Thursday, February 25, 2010

How risky are energy efficiency investments?

By Elisa Wood

February 25, 2010

Last week’s announcement of $8.3 billion – and possibly as much as $54.5 billion – in US federal loan guarantees for nuclear power plants sparked debate about risk of default on loans. What are the chances the plants will be built?

Critics unearthed a Congressional Budget Office report citing a 50% risk the projects will fail. The Department of Energy countered that the report is seven years old and not germane. http://motherjones.com/blue-marble/2010/02/chu-not-aware-nuclear-default-rates

The truth is that all power projects entail significant risk. In some regions of the country, up to 60% of the plants proposed are never built.http://www.lowellsun.com/ci_14331942?source=most_emailed Projects fall by the wayside as they try to win government approvals, contract with suppliers and buyers, and secure financing. And even if all of this is accomplished, the bizarre can occur. Witness the explosion in February that killed six people at a nearly complete gas-fired plant in Connecticut — temporarily and possibly permanently shutting down construction.

Considering the risks associated with power plant development, energy efficiency looks like a good alternative. But efficiency installations – whether for lighting, heating, cooling, refrigeration, industrial processes or home weatherization — carry uncertainty too.

What are these risks? For one, promised energy savings might not materialize. Or results may not continue as long as expected over time. So an appliance or installation may not produce its promised bang for the buck. This is why it is crucial that the efficiency industry ensure its credibility with accurate data collection, measurement and verification. Unfortunately, baseline data is not always accurate. As the Alliance to Save Energy points out, states cannot even agree on how much energy is saved from a single compact fluorescent light bulbhttp://ase.org/content/article/detail/5976.

The efficiency industry also, at times, faces the problem of ‘if-we-build-it-will-they-come?’ A government agency or utility may offer generous financial incentives, but find it cannot meet its efficiency goals because customers ignore the offer. For example, the Center for an Urban Future recently found such missed opportunities in New York City where small businesses often ignore generous city and state conservation subsidies. http://www.nycfuture.org/

Burned by our current risk-induced financial crisis, the public is increasingly wary of investment failures. Thus, it is important for the efficiency industry to address risk factors with honesty, especially as the US undertakes an unprecedented ramp up in efficiency funding. The nation’s utilities increased their spending on energy efficiency by 43% in 2009, according to the Consortium for Energy Efficiency. In all, utilities spent $4.4 billion for electric energy efficiency and $930 million for natural gas programs. In addition, CEE found that 46 states offered energy efficiency programs last year, up from 37 states in 2008.http://www.cee1.org/files/2009CEEAnnualReport.pdf.

The federal government has heightened the stakes by offering about $25 billion in energy efficiency programs through federal stimulus funds. The money represents the biggest boon – and biggest risk — ever faced by the energy efficiency industry. The public needs accurate information about return on this investment. As ASE says, “This is the windfall efficiency advocates have long waited for – should we prove unable to realize energy savings commensurate with the funding, we may never again have a chance to do so.”

Visit Elisa Wood at http://www.realenergywriters.com/ and pick up her free Energy Efficiency Markets podcast and newsletter.

Thursday, February 18, 2010

Efficiency “sweet spot” for investors

By Elisa Wood

February 18, 2010

Energy efficiency appears to have married rich in partnering with smart grid. Yet another report shows that together they have formed what has become today’s most appealing clean tech sector for venture capital.

Ernst & Young, using data from Dow Jones VentureSource, recently reported that financing rounds grew 11% in 2009 for energy efficiency, this as deals for the clean tech sector as a whole dropped by 16%.

The findings echo recent conclusions by Peachtree Green Advisors that found money pouring into the efficiency sector last year, pumping up total deal values by 664.7%. (See Elisa Wood’s January 21 blog, “Investors and public back energy efficiency.”)

What’s attracting investors? Ernst & Young – which incorporates smart grid into the efficiency category — points out that these technologies require little capital and can be commercialized quickly — characteristics of special appeal in an economy still nervous about high risk. While not exactly the stuff of dorm room startups, they are more akin to dotcom inventions than capital-intensive power plants. Smart grid revolves around digitalizing the electric grid to achieve greater efficiency in energy use.

“Energy efficiency is in the sweet spot of many venture capital investors in terms of skill sets and funding parameters, particularly given its basis in information technology. Consequently, we may see investor participation in clean tech broaden,” said John de Yonge, Ernst & Young, associate director, Americas Cleantech Network.

Energy efficiency’s share of total financing activity in 2009 rose from 24% to 32%, Ernst & Young said. The category raised $593.3 million for 2009; of that $252.8 million came from fourth quarter 2009.

The report cites the $105 million investment in Silver Spring Networks as the largest deal of the fourth quarter. The Redwood City, California company provides smart grid networking and services for Florida Power & Light, Pacific Gas & Electric and Pepco Holdings, among others. Institutional investors led the financing round, including several repeats: Google Ventures, Foundation Capital, Kleiner Perkins Caufield & Byers and Northgate Capital.

Government policy is clearly playing a big role in energy efficiency’s appeal. The areas of the country with the most clean tech investment have strong clean energy policies: California and New England.

What’s in store for 2010? The picture, so far, is good for efficiency companies looking for customers. Ernst & Young found that half of the major global corporations with more than $1 billion in revenue plan to spend $10 million on clean tech products and services in 2010, with 22% spending at least $100 million.

