CLEAN ENERGYFINANCIAL TIMES SPECIAL REPORT | Monday January 19 2009 Page 4

InsideInsulation is thekey to change,says the UK’schief scientist

www.ft.com/clean­energy­2009

The case for turning the stimulus green

Clean energy companies,which had been flyinghigh on the back of soar-ing oil prices, tumbled to

earth in the last few months of2008. The boom in renewable andlow-carbon alternatives to fossilfuels looked by November tohave suffered a sudden bust.

The WilderHill New EnergyGlobal Innovation Index, whichtracks the performance of 88clean energy stocks worldwide,plunged almost 70 per centbetween the start of the year andNovember, with 84 out of the 88companies seeing their shareprice fall. This was in sharp con-trast to the previous year, whenthe index rose 58 per cent.

Clean energy sectors sufferedparticularly as the markets pun-ished companies with high capi-tal needs, and as investorssought safe havens in longer-established businesses, accordingto an analysis by New EnergyFinance, a research specialist.

But against the backdrop of theWorld Future Energy Summit2009 in Abu Dhabi, supporters ofthe sector warn against writingoff clean energy just yet.Although this year will be diffi-cult, prospects remain bright.

Michael Liebreich, chief execu-tive of New Energy Finance,says: “2008 was a bruising yearfor clean energy shares. Therewas a point when [the WilderHillindex] was at a level we haven’tseen since September 2003, beforethe ratification of the Kyoto pro-tocol. . . That’s plainly absurd,even in the light of the unsus-tainable surge in valuations in2006 and 2007. The growth pros-pects for clean energy invest-ment remain exciting.”

The arguments in favour ofclean energy are becoming famil-iar to most businesspeople.Energy security is now a press-ing concern for importers of oiland gas – the dispute betweenRussia and Ukraine in early Jan-uary proved a jolting reminder toEurope of the problem of over-reliance on any single energysupplier. The US is equally waryof relying on politically unstableregions such as the Middle Eastfor its fuel imports.

The soaring price of energy inrecent years has intensified theseworries, forcing governments and

businesses to explore alternativesto oil and gas. Added to this hasbeen another growing concernabout oil: finding new sources ofsupply as the most easily tappedresources are depleted, and atten-tion shifts to unconventionalsources, such as oil sands, whichare more expensive to exploit.

If “peak oil” theorists are cor-rect, this problem will worsenmarkedly in the next two dec-ades, and prices will rise further.

Climate change is the otherreason to switch away from fossilfuels. Rising concentrations ofgreenhouse gases have out-stripped scientific predictions,bringing us closer to what cli-mate experts warn is the brink ofa catastrophic degree of globalwarming.

Scientific evidence has beenpiling up, and the world is nowless than a year away from aconference aimed at forging anew global deal on emissions.

Added to these pressures, pol-lution has prompted rapidlyindustrialising countries to seek

cuts in their consumption ofdirty fuels such as coal and oil.

Governments have sought torespond with fresh regulations.Europe has led the way with itsgreenhouse gas emissions trad-ing scheme, but other countrieshave taken steps to set up theirown trading systems: Japan, Aus-tralia and several US states haveall embarked on carbon trading.

Some developing countrieshave also pursued lower-carbonstrategies – China has stiff lawson car fuel economy, India has a

national plan on carbon, andMexico has pledged to halveemissions by 2050.

But these were the policies andrealities of the boom. Last year’sfinancial crisis was accompaniedby a precipitous fall in oil prices,and vociferous calls for a loosen-ing of environmental regulationsthat would raise fuel prices.

The economics of alternativeenergy have reversed sharply:high energy prices made still-costly alternatives such as windand solar power much more

attractive, but as conventionalenergy prices have dropped, sohas the impetus behind renewa-bles. T Boone Pickens, the legen-dary Texas oilman, signalled thesudden change last year, whenhe drastically scaled down plansto invest in US wind power.

