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.

Failure Is An Option: Cost Is Not No Object

I’m pretty skeptical when it comes to polls about energy issues.  Way too often, the questions are posed in such a way that they practically compel the respondent to answer in a certain way. 

Seriously:  if someone asks you “would you like the energy you use to have less environmental impact?”, are you going to answer “no”?

Valuable polls force people to make tough tradeoffs, as it is under “either-or” situations that true preferences are more accurately revealed.  In the case of energy polls, since most consumers are fundamentally economic decision-makers, questions have to be wedded to the potential dollars-and-cents implications.

And so I put a bit more credence in the results of a recent poll by the investment banking firm Lazard (NYSE: LAZ), in which they asked U.S. voters how much more they were willing to pay for lower-carbon sources of electricity. 

As reported in an article by the Financial Times, the Lazard poll indicates that, on a scale of 1-10 (1 meaning highly unwilling, 10 meaning highly willing), only 21% of respondents reported a score of at least 8 in terms of willingness to pay more for clean energy, with an average willingness to pay of an extra $9.74 on the monthly electricity bill.

Since the average American household spends about $100 per month on electricity, these findings suggest that the average American would be willing to tolerate about a 10% increase in electricity bills.  Implicitly, this means that the average American would be willing to pay about twice as much as they normally pay for electricity — for 10% of their electricity supply.  Given that the average price of electricity in the U.S. is about 10 cents/kwh, the typical American would thus be willing to spend up to 20 cents/kwh for 10% of their electricity to support an accelerated transition to cleaner power generation. 

Unfortunately, many clean electricity generation options — especially those that can achieve large-scale in the many locations not endowed with truly excellent renewable resources — remain at costs at or above 20 cents/kwh delivered to the customer. 

Consequently, it’s unrealistic for clean electricity technologies to supply more than a small portion of the overall power generation portfolio in the U.S. unless and until that fact changes.

In other words, without significant cost reductions, the promise of many clean energy technologies will remain just that:  promise.  Customers — citizens, voters — will not bend over backwards economically to foster a high degree of penetration of new clean energy technologies.  And, we’ll keep more or less doing what we’re doing today.

Against this backdrop, it’s interesting to read the recent report by Google (NASDAQ: GOOG), “The Impact of Clean Energy Innovation”.  Google recognizes that the clean energy movement needs significant cost breakthroughs to become massive in scale, and aims to depict what could happen if such breakthroughs were achieved over the next few decades:  offshore wind down from 20 cents/kwh today to below 5 cents/kwh, solar from 15-20 cents/kwh today to 2-4 cents/kwh, and carbon-sequestered coal generation from ???? (i.e., unavailable) today to below 5 cents/kwh.

As much as anything, the report is a call to unstick the lethargy and break from the status quo do-nothing posture that tends to befall the energy sector.  It’s as if Google aims to goad the energy industry into action, with such implorations as “Technologies that innovate fastest win” — something that Google should know about first-hand.  The closing line of the study couldn’t be any clearer in prodding for acceleration:  “The benefits [of energy innovation] are clear, so let’s go!” 

But Google is fundamentally a nimble and entrepreneurial Internet company, and they are shouting into the din of the massive and bureaucratic energy sector.  It seems naive, to me, that their words will resonate with their (presumably) intended audience.

Alas, along with the rah-rah cheerleading, the Google report’s authors also identify the immense obstacles to the path they themselves promote.  Notably, they confess that “smart policies are needed to drive innovation.”  In today’s toxic political environment, it is difficult to imagine any substantive new policies encouraging further energy innovation being implemented, much less so-called “smart” policies — always difficult to achieve in the best of times.

And, as Devon Swezey of the Breakthrough Institute notes in his recent essay “The Coming Clean Tech Crash” in the Huffington Post, “In an era of heightened budget austerity,  the subsidies required to make clean energy artificially cheaper are becoming unsustainable.”

At bottom, Google recognizes the challenge:  “Coal is very hard to displace on economics alone.”  Coal-fired generation is just so damned cheap (as long as environmental issues are overlooked), that its 50+% market share in the U.S. will be hard to dent materially if the invisible hand of the market is the only hand on the tiller.

Compounding the issue is the return of cheap natural gas.  As Google notes, greater utilization of natural gas generation driven by recent low gas prices would be good in the short-term for reducing emissions, but will slow innovation leading to wider-scale deployment of truly clean (i.e., zero or near-zero emissions) energy solutions truly necessary for the long-term:  yet another example of the type of tradeoffs often faced in the energy sector and indeed in society at large — with the short-term usually winning out over the long-term.

So, ultimately, a cleantech utopia is only achieveable with major technology breakthroughs to reduce costs to politically acceptable levels, yet clean energy innovation is greatly hindered (though not entirely stymied) by many of the forces at work.  This is the playing field on which we in the cleantech sector are faced with playing.  Sound like fun to you? 

Before you opt in, be aware that failure is indeed an option.  Don’t jump into the game thinking that this will be easy, because it will be anything but.  And, the way to score big points in the game is to reduce costs, period.

Wild Is The Wind

Late May, the wind industry flocked to Anaheim for its annual gathering, Windpower, hosted by the American Wind Energy Association (AWEA).  For the first time in quite awhile, attendance was down from the previous year – estimated at 14,000, compared to a reported 25,000 in Dallas in 2010.  At least part of the reason was geographic:  it’s simply more time-consuming and expensive for many to travel to the West Coast as opposed to the center of the country.  However, there’s no doubt that the vibe was more subdued.

