What’s Wrong with Energy Investing? Part I

8/6/07Follow @BillAulet

I just returned to Kendall Square after spending a spectacular weekend at Squam Lake in New Hampshire and at the forefront of my mind—and what I could not shake over the weekend—is the state of the development of the New England energy ecosystem. Granted, I have a personal agenda, as in 30 days I commence teaching a new class at MIT called Energy Ventures. Still, it’s an extremely relevant question for the local economy, and arguably the nation and the world. Energy is, after all, the biggest industry on the planet and certainly faces the biggest challenges. Therefore, it offers the biggest and most attractive opportunities for investors and others who want to make a difference.

A lot of smart and well-intentioned people have made a lot of progress in recent years in developing the regional energy ecosystem. But let’s not congratulate ourselves too fast. For every EnerNoc success story, there has been a GreenFuel setback (hopefully temporary). Not that such setbacks are necessarily a bad thing, especially if they cause us to reflect and learn how to improve. So the question that we should seek to answer is “what is working and what is not working in developing a New England-based energy ecosystem?” Or even more specifically, “what’s wrong with energy investing?”

To answer this question, we might refer to the Beatles’ George Harrison, who sang in “Got My Mind Set on You” that “it’s gonna take time, a whole lot of precious time…to do it right.” But the time is precious indeed, and I think enough results are in to make two important points about energy investing.

Majoring in Minors
While there clearly used to be a shortage of private equity capital for energy ventures (and rightly so because of their highly cyclic nature), that problem has gone away. Money is now gushing in. By my simple calculations, the amount of money available to energy ventures from dedicated private-equity funds quadrupled from 2005 to 2006, soaring from approximately $5B to $20B. I believe this is even understated. The point is that the money is flowing in at an amazing rate. But where is it going? Energy as a sector is almost as non-specific as technology or transportation. We have to peel back the label and take a closer look.

The lion’s share of the money that is dedicated to energy is earmarked for renewable or alternative energy. Renewable or alternative energy is a fantastic thing and it is necessary, but wholly insufficient, to deal with the energy problem. The biggest part of the energy riddle that needs to be solved resides—and will continue to reside for the next 50 years—with the hydrocarbon side. How do we find more to meet the booming demand? And, how do we find ways, through technology, process, and/or business-model innovation, to reduce the environmental impact of hydrocarbon usage? Renewables is a rounding error when compared to the 80 to 90 percent of the demand that hydrocarbons (i.e., oil, gas, coal—ah!, there it is the four-letter word of energy) fill and will continue to fill for the foreseeable future.

We should and must invest in renewables and alternative energy for the future and there will be some big wins there relative to investing. But with all the new money and attention rushing into this small part of the sector, we are majoring in minors. The major focus should be how do we deal with the continued need for hydrocarbons and how do we make this cleaner energy. Just to put this in perspective, the world would be dramatically better off from an energy-supply standpoint if we could find a way to improve recovery rates at oil and gas wells by 1 percent than if we built a million new wind turbines. If we could find a way to reduce CO2 emissions from automobiles by 1 percent it would be, from a quantitative and practical point of view, thousands of times more positively impactful than increasing solar energy production by a hundred times.

For the investor, this line of thought would seem to make sense as well. One of the top funds of any kind in the U.S. last year was First Reserve Corporation, and while they do not release their results, we know they did very well. One gauge is that they were the top fee producer on Wall Street last year. They also just raised an additional $7.8 billion to continue to do what they do best—investing in the basic energy industry with a focus on making the good old hydrocarbons industry more effective and efficient. These days the herd mentality of private-equity investors, in my humble opinion, has them putting too much money into renewable/alternative energies and not enough into fixing the core business of energy, the hydrocarbons. There will be a correction but until such time, I think this is a fundamental problem with overall energy investing.

