any of the requirements of SB 221.  AMP’s CEO, Marc Gerken, indicated that his customers — the municipal utilities — were driving AMP to invest more in renewables such as hydro and wind, in large part to insulate themselves against the likely prospect that wholesale power prices will only increase due to rising fuel prices, more stringent environmental requirements and tightening capacity markets.  

Regarding coal, which the Dispatch article referred to as “long a driver of the state’s energy economy that is still subsidized with state taxpayer dollars,” Kasich noted that “we’re not going to walk away from coal.”  I remember Kasich also saying that “we’ll be using coal for the rest of my lifetime.”  However, Kasich said that we also “have to be mindful of the downside of it.  And we’ve got to think about cleaning it.”  In a subsequent interview with ClimateWire, as reported in The New York Times, Kasich acknowledged climate change as a legitimate concern, not taking the skeptical or denial positions so common to the beliefs of many of his fellow Republicans:  “there isn’t any question that the activities of humans have an impact.  As to what the extent of it is, I don’t know.”  

So, while he’s keeping the door open for coal, and supports its continued use, he’s also not blindly defending it to the death either.   I wonder if Kasich was amused or embarrassed by the impassioned rant of Robert Murray, President and CEO of Murray Energy Corporation (a privately-held Ohio-based coal mining company), in which he loudly called for the defeat of “Barack Hussein Obama”. 

All of this was preamble to the clear centerpiece of the event:  the discussion of opportunities afforded by the Utica Shale resource underneath much of Ohio.  And, the star of the show was Aubrey McClendon, CEO of Chesapeake Energy (NYSE:  CHK), by far the most visible cheerleader for shale gas exploration and production in the U.S.

As reported by BusinessWire, McClendon stated that their early test drilling results indicate that the Utica shale opportunity was likely to be very large — as large or larger as the most productive shale plays in the U.S., such as the Bakken, Barnett, Eagle Ford and (closer to home) Marcellus.  Also, it appears that it offers the potential for a three-prong play:  natural gas, gas liquids and oil.  When pressed to give a sense of magnitude of the Utica prize in Ohio, McClendon offered that he thought it could be worth $500 billion — “I prefer to say half a trillion dollars, it sounds bigger”.

McClendon restated what he had claimed in an early August appearance on Jim Cramer’s “Mad Money” CNBC show:  that he can foresee $20 billion of investment per year in Ohio for the next 20 years to pursue Utica opportunities.  Coinciding with the event, the Ohio Oil & Gas Energy Education Program (OOGEEP) released initial results of an economic analysis that estimated about 203,000 jobs in Ohio to be created by 2015 — just three years from now! — associated with pursuit of Utica shale gas.

Of course, these kinds of incredible (non-credible?) numbers being thrown around cause officials in economically-challenged Ohio to salivate.  According to the New York Times, Kasich said that “we’re sort of experiencing a gold rush.”   

The only pushback to unfettered pursuit of Utica is the rising chorus of concern from a wide range of environmental advocates about the use of hydraulic fracturing, more commonly-known as fracking, to produce gas from shale.  Among other places, New York, New Jersey and Maryland have issued moratoriums on fracking, primarily due to worries that the process will lead to water contamination, and secondarily due to fears that the activity may lead to ancillary emissions of methane (a potent greenhouse gas) and may increase prospects for earthquakes.

In the New York Times account, Kasich was adamant:  “There’s no problem with fracking.  I dismiss that.”  One of the reasons Kasich feels so confident:  under the prior Strickland Administration, the state of Ohio passed SB 165, a set of laws concerning oil/gas production that are claimed to be among the most stringent in the nation, including strong requirements for triple-casing all drilled holes to mitigate the potential for contamination or leakage to seep into other strata or release to the surface.

It appears that the Kasich Administration is bending over backwards to clear the path for Utica shale development, recently reassigning David Mustine from being the head of the Ohio Department of Natural Resources to a position that Kasich called “Shale Czar” in the newly-created privatized economic development agency JobsOhio.  From being invisible a year ago, Chesapeake has become a high-profile sponsor of Ohio State football — probably the most-scrutinized activity in Ohio — and McClendon has been known to meet frequently with top officials from Ohio.

Personally, I worry that the Utica shale is being viewed by the Kasich Administration and by certain segments of the government and private sector as the answer to all of Ohio’s issues.  Based on what I’m seeing, the state may soon be renamed “Uticana”.

I have no problem with environmentally-responsible fracking, which I believe is in fact doable, and endorse the pursuit of shale gas as long as it is truly “done right” (a phrase used often during the two-day event).  However, I fear that the Utica shale opportunity will be less spectacular than claimed — and if so, then putting all of Ohio’s eggs in that basket will have been a mistake.  McClendon and others on the shale panel noted frequently, as a disclaimer, that the drilling test results were still preliminary.  And, as the experience in other shale basins indicates, decline rates from shale production have been very steep — much more so than from conventional gas wells.

For the U.S. has long been insufficiently diversified:  we have an energy system that depends way-too-much on oil for transportation and coal for power generation.  As a result of that long over-reliance, we’re now painted into a challenging corner on a variety of environmental, geopolitical and economic fronts.  I don’t believe that any one energy solution — even those I have advocated for in Ohio, such as the offshore wind efforts being undertaken by the Lake Erie Energy Development Corporation (LEEDCo) and its partners — is the cure-all for our current challenges, or the road to future successes. 

Betting the farm on any one thing, even something as seemingly-compelling as Utica shale, will just paint us into another corner a few years from now.  To avoid this outcome, we need a more resilient and robust energy system — one that only diversification can provide.  In turn, this will require regulatory innovation, technological innovation and capital.

If I have a criticism of the two-day summit, it is that the last two input factors — technological innovation and capital — were mainly excluded from the proceedings.  There was literally no discussion of financing of the energy sector in the coming deacdes.