I returned from the show ruminating on several questions:

When will new players stop entering the wind turbine market?   I am not exaggerating when I estimate the number of companies with turbine products on display at 50.  I have never heard of many of these companies, but somehow they must be able to somehow scrounge up what clearly is a significant amount of capital to amass the tooling, fabricate at least a few units, and design and staff fancy and massive booths.  A number of these no/new-name companies are Asian, presumably with lots of excess cash and considerable naivete on how to penetrate the North American wind market.  The rush is probably five years too late and clearly unsustainable – but it seems to be getting more acute rather than better.  As the old adage from the financial sector says, “the market can stay irrational much longer than you can stay solvent.”   If any of these “who-dat?” companies were public, I’d recommend shorting them.

How will consolidation unfold?  Many wind turbine manufacturers are enormous corporations with solid balance sheets, unaccustomed to being something other than a top three player.   It’s a “who’s who” of Fortune 100 companies, including the usual suspects GE (NYSE: GE) and Siemens (NYSE: SIE), newcomer United Technologies (NYSE: UTX) via its December 2010 acquisition of Clipper, mega-corporates from France Alstom (Euronext: ALO) and Areva (Euronext: CEI), the Spanish armada of Gamesa (BMAD: GAM) and Acciona (BMAD: ANA), Japanese Mitsubishi, the Koreans Daewoo, Hyundai and Samsung, Chinese Sinovel, Goldwind and other ambitious entrants, and on and on.  Indeed, this impressive list doesn’t include industry-leader Vestas, the former high-flyer Suzlon from India, and some excellent German producers including Enercon, Fuhrlander, Kenersys, Nordex and RePower.  Most of these firms have the appetite to play for keeps, and the funding to enable it for an extended period, so it will be an interesting game of musical chairs in the coming years – and a good opportunity forthcoming for M&A investment banking in the wind sector.  There’s no way they can all be successful and remain in the market.  It’s just way too crowded.

What will happen to the production tax credit (PTC)?  It’s been shown vividly that the wind industry suffers from booms-and-busts in cycles as the dominant U.S. policy pertaining to wind, the PTC, is allowed to expire and then is extended (typically for no longer than the two year duration of a House member).  It’s due to expire (again) at the end of 2012, and while the industry is optimistic about a good 2011 and 2012, after that is a guessing game – particularly in the current political climate and budget woes.  The only consensus is that the PTC won’t be addressed at all until the lame duck session after the 2012 election, but it may not be dealt with at all until 2013 – in which case the North American wind industry will experience a big setback (again).

What about domestic manufacturing for wind?  Over the years, a major force for political support to the wind industry has been the participation – both actual and potential – of American manufacturing in the supply chain.  Based on some murmurings of industry insiders, it appears that the American supply chain is in fact getting more stressed and less competitive relative to foreign (mainly, you guessed it, Chinese) sources.  If American manufacturing continues to lose ground in the wind sector, one of the most important pro-wind voices will stop throwing its considerable weight around – and the North American wind market will be the worse for it.  Stay tuned for domestic content debates, and/or examples of “reshoring” production of components back to the U.S.A., to patch this potential hole in the wind dyke.

How will onshore wind co-exist with offshore wind?  In Europe, this has been a non-issue, because the wind industry basically had to move offshore as all the plausible sites onshore had been developed.  Not so straightforward in the U.S.:  the vast majority of the wind industry remains focused on still-ample onshore wind opportunities and doesn’t want to see any resources or policies diverted from its objectives in order to support the emergence of a new segment of the wind industry offshore.  For those who are interested in accelerating the potential of offshore wind (such as myself), especially in places of the U.S. east of the Mississippi River where most of the demand and transmission exists but good onshore wind opportunities are much more limited, the competing interests of the more well-established onshore wind industry is a frustrating source of tension.  It’s a microcosm of the U.S. economic system:  protecting the near-term by minimizing the long-term.  This dilemma is the main reason that the Offshore Wind Development Coalition was established, so that offshore wind interests could independently express themselves in the corridors of D.C.  Alas, the distinction between onshore wind and offshore wind is lost among most public officials, so the existence of multiple organizations that seemingly are operating in parallel in advocacy and education is not a helpful fact to both segments of the wind industry.

It’s never easy to make it in a sector that must fight entrenched incumbents with economic advantages, but the next couple of years in the U.S. wind market will likely be an especially bumpy ride.

RPAG – Renewable Power at Scale = Scotland?

Comments by Alex Salmond, Scotland’s First Minister, were a highlight of my fascinating introduction to RPAG – Renewable Power at Scale, this week.  With 206 GW of offshore renewable energy potential (wind and marine), despite it’s small size, Scotland has 25% of Europe’s wind power potential and 25% of its tidal resource potential.

Keep in mind, this is place with an average total demand of 6 GW of power, and already has almost that much in wind power under consent or in development, primarily offshore.  Part of a targeted 7,000 offshore wind turbine rollout in process around the British Isles over the next decade.  These are numbers that both in aggregate and relative size to their grid dwarf the last decade of renewables.  Already a net exporter of power, Scotland is basically planning on meeting the UK renewables requirements all by its lonesome, and export power across the Continent as well, if the proposed North Sea SuperGrid ever gets built.

This renewables push anchors the Scotland and UK climate change planning, with Scotland targeting 80% renewables by 2020, 31% by 2011 (11% hydro, the rest offshore wind). It was at 25% in 2008.  This compares to UK overall 32% renewable by 2020, currently at 6%.