Not Enough of the New Brand of Innovators/Entrepreneurs
The nature of the energy industry is far different from that seen in IT, healthcare, biotech, telecommunication, or any other field and it requires a new brand of innovator/entrepreneur which is in short supply relative to demand. The lessons from other industries do not translate effectively in many cases. The scope, scale, time horizon, interdisciplinary skills required, and the question of how independent a new venture can be from the existing infrastructure are problems that, in combination, are unique to the energy industry. But more on that in the next post…

Bill Aulet is the managing director of the Martin Trust Center for MIT Entrepreneurship and a senior lecturer at the MIT Sloan School of Management. He is also the author of “Disciplined Entrepreneurship: 24 Steps to a Successful Startup”, published by Wiley, which was released in August 2013. Follow @BillAulet

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  • Doug

    I agree with Bill’s basic premise. Early-stage companies focused on improving hydrocarbon production, processing (i.e. refining), and distribution will provide better returns to venture investors than will companies targeting renewable fuels.

    Technology companies targeting the renewable fuels market face much more risk than their hydrocarbon-focused counterparts. The markets they are serving are undeveloped, buying and technology adoption patterns are undefined, and technology standards, if they exist at all, are not robust. Even if the technology is real and credible and with the current tailwind propelling the industry, the “buying” side of the equation is ambiguous. In contrast, early-stage companies targeting the hydrocarbon market are selling into an extremely large, global market with existing budgets, existing technology evaluation criteria and a more homogeneous technology environment in which their products will need to be integrated.

    This risk is not offset by the potential for higher returns, other than those returns generated by the simple fact that renewables companies are perceived by the capital markets to be more fashionable than their hydrocarbon counterparts. Venture investors, particularly those with a renewables focus, would be better served broadening their focus to energy tech.

  • Jay

    Bill – you bring up some good points. There is a huge opportunity for making traditional energy sources far more efficient and cost effective, and start-ups innovating in this space have as good a chance as any to make strong returns for their venture investors.

    A few comments:
    1. There are, indeed, some very interesting entrepreneurial efforts aimed at making traditional energy sources greener. For example, GreatPoint Energy has received a lot of publicity (and investment) in their attempts at making methane from coal, with the CO2 by-product “sequestration-ready”. If they’re successful, they will be commercializing a profitable technology with environmental benefits. A strong performance by companies like GreatPoint will generate more VC attention on new technologies aimed at traditional energy sources.

    2. If you can get past all the hype – and I’ll admit, there is far too much hype in some sectors — the renewables/cleantech industry does provide the opportunity for new ways of thinking about energy in market-disruptive ways – e.g., distributed generation sold directly to the end consumer, selling efficiency instead of generation, etc. Don’t discount the value of innovative business models enabled by clean technologies.

    3. Even though renewables represent a “rounding error” in terms of overall contribution to world energy production, it’s hard to argue that the “niche” being served does not represent a decently-large market, too. To your point, energy is one of the world’s largest markets. So a niche within this market can still make for an attractive place to do business. Worldwide PV module revenues are estimated to be roughly $7B this year. Not bad.

    Regards,
    -Jay

  • Sol Shapiro

    Here’s an idea ready today and for the long term in alternative energy. Don’t know how it fits with entrepreneurship because it takes big capital and gets big results.

    Solar thermal electric generation – using proven technology which is closing in on 10 cents a kwh now, can store energy overnight and integrates with fossil; has capacity to produce all the energy you may want (10,000 square miles produces all the electrical energy we use in the U.S.). And then bring it to the East on high voltage dc.

    There is a German study which I can send to you which looks at using North African solar thermal facilities and bringing it 3000 km across the Mediterranean; which claims it will achieve energy cost of 5 Euros (in the future) including transmission costs.

  • Sol Shapiro

    Let me expand a bit on my concept of generating electricity in the Southwest and transporting it on hi voltage dc to the East. Transmission line cost is in the order of $1 million per mile, at least in discussions I see in Colorado. So, say we have a 1000 mile line at $1 billion. Then let’s assume cost recovery at 10% per year. At a 65% capacity use, if my arithmetic is right, to achieve a one cent per kwh cost, this would require that the line carry about 2000 megawatts. A large power plant puts out about 1000 megawatts so we are probably in a viable ball park.
    Now who pays for this transmission line up-front? Could it be a taxpayer funded part of infrastructure like our road system? Paid back on some allocated cost between taxpayers and users?
    Hope these numbers give you something to chew on. (And would someone please check my arithmetic?)