As for technology, the master of ceremonies, Joe Stanislaw, helped frame the conference at its outset with some big-picture remarks, including his provocative observation that “energy represents the new Great Game for the 21st Century”:  there is an intense global competition not only for the energy resources of the world, but the technologies to enable continued access to affordable energy to fuel economic growth.  Alas, the discussion panels never picked up on Stanislaw’s point.

If Ohio is to be something more than Uticana, not only does it need to pursue other energy options with some degree of vigor, it must also commit to creating an environment conducive to cleantech innovation and entrepreneurship — the font of much job-creation and wealth-creation in the 21st Century.  Surely, this is something that should be well-appreciated by Mark Kvamme (Kasich confidante, head of Jobs Ohio, and long-time venture capitalist at Sequoia Capital) and Wilber James (Kasich confidante, long-time venture capitalist at RockPort Capital, and planner of the agenda for this two-day event).

Notwithstanding the potential riches associated with the Utica shale, we cannot allow Ohio to become primarily a resource-extraction economy.  While some degree of resource-extraction is inevitable in modern society, examples near (West Virginia) and far (Nigeria) suggest that overreliance on this segment of economic activity is a path towards massive inequities and injustices, environmental degradation, low standards of living, and a wide variety of social ills.

Clean Coal Technology Is Making Venture Investors Money

One of my friends, John Moore. the CEO of Acorn Energy (NASDAQ:ACFN), recently sold off their rapidly growing CoaLogix investment for a quick return. I caught up with John to get the story.

So John, who the hell is Acorn Energy anyways?

Acorn Energy (NASDAQ:ACFN) is the Sun Studios of the energy sector. We have created companies and categories like Demand Response (Comverge-(NASDAQ:COMV)) and the less well known SCR catalyst regeneration market through CoaLogix which we just sold to Energy Capital Partners for $101 million yesterday.

Why did you invest in this deal in the first place?

We look for companies that have created a new category in energy technology but have yet to be recognized. We look for specialty businesses that help the energy industry “get more out of what it’s already got”. Given that coal provides 48% of our electricity in the USA and 75% of China’s output we felt it was an area where we could make an impact. At ACFN we believe in the Power Law which states a small change in a big number is still a big number. In CoaLogix we found a proven technology where the regulations were in place, a great management team and a market near an inflection point. Acorn provided the capital and management really executed. We created the world’s largest catalyst regeneration business with 75% US share and 40% of the SCR capacity under long term contracts. We exited with a 43% IRR after three years and ten months.

Who does Coalogix compete with for these products, and what made you comfortable originally that they could take market share?

CoaLogix competes with new catalyst producers like Hitachi. The company’s value proposition was that we regenerate the catalyst at half the cost of new catalyst. The competition with the new catalyst producers was driven by the new functionality that they were adding to the new generations of catalyst. The key risk factor in the investment was whether we could keep up the net value proposition to the end users versus the new catalyst offering. Management changed the industry by forming an alliance with the largest US catalyst producer, Cormatech- a joint venture between Corning and Mitsubishi and we both prospered.

I thought “clean coal” was dead as an investment category?

There have been some notable flops in the clean coal business like coal benefication and coal gasification deals. What these failed investments have in common is unproven technology and business models that require massive investment to achieve commodity margins at scale. I would refer readers to your insightful blog post on Jane Capital’s rules on energy technology investing.

How did this exit come together?

China passed NOx regulations as part of their new five year plan. We visited China in September 2010 and discovered the new NOx regulations were going to require $6 Billion of catalyst to be installed and there was going to be a really big market for regeneration. We decided that CoaLogix’s epic opportunity was China and management needed a sponsor with a lot of resources and contacts to repeat the company’s success in China. We hired UBS to lead the process and they found the perfect partner, Energy Capital Partners which manages $7 Billion in capital. They did such thorough due diligence on the company that in the end I think they knew the company and the management team better than we did.

So this is Acorn’s second big hit after Comverge?

Yes. We exited most of our stake in Comverge after the Goldman Sachs led secondary at a $600 million valuation or $29 per share. The CoaLogix ransaction was our second successful transaction with EnerTech Capital. They have incredible domain knowledge and initially sourced the CoaLogix opportunity but were between funds. We invited them in after we acquired the company and they added a lot of value. I get by with a little help from my friends.

What are the metrics on this deal? How much was Acorn in it for and when? How much did the business grow during that time? And what was the exit multiple for Acorn?

Acorn bought CoaLogix for $9.6 million in November 2007. We invested an additional $8.6 million to build a new plant and our gross sale proceeds were $61.9 million for a 43% IRR or 3.4 times our investment.

So you guys do both minority and controlling investments?

We have done both but we only make minority investments with an eye to buying a majority stake if we like management. One of the lessons I have learned is management must have a really large economic opportunity and that means ACFN owning 85% and management around 15%. We provide a balance sheet, some big picture guidance and contacts and stay out of the way and let management execute.

You’re essentially an evergreen fund, so what are you going to do with the proceeds?

We plan to reinvest in our three operating businesses; DSIT the leading underwater security company, GridSense a very promising smart grid distribution optimization provider and US Seismic a pioneer in the emerging field of 4D seismic for the oil and gas industry. We feel that each of these three businesses have huge potential and are capital light so we can stick with them longer than CoaLogix or Comverge. Of course, we always have our eyes open for new opportunities that benefit from “economies of connection” amd solve a major energy industry pain point.

One more thing John, your comment “We look for specialty businesses that help the energy industry “get more out of what it’s already got”. This is very articulate thesis that certainly isn’t typical for venture investors, can you expound a bit on what you mean by that?

