Oil Rich Nations Embrace Nuclear Power

The Iranian atomic program grabs the majority of the headlines about nuclear work in the Middle East. However, flying somewhat beneath the radar have been efforts by many other states in the region to set up their own nuclear energy programs. Last week the Obama administration announced that it intends to restart talks with Saudi Arabia about nuclear cooperation. The United Arab Emirates and U.S. governments already signed a similar pact in 2009 and the UAE government has awarded a contract worth up to $40 billion to a Korean company to design, build and operate four nuclear power plants. The entire Gulf Cooperation Council has been looking into ways Arab Gulf countries might cooperate on nuclear power since 2006.

So why would the most oil rich countries in the world invest in nuclear power generation? To some degree, they are looking at atomic energy for the same reasons they are investing heavily in other forms of alternative energy such as solar. All the GCC countries are experiencing rapid population growth and an even greater expansion of domestic demand for electricity. Every barrel of oil used for domestic consumption is a barrel that cannot be exported. Nuclear has an advantage over other forms of alternative energy in that it can be rapidly scaled. A UAE government study found that energy consumption in that country is expected to grow 9% annually for the foreseeable future and renewables like solar are only likely to be able to meet about 7% of total demand by 2020.

Of course, nuclear energy in the Middle East also has an important geo-political component. Senior royal Prince Turki al-Faisal has implied that if Iran gets the bomb Saudi Arabia may try to develop their own nuclear weapons, although other Saudi officials later stated his position did not represent official policy. Some analysts worry that Arab Gulf countries nuclear energy programs may allow  them to develop a breakout nuclear weapons capability, giving them the capacity to quickly build an atomic bomb if they decide they need one without triggering international condemnation in the short run. The U.S. is seeking nuclear cooperation agreements with these countries to demonstrate to the international community that America is not against peaceful uses of atomic energy allowed under the non-proliferation treaty and to counter the Iranian narrative.

It is ironic to remember that Iran and Pakistan were the first countries that the U.S. supported in obtaining nuclear technology through its Atom’s for Peace Program during the 1950s and 60s. The aim of the program, launched by President Eisenhower, was to demonstrate the positive role nuclear technology could play in the world through energy and medicine after the horrors of Hiroshima and Nagasaki. Envisioning a time when petroleum would run out, the Shah of Iran invited American Machine Foundry to build the first Iranian nuclear reactor. This cooperation ended with the overthrow of the Shah and the rise of the Islamic Republic.

It will be interesting to see what happens as these programs in the Gulf evolve. Most of the countries of the GCC (with the notable exception of Kuwait) are continuing to invest in nuclear energy as other countries retreat from it for safety reasons. The highly concentrated populations and desert geographies of the Gulf countries could make a nuclear disaster in a place like Qatar even more devastating than it has been in Japan. If Iran develops the nuclear bomb, it is unclear whether the U.S. would become more wary or more supportive of Arab nuclear ambitions. Ideas on Energy will be following this issue closely and reporting more as it develops.

Scaling Green Energy Access from Millions to Billions

Ideas on Energy is pleased to have Tom Boyd of Nokero as a guest blogger.  As Nokero reaches it’s one year anniversary as a company, Tom and the rest of the team have been thinking deeply about how to scale solutions to the global challenge of energy poverty.

The internet is alive with stories of successful renewable energy projects in developing countries. Clicking from one site to the next, it’s clear there’s a groundswell of support for solar, wind, biomass, geothermal, and other solutions the off-grid regions of the world.

Crunching the numbers, however, is a jarring reality check.

More than 1.6 billion people live without electricity, and 2.4 billion lack access to modern fuels for cooking. If we take an exceedingly optimistic view, renewable energy is being used by a few million in the developed world. A more tempered calculation puts the numbers more in the hundreds of thousands range.

Either way, the reality is that only a sliver of the world’s energy poor are making the giant leap forward to a clean energy economy. Billions remain trapped in a dark era, forced to pay exorbitant prices for out-dated fuels which perpetuate their poverty by leaving them unhealthy, broke, and in constant danger.

The solutions exist – so why aren’t these solutions being adopted on a larger scale? Sure, our industry has a lot to be proud of, and many communities around the world are currently benefiting from safe, clean, renewable energy projects. But how do we go big? How do we go from helping a million or so, to helping billions? How do we take half the planet’s population and leap-frog them forward, past the industrial revolution, and into a new, green energy economy that can truly and reliably sustain the needs of billions?

At Nokero, we are fast approaching the one-year anniversary of our foray into providing highly-economical solar lighting –  and we feel our solar light bulbs are humanity’s best chance to end the practice of burning kerosene. We’ve also added a Power Panel which can charge phones, and have many other innovative products coming out in 2011.

A good product line is just the start. A workable business model  is perhaps more important – and in some ways more of a challenge – than building good products. By way of retrospection, I outline below the four basic approaches that we are trying in our effort to make inroads to the developing world, and our analysis of each of these solutions.

Method – The Small Enterprise Approach: Hardly a day goes by at Nokero where we don’t discuss Paul Polak and his book, “Out of Poverty”.  His book is one of the first to outline the benefits of Social Entrepreneurship. Polak and others (like “Philanthrocapitalism” author and Economist Bureau Chief Mathew Bishop) have inspired us to look for “Market Based Solutions” to develop micro-economies in each of the villages where our products end up.

