Clean Energy: Austin's Next Boom?
Centex interest and money begin flowing toward sustainable power
By Courtney Barry, Fri., June 21, 2002
Will "clean energy" become a new industry for Austin, with job-creating prowess and the economic potential of the semiconductor industry? Or is the "next big thing" likely to remain only a local cottage industry: an idea that sounds good, but one that, realistically, can never generate enough momentum and power to get up and running?
There is growing local and national speculation over how extensive a role solar, wind, geothermal, fuel cell, and other forms of clean energy -- also known as "renewable" energy -- will play in the next 20 years. The various forms of renewable power have been increasingly available for quite a while -- talked about, planned for, and, more recently, developed -- as viable energy sources. The eventual prospects are not certain, but in Texas, and more particularly in Austin, experts are beginning to believe that clean sources of power will become energy industry heavyweights, and probably sooner here than for most other regions.
Whatever the ultimate outcome, for a number of well-timed reasons, Texas is ripe for the development of clean energy and related start-up endeavors that will complement that industry. On the state legislative front, responding to the growing understanding of the role of carbon dioxide emissions in relation to global warming, the utility deregulation legislation of 1999 (SB 7) encouraged Texas utility companies to look for ways to generate cleaner energy. The new law projected that an additional 2,000 megawatts a year of generating capacity from renewable energy technologies should be available by 2009 and, to that end, created an incentive program of "renewable energy credits" to encourage research and development. (One megawatt, according to the American Wind Energy Association, is enough to power about 300 homes for a year.)
Recently, the Texas Public Utility Commission went a step further. Wind power has been allotted its own case filing: docket number 25819, "Proceeding to address constraints affecting West Texas Wind Power Generators." According to Brian Almon, director of engineering for the PUC, major utilities such as TXU, LCRA, and American Electric Power are expected to participate in the agency's review of regulations governing the production and distribution of wind power. Additional national incentives are also in the works, including the production tax credit program to subsidize power generation from renewable sources. That federal program -- which allows, for example, a 1.5 cent-per-kilowatt-hour tax credit for electricity generated by wind turbines -- had lapsed in December, but due to industry interest and a need to create additional incentives for economic stimulus, it was revived by President Bush in March.
Even allowing for the current recession, Central Texas has made its economic mark in recent years as a major and growing high-tech hub. The region retains a sizable group of entrepreneurs and venture capitalists who are also looking to diversify, and they are eyeing the new field of renewable energy with particular interest. That nascent interest has the potential to multiply, because, as the old investment adage goes, "Money attracts money."
According to Austin-based investment consultant Rahul Gujral, formerly with McKinsey and EnerTech Capital, there are several current indicators of investor interests, although he is cautious about giving broad predictions about the industry. From a global perspective, Gujral cites the Sustainable Asset Management Fund of Switzerland. "The fact that there is one specific fund that is focused primarily on clean energy is a pretty big deal," Gujral said. "To my recollection there is only one other fund over the last 10 years that tried that. It was a small fund run by a large [venture capital firm] out of Boston, Advent International." That fund, called EnviroTech, was backed by utility interests, and Gujral said they've been relatively successful. He also points to Austin's Cielo Wind Energy as an example of a local clean energy company that is rapidly gathering visibility.
Following the Money
The city's own clean energy effort, Austin Energy's GreenChoice, has implemented a successful alternative energy program since January of 2000. This month AE announced the purchase of all 1.8 megawatts of hydroelectricity generated from a restored 103-year-old hydroelectric plant on the Guadalupe River. The hydroelectricity can service up to 600 Austin homes. In itself that's a relatively small number, but it could become a significant landmark of the growing local interest in sustainable energy. According to AE's Ed Clark, the GreenChoice program already includes 6,700 residential customers, 150 small businesses, and 30 large companies, which subscribe to 250 million kilowatt-hours of "green power" annually -- enough to power 20,000 homes year round.
Admittedly, much of AE's green power remains essentially virtual -- that is, the GreenChoice program reflects consumer preferences that do not yet correspond to available energy sources. But the growing consumer demand should ultimately drive providers to expand the development of cleaner forms of power -- and, in theory at least, bring down market prices.
Major utilities have also shown interest in newer and less-polluting methods of electricity generation. The Lower Colorado River Authority, considered the pioneer utility in wind power, has included wind in its resource mix since 1995, and has contracted to buy 105,000 kilowatts in wind power alone. Gujral continues, "If you talk to people on the generation side at some of these utilities, like Reliant and TXU ... they are certainly paying attention to how they can utilize cost-effective, use-proven technologies to clean their exhausts and potentially earn some money trading emissions credits." TXU, for example, recently announced contracts to buy more than 360,000 kilowatts of energy from wind farms, hydroelectric plants, and landfill gas facilities (see www.txu.com/us/comminv/envcom/default.asp).
Yet some industry observers remain careful not to overestimate clean energy's overall potential, at least in the short term. Russel Smith is director of TREIA, the Texas Renewable Energy Industries Association, comprised of 200 member companies and individuals supporting or developing renewable energy. Smith said that any projections of the role new renewable energy technologies will play in the clean energy industry's growth remain highly speculative, and that investors and consumers should not forget that the immediate future will be powered by established energy sources. "It is not a given that the money and attention being paid to clean energy technologies today will result in rapid adoption of truly renewable approaches," Smith said. "Clean energy includes a wider range of technologies focusing on incremental environmental improvements in fossil fuel use, and on fuel cells, which are primarily driven by fossil fuels. My concern is that the investment community will largely continue to favor these incremental steps and neglect the challenges of renewable energy product development and marketing."
