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Sun-Tzu: “Keep your friends close, but keep your enemies even closer”

February 19, 2012

Those who follow the wind industry have undoubtedly heard that the US House of Representatives failed last week to extend the Production Tax Credit for development of new wind farms — the PTC is scheduled to expire at the end of this year.  The PTC is a government incentive that provides a tax deduction for up to one third of the cost of new wind projects.  The PTC is technically not a subsidy — no money actually changes hands from the government to the wind farm developer.  The PTC is a tax deduction.  Over time, it allows wind farm developers to keep more of the money they earn from their wind power plants.  Even with the PTC, a new wind farm would still pay taxes, albeit at a more favorable rate.



However, many Americans mistakenly believe that the PTC is a subsidy, and they feel that in this era of government over-spending we can not afford to keep handing money over to green energy projects.  There has been a strong lobby effort — entirely by fiscal conservatives — to remove these incentives based on a dire need to control government spending.  They somehow fail to realize that if new wind farms are not developed, then new tax revenues will not be generated.

The wind industry in the US, brought together by the American Wind Energy Association (AWEA), has spent recent months lobbying heavily to have Congress pass an extension to the PTC.  AWEA has argued that extending the PTC will provide much-needed stability to the industry, will save jobs in the US and will allow the wind energy industry to continue its impressive growth.  Indeed, the PTC has been allowed to expire three times in the past two decades, and in each of those periods there were virtually no new wind energy projects developed in the US.  There is every reason to believe that last week’s decision will have a similar impact on the industry in 2012 and 2013.

The wind industry came together and put the US government on notice during the closing months of last year.  Vestas and other leading turbine manufacturers stated very clearly that if the PTC failed to pass, they would have no choice but to close down their factories in the US and lay off wind energy workers.  Based on Congress’ decision last week, I fully expect to see closure announcements coming soon.

My fellow executives in the wind industry should have read “The Art of War.”  Most of the leading wind turbine manufacturers have built their US factories and pooled their resources in states that were already supporters of wind energy.  Of course, it has always been a common practice to reward the states that support your industry by creating jobs there.  But, in setting up factories in states such as Colorado, Oregon, and Illinois — states that already have a strong pro-renewables political base — the industry missed the opportunity to convert important senators and congressmen in conservative states to the side of sustainable energy.

When I set up the new R&D center for Vestas in Houston, Texas — at the time, the largest wind energy R&D center in the US — one of my principal objectives was to help build a pro-wind constituency in a very influential conservative state.  If we had established our R&D center alongside our factories in Colorado or in another progressive state, we would have converted no one in the House of Representatives and would have gained no additional political support.  I have to say, if more of my colleagues from other OEMs had considered creating jobs in conservative states, then the wind industry would have found itself right now with a much more diversified political power base and, I believe, much more support for important decisions such as the extension of the PTC.

I hope the industry learns from this.  As Sun-Tzu so eloquently stated in his famous handbook, the power of political diversification must never be underestimated.  I encourage the key players in the industry to consider the impact these decisions have when deciding where to build their factories and their supply chain.  It is often tempting to reward those you consider to be your friends, but sometimes it’s more wise to take your opposition to the dance.

Here’s why we need a national energy policy right now

October 20, 2011

Scientists are predicting that this week will mark the milestone where the world’s population will reach 7 billion.  Are you aware that the population reached 1 billion for the very first time in the history of the world only 200 years ago?  It took millions of years for the population to multiply to 1 billion, and then in just two hundred short years we multiplied to 7 billion people.  The same scientists are predicting that the global population will reach 8 billion by 2025!

Many cities have grown to population densities bordering on the extreme

These people are not all living in some undeveloped country in grass huts with nothing but a candle.  The exploding population is buying a significant number of additional light bulbs, hair dryers, washing machines and dryers, smart phones, TVs, iPods, iPads, computers, and dishwashers.  They are buying new homes, they are erecting new office buildings and they are consuming mountains upon mountains of food every day delivered in plastic, aluminum, glass, and other materials.  All of this stuff must be produced and disposed of day after day after day.

