Business Week: October 9, 2000
News: Analysis & Commentary
Green Power Is Gaining Ground
For Oakland (Calif.) Mayor Jerry Brown, renewable energy has always been a no-brainer. As governor of California during the early 1980s, he lobbied hard for wind farms. So last June, after deregulation of the state's electric-power industry gave consumers, for the first time, a choice to buy ``green power,' Brown jumped right on the bandwagon. Now, towns, businesses, and individual homeowners in California are free to buy electricity generated by solar arrays, wind farms, geothermal installations, and biomass fuels. Thanks to Brown, Oakland's public buildings are powered entirely with renewable resources. The city expects to pay a premium for its energy choice--about $70,000 per year on top of a $4 million bill. But Brown thinks prices will even out as the renewable energy market takes off.
As Oakland goes, so goes the Heartland? Not quite--or at least not yet. Renewables currently account for just 2.3% of U.S. energy output. Experts contend it will be at least a decade before renewables inch up to just 10% of total U.S. power consumption. Even in energy-starved California, where green energy accounts for 12% of the overall mix, less than 2% of customers have opted to switch to green-only providers.
Still, high fossil-fuel prices and growing environmental concerns have given renewable power its first big boost since the oil shocks of the '70s. What's more, over the last 25 years, the technologies to harness wind, sun, and the bounty of biomass--fuels such as ethanol and methane, derived from organic waste--have improved by leaps and bounds.
Part of the appeal is that green no longer necessarily means pricey. The cost of wind-generated electricity, for example, has dropped from 40 cents per kilowatt hour (kwh) in 1980 to an average of 5 cents per kwh today. That's competitive with coal and natural gas. ``The timing for renewables is somewhat close to perfect,' says Richard L. Sandor, the CEO of Environmental Financial Products LLC, a Chicago-based investment bank specializing in environmental issues. And with deregulation spurring investment in new generating plants, renewable power is poised to take off.
Indeed, investors and traditional energy companies are funneling unprecedented funds into startups. Earlier this year, Houston-based BP Energy Co., a subsidiary of Anglo-American energy giant BP PLC, took an 18.5% stake in Austin (Tex.)-based Green Mountain Energy Co., the country's largest green energy services provider. Green Mountain expects to double its client base to 200,000 by 2001 as more states deregulate. BP also has plans to invest $500 million in its renewable businesses over the next three years--much of that in BP Solar, a subsidiary already generating annual revenues of $200 million.
Renewables are even catching on in oil-producing regions. This past August, Houston's Reliant Energy agreed to buy the entire power output of what will be the world's largest wind farm, a 208-megawatt (MW) installation set to break ground next month 70 miles south of Odessa, Tex. Given that commitment, developers Cielo Wind Power LLC and Renewable Energy Systems (U.S.) Inc., both of Austin, had no trouble generating interest among institutional investors for the $200-million project.
Reliant isn't on some quixotic mission. It's erecting the windmills partly to satisfy a state law mandating that Texas utilities build or buy 2,000 MW of renewable energy by 2009. But with public and investor interest so high, experts now predict output of renewable energy will exceed that mark in the next 18 months. Reliant has also announced plans to mine 44 MW of methane-generated power from a dozen Texas landfills operated by Houston-based Waste Management Inc. All together, that's enough green power for 80,000 homes.
It's the wind farms, however, that will make the biggest, fastest impact. The giant propellers that will soon dot west Texas are part of a worldwide rush into wind. With the market growing 30%-40% per year, wind power has breezed into a $4 billion per year industry. Although European countries make up seven of the top 10 producers, the U.S. is now No.2 for installing new turbines. By 2010, says Michael Kujawa, an analyst at Allied Business Intelligence Inc. in Oyster Bay, N.Y., total investment in wind power could top $200 billion, and annual industrywide revenues may exceed $30 billion.
Prospects are also brightening for the $2.2-billion global solar industry, which has enjoyed double-digit growth rates in recent years. Nearly three-quarters of the market is overseas, especially in developing countries where the lack of power-grid infrastructure makes it cost effective. For its part, the U.S. solar market is expected to grow by 30%--to $785 million--this year. Though solar photovoltaic panels remain expensive, recent breakthroughs in production promise to reduce costs by 40% while increasing panel productivity by more than half.
Wind and solar power aren't the only good stories on the clean-energy horizon. Big companies that depend on computers and telecommunications are driving the development of alternative technologies offering superior reliability. While power on the public grid is 99.9% reliable, what's been dubbed ``Internet power' must be 99.9999% dependable.
CHEAP INSURANCE. That may sound like overkill. But Palo Alto (Calif.)-based EPRI, a nonprofit energy consultancy, estimates power-quality breakdowns caused some $50 billion in business losses in 1999. In short, a high-quality power supply is a form of insurance. The First National Bank of Omaha, for example, recently installed a $3.4-million 800-kw fuel-cell system that converts hydrogen and oxygen into power and water. That's a bargain, considering that a single one-hour blackout could cost FNBO's credit-card operation as much as $6 million in lost business. Over a 20-year lifespan, fuel cells were also ``the cheapest way to go,' says the bank's director of property management, Dennis C. Hughes, who oversaw the project.
As the market grows and economies of scale kick in, the cost of fuel-cell power systems could halve in price by 2005, according to some experts. Jerry Brown is certain the logic of alternative energy sources will eventually prevail. ``As an economic decision, it's just a matter of time,' he says. There's a burgeoning industry out there hoping that he's right.
By Janet Ginsburg in Chicago, with Adam Aston in New York |