The lack of credit is also brak-ing the growth of renewables,says Neil Suslak, managingdirector of Braemar Energy Ven-tures, a clean energy investor:“The current financial crisis willcontinue to slow the deployment

Economic ills threatenalternative energyinvestment but publicspending plans couldturn it into a cure,reports Fiona Harvey

Inside this issueFrom home to powerhouseThe choice of microgenerationtechnologies is expanding andtheir cost is coming down, writesRebecca Bream Page 2

Virtues of sharing a rideCar­pooling initiatives that encouragecommuters to share car journeysare taking off, says Carola HoyosPage 2

Foot and spokeEfforts to get people out ofcars and walking or cycling in theUK capital are working, reportsRobert Wright Page 3

Green sky thinkingScientists are making innovativeefforts to find new sources ofpower that are carbon neutral,writes Clive Cookson Page 4

Becalmed: as conventional energy prices have dropped, so has the impetus in the US to invest in projects such as this wind farm near Palm Springs, California David McNew/Getty

ments. Some governments arenow suggesting this stimulusshould be green – that invest-ments should be directed towardscreating an infrastructure forenergy that would shift econo-mies on to a low-carbon footing.

The US president-elect, BarackObama, is the chief proponent ofa green stimulus. He has pledged$150bn of investment in low-carbon infrastructure, creatingmillions of jobs. Gordon Brownin the UK has also espoused a“green new deal” to create jobs,and other countries are also con-sidering the idea.

Mr Liebreich notes: “Obama isnot the only leader seeing cleanenergy as an important elementin the programmes they are plan-ning to help stimulate economicactivity.”

That is good news for the cleanenergy industry, says Mr Suslak.Although past recessions havehalted the growth of alternativeenergy, the problems of energysecurity and climate change arenot going away. “In prior periodswhere we have had wild com-modity swings, the rush to alter-natives essentially stalled whenenergy prices fell. We believethere are many more factors atwork now which will keep oppor-tunities alive, but at a moremeasured pace,” he says.

The “Obama bounce” led theWilderHill index to recover byabout 45 per cent in December.

Other investors agree that theconcept of a green stimulus willlift the sector, despite the wors-ening outlook. “We cannot ignorethe recession,” says Ian Simms ofImpax. “However, many compa-nies operating in environmentalmarkets are likely to see sus-tained demand for their productsand services.

“If we are going to make tangi-ble progress towards targets toreduce carbon dioxide emissions,there will be a marked increasein some areas, particularly equip-ment and materials that improveenergy efficiency, cleaner fuelsand renewable power.”

Tom Burton, head of theenergy practice at Mintz Levin inthe US, predicts: “The invest-ment community will not forsakeclean tech in the light of therecession. The fundamentalinvestment theses, broadlyspeaking, have not changed.There are still large, untappedmarkets.”

He concludes: “It’s true thatthe sector will suffer from a slow-down, but that is no differentfrom other technology sectors, Ibelieve that the clean tech sectorwill be among the first to emergefrom the ashes of the recession.”

of new renewable projects in theUS in 2009 due to lack of capitalavailable for projects generally,and a reduction in demand forcurrently more expensive renew-able energy by energy users.”

Governments have also grownmore wary of strengthening envi-ronmental regulations that couldpush up costs to hard-pressedbusinesses and consumers. Euro-pean companies succeeded inwringing key concessions lastyear on the extension of theemissions trading scheme.

On the face of it, then, therecession and financial crisisspell disaster for clean energy asinvestors take fright and the eco-nomics of energy swing back infavour of oil. But as the recessiontakes hold, a new argument isgaining currency. The need foran economic stimulus, fundedfrom the public purse, is nowaccepted by governments acrossthe world. The US, Europe, Asiaand others are all engaged inreigniting their economies bybringing forward public invest-

Obama’s smart visionfor the electricity grid

It has been a long time sincean electricity pylon couldsymbolise a technologicalrevolution. Yet the powergrid has been a centralplank of Barack Obama’splatform.

The “smart grid” – an elec-tricity network that usesinformation technology tomanage generation and con-sumption more flexibly – is akey element in his plan to“retrofit America for a glo-bal economy”.

Launching his stimuluspackage this month, heexplained: “That meansupdating the way we get ourelectricity by starting tobuild a new smart grid thatwill save us money, protectour power sources fromblackout or attack, anddeliver clean, alternativeforms of energy to everycorner of our nation.”