The next couple offshore wind development licensing rounds in the UK and Scotland total numbers in the like 50 GW range.  It took me several presentations on the subject before I was comfortable typing a number that large, as it boggles the mind.

However, and it’s a big however – the industry has a long way to go.  Three key challenges, which will not be a surprise to any renewables industry aficionado:

  1. There currently isn’t anywhere near the grid required: either in offshore infrastructure to reach the locations, nor in modern onshore grid capable of accepting and exporting power from offshore.
  2. Once T&D is solved, the industry to deliver this scale needs to go to deeper waters, bigger and lighter turbines, and a roll-out speed approaching call it 5-10 turbine installs offshore per week within a few years, and no part of the supply chain is yet ready to handle that.
  3. And finally, export market integration.  If places like Scotland are going to be the Saudi Arabia of renewable electricity, the markets have to be open to cross-border trade and export.  For example, assuming it has T&D lines to get it there, and a supply chain to build it, can a Scottish wind farm sell renewable power to pick you favorite EU country and meet their RPS requirements?  Currently, that just ain’t happening.  No open power markets in Europe outside of the UK means no real cross-border market for renewable electricity.

But, it’s hard to utter anything other than OMG, as the number of roll-outs todate, the amount of development resource in process, and headlong sprint in the supply chain compared to 5-10 years ago, means the potential for offshore wind to deliver RPAG within this decade is really, really awesome.

Cleantech Meets Heavy Steel

I had a fascinating presentation today from John Robertson, managing director of BiFab, one of the first movers in offshore wind platform fabrications.  They just rolled off doing a 31 unit, 14 month project for Vattenfall’s 150 MW Ormonde project (which still counts as large in the offshore wind business), and built the original Beatrice prototype jackets.  They also sold 15% of the company to offshore wind developer SSE, essentially a vertical integration highlighting just how fragile the supply chain actually is.

There are three types of offshore mounting systems for wind 1) monopile (think big cylinder), 2) jacket, or 3) floating (of which the only prototyped system, though not yet at full scale,  is a spar (floating upright hollow cylinder).  Essentially those are in order of depth capability, with the 50-200 foot range the province of jackets, shallower water for monopiles, and at the 150 foot+ range a floating system is needed.

And right now we’re in the offshore wind’s infancy, still building one-offs.  At scale, this has to change. The wind turbine industry is already able to product final turbine assemblies within days to weeks. The rest of the supply chain for offshore is going to have to match that if the industry is to deliver the scale in the pipeline.

BiFab for example, builds jacket type mounting systems (basically four legged lattice tower) in Scotland for the offshore wind market in the North Sea.  Which sounds like a totally boring exercise.  Until you realize the following facts:

  • The offshore wind development pipeline in the UK is measured in multi-gigawatts, equaling 1,000+ plus platforms over the next 10 years.  Forget transmission constraints.  Just getting that much steel in the water fast enough at a low enough cost is an almost ungodly constraint.
  • The platforms are smaller, lighter, and have to cost much, much less, and be installed in a fraction of the time that the oil & gas industry has traditionally done.
  • Basically the fabrication shop has to learn to cookie cutter a product, not fabricate a series of one-off. Think order of magnitude three per week from a facility.  Nobody in the marine industry has done that since the Liberty Ships in World War II.  Nobody.  This is closer to manufacturing transformers or aircraft than it is shipbuilding or offshore construction except the end result has to in 50-150 feet of salt water.

I mean, when was the last time you heard a fabricator talking about manufacturing process technology, scale up and licensing designs.  They assemble steel.  Yet in offshore wind, that isn’t going to work.  Heavy steel has to meet cleantech for heavy steel to find new markets, and cleantech to reach scale.  It will be an interesting experience.

Cape Wind is New Source of U.S. Renewable Energy

By John Addison (4/29/10)

The United States now has a new source of clean electricity for homes, buildings, and industrial stationary power and also for the growing use of electricity in rail and electric cars. Wind power is especially available at night when we hope to eventually charge millions of vehicles.

Global wind energy capacity is increasing by 160% over the coming five years from 155 GW to 409 GW, according to the annual industry forecast presented by the Global Wind Energy Council (GWEC). A growing part of the renewable energy (RE) mix is off-shore wind, popular in Europe for 20 years, but stopped in the U.S. by not-in-my-backyard opposition, or more accurately “not in the view of my expensive ocean front property.”

Secretary of the Interior Ken Salazar showed political courage on April 28 by approving the Cape Wind renewable energy project on federal submerged lands in Nantucket Sound. He will require the developer of the $1 billion wind farm to agree to additional binding measures to minimize the potential adverse impacts of construction and operation of the facility. Salazar said,” With this decision we are beginning a new direction in our Nation’s energy future, ushering in America’s first offshore wind energy facility and opening a new chapter in the history of this region.”

The project is a big win for Siemens who will supply 130 3.6 MW towers, outbidding GE, Vestas, and other competitors. Siemens has already sold over 1,000 of these large off-shore turbines. The Cape Wind facility will generate a maximum electric output of 468 megawatts with an average anticipated output of 182 megawatts. At average expected production, Cape Wind could produce enough energy to power more than 200,000 homes in Massachusetts, or charge 200,000 electric cars.

One-fifth of the offshore wind energy potential of the East Coast is located off the New England coast and Nantucket Sound receives strong, steady Atlantic winds year round. The project includes a 66.5-mile buried submarine transmission cable system, an electric service platform and two 115-kilovolt lines connecting to the mainland power grid. The project would create several hundred construction jobs and be one of the largest greenhouse gas reduction initiatives in the nation, cutting carbon dioxide emissions from conventional power plants by 700,000 tons annually.

