A Different Era for the Alternative Energy Business
May 29, 2004
By BARNABY J. FEDER
Sales of solar power equipment are hot. Wind energy
projects are sprouting up across the landscape. Methane
that builds up in the garbage in landfills is being sold in
growing quantities to generate power.
Alternative energy - solar, wind, geothermal and a grab bag
of other sources - is doing better than ever. But the main
reason is not the increase in oil and natural gas prices.
When the cost of fossil fuels rose and fell in past years,
the fate of many alternative energy projects rose and fell
with them. But that is no longer true. Indeed, even if
prices eventually recede from their current level of about
$40 a barrel to something in the $30 to $35 range, as many
expect, analysts predict that most renewable energy
projects will not suffer as badly as they once did.
"We're in a very different era from the late 1970's," said
Dan Reicher, who served as the top energy official
responsible for alternative and renewable energy sources
under President Bill Clinton. "The technologies have
improved dramatically and come way down in price."
While alternative energy sources may be growing rapidly,
they are starting from such a small base that their overall
role in the energy supply remains small, because
alternatives still remain more expensive than energy
produced from fossil fuel.
The Government's Energy Information Agency said recently
that production from renewable energy sources in the United
States was 15.5 percent higher in the first two months of
this year than the same period in 2003. But the agency
estimates that renewables accounted for just 6.4 percent of
domestic energy consumption last year and that their
contribution will climb to 6.7 percent this year.
This modest increase is reason for optimism, proponents
say. Even before oil prices took off, they note, the
outlook for solar energy was brightening, with worldwide
annual revenue from equipment and installation expected to
climb from $4.7 billion last year to $30.8 billion in 2013,
according to Clean Edge, a market research firm in San
Francisco. Similarly, after a record expansion last year,
permits for new wind energy projects in the United States
are piling up as investors wait anxiously for Washington to
renew tax credits that make them more profitable.
Geothermal energy is also getting more interest. In Idaho,
Carl F. Austin, a veteran of 40 years in geothermal energy,
is feeling good about his chances for raising money for
what he hopes will be that state's first geothermal power
"Conditions are the best I've ever seen,'' Mr. Austin said,
"and every prediction is that it's going to get better."
Experts debate just how competitive alternative energy
sources are versus fossil fuels, though there is no dispute
that over all the price gap has narrowed as oil and natural
gas prices have soared and new technologies have made
alternative sources more efficient.
The cost of wind power varies widely with the quality of
the windmill site, but prime locations in the United States
generate electricity at well under 5 cents a kilowatt-hour,
making them cheaper than natural-gas-fired plants at
current gas prices. But to compete with coal, wind power
generally needs subsidies like the tax credit of 1.8 cents
a kilowatt-hour that lapsed at the end of last year.
Electricity-generating solar panels, which were invented 50
years ago and cost $100 a watt in 1976 now sell for less
than $3 a watt, and are expected to continue declining 5
percent annually in cost even if there are no technology
For now, solar energy technology is approximately 10 times
as expensive as traditional fossil fuel systems for
generating large amounts of electricity, according to a
recent estimate by the Sandia National Laboratories. But
solar is already a cheaper alternative for powering sites
that are long distances from the power grid.
The public reaction to recent price spikes in oil prices
could help alternative energy by putting pressure on
politicians to maintain or even increase the vast range of
tax credits, grants, loan guarantees and other subsidies
that stimulate investment in alternatives.
Still, while the rise in prices certainly brightens the
profit potential for many alternative energy investments,
the increase is too recent - and too many investors are
convinced it will not last - to account for why the sector
Far more important these days is that the new technologies
are now seen as essential to meeting crucial environmental
Traditional fossil fuels like coal, oil and natural gas are
major contributors to air pollution and the buildup of
climate-changing gases in the atmosphere. Their
environmental cost is not fully included in current prices
but regulations intended to limit the damage have
restricted their growth prospects.
Thus, although coal prices remain relatively low, Mr.
Austin figures his geothermal project is unlikely to face
competition from new coal plants unless somebody comes up
with an unexpected technology breakthrough that minimizes
coal's environmental impact without driving up its cost.
Some technologies, like fuel cells, normally use
conventional energy sources but are viewed as alternatives
because they deliver small quantities of clean electricity
and heat at distributed sites instead of in central power
plants. But many of the alternatives use renewable
resources like the sun and wind.
Another factor favoring alternative fuels over time is that
the most accessible deposits of fossil fuel are being
rapidly depleted. Increased costs to recover remaining
supplies are inevitable, energy experts say. That leaves
innovations in how the fuels are converted to energy as the
only barrier to rising prices over the long term.
At the same time, alternative energy sources are being
viewed more and more as a worthwhile insurance policy
against the risk of depending on the Middle East and other
unstable regions for the bulk of the world's oil and gas
"Businesses are fundamentally shifting the way they look at
energy," said R. Neal Elliot, an industrial energy
efficiency expert at the American Council for an
Energy-Efficient Economy, a nonprofit policy analysis group
based in Washington.
In the 1970's and 1980's, risk management meant investing
in boilers that could burn different fuels and buying
futures contracts that guaranteed access to crucial fossil
fuels at an acceptable price, Mr. Elliot said. Now it means
stepping up investment in products and processes that cut
energy use and adding alternative sources of energy.
Hence the appeal of projects like the pipeline and gas
processing operation near Spartanburg, S.C., that provides
BMW's automobile factory there with power and heat
extracted from waste methane. The methane is drawn from a
landfill nearly 10 miles away that is owned by Waste
Management, based in Houston.
The project began operation last year. It was built and is
operated by Ameresco, an energy management company from
Framingham, Mass., that is charging BMW a fixed price over
the next 20 years for the electricity and heat.
The BMW factory gets more than a quarter of its electricity
and 10 percent of its useful heat from the methane.
Waste Management, meanwhile, has decided the methane from
decomposing garbage in its many landfills is a major
business opportunity. It is looking to build and operate
electricity generating plants or methane supply operations
at as many of its landfills as possible, according to Paul
A. Pabor, who became the company's first vice president for
renewable energy in January.
Thirty-one projects have been completed and eight new ones
are in development, Mr. Pabor said.
Today's oil and natural gas prices are largely irrelevant
to Waste Management's profit calculations.
Indeed, the major projects and investments unfolding today
are primarily the legacy of past alarms, including the
California electricity shortages of 2001, the start of the
war in Iraq in early 2003 and last summer's blackout in the
northeastern United States and Canada.
"Any successes for alternative energy because of today's
prices won't be under the Christmas tree this year," said
Tim Woodward, managing director at Nth Power, a venture
capital company in San Francisco that invests in a wide
range of energy technology start-ups. "They could show up