« Renewables Part 2: Emphasizing Proximity | Main | Renewables Part 4b: Big Solar »

June 29, 2006

Renewables Part 3: Renewable Energy Finance Forum - Wall Street

By: Rowan Wolf

BY: MICHAEL KANE
Renewables: Part 3 of 4 - original article

Reprinted with permission, Michael C. Ruppert and From The Wilderness Publications, www.fromthewilderness.com, P.O. Box 6061-350, Sherman Oaks, CA, 91413. 818-788-8791. FTW is published monthly, annual subscriptions are $50 per year. © Copyright 2006, From The Wilderness Publications, www.fromthewilderness.com

"Global oil production will peak within the next decade, maybe sooner."
Steve Westly, Controller of California

'Global oil production will likely peak by 2010.'
Michael Eckhart, ACORE President,
Former Principal of Booz, Allen & Hamilton

September 6, 2005 0730 PST (FTW): The Second Renewable Energy Finance Forum (REFF - Wall St.) held on June 23, 2005, opened with California's Controller, Steve Westly, telling the renewable energy industry to invest in China, followed by ACORE President Michael Eckhart's power-point presentation where the opening slide presented global oil production peaking in 2010. The event was sponsored by Euromoney Energy Events (EEE) and the American Council On Renewable Energy (ACORE).

Investors and financiers asked themselves the questions that hang over the threshold of renewable energy: How can we make this work with minimal risk? How much equity do we want in a wind project? How much credit are we willing to supply to a solar initiative? How do we make this profitable? How do we make lemonade out of lemons?

This reporter asked Michael Eckhart if - in the context of Peak Oil - there was enough time to build a renewable infrastructure to sustain economic growth. The Hirsch Report seems to say that such an effort needed to begin 30 years ago to be successful.

"We'll never know what the economic growth would've been if we weren't facing this problem," said Eckhart at an REFF press conference in the Waldorf Astoria, NYC. "We'll know what economic growth we can have; it's what we will have."

Que sera, sera.

It seemed Eckhart was throwing his hands up and saying, "Time will tell." This may be the only logical response outside of "No!," which Eckhart could never say in his position as ACORE president. He followed this by saying he believes we are already being severely economically constrained.

With the Bush administration doing little to nothing to assist renewable energy development, it has been left up to the states to set high renewable portfolio standards (RPS) and lead the way in constructing renewable energy infrastructure. How successful those endeavors will be ultimately is the trillion-dollar-question. Eckhart went on to say biofuels would be needed to transition into a hydrogen economy.

"How can we get to a hydrogen based transportation system, and is that real?" asked Eckhart.

It was refreshing to hear a leader in the field of renewable energy question the feasibility of a hydrogen-based economy. We have yet to see any significant indication that hydrogen fuel cells will be capable of successfully moving the transportation sector away from fossil fuels.

Can biofuels bridge the gap Eckhart hopes we will have?

Day Two of the conference opened with New York Governor (and possible 2008 Republican Presidential candidate) George Pataki announcing $4 million in state funds for what will be the largest biofuels facility in the Northeast - now a defunct beer brewery north of Syracuse.1

China

It was somewhat odd to hear the Controller of California tell the renewable energy industry and Wall Street to invest in China. But after Steve Westly met with Chinese heads of state, he says, he was convinced they are committed to seeing renewable energy grow in their country.

China is well aware that despite their growing thirst for oil, hydrocarbons are a finite energy resource. In June of 2004, at the International Conference for Renewable Energy (Renewables 2004), China pledged to raise its renewable generating capacity to 60,000 MW, representing 10% of its total capacity, by 2010.2 This is equivalent to 60 giant power plants. In June of this year the World Bank - headed by its newly appointed president, former Deputy Secretary of Defense Paul Wolfowitz - awarded China over $87 million to invest in renewable energy infrastructure.3

Why isn't there $87 million in the Republican energy bill for renewable infrastructure in America?

Wind: European or American Style?

Everyone seems to agree that wind energy is an economic winner. But how far can wind go? The answer to that depends on who you ask.

The wind finance panel at REFF - Wall St. was high profile. It included Randall Swisher, president of the American Wind Energy Association (AWEA); Jim Murphy, Senior Vice President and CFO of Invenergy; and Sylvain Santamarta of Shell Renewables. There were two lawyers on the panel as well; Edward D. Einowski, partner in Stoel Rives LLP, and Michael Garland, partner in Babcock & Brown LP.

Jim Murphy said he had been up all night. His presentation was focused specifically on one deal that Invenergy closed right before he took to the podium. The ink barely had time to dry as Murphy spoke to a sizeable percent of the 600 people in attendance that day. A number of companies used REFF to make PR announcements.

Sylvain Santamarta stated that Shell will continue to invest in renewables - especially wind - since they view them as a valid and valuable supplement to hydrocarbons. As stated in Part 1 of this series, supplementing over-consumption is the primary focus of the major players in the renewable energy industry.

Randall Swisher spoke to how far wind energy has come despite the lack of significant policy support from Washington. But how far can it go?

That was FTW's question.