More details here: http://www.ey.com/US/en/Newsroom/News-releases/Venture-capital-2009-investments-in-cleantech-fall-50-percent-to-2-billion-dollars-as-investors-shift-focus-to-energy-efficiency.

Visit Elisa Wood at http://www.realenergywriters.com/ and pick up her free Energy Efficiency Markets podcast and newsletter.

Thursday, February 11, 2010

Reasons for efficiency: Plain as the smudge on your face

By Elisa Wood

February 11, 2010

Remember soot? A long time ago, before global warming, getting rid of soot was considered a good reason to make our energy supply cleaner and more efficient. These small dirty particles, created from auto and power plant combustion, discolor walls and do worse to our lungs. Their harm is immediate, yet we seem to have forgotten this, as we’ve become consumed in energy debate about future worries.

Maybe this is because new technologies have helped reduce soot in our environment. But soot (also called particulate matter) has not gone away. In fact, it may be doing more damage to mountain glaciers than carbon dioxide emissions, according to research by the Lawrence Berkeley National Laboratory.

A form of soot, black carbon, appears to be a major reason why Himalayan glaciers are disappearing, a huge concern because they feed rivers that provide water for more than a billion people in China and India.

Black carbon, which comes mostly from burning fossil fuels and biomass, absorbs sunlight, so when the snow becomes dirty, it melts faster.

This kind of soot has increased with economic growth in India and China — by 46 percent from 1990 to 2000 and by another 51 percent from 2000 to 2010, according to Surabi Menon, lead LBNL scientist on the project.

The findings are significant because they offer a simple way to slowdown snow melt, almost immediately, Menon says, in an article posted on the LBNL site.http://newscenter.lbl.gov/feature-stories/2010/02/03/black-carbon-himalayan-glaciers. “Carbon dioxide stays in the atmosphere for 100 years, but black carbon doesn’t stay in the atmosphere for more than a few weeks, so the effects of controlling black carbon are much faster. If you control black carbon now, you’re going to see an immediate effect.”

Soot is just one of the plain-as-the-smudge-on-your face reasons we’re aiming for a more efficient energy supply. Efficiency also cuts manufacturing expenses, reduces the cost to society of building generating plants and power lines and increases energy independence. These may be obvious, yet we tend not to see them in the US as we become consumed in carbon cap and trade debate.

See the LBNL paper, “Black carbon aerosols and the third polar ice cap,” athttp://www.atmos-chem-phys-discuss.net/9/26593/2009/acpd-9-26593-2009.html

Visit Elisa Wood at http://www.realenergywriters.com/ and pick up her free Energy Efficiency Markets podcast and newsletter.

Thursday, February 4, 2010

Hot sectors for energy efficiency

By Elisa Wood

February 4, 2010

It’s clear that the energy efficiency industry is undergoing an unprecedented boom, spurred by state and federal support and movement toward a smarter grid. But for those in the industry, where exactly can the new business – and the jobs – be found?

Two new reports by Colorado-based Pike Research shed some light.

After years of focusing on bringing efficiency to manufacturing, policymakers are turning attention to deep retrofits for the home. Tax credits, low-cost financing, and other incentives make it easier for homeowners to install efficient heating systems, replace windows and insulate attics.

Thus, if you are a home energy auditor – or thinking of becoming one – you are in luck. The report forecasts that the energy auditing market will triple from $8.1 billion in 2009 to $23.4 billion by 2014. And from those audits will come recommendations that spur home improvements. Pike Research predicts a $50.2 billion market in the installation of new electrical systems, appliances and major equipment, HVAC systems, roofing, windows and doors and other efficiency improvements by 2014, up from $39.3 billion.

The more efficient homes need more efficient appliances, so the Energy Star appliance market also may see revenue growth. Under a business-as-usual scenario the industry is expected to generate $21.9 billion by 2014. But the market could see the addition of another $11.3 billion under a high-penetration efficiency scenario, says the study.

“Energy efficiency is stepping into the light after a long period of obscurity,” says Clint Wheelock, Pike Research managing director. “A number of factors are converging to make energy efficient residential products and services a hot sector over the next several years. These drivers include increased environmental awareness among consumers, government incentives, utility energy efficiency programs, and new offerings and rebates from product manufacturers.”

Meanwhile, the US also is realizing that a smart grid must be a safe grid. Increased attention is being placed on cyber security, measures to protect the electrical grid from attacks by terrorists and hackers, natural disasters, equipment failures and human error.

Companies that offer services and equipment to secure the grid are seeing a rapid increase in demand for their wares. Pike Research forecasts that from 2010 to 2015 about $21 billion will be invested globally in cyber security for the smart grid.

“No utility wants to be the weak link in the chain,” Wheelock says “The concern over grid vulnerability is driving utility technologists to work closely with systems integrators, infrastructure suppliers, and standards bodies to develop a robust framework for smart grid cyber security across multiple domains.”

The report finds that equipment protection and configuration management will experience greatest demand. Among smart grid applications, the firm expects that the greatest investments will go into cyber security for distribution automation (DA) and transmission upgrades, followed by security measures for advanced metering infrastructure (AMI) smart meters.

See www.pikeresearch.com for more details.

Visit Elisa Wood at http://www.realenergywriters.com/ and pick up her free Energy Efficiency Markets podcast and newsletter.