Friday, March 30, 2012

Awesome and fired-up: has cleantech come of age after forum's 10th year?

Saul Griffith opened with "awesome" and Amory Lovins ended by "firing-up" jaded delegates. 
Griffith, the huggable hirsute MacArthur "genius", told the audience: "The future we are going to create can be spectacularly beautiful and interesting."
He then proceeded to show off a few of his inventions - by turns brilliant and bizarre - from his Makani Power company.
A carbon fibre wind turbine aeroplane that takes off autonomously and generates 6-8kw by doing 200mph barrel rolls at 5,000 feet.
It's certainly innovation, and there's certainly room for such blue sky thinking that may never be practical enough to reach commercial scale. But Griffith, a great fan of robotic technology, is chasing MWs with this technology.
"This is pretty radical," Griffith admitted. "You need a good reason to do this. We're projecting about 3c/kwh subsidised. Twice the capacity factor of existing wind tech. This looks like a fabulous technology for offshore. We originally had Google funding. We've since got ARPA-E funding to prove out all of the remaining things."
He wasn't clear on now much money he is chasing to fund the next stage of development, but the money spent on this project so far made the VCs in the room inhale sharply.
"This sounds wild, this is expensive. You don't get much change from $20m to get where we are here today. You're still a lot of money away from the MW machines.
"I'm not sure this is something you can do with venture financing," he admitted, sending a wave of relaxation through the audience.
"You do need public private partnerships to do this. Government funding in the early hard R&D stages and large corporates to help this through to commercial technology. Conceptually this is proven out but there is still a long way to go from 20kw wind that fly 24 hours to MW [machines] that fly 20,000 hours."
Then he showed one of his more recent designs in a "my job is more fun than your job video" - a robotic tracking heliostat for concentrated solar applications that performed at better than .1% precision and would reduce costs by 20% compared with traditional heliostats and increase performance by 30%.
It's a compelling technology proposition when heliostats accounting for roughly one-third of solar thermal costs.
But although ARPA-E's EnergyInnovation Summit in DC last month  may have been ready for Otherlab's fluidic heliostat arrays, the forum's audience less so.
Griffith said they were pursuing the "typical R&D financing" with the DOE and ARPA-E, but also working with corporate partners on developing this technology.
"The cost models are excellent so I call up a friend in a top tier VC firm and say I've got this killer technology and he says, well there's a serious turd in the punchbowl this year, come back in a couple of years. This was about two weeks after Solyndra happened."
But just as investors were beginning to slouch in their seats again, Griffith gave them a shot in the arm with cost projections for his solar technology.
"It needs $3-$4m to get it to the stage where you're doing small real world rooftop tests. And then $20m plus to make this into a commercial technology. These numbers are larger than traditional VCs are ready for. I still don't think we've solved the funding problem for early stage energy technologies."
Griffith buoyed the audience, finally by telling them to be "awesome".
"Attack the customer at points of infrastructure change and let's make the world awesome again," he said. "Can everyone think that what we're doing is awesome? You are awesome! If your 10 year old doesn't think what you're doing is awesome, you're telling them the wrong story. As a group we've got to make it more exciting again."
Amory Lovins, just as awesome, also bearded but a bit less huggable, closed the two days of shop talk with an introduction to the new book from the Rocky Mountain Institute, Reinventing Fire.
Lovins said: "America's public energy conversation boils down to this, would you rather die of a) oil wars, b) climate change or c) nuclear holocaust, or d) all of the above or e) none of the above. What if we could make energy do our work without working our own undoing? What if we could have fuel without fear? Could we reinvent fire? Fire made us human; fossil fuels made us modern. Now we need a new fire that makes us safe secure healthy and durable.
"This has now been made possible. We humans are creating a new fire, not dug from below but flowing from above."
But the real message for the Cleantech Group's 10th anniversary forum in San Francisco arrived early in the proceedings from Wal van Lierop, co-founder of Chrysalix ventures in Vancouver.
He addressed the launch party with a gentle slap in the face. Cleantech, he said, was merely a marketing exercise and we are now witnessing a mainstreaming of clean energy.
He said that the 2008 global economic crisis had caused a shakeout in cleantech, which was a good thing. And since then, we've seen the rise of cleantech in China.
We've also seen the switch almost overnight to the prospect of cheap natural gas prices in the US for the foreseeable future.
What does this mean for cleantech 5.0, he asked? Cleantech will become less visible, creating a new club of green elephants (incumbents). He also said that there was a convergence between the hydrocarbon energy industry and the clean energy industry, as the oil and gas companies seek technology solutions to mitigate the impact of shale gas, overcome environmental barriers and produce more sustainably.
Technology will be used to clean up the hydrocarbon industry, he said.
It might not be the end of cleantech as we know it yet, but perhaps next year's forum will be all about convergence, marking a critical stage in the maturation clean energy.