Over one GW of off-shore wind is proposed for other Eastern coastal states, eager to catch-up with the renewable energy use of Western and Central states. For example, due to California’s abundance of wind, solar, and geothermal power, my California utility does not use coal.
To overcome years of opposition, the number of turbines at Cape Wind has been reduced from 170 to 130, minimizing the visibility of turbines from the Kennedy Compound National Historic Landmark; reconfiguring the array to move it farther away from Nantucket Island; and reducing its breadth to mitigate visibility from the Nantucket Historic District. Translation is that from shore it will take Superman vision to notice the wind turbines 5.2 miles from the mainland shoreline, 13.8 miles from Nantucket Island and 9 miles from Martha’s Vineyard.

A number of tall structures, including broadcast towers, cellular base station towers, local public safety communications towers and towers for industrial and business uses are already located around the area. Three submarine transmission cable systems already traverse the seabed to connect mainland energy sources to Martha’s Vineyard and Nantucket Island.

“After almost a decade of exhaustive study and analyses, I believe that this undertaking can be developed responsibly and with consideration to the historic and cultural resources in the project area,” Salazar said. “Impacts to the historic properties can and will be minimized and mitigated and we will ensure that cultural resources will not be harmed or destroyed during the construction, maintenance, and decommissioning of the project.”
Renewable Energy Reports and Articles

By John Addison, Publisher of the Clean Fleet Report and conference speaker.

Offshore Wind: Europe Now, U.S. When?

by Richard T. Stuebi

Every two years, the European Wind Energy Association (EWEA) holds a major conference on offshore wind energy.

The last time EWEA convened its offshore event, in December 2007 in Berlin, the mood was relatively somber. Several major offshore wind projects had been completed, but had run into unforeseen technical and economic challenges. European policies and regulations for the next phase of offshore wind energy were in flux. Although everyone was convinced that offshore wind was going to be a significant growth sector in the European energy mix, there were real doubts as to when such opportunities would actually come to fruition.

Last week, EWEA held their 2009 offshore event in Stockholm, where 4,750 attendees (up from about 2,000 in Berlin two years ago) congregated to celebrate what is now clearly emerging: a boom in offshore wind in Europe over the next decade. EWEA projects 50 gigawatts of offshore wind installed by 2020. With 20 gigawatts of projected installation, the United Kingdom is making a play to steal (or at least share) German leadership in offshore wind manufacturing and deployment.

Wind manufacturers are clearly bullish. Recently, Siemens (XETRA: SIE) has established a separate business unit for offshore wind, with well over 100 employees — and still hiring. Also, General Electric (NYSE: GE) acquired ScanWind, a Scandanavian turbine manufacturer, to gain a product specifically designed for offshore application, thereby getting back in the offshore game after retrenching in the wake of its initial foray in Arklow Ireland a few years ago. At the exhibition, Vestas (NASDAQ OMS Copenhagen: VMS) unveiled a new model, the V112-3.0, for the offshore market.

So, the offshore wind industry seems to be really taking off – in Europe. Here in the U.S., as is the case with so many things on the energy front, we’re years behind.

In its industry roadmap, projecting how the U.S. could achieve the aspiration (set by both the Bush and Obama Administrations) in which 20% of the nation’s electricity supply would come from wind energy by 2030, analysis by the U.S. Department of Energy indicates that about 50 gigawatts would probably need to come from offshore wind. This is not because there’s insufficient onshore wind resource in the U.S., but rather, that most of this resource is too far removed from demand centers in the East and access to transmission would be problematic.

Developers are increasingly exploring opportunities in U.S. offshore wind, mainly along the North Atlantic, due to favorable policies and market conditions in states like New Jersey, Delaware, Maryland, and Rhode Island. In the Great Lakes — likely to be a separate market from the Atlantic for geographic and logistics reasons — the Cleveland area is pursuing offshore wind, and so are parties in New York, Michigan and Wisconsin.

While the private sector is most eager (and naturally so) to find lucrative profit opportunities, civic leaders in each of these areas are taking steps to encourage offshore wind from a job-creation perspective, aiming to attract manufacturing activity and all of the logistics services – shipping, engineering, installation, maintenance – that come with significant development of offshore windfarms.

The good news is that many of these jobs for offshore wind pretty much have to be done locally. The bad news is that, at least when it comes to technological leadership in offshore wind, the U.S. has pretty much absent from that game, with the massive 10 MW Brittania design by Clipper Windpower (AIM: CWP) being the only American exception — although, it should be noted, its initial deployment is planned for the U.K.

The worse news is that offshore wind is not on a track to becoming a significant activity in the U.S. for at least 5 and probably more like 10 years. In the above-noted DOE study, offshore wind penetration only begins in the late 20-teens. This is because there’s nowhere near the degree of policy commitment to offshore wind in the U.S. as is seen in Europe. In turn, this is because Europe has less developable land, greater renewable energy and environmental aspirations, and higher electricity prices than the U.S.

So, akin to Thomas Friedman’s “Have A Nice Day” op-ed piece in the New York Times last week, the U.S. has clearly abdicated leadership in offshore wind to other countries.

Until the profit prospects become significant, developers will find it challenging to explore offshore wind energy opportunities in the U.S. For the U.S. market to really bloom, this puts the burden on the suppliers of offshore windfarms – not just the turbine manufacturers, but also those who are working on foundation, erection and shipping designs – to drive the costs of offshore wind down to competitive levels in a timely fashion (10 years?).