We have to realize that it takes an enormous amount of energy to power all of our lives.  And the cost of producing the additional energy we will need for an exploding population will be staggering.  To point out one very expensive piece of the problem, the US has more than 160,000 miles of electrical transmission lines that are based on 70 year old technology.  The inefficiencies in this antiquated infrastructure account for a loss of 50% of the electricity produced in the US.

That is no exaggeration!  Can you imagine, half of the electricity that is produced in the US is lost in the lines we use to move electrons from one place to another.  This transmission system was designed long before anyone envisioned an exploding demand for energy like what we have now, and long before smart grid technologies were created that could significantly increase the efficiencies in the way power is distributed and used.  This entire system must be overhauled to meet our growing demand.  But no one can make the necessary changes under the weight of volumes of rules and regulations that have been created over the last 50 years – regulations that were specifically created to ensure the perpetuation of this antiquated infrastructure!  Overhaul of our outdated transmission system will have to begin with an overhaul of the regulatory statutes.

And the inefficiencies in our transmission infrastructure are not the only serious problem we face, and may not even be the most serious.  All of the nuclear power plants in the US are reaching the end of their design life, and no new plants are under construction to take their place.  The coal power industry continues to destroy mountains and pump pollution into the environment – nearly 500 mountains have been completely destroyed in the Appalachians in the last 50 years.  Yet, NIMBYism has brought much of the renewable energy industry to a standstill.

Deep water oil drilling must continue for some time, but we have not seen the end of accidental oil spills and we have no really clever ways to deal with accidental spills when they happen.  Furthermore, we must stop importing our energy from unfriendly nations, and stop paying subsidies to foreign governments to encourage them to produce oil for the US.  The list of serious and costly problems goes on and on and on.

The responsible approach to fix all of these problems begins with the creation of a national energy policy.  I am often asked why a “policy” is necessary to help us make the repairs necessary to fix all the problems – why can’t politicians simply do what needs to be done, with or without a policy?  The answer is simple.  Energy companies make investment decisions that affect their businesses for decades.  These investment programs last for 10 to 20 years or more.  The jobs these investments represent are real jobs that people can make a career out of and eventually retire from.

On the other hand, politicians can only make promises that are based on two or four year cycles, or until the next election.  No matter what a political candidate promises, he can easily be overruled by his successor.  These short-lived political promises create uncertainty in the industry and make it difficult for energy companies to find the necessary long term investors to fund long term projects.

A national energy policy could be written to provide the necessary guidelines for implementation of a new infrastructure; these guidelines would signal investors that future government regulations will support these efforts.  The new policy could last a decade or more and would provide confidence to decision makers in the energy companies and in the investment community.

A national energy policy is crucial to the very survival of our way of life, because what we are currently doing is extremely wasteful.  A new energy policy is the first meaningful step toward making everything work; and making everything work will create sustainable jobs.  It will take a lot of people with a lot of different skills to change everything that must be changed.  Without a national energy policy, our politicians and decision makers can only continue to kick these problems down the road.  I would like to encourage you to write or call your elected representatives and demand from them a national energy policy.  Let us collectively make this one of the key factors in this upcoming election.

My…what a mess we find ourselves in!

June 15, 2011

To put it quite honestly, our global energy future looks bleak.  Everyone I know who has more than a shallow understanding of the energy industry believes that we will not be able to meet the growing global demand for electricity in the coming years.  We can not do it.  No one believes we will be able to do it.  And it’s time to stop listening to politicians who tell us that if we’ll vote for them, they will fix the problem.  They won’t.

Why not?  Because the problem isn’t something that they can fix.  Because the problem is in us.

