Big government, big
corporations and big venture financiers appear heavily fixated on
funding new “displacement” technologies to sweep away the old
order and usher in the new order of clean energy. Fuel cells,
hydrogen generation and infrastructure, thin-film lithium
batteries, flywheel electrical storage systems, distributed
generation similar new technologies have drawn the bulk of the
political and media attention, as well as the lion’s share of
investment capital.
Some of these new technologies will undoubtedly revolutionize
the energy generation sector in decades to come. Nevertheless,
over the past 15 years, GEF has generally shied away from these
investments. Several factors influenced our view. First, choosing
the “winners” from a multitude of emergent solutions – for
example, nearly a dozen consortia have licensed Oak Ridge
laboratory technology for thin-film lithium batteries – is a
daunting challenge and an inherently risky strategy for
diversified investment partnerships. Second, venture capitalists
are not particularly well-equipped to estimate accurately the
time- and cost-to-market of “enertech” research and development.
Because three-fourths of America’s electricity is generated
from fossil-fuel sources, we believe that investments that enable
industrial and commercial operations to cut energy consumption
will have a double payoff – first, in reducing operating costs and
second in reducing environmental emissions from electricity
generation. GEF’s energy technology investment strategy has
centered on identifying opportunities in America’s “rustbelt” and
“oil patch” areas, where the most energy-intensive, high-pollution
industries are located. We scour these areas more actively than
the “hydrogen highway” of the future. And, we tend to focus much
more on finding companies whose technologies are reducing energy
use in industry and buildings than on next-wave energy generation.
At GEF, we believe that the memorandum received on the desk of
every operating executive in corporate America in early September
2005 did not say: “Switch to renewable energy,” or “Check out fuel
cells.” Rather the message was simple and terse: “Cut energy usage
and costs — now!” It is this urgent demand that lies at the heart
of GEF’s energy technology investment strategy.
We have recently begun to take a closer look at the entire
electricity delivery chain – from the point of generation to the
point of use – as an investment proposition. A recent stimulus to
invest in technologies to improve the grid is the 1724-page,
$12-billion Energy Policy Act of 2005. It includes a call for
nationwide standards for reliability and other provisions likely
to stimulate new technologies and new “intelligent” systems.
In point of fact, we believe this national energy legislation
is actually trailing, not driving, an explosion of new investment
in the electrical grid. The real drivers of technological
innovation have been on the horizon for much of the past decade,
and are now beginning to gather momentum. These include the
antiquated nature of most technologies that still form the
backbone of the electricity grid information system; the
destabilizing and somewhat erratic effects of deregulation in the
electric utility industry; the demand for real time pricing and
information; and the pressing need to increase efficiency.
As a result of nearly three decades of neglect, the entire
power grid of the United States is characterized by aging
infrastructure and old technology. It is estimated that at least
60% of the current equipment needs replacement during the coming
decade. As the investment cycle reaches a critical juncture for
reinvestment in and optimization of the infrastructure, we believe
there is enormous “pent-up” demand to apply computer and
electronics technologies that have already gone into the
telecommunications, medical, aerospace and manufacturing
industries.
Rapid adoption of such technologies will, we believe, ensue in
the coming decade for several reasons. First, electricity
consumers are demanding much greater efficiency and capability
from the grid. Electricity distribution systems must achieve far
more for much less in the next round of capital expenditures.
Second, for first time, large investments must be made in
technologies that upgrade and protect the quality of power as well
as the reliability. This concern is driven in part by the
explosion of the “digital economy.” High-reliability, high-quality
power is increasingly at the core of the value proposition for
computer- and Internet-based industries and for the
telecommunications sector. Finally, since the last time the
electricity grid was modernized, the development of pervasive
computing and networked devices enable pioneering companies to
deploy two-way communications and networked technologies and
applications throughout the electricity grid.
We see growing technology markets in areas such as: Advanced
Meters; Sensors, Monitors and Controls; New Power Electronics
Systems and Networks; and Smart Equipment and Appliances. In
short, we believe that new technologies, new policies, new pricing
regimes, and de-regulation are all driving new business models in
the electrical grid. All these areas complement and expand GEF’s
long-standing Clean Technology investment program.
Reprinted with permission from Smart Grid Newsletter,
www.smartgridnews.com .
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