Wednesday, March 21, 2012

Osborne's budget misses a golden opportunity for clean energy

It may sound a little odd, but Budget day in the UK has always provoked in me rather more excitement than it should. Not because I have deep concerns about the Chancellor's impact on my taxes to HMRC.
But since reporting on clean energy policy and finance in the US, where the fiendishly complex tax system is even more loathed, I've had a renewed appreciation of tax codes as an expression of a nation's deepest values in the same way that a nation's music or cuisine reflect the spirit of its people and resources. 
Osborne called his Budget one that "rewards work" but Labour leader Ed Miliband described it as a  "millionaire's Budget".
Beyond the usual Punch & Judy script between the Tories and Labour, what is George Osborne really saying in this budget about the British psyche and the needs of its people - or perhaps in this budget he was speaking more of the sensibilities of a politician born to privilege with no real appreciation of what motivates people to work hard.
Osborne knows that what comes out of his red box will go straight to royal assent without parliamentary debate. In the US, the president's budget is thrown to the congressional wolves who tear it apart and piece it slowly back together again with compromises on both sides.
I don't know which system is better, but given the apparent lack of intellectual rigor, Osborne's third budget could only be improved by parliamentary interrogation.
Shale gas
It's clear that the UK is in danger of an energy crunch  - a fifth of its capacity will drop from the grid by 2020.

The UK government plans to introduce a package of oil and gas tax measures to secure billions of pounds of additional investment in the UK Continental Shelf and will publish a strategy for gas generation in autumn 2012, recognising that gas-fired electricity generation will continue to play a major role in UK energy supplies over the next decade and beyond.
To avoid catastrophe, Osborne wants to encourage the oil and gas industry to unlock the potential remaining in the North Sea. I get that. 
But what I don't get is the £3bn in tax credits to tempt an industry which has balance sheets bursting with idle investment £££s and $$$s. It's naive to think that this will make a huge difference to gas exploration companies - it's a bit like giving Warren Buffet $3m. It would be more than most individuals could ever hope to earn in a lifetime, but yet for Buffet, it's pin money he doesn't need and neither do the oil and gas companies. 

Global companies would probably have been happy enough with the reduction in corporation tax - 26% to 24% in April 2012, down to 22% in 2014 - one of the lowest in the world. As the US shows, a high corporate rate is no bar to corporate success.
Fossil fuel producers and generators are most attracted to the UK because of the economics of high electricity prices. Does Osborne perhaps think that the toothless Ofgem will force utilities to pass through the reduced cost of electricity generation from lower gas prices once drilling into the UK's shale has begun?
If he'd wanted this particular tax break to be warmly received, he should have connected the dots here for the electorate, probably because according to a shale gas report in 2010: "It is expected that it will take about two to five years to firmly establish the potential of shale plays in Europe and it is only after 2020 that the production will have any considerable affect on the supply of natural gas."
In any case, most of Europe's shale gas is going to come from Poland, where ExxonMobil, Chevron, ConocoPhillips, Marathon Oil, Talisman Energy and Chevron are elbowing each other out of the way. Osborne is taking a huge risk with taxpayer money by trying to attract this kind of investment: aside from the environmental downsides of hydrofracking, open land is scarce and expensive in the UK, unlike Poland where the population density isn't anything like as great.
Streamlining redtape and permitting can also have the same impact as tax breaks for large exploration companies - without having to make spending cuts elsewhere from the most vulnerable. Let's hope Osborne's gamble works - so that tax receipts from oil companies will be worth more than the £3bn lost by the taxpayer.

