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December 6, 2012 5:00 am
The fundamental problem of energy is that it is a long-term business perpetually swayed by short-term influences.
A wind farm will last for at least 20 years; a gas-fired or coal power plant potentially for 60. Companies building new reactors say there is a good chance they will still be in service a century from now. An oil or gas field can remain in production indefinitely, depending on how the reservoir is managed.
Yet all of these investments are critically affected by government policy and commodity market fluctuations.
Attention is often focused on the uncertainty induced by the instability of government supports. The cuts to many solar power feed-in tariff programmes in Europe, the debate over support for nuclear power in the UK, and the looming end of the US production tax credit for wind power – which expires at the end of the year unless the US government agrees to extend it – have made it difficult to assess those industries’ financial prospects.
A report earlier this year from the Brookings Institution, the World Resources Institute and the Breakthrough Institute said the low-carbon energy industry is failing to move “beyond boom and bust”.
What is less often noticed is that the threat of volatility applies equally to fossil fuel industries. Commodity markets fluctuate, and in energy markets where supply and demand are often relatively inelastic, fluctuations can be large.
Technological change can throw established market relationships and industry structures out of the window. The crisis in the US coal mining industry today, for example, has less to do with the administration’s supposed “war on coal” than it does with plunging North American natural gas prices resulting from the shale gas boom.
When thinking about innovation in energy, it is essential to consider how a product or service can be robust to a wide range of possible outcomes. Solyndra, the manufacturer of innovative solar panels that collapsed last year owing $528m to the US government, might never have been a commercial success, but any chance was made worse by the precipitous drop in the price of conventional crystalline silicon panels caused by huge global overcapacity in the industry.
A common feature of the short-listed entries for urban ingenuity was that they were able to withstand this kind of shock, and be effective in a world of energy that is very different from the way it looked four or five years ago.
Energy policy always tries to hit the three moving targets of value for money, security of supply and environmental protection. With the resources of both governments and the private sector under pressure, the trade-offs between those criteria have been sharpened.
All of the shortlisted entries in the energy category showed both resilience to changing conditions and the ability to meet multiple objectives. In two cases – Houston’s Green Office Challenge and Tokyo’s cap-and-trade system for carbon dioxide emissions – there are new institutions that will push businesses towards greater energy efficiency – voluntarily in Houston, by law in Tokyo – saving money as well as cutting pollution.
The Energy and Resources Institute of India has innovated with institutions, creating a new financial structure to allow poor communities to buy cleaner, safer liquid petroleum gas cookers so they can stop burning wood.
The only advanced technology is the electric bus from Proterra of South Carolina. It focuses on cost as well as environmental benefits, promising to be “the lowest-cost solution for safely transporting human beings in urban areas”.
The Community Cooker Foundation from Kenya, winner of the category and overall winner this year, developed a technological advance at a brilliantly simple level to address health problems caused by traditional cooking methods.
Among this impressive range of ideas there are some conspicuous absences – for instance, there are no technologies for power generation. But given the uncertainties about the economics of energy supply, it might be difficult for one of those to emerge as a clear winner.
The greater potential, perhaps, lies in energy storage, an area attracting serious entrepreneurial interest. Intermittency still bedevils renewable generation, especially wind power, and existing storage technology is not adequate to provide the back-up that would enable it to replace fossil fuels entirely.
While there is a great deal of activity going on in this area, the results have been mixed. Identifying what works and highlighting it would be an extremely valuable service.
It would be welcomed if next year’s awards inspired exciting submissions in this area.
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