Benefits: On the purely social level, we believe market-based microfinance solutions are an ideal way forward. Early results from projects in Columbia, Liberia, and Guatemala show that the small-business approach works very well, and demand for a reliable all-in-one solar light is high (part of this, we believe, is because Nokero’s bulb shape makes our bulb a desirable and recognizable household item). During one test project in a small town in Guatemala an entire gross of bulbs sold out in 8 hours.

Our vendors benefit financially from the sale of Nokero products, bringing wealth to their communities, and our small-business partners are in the early stages of building a growing business.

Small-businessmen also provide us valuable feedback on the product’s pros and cons, including customer reactions. They are building an economy around their work, and they are close enough to their communities to collect parts for recycling when the products lifespan is over (for the Nokero bulb, this may be 5-10 years if the product is well-cared for).

With “feets on streets,” renewable energy companies can create a healthy, lively, business network full of tremendous potential for all involved.

Challenges: Growth will be slow. Setting up and maintaining many thousands of micro-enterprises takes many years of hard work, and excellent communication across sometimes vast cultural gaps. While the parent company can incentivize the process and even set up the initial funding for investment, the initiative must, by definition, come from the vendors on the ground in each location. Also, market solutions must work – and sometimes finding a workable micro-business idea can be the greatest challenge. Not every vendor who pitches a tent will have success.

Method – The government subsidy approach:  “States, as great engines, move slowly,” said Sir Francis Bacon in a quote from 1605, and the old saying holds true today. At Nokero, we are working with several “great engines” at home and abroad to make large-scale projects. While projects in Africa and Central America, in particular, show great promise, none has come to completion as of yet.

Benefits: Governments in the developing world (and often in the developed world, too) have the kind of buying power necessary to take solar power to the next level. Building infrastructure to supply grid-electric light to the people who need it can cost tens of billions of dollars. Solar and renewable solutions, by comparison, are relatively inexpensive.

One of our government partners, for example, showed that the government AND the people can save hundreds of millions simply by foregoing the process of building a traditional electrical infrastructure, and instead supplying off-grid solutions like Nokero to their people. Like choosing cell phones over land lines, the initial investment is smaller while results are essentially similar. The end result is governments can help raise their people out of poverty, supply them with the energy they desire, and help reduce carbon emissions all with a few well-run renewable projects.

Challenges: If a government buys solar power and gives it away to the people, there is a risk that the end-users won’t appreciate the value of what they’ve been given. A large government give-a-way doesn’t fit well with the ideals of Paul Polak and Mathew Bishop. Furthermore, while governments usually have the best motives in mind, the reality on the ground is that large-scale giving campaigns can often be subject to corruption. And, as Sir Francis said, the government process is sometimes – but not always – painfully slow and cumbersome in comparison to market solutions.

Method – The partial government subsidy approach: In this model, governments subsidize a portion of the cost of a solar or renewable system. This makes the product affordable to the poor, yet allows them the dignity of buying, owning, and knowing the value of the product for themselves.

Benefits: As in the above method, the benefits of working with a government are clear. They have the buying power and the desire to improve their energy economy. By only partially subsidizing a renewable project or product, a government can save money while simultaneously instilling a sense of value in the community.

In one of Nokero’s projects, our bulbs will be available in special stores only accessible by the very poor. If the project is approved sometime later this year, these customers will be able to afford Nokero products at a reduced cost. An in-depth study recently completed by the government of that country shows that the Nokero bulb pays for itself in 15 days – even without partial subsidy. With subsidy the product makes obvious economic sense.

Challenges: Subsidies are a tool for getting an industry started, but if an industry is to sustain itself in the long-term, it should learn to thrive without subsidies. Government price control can often dampen the innovation wrought by a free-market: for example, if a sub-standard product is subsidized it will have an advantage over another product which may be superior.

Method –Corporate, big-business approach: Corporations, like governments, have big-time buying power. Properly motivated companies are looking for ways to enter into developing markets, and renewable energy offers a great opportunity to do so.

Benefits: Big Corporations know how to move a lot of product, cut margins, and increase efficiency. They have the wherewithal and skill to market products well, attract media attention, and motivate the buyer. The mass buying power of a corporation is often the strongest tool in lowering factory costs. Lower margin is compensated by high-volume – and the energy poor may have their best chance at affording a product when it is mass distributed by a corporation.

Nokero is in various stages of partnering with several large, well-known companies to attempt large-scale distribution. It takes great vision for a large company to see the benefit of engaging in renewable energies in developing regions, yet some are following that path. Like Honda, which grew from a tiny company in Japan after WWII, to a household name decades later, it’s possible that companies like Nokero will start out in fringe markets and grow to become big-business themselves.

Challenges: Corporations are struggling to create efficient distribution networks into developing regions. The reasons are manifold, and well documented , in this seminal publication on emerging markets by the Monitor Group.