The private sector is likely to need a “carrot”, in the form of some supportive public policy, to make the investments in technological advancement for offshore wind energy that ultimately produce a self-sustaining growth industry.

As the Fellow for Energy and Environmental Advancement at the Cleveland Foundation, Richard T. Stuebi is on loan to NorTech as a founding Principal in its advanced energy initiative. He is also a Managing Director at Early Stage Partners, and is the founder of NextWave Energy.

Gridlock Windblock

by Richard T. Stuebi

I don’t know if it’s a myth, but I’ve heard it said that a city’s suicide rates and average wind speeds are correlated. According to the claim, there may be something fundamental about human biology – perhaps within the inner ear – that makes windiness tend to drive people crazy.

Whether it’s true or not, it’s indisputable that, where there’s lots of wind, there tends to be few people. And, vice versa: where there’s a lot of people, there tends to be little wind.

A casual look at a U.S. wind map confirms this: most of the best wind resources are in the middle of the country, from West Texas in the South to the Dakotas in the North. If you’ve ever driven in any of these parts, you know that this is an endless expanse of desolate, sparsely-populated land.

Unsurprisingly, it’s also the case that, where there are few people, there tend to be few electric transmission lines. Logically, it follows then that there is little electric transmission capacity in the places where wind resources are greatest.

So, when parts of the Great Plains get touted as the “Saudi Arabia of wind”, it may be true, but imagine the need to build a big set of pipelines to get that useful wind energy to customers in Minneapolis, Chicago and points further East and South.

Ask any wind developer about their business prospects, and it doesn’t take long for the conversation to turn to transmission – or, more precisely, the lack of enough of it.

Look at the study “20% Wind Energy by 2030” released in 2008 by the U.S. Department of Energy to envision the implications of supplying 20% of the nation’s electricity needs by 2030 from wind. Oh, there’s plenty of wind to actually supply the electricity, no problem. It’s just that tons of new transmission capacity would be needed.

And there’s the rub. It’s only marginally easier to site and build a new transmission line than a new nuclear powerplant. Transmission lines take many years and sometimes even decades to get done, due to a variety of NIMBY forces and overlapping regulatory regimes at the local, state and federal levels. And, they cost a fortune, easily a million dollars a mile, often considerably more.

So, that “pipeline” from Dakota to Chicago is on the order of a billion dollars of merely enabling infrastructure – and since there are many pinchpoints in the national power grid, that wind power probably couldn’t go much further than the terminating point anyway.

(From a technical standpoint, I’m massively oversimplifying here by comparing the power grid to a commodity pipeline, but the gist of the conclusion is essentially sound.)

Last year, most of the transmission grid operators from the Eastern half of the U.S. convened for the first time (that’s scary, isn’t it?) to develop what has come to be called the Joint Coordinated System Plan (JCSP) 2008. The JCSP report suggests that 10,000 new miles of transmission lines, at an investment of about $50 billion, will be needed east of the Rocky Mountains over the next 15 years just to meet expected load growth and current renewable portfolio standards on the books. Little of this required expansion is much beyond the drawing board.

The JCSP’s 20% wind scenario is even more daunting: 15,000 miles and $80 billion of capital. The map associated with this scenario is especially intriguing, with three major new hypothetical 800 kV DC corridors drawn right across Northeast Ohio to New York City. (No doubt, the nightmare of the August 2003 Northeastern blackout still sends nightmares through these transmission planners.)

Sorry, I just don’t see this happening in my lifetime.

In passing, the authors point out that neither energy efficiency nor offshore wind resources were investigated to alleviate these transmission requirements. My guess is that inclusion of these possibilities would change the results – a lot.

Significant penetration of energy efficiency could probably seriously reduce the quantity of new wind generation required to make up 20% of the region’s supply. Instead of nearly 230 gigawatts (!) of projected new wind capacity in the Eastern U.S. by 2024, my guess is that concerted exploitation of cost-effective energy efficiency opportunities could cut that investment requirement in half.

As for the 100+ gigawatts of new wind turbines in the Eastern U.S., it might be cheaper overall to put higher-cost installations offshore in the Great Lakes and in the Atlantic to avoid facing the perhaps impossible prospect of building lots of expensive new transmission lines to import onshore wind from the Great Plains.

The inability to expand transmission is a major impediment to the onshore wind business, and while it might be mitigated (slightly) with some regulatory reform, I don’t see it going away. Offshore wind may have its own development challenges, but for those in the wind industry, going offshore should become an increasingly interesting way to skirt the gridlock problem.

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 a Managing Director of Early Stage Partners.

Update on Offshore Wind

by Richard T. Stuebi

In Cleveland, the Great Lakes Energy Development Task Force (a collaboration involving many local public, private and academic organizations, led by the Cuyahoga County government) has commissioned a feasibility study for developing the Great Lakes Wind Energy Center (GLWEC). The GLWEC would include a demonstration offshore project in Lake Erie off of downtown Cleveland, along with an applied research center to facilitate the development of lower-cost next-generation offshore wind energy technologies and approaches.

The long-term market opportunity for offshore wind just in the Great Lakes (much less the oceans of the world) is huge. A 2004 study indicated a theoretical potential for almost 250 gigawatts (250,000 megawatts!) of wind installations in the Great Lakes, and the Land Policy Institute at Michigan State University recently released a report indicating 322 gigawatts of potential in the waters offshore the state of Michigan alone. Of course, nowhere near this much offshore wind generating capacity is likely to be installed, but even if 50 gigawatts becomes installed in the coming decades, at $4 million per megawatt, this would represent $200 billion of investment in the Great Lakes. This seems worth pursuing with some vigor.

