Friday, September 30, 2011

Hawaii's feed in tariffs won't turn islands into renewables paradise

When hurricane Iniki hit Kauai in 1992, legend has it that power was restored on the Hawaiian island only when the US military eventually hitched a socket onto the grid from a nuclear submarine docked at Lihue.
Electric power and telephone service were lost throughout the island and only 20 percent of power had been restored four weeks after the storm.
The most destructive hurricane to strike Hawaii in the 20th century, which caused six deaths, damaged or destroyed 14,350 homes on Kauai and cost $3bn, was a hard lesson in the vulnerability of small islands.
Kauai is abundant with life. Jagged fluted cliffs of the Napali coast and the jagged peaks atop the crumbling green mountains, sharpened by rapid erosion, act as rain catchers which cascade into the lush valleys where taro, breadfruit, papaya, mango, coconut, avocado grow easily in the wet and fertile soil on the volcanic island.
Most of these stable crops were imported by the Polynesians, Hawaii’s first visitors. Plants on the inventory of the canoes that voyaged east across the Pacific 2,000 years ago turned the island into a tropical paradise with abundant food.
A recent visit to the Limahuli Gardens, on the north coast of Kauai, demonstrated the sophistication of the horticultural husbandry of the Hawaiians, including agricultural terraces built out of lava rock and planted with kalo (taro).
The experts at Limahuli believe that the Hawaiians achieved this abundance through ahupua`a, a system of resource management that allowed them to live sustainably… at least until Captain Cook dropped anchor in 1778.
But in 2011, this so-called Garden Island, and the other seven islands of Hawaii cannot sustain themselves without huge imports of food and energy from the mainland – and further afield.
Despite Hawaii’s prime solar, wind, marine and geothermal capacity, these are largely untapped renewable resources. The US’s 50th state is 90% dependent on oil (largely foreign imports) to generate electricity, a dirty and economically and environmentally inefficient way to keep the lights on. Initiatives such as the Hawaii Energy Policy Forum are trying to find a route out of this oil dependency.
But for now, 92% of Kauai’s electricity comes from the burning of imported fossil fuels, according to the Kauai Island Utility Cooperative which supplies electricity to most of the island. In recognition that costs of electricity generation on the Pacific island could be shielded from oil price volatility caused by events in the Middle East thousands of miles away, KIUC has set a target to produce 50% of its electricity from renewable sources by 2023.
But even this figure seems lacking in ambition when the total generating capacity of Kauai's utility company is only 125MW. But the utility still has to find ways to make money, and is probably protecting its interests by encouraging utility-scale projects such as a 12MW solar project developed by PowerWorks.
Other schemes, such as the Kauai Economic Opportunity programme, offer installation of solar water heating system (NB, not PV!) to low income households as part of the American Recovery and Investment Act 2008. The scheme is laudable, but those on low incomes generally tend to be lower consumers of energy and programmes like this do nothing to target those in Hawaii’s grand coastal homes valued up to $18m.
 Long before the Middle East crisis in Libya, Lloyds of London and Chatham House released a report last year predicting that the price of oil might double by 2013.

Islanders have genuine concerns that if energy prices rise too high, the cost of living will skyrocket and the only full-time inhabitants on Hawaii will be the rich, the retired or those paid to service the wealthy residents or tourist industry, its main source of income.
A good comparison of Hawaii's electricity costs (high compared with other US states) can be found on this blog, but they appear to range between 20c-38c per kWh. Aloha Analytics has also posted this fascinating interview with farmer Richard Ha, who is leading a consortium called Ku’oko’a (Freedom) which hopes buy Hawaii Electric Company (HECO) and invest in geothermal energy. The consortium aims to buy HECO with $2.3bn and includes heavyhitters such as Jim Woolsey, former CIA director.
Ted Peck, US state energy adviser reportedly left his job to join Ku’oko’a. Before he left Peck, predicted a $1.2 billion in clean-energy investments in the state in 2011. This four-fold increase since 2009 was because of government policy, he claimed.
In 2008, the former Governor Linda Lingle signed and MOU with the Department of Energy for the Hawaii Clean Energy Initiative (HCEI) to decrease energy demand and accelerate use of renewables. HCEI aims to have 70% or more of Hawaii’s energy needs met by efficiency measures (30%) and locally generated renewable sources (40%), including solar, marine, geothermal and wind.
Although the MOU was not legally binding, the HCEI resulted in a state Renewable Portfolio Standard (RPS) which mandates utilities to sell 15% of electricity from renewable sources by 2015, and 20% by 2020.
Hawaii’s feed-in tariffs (FIT) will be at the core of incentives for investors. Last October, the Hawaii Public Utilities Commission approved feed-in tariffs for renewable energy generators up to 500kW in size. The predicted FIT capacity will be 60 MW on Oahu, 10MW on the Big Island and 10MW on Maui, Lanai, Molokai (combined) with rates ranging between 27.4c and 33.1c per kWh  that appear to favour smaller installations below 20kW. Customers on net metering schemes are also allowed to switch to a tariff.