Social entrepreneurs are well-versed in the myriad stories of failure from markets around the world: Poor areas lack infrastructure, making distribution costly and difficult, which raises prices. Customers must also be educated as to the reasons why they should adopt a new system when they are economically and culturally adapted to an older technology. Even if the public is willing to buy, profits on inexpensive items are slim, and business can be difficult.

In the end, it’s a long, long way from the corporate board room to a village kiosk in an off-grid, rural region, and the cultural chasm can be vast. For many corporations, the journey into emerging markets simply isn’t worth it. Big-business doesn’t always mean big happiness. For small companies the game usually isn’t just about growing into a massive multinational. As Jennifer James points out, success is the quality of the journey.

At Nokero, we are open-minded to all of the above solutions, and we are trying each of the various approaches above to see what works best and where. No matter which method wins out, we are confident that the coming years will see a vast increase in renewable energy market solutions globally. In the end, it’s not terribly important what methods prove most resilient, which companies succeed and which fail. What matter is that the world’s energy poor make the giant leap forward to a green economy – and if we can succeed in this goal, all of us will reap the benefits.

Ideas on Energy Wants Your Ideas for an Energy Access Challenge!

Competitions and prizes have become an increasing popular way to spur innovation in finding solutions to the world’s most complicated challenges.  Many of the companies doing great work to address energy poverty have benefitted substantially from winning these types of events.  Solar Sister was able to take their enterprise to the next level as a result of investments made when they were identified as a leading contender in the Women, Tools, Technology ChallengeNuru Light earned startup capital when it won the 2010 Tulane Business Plan CompetitionE + Co recently received US$350,000 from the Zayed Future Energy Prize.  These organizations are touching the lives of the tens of thousands and in some cases hundreds of thousands of people.  However, energy poverty is a problem whose scale is measured in billions of people.  If we are to make a significant dent in addressing this issue we need solutions that can rapidly scale.

One of the ideas I have been kicking around is an off-grid energy challenge for significantly scalable solutions in developing countries/frontier economies.  Energy poverty is a multifaceted problem where issues ranging from technology, access to credit and capital, consumer awareness of solutions, regulatory obstacles, and poverty all interact in ways that prevent people from meeting their energy needs.  I am looking for ideas from readers of this blog on how to best frame a competition and what element(s) of this challenge to try and address through the contest.

One possibility is to have a technology oriented competition.  Many companies don’t believe that people living in slums or more remote areas have enough money to be worth design solutions for, leading to underinvestment in relevant technologies for them.  Current tech competitions tend to focus on high end engineering regardless of price such as the Automotive X Prize which sought cars that could get 100 mpg, an important goal but not focused on the needs of those in poorer countries.  Would a technology oriented competition that sought prototypes for village or household level energy solutions that produce the most electricity at the lowest cost be the contest that would have the biggest impact?  Perhaps you think the biggest problem isn’t the lack of technical solutions but the lack of consumer education about existing technologies and good business models for distributing those items.  If that’s the case then a business plan competition focused on energy for places unlikely to be connected to a central grid anytime soon might be the best use of resources.  Or maybe you think the issue is something else entirely.

Please send me your ideas for the competition.  Use the comments section for this post so we can turn it into a discussion.  Which parts of the challenge of energy poverty should this competition focus on?  What criteria should be used to evaluate entries?  What should the prizes be?  I am hoping to shop this concept around to my contacts at foundations and private sector companies as well as multilateral and bilateral aid agencies once it is more developed.  I look forward to using this community’s energy to generate great ideas!

Can the Navy Reform How the U.S. Uses Energy?

I had the opportunity Monday night to hear Secretary of the Navy Ray Mabus talk at the Council on Foreign Relations about the U.S. Navy’s efforts to transform how they use energy and their intention to become a catalyst for changes in overall energy consumption in the U.S.  The Navy has laid out some of the most ambitious goals in the nation regarding energy efficiency and alternative energy.  These include:

  • by 2012, creating a “Green Strike Group” composed of nuclear vessels and ships powered by biofuels and deploying that fleet by 2016;
  • by 2015, reducing petroleum use in its 50,000 commercial vehicle fleet by 50 percent by phasing in hybrid fuel and electric vehicles;
  • changing the way the Navy and Marine Corps award contracts during the acquisition process to consider the lifetime energy cost of the system
  • producing at least half the shore-based energy requirements from renewable sources, such as solar, wind and ocean generated by the base; and
  • by 2020, ensuring at least 50 percent of the Navy’s total energy consumption comes from alternative sources.

Secretary Mabus started off by talking about what motivates the Navy to take energy efficiency so seriously.  For every $1 increase in the price of oil the Navy pays an additional $31 million in fuel costs.  Ships are most vulnerable when they are refueling and it was during a refueling visit to Yemen that the USS Cole was attacked.  One Marine is killed on average for every 50 convoys in Afghanistan.  Convoys transporting fuel account for a significant portion of the total supply convoys in Afghanistan.

