Once in a Lifetime: Enabling Technology Risk in the Power Industry

Newcomers to the power industry are often staggered by the sums of money involved.

For example, US$500,000,000 – half a billion dollars – buys a medium-sized combined-cycle gas plant. Not big, just medium. And it gets worse: that same half billion would buy a relatively small solid fuel plant, especially if you use the latest higher temperature, lower pollution combustion technologies. And carbon capture? Nuclear? If you have to ask, you can’t afford it.

And renewable energy plants at that same utility-scale? Start multiplying.

The recent global enthusiasm for renewable energy has led to countless government programs around the world, aimed primarily at subsidizing the gap between fossil and renewable power. But despite the resulting proliferation of renewable plants, the two keys to truly widespread adoption, capital cost and baseload capability, remain stubbornly high and stubbornly low, respectively.

And even for all those dollars, it’s old technology. For example, modern concentrated solar thermal (a.k.a. CSP) technology goes back at least to the SEGS plants in California, the oldest of which celebrates its 26th birthday this year. Wind technology, for its part, has improved quite a bit over the years but would still look pretty familiar to Danish pioneer Poul la Cour, who invented the power producing windmill in the 1890s. Not the 1990s, the 1890s: when the automobile first hit the roads in large numbers, self-propelled human aviation was still a dream, and spats were still an essential part of a man’s wardrobe.

That’s the second surprise to newcomers to the power industry: a general apprehension of technology risk that appears extreme – even irrational – to venture capitalists and other technology investors weaned on internet start-ups, mobile telephony, and the like.

Unfortunately it is neither extreme nor irrational, but a logical by-product of the nature of electricity as a product and its role in society. The lights and the machines that drive our economies simply must stay on: the availability of power supply and the reliability of that supply, from the generator through the transmission lines and substations to the distribution systems have been and will continue to be paramount. This is compounded by the long economic lives of these very costly assets – any mistakes will be around for decades.

So the industry (and the independent power producers and utilities which are its focal point, the lenders which finance them, the regulators which closely oversee the utilities and the politicians who appoint the regulators) is mandated to take as much risk out of the system as possible. There is no upside to the utility, either as a generator itself or as a customer of the IPPs, only downside for the careers of the utility decision-makers and the returns for the utility shareholders if it doesn’t perform as expected. So out goes technology risk.

That’s rational but, in the current environment, inadequate. The industry has a historic opportunity to deploy renewable energy on a multi-gigawatt, global basis. This opportunity will not last forever – no opportunity does – and it is incumbent on the industry to deploy the most advanced, most efficient renewable energy generation technologies possible, even if that means taking some technology risk. Not cold fusion or perpetual motion, but bringing well-engineered new technologies – the latest solar thermal mirrors and receiver tubes; wind turbines and platforms; new storage technologies – into proven systems.

Remember: these are long-lived assets and will be around for decades to come. We have the opportunity of a lifetime: let’s not make the mistake of deploying less than our best.

How can we make this happen?

At the macro (and therefore simplified) level, it starts with the “food chain” identified above: political leaders need to provide a clear, technology-driven mandate to the regulators, which in turn can drive utility (and with it, IPP) decision-making on incorporating well-engineered new technologies into new renewable energy generation capacity. As this new mandate drives technology-friendly terms in power purchase agreements (and the corresponding regulatory prudency reviews), the financial community should find new comfort in lending to these projects. And so on.

That said, we’d like to hear from the industry at-large on this question: what needs to happen from a venture capital / project finance / cultural / environmental / public relations / commercial / regulatory / siting / insurance / engineering / technology innovation / (you-name-it) perspective to deploy the most advanced, most efficient renewable energy generation technologies possible while the opportunity is at-hand?

We look forward to hearing from you.

Lincoln E. Bleveans is the Chief Executive Officer of Hullspeed Energy Development & Finance, a global developer of energy projects.

Have any Question or Comment?

One comment on “Once in a Lifetime: Enabling Technology Risk in the Power Industry

I’m not an industry insider, but as a science writer working on a book about renewable energy, I can speak to the cultural/historical/communicational (is that a word?) side of things. Since I began writing my book one year ago (you can follow it’s progress and read excerpts at http://www.renewablebook.com), one of my guiding mantras has been that energy, writ large, is mainly invisible, and that one key to transforming the energy landscape from one mainly dependent on fossil fuels to one that uses a mix of renewable sources and technologies is to make energy visible.

By “invisible” I mean a few things. For one, the main form of energy we use day to day, namely electricity, composed as it is of electrons moving at more or less the speed of light, is literally invisible. As in we don’t see it. Sure, we see it’s outcomes and uses in the forms of electric lights and working computer monitors and appliances of all stripes. But actual electricity, the physical things itself–that we don’t see.

We also don’t see, and mostly choose not to see, the places where electricity is made. For our safety and well-being, coal-fired power plants are usually located far away from where people live and work. Unless you work at a power plant, chances are you’ve never seen one up close or been inside. If you ever have had the good fortune to tour a coal power plant, as I have, you no doubt came away impressed by the size and power of the generators, the intensity of the coal-powered fireball kept burning 24/7 inside the multi-story boiler, the loud, deafening roar it makes.

In short, both the energy we use and the places it comes from are out of sight. And therefore also mostly out of mind. This, I think, is a problem, or at least part of the problem. One reason that we–meaning Americans–consume so much energy per capita is because we have no idea how it’s made, where it comes from, and how much it really costs beyond the dollar amount on our monthly electricity bills.

Anyhow, this is a very long-winded way of saying that, in my opinion, one thing that needs to happen for renewable energy to take root more so than it has is for people to have a better, sharper sense of what energy is, how it works, how it’s made, and how energy producing technologies have evolved over time. Knowing something about the history of solar energy–its early proponents and pioneers, stories about the first solar engines and power plants, and so on–makes it more interesting and easier to understand the necessity of and prospects for solar today. Same goes for biofuels, wind, geothermal, etc.

That’s precisely what I’m doing in my book, which is due out in about two years time. Until then, I’ll be plugging away on it. Please check out my progress at http://www.renewablebook.com.

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