Great entrepreneurs look for a fulcrum from which to leverage their ideas to market. The number one use of energy is the extraction, refining and distribution of energy. The existing energy systems waste and scale is the fulcrum. The entrepreneur’s new technology or system is the lever. I have been astonished by how many cleantech entrepreneurs want to try to reinvent our huge scaled energy systems from scratch missing the opportunity to use the fulcrum. Even the biggest venture funds don’t have the activation energy necessary to radically change our energy supply. The smartest play available is to make the existing infrastructure smarter. Last year I wrote a short book “The Hidden Cleantech Revolution” to investigate the really important changes that were happening to the “other 97%” of our energy supply that nobody was talking about. I would invite your readers to e-mail my assistant at for a free copy.

Cleantech Investing: A View From 21

Ordinarily, I let my fellow blogging colleague Neal Dikeman of Jane Capital take the lead in covering cleantech IPOs and publicly-traded stocks. 

However, I recently received the May 2011 newsletter from 21Ventures, and found the commentary by David Anthony on cleantech public equities an interesting complement to Neal’s most current take — sufficiently so to expound upon it herein.

According to David, “by the end of Q1 2011, we will have seen the bottom of cleantech investing and valuations”, with three key subpoints:

1.  “Oil seems stuck above $100/barrel.”

2.  “Nuclear energy may be too ‘radioactive’ as a source for baseload grid power.”

3.  “Renewables will fill the void left by dwindling nuclear capacity.”

It’s a nice newsletter, well worth reading, though I think David’s analysis is a bit too sanguine.  Oil prices will remain volatile, and each time they go down somewhat, the rank-and-file will think (again) that our energy crisis has passed, thus reducing the pressure for change or action in moving towards cleantech.  David overlooks the growing sense of many that natural gas from shale will represent the answer to most if not all of our future energy supply challenges for years to come, thereby mitigating the need for renewables and/or energy efficiency.  And, David neglects to discuss the future role of coal, which I believe will hang on for a long time to come, and whose benefactors will rain on the parade of cleantech as much as possible whenever possible to elevate coal’s relative position in the energy scene. 

All of these factors will mean that cleantech investing will still experience more than its fair share of bumps along the road.  It will be a tough and choppy market to navigate, and I don’t think the public markets lend themselves well to companies unless and until they have very sizable and stable earnings — which most purely cleantech firms (including publicly-traded ones) do NOT have.  Thus, cleantech is an industry that, for awhile, will mainly be capitalized through private equity and venture capital markets, with liquidity events through sales to major corporate acquirers that have sufficient scale to float well on public markets, rather than IPOs for the most part.

But, I do share David’s closing summation:  “We have always believed that dwindling low-cost fossil fuel reserves, climate change, growing middle classes in emerging markets, and urbanization will converge to create some of the best investment opportunities in our lifetime.”  I think Neal would share this conclusion too.

What If…?

…someone invents an economically-competitive energy storage technology that could be deployed at any electricity substation at megawatt-hour scale?

…the power grid were brought up to 21st Century standards to match the true power quality needs of our increasingly digital society?

…high-speed rail was not the exclusive province of Europe and Asia?

…customers had real choice about electricity supplies, via ubiquitously cost-effective on-site generation options?

…cities and industries pursued viable cogeneration options with real vigor, and companies like Echogen revolutionize the capture of waste heat?

…the use of fracking was reliably paired with other technologies and solid oversight to assure that local water quality is not harmed when shale gas is produced?

…recovering coal and tar sands was undertaken only via mining approaches that don’t leave huge gouges in the earth’s crust?

…all companies involved in the mining and burning of coal would honestly acknowledge and deal responsibly with the environmental challenges associated with coal?

carbon sequestration technologies are more than just a pipe dream and can be widely applied with confidence that no leakage will occur?

…environmentally-responsible technologies were commercialized to produce oil from shale in the Piceance Basin, making the U.S. self-sufficient for years to come?

Joule is really onto something and can produce liquid fuels for transportation directly from the sun?

…fuel cells expand beyond niche markets via continuing improvements in technology and economics to penetrate mass-market applications?

nuclear fusion could ever become viable as a technology for generating electricity?

…new technologies for the production and use of energy in a more environmentally-sustainable matter were responsible for a major share of new jobs and economic growth in the U.S.?

…we stopped sending hundreds of billions of dollars overseas every year to fight both sides of the war on terrorism?

…we stopped subsidizing mature and profitable forms of energy?

…we determined that climate change was simply too big of a risk to keep ignoring and decided to tackle the issue out of concern for the future?

…Americans were willing to pay at least a little bit more for energy to help defray the costs of pursuing much — and achieving at least some — of the above?

…we later found out that we didn’t spend that much more money and also found ourselves living on a healthier planet and in a more fiscally-solvent country with a viable industrial future?

…certain fossil fuel and other corporate interests would cease misinforming the public on many economic and environmental issues related to energy consumption?

…Democrats and Republicans could come together and do what’s best for the country rather than what’s best to strengthen or preserve their party’s political power?

…more Americans cared about the above than who wins American Idol, Survivor or Dancing With the Stars?

Will the 21st Century be the Fossil Fuel Century?

Will the 21st century be the fossil fuel century?

Whether it’s peak oilers, climate scientists, renewable and sustainable gurus, or cleantech venture capitalists, we all talk like that’s not an option.  We’ve preordained that the 21st century is a green energy, renewable power, cleantech century.

And I’d like to believe that.  But it’s not a done deal yet.  There are 3 points all of us need to keep in mind before declaring victory.