  • Bill Wuepper

    It is hard to tell where you stand on alternative energy given some of your comments. I would be curious of your view on the causes of global warming. It sounds like you don’t believe it. If you do believe it is occurring, you have a very short-sighted view of dealing with the problem.

    I don’t know what you intend to teach in your MIT class, but given what I have just read, I am not sure why anyone other than oil execs would take it.

  • Ron Peacetree

    I disagree with the basic premises of the author.

    The fundamental problem is =exactly= that we have to replace traditional non-renewable hydrocarbon-based energy economy with something more sustainable and less polluting.

    I also disagree with the author that renewables are “only a rounding error” as a potential percentage of the world’s energy supply. For instance, Algal-based biodiesel is ~250x more efficient than soybean oil based biodiesel. The estimate is that algal-based biodiesel could replace all of our petroleum based transportation fuels in the USA using 3/1000ths of the acreage of the USA.

    That’s less than the amount of acreage the US currently has dedicated to petroleum-based fuel production.

    Solar also has great potential. The problems here are not issues of efficiency, for we now know how to make 40+% efficient PVs, but rather reducing manufacturing costs and improving electrical storage tech (batteries and fuel cells).

    Hybrid PV + biodiesel-powered vehicles based on efficient electric motors, decent storage tech, and things like rotary Stirling engines are the kinds of approaches we need to be investing in and investigating.

    Not tweaks to a system that is provably on its way to failure.

  • Jay

    I think Bill’s premise is that incremental efficiency improvements, if widely implemented across the traditional energy industry, can have a net greater effect on carbon reduction, as compared to, e.g., a 10-fold increase in the number of wind turbines.

    This is just math—a small improvement across a huge industry will have a much greater impact than a large increase in a very small industry. And compared to traditional petro-chemical energy sources, renewables today are indeed a rounding error.

    I’m a renewable energy investor, so I stand firmly behind wind, solar, biomass, etc., but one also must face the reality that the sources of energy in use today will still compose a large proportion of energy for at least the next several decades.

    I think Bill would agree that this is not an either/or discussion. We must invest in both renewables and cleaner ways of using our existing energy infrastructure if we want to make a significant impact.

  • Bill Wuepper

    There are many reasons why the author of the article is wrong. One million 1MW wind turbines would produce as much energy as 1000 1000MW coal plants. Yes, it would only be when the wind was strong enough, and that is less than 100% of the time (10-25%?), but the point is that there would be LESS carbon in the atmosphere because of it. I wonder if the author has a roof over his head? If so, and it was covered with solar cells, it could be producing many watts of electricity that didn’t require carbon to be put into the atmosphere. Some people will try to confuse the issue by saying that we would have to cover an area the size of x (where x is usually a small state) to get the same as the total amount of energy we use. This is a false argument as many of us have roofs over our heads that could support solar cells if they were readily available at a reasonable price.

    The biggest problem is most of the discussion is not actually discussion at all, it is one-sided opinion of situations that are not fully factual as stated.

    It would be great to have a real discussion with people where not only views could be shared and analyzed for truthfulness but where discussion is moved beyond the original premise into solutions that help. I would rather try to convince someone using logical argument to develop the facts and go from there.

    The first question that we all need to agree on is—Is there atmospheric global warming taking place?

    If we agree on that, do you feel that mankind is in some measure causing it?

    If you agree with that, then how do we fix (or mitigate) the problem?

    In reading some of the author’s article, I do not believe that he believes there is a problem that needs addressing, because his concern is using every last drop of oil.

