US utilities urged not to bet the trillion-dollar farm on natural gas

Natural gas prices are predicted to remain low over the next two decades, albeit not as low as today's price just under $2MMBtu, while the only way is up for electricity retail prices. 

You'd think that gas-fired power plants would be a no-brainer for investors looking to put long-term dollars to work in the power generation sector - even if the US introduces a price on carbon by the 12th of never, natural gas is far cleaner and less of a risk than coal.

But betting on natural gas as a non-volatile commodity is a high-risk strategy, according to a new report published this week by Ceres, which did a lot of work last year to lobby for even more stringent CAFE standards for vehicle fuel economy.

Practicing risk-aware electricity generation: what every state regulator needs to know sets out the challenges facing the energy industry in the US. Unlike other sectors, it is regulated to balance the needs of investors who want returns, utilities who want to make money for their shareholders and consumers who need to be protected from price shocks in electricity prices.

 These interests compete with each other in a context where the US has huge imbalances in the power sector: the country already has a legacy of overcapacity in gas-fired power generation in some regions thanks to a build-out campaign in the last decade (see figure above); coal-fired power plants in the rustbelt east are already likely to be phased out in favour of more gas generation thanks to EPA regulations; nuclear power plants around the country are approaching the end of their licence periods; and renewables are becoming disproportionately expensive compared with cheap natural gas-generated electricity.

"These challenges call for new utility business models and new regulatory paradigms. Both regulators and utilities need to evolve beyond historical practice," says the report. "About 70 percent of US electric generating capacity is at least 30 years old," says the report. "Much of this older capacity is coal-based generation subject to significant pressure from the Clean Air Act (CAA) because of its emissions of traditional pollutants such as nitrous oxides, sulfur dioxides, mercury and particulates."

Investment in transmission has also failed to keep pace with demand and technology, with some U.S. transmission facilities approaching 100 years old, it says.

Utility investment in transmission facilities slowed significantly from 1975 to 1998. In recent years, especially after the creation of deregulated generation markets in about half of the U.S., it has become clear that the transmission deficit will have to be filled.

One of the questions posed by Ceres in this report is: does the US want to bet the farm on yet more gas-fired generation? Clearly the answer is no.

Ron Binz, report co-author, president of Public Policy Consulting and former Chairman of the Colorado Public Utilities Commission, said: "Utilities, regulators and customers are entering what's going to be the most uncertain, complex and risky period in the history of the electric power industry.

"We have relatively flat load growth and that's predicted to continue for quite a while that makes capital to the utility system a lot more important to rates there's going to be a lot of upward pressure on rates and all of the intended effects that that creates in the economy and the politics around regulation."

The report estimates that the net asset value of the plant in service for all U.S. electric utilities in 2010 was about $1.1 trillion, broken down as $765 billion for IOUs, about $200 billion for municipal (publicly-owned) utilities (or “munis”), and $112 billion for rural electric cooperatives (or “co-ops”).

It cites the Brattle Group report in 2009 which predicted that total industry-wide capital expenditures from 2010 to 2030 would amount to between $1.5 trillion and $2.0 trillion.

"If the U.S. utility industry adds $100 billion each year between 2010 and 2030, the net value of utility plant in service will grow from today’s $1.1 trillion to more than $2.0 trillion— a doubling of net invested capital," the report says.

But utilities will struggle to raise large volumes of capital required as their balance sheets droop because of flat demand and the erosion of their creditworthiness since the 1970s and 1980s - there are now no triple A rated utilities in the USA.

"The financial metrics of the utilities going into this build cycle are much weaker than they were when the last build cycle occurred," said Binz. "We had some triple A rated utilities and a lot of double A and single A utilities back in the 70s and 80s the average rating was in the range of a this time around it's around the B triple B range, two or three clicks lower than it was before. That puts the utilities much closer to the boundary of non-investment grade ratings."

Denise Furey, report co-author, and principal of Regent Square Advisors, said that a diversified fuel mix is a credit positive for a utility.