Much of the discussion focused on the Navy’s efforts to expand the use of bio-fuels.  Mabus said the right things about ensuring that organic matter grown for use in bio-fuels should not displace food production, something the EU has become concerned about as it tries to meet its own ambitious targets regarding members’ use of alternative energy.  Large Navy purchases and investment in new technologies helped cut the price of bio-fuels 50% last year and they are expected to go down another 50% this year.  However, although source diversity may be good from an overall national energy security perspective, it isn’t clear how expanding the use of bio-fuels would improve the security of the fleet or the Marines.  Any sort of liquid fuel whether it is derived from oil, algae, or composted unicorn tails needs to be transported to ports where ships will stop to refuel or through the same supply lines as oil based diesel to get to MRAPs that Marines are driving in Afghanistan.  Mabus also suggested that nuclear would remain steady as a portion of overall energy consumption by the fleet at about 17%.  A new generation of hybrid ships such as the USS Macon Island that can run entirely off an electric motor below certain speeds may have a significant impact on fuel use over the long term.

Although there was a lot of talk about new whiz bang technologies like electrofuels and flexible solar cells what struck me most about the discussion was the Secretary’s ambition to use the Navy’s policies to change how the country consumes energy.  He noted that “Although we defend democracy, we are not one ourselves.  We can set mandates (on energy use)… We can use technologies in ways that cannot initially be done by the private sector.”  The U.S. Government uses about 2% of energy consumed in the U.S.  The Department of Defense is responsible for 80% of government consumption and the Navy is responsible for about a third of that.  So even though the Navy is only responsible for .5% of U.S. energy consumption, they are still a big enough player to affect investment patterns and prices of different technologies.  Secretary Mabus’ statement that “We are going to create a market for alternative fuels,” sounds a lot to me like good old fashioned industrial policy.  The kind of thing that the Chinese continue to engage in with their recent announcement of a national five year plan that includes ambitious energy targets and also the kind of thing that is generally frowned upon by free-marketeers in the U.S.  In some ways the Department of Defense is one of the last bastions of explicit industrial policy in America.  It even has an Assistant Secretary of Defense for Manufacturing and Industrial Base Policy, something you would never see in a civilian agency like the Department of Commerce.  It will be interesting to see if the Navy is able to set the agenda for the entire country reforming the way we produce and consume energy.  They certainly seem off to a good start.

Postscript:  As I am writing this, President Obama has announced in a speech at Georgetown University that he intends for the U.S. to reduce imports of foreign oil by 30% over the next decade.  Changing the consumption patterns of a nation is obviously harder than changing the course of a military service but let us hope that the President can lay out the kind of specifics that the U.S. Navy has been discussing for the past few years as it put forth its own vision of a green military force.

Why the World’s Oil Rich are Investing in Renewable Energy

When most people think of the Middle East, especially the countries of the Persian Gulf, they tend to think of oil and gas.  However, earlier this month the Prime Minister of Spain traveled to the United Arab Emirates and visited Masdar City, the world’s first attempt at a carbon neutral city, commending UAE leadership in promoting renewable energy technologies.  Saudi Arabia last year announced the creation of a similar venture, The King Abdullah City for Nuclear and Renewable Energy, to host university research laboratories and private-sector enterprises involved in low-carbon energy.  Saudi officials announced at a conference in Germany that Saudi Arabia intends to eventually export as much solar energy as it does petrol today with some industry analysts predicting Saudi investment of $120 billion over the next 25 years for development of its renewable energy industry.  Why is it that so much innovation in renewable energy is coming out of the most hydrocarbon rich area of the world?

There are a number of explanations for the Gulf countries focus on alternative energy.  First, they have access to large amounts of capital that they have to find investment opportunities for.  Alternative energy is a hot area and it seems only natural that countries housing some of the world’s largest sovereign wealth funds would seek to invest in an area that they have a lot of experience thinking about and that the rest of the world is pouring into.  Large amounts of politically directed capital also allow for investments that make little sense from a strictly business perspective.  Masdar is unlikely to return its initial capital, let alone make a profit.  Gulf countries view these as strategic investments for the day when the oil and gas runs out.

Second, these countries are experiencing rapid population growth and concurrent rapid growth in demand for electricity.  OPEC quotas are for the amount of oil extracted from the ground, not for the amount exported, so the more energy that can be provided from non-hydrocarbon sources the more oil can be sold for export.  According to U.S. data, Saudi Arabia consumed about 2.4 million barrels per day (bpd) of oil in 2008, up 50 per cent since the start of the decade.

A friend of mine working as a consultant on energy projects in the Gulf also noted another important reason for interest in alternative energy in the region, prestige.  According to a World Wildlife Fund report, the UAE and Kuwait rank first and third respectively in terms of global resources used per person (with the two countries separated by the U.S. ranked as having the second most resource intensive lifestyle).  My friend noted that Emiratis are very image conscious and don’t like to be last at anything.  Being publicly viewed as promoting sustainable energy is a way to remove some the stigma of being called out as having the least sustainable lifestyle on the planet.  Similarly, all the countries of the Gulf Cooperation Council would prefer to be seen as on the vanguard of promoting sustainability rather than the rear guard of environmental destruction.