There are small solar projects slated in Kauai, such as a 6MW solar PV facility next to KIUC's Port Allen Station power plant. 

Clean energy is no newcomer to Kauai. Small hydroelectric plants, commissioned by sugar plantation owners have been operating for 100 years or more, this this curious Heath Robinson-style hydroelectric plant (see below) we discovered a few doors up from our holiday rental which still powers the Kauai Coffee Company 33 miles away.

It was a jaw-dropping technical feat of its time, installing the transmission lines across the wet, crumbling mountain was a triumph of engineering way before the tyres of any motor car hit the dirt on the island.

Looking around Kauai, it would seem that distributed solar generation would be a perfect fit. As far as I can tell, FITs don’t even figure on Kauai – but I would be happy to be shown otherwise. Decentralised power sources could also potentially get the lights back on quickly - especially useful on an island prone to tsunamis as well as hurricanes.

Distributed generation is a tough sell to utilities and investors – and therefore lacks the political support it enjoys on the mainland in states such as California.  
Utilities in Hawaii have more reason to continue to monopolise energy generation to protect their revenues because their market is so small. Even Ku’oko’a would most likely limit a change to its business model by just switching to a different source of energy, rather than push distributed power, therefore keeping the power generation revenue for itself.
Dave Waller, VP of customer services at HECO, told that he was confident that FITs would take off in Hawaii.
So now the incentives are in place, is it enough to tempt investors into putting their dollars into project finance? And are FITs the right policy tool to create a market in solar, wind, marine or geothermal energy on the islands?
Matt Cheney, chief executive officer of CleanPath Ventures, offered some insight into the particular nuances of Hawaii’s FIT this week at the REFF West conference.
“We’ve worked in every state – Hawaii for a while required that the state investment tax credit could be monetized by an entity other than the entity that was monetizing the federal investment tax credit and that kills it. For the most part the national banks don’t necessarily do work in Hawaii  - it’s valueless to them.”
In later comments after the panel discussion, he explained that although high energy costs make renewables attractive, loads are small because “Hawaii is dinky” in population size by comparison to states like California and “distribution lines are dead ends” unlike say the inter-connected grids on the west and east coasts of the US.
“They have chosen to build their energy infrastructure around oil. How awkward for a state that has an enormous amount of geothermal, wind, solar and small hydro. They never hoped to optimize around indigenous energy resources at the point of investment or inception of how it is that they’re going to develop their energy infrastructure and subsequently you have a state that has all of this legacy power plant infrastructure that is dependent on fossil imports that alone tells you why the Democratic senators of Hawaii voted in favour of developing the north coast of Alaska for oil.
“Every time they entertain the idea of investing in renewables they in turn have to choose to create this reserve capacity of stranded infrastructure. So every dollar they allow to be spent on renewable energy and every contract they write to accept that renewable energy, they’re choosing to idle part of something they have already invested in that they have to pay for. All of this amounts to having some of the most expensive electricity rates in the whole world. Certainly at a level that encourages renewable energy. If they had to do it all over again they probably would have done it differently."
Cheney hinted that utilities would be forced into radical restructuring before renewables could really take hold.
“My idea of smart policy an unlimited ability of people to decide for themselves where they want that generation to come from. Distribution and transmission, that’s a job for the utilities, to coordinate the grid and smart grid. When it comes to you deciding how you want to live your life and you’re paying a generation rate as part of your bill you should have a say in that. That’s where the change is coming.”

