Tuesday, January 31, 2012

Geothermal - the long-lost favourite uncle of California's renewables

If cost were no barrier to renewable energy development, what would policymakers choose? Geothermal would come out top, without question. Geothermal is a perfect complement to intermittent renewable sources such as solar and wind and provides baseload power.

But geothermal is the long-lost favourite hippy uncle who dropped out before reaching his potential. At the GEA Geothermal Energy Finance and Development Forum 2012 earlier this month, it was clear why the technology had been left behind in the 1970s along with flared trousers, CND and tie-dye.

Thanks to the Geysers just north of the Napa valley, geothermal energy produces around 40% of the state's renewable energy in California. But that figure could be much higher. Nationally, geothermal provides 13% of non-hydro renewable electricity generation, or less than 1% of total US electricity.

According to a recent report from Pike Research, total US geothermal capacity will reach 4.2GW in 2020, a 36% increase from the 2010 level and significantly more than any other country. That represents almost 30% of total worldwide geothermal power capacity in 2020.

In the Philippines and Indonesia, most of their energy is geothermal. But in the US, geothermal is treated like the long, grey-haired hippy uncle who's never quite realised his potential.

Subsidies over the past 30 or 40 years have favoured the sun and wind. The entire industry received $368.2m from the Recovery Act 2009 - less than Solyndra's half billion. There are 24 ARRA projects which should bring online around 400 MW of new hydrothermal resources by 2014. The main driver for investors, however, is a tax credit hybrid from the wind industry which will expire next year.

The DoE's Geothermal Technologies Program has requested an unlikely $100m for 2012. But the real story of the rise and fall of geothermal's funding fortunes is on page 6 of this GTP presentation.

From 1976, the US geothermal industry enjoyed sustained government funding. For almost three decades the industry was lucky to receive $50m a year. It peaked thanks to ARRA again in 2009. But funding has now collapsed.

But given the resource in the US, geothermal should not be stuck in the 1970s and should be primed for technological breakthroughs.

Investment focus has in recent years turned from California to Nevada. But Enhanced geothermal systems (EGS) which inject water into fractured rock would expand resource potential beyond the western states. More than 100,000 MWe of economically viable capacity may be available in the continental United States, representing a 40-fold increase over present geothermal power generating capacity, according to NREL.

But like all good ageing hippy uncles, the geothermal industry is full of fantastic apocryphal yarns. Salton Sea in Southern California's Imperial Valley now owned by Calpine was so rich in geothermal resource that its first developer used to crumple a cigarette packet and throw it on the ground telling his engineers to drill where it landed.

It's rarely that easy. Last September the US finalized a loan guarantee of up to $350 million for the Ormat project in Nevada with a nameplate capacity of 113MW. But whether the operators will achieve that capacity is difficult to determine.

And although some wells strike it lucky with more resource than was expected, many more come up dry - much more so than in the oil industry.

One industry analyst told me that this was because resources, ie boiling water, tend to be found under "angry" crushed rock which makes seismic surveying more difficult than exploration for oil which tends to be trapped between strata of rock.

This is only one of many technical reasons why geothermal is so expensive.

Conversion technology, depth, pressure, temperature and draw down all play a part. The capital cost of a geothermal plant can range from $1,600 to more than $5,000/kW of capacity, according to the California Public Utilities Commission.

Mackinnon Lawrence, an analyst at Pike Research, described geothermal as the "workhorse of renewables" and the "tortoise that won the race". But acknowledged that geothermal can take 6-8 years to come to market, much longer than solar and wind.

He said that Pike forecast 16GW of global capacity by 2020, an increase from around 10.7GW today. But the market is too dense - 43 developers in the US alone - and Pike expects contraction among industry players.

Rick Rodgers at Montgomery St Financial said that typical drilling costs were an estimated $3m/MW - $6m/MW, 100% more expensive than oil and gas partly because drill heads are around three times more expensive in geothermal. He also pointed out that as solar costs were being driven down, it has received 30x more 1705 support than geothermal.