We have become a society where we care more about being consumers than we do about being good citizens.  As consumers, we care an awful lot about how much we pay for gasoline at the pump, and we care about how much we pay each month for electricity.  But we don’t care enough about where that gasoline came from or how that electricity was produced to let such issues drive our buying decisions.  We will complain about the importing of oil and how it costs us jobs, but we will continue to consume it.

A consumer simply lives his life inside his own bubble, buying what he wants and making decisions based on what it costs himself personally.  Citizens differ from consumers.  Citizens actively seek to know about public affairs, and they care about how their actions affect other people.  Citizens care so much about the common good that they will often make decisions that may be inconvenient for themselves in order to promote a better way of life for all.

One of the most important things we need to keep our civilization running is energy.  Consumers go through life rarely giving a thought to how much energy they consume — indeed, they become quite offended when challenged about their energy consuming behavior.  How many commercial buildings can you think of where the lights are left on after they’ve closed, burning all night and all weekend long?  How many people do you know who refuse to support renewable, sustainable energy because it costs them three or four more cents per kilowatt hour?  Consumers, not citizens.

If we were good citizens, we would have a deeply held conviction for the common good.  We would not support the import of foreign oil over our own domestic production and the jobs that are at stake.  We would not buy electricity from an industry that pumps megatons of pollutants into the air or into the water.  We would not buy a gas guzzling automobile when we only drive it back and forth to work.  Consumers do those things.

Citizens are people who inform themselves about the issues.  They cultivate their common interests and engage in public discourse to inspire other people to also engage.  How many people do you know who say, “I don’t discuss religion or politics?”  A real citizen wouldn’t be afraid to share their ideas on either.  As for politics, too many of the people who live in our country feel that they have fully satisfied their obligation to the political process once they exit the voting booth.  But they never dare open their mouths to discuss or persuade others on the issues.  Perhaps they don’t want to be persuaded themselves.

So you see, our government can not solve this problem.  We have to.  If we truly care, if we are truly going to be citizens, then we need to educate ourselves individually and make better decisions about how we spend money on energy.  We must never leave our responsibility with the empty promises made by politicians or corporations.  We must never let them make the decisions for us.  We need to understand the issues, discuss them openly, and decide for ourselves how we will spend our money.  We each must decide whether we will contribute to the problem or to the solution.  It is our decision, and ours alone.

Here is a link to an interesting short video from Harvard professor Dr. Michael Sandel regarding citizens and consumers.  It makes a powerful point.  I encourage you to enjoy it.

Four Dirty Secrets About Clean Energy

June 8, 2011

Alex Epstein ran an OpEd piece on Fox News recently about what he calls the four dirty little secrets of clean energy (the link to his article is at the bottom).  I want to use this space to refute what he said.

Dirty Secret 1: If “clean energy” were actually cheaper than fossil fuels, it wouldn’t need a policy.

Mr. Epstein’s claim that the free market would naturally allow cleaner energy resources to rise to the top if they were truly profitable is absurd.  His over simplified supply vs. demand model of economics would have to assume that all energy resources are regulated equally and fairly.  They are not.  For example, the coal industry over the past years has successfully manipulated regulators to define the lifecycle cost of production in a way that hides many of the real costs of coal.  Currently, coal is considered to be the cheapest energy resource in the US, but according to Harvard professor Dr. Paul Epstein (no relation to Alex) in an article published in the Annals of the New York Academy of Sciences, an accountability of the full lifecycle cost of coal would add another 17.8 cents per kWh of electricity produced.  This would make coal the most expensive resource of all.

We’ve known for a long time that coal is a costly and deadly energy source.  In “The Toll from Coal,” The American Lung Association found that coal-powered electricity alone caused “over 13,000 premature deaths in 2010, as well as almost 10,000 hospitalizations and more than 20,000 heart attacks per year.”  This was just in the US.  The coal related death, illness and injury rate in China is much higher.