There is additional uncertainty over reserves of oil and gas remaining in the North Sea - forecasts were not included in the budget. I spoke with a geologist working for a small company hoping to explore small reserves in the North Sea that the oil majors wouldn't even consider because of their relatively tiny size. The geologist told me that calculating estimated reserves at such small scales increased uncertainty about what could be recovered: it was really more about pot luck than seismic surveys.

Does Osborne really think he will spark a miniature oil & gas rush back to the North Sea? Some figures would be helpful but I doubt the chancellor will rush to publish such de minimis numbers.
Alan McCrae, energy tax partner, PwC, said: "Overall, the package is to be welcomed as a boost for investment in the oil and gas industry in the UK.

"The proposals to extend field allowances for oil and gas projects will help mitigate against the very high rates of tax suffered by oil and gas companies and will allow some projects to proceed that would otherwise not be viable. By careful targeting of the incentives, these projects should now be able to go ahead and, by doing so, will enable them to make a significant contribution to future Government revenues from the oil and gas industry.

"The plans to give oil and gas companies greater certainty regarding tax relief for their decommissioning costs will also help the investment climate. This will give them significant reassurance over this area of uncertainty which has been blocking potential transactions in the North Sea. These transactions are important to the future of the UK oil and gas sector as the region matures and further significant investment is required to maintain production
Reduced tax credits
Taking away tax credits for parttime workers speaks volumes about Osborne's attitudes to those on a low income. It's a hypocrisy that he wants to reduce benefits for low income or no income households without provision of an encouraging alternative. He is saying loud and clear: I'm going to reduce benefits, but provide no alternative for growth.
For many, part-time work is a stepping-stone to other things: a step down from full time work; a step up from unemployment; a step into the unknown to support a new venture dreamt up by someone with entrepreneurial flare.
But to claim that reducing the top rate of tax will encourage "competitiveness, encourage entrepreneurship and support growth" entirely misses out a demographic willing to take risk with little or no capital or little or no income. I would encourage Osborne to read the US tax code on independent contractors and make contact with the Kauffman Foundation if he a) wants to encourage growth as the Kauffman Foundation clearly shows that entrepreneurs are the real drivers behind economic growth and jobs; b) encourage British people to take a different path from claiming benefits.
Renewable energy 
Wind industry players who were hoping for market signals and signs of encouragement from Osborne will be bitterly disappointed - UK energy ministers should also be disappointed with their chancellor, CharlesHendry in particular.
Osborne's budget simply doesn't play to the UK's strengths: the offshore wind potential is huge and with the European mainland still in financial crisis, the chancellor has missed a golden opportunity to attract investment from companies like Vestas, Gamesa and the countless wind developers looking to other markets. 
Osborne could have offered the UK as a safe haven investment opportunity amid the headwinds of the European debt crisis.
As Europe's common energy market approaches in 2014, the UK could have positioned itself as a major electricity exporter as Spain is already doing. But the 2012 budget was probably the last chance to send a clear market signal and allow the industry to mature.
Tax breaks for clean energy investments also would have been very welcome to attract inward investment and unlock the huge amounts of capital washing around the City of London, but always seem to end up being spent in another country.
Osborne would do well to read up in US tax credit incentives such as the Production Tax Credit for wind and the Investment Tax Credit for solar which drives the clean energy industry.
Osborne says he wants to make the UK the technology hub of Europe. Well, the UK is pretty good at this already, but Osborne's Wallace and Gromit film tax credit will be extended to video games, animation and TV programmes. 
That's a good thing. But a focus on digital services and products will hardly turn the UK into a technology hub and it's a tiny industry that could never grow to the scale or potential of the clean energy industry. Scant mentions and context of innovation indicate that Osborne hasn't really grasped the potential of technology to drive the growth so badly needed in the UK. 

Strong liquor over lunch at the Ivy and a topped up expense account for Soho media executives could have something to do with the direction of Osborne's fiscal affections when clean energy should have been a strategic focus for export markets that will only continue to grow.

