David Sweet, the new Executive Director of the World Alliance for Decentralized Energy (WADE), predicts an increasing role for on-site generation technologies worldwide. DE companies are already doing well in world markets and the technologies have the potential to do much good – for energy security and reliability, the environment and consumers.
Regular readers of this magazine may already be aware that there is a new Executive Director at WADE, replacing Michael Brown who has served so admirably since 2002. It is with great enthusiasm, anticipation and a little trepidation that I usher in the next generation at WADE and begin service as its second Executive Director. But it is also with a sense of great excitement with which I set about charting a course to the day that people will actually be able to talk about ‘my generation’ in their homes and in their business through distributed energy technology.
Decentralized energy (DE) is poised to play an increasingly more significant role around the globe in developed as well as developing countries. I have been working on energy policy and commercial issues for over 25 years in Washington, DC as a regulator, attorney and trade association executive, and believe that the world needs and is ready for DE. If we were starting WADE from scratch today, I think we would need to find a better acronym than ‘WADE’. According to the dictionary ‘wade’ is defined as ‘to move with difficulty or labour; to proceed slowly.’ Now is not the time to move slowly.
The demand for access to clean, reliable, affordable and efficient energy is growing faster than it can currently be supplied. Now is the time for WADE and the industry to move with all due speed and pound the table about DE. Now is the time for WADE to demonstrate how DE can power the world with less reliance on transmission lines and with minimal waste – as implied in the WADE slogan, ‘changing the way the world makes electricity’.
Just as the world discovered a better way to make phone calls without wires using cellular technology, the world is beginning to realize that there is a better way to make and deliver power through DE. We have been hearing for the last 25 years that the promise of new energy technology is but five years away, only to be continually disappointed and kept waiting for true commercialization. This is no longer the case. The time is ‘now’ for DE – not 10 years, five years or three years into the future.
Change is never easy
As everyone knows, change is never easy – especially when you are talking about how we provide electricity, one of the essential building blocks of modern life. But change is inevitable and it often happens not along a smooth path, but rather in lumpy increments, driven by political, social, technological or economic events:
- The meteoric rise of oil prices has accelerated the path to viability of alternatives.
- The advancement of climate change initiatives has accelerated the acceptability of alternatives.
- The unrest throughout the world has highlighted the need for energy security.
- Technological advances are increasing the efficiencies of DE and bringing down the cost.
Some pundits have commented that military and terrorist activity have risen to the point where we are now engaged in World War III. The G-8 dialogue chaired by the Russians has focused on energy security. But given recent events in Eastern Europe (Ukraine and Belarus) and the Middle East, it is doubtful that many feel more secure. As the rapidly growing economies of China and India add economic and political pressure to world oil and energy markets, the geopolitics of energy will be characterized by mounting tensions and elevated risk. Oil priced at $70-80 per barrel seems like the norm and most are anticipating long-term and continued upward pressure on price.
It is no longer ‘business as usual’. We are seeing massive shifts of capital and wealth from energy-consuming countries to energy-producing countries.
In his 2006 State of the Union address, US President Bush highlighted energy policy and acknowledged that the US is ‘addicted to oil’. It is, of course, not the only country in the world that has to face this painful addiction. There is no silver bullet for breaking this habit but DE, together with demand and supply-side energy efficiency, surely has an important role to play. Certainly on-site renewables are a highly desirable factor in the equation, but so is improving the efficiency with which the world transforms fossil fuel into useful energy.
In this respect, natural gas is an attractive fuel because it is the cleanest fossil fuel and its supplies are more evenly distributed around the world, thus increasing its suitability as a fuel for decentralized energy. The challenge will be to ensure it is used in applications that maximize its efficient use, such as projects that capture waste heat rather than power-only applications.
The other side of the security coin
Reliability is the other side of the security coin that is also steadily inching its way up the political agenda. Persistent blackouts this summer, from Los Angeles to St Louis to New York, have brought back unpleasant memories for Americans of the massive blackout in summer 2003 that shut down half of North America. A blackout in central London in July reminded Europeans that their grid is equally fallible and that they are similarly vulnerable. Record-high temperatures throughout Europe this July stressed the grid to its limits and have set the stage for continued load growth to meet new and existing cooling requirements. And while many Organization for Economic Co-operation and Development (OECD) countries realize that access to power should by no means be taken for granted, energy users in many emerging countries continue to grapple with the rotating brownouts that are a daily threat to personal welfare and economic development.
Meanwhile, development of large-scale energy infrastructure projects such as central station power plants and long-distance transmission lines faces mounting opposition and hurdles. Opponents to these projects range in philosophy from NIMBY (Not In My Backyard) to BANANA (Build Absolutely Nothing Anywhere Near Anyone) all the way to NOPE (Not on Planet Earth). While in the US last year’s energy legislation offers some assistance in siting these projects, it is still too early to tell if these provisions will have much of an impact.
Given the passion surrounding the debate over facility siting, the DE model offers a ready solution. Policies in other countries may also begin to put DE on an equal playing field. For example, the UK’s Energy Review discussed ‘Decentralized Energy’, and new feed-in laws in France and Italy have reduced the barriers to investing in on-site renewables.
New players are coming into the energy business
These world events and social values have changed the energy calculus for households and businesses. New players are coming into the energy business, bringing with them new ideas and new market savvy. For example Cargill, the agribusiness multinational, recently diversified and set up Cargill Energy. Traditional retailers such as Walmart and Tesco are even getting involved in selling power, power systems and fuel. For example, Currys, a large UK household appliance retailer, recently announced that it would sell domestic solar PV panels that would cost the average three-bedroom household around à‚£9000 ($17,000) on an installed basis [compared with the current cost of up to à‚£16,000 ($30,000)]. These changes are driving major investment decisions that will have long-term repercussions for energy suppliers and customers alike.