Jonathan Weisgall of CalEnergy and MidAmerican described geothermal as an art, not a science and a leading cleantech VC recently told me that two areas VCs weren't interested in: wind and geothermal…

But geothermal strikes me as an industry primed for technology innovation, but it won't come without investors, who won't dip their toes in the water without subsidies or longer term horizons for tax credits that more appropriately reflect the longer development period for projects.

As Lachlan Mclean from the US Renewables Group said: "Investors are waiting for catalytic events and industry leaders to emerge before investing."

But as a potential for baseload power to complement intermittent solar and wind as existing generation retires, policymakers need to revisit the ageing uncle of clean energy and bring the structure of subsidies up to date. 

Anne Simpson, senior portfolio manager at CalPERS, told the conference that $7bn had been allocated to the pension fund's clean tech investments. The CalPERS cleantech portfolio is very heavy on solar which makes sense when utilities agree 20-year long Power Purchase Agreements with developers. But Simpson could not say whether geothermal made it into the cleantech portfolio.

But its long-term horizon of valuable energy production (Geysers has been pumping power for 50 years) makes geothermal a perfect fit for pension funds - especially given Simpson's admission that even if the scheme ended tomorrow, they'd still need to manage funds for the next 70 years.

Wednesday, January 25, 2012

Obama's SOTU clean energy wishlist derailed by Congress gridlock

A week is a long time in politics… 52 weeks between state of the union addresses is a lifetime. But progress in creating legislation that will actually help the US economy recover has been proceeding at such an agonisingly glacial pace thanks to the so-called "gridlock" in Congress that last year's appeals by the President to support investment in clean energy have not advanced since last year. 
Many Republican members of Congress are increasingly making it clear that they are not interested in running the country, just running their 44th President out of office – if his policies succeed, then Barack Obama has more chance of winning a second term in office and they will stop at nothing to stop anything that makes the current incumbent look like he might be a competent president.
Pugnacious comments punctuated Obama's usual emollience, which made his plea for Congress to look to the US military on tips on cooperation.
Chinese imports of cheap PV were clearly in the crosshairs when Obama announced the creation of a Trade Enforcement Unit to investigate "unfair trading practices in countries like China," thereby turning up the heat in the trade war started by SolarWorld's legal challenge last year.
"And I will not stand by when our competitors don’t play by the rules. We’ve brought trade cases against China at nearly twice the rate as the last administration –- and it’s made a difference… It’s not fair when foreign manufacturers have a leg up on ours only because they’re heavily subsidized."
Solyndra was not specifically named. But when Obama acknowledged that public investment in technologies had associated risk - some that paid off, such as shale gas and some that failed - everyone knew he was referring to the Californian thin-film solar company that collapsed last year taking around 535m federal dollars with it.
"Some technologies don’t pan out; some companies fail. But I will not walk away from the promise of clean energy."
He called for an end to fossil fuel subsidies - a vague hope that has not moved on since his last SOTU address. "Pass clean energy tax credits," he urged, before the first and only mention of climate change, over which his tongue slipped to say "flight" rather than fight climate change. The clean energy standard which would create a federal-wide renewable portfolio target for utilities, also got an honourable mention for the second year in a row even as bills in Congress have not inched further forward in the past 12 months.
"We can also spur energy innovation with new incentives. The differences in this chamber may be too deep right now to pass a comprehensive plan to fight climate change. But there’s no reason why Congress shouldn’t at least set a clean energy standard that creates a market for innovation. So far, you haven’t acted.  Well, tonight, I will.  I’m directing my administration to allow the development of clean energy on enough public land to power 3 million homes.  And I’m proud to announce that the Department of Defense, working with us, the world’s largest consumer of energy, will make one of the largest commitments to clean energy in history -– with the Navy purchasing enough capacity to power a quarter of a million homes a year." 
In many ways, that Obama's energy and climate goals have found a more welcome home in the US military comes as no surprise. As with the fuel economy standards introduced last year, executive orders are a useful addition to the political arsenal of the commander in chief. It's a curious trick of America's style of democracy that bypasses Congress… that is where Obama appears to be most effective. The same could be said of his administration's foreign policy - killing Osama Bin Laden tops a long list of successes in the state department thanks to Hilary Clinton, along with withdrawal from Iraq and toppling murderous dictators such as Colonel Gadaffy.
But the Republicans pretend not to be interested in foreign policy to avoid drawing attention to Obama's successes, citing the domestic problems as far more pressing.
But given the freedom to execute his executive role, Obama is clearly more effective without the burden of a Congress that has bound itself to industrial interests such as the Koch brothers et al at the expense of the wider American public. 
Tea Party Republicans mask prejudice and discrimination and obstruct reasonable discourse on everything from energy policy to abortion by citing the constitution, or rather their own appropriated interpretation, with the same religious fervour as Islamic fundamentalists cling to the Koran, or their own warped interpretation, as justification for waging war on the west.
Climate change is just one issue where Republican sceptics make themselves sound ridiculous because their arguments and comments have to stray so far from the facts and the scientific consensus that the rest of the world accepts.
That Republican presidential candidates are now equating "socialism" with "European" makes them sound silly. But these daft comments become more serious when this newly coined synonym passes almost without comment or inquiry by the public or press in the US…  David Cameron, Angela Merkel, Nicolas Sarkozy are all right of centre party leaders who have vowed to cut public spending and allowing sovereign monarchs to remain as heads of state in countries like Spain and the Scandinavian nations, is hardly a "socialist" strategy for organising society.  