  1. China, the second largest and fastest growing large economy in the world consumes half the global coal consumption, powered in part by North American and Australian coal supplies, and by a huge increase in Chinese domestic coal production.  This year’s EIA reference case 2035 projection has China’s coal consumption doubling by 2035, driving most of a 50% increase in world coal consumption – and virtually no change in coal’s proportion of the energy equation.  Powered of course with current recoverable coal reserves at some 900 billion tons, or 120+ years of current production.
  2. Brazil, the poster child of biofuels potential the last 10 years, is making a play with its deep water subsalt discoveries to be one of the oil exporting superpowers.  And check out the announcement of its $224 Billion 5 year oil investment program.  That’s like a couple of thousand ethanol plants ,or one major oil company.  The Brazilian offshore finds to date represent production something like 5-10x the current Brazilian ethanol production.  Some poster child.
  3. And then there’s shale gas, its potential exemplified by the Marcellus Shale.  By some estimates this resource is big enough to change the entire game in fuels for power. And most of it’s located right down the street from the heart of the US population centers, just like the coal beds were.  Hard to see how electricity prices keep rising to help renewables in the face of that, with natural gas prices being  moderate and all, (unless of course China eats all the coal and drives coal prices up –  a global fossil fuels century either way?).

Imagine a 21st energy century where the US growth is powered by cheap natural gas, and exports our coal to China to even out the balance of payments.  Where increases in ethanol production and offshore oil production and slightly higher gasoline prices and mpgs balance out most of the transport fuel equation. A world where renewables play an important part, but still stay at margin of the King Fossil.

It’s not a world unimaginable.  And it’s not much different that the imagination might have done seen in 2000, or 1990, or 2050.  This shouldn’t be doom and gloom, nor should it be time to declare a cleantech victory.   The 21st energy century will be a long century.  And it’s just business as usual.

Meet the New Coal, Same as the Old Coal

by Richard T. Stuebi
One passage from the article stands out: “The expansion, the industry’s largest in two decades, represents an acknowledgement that highly touted ‘clean coal’ technology is still a long ways from becoming reality and underscores a renewed confidence among utilities that proposals to regulate carbon emissions will fail.”
Which, as we all know, they have.   And, the consensus is that carbon-limiting regulations will not be forthcoming in the U.S. for some time to come.
I posted a link to this article on my Facebook page, noting that investment decisions in new coal plants are typically a 50-year commitment, thereby further locking the U.S. into a carbon-intensive future for a long time to come.
This generated a few reactions from some friends. One, who works at a major U.S. utility, doubted some of the facts in the article. But, I don’t think he disputed the key messages.
Another, who works at another major utility, said it was far easier to be a critic as a spectator than as a company who is responsible for keeping the lights on. Fair enough.
I understand and respect many of the strategic and operating pressures facing electric utilities.  Many of these companies are just doing the best that they can while playing by the existing rules of the game — broken though they may be.
What I do find appalling is the lack of national will to change the rules of the game in such a way that it provides a clear framework for energy companies to invest in something other than mid-20th Century coal-burning technologies. 
It seems especially absurd to invest in new coal powerplants based on conventional technologies when so many existing coal powerplants of a pretty-darn-similar technological base are at risk of being retired in the coming years:  a study released last week by the Brattle Group indicates that U.S. utilities might shut down 50,000 megawatts of aging coal powerplants rather than invest in equipment upgrades to meet tightening EPA regulations.
And, I do criticize those companies who participate in the undermining of national will to take serious action to reduce carbon emissions, at the peril of our planet and of future generations. No doubt, some of those companies are those that are building coal powerplants without carbon capture and sequestration capability as we speak.
I remain optimistic that, someday, the U.S. will get serious in addressing carbon emissions. When that day comes, I won’t cry for those companies that acted to help entrench the status quo and in parallel made bets today that they will regret then.

Fossil Fuel and Life

by Richard T. Stuebi

In the past month, we’ve witnessed two major catastrophes associated with U.S. production of fossil fuels — the BP Deepwater Horizon oil rig explosion killing 11 workers in the Gulf of Mexico, and the Massey Upper Big Branch coal mine explosion claiming 29 lives in West Virginia.

It’s easy to vilify energy companies like BP (NYSE: BP) and Massey (NYSE: MEE) for being reckless at these operations. No doubt, there will be lots of investigation in the months to come, and tighter regulations and legal action in the years to come. Scrutiny is definitely deserved, new requirements may be forthcoming, and severe punishments may well be in the offing.

Rather than focus on the obvious human cost of these tragedies, and the truly frightening ecological disaster currently unfolding in the Gulf of Mexico, I choose to comment herein on the profound implications of our long-followed energy policy, which I term as “cheap energy at any price”.

For the most part, our problems do not lie with fossil fuel producers. Certainly, they must be held to meet safety and environmental standards — and in these two cases, these standards do not appear to have been met. But that does not mean that all oil and coal companies are led by evil people, and that their employees are complicit conspirators in misdeeds against humanity and the planet.

No, it’s far too easy to take that oversimplistic but misguided position.

Pretty much every reader of this post will willingly use fossil fuels today — in the coal burned to generate the electricity to power your computer, in the petroleum burned to move you to your place of work.

Let’s not forget that fossil fuels have been an instrumental factor in the huge leaps in quality of life over the past 100 years. It is this utter reliance by all of us on these fossil fuels that compels companies and people to supply these fuels. And, of course, to try to make a profit in doing so. After all, that is the American way.

These two disasters are the exception, not the rule. More fundamentally, the problem is not on the supply side, but on the demand side.

Fossil fuel companies are not the bad guys — they supply a product that will remain vital for years to come.

We have met the enemy, and it is us.

It is time for us to dedicate ourselves to putting virtually all of our incremental attention, money and efforts towards an energy system not nearly so dependent upon fossil fuels. And, we need to accept imposing such a discipline upon ourselves — for instance, by being willing to establish stronger price signals in the energy markets to drive our society in that direction.

In other words, we must stop the “cheap energy at all costs” mentality that has pervaded our thinking for decades.

As Albert Einstein once noted, “Insanity is doing the same thing over and over again and expecting different results.” In the case of energy, if we keep putting all of our eggs in the fossil fuel basket, all we can expect are more human and ecological tragedies.

Only a few of these tragedies will be very visible and instantaneous as in these two explosions. The worse tragedies are long-term and hidden: climate change, depletion of finite and irreplaceable resources, continued reliance on supplies from objectionable sources, and increasing geopolitical conflict leading to resource wars.