Smith also warns that relying solely on the market to determine our energy future is an uncertain strategy at best. "There is no doubt that a huge market for cleaner energy technologies is developing, and renewable energy will capture a significant portion of that market," Smith said. "But the concept of some that we are angling to do away with fossil fuels in the near-term, and do it all with solar, wind, and biomass, is not a realistic rendition of what is likely to occur. There will be an ever-increasing portion of energy provided by a wide range of different technologies. Some will advance faster than others; some will come and go. When it comes to energy, the 'free market' is an imperfect arbiter of environmental winners and losers."
So if not the market alone, what else will play a role -- for better or for worse -- in the clean energy industry's growth? "Policy, policy, policy," said Smith, on the national, state, and local levels. He cites the ready example of the history of the oil and gas industry: In its early years, policy and legislation played a key role in supporting that industry in its early competition with steam and coal.
Reflecting a shift both in policy and related economic incentives, scientific and economic scholarship has also begun to recognize and promote the industry's potential. Perhaps the most visible local indicator is Austin's new Clean Energy Incubator, which will mark its first anniversary in August. CEI was developed by UT in cooperation with local businesspeople, as part of its IC2 Institute (i.e., "Innovation, Creativity, Capital"), founded to promote the development and intellectual networking of various international research and economic partnerships. CEI's primary purpose is to assist local clean energy start-up companies by providing strategic consulting services and a mentoring base. The incubator also offers fully equipped office space at an extremely competitive rate, in return for an eventual small equity share to help sustain the program. Leaders in Austin's high tech community worked with IC2 and the National Renewable Energy Laboratory to help get CEI established.
Steve Guengerich is an Austin high-tech entrepreneur and co-director of the Austin Clean Energy Initiative, a group of local energy professionals and businessmen supporting CEI. He said the incubator "has received more than 65 inquiries from interested companies," and adds that "estimates are that the clean energy sector -- in terms of jobs and GDP growth -- may become as big as the semiconductor industry worldwide in the next 20 years." Other projections suggest that the industry also has the potential for sustaining broader economic growth: According to a 2001 Renewable Energy Policy Project report (associated with the national nonprofit Center for Renewable Energy and Sustainable Technology), underlying each megawatt produced by wind power is the equivalent of 4.8 full time employees engaged in component production, wind generator manufacture and installation, operation and maintenance, and power distribution.
Richard Amato, director of CEI, agrees that government policy will play a huge role in determining the growth of clean energy. Amato explains that the nonprofit CEI -- essentially a combined effort of government, academic, and private sector underwriting of a particular form of economic development -- follows the model of the Austin Tech Incubator, established in 1989 to help encourage high tech development. ATI worked with about 120 companies, and "graduated" 65. Amato said that $600 million in capital was raised for companies within the tech incubator, and the effort ultimately created about 3,000 high-tech related jobs.
CEI will provide advisory counsel to start-ups, help them with business plans, and connect them with financial backers. "We provide what we call the 'three Ms': money, management, and market," said Amato. "We'll help them get access to money, we'll help them fill out their management teams, and then we'll help them accelerate their time to market as quick as possible."
Amato said the incubator has seen everything from wind to geothermal, energy efficiency, power quality, and distributive generation companies. "The end result is anything that is going to either reduce fuel consumption or decrease pollution," he said. "We're looking for companies that are looking for seed money [and are] anywhere from two to three years to market." As of May, four companies had signed on, which are in step with CEI's initial goal of five to six company commitments by August.
CEI associate Caren Holzman explained the concept behind one of the new member companies. "Teletrips Inc. develops proprietary software for tracking emission savings by the teleworkers at a given company that do not drive to work." Teletrips hopes to take this emissions savings data and calculate what are known as "mobile source emissions reduction credits." Holzman concluded, "There is a strong potential that a market will develop where these credits can be traded."
Asked what all this initial activity might lead to in jobs and revenue for the Austin regional area, Amato said it's "very difficult to assess because it's too new." He compares analyzing the current situation of clean energy development to the state of high-tech work in the mid to late Eighties, "when the whole Sematech/MCC consortium was coming about, before anything was really here, trying to estimate what that would mean. It's frontier and it's disruptive technology, so it's very, very hard to extrapolate and determine what this is going to mean."
But Amato's confidence in the yet-unrealized potential of the new industry, especially in Texas, is apparent. "Texas is the number one or number two state within the U.S. as far as renewable potential," Amato said. "If you look at the potential for creating solar energy because of all the sun we have here, the potential for wind energy because of the wind ... the potential for geothermal, hydro, if you add all those up -- Texas is a very abundant resource state as far as renewables are concerned." He notes that the first CEI companies are already being considered by potential underwriters. "Investors are interested in seeing companies that we have coming through," he said, citing StarTech Early Ventures, an investment firm which originated in Dallas and now has an Austin office.
"The climate is right for clean energy," Amato continued. "Public awareness has increased. Issues such as national security which include reducing our dependence on foreign oil as well as developing distributed generation sources, increased volatility in fossil fuel prices, and the recent energy crisis in California have grabbed people's attention. ... In addition, the technology is becoming more and more competitive and therefore more mainstream. Look at what's happened in the wind market over the last year or two.
"It's not a matter of if, but when," he concluded. "When renewables and other forms of clean energy start making good economical sense and not just social sense, that is when you will see the money really start to flow." n
Courtney Barry has also written for Public Utilities Fortnightly and The New York Times.
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