During a conversation recently with a VC specialist at a large accounting firm the discussion turned around to Obama's threat to tax "wealth creators" and "wasting money on entitlements". Ah yes, the benefits culture has become a problem in the UK too, I said. To which the reply was: That's right, in Europe, you have socialism there. 

This lazy association through redundant ideologies obstructs discourse. After all, China a country run by a "communist" party has little or no "welfare" state as we would call it in the west, where healthcare payments are based on the extended family's ability to pay. So much for socialism taking care of the poor… if by socialism = European, they mean social equity, then that's a definition I'll live with. But that is a pejorative concept for too many Republicans.

In the Iron Lady biopic of Margaret Thatcher there is a wonderful scene in which Meryl Streep quotes: "Beware of your thoughts, they become your words. Beware of your words, they become your actions. Beware of your actions, they become your habits. Beware of your habits, they become your character. Beware of your character, it becomes your destiny."
Words and their real meaning should matter to everyone, especially politicians, regardless of bias.
The global warming debate is where this lack of interrogation of factual accuracy stands out in the US - it is depicted as if there is still enough weight of evidence to give credence to the doubters. That is just not true and it doesn't matter who says so or how many times, the US is a country where consensus on climate change can be reported as a "revelation" 10 years later than every other nation because it suits politicians and their fossil fuel influencers to obscure and dissemble.
Professor Naomi Oreskes deftly argues in the LA Times that climate change is an issue where "open mindedness" does not apply. It's just one of many issues: it is no longer scientifically acceptable to stay "open minded" on the adverse affects of smoking; nor is it socially acceptable to stay "open minded" about prejudice or discrimination on grounds of colour, gender, religion or sexual orientation. There are some things in life which are so politically or socially unpalatable in a free and fair society that "open mindedness" is inappropriate…
Unlike last year, there was no specific mention of high-speed rail. Last January, Obama boldly said:
"Within 25 years, our goal is to give 80% of Americans access to high-speed rail, which could allow you go places in half the time it takes to travel by car."
In the 12 months since then, not a single piece of HSR track has been laid and its deep controversies have seeded doubt about its viability even among staunch supporters such as Joe Simitian, a Democratic state Senator for Palo Alto, a region not known for its aversion to technology. 
This year, Obama played safe by pledging to reduce redtape on infrastructure projects: 
"Building this new energy future should be just one part of a broader agenda to repair America’s infrastructure."
Clean energy advocates responded positively to Obama's speech last night. But the headwinds of cheap and abundant natural gas, the possible expiration of the Production Tax Credit low and the spectre of China's oversupply of cheap PV - the Solyndra ghost will haunt the solar industry and government support for clean energy for years to come.
Eileen Claussen, president at the Center for Climate and Energy Solutions, which had to remodel itself from the Pew Center on Global Climate Change after Pew Charitable Trusts cuts its purse strings at the end of last year.
"Even if comprehensive legislation remains off the table for now, we can make important progress tackling these challenges piece by piece. C2ES is working with policymakers and stakeholders on ways to expand enhanced oil recovery using captured carbon dioxide – an approach that can boost domestic oil production while reducing greenhouse gas emissions. Similarly, we’re working with automakers, environmentalists and others on a plan for integrating plug-in electric vehicles into the U.S. electrical grid. We look forward to sharing the results of these and other C2ES initiatives aimed at practical solutions to our twin climate and energy challenges."
C2ES is now mostly funded by business, including Entergy, HP, Shell, the Alcoa Foundation, Bank of America, GE, The Energy Foundation, Duke Energy, Rockefeller Brothers Fund. The presence of energy companies among its top donors may explain the interest in advanced fossil fuel technologies such as enhanced oil recovery which aims to maximise the extraction of the resource and does nothing to minimise the effect of burning what comes out of the ground.
At one point the president pointed out Bryan Ritterby, who he tried to present as an ordinary Joe who was laid off …