But even if that transition to cleaner energy comes soon enough to protect Hawaii from the next shock of volatile oil prices, howling hurricanes and Alaskan earthquakes, that change might not be the right one to ensure  power is restored as quickly after a natural disaster unless more distributed generation is encouraged.

Thursday, September 29, 2011

Steve Jurvetson and the invisible innovation that will change the world

What venture capitalists really think and what they say aren’t always the same thing. Intellectual excitement doesn’t always correspond with bets they place on the gambling tables of early stage investments.
Steve Jurvetson, from Draper Fisher Jurvetson, this week gave his overview of disruptive innovation in cleantech at the Always On Going Green conference in San Francisco. The man who famously invested $300,000 for 30% stake in Hotmail and made $250m for his VC firm when Microsoft bought the company two years later enthused this week about the “explosion of possibilities” of synthetic genetics in clean tech.
In August, one of Jurvetson’s portfolio companies, Genomatica, filed an S-1 form with the US Securities and Exchange Commission. The company uses computerized biotechnology modelling to design high-volume chemicals from renewable sources such as cellulosic biomass. 
DFJ joined a consortium of investors including VantagePoint in raising $84 million in financing Genomatica. Tate & Lyle and Mitsubishi list among its partners. 
Biofuels have bucked the downward clean tech IPO trend this year, not least because the oil incumbents have a huge interest in replacement fuels.  
But apart from a scattering of clean energy plays, DFJ hasn’t done a great deal to promote itself as a VC leader in the field since 2008 – perhaps as the economic crisis matured into the great recession. DFJ’s portfolio of “companies that are changing the world!” reveal a curious lack of clean tech companies, with BrightSource, CoalTek and Tesla among the exceptions. Furthermore, DFJ’s star clean tech venture partner, Raj Atluru earlier this year announced his move to George Soros’s $1bn clean energy fund, Silver Lake Kraftwerk.
Although Jurvetson’s clean tech portfolio is fairly modest: Genomatica, Tesla and synthetic biology company Gen9, he made a robust case to claim that these investments were made in “disruptive innovations.”
He said: “First let’s define innovation: by innovation, I mean things that matter. Not sustaining innovation, but disruptive innovation – what will history books be written about. 20 years from now what will people remember as a seminal advance for the human race? And that will not be some marginal improvement buried deep in some large company. It’s always startups.”
In what sounded almost like a explanation for his scarcity of clean tech investments, he said: “If you think 20 years out, and ask what’s the most important company on the planet, it is not any company you could write down today. The most important company 20 years from now has not even been founded yet and doesn’t have a name. That’s a bit disconcerting for anyone who thinks about the trajectory of technology progress. That is always obvious in retrospective, eg Google Facebook didn’t exist 20 years ago. It’s not so obvious when you plan into the future.”
He argued that large companies by their very nature were incapable of being disruptive. “I’ll go further and say that no large companies does disruptive innovation in any sustained manner – not even Apple. If you think about the personal computer what have they done over the last 10 years in personal computing?”
Economic crises were an engine of change and could be an advantage for startups because it was cheaper to get established when markets are depressed, he said
“Two thirds of the Dow Industrial Average was formed during recession or the great depression. Companies tend … to build their business in more sustainable ways when they are formed in a down market. The odds might be in your favour. Why might this be?
“What is it about market disruptions and economic disruptions that make markets thrive? One example might there hasn’t been a car company IPO here since Henry Ford.
“But it got a little easier – Teslsa was able to buy a new manufacturing plant for pennies in the dollar. Who could have predicted that 5 years ago?
“When you have debt crises and pension plan disasters in large companies within our broader portfolio even outside of clean tech it’s those startups that are focusing on automotive, financial services real estate that are thriving. Exactly the things that you read about in the headlines have been the most destructive economically.
“But if you look at electric vehicles there maybe a few people buried deep within large companies who don’t realize that every vehicle in the future will be electric. Every train, automobile, etc. Big companies wouldn’t lead that disruption. It takes a startup to lead that challenge but it is happening.
“The future will be less predictable, forecast rises will shrink, company lifetimes will shrink, new entrants will proliferate and it’s going to just get more unpredictable. If you thought financial crises came and went, just count on them – another economic collapse, it’s almost going to be like not news any more. But for startups this is great, because it’s a perpetual driver of disruption.”
However, what really excites Jurvetson, it seemed, are not flashy electric cars or sophisticated IT services to manage energy domestic demand or across smart grids, but “genetic alchemy” also known as synthetic biology.
Life sciences were entering a renaissance that would converge with clean tech thanks to computational biology, he said.
“It’s an interdisciplinary renaissance… think about ideas mating in new and interesting ways across academic disciplines to greater effect than within one.
“IT is now reaching out to fuels and chemicals, energy and clean tech, rockets, all kinds of bizarre industries that formerly didn’t face much competition.”
Drew Endy, assistant bioengineering professor at Stanford University and cofounder of Gen9, one of Jurvetson’s portfolio companies put our “partnership with biology” in perspective at a later panel discussion.
“Our work is a radical departure from the past generation (35 years) of biotechnology which has tended to be overdriven by applications, given that we typically turn to biology as a technology partner of last resort to solve pressing problems (cure this disease, give me a drop in fuel now, etc.). This has resulted in a collective and persistent underinvestment in tools supporting biotechnology. Most practice the details of genetic engineering today no different from how it was done in 1980.
We can project that we’re going to get better at constructing [synthetic DNA]. What does that mean 10 years from now? We should not be surprised to see another 10 fold increase in our capacity to print genetic material.
“In 1980 Genencor took the enzymes that are used in laundry detergent and re-engineered them to work at cold water wash temperatures and the net impact of that if you distribute those enzymes in laundry detergent throughout the US you can realize up to 10% decrease in domestic hot water heating requirements. In 1980 that was the equivalent of around 100,000 barrels of oil a day, 5x the Gulf of Mexico oil spill. That’s one protein integrated into human existence to reduce environmental energy needs.
“You typically don’t think of what’s in your soap or the enzymes that are in your ice cream that prevent ice cream crystals from growing too big in the thermocycle coming in and out of your freezer – I know this is a first world problem – but biology exists with us everywhere. And I see how to partner better with it to reduce loads on the environment and energy that’s where we’ll see a lot of disruption.
“The key is going to be how to figure out how to sustain the investments in the told. If we try to implement the future with the tools of the last 35 years, we’re dead in the water. We’re going to get another handful of things we can celebrate.”
The most powerful gamechanging disruptive innovation is likely to be invisible, said Endy. “We’ll make some biofuels - they are important we need to have agility in terms of replacement petroleum. But we’re also going to change how we exist to reduce our energy loads and footprints. That’s probably where I would expect to see a lot of disruption. It’s likely to be invisible.”