Mr Obama has highlightedone of the most importantissues in clean energy: thetransmission and storage ofpower. Fossil fuels can betransported thousands ofmiles and stored indefinitelyusing what is essentially19th-century technology.Renewable energy, on theother hand, is frequentlyhard to transport and store.

All too often, wind andsolar power are produced inthe wrong place at thewrong time. Storage is allbut impossible, and trans-portation presents newchallenges.

As renewable generationdevelops, pushing into new

areas such as offshore windand vast solar arrays inMorocco or California, manyof those problems willbecome even more difficult.

Intermittency is an inher-ent problem of wind andsolar power: when the winddoes not blow or the sundoes not shine, the electric-ity does not flow. Eon, theGerman energy group, hasestimated that its UKonshore wind farms havehad a load factor – output asa proportion of capacity – aslow as 10 per cent over thewinter, when the power isneeded most. If the electric-ity could be stored, then itcould be produced whenavailable and released whenneeded, but the technologyis still in its infancy.

Pumping hydro, in whichwater is moved uphill whendemand is low and releasedto drive turbines at peaktimes, is still the most effec-tive method, but is limitedby the investment requiredand the need to find suitablesites.

David Socha of Logica, aconsultancy, estimates that,excluding pumping hydro,there is just 850 megawattsof power storage in theworld: about half the outputof a single medium-sizedpower station. That is intechnologies such as hydro-gen storage, flywheels andcapacitors, all being pursuedas possible solutions.

“The storage of majoramounts of power is at what

I would call the end stage ofR&D,” Mr Socha says.“There really isn’t anythingcommercially available.”

Intermittency also createshuge problems in balancingsupply and demand. Movingtowards distributed genera-tion, in which power is pro-duced locally rather than incentralised plants, adds tothose difficulties.

“Current grids are notgeared up to cope with thedemands that microgenera-tion and green power gener-ation techniques, such aswind or solar, will place onthem,” says Bastian Fischer,general manager for Europe,the Middle East and Africaat Oracle Utilities.

“The small units of elec-tricity to be created bydomestic microgenerationrequire the grid to be able toboth distribute and receivepower, which it can’t do cur-rently. Furthermore, theamount of power generatedby wind and sun is hard topredict, which introducesissues when it comes tocapacity planning.”

The investment needed todevelop a smart grid wouldbe “colossal”, the US Depart-ment of Energy said lastyear. It will require smartmeters – devices to monitorpower flows by the minuteand communicate that infor-mation – in every home, andadvanced controls to meas-ure and regulate flowsacross the network.

Funding that investmentwill not be easy. But, eventu-ally, ageing grids built in themiddle of the 20th centurywill need to be replaced, atan estimated cost of $1,500bnfor the US alone during2010-30.

When the grid is renewed,it may not be much moreexpensive to make it smart,and the benefits could beenormous.

TRANSMISSION

US plans addressone of the mostimportant issues inthe power debate,says Ed Crooks

Brakes are onbut cleanercars still havemomentum

The switch from conven-tional petrol-burning cars tomore energy-efficient elec-tric, hydrogen, and otheralternative-fuel ones wasnever going to be easy.

The financial crisis hasmade the task immeasurablyharder.

Petrol prices, after spikingto record levels early lastyear and spurring new inter-est in electric and hybridcars, have plunged, pro-foundly shifting the assump-tions underpinning both car-makers’ business plans andconsumer spending habits.The slowdown has squeezedthe budgets of both.

With car buyers pinchingpennies, sales of earlyentrants to the field, such asToyota’s top-selling Priuspetrol-electric hybrid, fellmore sharply in Novemberthan the overall car marketin the US. In December, Toy-ota shelved plans for a Mis-sissippi plant to build thecar in its biggest market.

The financial crisis hasalso dealt a harsh blow toexpansion plans at high-profile clean-car startupcompanies such as Califor-nia’s Tesla Motors, maker ofan electric roadster, that latelast year postponed plans fora factory to build a newsedan.

In December, Norway’sThink, another niche elec-tric-car producer, halted pro-duction and asked for gov-ernment aid to stay afloat.