Finally, there are some political dynamics surrounding investments into nuclear energy on the Arabian Peninsula worth noting.  In the last five years, 13 states in the Middle East have expressed interest in nuclear power.  Saudi Arabia and France signed a nuclear agreement in July 2010 and the UAE and U.S. signed a nuclear agreement in December 2009 that was somewhat controversial.  Some view the interest in nuclear technology by Arab states as a hedge against Iranian nuclear capabilities.  On the one hand, countries may be able to eventually create a nuclear breakout capability that would avoid triggering nuclear sanctions while at the same time the technical knowhow might be transitioned to nuclear weapons in case of an emergency.  A more positive spin would be that these countries are demonstrating to Iran how to generate nuclear power capabilities without running afoul of international norms.  It will be interesting to see whether recent events in Japan alter Middle Eastern countries atomic energy plans.

China’s New Energy Policy has Global Implications

About three months ago I attended an event with Fatih Birol, the Chief Economist for the International Energy Agency, at the Council on Foreign Relations.  During his remarks, he said that there were five places he was concerned with regarding demand for energy and carbon emissions, “China, China, China, India, and the Middle East.”  Birol’s comments highlight the fact that China’s announcement last week that it is setting targets for energy intensity and CO2 emissions per unit of economic output and putting a cap total on total energy consumption by 2015 is not just important for China but has global implications for energy markets and the environment.

This announcement comes at a time when Chinese policy makers are demonstrating that they are increasingly willing to sacrifice some economic growth in exchange for meeting other goals.  The recently released five year economic program specifically calls for increasing household incomes and domestic consumption while setting lower targets for GDP expansion.  There is a healthy debate amongst analysts regarding the reasons for China’s energy targets.  Energy security is a major concern for China as 80% percent of China’s imported oil flows through the straits of Malacca, an area where the U.S. currently enjoys naval superiority.  China is also the world’s largest importer of coal, which like oil is vulnerable to price shocks such as occurred during recent floods in Australia.  Their economy’s reliance on coal and energy intensive heavy industry has serious environmental consequences including choking pollution and the degradation of water supplies.  Also, energy security and environmental damage are linked to concerns about social unrest in the eyes of the Chinese leadership.

China obviously does not have to deal with the kind of democratic debate that takes place in the U.S. regarding energy policy but it is interesting to compare the reasons mentioned for China’s policy with the discourse in the United States. China’s focus on energy security and non-climate change related environmental issues sounds very similar to former California Governor and long-shot candidate for Energy Secretary Arnold Schwarzenegger’s recommendation at the recent ARPA-E conference that the U.S. can best formulate an intelligent energy policy and meet ambitious greenhouse gas targets by re-framing the debate in  terms everyone can agree on.

Hopefully, China’s willingness to take energy policy and carbon emissions seriously will remove some of the excuses that other developed nations have used to avoid making hard choices.  The U.S. has tended to argue that without strong action from China and India global coordination on emission targets will not be meaningful.  Now China has taken an important first step in this direction.  Also, increasing China’s energy security through a reduction in demand or by any other means is good for the energy security of the rest of world.  Increasing transparency around expectations of China’s future consumption can help stabilize energy commodity prices which are set in a global marketplace.  Even though energy security is not a zero sum game, perhaps a sense of competition between nations will push some countries that have been sitting on the fence towards a race to the top in terms of developing meaningful energy policies.

Solving Energy Poverty: What it Takes to Make it onto Investor Radar

A man loads solar panels on to a donkey. This is the "last mile" for energy distribution in many parts of the world and part of the solution for energy poverty.

Ideas on Energy is thrilled to have E+Co Co-Founder and CEO Christine Eibs Singer as a guest blogger this week. She recently traveled to Abu Dhabi to attend the World Future Energy Summit and accept an award on behalf of her organization for the great work they have done to address the global challenges of energy poverty and climate change. Christine noted on E+Co’s blog that there were not many other organizations at the event “focused on small scale clean energy solutions for the developing world.”  In the entry below she reflects on why that was and how to address the challenge of energy poverty globally.

When one thinks about investing US$100 billion dollars in clean energy, visions of large wind turbines and hectares of solar panels dance through the mind.  It is rare to find an investor whose dreams meander outside this box, to the rural communities and households that comprise the gaps in the grid, to the enterprises that can provide an answer to global energy poverty through the production and distribution of small scale solar systems, mini-hydro plants, household biogas units and fuel efficient cook stoves.  It’s even rarer to find those who have actually pursued those investments.

This was the challenge I faced as a participant in the World Future Energy Summit in Abu Dhabi last month.  The exhibit space was packed with large scale technologies.  Deals were in the making, almost all of which were $500 million and up.  So, when the UN Secretary General opened this summit with an address that set forth a vision of universal access to modern energy services, at a price tag of US$35 billion per year, I recognized the sharp disconnect to the equipment on display and the transactions being negotiated.  This disconnect was further emphasized when  Ditlev Engelhead of Vestas accepted the Zayed Future Energy Prize on behalf of their 22,000 staff, and I accepted on behalf of E+Co’s 48 staff.

Of course, the equipment on display and those deals being made are critical to meeting climate and energy challenges.  But there’s more that has to happen.  There are more than two billion people who live in energy poverty who have yet to benefit from the commercial and grid installations that filled the floors of the forum.