As I’ve written in a previous article, Behold the face behind the curtain of “clean coal,” coal production has completely destroyed 470 mountains in the Appalachians in just my lifetime.  These mountains have completely vanished.  There is no accountability for this destruction of land in the pricing of coal.  Neither is there an accounting of the cost of communities that have been destroyed by toxic waste, families and businesses that have had to be relocated, and ground water pollution as the result of mining operations.

A flood of coal ash slurry from the Tennessee Valley Authority's Kingston Fossil Plant Dec. 29, 2008 in Harriman, Tenn. An earthen dam holding a containment pond broke Dec. 22, 2008, unleashing a billion gallon flood of toxic sludge into the Emory River.

Currently, the wind energy industry does take into account the entire lifecycle when calculating the cost of energy — even including CO2 emissions for factories that produce turbine parts, and decommissioning of the wind farm 20 years into the future.  No one accounts for the cost of the future decommissioning of a coal plant when calculating the cost of coal energy, and oil and gas companies leave their obsolete old rigs and drilling platforms behind to rust into a heap.  Such accounting isn’t evenly applied across all resources.  If it was, the cost comparisons would look very different.

Federal regulators need to create an even playing field for all energy resources.  I’m not advocating a tax on carbon, but it’s a fact that the regulatory structure is severely broken for all energy resources and it needs to be fixed.

Dirty Secret 2: Clean energy advocates want to force us to use solar, wind, and biofuels, even though there is no evidence these can power a modern civilization.

Denmark was the first country to achieve 20% of its energy production from the wind.  Other countries are following Denmark’s example.  Scotland expects to achieve 100% of energy production from renewables by 2050.  Germany is in the process of shutting down 17 nuclear reactors and plans to replace them with offshore wind farms — construction is already underway.  The UK plans to install more than 8,000 wind turbines in the waters of the North Sea.

The only excuse the US has for not being able to power our civilization from renewable energy is that our federal government stands in the way.  Our legislators have created no less than 36 oversight committees who have to be given a say in anything related to energy policy.  These committees find it very difficult to agree on policy, yet they will all agree that their first priority is to satisfy their own party’s political interests.  Exacerbating the problem is our American society’s unwillingness to allow turbines and transmission lines to be built within sight of anyone.  These pressures drive votes and votes drive the system.  Is it any wonder why Europe and China are leading the green energy economy?

Dirty Secret 3: There are promising carbon-free energy sources–hydroelectric and nuclear–but “clean energy” policies oppose them as not “green” enough.

I don’t believe there are green energy policies that stand in the way of hydroelectric energy.  We have been using hydroelectric power plants for many decades and they work very well.  Unfortunately, all of the locations where there is enough water running far enough downhill to produce utility scale electricity have already been tapped.  There are no more candidate locations for additional hydro power plants in the US.

Nuclear energy is clean when it is running safely, and it is very very dangerous to people and to the environment when it is not.  But regardless, nuclear fuel is not renewable.  It is mined in much the same way that coal is mined.  Many of the true costs of nuclear energy are hidden in the toll on human health and the environmental impact of deep earth mining.

Dirty Secret 4: The environmentalists behind clean energy policy are anti-energy.

Mr. Epstein is wrong in the way he portrays wind and solar as being more harmful to the environment than conventional energy.  He claims that “Huge, 400-foot tall wind-turbines with 150-foot blades and noise known to cause unbearable headaches a mile away do not exactly embody the environmentalist ideal of living in harmony with nature.”  I couldn’t disagree more.  As Vice President of Technology for the world’s largest wind turbine manufacturer, I have stood at the base of operating wind turbines, talking with colleagues using a normal voice while the slow, quiet “whoosh….whoosh….whoosh” emanated only a few meters above our heads.  It would be impossible to hear a wind turbine more than a few hundred yards away, much less cause unbearable headaches a mile away.  That’s just plain rubbish.