The world’s large cargroups have asked Europeanand US policymakers forgovernment funds to keepinvesting in greener technol-ogies as they hunker downfor the industry’s worstslowdown in decades.

Even before the creditcrunch, carmakers and poli-ticians were grappling withthe complex feasibility andcost-benefit issues surround-ing mass adoption of alterna-tive vehicles.

Industry analysts and car-makers have always saidthat electric and hydrogenfuel-cell cars would not takeoff without big investmentsin recharging and fuellinginfrastructure.

Serious questions remainover the “well-to-wheel”environmental impact of bat-tery-powered cars if they arecharged from electricity gen-erated from non-renewable,higher-emission sourcessuch as coal.

Despite government andindustry efforts to promotebiofuels, the field remainsmired in controversy overthe extent to which produc-tion of crops for ethanolcrowds out food production.Investments have been madeby carmakers includingDaimler, Volkswagen andGeneral Motors in producersof “second-generation” fuelsmade from non-food crops orwaste.

Carmakers were always

wary of betting too much onnew technologies not yetroad-tested for mass con-sumer acceptance. Even ingreen-minded Europe, car-buyers are reluctant to payextra for alternative-technol-ogy cars such as hybrids.

This reluctance underpinsthe industry’s noisy pleas forstate aid to help underwriteresearch and development.Car groups also want policy-makers to ease regulationspushing them to makecleaner cars.

In December, the Euro-pean industry – with supportfrom governments – suc-ceeded in securing a longer-than-expected transitionperiod for the carbon cuts totheir fleets being demandedby the European Union. Car-makers will now have until2015 to reduce average emis-sions and penalties for non-compliance were cut.

While industry lobbygroup Acea described themeasures as a “tough” com-

promise, the European Fed-eration for Transport andEnvironment, a green watch-dog, described them as capit-ulation.

In the US, Detroit’s crisis-stricken carmakers last yearwon access to a $25bnDepartment of Energy creditline for investments inplants making cleaner cars.

Auto bosses such as FordMotor’s Alan Mulally arealso urging Washington toraise fuel taxes, which theysay would push Americansinto cleaner cars more effi-ciently than fuel-economyrules on the companies.

While the financial crisismay have slowed the indus-try’s momentum towardsgreener cars, it does notseem to have stopped it.

National and local govern-ments around the worldhave announced backing forseveral projects since the cri-sis hit. Carmakers – whotypically spend years devel-oping new vehicles – arepushing ahead with hybridand other alternative-fuelmodels long in the planning.

In the UK in October, Gor-don Brown’s governmentpledged £100m to helpdevelop low-emission cars.In France, President NicolasSarkozy said he would mobi-lise €400m ($547m) of publicmoney over four years for

R&D of low-emission vehi-cles.

Toyota unveiled a newversion of the Prius at theDetroit motor show in Janu-ary. This year, Honda willlaunch the Insight, one offour hybrid models and a carthat it claims will sell at asmaller price premium thanToyota’s top-selling model.Hyundai said in November itwould begin selling a hybridversion of its Elatra compactcar from next July.

Carmakers are also push-ing ahead with vehicles pow-ered primarily by batteries.Lotus said in December thatit planned a high-perform-ance electric car to take onbattery-powered vehiclessuch as Tesla’s roadster.

Larger carmakers cannotafford to retreat from theirpledges on greener cars at atime when they are pleadingfor public funds. GM madethe Volt, its plug-in car itplans to launch in late 2010,a centrepiece its submissionfor emergency bailout funds.

In an attempt to resolvelingering issues around elec-tric cars’ viability and car-bon footprint, manufacturersare also forging bonds withutility companies to buildcharging stations and studyways of integrating carswith households and thepower grid.

AUTOMOTIVE

The crisis has nothalted interest inalternative fuels,says John Reed

Car groups haveasked policymakersfor funds to keepinvesting in greenertechnologies

New entrant: Honda’s Insight hybrid will compete with Toyota’s top­selling model AFP

When the grid isrenewed, it maynot cost much moreto make it smart,and the benefitscould be very great