Energy poverty is a disease.  Like malaria, polio and dengue it innately affects a person’s ability to live fully.  But like these diseases, it can be treated.  The equivalent of cures and vaccines exist, and the path to providing diagnosis, prescription and treatment has been paved over the last decade by battalion of companies, including small “powerhouses” such as E+Co, SELCO-India, Tecnosol, SELF, Toyola, AIDG, Winrock International, Barefoot Power, PowerSource Micro-Grid and D-Light.

The challenge to administering these treatments is the very scale of the disease: more than 400,000,000 households are infected; one-fifth of the world’s population endures the symptoms of energy poverty.  As is often the case with widespread diseases, the cures for energy poverty are known.  It is their dissemination and distribution, combined with the scale of the disease that makes the situation seem intractable.

E+Co’s 16 years of experience has shown that curing energy poverty requires that each infected household have access to just a few things: basic electricity for light and low-power appliances such as a cell phone; modern fuel and a stove for cooking; and small amounts of motor power for water pumping, sewing, grinding, husking, or other income improvements.  Amazingly, the “cure” costs as little as $250 per household.

But to capture the interest of many of the investors I met in Abu Dhabi, one would need to package the cure for at least 2 million households in one fell swoop.  But for E+Co and a few others, this bundling has not been attacked and few are willing to take on the high transaction costs that result from packaging tens of thousands of households, despite the financial, social, and environmental impacts that result.  That is why I walked the exhibit aisles at WFES alone.

When E+Co began its work in the underdeveloped clean energy enterprise finance sector in 1994, no one else was focused on enterprises as a vehicle of delivering clean energy to combat poverty and climate change.  While still relatively unique in our singular focus, we are now joined by others who see the market and impact opportunities for small and growing clean energy businesses in the developing world. They enter from the technology window; or focus on the productive uses and income that will result.  Some are driven to create more equitable payment schemes for the energy poor or to reduce the health and deforestation impacts.  Still others are here because they know the social equity possibilities that can result from energy access.   But when the bottom line is drawn, all are here because they know the market and business possibilities exist.  We know this because households at the base of the pyramid now spend $38 billion a year on dirty, fuel based lighting[1].

Our challenge is to bundle the energy access needs – to “scale” to 2 million households in a single transaction, while unbundling the capacity building and large scale finance to replicable efficient interventions.  Those that have the experience to make this happen are out there, but like the cures to energy poverty, we too are decentralized.

Our most recent “back of the envelope” estimate is that we need 80,000 enterprises to meet the energy needs of 400 million households (or 2 billion people).  I often tell the good news/bad news story about E+Co’s investment history:  The good news is that we have invested in 268 clean energy businesses.  The bad news is that’s more than anyone else in the world.

The movement suffers from lack of access to capital, just like the enterprises it will serve.  While challenging and filled with risks, with the blending of public and private capital, we CAN pursue that first launch of enterprise development in order to reach the 80,000 enterprise mark over the next 20 years.  E+Co and others know the risks, the opportunity, and core components of the solutions.  There’s no need to re-invent the wheel.  The growth of this movement will stimulate investment in the organizations and systems that can deliver the energy cure: the learning platforms, the catalytic seed capital, the market development.  Just as health professionals and volunteers, community organizations and governments all reach out with public health programs, vaccinations and treatments, the same coordinated approach to distributing energy improvements can be pursued.

The successful outcome is a well financed and effectively implemented local energy enterprise, built on strong business fundamentals.  But, rather than visions of large scale wind turbines and transmission and distribution lines, we also have to see visions of local entrepreneurs and their distribution channels.  Part of the cure for the disease of energy poverty may look something like the picture above, the transport necessary for the “last mile” distribution.

[1] Figure excludes firewood, charcoal, etc.

Mills, Evan. 2005. “The Specter of Fuel-Based Lighting.” LBNL-57550. Science, 308(5726):1263-1264

Energy Geopolitics Roundup


At Ideas on Energy we love grappling with the most challenging questions about our shared energy future.  Over the past four months a number of excellent publications have come out regarding big picture energy security trends and geopolitics.  Falling under the “I read it so you don’t have to,” category of posts I am going to summarize some of the more interesting papers that have recently been released, although all of these papers are worth spending some time with.

Earlier this week Shell published the excellent “Shell Energy Scenarios to 2050: Signals and Signposts”.  This is a fascinating document in that it maps out future energy scenarios based not just on the usual supply and demand forecasts but also looks at broad geopolitical trends and actively advocates for countries to expand coordination of policies that will significantly reduce greenhouse gas production.  The forecasts for demand are based on relatively uncontroversial assumptions that global population growth will continue for the next 40 years and that emerging economies (read India and China) are entering the most energy intensive phase of their development.  Global energy demand will triple between 2000 and 2050 but increases in production and efficiency and not likely to keep pace.  This document looks at how will the world deal with both the significant gap between supply and demand as well as the environmental stresses created by increased energy demand.

Shell sees two possible categories of scenarios to deal with these challenges.  The first is “scramble” whereby each country tries independently to secure as much supply for itself as possible.  Demand management and environmental concerns are shunted to the side as long as possible although eventually economic growth is constrained by access and environmental challenges which finally forces countries to take action.  The other possibility is “blueprint” whereby coalitions of countries, NGO, and citizens recognize that they have a collective interest in a proactive approach to energy and environmental management.  Private sector entities under this scenario at the same time realize that regulatory certainty will enable commercial investment and profit.