Wind Report 2004, published by the German power corporation E.ON Netz,4 shows that there are physical limitations to the contribution wind energy can make to a centralized grid. The primary concern published in the German report is that wind energy's intermittency currently requires 60% to 80% of traditional energy generating capacity on stand-by in case the wind forecast is wrong. In that context, how much wind energy can be utilized on America's grid?

Edward Einowski responded first by saying we can harness "much, much, much more wind energy than we are currently." He added that forecasting methods are significantly more reliable than people realize. That contradicts Wind Report 2004 which states that forecasting methods are improving yet remain limited.

The bottom line in Einowski's response was that we won't have to deal with such issues for many years because we currently utilize a mere fraction of wind's potential energy in America. Randall Swisher claimed that Germany's numbers for wind energy generation to date were driven by financial issues - specifically the country's resistance to a feed-in tariff. But Swisher then admitted he was not familiar with the E.ON Netz report. 5

The major issue in wind infrastructure is intermittency -- the dependence upon a consistent flow of adequate wind into the turbines, and the back-up measures designed to compensate in periods when that flow is inadequate. Swisher statedthat the handling of intermittency depended upon the size of the utility buying the wind energy. The bigger the utility, he said, the less of an effect wind intermittency has on grid reliability. Until penetration reaches 20% (that is, until 20% of the energy provided to the utility comes from wind), he said, intermittency causes few problems.

But Swisher then quoted a study done in Minnesota claiming that 1500 MW of wind energy (spanning hundreds of square miles), would require only 6 MW non-wind backup capacity.6 The study is based on a hypothetical situation of future, not current, wind energy capacity. A quick review shows that it raises many of the same difficulties mentioned in the E.ON Netz report, but the wording seems less direct than that of the Germans. The Minnesota report explicitly states that transmission issues were not addressed, and that improved forecasting methods are needed. These issues were neglected due to the study's "aggressive schedule for completion."

Immediately following the panel's response, a European stood up in the audience and seconded FTW's concerns (unfortunately, this reporter was unable to follow-up with this man afterwards). He stated that in Europe the numbers they are being told regarding wind are far different from what the Americans are saying. The panel responded that every utility is different, and that America is very big, and therefore, much different from any individual European nation.

Now, when you ask the Europeans about the limits of wind energy, you tend to get sober answers based on real-world data obtained from wind-farms currently producing a significant amount of European electricity. Their American counterparts seem far more interested in just getting windmills installed than focusing on the complexities of transmitting large amounts of intermittent wind energy to the grid. In the near term FTW will be comparing the European data with American figures for a clearer picture of just how much electricity generation wind can ultimately provide.

Cape Wind

Theodore Roosevelt IV, the great grandson of the 26 th President of the United States, Teddy Roosevelt, is a Managing Director of Lehman Brothers and Chair of the Pew Center on Global Climate Change. Cape Wind has chosen Lehman Brothers to provide them with financial advisory services on what will be America's first offshore wind farm in Cape Cod, Massachusetts.

During lunch at REFF, Roosevelt spoke about the Cape Wind project. Instead of speaking to the financing of Cape Wind, which he said is best done "quietly and soberly," he spoke to the massive political (NIMBY) opposition Cape Wind is receiving.7

Roosevelt lives on Martha's Vineyard, is a registered Republican, and says both the Republican energy bill and so-called "liberal environmentalists" in Massachusetts who oppose Cape Wind leave him dumbfounded. He praised the CEO of Cape Wind, Jim Gordon, for not losing his cool with the opposition. By treating their concerns with the utmost respect, Roosevelt says, Gordon is on the path to making the Cape Wind project a success.

During his speech, Roosevelt made the following comment that should resonate profoundly with anyone familiar with Peak Oil or global climate change:

"I think that we can expect opposition to always be with us just by virtue of today's society, where our citizens feel they can have it all without paying a price for that."

Situated on Martha's Vineyard, Roosevelt's home will certainly be receiving electric power from the completed Cape Wind project.

Senator Ted Kennedy (D-MA) is opposing the Cape Wind project making veiled-NIMBY claims about Cape Cod's tourist industry. But according to one lunchtime conversation overheard by this reporter at REFF, the Senator's opposition may be related to natural gas pipeline interests held by the Kennedy family that might face competition from Cape Wind. This is especially true now that, according to ACORE Director Michael Ware, wind is competitive with gas-fired electricity.

Industry Buzz

The loudest issue in the power industry today is climate change. It seems no one in the finance community denies it any longer. In fact, there are now 500 hedge funds set to invest in the trade of carbon emissions. Since Russia's recent embrace of the Kyoto Protocol, global warming has become a reality in the international finance community despite the Bush administration's sophomoric cronyism and denial.

There were also investors at REFF who could care less about climate change, the environment, or science in general, and weren't even energy investors; they merely viewed 2005 as the year to invest in renewables for purely economic reasons.

One Wall St. investor says he is closely watching Distributed Energy Systems Corporation. This company is supplying energy generation to be distributed where it is actually used. Their stock has rapidly risen from $1 to $5 with almost no earnings, and is now trading over $6. They are using partnerships to provide office spaces equipped with distributed energy systems, some with combined heat and power generation. That will be quite valuable when blackouts become more frequent.

