Gunning for Green Energy

There’s a growing consensus that clean energy will emerge as a massive business opportunity worldwide. Washington state already has hundreds of companies in the industry and is a leading contender. (check out the Washington State Energy Marketplace Directory). But lots of other regions and countries in the world are moving a lot more quickly to exploit emerging opportuniites.

Denmark is the leader in windmills, for example. Thanks to Denmark’s early establishment of targets for alternative energy use, Denmark-based Vesta has a 20 percent share of the world market of windmills, having installed 39,000 wind turbines around the world. China is making massive investments this year in areas like solar and biofuel. So how does Washington state make sure it is among the world’s leading providers of alternative energy technology?

That was the subject of a three-day conference in Suncadia last week organized by the Greater Seattle Chamber of Commerce. Rogers Weed, Director of the State’s Department of Commerce, said the state is in the process of developing an “industrial policy” to help nurture this sector. The state would do everything from streamline regulations to creating new financing opportunites for promising companies. Venture capital investment in the sector exploded to $8.4 billion in 2008 from $500 million in 2001. But the economic slowdown has reduced those investment levels,

Nobody wants the state to pick winners and losers. But like the most successful examples of industrial policy, the state might back several alternative approaches to technology development with the hope that one of those choices emerges victorious.

Among the areas in which Washinigton already has a competitive advantage are areas like green building, in which we have leaders like MacDonald Miller and McInstry and smart grid, with companies like Itron and with research institutions like PNNL.

One sore point among participants was an early failure of state policy in the area of biofuels. Imperium Renewables invested hundreds of millions of dollars in a biofuels facility in anticipation of state mandates that never arrived. When oil prices fell, the company found no demand for its product, and the facility has not been operating since February.

Businesses expect predictability. When a government shifts course, that can leave investors with huge losses. On the other hand, if a policy proves unwise and costly, does it make sense to move ahead anyway. That is one of the quandries that the state will face as it moves ahead with its industrial policy.

Boeing, for example, has expressed a strong interest in using biofuels for its airplanes. Boeing is responsible for about 1 percent of all carbond dioxide generated on the planet. And aside from increasing the efficiency of its plane, it has few other options for reducing its carbon footprint. The company is working with Targeted Growth to to test biofuels as a key source of jetfuel. But Boeing has yet to offer any substantial investments in the area.

Another major issue for the state is cost. The low price of energy in Washington state has long been a competitive advantage for the state. But cheap energy prices create a disincentive to invest in energy saving measures. They also make it harder to justify investments in alternative energy technologies. How do you compete with cheap electricity from hydropower.

The high price of alternative energy in comparison to the low price of local energy sources could be the biggest conundrum as the state discusses ways to encourage the development of an alternative energy industry in the state.

One solution is to invest in smart grid technologies that would not only make it easier to transport energy from windmills in Eastern Washington to areas in Western Washington or California where there is demand, but also make it easier to create a network stable enough to allow millions of customers to plug in electric vehicles. But that requires a big upfront investment, and although smart grid might ultimately lead to lower bills, by allowing customers to use their appliances at night when loads on the electric system are lower, ti would probably mean higher rates, something utilities customers will be reluctant to embrace.

Seattle City Light has applied for stimulus money to make Seattle a test-bed for a smart grid system. The project would also help update a grid that is hopelessly outdated. It’s a project with promise.