The paper then looks at which of these directions is more likely for the future based on the global economic reconfiguration of 2008 which Shell boldly proclaims has shifted political power from West to East, increased the involvement of states in both domestic and global economics, and decreased the trust between the governed and politicians in democracies making regulation more difficult.  Although it does not clearly state whether the authors think the world is heading more in a “scramble” direction or a “blueprint” direction, they do note that “global inaction, might lead people to shrug off the climate issue. Many are quick to doubt the science. Amid such ambiguity a discontinuity is building as expert and public opinion diverge. This divergence is not sustainable!”

The Center for Strategic and International Studies also looks at the drivers of energy geopolitics reaching out to 2035 in their publication “The Geopolitics of Energy”.  The authors point to the political centrality of energy in the developing world since economic growth is as important a justification for political power in authoritarian China as it is in democratic India.  They note that for those looking at new sources of energy such as natural gas to be primary drivers towards a lower carbon energy future, we still face a geographic concentration in a few countries that many do not want to politically empower.  Although gas allows for a diversification of supply in the U.S. and Canada, extraction from unconventional sources in the Western hemisphere is a high carbon process.  Low carbon extraction is possible mainly in Iran, Qatar, and Russia.  Also, most renewable sources of energy require rare earth elements which would create supply bottleneck risk from countries like China or Bolivia.  The paper concludes that “single issue advocacy, unbridled optimism, and blind reliance of technological innovation are woefully inadequate though they frequently masquerade as policy prescriptions.”

In the Chatham House publication “More for Asia: Rebalancing World Oil and Gas”, author John Mitchell focuses on the impact that a reorientation of oil and gas supply chains towards Asia will have.  Increasingly, state owned buyers in Asia will purchase supplies from state owned suppliers in the Middle East.  He sees this as decreasing the role of the private sector in both investment and trade globally.  Additionally, this will make the Middle East less reliable as a supplier to Europe and will increase European reliance on Russia for supply at a time when the EU is trying to decrease that dependence.

Pipeline Politics in Asia”, released as an edited volume after a conference conducted by the National Bureau of Asian Research, focuses on the implication of projections out to 2030 that China and India combined will account for 50% of global energy demand growth, 60% of oil demand growth, 20% of gas demand growth, and 85% of coal demand growth.  We are reminded of Winston Churchill’s speech to the British House of Commons in 1913 where he states, “On no one quality, on no one process, on no one country, on no one field must we be dependent.  Safety and certainty in oil lie in variety and variety alone.”  Energy security relies on diversity but diversity is expensive, which raises a fundamental question: who benefits and who pays?  This lays the groundwork for even more state involvement in creating supply networks when market forces alone are not enough to guarantee needed energy security.

One of the more interesting questions raised in this collection is the degree to which the search for secure energy supplies is and should be seen as a competition.  The different authors of each chapter offer different perspectives on this question.  The U.S. is trying desperately to direct gas pipelines away from Iran, even though an Iranian route makes the most sense from a purely economic perspective.  Some in the U.S. are concerned that Chinese attempts to secure supply from Central Asia may undermine the potential supply scale needed for U.S. favored, Western directed pipeline projects.   China clearly does see the U.S. as a threat to its energy supplies, especially given the fact that approximately 80% percent of China’s imported oil flows through the straits of Malacca, an area where the U.S. currently enjoys naval superiority.  On the other hand, secure supplies of energy for China are good for the stability of global energy markets overall.  As one author notes “It would be short-sighted for Western governments and companies to see Chinese pipelines out of Central Asia as a threat rather than a possible opportunity.  If China is willing to pay a premium for diversity of supply from Central Asia, it enhances rather than harms global energy security.”

Reading through all of these papers, I am struck by the consist trends which all of them note regarding the significance of increased demand from Asia, the need to diversify supply to ensure security, and the challenges of collective action.  What is less clear is how we can address these collective action problems given the global political trends we face.  What do you think is the best way to turn what many view as a competition for resources and influence into an opportunity for us to cooperate towards our shared goals of economic prosperity and environmental balance?

Chinese Cleantech: Cooperation and Competition

Global energy innovation is not a zero sum game.  A technology that improves the efficiency of solar panels can be deployed anywhere regardless of who holds the patent and a country that can produce cheaper wind turbines means that more wind power can be installed globally for the same amount of money.  Despite the fact that everyone can benefit from global innovation, the spoils are clearly not divided evenly and there are winners and losers at the local level.  No country inspires more fear right now regarding who will reap most of the benefits of new developments in clean technology than China, which is clearly playing by some different rules than other countries.  Almost every day there is a new report in the U.S. press about how China is unfairly stealing intellectual property (IP) from other countries and using the appropriated technology to compete against the same international companies that gave them these ideas.  According to a recent Wall Street Journal article, appropriating foreign IP may actually be part of a coordinated state policy.  So how should we think about China’s role in the development of clean energy?