Distributed Energy Systems Corp generally relies on hydrogen fuel cell technology, but in the context of energy shortages and blackouts, even low efficiency energy storage methods may be valuable to those who can afford them. Some are now wondering if renewable energy stocks are forming a Wall Street bubble as Tech and Internet stocks did in the 1990's. Energy is on everyone's mind, and rightfully so.

Whatever the energy future of the U.S., it will not be a centralized national power grid. This is the point made by John C. Pennie, president of Land's End Corporation, with his communication of support for FTW's position on renewables as stated in Part 1 of this series.

The EIA recently stated that the grid loses 60% of the energy it transmits. A quick Internet search reveals that the efficiency of our current centralized power structure is 33%.8 So 77% of the energy produced is lost. Now there are distributed energy systems that achieve efficiencies of 65% to 90% with combined heat and power generation (CHP). Just think of all the heat energy lost as steam from a nuclear power plant producing electricity. In the science of electrical power, centralization is the very opposite of efficiency.

"The problem is the grid." That's what some were saying at REFF - Wall Street.

But others were calling for a "national grid" for "national security" purposes. Michael Eckhart was one of the voices supporting such a massive project. Previously, Eckhart was a Principal of Booz, Allen & Hamilton Inc., where former CIA Director James Woolsey is a Vice President. Woolsey sits on ACORE's advisory board, where Eckhart is the President. Whom will a national grid benefit?

As the price of centralized energy inevitably increases, a national grid will certainly not benefit the working class or the poor. This sounds like a bulky, expensive, and wasteful project to implement given the oil and natural gas crunch that is soon to be upon us.

Risks

Jerome Peters, Senior Vice President of Hudson Bank, gave a presentation at REFF - Wall Street on how he assesses the risks involved in financing renewable energy projects. He provided what was perhaps the most memorable quotation of the forum:

"Renewable Energy projects have as much environmental risk as traditional energy projects, if not more."

This is crucial. No one should hope that renewable energy infrastructure will be installed to replace the equivalent of what we consume in hydrocarbons. It can't be done, for reasons that include (but transcend) both Peak Oil and climate change: the ecological footprint of such a project - even without climate change - would be so large as to disrupt food production. And even on a more moderate scale, Peters said, biomass projects involve even more risk than other renewable energy projects.

Clearly, wind will be part of the way forward. But survival will ultimately depend upon powerdown.


1 "Brewing a New Biofuels Market for the Northeast," RenewableEnergyAccess.com, July 27, 2005:http://renewableenergyaccess.com/rea/news/story?id=33833

2 Renewables 2004 concludes successfully in Bonn http://www.worldwatch.org/features/renewables/bonn/part3/

However the New York Times recently reported that China anticipates 10% of its total energy capacity will come from renewable energy by 2020, not 2010, though they plan on surpassing that goal.

"In Search of a New Energy Source, China Rides the Wind," by Howard W. French, New York Times, July 26, 2005 http://www.nytimes.com/2005/07/26/international/asia/26turbine.html?ex=1280030400&en
=25bd397afb927647&ei=5090&partner=rssuserland&emc=rss

3 "World Bank Helps China Scale Up Renewable Energy,"

http://www.worldbank.org.cn/English/Content/674u63371351.shtml

4 E.ON is one of the world's largest independent energy producers based in Germany.

http://www.eon.com/en/422.jsp

E.ON-Netz is the company's wind division in Germany. They are also a transmission grid operator. Germany is further along in wind energy production and transmission than any nation in the world. All of these factors make's E.ON's numbers among the best in the world when asking how far wind can actually go.

"Wind 2004" can be ordered here: http://www.eon-netz.com/frameset_reloader_homepage.phtml?top=Ressources/frame_head_eng.jsp&bottom=
frameset_english/energy_eng/ene_windenergy_eng/ene_windenergy_eng.jsp

5 Feed-in tariff is defined at the following link: http://glossary.eea.eu.int/EEAGlossary/F/feed-in_tariff

Randall Swisher's comment that the numbers produced by E.ON Netz on wind are related to tariffs (pricing schemes) does not seem to be correct. The essence of E.ON's report - which Swisher admits he is unfamiliar with - deals with the production and transmission of wind energy, not its financing. The percentages E.ON came up with for "shadow stations" needed on stand-by capacity were based upon Germany's grid reliability, not tariff methodology. Certain tariff schemes make it easier for wind to compete with traditional energy sources, but that is a different topic from grid reliability.

6 Xcel Energy and the Minnesota Department of Commerce. Wind Integration Study - Final Report http://www.state.mn.us/mn/externalDocs/Commerce/
Wind_Integration_Study_092804022437_WindIntegrationStudyFinal.pdf

7 Read Theodore Roosevelt IV's entire speech at the following link: http://www.capecodtoday.com/modules.php?op=modload&name=News&file=article&sid=0186

8 http://www.energetics.com/gridworks/grid.htm

Posted by Rowan at June 29, 2006 8:51 AM Category: Authors --- Guest