As a member of the Task Force, I recently traveled to Hamburg to present the state of progress in developing the GLWEC at Germanischer Lloyd’s annual offshore wind workshop. This gave me an opportunity to “take the pulse” of how the wind industry was currently assessing prospects for offshore wind.

The general state-of-affairs is that the wind industry is preoccupied with prospects in the onshore markets around the world to pay much more than tangential attention to offshore opportunities. For instance, according to the 2007 Report of the Global Wind Energy Council, 20,076 megawatts of wind energy was installed worldwide in 2007, but according to statistics from the European Wind Energy Association, only 210 megawatts was installed offshore (all in Europe). With only 1% of the market, it’s easy to see how much a runt offshore wind remains in the overall wind industry.

A key theme of the discussions was the need to maximize reliability/availability/lifetime of offshore turbine designs to minimize overall life-cycle costs of offshore wind energy, given the costs and challenges associated with installation and servicing turbines on top of tall towers in the middle of large bodies of water often exposed to heavy seas and weather.

The wind industry appears to be realizing how naive it was in thinking it would be relatively straightforward to move from onshore to offshore, while simultaneously seeing that offshore wind market needs are rapidly approaching because onshore wind prospects will not be sufficient to meet overall demands for new wind energy installations. In other words, the wind industry is likely to become more serious and earnest in taking head-on the offshore promise and challenge in the relatively near-future. The industry leaders can’t avoid it forever. But, in the main, they are avoiding it for now.

In the meantime, I am aware of several entrepreneurial companies — some of whom working in stealth mode, some of them with substantial wherewithal — that are following Clayton Christensen’s Innovator’s Dilemma playbook and aggressively developing innovations to take on a market niche that the “big boys” aren’t terribly interested in right now. As a result, the current leaders of the wind industry — Vestas (CO: VWS), General Electric (NYSE: GE), Siemens (NYSE: SI), Gamesa (MCE: GAM), Suzlon (NSE: SUZLON) and so on — may wake up a few years ago and find that they “missed the boat” in offshore wind.

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.

The Increasing Ubiquity of Cleantech

by Richard T. Stuebi

I have subscribed to Forbes for over a decade because, unlike many other popular business journals, it seems to have a genuine voice — even if I sometimes disagree with it.

On a plane flight from Cleveland to L.A. last Thursday night, I read the March 10, 2008 issue, and was amazed at how pervasive cleantech has become — even in its stoutly conservative pages:

It was the SKF ad that really floored me, making me take notice just how ubiquitous cleantech is truly becoming. I’ve never seen SFK advertise anywhere before. Just which decision-makers is SKF trying to reach with this placement in a mass-market magazine?

Cleantech is seemingly everywhere. True, some of it may be “greenwash”, but a lot of it is real, and it is growing.

Then I went back to reading the magazine, and realized we still have a ways to go: on p. 19, Steve Forbes writes yet another editorial continuing to stoutly deny climate change. I laugh and shake my head: some things never change.

Maybe Mr. Forbes should take better note of what the major corporations showing up in the pages of his magazine are actually doing to make money. After all, isn’t Forbes the paragon of capitalism? If companies are rushing to cleantech in droves, shouldn’t Forbes take heed of what the market is leading these companies to do to increase their profitable growth?

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.

Offshore Wind Report

by Richard T. Stuebi

Last week, I traveled to Berlin with a delegation representing Northern Ohio’s Regional Energy Development Task Force to attend the European Offshore Wind Conference and Exhibition, put on by the European Wind Energy Association (EWEA). We visited to learn about the status of offshore wind energy technologies, as part of the Task Force’s assessment of the proposed Great Lakes Wind Energy Center, which is envisioned to accelerate the development and emergence of offshore wind in the United States.

With offshore currently just a tiny niche of the booming wind industry, I expected the audience to be on the order of 500 people. The impressive turnout of an announced 2000 is a clear testament to the vast future potential offered by offshore wind energy. But, we also knew that, at present, offshore wind is still very much an uphill push to accomplish. Indeed, the lack of any booth at the show by GE (NYSE: GE), who had been until relatively recently prominently touting their offshore project at Arklow Ireland, indicates some retrenchment by companies with early experience in the waters. The conference validated the technical – and hence economic – challenges related to offshore wind, and therefore some fruitful directions for further pursuit.

For me, the “a-ha” moment – perhaps it should be described as a “duh” moment – was really seeing that offshore wind is at least as much about offshore technologies as it is about wind technologies. Yes, it is true that significant advancements are necessary for major components (such as blades and gearboxes) as turbines get larger for offshore projects. Also, there are many interesting possibilities for innovative turbine designs that dramatically depart from the standard approach (e.g., two-blade downwind) when one considers offshore deployment.

But the real drama of the maturation of the offshore wind sector is now being, and for the foreseeable future will almost certainly be, played out under or on the water. Note that offshore wind activity to date has been driven by the turbine manufacturers, not highly populated with marine engineers nor hugely capitalized for marine R&D. As a result, the wind turbine companies pushing for offshore wind have leaned heavily upon the one industry in which offshore deployment of above-surface infrastructure has become commonplace: oil/gas exploration/production. Today’s approaches to wind tower erection and turbine installation are thus heavily based on those used for oil/gas platforms, employing massive custom-tailored ships and cranes working on the seas.