  • Sol Shapiro

    I’ll address two points made in the comments:
    - There seems to be a lack of understanding of the status of solar thermal electric generation. This is not new technology; the thermal energy is stored for overnight use and facilities integrate with fossil or transition to renewables and when storage capacity is overcome by too many cloudy days. About 350 megawatts has been generating energy in the California desert for over 20 years. Nevada has 64 megawatts which has just gone online. PG&E in California is buying over 500 megawatts – at what i believe must be in the order of 10 cents per kwh. And studies predict the price coming down. We can make all U.S. electricity on about 10,000 square miles and all U.S. energy on about 60,000 square miles – if we can figure out how to do transportation.
    The second issue is global warming. I believe mankind is causing it; but whatever the cause, I don’t see much hope that mankind will change its energy base before disaster strikes. But we can stop global warming using a process called geo-engineering which in what may be its most probable implementation would emulate what happens when there is a large volcanie eruption. Study and probable implementation of some form of geo-engineering if needed has been endorsed by Ralph Cicerone, the president of the National Academy of Sciences in 2006 and by Edward Teller in 1997 among others over the past 30 years.
    I can provide papers on all this if requested.

  • Bill Aulet

    I am pleased to see the discussion and would like to just clarify a few points:
    1. Please do not construe my comments as an indication that I am not for renewable energy. This is not true. I am very much for renewable/alternative energy. As I mention in the initial entry, I believe it to be necessary but not sufficient. I wish the problem could be solved by simply replacing CO2 emitting energy sources with non-emitting ones, but I don’t see how it is possible. I am glad some people are trying to do it and I hope they succeed but I think we also need to be realistic in the meantime and not depend on such a scientific miracle. It is simply numbers. We need renewables to help fill the gap but it will not be enough by any reasonable forecast by itself to meet the increasing demand which is forecasted to double by 2050, and it could be sooner.
    2. This is a demand/supply problem unless we want to stop economic growth — and even if we wanted to in the US, the real growth is coming from China and India. We can’t nor do we want to tell China/India not to develop their economy which means increased demand for energy. We want to provide them solutions that are less environmentally impactful and still economic.
    3. Clearly solving the energy challenge involves solving the adverse effects on our environment that hydrocarbons have been having (this is clearly happening simply by measuring CO2 in the atmosphere). But since hydrocarbons make up approximately 86% of the energy usage today and will be the biggest part for the foreseeable future, making clean energy of hydrocarbons will more than likely have more effect than almost anything else in our lifetime. Again, it is just math and common sense. We need to come up with new ideas to promote clean energy on all fronts (a colleague pointed out that the extra money it costs to buy a Prius would be better spent from an environmental standpoint to payoff an owner of an old polluting car to take it off the road, and I have to admit he had a very logical point).
    4. The other important consideration in this equation which makes things even more complicated is the national security dimension which is relevant — even if we all disagree on the magnitude.
    5. Lastly, as Jay points out so well above, this is not an either/or scenario, but we need all the types of energy to be moving forward — renewables, hydrocarbons, nuclear, and others. My point is that while renewables are great and some investors will (and it will be a good thing!) make a lot of money on some alternative energy investments (again Jay is right on here with the scale involved, it can be a small fraction of the overall energy industry and still be a huge win), at the macro level too much of the investment dollars are chasing only one, albeit an important one, part of the pie while the others parts are not getting enough attention today. I also have confidence in the markets and think this will correct itself in the future but not sure when. In summary, there is no single solution and we need to spread out our investments in a rational manner.

  • Ron Peacetree

    Bill, I have the sad feeling that you don’t “get it”.

    Biodiesel could replace all US current dino-diesel use within 2-3 years if the Federal government pushed the issue.

    Replacing all gasoline users with biodiesel users would take longer, but again it could be done in ~5-10 years if we as a society decided it was important enough (think the space race of the 1960′s).

    Realistically, there is a biodiesel supply problem within that time frame for such large scale use unless the algal folks solve their technical problems. (Even bio-engineering rapeseed hybrids designed to produce 2-3x the amount of oil per acre will not allow for a space efficient enough solution to provide for the US’s oil needs. However, note those numbers are =substantially= better than corn’s 18 and soybean’s 48 gals/acre. Natural rapeseed comes in at ~127. The bioengineered stuff could come in at ~250-375. Algal comes in at 5000-15,000 gals/acre.)

    Since we can’t count on unproven technology to provide critical services, we must give the algal folks as much time as possible to solve their problems.
    That implies
    1= improving the average efficiency of present hydrocarbon consumers. And yes, pulling all consumers that are relatively highly polluting or relatively very inefficient is an important part of such a process.
    Just switching everything using gasoline to biodiesel will result in a big improvement.