"A sizeable negative event will have an impact on the utilities credit ratings and the market appetite for its bonds which will result in turn in an increase in the cost of capital.

"The problem with natural gas and anything that is commodity based like this is that the price of it is a short-term price and we can't hedge very far out.

"A portfolio with diversified fuel mix reduces risk the sector is looking to build new generation assets currently the price of natural gas makes gas-fired generation look optimal. However, gas power plants have long lives and conversely the price of natural gas used constantly relying on current natural gas prices as predicted in long-term trends is pure folly. A mix of asset types including renewables is really optimal.

But beyond the regulators attempts to rein in rates for consumers, the social contract in the energy industry extends much further. Some 65% of utility equities and fixed income securities are owned by institutional investors such as insurance companies, mutual funds and pension plans while most retail investors own utility stock and bonds indirectly through mutual funds and 401k plans.

More than any other industrial sector, if utilities do well, everyone is a winner from the investment fund managers to the pensioners who have the potential to win twice on regulated rates and a comfortable retirement.

The utility industry is not yet being dismantled one residential rooftop solar panel at a time, but managers, utilities and regulators know that business models cannot stay the same over the next 20 years.

Regulators will play an essential role in playing referee in the long game to come in the energy sector.

Sue Tierney, managing principal at the Analysis Group and former Massachusetts Public Utilities Commissioner, said:

"What signals do regulators and policy makers send to private decision makers about what matters? Regulators often inject other measures of what matters in utility investment decisions.

"As we look across the US there are parts of the country that are in competitive markets where investors in new power generation technology are merging or competitive players and they are not making decisions based on guidance from regulators about what they may or may not invest in. In those markets we're highly likely to see gas generation dominate.

But west of the Rocky Mountains the regulated energy markets could look very different, she said: "Those are the parts of the country that are being addressed in this report where regulators can put a different non-market orientation onto the decisions at utilities managers where to invest."

"There is likely to be a different role for diversification, hedging for fuel risk … so those decisions are being made by shareholders and managers of merchant companies."

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.

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?

Cleantech VCs wait for fog to lift after 'chilling effect' of Solyndra

The National Venture Capital Association and Thomson Reuters this month reported that the last quarter marked the lowest amount of venture capital raised in the US since Q3 of 2003.

Cleantech and life sciences lost out to a surge of investments in the software sector, which enjoyed its strongest quarter in almost 10 years, according to the MoneyTree report. The software industry received $2bn while the cleantech sector saw a 13% drop in dollars to $891m in Q3 from the second quarter when $1bn was invested. The number of deals completed in the third quarter also declined.

Another 13 of the 17 sectors monitored by MoneyTree have all been affected by market volatility: telecommunications; semiconductors; media and entertainment all suffered. But cleantech is likely to take a further hit as seed stage funding – critical in maintaining the momentum in R&D — also fell 56%, with $179 million invested across 89 deals in Q3.

More established cleantech companies fared better, with thin film solar manufacturer Heliovolt, based in Austin, Texas, raising $85m - the 4th largest US VC investment in Q3. And a shift of focus to energy storage benefited fuel cell manufacturer ClearEdge Power with $73.5m in later stage funding from Kohlberg Ventures and other undisclosed investors.

Stephan Dolezalek from VantagePoint said that although Q3 2011 was an improvement on last year, there were three macro factors driving the slowdown in cleantech investments: closure of the IPO window, solar panel prices and the "chilling effect" of Solyndra's collapse.

"On a broader view there are really three macro factors that are affecting cleantech investors. The first would be the closing of the IPO window and some concern that that window might not reopen before 2012 elections depending on what happens to budget issues in Europe and the US. So that window opening or not is of significant concern to investors.

"Number two, we’ve had a very obvious and ongoing drop in panel prices that’s based in large part on the strong levels of support that the Chinese government is giving their solar and wind industries. But obviously that wreaks some havoc with the trading multiples of companies both here in the US and Europe.