James Fallow presents a fascinating model in the Atlantic Monthly about how the U.S. and China have formed a mutually beneficial relationship regarding innovation in the energy sector.  Fallow focuses on “clean coal”, which he argues needs to be a focus of anyone serious about arresting climate change given the facts that the U.S. and China are both the largest emitters of greenhouse gases and the largest consumers of coal.  His basic argument is that although a lot of the best innovations are still coming from the U.S., America simply isn’t constructing that many new power plants compared to China.  American innovators benefit by having someone actually apply their ideas in a real world context on a meaningful scale and China is the perfect place to do that given the rapid rate at which they are building new sources of power of every kind.  The Chinese turn American experiments into real world applications, refine the idea, and the U.S. learns the ins and outs of the new ideas it has developed more rapidly than it would otherwise.  Everybody wins.

What makes people more nervous is when China comes up with the big ideas themselves.  It was recently announced at a Chinese Academy of Sciences meeting that their government is undertaking a program to build the world’s first thorium-fueled molten-salt nuclear reactors, which many refer to as “clean nuclear” power.  Although much of the initial research on generating energy from thorium was conducted at Oak Ridge National Laboratory in Tennessee during the 60s and 70s, the work was largely abandoned in favor of pursuing research on nuclear energy based on uranium.  If the Chinese are the first to create working power plants from this technology America could find itself importing much of the technology for clean nuclear in the future from China and paying Chinese companies to use their patents.

Regardless of the degree to which policy makers see China as a competitor or an opportunity, the best response is clear.  Continuing to push the envelope of innovation will benefit both individual countries and global energy consumers overall.  As one Japanese executive is quoted in the Financial Times as saying, “When we install a new process in China we know that some technical details will inevitably leak out to rivals. So we always have to make sure that when we introduce the latest generation of technology in an overseas plant we are working away on the next generation in our research laboratories in Japan.”  Whatever else is done to protect countries’ and companies’ intellectual property, the only way to stay ahead of the game is for everyone to do all they can to continue coming up with new ideas and technologies.

Cleantech Hacked!

It’s always fun when two of our favorite things come together.  Peanut butter and chocolate.  Mohammed Ali and George Foreman.  Pizza and beer.  This week saw a combination of two of my favorite topics to follow, cleantech and cybersecurity, with exciting stories worthy of a John LeCarre novel.

The Government Accountability Office (GAO), Congress’ watchdog agency that monitors the rest of the government, published an important report about the vulnerability of the smart grid to cyber-attack.  At the same time we rework our electrical grid making it more networked in order to improve energy efficiency we are also increasing the points of entry for those who would seek to do damage our energy infrastructure either for money, ideology, or to engage in warfare.  Perhaps the most significant demonstration of the damage a cyber-attack can inflict on energy infrastructure comes from what is reported to be a combined U.S.-Israeli attack on Iran that physically destroyed uranium enriching centrifuges by exploiting a vulnerability in the Siemens Process Control System 7, a system that is used in energy systems around the world.

The GAO report noted a number of significant challenges.  Many parts of the IT infrastructure being put into the smart grid lack even basic security features such as event logging, which would allow utilities to see when they are being probed or analyze an attack.  The National Institute of Standards and Technology (NIST), which was charged by Congress with developing cyber-security standards for the smart grid, failed to look at ways to safeguard against a combined physical and cyber-attack.  In many cases utilities are merely seeking to meet regulatory standards rather than think through ways to establish a comprehensive security system.  Part of the problem is that government entities often control whether utilities can seek to recoup investments in smart grid technology which leads to underinvestment in cyber security features.

In response to these challenges the GAO recommends that the NIST finalize its cyber-security standards and make sure they include issues that were not previously addressed.  They also recommended that the Federal Energy Regulatory Commission coordinate with state regulators “to periodically evaluate the extent to which utilities and manufacturers are following voluntary interoperability and cyber-security standards and develop strategies for addressing any gaps in compliance with standards that are identified as a result of this evaluation.”  Both agencies agreed with the recommendations.  Retrofitting infrastructure with improved cyber-security features is obviously more difficult and expensive than building it right the first time so hopefully utilities and the government regulators can get their act together as soon as possible before much more smart grid build out takes place without the needed features.

In a creative heist that sounds like something out of Ocean’s Eleven cyber thieves have stolen about $38 million worth of carbon emission credits from the online EU Emissions Trading Scheme (ETS) platform.  The ETS, which traded around $122 billion worth of credits in 2010, was temporarily shut down in response to the thefts.  Member states were urged to improve security of the trading platform last year after a series of smaller frauds but a number of governments failed to do so citing a lack of money for the upgrades.  Analysts have pointed out that one silver lining to all of this is that it demonstrates that people understand that carbon credits are something with real value, at least in Europe.  Pike research in a report about Electric Vehicle Cyber Security shows how similar fraud could potentially be perpetrated through electric vehicle charging infrastructure.

The common theme through all of these reports is that as our energy infrastructure becomes more networked and more high value transactions related to energy take place online we are going to see more criminal activity and perhaps cyber-warfare taking place through our energy systems.  And unless we start taking the design and implementation of security standards throughout this infrastructure seriously we are going to be reading a lot more about spectacular energy related hi-jinks in newspapers and in blogs just like this one.