    2= Electric power production, storage, and delivery systems need to be improved.
    a= hybrid diesel + electric is a proven technology that trains have been using for decades. Time to scale it for other vehicles.
    b= PV’s are now efficient enough to be seriously considered for electrical power generation even for electrical vehicles. The problem here is reducing manufacturing costs. Like all semiconductor manufacturing, volume will greatly help here.
    c= battery and fuel cell technology needs serious improvement. Since this is another hard problem, using biodiesel and high efficiency PV’s in conjunction is synergistic.

    Unfortunately for the POV of many of my more extremist friends in the “green” camp, none of the above will address the needs of the most concentrated heavy power requirements (Heavy industry for instance).
    For that, we have to use nuclear.

    Bottom Line: The above is the outline of a realistic policy to fundamentally shift the US away from dependence on oil, particularly foreign oil, within 10 years.

    …and it’s not going to happen as long as we keep talking about efficiency tweaks to the existing oil industry.

    It’s more than time for US to be changing the rules of the game. The existing industries have enough money and brains to adapt if they want to.

  • Sara Barnowski

    I am admittedly no expert in the economic side of this argument, but I have devoted a great deal of time to studying alternative and renewable energy implementation. I am certainly all for renewable energy, and I think that Ron has a valid point about the possibilities offered by these technologies. However there are a couple issues to be considered:

    “if the Federal government pushed the issue” is a big if. The United States has obviously been very slow to adopt policies that mandate or even support the use of alternative energy, and unless there are some very drastic changes in the leadership of our country this trend is going to continue. And unfortunately there is far too much inertia behind the oil and gas market for there to be significant changes without significant government interference. We have to face the fact that oil is ingrained in our lives, it is part of our culture, and people are not willing to give up thier government subsidized (albeit record high) gas prices for even more expensive biodiesel fuel and hybrid cars. If individuals would put aside their money concerns and think about the greater good for a moment then maybe we could replace all of the gasoline users with biodiesel users in 5-10 years. But it is very unrealistic to expect that of people. It is obviously important to develop these technologies so that they can eventually become less expensive and less of a hassel for people to use. But until the time comes when it is legitimately more convenient to fill one’s tank with biodiesel, or to install solar pv panels on one’s roof, we need to work with what we have in addition to developing new options for ourselves. This includes working on the efficiency of gasoline and petroleum diesel engines, reducing the emissions from coal fired power plants, and remediating some of the harmful effects of oil extraction and refining processes. It also includes reducing the energy load of buildings and industrial practices. I’m not saying that these are any easier tasks to accomplish than converting all of the diesel engines in the nation to biodiesel, but they are things that we should be working on in tandem with alternative energy.

    In addition to this, some of the points that have been made regarding the implementation of renewable energy options apply only to developed nations where individuals and industry alike have the option of converting to these more expensive technologies. But as Bill mentioned the real growth of energy use is comming from the developing areas like China, India, and Africa. It is finally possible to electrify villages in these areas, and more people are able to afford cars and televisions and many other energy intensive items. Unfortunately the resources available in these areas are mostly coal and low energy density oil. But we cannot stop these people from finally having some of the amenities of the developed world because they are emitting more greenhouse gasses. There are many NPOs and start up companies, both native to these areas and from the United States, that are working with local communities to install solar panels that will power an entire village, and to implement other more efficient practices. But this alone is not going to solve the problem. If we can’t also begin to implement cleaner coal plants and more efficient gasoline engines, then these developing areas are going to have the same kind of impact on the environment that we did during the industrial revolution.

    Again, to reiterate the point that several others have already made, it’s not that we need to work on one of these issues or the other one. They both deserve our attention, our funding, and our support.

  • Ron Peacetree

    Sara,
    I disagree that biodiesel and hybrid vehicles have to be more expensive than oil / gasoline and petroleum based vehicles.