"Finally, we’ve had the chilling effect of the political battle over Solyndra. When you take all of those combined into account, I would argue that if you put enough fog on the road investors in cleantech have largely slowed down to try to see what happens when the fog lifts."

He suggested that the current political climate in the US was not helping either, with industries in China and the EU better able to whether the economic storms because of long-term national and regional targets.

"Despite the European financial crisis, clean tech everywhere but the US seems to be strong. In Europe it is supported by both the liberal and conservative parties it doesn’t have quite the same Republican/Democratic split that we see here in the US. And from China’s 12th five-year plan, we obviously see that they are supporting clean tech in an extraordinary way and we’re also seeing strong support in Brazil, Australia and India. So the US is probably the one market in which we have a fair amount of pull back."

US military on frontline of energy strategy to save money and lives

President Barack Obama may be losing his argument for clean energy in Congress, but he has already won hearts and minds in the US military which is rapidly reducing its carbon bootprint from the barracks to the battlefield.

Major General Anthony Jackson spoke earlier this month of the importance of removing "the vice-like grip of oil from our necks" at a Pew Charitable Trusts forum to promote its new report on energy security at Stanford University.

The Department of Defense is the world's largest single consumer of energy, guzzling 300,000 barrels of oil a day. The US military consumed as much energy as Nigeria, according to this Post-Carbon Institute Energy Bulletin from 2007.

But in the past four years, DoD clean energy investments in biofuels, solar technology and advanced batteries have increased 200%, from $400m to $1.2bn. And the military is likely to clean up its operations even further.

Last year the DoD launched Energy for the Warfighter: Operational Energy Strategy "to ensure that the armed forces will have the energy resources they require to meet 21st century challenges". 

“Lightening the load” for those with boots on the ground, reducing energy demand and dependence on foreign oil are they key goals.

Batteries account for around 20% of the weight of a soldier's pack and a typical infantry battalion uses $150,000 worth of batteries a year, says the Warfighter report.

On the podium at Stanford, Maj Gen Jackson unfolded a sheet of PV panels that packs down to the size of a slim laptop case and can be used to recharge equipment.

Meanwhile, reducing energy costs are critical. In 2010, the DoD consumed nearly 5 billion gallons of petroleum in military operations, at a cost of $13.2bn an increase of 255% over 1997 prices.

But more importantly was the cost to lives at the frontline, said Maj Gen Jackson

In 2007 in Iraq and Afghanistan, a total of more than 3,000 Army personnel and contractors were wounded or killed in action from attacks on fuel and water resupply convoys.

He said: "I know the cost of [oil]. I know it up close and personal if you have never seen the mixture of blood and sand it's a harsh purple on the desert floor.

"There is an urgent need for our nation to lead the world in renewables and conservation and getting a grip on the strategic vice that one three letter word has around our neck. For every 50 trucks we put on the road someone is killed or loses a limb."

US Navy secretary Ray Mabus said something similar at the National Clean Energy Conference in August.

"We buy too much fossil fuel energy from potentially or already volatile places on earth. We give those countries a say on whether those aircraft fly or ships sail or round vehicle operate. There are great strategic reasons for moving away from fossil fuels.

"Every time the cost of a barrel of oil goes up by a dollar it costs the US navy $31m in extra fuel costs. When the Libya crisis began the navy faced a fuel bill increase of over $1.5bn.

"We import gas and water into Afghanistan more than anything. For every 50 convoys of gas we lose one marine – that is too high a price to pay for fuel."

He said that the Navy aimed to cut its dependence on oil for its aircraft and seacraft by 50% by investing in advanced biofuels, of the sort that cleantech startups like Solazyme produce. The US Navy's fleet of aircraft now all been tested with biofuels dropped in.

Despite the military's plans to develop "greener" tanks with BAE Systems, Jackson admitted that he would still drive his Corvette, because "compared to an Abrams tank which does .8mpg, I don't feel too bad."

Jackson, who commands marine installations on the western United States, said energy demand had already been cut by 37% in response to a 50% target by 2030. "We'll be there by 2015. It's not going to be anything for us," he said.