I would prefer to be proved wrong with my reading of the 2012 budget, but if taxes are expression of the values of a nation (and its government), then George Osborne seems to be saying: I want to encourage established businesses to earn more by doing less, but everyone else has to do more for less in return. 
Osborne's unpopular budget might cost his party the next election because so little of it plants seeds for real growth - we'll have to wait and see how the economy responds. But those he was elected to serve could end up paying a much higher price for his oversights.

Friday, March 2, 2012

Tom Heller's case for Europe to take over UN climate policy reins

Tom Heller, Stanford Professor and head of George Soros-backed Climate Policy Initiative, spoke at last night's Climate One session at the Commonwealth Club. Prof Heller made some very interesting comments, amid jokes, arising from his never-ending virtuous circle of whistle-stop as a "soft diplomat" on international climate policy.
Heller had just returned from Europe, where he noted that the EU Emissions Trading System was suffering from the bargain basement price of carbon, which no one, especially those who designed the scheme in the early 2000s could ever have predicted.
In December, allowances tanked at €7/tonne, this week's Economist notes, and the price hasn't traded much above that since. If that weren't bad enough, the article cites Matthew Gray of Jefferies, an investment bank, who reckons that "by 2020 the ETS will have an accumulated surplus of 845m permits, against a planned cap that year of 1.8 billion permits."
Australia's carbon tax at A$23/tonne now seems fantastically overpriced and sustaining California's carbon allowances at more than $15/tonne appears over-optimistic.
Decreased demand due is only one reason the price is so low. Heller pointed out the blindingly obvious elephant in the room was the EU triple suite of policy targets: 20% renewables and 20% energy efficiency savings and 20% emissions reductions by 2020. Demand for renewables coupled with energy efficiency savings would of course reduce emissions and deflate demand.
If Europe's economy was motoring along, the economics would be different. But no one could have anticipated the depth and lengths of the global economic downturn together with Europe's debt crisis.
But Heller also added that there was little appetite for allowances because investors didn't believe in the targets. Something jarred with me at this suggestion. I thought it might be that only a limited amount of carbon allowances can be traded beyond EU's compliance periods. But that was scrapped after the phase 1.
California's scheme does allow for unlimited trading between compliance periods.
But it does also impose holdings limits. For 2013 vintages, holding limits will be 6m tonnes - enough to "prevent participants from acquiring market power".
Non-utility covered entities may purchase no more than 15 percent of allowances sold at any auction; other entities are limited to four percent of allowances sold at auction.
The EU's holding limits formula is way more complex.
But carbon allowances differ from other financial products in that they are compliance instruments intended for use within a particular programme. Even the EU ETS only extends to 2020… perhaps it too will get dropped like Kyoto. I felt that Heller was suggesting that these carbon compliance instruments should be more attractive to long term investors. But I'm not sure that markets view compliance instruments in the same way as physical commodities like oil and sugar or 20/30-year bonds. The development of the green bonds market has been slow in coming, notes Environmental Finance, with $16 billion of environmental bonds issued to date, mostly by the World Bank and the European Investment Bank (EIB). Carbon allowances by design cannot send long-term market signals.
He said though that overall, the EU ETS was reducing emissions despite its flaws and unintended consequences. But he offered a doomsday scenario for global emissions. He said we were on track for 650ppm - 750ppm, and the best we could hope to achieve was a stabilisation at 550ppm, resulting in a 3C-5C rise in global temperatures. In response to an audience question about personal action, he quoted Mike Lee: "Just do it". Live or do something else, he added. 
In later comments, one of the intriguing comments Heller made was that the EU should have been given the task of managing international climate negotiations, rather than the UN. 
Marc Stuart, who founded EcoSecurities, one of the world's largest and first carbon trading companies. It was sold to  JP Morgan for almost $200m in 2010. Stuart said that even though market mechanisms were having little impact on reducing global emissions, the UN policy framework had achieved a qualitative if not quantative effect. "It would be naive to think that these markets would have happened otherwise," he said.
Heller posed the rhetorical question whether the framework conceived in 1997 to formulate international climate policy goals was working in today's world and the future we were now faced with. Like all good attorneys since Atticus Finch, he already knows the answer…