    The factors that affect the cost of oil are for the most part independent of the factors that affect the cost of biodiesel (or PV’s, or electric motors, or batteries). As oil continues to rise in price, these alternatives will end up being cheaper than oil based ones at some point.

    As of yesterday, in Chelsea MA I could buy B100 (100% biodiesel) for $2.86/gal.
    That’s effectively equivalent pricing to dino-diesel in the same geographic area.

    Already we’ve seen times, such as in the aftermath of Katrina, where spot B100 prices were _less_ than that of diesel.

    My guess is that we have a high probability of seeing $100/barrel oil within the next 5-6 years.

    Biodiesel’s economics are competitive, and will only become more so as the cost of biodiesel production drops and the cost of oil acquisition increases.

    Similar arguments can be made for PV’s.
    Ditto electric motors, electrical storage systems, and better engine desings like the quasi-turbine rotary Stirling.

    The cost curves are not the problem. The biggest obstacle, as you correctly note, is social inertia.

    Unfortunately, we can’t wait for the inevitable “boot to the head” to wake society up to start addressing these issues. By then it will be too late for us to avoid catastrophic social costs.

    So the basic economic and engineering question becomes “How do we execute a preemptive transition =before= the crisis point?”
    …Because by the time we hit the crisis point, the costs will be far higher.

  • http://www.bestcashcow.com/philr PhilR

    I think this conversation ignores nuclear energy, which I see as the only long-term solution to the world’s energy problems. It is the only proven technology which can scale, become cost efficient, be transported easily, etc. Nuclear today produces 20% of the electricity in this country. New technology makes it safe. It is a fundamental force. I could go on but you can read it yourself.

    http://www.bestcashcow.com/technology/article/philr/nuclear-energy-is-the-solution-redux

  • Ron Peacetree

    The biggest problem with nuclear, and it’s not been resolved satisfactorily regardless of whatever “cheerleading” goes on, is that of nuclear waste.

    While glassification is a very good improvement, it doesn’t negate the fact that we have to store all that concentrated nuclear waste =somewhere=. For a very long time.

    What’s needed is a way to return nuclear waste to the environment in diffuse concentrations similar to the ones they were in when we took them out of the environment. Thus far, I’ve seen no evidence we have any idea how to do this.

    Nonetheless, I agree that there are places (for instance: Japan) and applications (Heavy industry, high energy science research, etc) that are going to need a level of space efficiency and power concentration that only some form of nuclear can provide.

    OTOH, those scenarios should be in the distinct minority.

  • http://www.thegoodenergystore.com Karen from Kuwait

    Looking at the demand side and from the day-to-day realities of starting a retail alternative energy / renewable energy product (who is selling all of these products and buying them anyway!). I have been researching a pure play installation and home retrofitting company. With the dominant local electrical company (NStar) having revenues of ~$3.6 billion, assets of ~$7.8 billion and one of their primary risk factors listed a ‘distributed generation’ in their 10-K submission, I realised I would be sizing up against an elephant.

    Right now, I am having trouble finding a good entry point for residential, retail or retrofitting home owner solutions here in Boston. In other words, it’s great that we can talk about alternative energy products, but looking at the residential side Why would your typical owner install something and what the heck would they install? Looking at it simply:
    * Electricity is pretty much cheap (relative to other solutions and up-front capital requirements), easily scalable for larger requirements and abundant (or seemingly) to customers here
    * Energy audits are provided free to customers by the utility companies (here cheap / abundant)
    * Energy efficient products (basic CFLs and extra insulation options) are provided at a discount by the utility companies here (again cheap abundant) for homeowners to reduce their energy footprint

    Also, the ‘biggest bang for the buck’ for homeowners is just a combination of things that touch many different sales. Usually simple things—insulation, windows, different lights, efficient furnaces, efficient appliances. So a store doesn’t sell all of this unless it is a box Home Hardware type store.

    Wind power is for big developments (1 MW machines that are on towers 80 m high). The ones we could sell are small, 10ft high. But they can’t easily be installed in an urban environment, there isn’t enough space and there is no wind between the buildings. The market there is rural areas, on farms.

    So, (granted I am still getting started) but at a loss to know where the market for renewable energy products lies (particularly with basic homeowners), who is buying the stuff and why.