Such installation approaches work, for sure. But the problem is cost. Too much of the cost structure of an offshore wind project relates to installation logistics. Note that each oil/gas platform yields huge revenue streams: a platform might produce ten thousand barrels of oil a day, which at today’s prices implies over $300 million per year. In contrast, each wind turbine – even really big ones of 5 megawatts or more – represents a much smaller revenue potential, maybe $2 million per year. The expensive installation techniques of the former just won’t be viable on the latter.

This is reflected in the data. According to a presentation made by the consulting firm Douglas-Westwood, the installed cost of an onshore wind project is projected to increase from an actual cost of Euro 1540/kw in 2003 to a forecasted cost of Euro 2940/kw by 2013. For an improving technology in a growing marketplace, this cost trend is clearly opposite of what should be expected.

Of course, there are many legitimate factors for such cost increases. As explained well in a presentation by the leading wind turbine manufacturer Vestas (Copenhagen: VWS.CO), the input costs of virtually all commodities relevant to wind installation – from steel to shipping – have risen substantially in the past few years, beyond the control of any player in the marketplace. And, given that the wind sector is sizzling hot, all companies up and down the supply chain are in a seller’s market, and are able to charge highly profitable prices – arguably for the first time in the history of the industry.

However, also stated by Vestas was that players in the offshore wind industry have learned from their previous projects that they substantially underestimated actual costs and implementation risks (e.g., bad weather or heavy seas limiting installation productivities), and are now building “more realistic” contingency cushions into the economic projections of upcoming projects.

By my interpretation, the current players in the offshore wind industry are on the one hand admitting that the technical path chosen to date for offshore installation has become much too costly, while on the other hand are nevertheless committing to pursuing that same path with more projects and merely accepting substantially higher costs as an implication.

It is also evident that the offshore industry has largely cleaved into two sets of companies: wind technology developers/manufacturers and marine engineers/contractors. At Berlin, a few exhibitors were tackling the offshore turbine/installation challenges holistically – see Blue H as an example – but none of the major wind turbine players seem to be following suit. Instead, their approach was to extend/refine their onshore turbine products for offshore deployment, and look to marine engineers to solve the installation challenges separately.

I therefore spy the opportunity for someone to lead the way in developing fundamentally cheaper philosophies and techniques for offshore wind installation, and I suspect that this may (only?) be enabled by integrating the engineering challenges of both the turbine and offshore deployment into new solutions offering substantially lower cost for the overall system of turbine/tower/foundation. There’s simply got to be a better way – and if so, great rewards are for the taking.

Let’s see how the industry intends to make a meaningful dent in reducing installation costs at EWEA’s next biannual offshore wind show in Stockholm in September 2009.

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.

What I Read on My Summer Vacation

by Richard T. Stuebi

In the spirit (though not the length) of a back-to-school book report, I dedicate this column to reviewing three energy-related books that I read in the last few weeks as the dog-days of summer wound to a conclusion.

Cape Wind

I first read Cape Wind by Wendy Williams and Robert Whitcomb, which profiles the eponymous offshore windfarm in Cape Cod, and provides a behind-the-scenes look at the mischief that has so far thoroughly stymied its progress.

The story makes just about everyone involved in the local, state and federal political arena look awful – petty, elitist, short-sighted, unprincipled. The list of bad guys is headed prominently by Senator Ted Kennedy (of course) and Governor Mitt Romney of Massachusetts, but less obviously also includes players such as Senator John Warner of Virginia and Congressman Don Young of Alaska. (Alaska! You are absolutely right to ask: “Why Alaska?”) The only person emerging from the story smelling like a rose is Cape Wind’s lead developer, Jim Gordon, who is portrayed as truly heroic.

The book reads quickly and well, and is getting good reviews, even from usually not-so-wind-friendly places like the Wall Street Journal. However, I am concerned that the book comes off a little too much like an in-house PR piece for the developer of the windfarm: I put the book down sincerely questioning the authors’ objectivity. The tale seems so one-sided, it’s hard to believe that it could be really accurate. If it is, our political system is in dire shape, and our prospects for good energy/environmental policy are dim.

The Grid

I most recently finished The Grid by Phillip F. Schewe, a very readable history of the electricity industry. This was the first text I have found that, in less than 300 pages, spans the mad-scientist inventors Edison and Westinghouse and Tesla, through less-known but equally pivotal industry giants such as holding company progenitor Samuel Insull and TVA legend David Lilienthal, into the turbulent days of Enron and deregulation.

The book does a particularly good job reconstructing the 1965 Northeast blackout (not much different from the 2003 version), touring the reader through massive nuclear (Indian Point) and fossil steam (Ravenswood) powerplants, and accompanying a distribution crew on a routine but not-to-be-taken-lightly line repair job in Idaho. Most interestingly, Schewe weaves in contemporary commentary and observations from social critic Lewis Mumford, whose writing excerpts offer an insightful countering perspective questioning the contribution of energy technology to the fundamental advancement of humanity.

The author’s writing style was not to my taste (for reasons that alas I can’t pinpoint), and I think the electricity industry still deserves a more gripping seminal treatment comparable to the gift Daniel Yergin gave us of the oil industry in The Prize, but until then, this will suffice pretty well.

The Long Emergency

In between, I read a thought-provoking but highly disturbing tome entitled The Long Emergency by James Howard Kunstler. Its premise is not unique: peak oil + climate change = end of the industrial era = return to pre-industrialism. Indeed, one of my recent posts covered this very topic.

However, Kunstler’s writing is incredibly powerful, with pithy snippets about every other line, and some of the directions he explores are truly distinctive. For instance, he argues that mankind’s one-shot exploitation of the non-renewable fossil energy inheritance is but a reflection of the entropy mechanism inherent to our universe (as described in the Second Law of Thermodynamics), and that escalating energy extraction/use only accelerates the rate at which our world winds down.

