Renewable Energy Investor Says Wind Industry Ripe for Innovation

2/18/10Follow @bvbigelow

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some of the latest out-of-the-box thinking, McDermott says USRG is among the institutional investors backing General Compression, a four-year-old startup based in Newton, MA, that has developed a system of 1.5 megawatt compressor/expander modules that use the excess electricity generated by a wind farm to compress air and pump it into tanks or underground storage caverns (i.e. a salt dome) beneath the turbines themselves. At times when the breezes falter, the system operates in reverse by releasing the compressed air and using it to generate electricity. McDermott says General Compression has partnered with two electric utilities, a natural gas energy company, and a wind developer—and plans to begin construction of its first commercial project late next year.

McDermott is a co-founder and managing director in the Los Angeles office of USRG, one of the largest investment firms to focus exclusively on the renewable energy industry. He says USRG raised $590 million in its first two funds, and is now raising $1 billion for its third fund. Investments in renewable energy projects represent about 40 percent of the firm’s total portfolio, according to McDermott.

To McDermott, the issues clouding the prospects for wind energy include government policies that blow hot and cold in supporting loans and tax credits, as well as local political opposition to particular wind projects and transmission lines. He also noted that the “intermittency” of wind power remains “fundamentally unattractive to utilities.”

Inconsistent tax incentives, in particular, stalled U.S. wind energy development in past decades, according to Rob Gramlich, who oversees public policy at the American Wind Energy Association, the wind industry organization in Washington DC. Gramlich tells me that in the early 1980s, California alone had more than 80 percent of the entire world’s installed wind energy capacity.

The gist of his argument is that Europe’s wind energy industry overtook California and the rest of the U.S. because of inconsistent tax incentive policies. This point was underlined by McDermott, who says USRG was founded in 2003 primarily because … Next Page »

Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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