"Bryan Ritterby was laid off from his job making furniture, he said he worried that at 55, no one would give him a second chance.  But he found work at Energetx, a wind turbine manufacturer in Michigan.  Before the recession, the factory only made luxury yachts.  Today, it’s hiring workers like Bryan…"

But Bitterby is no ordinary born-again American clean energy industry worker. He is representative of many who work in the US wind industry - largely developed with expertise from Europe where policy has created an export market for renewables.

Although Energetx is an American company that has changed course from making yachts in Michigan, if it's not built by GE, wind turbines in the US will be built in factories established by European-based companies: Gamesa, Siemens and Vestas just to name a few. These companies were attracted to the US manufacturing industry partly by the 48C advanced manufacturing tax credit, which as I've reported before, was not taken by GE. However, last night Obama made clear that any future tax credits would favour indigenous companies. Where that leaves the Europeans who have been so involved in developing the US wind industry and creating a manufacturing base remains to be seen.

Aside from being a wishlist of things that will never happen, like the clean energy standard, commentators last night also saw Obama's third SOTU as a stump speech for the presidency. I wonder whether he will make it to a 4th… otherwise Mitt Romney may be required to dig into his own deep pockets for ideas on how to help the economy recover. Perhaps he could pay down some of the US debt from his own savings account?

Saturday, January 14, 2012

Britain's entrepreneurs need some X Factor to escape the Dragon's Den

Napoleon is said to have disparaged Britain's fitness for war by describing the country as a "nation of shopkeepers…". The phrase is attributed to the economist Adam Smith as Britain began to boom at the start of the industrial revolution.
But as the UK's manufacturing economy has withered over the past 30 years, the populist assertion that Britain is a nation of people that likes to shop (consume) rather than make products that are of use in attempting to assert economic dominance rings more true than ever.
Good news for UK manufacturing results in headlines like: UK manufacturing output increases more than expected.
But is it all bad news? A report from PwC in 2008 claimed that although manufacturing had declined in the UK, the sector had created high levels of productivity.
In 2008, the UK was still the 6th-largest manufacturer in the world by value of output, as ranked by the UN Council for Trade and Development. 2006 was a record year for UK exports, and according to a 2008 report by BERR (the UK Department for Business Enterprise and Regulatory Reform) 25% of UK exports in 2006 were high-tech goods, compared with 22% in the USA, 15% in France and 11% in Germany. And perhaps most strikingly, over the past two decades Britain’s Manufacturing sector has delivered greater productivity gains than Britain’s Services sector.
But that report came out in 2008 - and that is ancient history since the financial crisis has changed the economic rules of engagement for good. 

Napoleon, however, is said to have had great admiration for America.