A metering pilot showed soldiers on base how much electricity they were using - if they used more than their neighbours, they'd get a bill, if they used less they'd get a cheque. This reduced energy demand by 30-40%, he said.

He also mentioned that one civilian employee had started to sell tin, aluminim cardboard on a commodities exchange - the proceeds of which now covers the costs of libraries and other facilities.

The Wounded Warrior Barracks at Camp Pendleton in California was the first LEED Platinum Certified building.

The Marine Corps had also installed solar panels and a 1.5MW wind turbine that provides 40% - 50% of the electricity at a barracks in Barstow, southern California, said Jackson. He wants to put another 1.5MW wind turbine at Barstow, but Southern California Edison hadn't worked out a way to "absorb" excess electricity into the grid.

"The utility companies have not yet learned to absorb what we're doing in renewables so I have to hold off until Southern California Edison figures [it]. It will not only cover the needs of the base but it will put back into the grid. We're ready to make this base net zero so we're negotiating."

Maybe Jackson would like to join the battle with the California Public Utilities Commission and utilities over decent feed in tariffs. Reading this UC Berkeley study on the economic (energy security?) benefits, should get Jackson off to a good start.

Jackson and Mabus may be acting on orders from their commander in chief, but they have certainly taken up this mission with great enthusiasm. Jackson said that when he once testified in front of the California Senate select committee for energy and security he was asked how he got people to meet the clean energy targets. "It's pretty easy senator I just tell them," he said. "Everyone in my command knows my intent."

If only Congress were that easy to command and control for the president. But the president's military powers are impossible to replicate politically. But it's one of the smarter differences between the UK and US political systems.

While Republicans bicker between themselves and with Democrats over spending cuts and the budget deficit, real progress continues by stealth where it can. Aside from Republican assaults on the EPA, powerful binding regulations on CAFE standards were agreed with automakers earlier this year. And in California, the Air Resources Board has exemplified stakeholder rule making and participatory democracy at its best with the development of the state's cap and trade regulations.

Jackson's clean energy mission seems to sit well with him. He said: "We like it when the president comes in and lays it out. We know this is important to the current administration.

But the ripple effect goes beyond what the Obama administration wants. Jackson's wife was not under orders when she insisted on buying a Prius and installing solar PV at home.

There may be an even more powerful effect of the military's campaign to reduce energy demand and dependence on foreign imports.

The impact of the DoD procurement clout on the growth of the semiconductor industry is well documented, and the internet was developed from the military's Arpanet funded by Defense Advanced Research Projects Agency (DARPA) in the late 1960s.

Today, the DoD's Environmental Security Technology Certification Program aims to demonstrate innovative energy technology and the military appears to be partially filling the void in the absence of policy or direct subsidies such as European-style feed in tariffs to create a sustainable renewable energy industry.

Solazyme already has large contracts with the US military worth $8bn to deliver algal biofuels. Bob Florence, VP of marketing and business development at Solazyme said: "The Navy's investment has been very helpful in scaling us. Thanks to these investments we're moving from an R&D company to a commercial entity. What we're making for the Navy is diesel fuel [like] you'd buy at a commercial pump. The good news is [they] don't see any difference when they run their ships on our fuel. We want to drop in to the existing structure, we don't want to reinvent the whole entire global fuel supply."

Skyline Solar from Mountain View, California, has a $1.58m contract with the DoD to demonstrate its high-gain solar plants at military bases in the south-west.

Lee Burrows, managing director at VantagePoint venture capital fund national energy policy was essential aligning policy with technology goals: "What the military can do is look at a timeframe for tech that is 10 or 15 years out. Elected officials typically have two to four years and corporations have the next earnings call as their timeframe. The critical part here for DoD and DOE is that they are enabling the technology of the future to help the country gain its long-term goals. We need to have a goal set that we can aim at."

While the US military fights a clean energy war, the question remains whether civilians in Congress can deploy an effective strategy to ensure energy security into the future - and to unshackle the "vice" of oil imports from the necks of US consumers and American soldiers on the frontline.