As for land use, wind turbines are typically installed in agricultural areas and share the land with farmers and cattlemen.  A wind turbine requires less than an acre to produce more than 3 MW of electricity — enough to power 1,500 homes per year.  Much of that same acre can also be used for grazing cattle or growing crops.  This dual use helps to raise the property value for the land owner.

Unfortunately, the same can not be said for solar energy.  It takes about four acres of solar panels to create 1 MW of electricity and the land can not be used for anything else.  This makes it difficult to put solar power plants near population centers as the land value is too high to have it locked up with rows of solar panels.  Roof-top solar panels make a lot more sense in urban areas, and I am delighted to see so many solar panels being installed on top of people’s homes and commercial buildings.

My Summary

In spite of all the complaints and challenges raised by green energy antagonists, the world is embracing clean energy — indeed, they are demanding it.  Renewable energy technology is mature enough now (at least in wind and some applications of solar) that it could easily provide clean energy at a competitive price if federal regulations were fairly applied.  It is imperative that the governments of the world begin the hard work of putting meaningful, fair regulations in place that will allow green energy to compete.  It is up to us, consumers and voting citizens, to put pressure on our elected representatives to make these changes.

Mr. Epstein’s original article:

Why should you subscribe to your utility company’s “100% wind energy plan”?

May 16, 2011

I attended a seminar in Houston last week where one of the other attendees asked me to help her understand her utility company’s offer to subscribe to a plan that provides 100% wind energy.  She told me she opted to subscribe to the new 100% wind energy plan, and was willing to pay a little more for wind energy, but she didn’t understand whether she was really making a difference.  After all, it didn’t seem likely that her utility company could direct wind generated electricity exclusively to her home.  I got the same question again today, so let me clear this up.

It’s true, utility companies around the world are offering 100% wind energy subscription plans.  It’s also true that they have absolutely no way to direct wind generated electricity to your home — once a wind farm puts electricity on the grid, those electrons become indistinguishable from electrons generated from coal, gas, nuclear, or any other resource.  So how does such a plan work for you, the consumer?

What most people don’t realize is that wind farms produce two separate revenue streams.  One revenue stream comes from selling the electricity generated by the wind turbines.  The wind farm owner sells the electricity his turbines generate to the utility company at competitive trading prices.  That means the wind farm owner doesn’t get a premium rate for his electricity just because it was generated by wind.  He has to sell his electricity on the trading floor, being price competitive with electricity generated by all of the other resources.  If his rates were significantly higher than the rate for electricity from other resources, he would not be able to sell his electricity on the open market.

The second revenue stream comes from selling Renewable Energy Certificates or RECs (also known as Renewable Energy Credits or “green tags”).  For every 1000 kilowatt hours of electricity the wind farm owner produces, he can sell one REC.  Selling RECs is how wind farm owners make a profit, and this is why investors look favorably at wind farms as a good investment.  RECs are tracked and certified by a third party auditing agency to ensure that RECs are never duplicated — once a REC is sold, no other REC can ever be generated for the same 1000 kilowatt hours of electricity that was produced.

Who buys these RECs?  Well, indirectly you do.  When your utility company offers a 100% wind energy plan, what that means is that your utility company uses the extra money you pay on your bill to buy RECs from wind energy providers.  It doesn’t change the type of electricity that comes to your home, but you do help to make wind farms more profitable.  And in a free market economy, when wind farms show a profit, more wind farms will be built.

So by all means, subscribe to wind energy plans.  It is one effective way you can make renewable energy a priority.

More about RECs:

Smart meters are arriving — should we care?

May 13, 2011

Almost everywhere I’ve been lately it seems like I see billboards proclaiming that smart meters are coming.  The advertisement makes it appear like this new technology is going to somehow make my energy supply better.  But will it?