Kunstler is somewhat hopeful about the ability of the human species to adapt and survive, though not in its current social structures and industries/economies, and not at anywhere near current population levels. And, he is clearly pessimistic about the transition: basically, Kunstler doesn’t think there’s enough time or enough remaining energy to avoid cataclysmic change characterized by mass famine, economic depression, drought, migration, war, etc.

While I appreciate Kunstler’s wisdom and expansive disparate set of knowledge and insight, I’m not totally sold on some of his conclusions. As an example, as long as the amount of solar radiation provides more than enough energy to the Earth’s surface to supply all of mankind’s energy needs (with a few orders of magnitude to spare), I believe there ought to logically be a way to maintain a standard of living similar to what we have now – it will just cost more. I don’t think Kunstler has some of his facts straight, which always causes me to be a little shy about buying everything a writer tries to sell. For certain, Kunstler makes a lot of assertions that are not backed up solidly by facts, therefore exposing his arguments to question.

Unlike Kunstler, I’m somewhat optimistic that the combination of technological innovation and market forces (under a big assumption: that policy allows market forces to work, prices energy appropriately highly, and doesn’t provide incumbents huge protective barriers against the impact of innovation) can allow us to colonize a very attractive future. Kunstler doesn’t seem to incorporate an economic view in his thinking, whereas I believe energy prices with increasing scarcity and the resulting downward force in demand will ameliorate (though not eliminate) the pain of transition. However, I admit that it would require a huge allocation of global economic capacity towards the rapid implementation of a new energy paradigm to completely smooth the transition, and present markets with their pricing signals and investment incentives aren’t making that happen as urgently as it probably should.

Therefore, ultimately, I agree with Kunstler that the ending of the conventional energy age will be extremely painful for many constituencies, who are blindly accelerating into the wall with voracious consumption. I agree that exurbia lifestyles spreading across the U.S., especially across the southern half of our country, will someday be viewed as a cul-de-sac of history, burdening us with enormous social costs due to the massive infrastructure investments that will become untenable. I agree that life will tend to become more localized, less materialistic, simpler.

In summary, I tend to agree with Kunstler on the general direction and trajectory of our collective situation, but he and I do differ in degree regarding the likely pace and magnitude of the impending discontinuities.

All three of the above books get my “thumb’s up”, but if I had to recommend just one, it would be The Last Emergency. Read it and see. Or, actually, read it and think.

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.

LIPA-Suction: A Shift in the Future of U.S. Offshore Wind

by Richard T. Stuebi

This past week, it was reported (for instance, see article in Newsday) that the Long Island Power Authority (LIPA), or at least its Chairman Kevin Law, was in favor of pulling the plug on the 140 megawatt wind project being developed just south of Jones Beach by FPL Energy, a subsidiary of FPL Group (NYSE: FPL). This development came in the wake of a report by Pace Global Energy Services commissioned by LIPA on the potential economics of the proposed offshore project.

Meanwhile, here in Cleveland, the Great Lakes Regional Energy Development Task Force continues in the opposite direction, committed to exploring the potential for offshore wind in Lake Erie. As reported in an article in The Plain-Dealer, the Task Force announced that it will begin negotiating a contract with a project team, led by the wind developer juwi international, to conduct a feasibility study for an offshore wind research center to include a small (5-20 megawatt) demonstration project.

Why is Long Island going one way and Cleveland going the other? On Long Island, the offshore wind project was solely about economics, as the region needed more low-cost kilowatt-hours. When it appeared that the costs of the offshore wind project were going to be higher than expected, LIPA got cold feet.

In contrast, Cleveland knows that a small offshore wind project will NOT be an economic way to generate electricity. There aren’t enough economies of scale in offshore wind to make it economic today in most places in the U.S., and especially in the Midwest, no matter how much the project is expanded. Because there’s no point in making a huge offshore project, Cleveland is aiming for a project just big enough to matter in addressing the real needs of the future of offshore windfarms.

Cleveland wants to tackle offshore wind so that it can identify — and then overcome — the technological challenges and institutional barriers that make offshore wind so expensive today. By overcoming the factors that make offshore wind currently uneconomic, Cleveland seeks to become a leading center of offshore wind R&D. In subsequent years, when offshore wind does become economic (as offshore wind technology improves, the best onshore wind sites are exploited, and conventional energy costs further increase), this can lead Cleveland to becoming a major hub of offshore wind manufacturing and services for the Great Lakes and possibly beyond.

In short, Cleveland aims to build an offshore wind support/deployment industry in the decades to come, just like the offshore oil/gas industries that have bloomed in Houston and New Orleans when they led the way in tackling the challenges of offshore E&P in the Gulf of Mexico a few decades ago. The offshore wind effort in Cleveland is thus an economic development initiative, not an economic power generation project.

With Long Island’s retrenchment, and the continuing travails in Cape Cod related to the Cape Wind project, Cleveland can step in to fill the leadership vacuum in offshore wind. It takes guts to be a contrarian, but that’s where the biggest rewards lie. It’s not going to be easy, but in Cleveland, most people recognize that easy answers aren’t adequate to bring the region back to economic health.

Given their favorable situations, Long Island and Cape Cod can probably afford to be cautious, prudent, skeptical. Given the economic challenges here, leaders in Cleveland know that boldness is required. So, pending the results of the team’s feasibility study, ahoy to offshore wind.

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.