Think about the deceased of the Deepwater Horizon and Upper Big Branch, working on an offshore oil rig or underground in a coal mine. Are these the jobs we want to see for the 22nd Century? Did these people want their children to be earning a wage in the same way they were?

The best way to honor the dead would be by taking these recent tragedies to increase our resolve to move us from the fossil fuel past to a new and better future that need not rely so desperately on fossil fuels.

It won’t be easy, quick or cheap to create a new energy system, but we need to start working much harder to sever the link between fossil fuels and human life. Because escalating reliance on fossil fuels can only be harmful to our long-term social and planetary health.

Richard T. Stuebi is a founding principal of NorTech Energy Enterprise, the advanced energy initiative at NorTech, where he is on loan from The Cleveland Foundation as its Fellow of Energy and Environmental Advancement. He is also a Managing Director in charge of cleantech investment activities at Early Stage Partners, a Cleveland-based venture capital firm.

Peter Huber: Low-Confidence in Low-Carbon

by Richard T. Stuebi

A few weeks ago, I wrote here that it is often a good thing to read and reflect upon intelligently-crafted opinions that differ from those you hold.

A good example is offered by the essay “Bound to Burn” by Peter Huber, a Senior Fellow at the Manhattan Institute. In this thought-provoking piece, Huber makes the following interesting statements about the challenges to be faced in moving to a lower-carbon economy:

· “We rich people can’t stop the world’s 5 billion poor people from burning the couple of trillion tons of cheap carbon that they have within easy reach….We don’t control the global supply of carbon.”

· “We no longer control the demand for carbon, either. The 5 billion poor – the other 80 percent – are already the main problem, no us. Collectively, they emit 20 percent more greenhouse gas than we do. We burn a lot more carbon individually, but they have a lot more children. Their fecundity has eclipsed our gluttony, and the gap is now widening fast.”

· “Might we instead manage to give the world something cheaper than carbon?….For the very poorest, this would mean beating the price of the free rain forest that they burn down to clear land to plant a subsistence crop. For the slightly less poor, it would mean beating the price of coal used to generate electricity at under 3 cents per kilowatt-hour.”

· “Fossil fuels are extremely cheap because geological forces happen to have created large deposits of these dense forms of energy in accessible places. Find a mountain of coal, and you can just shovel gargantuan amounts of energy into the boxcars. Shoveling wind and sun is much, much harder.”

· “Another argument commonly advanced is that getting over carbon will, nevertheless, be comparatively cheap, because it will get us over oil, too….But uranium aside, the most economical substitute for oil is, in fact, electricity generated with coal….By sharply boosting the cost of coal electricity, the war on carbon will make us more dependent on oil, not less.”

· “By pouring money into anything-but-carbon fuels, we will lower demand for carbon, making it even cheaper for the rest of the world to buy and burn. The rest will use cheaper energy to accelerate their own economic growth. Jobs will go where energy is cheap, just as they go where labor is cheap.”

· “If we’re truly worried about carbon, we must instead approach it as if the emissions originated in an annual eruption of Mount Krakatoa. Don’t try to persuade the volcano to sign a treaty promising to stop. Focus instead on what might be done to protect and promote the planet’s carbon sinks.”

· “Carbon zealots despise carbon-sinking schemes because, they insist, nobody can be sure that the sunk carbon will stay sunk. Yet everything they propose hinges on the assumption that carbon already sunk by nature in what are now hugely valuable deposits of oil and coal can be kept sunk by treaty and imaginary cheaper-than-carbon alternatives.”

By no means is Huber’s writing perfect: the essay is too long by half, runs a too-circuitous path with considerable redundancies, and doesn’t lead to a very satisfying or forceful conclusion.

Along the way, some of Huber’s snide asides are too pessimistic. As an example, he claims “there is no serious prospect of costs plummeting and performance soaring” for solar and wind energy, but there is ample evidence (and lots of activity funded by prominent venture capitalists) to dispute this assertion.

And, Huber’s clearly got some facts wrong. For instance, he talks of $500/ton carbon offsets and 15 cent/kwh wind energy. If you believe these far-too-high numbers, no wonder you reach conclusions that aren’t very favorable to low-carbon energy sources.

Huber has been wrong before. About ten years ago, he and Mark Mills launched the Digital Power Report, which was touting the emergence of advanced technologies in distributed generation and energy storage to revolutionize electricity supply. Although quite compelling and seemingly well-supported, the perspectives they put forth in their periodical were at best far premature – and less charitably, inaccurate or incorrect. After a run of a few years, Huber and Mills wound down the Digital Power Report, presumably because the world wasn’t turning out the way they were predicting.

But, I still think this latest work by Huber is a worthy contribution to the discussion. Most notably, Huber’s concluding call for much more focus on carbon sinks as a no-regrets approach is hard to dispute.

Huber is no dummy. Many of the points he makes along the way are logically sound, and ought to be factored into any strategy for moving towards a lower-carbon economy. As unpleasant as some of the concerns raised by Huber may be, they are nevertheless important to hear to develop a more compelling story that overcomes the objections to thereby mobilize more real movement (rather than just talk) towards a low-carbon world.

Richard T. Stuebi is the Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc. Later in 2009, he will also become Managing Director of Early Stage Partners.

Carbon Trading, The Game

At our company Christmas party this year we played Carbon Trading, The Game. Bascially, I devised a simple cap and trade game in a power sector, and then we played out four rounds to see what happened. The results were an interesting summary of how small rules can have big impacts in the outcome. And perhaps a good Christmas lesson to everyone involved in carbon market design. The good news, the market in our game came in well under its caps even in the early round.