Friday, September 2, 2011

Solyndra closure may signal welcome change to US clean energy policy

So long Solyndra, poster child for the Department of Energy grant loans programme. It has been a bad week for the solar industry for sure - made worse today by SolarWorld’s announcement that it’s closing its factory in California.

But how bad is this news and who might be next? MiaSole and SoloPower will be closely watched. Thin film solar companies are particularly vulnerable as silicon PV prices plunge and costs for the newer technology have yet to follow that downward trend.

Arno Harris, CEO of Recurrent Energy, points out on the Energy Collective website:
Solyndra failed because conventional PV technology succeeded in dramatic cost reduction. Conventional solar panels cost 1/3 of what they cost 2 years ago. Solyndra's technology just couldn't get down the price curve fast enough to remain competitive in that kind of environment. We should be celebrating PV's wild success rather than lamenting the failure of one company.
But it would be wrong to imagine that Steven Chu, Jonathan Silver and even barack Obama himself who have all visited the factory Fremont, California, are now in DC scratching their heads wondering where did it all go wrong for this heavy investment from the loan guarantee programme.

VCs might be lamenting their biggest loss ever, Katie Fehrenbacher at GigaOm estimates as much as $1.1bn. But the loss of Solyndra might also cost the Obama administration financially – not just the $545m in loans (the first the DoE made) to build its factory and politically. Fehrenbacher describes the pitfalls of close contact with high-risk businesses for politicians here.

But it also might cost the political argument over why government should be “intimately” involved as Chu said this week in developing new technologies. At a time when Republicans are putting pressure on Obama admin to cut costs, it will be a harder argument to win after Solyndra.