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.

The disaster report from the National Oceanic and Atmospheric Administration noted:

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 20^th 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 50^th 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 Hawaiibusiness.com 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.

Solar panels in Siberia? How Ukraine and Russia could lead the PV pack

Solar panels in Siberia may be an odd proposition, but decades of underinvestment makes modernising eastern Europe’s Cold War-era grid an attractive prospect for investors. But how accessible to foreign companies those markets will be is an open question.

At this summer’s Intersolar conference in San Francisco, Tomasz Slusarz from Solar PV Consulting in Brussels said that Ukraine presented a more promising outlook for outside investors than its larger neighbour Russia. Ukraine has an ambitious renewables target of 30% by 2015, triple the level in 2010, according to Reuters.

“Ukraine would like to be more independent from Russia in terms of energy supply and this also helps politicians to develop solar energy,” said Slusarz. “This is a very young market, but Ukraine has excellent conditions for PV. By 2015 they expect around 100MW of solar power and the target is around 1GW from PV.”

But politics and lack of local competencies are just two pitfalls for investors, he said.

“In Ukraine, there is a domestic company requirement and up until now there was not a lot of industry in the country so it was difficult to fulfill this. There is also no experience with the market. Even if there is a lot of expectation, experience is needed. Even when there is a good law, you need time to kick off the market.”

Slusarz also euphemistically approached the subject of good political connections in Ukraine.

“A lot of big players like Sharp are very close to the market there. Their brands are well recognized there they are trying to get good connections to develop this market. A lot of companies are now going to Ukraine to develop the opportunities. If they find good partners and understand the way to make business there the market can grow.

“The main players on the Ukrainian markets are people who have good connections with the power companies. Also in Ukraine it’s good to have good connections with the right people and very often it’s very hard to start businesses. Very often you have to find a partner in the country who has good connections and then you can start the business.”

In Russia, said Slusarz, although the potential for PV was good, cheap energy and lack of policy implementation were barriers. “Russia is the world’s biggest country -13,000km – with the biggest distance between borders. There are also a lot of areas with good insolation – but there is no market yet.”

“A year ago I would have said that we should not expect more than 200MW by 2020. However, there is a decree of the government which sets targets - but there are not yet targets for PV. It’s very difficult to fix anything in Russia.

“In Russia, politicians act like firefighters - if there’s no problem they don’t deal with it.”

But Slusarz forecast more progress. He said: “We’ve been trying to set up an association since 2005 – this year we finally succeeded. The association is working with the government to kick off the domestic market.”

But he said that investment would come from within Russia, where the market could end up being closed to foreign investors.

However, what is really important is that Russia is investing a lot of money. Renova group is the 48% of Oerlikon is investing a lot of money in the upstream and have established a $200m fund to invest in R&D.

Besides that, the government has created a joint venture fund which is investing in the solar PV industry.

“They also realize it doesn’t make sense to compete on the foreign markets. It would also be good to create some local market for themselves to have the market for their own companies.”

Interest may be further increased with one the country’s first solar PV conferences in Moscow next year.

But the advantage of still having a such a centralized economy in such a large country are clear - when Russia decides to do something, it does it on a large enough scale to make a huge difference. But foreign investment may be frozen out as Russia has done in the fossil fuel industry and decentralizing power sources is a form of decentralising power.

Slusarz said: “Russia has big market potential but – when they deal with something they deal with it in a very serious way. But I’m not sure if it will be a closed or open market. This is the discussion which I think we will be helping with.”

“There is also a very big lobby of utilities which are connected to the government and they do not support solar PV. It’s not so good for them. If we decentralise energy sources we are decentralizing the power…”

Ukraine could be more promising but risky, said Slusarz: “Ukraine is a very promising market although very risky business as a lot of investment is related to people from the government so I expect that they will try to keep for themselves as much as they want.

“There’s also quite a big financial risk far higher than in the western EU. When you speak with the financial institutions you cannot get good financing rates like you can in the western EU of 2-3%.”