Basic rules were as follows:

Players start with a certain amount of cash, and then each round bid for different types of power plants, fuel, and carbon credits each round (there were shortages of each), then run their plants (assuming they were able to acquire power plants, adequate fuel, and adequate carbon credits to operate). In our simple cap and trade model, the cap was based initially off of a coal plant’s emission factor, and declined on a per plant basis each year. Power was priced at a flat $100/MWH (makes the math simple). The winner was the one with the most cash after converting carbon to cash at the market clearing price in the last round.

The idea was that the declining cap and fuel shortage would lead to players bidding high for low emissions hydro and wind farms to get under their cap, and lead to reductions.

A few interesting outcomes. Wind and hydro plants did command premium prices, but not all the way to pricing carbon in (probably since no one was sure what then final carbon price would be – proving uncertainty wins again). And since we did not let power prices float, nor require a must run component, fuel prices went on a wild swing but eventually fell as at least two players opted for a strategy to essentially mothball plants and instead just bank the carbon credits, and buy a few more. As a result, carbon prices also stayed low in the early rounds, since fewer operating plants were hitting their caps – however, the players who has stockpiled carbon then bid up the price of the final credit of the final round to $70 instead of the $10-$20 in previous rounds (it only stopped there because they ran out of money).

The final result, that high price of carbon in round 4 meant the winning strategy ended up being buy cheap coal plants throughout the game, run them only when fuel and carbon were very cheap, and make your money off the carbon.

I am planning on revising the rules for better play, then releasing an actual carbon trading game in the near future.

Besides operating, Neal Dikeman is a partner at cleantech merchant bank Jane Capital Partners LLC, CEO of Carbonflow, Inc., and Chariman of

First Impressions of China

by Richard T. Stuebi

I just returned from my first trip to China – a whirlwind ten-day tour spanning the cities of Beijing, Shanghai, Guangzhou, Xiamen and Wenling – involving a number of private meetings (some with senior public officials) as well as public presentations at PennWell’s China Power Oil & Gas conference and at a cleantech symposium hosted by the American Chamber of Commerce in Shanghai (AmCham Shanghai) at the annual China International Fair for Investment and Trade.

It is impossible in a brief blog post to give a detailed report on my visit, or to more broadly comment meaningfully about the profound issues confronting the whole world as a result of China’s rise and arrival to world pre-eminence. With this note, I will only attempt to offer some immediately apparent observations related to cleantech issues and opportunities in China that emerged for me from my visit.

Pollution. It is well-known that China is experiencing tremendous environmental challenges, with almost a million Chinese estimated to die each year prematurely from health issues stemming from poor environmental quality. Air visibility can sometimes be less than a mile on what would otherwise be an ordinary hazy humid summer day, although frankly, I was expecting the air pollution to be worse than it was. On the other hand, the water situation shocked me. China’s Ministry of Environmental Protection (formerly known as the State Environmental Protection Adminstration) is said to admit that 60% of the country’s rivers are polluted to the extent that they can’t be used for drinking, and I have heard claims from American sources that a majority of Chinese rivers are so bad that the U.S. EPA would deem their waters to be unacceptable for industrial purposes (much less for drinking). Even at the finest hotels, guests are warned not to drink the tap water, and bottled water is generally provided as part of the room rate. (In case any of you are eating while reading this, I won’t bring up the public toilets.) The other major surprise for me was how much worse the pollution situation was in the countryside than in the cities. Bad air, disgusting water and (especially) litter are much more starkly obvious in the poorer rural areas – a powerful indication of the positive correlation between income/wealth and environmental quality. This reinforced to me how important it is to promote (rather than to retard) economic growth in China, so as to facilitate environmental improvement both for the sake of the Chinese and for the world.

Electricity sector. Although I haven’t investigated in any detail, what I heard suggests to me that the electricity industry in China is on the verge of a financial breakdown, analogous in some ways to the California fiasco of the early 2000’s. Retail electricity prices are subsidized (heavily for large industrial customers), and allowed wholesale prices to generators are fixed. However, coal prices are on the rise, because the mining industry is sufficiently fragmented and privatized that government attempts to set the prices are ineffective. Since the vast majority of the electricity in China is produced from burning coal, the combined effect of increasing coal prices and steady electricity prices is putting a financial squeeze on many generators – so much so that in some cases generator firms are reducing output from their plants. It is unclear how long this can go on before electricity supply inadequacy (already a problem) becomes acute. The financial health of China’s electricity sector ought to be important to the cleantech industry, because a collapse of some type might jeopardize the attainment of the government’s ambitious clean energy aspirations that have been set forth in its Renewable Energy Law.

Manufacturing. In some parts of the U.S. (such as here in Ohio), we like to think we are a manufacturing powerhouse, but China makes us look like pikers. The ascendancy of Chinese manufacturing is nowhere near its peak: with several hundred million people still living in desperate poverty (pre-industrial conditions) in the hinterlands, the prospect of earning US$1000 per year by moving to the city to work in a factory represents a five- or ten-fold increase in income and quality of life. In other words, unless/until fuel prices make transportation of goods prohibitively expensive, stringent emission reduction programs become binding in China to double or triple electricity prices, and/or the yuan-dollar relationship alters dramatically, its huge labor cost advantages can only enable China to further strengthen its already dominant position in global manufacturing – excepting certain niches of production (items with very high shipping costs such as wind turbines, items with limited labor input due to capital-intensive production processes, items still in low-volume early production runs). Outside China, we will generally be relegated to being the technology innovators, the product designers and system integrators, the sellers and distributors, the installers and the service people. Rather than rue that position, let’s embrace it. Because of their production orientation, my speculation is that the Chinese are not so strong in innovation, leaving it to others to be the technology pioneers. After being bombarded by souvenir hawkers and market barterers who make undifferentiated “me-too” offers and compete almost solely on price (or on aggressiveness or loudness), I also conclude that these Chinese will not be the leaders in identifying customer needs as they emerge and evolve, nor in delivering high-value (not price-based) solutions to meet those needs. Those games are for us to play, so let’s go after them.