Earlier this week at the National Clean Energy Conference, Chu said that there was a place in government policy for high-risk high yield investments, accepting that some will fail. He compared the mission of the Advanced Research Projects Agency – Energy (ARPA-E) which only focuses on “high risk, high payoff concepts - technologies promising genuine transformation in the ways we generate, store & utilize energy” with baseball.

He said: “You have to take a more daring approach to fund innovative projects. Those projects could be gamechanging. To use a baseball analogy, we weren’t swinging from the heels enough, we were investing in incremental things… singles. But a home run could really change the whole landscape of energy technology.

“When you swing from the heels you expect a few strikeouts but what you don’t want to do is swing at bad balls.”

He admitted it was too early to tell whether we have home runs yet "but we see a number of people rounding second base".

But I wonder as he delivered his speech in Las Vegas this week whether he already knew that Solyndra was a bad ball.

As Neal Dikeman notes on his Cleantech blog:

This deal’s been close to a running joke among the cleantech cynics for a couple of years now.
We wrote about this before. The theory on the product was that rooftop install issues and low wind resistance were so important that they should be coating CIGS on a circle and encapsulating it in the most weird and costly way possible (or maybe because they liked the cattle-grate aesthetic), and then demanding a premium price for it. Keep in mind, it was roughly the same amount of CIGS material they would have used if they had done a similiar size flat plate module.

But the reasons for Solyndra’s failure are more nuanced and will no doubt get lost amid the ineffectual squabbling of Congressmen and women as they debate cuts to programs which have propped up the renewable industry since the global economic crisis. The sun is setting on the 1603 grant programme, as hopes are fading that anything will replace it. Others, like the investment tax credit will continue, but hinge on tax revenues, which are much weaker than when it was developed. 

But buried in the news is a golden nugget that the Obama administration could use to silence its critics: Solyndra blamed an oversupply of cheap Chinese solar panels for the company's demise.

The loss of manufacturing to China of many products, not just in clean energy, is a constant theme in the US. Although figures out this week from the Institute for Supply Management showed that manufacturing activity expanded in August at a slightly higher rate than expected. That was merely a glimmer of good news amid another dismal jobs summary from the Bureau of Labor Statistics showing no growth since April this year.

But the view from China on manufacturing was much sunnier by comparison. That’s no surprise.

Some Democrats such as Harry Reid are trying to stitch these two policy goals together with “green jobs” bills

President Obama has also pledged to “win the future” and encourage manufacturing in clean energy in the US. But lithium ion battery production is not enough on its own, although supply chain manufacturing for the auto-industry will almost certainly be boosted by the new fuel efficiency, CAFE, standards.

But Democrats will have to work harder to idiot-proof policies from attacks from unqualified opinionators on the “climate change hoax” such as Rush Limbaugh who as America’s unofficial comedian laureate said this week:
Every liberal program come down the pike... Social Security (I know this is gonna irritate some of you) is a Ponzi scheme that is given credibility simply because it's run by the government. But it's no different than what Bernard Madoff was doing. There's not a shred's bit of difference in what Madoff was doing and what Social Security is -- pure and simple -- and we have reached the point where Madoff went to jail in Social Security. There's no longer money to pay late-arriving investors.
I haven’t looked into the Fox News story he cites which claimed that federal programme weatherizing in Seattle burned through $20m, while employing only 14 people and upgrading three homes.

But I would argue that journalists could be and should be looking into where federal ‘clean energy’ funding ends up. Excellent reporters such as Russ Choma have already investigated some cases, and I intend to follow.

Republican knives have long been out for Solyndra with an investigation launched by Fred Upton this year into misuse of stimulus funds.

But Tea Party Republicans and their sympathizers jump should hesitate to jump on the band wagon and hold up Solyndra as an example of why government should stay out of business. As Greentechmedia noted this week, “let the market” decide approaches leave us with products no one wants such as “lead paint, DDT pesticide, and the 80-hour work week”.

The first chart on the Greentech media post shows Solyndra’s loan guarantee dwarfed by Chinese Development Bank loans to Chinese solar company but asks whether US funding would have been better spent on developing the manufacturing of proven technologies rather than trying to get new technologies to commercial scale.

After Solyndra has failed to find a way out of a terminal valley of death is the Obama administration considering refinements to policy approaches to investments in clean energy?