Today, Americans are proud to declare themselves a nation of entrepreneurs, and that this spirit is what has made the country the greatest economy in the world since the second world war. The respected Kaufmann Foundation supports this position by claiming that entrepreneurs are the real drivers of the economy.
So what can the UK learn? Tech City aims to become the "digital capital of Europe" and has attracted Cisco, Vodafone, Intel and Google, which has committed to funding an innovation incubator. But news that Facebook would prefer to expand its offices in the West End of London than be sitting next to its rivals on Silicon Roundabout should not have come as a surprise.
Companies are clustered in Silicon Valley, but rivals do not make good neighbours: Google has separate campus in Mountain View and Facebook is in Palo Alto. When was the last time you saw a Sainsbury's right next to Tesco's in the UK? Or for those listening in American, when was the last time you saw a CVS next to a Walgreens?
The reason why tech companies have coalesced in Silicon Valley is because of capital and intellectual resources. The VC capital that doesn't come out of Sandhill Road is negligible on a global scale, while Stanford University continues to generate world-changing heroes of the startup world.
Californian gold fever has struck even further afield. The Skolkovo Innovation hub in Moscow which aims to foment the same kind entrepreneurial spirit in Russia.
But Silicon Valley has a real X-factor that's impossible to replicate: it is a complex ecosystem which turns so many Silicon Valley startups into global household names.
Tech City has one ingredient right - its location in Tower Hamlets puts it in a position for cheap rents for startups, but within walking distance of access to the UK's greatest concentration of capital in the City. Although Wellington, the largest VC firm in the UK is located in Mayfair, close to many other PE companies and hedge funds.
But the brain power factor is missing. The UK's centres of clean tech academic excellence are at least a tube or train ride away at Imperial College London or the Cavendish Laboratory at the University of Cambridge. Another downside of Tech City is that it will be focused on trying to find the next Google or Facebook.
James Caan, formerly the nice guy on Dragon's Den, has started a column in the Evening Standard to offering advice to budding entrepreneurs. But in the UK in general, there seems to be a focus more on services, than actually making things or even designing widgets that the world wants but are made elsewhere. And Dragon's Den investors lack the vision (and capital) of their US VC counterparts.
Sir Richard Branson is probably the most successful British visionary entrepreneur of our time. But he hasn't really started companies that make things - most of his companies sell services - with the possible exception of support for algal biofuels which could potentially have a huge impact on the world.
James Dyson is the only other household name who springs to mind who does actually design products, not just sells services. In this list of Britain's top 100 entrepreneurs, how many of them are in the manufacturing sector? As the Economist points out, successful economies of the future should be making products and creating services with global market value, ie we must start making things China wants, and fast.
The UK's coalition government makes a hue and cry about how to Get Britain Working again. Cutting benefits is a short cut to the streets, however. It's not a fast track to entrepreneurial wealth.
Coalition policies are loaded in the wrong direction and someone with a grain of good sense - Vince Cable? - needs to force the Chancellor into decisive action to encourage SMEs. Cutting corporate tax isn't enough… how about tax benefits for investments rather than cutting upfront costs. George Osborne's policies take with one hand, but don't give those savings back to society in the most useful way. Where is his evidence that straight cuts in corporation tax lead to direct investment?
Germany, on the other hand has weathered the economic crisis precisely because of the policies it legislated (and values it espoused in avoiding debt).
Instead of mocking poor ideas on Dragon's Den and lionising forgettable X-Factor stars, why not introduce some real competition into the UK?
The CleanTech Open in the US showcases some of the best energy industry innovations in the world and although its competitors are not household names, it gives entrepreneurs something to aim for - with access to mentoring, networks and potential capital.
How about also looking at the better elements of the US tax code, such as the 48c manufacturing tax credit, which stimulated investment in new factories to make equipment for the solar and wind industries?
One simple way to emulate the US is by changing the laws on bankruptcy. Once a company has gone bust in the UK, it's very hard for that entrepreneur to start over again. We need to eliminate some of the downsides to taking risks and remove the stigma of failure.
Thomas Alva Edison, still America's most beloved inventor, famously said of failure: I didn’t fail 1,000 times. The light bulb was an invention with 1,000 steps.
But he wouldn't have been allowed to fail his way to success without the financial support of John Pierpont Morgan.
The UK shouldn't need a war to force the issue as Germany did. But shouldn't the summer's riots be a warning shot that if left unattended, even Britain's shopkeepers might have to bring down the shutters on their failing businesses.