    Cheers
    Karen

  • Rasmus Banke

    I think a little remark from Denmark may add a little spice to the debate.

    Over the past two decades, the little country Denmark, which has no energy resources of its own, other than a few droplets of oil in the North Sea, has experienced an economic growth of over 70%. Over the same two decades there has not been any noteworthy increase in the total energy consumption of the country. Today the country generates one of the world’s largest GNP per Capita.

    Over same two decades, the use of fossil fuels has dropped significantly. Also, over those two decades, Denmark has built an incredible lucrative industry, which exports high-end equipment and know-how for both renewable and conventional energy systems. One example is the world’s largest manufacturer of wind turbines Vestas A/S.

    How? The development was driven by three simple issues:

    1) The 1973 oil crisis, which paralyzed the Danish society.
    2) A public distaste for nuclear power.
    3) A general agreement (both sides of the parliament) that the only way to diminish the country’s dependency on imported oil and coal, was to focus on renewable energy, increase efficiency of existing systems, and continuously stimulate industry and public citizens to increase energy intensity (stop wasting energy).

    This general agreement meant increased tax on energy. At the same time, programmes for subsidization of systems utilizing renewable energy resources where launched. Huge investments were made in building the world’s best and most efficient coal-, waste-, and biomass based power plants. District heating, which utilize the excess heat of the power plants to heat the residential, public, and industrial building mass, was expanded to the entire country. The required level of energy efficiency for all types of buildings was raised. Requirements for energy efficiency in industry were increased gradually.

    As a consequence of this list of initiatives, such things as the wind turbine were developed in Denmark. Today, wind turbines cover somewhere in the region of 15% of the total demand for power. This could not be done without integration with the fossil- and biomass based power system. Denmark exports coal power plant technology for huge sums each year. If China relied only on Danish coal power technology, they would consume less than 1/5 of the coal they are consuming now. The enzymes needed to make 2. generation bio-ethanol will come from Denmark. The first competitive wave power plants will almost certainly be developed here, and so on and so on and so on.

    Today an average Danish citizen uses less than HALF of the amount of energy an American consumes, and he relies on renewable energy to a much higher degree. Therefore, his few droplets of oil in the North Sea are now suddenly sufficient to supply his country. At the same time the Dane sends less than half the amount of CO2 into the atmosphere, as the American citizen does. At the same time, he generates a significantly larger GNP/Cap than the American. If the EU had a fraction of the level of systems integration and district heating that Denmark has, they would have already met their goals energy efficiency in 2020, and so on and son, an so on

    So! From my perspective, Bill Aulet has a very good point about spreading the investments. It is no use being dogmatic and focusing solely on renewable energy. It is about picking the lowest hanging fruits. Pure and simple.

    Another very important point however, is the significance of legislation. So long as there is no shortage of oil and coal in the world, only legislation can create lucrative markets for renewable energy, and stimulate energy efficiency. That’s where it all begins.

    So when are you going to make district cooling?

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  • http://innovation-in-oil-and-gas.blogspot.com Paul Cox

    Your comment regarding business model innovation caught my eye. I have been writing on my blog about the logic of reorganizing the energy industry around the industry standard joint operating committee.

    As we know the JOC is the legal, financial, cultural and operational decision making framework of the industry. The other key finding is that SAP is the bureaucracy. The need to build software for the JOC is the point of my blog. Have a look.

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  • http://www.cambridgeenergy.com Philip Sargent

    It’s all about timing.

    Simplistic arguments for and against biodiesel or solar pitch “potential” size against actual turnover. These are different time frames.
    We know that any industry shifting a million tonnes of anything takes years to change course. We know that the climate problems hit us on an accelerating scale in the 20-40 year time frame. So, since we have no apparant shortage of investment funds, we have to do both hydrocarbon replacement and hydrocarbon efficiency increase. Not reducing the CO2 put out by the hydrocarbon industries – which will certainly be there – over the next 10-20 years really would be stupid.
    Philip Sargent
    Cambrige Energy Forum, UK.
    http://www.cambridgeenergy.com

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