Security and reliability of energy supplies are high on the agenda for many countries (StockXchng)
That is why it is a critical time for DE and it is essential that the industry does all it can today to make certain that the DE option is considered when evaluating tomorrow’s energy investments.
From a strictly commercial standpoint, the potential opportunity for DE is staggering. The global market for power is currently 16,661 TWh and is projected by the International Energy Agency (IEA) to grow to 20,185 TWh by 2010. While the current market share of DE is only 10.4% in terms of capacity, WADE’s latest annual DE survey found that about 24% of all the electricity generated by plant added in 2005 was from DE plants.
In World Energy Investment Outlook 2003, the IEA estimates that $16.4 trillion will be required for energy investment between 2001 and 2030. Of this, 60.4% will be for the electricity sector and the majority of this in turn (54% or $5.3 trillion) will be for transmission and distribution (T&D). Because DE investment can help ease the need for T&D investments, the potential for investment in the DE sector is truly remarkable.
Assuming that DE continues to account for 24% of total generation (all evidence suggests that this in will actually grow), we could anticipate $1.1 trillion of spending on DE technologies between now and 2030. If recent news from venture capital markets is any indication, we may already be witnessing this phenomenal amount of capital being mobilized. Two major venture capital funds with interest in the DE markets, Merrill Lynch New Energy Technology and Impax Environmental, are proving exceptionally profitable with 202% and 138% growth over three years respectively. A study from the Distributed Energy Finance Group further substantiates the idea that investment prospects are promising. The DE sector saw a 15% gain for the first quarter of 2006 in the overall index, which tracks companies with a heavy emphasis on DE and energy technologies. Thus there is an incredible opportunity for companies and investors to do very well financially as they catch this rising tide.
But equally, if not more, important than doing well, DE has the opportunity to do good. Some 460 million people in China and India alone currently have no access to modern energy systems. Worldwide it is estimated that 3-4 times as many people are without basic energy services. This lack of energy access contributes to shortened life expectancy, reduced health, lower educational levels and degradation of the environment.
Just because it is not feasible to string wires to remote populations, it must not mean life without access to clean power. Increased investment in DE results in reduced carbon dioxide (CO2) emissions and reduced air pollution. In addition, the greater efficiencies achieved through DE help to conserve fuel and valuable natural resources. Through DE technology, power can be provided efficiently and cleanly virtually anywhere on the planet. DE can power the world and connect to a world of power.
A global town hall for all
WADE, as the world’s leading organization on DE, will play an increasingly active role on a number of fronts in advancing the industry. WADE must become the global ‘big tent’ for all companies and sector-specific industry associations when it comes to DE policy and commerce. We can provide a global town hall for all, whether the interest is solar, wind and biomass or fossil-fired CHP. In this sense, WADE can be a bridge between traditional oil and gas interests and renewables.
Too often, proponents of renewables and fossil fuels have distinct and clashing objectives and policy agendas. DE may provide a unique opportunity for these disparate industries to find common ground and work toward mutual goals. A stalemate situation is easily achieved politically, as it is always easier to kill an initiative than to get something new done. However, in this case a stalemate is a loss for DE and a win for the status quo, since DE is nowhere near its full market penetration.
With WADE as a bridge organization, we can hopefully move away from stalemate and political gridlock (not to be confused with all of the physical gridlock and congestion on transmission systems), and move to real change by enacting policies that place new entrants on a level playing field with monopoly service providers.
On the natural gas front, for example, WADE will work to engage major gas sector players to help them realize the growing opportunities in DE while attaining the significant social and environmental benefits that DE promises. On the retail side, there is scope for gas retailers to expand sales in the burgeoning micro-CHP sector, tapping into massive market potential as homes in northern climes replace their boilers with CHP units in the coming decades. The potential for combined cooling, heating and power in the buildings sector and in small community heating and cooling schemes looms equally large. WADE will endeavour to work with all interested parties to ensure that gas is used, whenever possible, in these highly efficient applications.
With the global WADE network (including organizations in China and India), we can also provide unparalleled opportunities for DE vendors to gain market access, intelligence and revenue-generating business opportunities in developed countries as well as in new developing markets. You will see an expansion of our regional meetings and programmes, providing even greater opportunities for high-level networking. WADE will become a window to the world of DE, a ‘one stop shop’ where all are welcome to browse the many offerings on DE and to join the global movement.
Through our continued research and modelling activities, we will be helping governments around the world to make the move to DE. In the process, WADE will become an even more significant player in the public-private dialogue on energy policy. Through this dialogue, WADE and its members will forge the relationships and partnerships that produce real discourse and genuine change. The bottom line is that people are going to be hearing a lot more about DE and a lot more about WADE. While we can be a catalyst for change, it will take a confluence of forces for DE to truly take root and blossom.
I have a good friend who installed a DE facility at his home in Washington, connected to the grid on a net-metering basis. He takes great pleasure in watching his meter spin backwards, seemingly faster and faster, as he sells power to his neighbours. He even keeps a video clip of that meter spinning in reverse on his mobile phone and shows it to anyone willing to watch. He doesn’t just talk about ‘my generation’, he boasts about it. Just as the novelty of technology that provides video on a mobile has worn off quicker than anyone can imagine, so too can the sight of a DE-driven meter spinning backwards!
The stage is set, change is coming, WADE’s world is here. I look forward to my generation at WADE and to the time when we can all talk about ‘my generation’ powering our lives.
David Sweet is the new Director of the World Alliance for Decentralized Energy (WADE), Edinburgh, Scotland, UK.
Fax: +44 131 625 3334
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