Capital. It is abundantly clear to any observer on the street that China is awash in money. In Beijing and Shanghai, designer consumer goods and high-end automobiles are not ubiquitous, but they are evident. (In Xiamen, I saw an Audi A8L – a $120,000 vehicle in the U.S. – with police lights on top of the roof. Nice cop car! Does your town have a municipal budget that would support a fleet including one?) I met venture capitalists looking for deals in China, as well as a bevy of consultants who facilitate technology transfer and commercialization into China. However, I didn’t see much evidence of interest in foreign investment by Chinese parties. For the cleantech revolution to be amped up, we need to make the case that this Chinese capital is well-served being deployed outside China – not only for good financial returns, but to generate more future opportunities for Chinese domestic investment.

Inefficiencies. Centrally-planned economies (e.g., the former Soviet Union) are legendary for begetting ridiculous systemic inefficiencies. The Chinese economy is quite a bit different – the central government indeed establishes absolute policies, but only at a very general level, providing minimal specific guidance and instead allowing individual actors almost complete autonomy to comply within the bounds of what’s permitted – but the inefficiencies are nevertheless astounding. I speculate that the inefficiencies are driven more by the explosive growth of the economy – averaging a mind-boggling 9.9% per year for a 30 year period since 1978 – which propels businesses and individuals to act quickly, with much replication and little reflection or innovation. A vivid illustration of this is the abundance of highly inefficient mini air conditioning units (rather than more efficient central air conditioning systems) in relatively new high-rise buildings, presumably because they’re cheap and quick and easy to replicate. The resulting inefficiencies also reach into the social realm: schedules are set late, remain fluid and dynamic up until the event, and tardiness is common. The Chinese way of doing things thus requires some acclimation for those of us accustomed to considerable structure and discipline.

Urban mobility. Reflecting the economic explosion, people are constantly trying to get somewhere. Even though the big cities (especially Shanghai and Beijing) have reasonably well-developed public transportation systems (including modern subway systems), and even though the per capita level of car ownership in China is only less than 10% of what it is in the U.S. (reflecting the amazing fact that private auto ownership was forbidden in China until the mid-1990’s), traffic is truly chaotic in urban areas. It is said that there used to be bicycles everywhere in China, and while many still remain (often abiding by well-designed separated bicycle lanes), many bicycles appear to have been replaced and superseded by electric scooters that are clean and silent. (By the way, the silence isn’t always a good thing, as any aimless and unattentive walker is under a constant threat of being steamrolled by an aggressively-driven scooter stealthily zooming in from behind.) It appears to me that “rules of the road” is an oxymoronic concept in China, as vehicles undertake passes in the most imprudent circumstances and drive on the left or on the right almost on discretion. (Of note, traffic lights are world-class: many have timers indicating the number of seconds remaining for a green light or red light.) Taxis are about as ubiquitous as two-wheeled vehicles and are unbelievably cheap – an hour ride of perhaps 30 miles might cost the equivalent of US$20 – but you’ll never complain about a Manhattan cab ride again. As a consequence, drivers and pedestrians alike must be vigilant to protect their lives. And, it is a good thing for all concerned that foreigners are not allowed to drive; when you rent a car in China, you also get a Chinese driver, who is well-accustomed to seeing driving behaviors evidenced in the U.S. only at race tracks and demolition derbies.

Air service. Air travel in the U.S. has nothing on China. I was impressed with the very new and modern airport terminals in all of the cities I visited. The primary domestic airlines (Air China (LSE: AIRC), China Southern (NYSE: ZNH), etc.) have thoroughly modern Boeing (NYSE: BA) and Airbus fleets – no Soviet-era Tupolevs here anymore, no reason to worry about making it alive to your destination. Fares are reasonable – and they still serve meals (though Chinese airline food is no better than the U.S. airline food of days past).

Language. I am no linguistic expert. I struggle with English, and my high school experience in studying French convinced me that I do not possess the language gene. But, since it doesn’t use an alphabet and is incredibly reliant in verbal communication upon imperceptible shifts of tone, Chinese (Mandarin) is a whole ‘nother level of challenge. I am not raising this issue as an interesting or amusing tangent, but rather because the language barrier (and overcoming it more satisfactorily) will be truly fundamental in determining the future success of Chinese-American relations. As the work of Maturana and Varela shows compellingly, humans live in language: that is, they make assessments of the world and create new possibilities only through language. Without sharing a language, it is simply not possible to come to agreement on the current situation or to invent directions for beneficial action. In my time in China, I experienced a deficit of good translators – more properly termed, interpreters – who were strong in both Mandarin and English, and who were also knowledgeable enough about the subject matter to convey the fully nuanced intentions of the speaker. (To illustrate, I would hear a Chinese speaker utter 60 seconds of Mandarin, and the English translation would hesitantly be passed on, usually some banal statement like: “China uses a lot of energy”. Come on — I know in his minute of talking he must have said something more insightful and detailed that that!) If we’re going to enable massive/rapid cleantech transfer into and adoption within China, there’s going to have to be an order of magnitude expansion of cleantech-knowledgeable people that also possess high degrees of English-Mandarin fluency.

As Mark Twain once was alleged to have said (though in actuality the maxim was coined by the French philosopher Blaise Pascal), “I have made this letter longer than usual, only because I have not had time to make it shorter.” I apologize for my rambling incoherence. I’m still digesting what I observed from my first visit to China, with an aim towards developing and executing an approach to work more systematically with/in China on cleantech opportunities. The above is merely my first transcription of my emerging thoughts. I don’t know what it all means yet, but I do know that there’s something pretty important in here somewhere.

