At the end of last month, I attended REFF-Wall Street, the premier gathering of renewable energy finance professionals in New York City. Over the course of two days we heard what was on the minds of admirals guiding flotillas of multi-billion dollar funds through the murky and mercurial waters of the renewable energy (RE) industry, an industry clearly nascent compared to other investment categories. Their game is largely about assessing and mitigating risk for the banks, venture and private equity firms that fuel much of the RE business. Many risks were discussed, but a new one seemed to capture the most attention—the threat of cheap natural gas extracted from shale (also known as shale gas), that could radically undermine the growth of the solar power industry.

Natural gas is solar power’s direct competitor because it’s used to generate peak power from late morning through the afternoon when we use air conditioners—and when we have a lot of sun. Sunlight displaces natural gas combustion, so rising natural gas prices resulting in rising peak power prices have bolstered the solar industry by reducing the price gap between grid power and solar power.

The threat to solar is that the U.S. is in the midst of a natural gas boom largely precipitated by the expanded use of a method to unlock gas reserves from shale rock called hydrological fracturing or "fracking”. Fracking has been around for more than 60 years, but like the deep water drilling technology used by the Deep Water Horizon, it was used sparingly until the country’s recent push to extract more fossil fuel from domestic sources. The result has been an 11% increase in domestic natural gas production between 2007 and late 2009, a six year low in gas prices, and an estimate among industry experts that the U.S. has enough gas in its ground to last 100 years.

Surprisingly, at REFF-Wall Street the environmental repercussions of fracking did not come up. A friend in the solar industry recently recommended I watch the documentary Gasland by Josh Fox that exposes problems with fracking. I have yet to watch it, but found this great PBS interview with Fox. Evidently, fracking is done by injecting millions of gallons of water mixed with chemicals including known carcinogens into aquifers. Shale rock is fractured by water pressure, the chemicals do their magic and gas is released. The result has been pollution of aquifers, poisoning of wells, quarantines and birth defects of farm animals in Pennsylvania, and in some cases, tap water catching on fire, which has prompted people in Colorado to stock up on bottled water and shower with the lights off to prevent ignition (not a joke).

In New York State, 50,000 hydrological fracture gas wells have been proposed in New York City’s watershed, the largest unfiltered water supply in the world. However, in late April Mayor Bloomberg and the state’s Department of Environmental Protection essentially put a moratorium on fracking in the watershed by scientifically documenting the process’s water pollution, and then requiring an environmental review of each well application.

I wondered how the EPA could allow fracking and learned that as part of the Energy Policy Act of 2005, it’s exempt from mandates preventing ground water contamination set by the Safe Drinking Water Act. Twin bills both called the FRAC Act were introduced in the Senate and Congress in June to rectify the situation on a federal level (HR 2766 and S. 1215), but they won’t be debated until after the summer recess. It should be an interesting fight because evidently landowners are getting up to $5000 an acre to allow fracking on their property, yearly royalties and, most poignantly, fracking creates jobs. Also, as most of us know, natural gas is the clean fossil fuel alternative to coal—that is, as long as it’s burned. Leaking natural gas is 25-70 times more potent in causing global warming than carbon emissions from any fuel.

Some may conclude that the finance experts at REFF-Wall Street didn’t mention the ecological problems with fracking because they simply don’t care—they’re money people after all. I don’t think this was the case. The topic would have been discussed if it were known because it is a serious risk to business. Panelists repeatedly emphasized the value of consistent policy in the energy industry so they could set in motion long-term investments without any change that would curtail revenue. Granted consistent bad policy may fit the bill, but I suspect that most if not all people at REFF would be against a policy that allows something like fracking to garner what appears to be large sums of project financing for each well, only to face shut down by the EPA within a few years.

Hydrological extraction of shale gas at the massive levels predicted is not a sustainable business, it’s a remnant of the Bush era. I suspect we will still see permits for fracking in areas far away from people where safe water is not as heavily mandated—and probably in Mexico. This will dampen the rise of natural gas prices, but once the EPA starts banning fracking in conjunction with the Safe Drinking Water Act, we’ll see gas prices continue to rise. And, to end with a positive spin and expose my techie nature, let’s get some financing to mass produce distributed generation fuel cells and Stirling Engines that run on natural gas and then combine them with rooftop solar to reduce solar power variability and limit peak demand. That would be sweet!

by Jon Previtali

Speaker Presentations

Expert Picks: Near Term High Growth Technologies

On May 3-5, On May 3-5, AltaTerra'a Managing Director of Research Jon Guice and Analyst Eric Paul attended Intertech Pira’s 5^th Annual PV Summit in San Diego. The PV summit featured a number of key solar industry executives delivering their outlook on the current solar photovoltaics marketplace. The summit also featured discussions around materials, manufacturing, thin film, and energy technologies.

In a conference report from the conference, Eric highlighted the following key takeaways:

• The United States solar market is poised for rapid growth in the next few years with the greatest growth coming from the utility and commercial markets. This is in part fueled by decreasing system costs combined with the increasing availability of financing.
• United States market offers great potential due to high power consumption, good solar resources, favorable political environment, and improving credit conditions. US solar market seen overtaking
• Gerald Fine, CEO of Schott Solar Inc. USA, noted that historically solar has been expensive and unable to compete with other forms of energy in terms of costs. Clear roadmaps are needed to move solar manufacturing down the experience curve faster to make solar more competitive.
• Anand Janaswamy of Applied Solar made the case for Building Integrated Photovoltaics (BIPV) indicating that BIPV offers easier installations and less permitting than standard module racks and avoids the regulatory and transmission issues which plague centralized solar plants. However, for BIPV successful there needs to be more collaboration between the building and solar industries and more effort to educate consumers on the benefits of BIPV.
• The number of large utility scale projects is increasing as utilities are pushed to provide more renewable energy.
• CPV is the best choice for utility-scale solar in sunny and dry climates according to Brain Robertson, CEO of Amonix. CPV requires less water, uses less land, and provides more energy per acre than CSP or utility-scale PV plants. For CPV to thrive, costs must continue to come down, better applications and deployment models need to be identified, and CPV panels must be proven in the field.

Expert Picks: Near Term High-Growth Technologies

Speakers:

· Gene Rodrigues, Director of Energy Efficiency, Southern California Edison

· Brent Dehlson, Co-Founder and CEO, Ecomerit Technologies

· TJ DiCaprio, Sr. Director, Environmental Sustainability Initiative, Microsoft U.S.A.

· Kelly Smith, Manager Sustainability Programs, Building Efficiency, Johnson Controls

I'll be moderating and am looking forward to talking before and during the session with this interesting set of speakers.

Registration note: Online registration closes Friday 5/7.  We are offering a 10% discount on the already low registration fee to AltaTerra members.  Use coupon code "ATR10”.

-Jon Guice