The older meter technology that’s been around for more than 40 years had a round disk behind the glass that would spin faster as our rate of electricity consumption increased.  The meter counted the number of times the disk made a rotation and it displayed the count on a series of dials.  Once every month, a real person would walk through the neighborhood looking at the meters and taking note of these numbers, and we would receive an electricity bill in the mail based on the number of times the disk rotated in the meter.

The new technology — these “smart meters” — are a little more sophisticated.  They still read the amount of electricity we use — not on a monthly basis, but now once every 15 minutes.  This information is transmitted directly to the power company.  So, no more will you see people walking through your neighborhood writing down readings.  Is this a benefit?  Well, the utility company’s new ability to see your energy consumption at 15-minute intervals will allow your utility company to charge you a higher rate for electricity you use during times when demand is high, and a lower rate during times when demand is lower.  Of course, this is also an opportunity for you, the consumer, to game the system.  You can elect to run your dishwasher, for example, during the night when the rates are at their lowest.

Other benefits these new meters bring?

The power company will know automatically if your power goes out.  If the meter stops transmitting data, then the service department will know right away that they need to look into the cause.  Also, some utility companies will give you access to your own data and allow you to compare your energy usage to the average amount of energy your neighbors have used.  If you’re the type of person who wants to know this information so you can make decisions on how you use electricity, then you will perceive a benefit.

Will smart meters save you money?  Most experts don’t believe so.  There is a cost savings to your utility company because they no longer have to pay people to walk through neighborhoods.  But whether these savings will be passed along directly to you is not known.

There are companies now who have developed controllers you can install on your major energy devices (clothes dryer, dishwasher, water heater, air conditioners, etc.) that will allow you to program them to run during less expensive times of the day based on data that your smart meter has provided to your utility company.  I expect that in a few years there will be more devices on the market and I believe that one day these devices will be built into these products so that you will hardly notice that you’re using them.  I believe that smart meters will be the very beginning of new capabilities that will allow us to be less wasteful and much smarter about how we use and pay for electricity.  But for the near term, they are really nothing more than a new meter.

New residential smart meter

Why hasn’t the US embraced offshore wind energy?

May 4, 2011

I was invited to a dinner last night in Houston sponsored by the UK Consulate General.  The theme was Oil and Gas Technologies: Synergy and Application to Offshore Wind.  The speaker was Patrick Phelan, a Brit and the General Manager of JDR Cable Systems, who supplies undersea power cables to the offshore wind industry.  Anyway, Patrick spoke about the rush to offshore wind energy in the UK.  Indeed, the UK is planning to place nearly 8,000 large-scale wind turbines in the waters around the island nation.

The UK is leading the world right now in deployment of offshore wind.  Denmark, Germany, and The Netherlands have also been installing offshore wind turbines along with a handful of other countries.  We see many mega-companies now investing in offshore wind — it is as if they have found the next great gold rush.  Yet, for years all we have heard in the US is that offshore wind is too expensive.

So, what is it that all the other countries see that we here in the US don’t?  We are still debating whether offshore wind energy is financially viable while other countries have moved on with it.  We argue that we don’t want to see giant turbines spinning in our view of the ocean, so we require they be pushed many miles over the horizon at a tremendous additional cost.  Cape Wind, scheduled to become the first offshore wind farm in the US, has met obstacle after obstacle for more than 10 years and has yet to begin construction.  In the mean time, other countries around the world are seriously embracing offshore wind power.  Why haven’t we done so?

The simple reason is that our federal government is severely broken.  Bowing to the interests of those who manage to bring financial support to very powerful politicians, our federal government has managed to create no less than 36 oversight committees for energy, each one responsible for ensuring that the special interests of powerful lobbyists are adequately covered.

Our nation can not afford to continue pushing the cost of renewable energy projects to the extreme the way the regulatory process has done with Cape Wind.  We have to get serious.  We need new leadership who can really bring enough political clout to make vital sweeping changes to streamline the regulatory system.  Then, and only then, will we begin to see large investments in renewable energy in the US.