One final anecdote to wrap up: during my trip, I had the pleasure of being able to connect personally with the U.S. Assistant Secretary of Commerce David Bohigan, as he happened to coincidentally be leading a group of U.S. business people on a clean energy trade mission to China and India. As Mr. Bohigan noted to me, the relationship with China and the need for clean energy will be the two most dominant forces shaping the U.S. economy in the 21st Century.

So, at least one bit of clarity has so far pierced the fog in my mind: it is incumbent upon the U.S. cleantech community to engage meaningfully with/in China, as it is there that the largest opportunities both for wealth creation and for environmental improvement lie.

Richard T. Stuebi is the BP Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc.

Coal on the Offensive

by Richard T. Stuebi

In the wake of setbacks to new coal powerplant construction in the face of likely carbon legislation, the coal industry has mounted a serious PR blitz, led by a group called Americans for Balanced Energy Choices (ABEC).

ABEC is a national non-profit organization with a claimed membership of 150,000, whose acknowledged primary funding source is “America’s coal-based electricity providers” — including such big-boys as American Electric Power (NYSE: AEP), Duke Energy (NYSE: DUK), First Energy (NYSE: FE) and Southern Company (NYSE: SO). Not to mention large coal companies such as Arch Coal (NYSE: ACI) and CONSOL (NYSE: CNX), and railroads such as Burlington Northern Sante Fe (NYSE: BNI) and CSX (NYSE: CSX).

Quite aptly, Sourcewatch refers to ABEC amusingly as an “astroturf” support organization: “apparently grassroots-based citizen groups or coalitions that are primarily conceived, created and/or funded by corporations, industry trade associations, political interests or public relations firms.” Given the corporate interests listed on the ABEC website, it is hard to call ABEC a true grassroots organization.

Here in Ohio, ABEC has launched a series of billboards and newspaper advertisements promoting coal, implicitly at the expense of other energy alternatives. Particularly objectionable to me is the ad that illustrates (as if algebraically) “Coal = Ohio Jobs”, suggesting not-so-subtly that a shift to other non-coal forms of energy will cause a loss of jobs. I was compelled to write a counter-response, which appeared last week as an editorial in The Plain-Dealer.

In tandem with the Ohio media program, ABEC released a white paper written by “energy economist” Eugene Trisko — identified on the white paper as “Attorney at Law” but otherwise silent on his representation of the United Mine Workers of America (did someone say “coal”?) for over 20 years — entitled “The Rising Burden of Energy Costs on Ohio Families”. Mr. Trisko points out correctly that Ohio’s manufacturing-based economy has suffered mightily in recent years, and argues that “developing an energy supply strategy that maximizes the use of Ohio’s local [low-cost coal] resource could help to reduce the impact of future energy supply and price shocks.” In other words, Mr. Trisko stresses that Ohio should use more coal, because it’s so cheap — that is, as long as carbon emissions aren’t taxed or stringent carbon controls aren’t required.

Further, Mr. Trisko neglects to mention that almost 90% of Ohio’s electricity generation comes from coal — and yet that hasn’t prevented dramatic economic deterioration in the state. Is it possible that the same mentality that led Ohio to put virtually all its energy eggs in the coal basket is the same type of thinking that has led to the pervasive economic stagnation in Ohio? Is more of the same — stay the course, keep betting on coal — the way to go for Ohio’s economic future? Hmmmmmm.

Richard T. Stuebi is the BP Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc.

Peak Coal?

by Richard T. Stuebi

One of the more passionate debates in the energy community these days centers on the concept of “peak oil”. Peak oil does not mean oil supplies running out; rather, the term “peak oil” refers to the moment in time when oil extraction levels reach their maximum, followed by a long decline — no matter how much oil prices rise and no matter how much new technology is applied in an attempt to lift more oil from underground.

For those who know a fair amount about petroleum geology, supplies and economics, there is a general recognition that peak oil will occur at some point in the future: the debate is when — a few months from now, a few years from now, or a few decades from now. Peak oil is impossible to predict with high confidence because there’s no “dipstick” in the ground to tell observers how much oil is really left in each of the fields — and even if there were, there’s no absolute way of knowing how much of the remaining oil can be yielded due to geologic issues.

Most agree that, once the peak oil moment occurs, the world will begin its transition away from oil for transportation fuels — whether it has prepared for that moment or not. In other words, if we haven’t meaningfully eased our dependence on oil, the decades after peak oil will truly be tumultuous for the modern mobility-reliant culture upon which the human species currently is based.

These types of concerns have never been raised about the supplies of coal. It has been widely assumed that there is an abundant supply of coal (especially in the U.S.), enough to last for centuries. Coal has been increasingly viewed as the “backstop” fossil fuel: plentiful, cheap, known. As long as we can deal with coal’s environmental issues, particularly CO2 emissions, we can always fall back to coal — not only for power generation, but for producing transportation fuels as well.

A recent essay by Richard Heinberg brings these important preconceptions into question. In his essay, “Burning the Furniture”, Heinberg reviews a recently released study by a German organization named Energy Watch Group, in which it is asserted that worldwide coal production will peak in the next 10-15 years.

Without having access to the report, it’s hard for me to opine on the quality of the analysis behind this conclusion. However, if the analysis is basically sound, and the conclusion is directionally valid, this insight is a very, very big deal.

If true, the world energy markets will not be able to rely upon coal as a safety net. The coal plants being built every week in China will face depleting supplies and increasing prices. Price volatility in coal markets will increase dramatically. CO2 emissions will not increase exponentially — the fuel to produce those emissions will be shrinking. Hydrogen and renewables will have to come to the fore, faster and in greater scale — and if these technologies are not economically viable, then there will be forced reductions (e.g., curtailments) in energy use. The U.S. (not the Middle East) will become the geographic region with extreme geopolitical leverage in energy.

If oil and coal both are near the end of their eras, then the world as we know it will change so profoundly, it is hard to imagine. One thing would be for certain: good opportunities for cleantech.

Essay: “Burning the Furniture”

Richard T. Stuebi is the BP Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc.