Folks,

In this week’s Energy and Capital article, I review some recent events in California’s quest for renewable energy and the fight against global warming.

In many ways, the rest of the country tends to follow California’s example, so this should be instructive to like-minded individuals everywhere.

All Busy on the Western Front

2007-05-25

By Chris Nelder

This week I bring you an update from the front lines of the fight against global warming.

The front lines of California, my home, which I’m proud to say has often set the standard for the rest of the country when it comes to cleaner air and renewable energy.

She beckons from her beaches, like a lighthouse pointed toward land instead of the sea, saying "This way, this way!"

We now have the most aggressive RPS (renewable portfolio standard) in the country. If we were a country of our own, we would rank third in the world for solar energy. We currently have the nation’s biggest solar incentive program, the $3.2 billion "Million Solar Roofs" program.

And, as I have reported previously, we’re taking the fight to the EPA and the Bush administration to let us set our own, higher standards for air quality, and regulate CO2 emissions.

Related articles on EPA and RPS: · EPA Refuses and Loses, but Business Chooses · Climb Aboard the RPS Express

But getting here hasn’t been easy. And it’s still a muddled struggle.

In 2002, California established its RPS, which requires an annual increase in renewable generation by the utilities equivalent to at least 1% of sales, to achieve 20% by 2017.

Then the California Public Utilities Commission moved the goal up to 20% by 2010, which the legislature made into law.

Then that was modified as of January 1, 2007, by another bill that set the maximum RPS goal at 20% . . . and also prohibited the CPUC from setting a higher standard! (And boy wouldn’t I like to know exactly how that one got slipped in there.)

Now we have a new bill that raises the requirement to 33% by 2020, consistent with Governor Schwarzenegger’s stated goal.

That would also meet the requirements of the California Global Warming Solutions Act of 2006, which seeks to roll back the state’s greenhouse gas emissions to 1990 levels by 2020.

But wait, there’s more! Not only do you get the RPS standard, but now there is yet another bill in the works. It seeks to remove some of the obstacles to developing renewable energy that have been unintended consequences of all the previous legislative maneuvering!

Because–surprise, surprise–it is now proving difficult to satisfy all the rules and still meet the goals.

And don’t even get me started on how the CPUC and the legislature have managed to almost completely ruin the residential solar market for existing homes here with the new set of rules and programs that went into place this year. Some solar contractors who have been at it for decades don’t even want to be in the business anymore, it’s gotten so heinously complex to navigate the intricacies of the various incentive programs and paperwork requirements. Trust me–it’s out of control.

But I digress. Let’s look at the bright side.

Since our RPS standards were established, the state’s investor-owned utilities have signed contracts to buy between 2,935 and 4,433 megawatts (MW) of renewable energy capacity (depending on build-out options). That’s between 9% and14% of all electricity used in the state!

In their latest meeting, the CPUC was to approve some 20-year power purchase agreements (PPAs) between Southern California Edison and the Caithness Corporation for 204 megawatts of generation from geothermal sources and nearly 70 megawatts from wind.

(Incidentally, they were also to consider whether they could, and should, lift the suspension of the "direct access" purchasing rules of the deregulated energy market. Those are the rules that led to the California electricity crisis of 2001, when we got Enroned. Could be a good thing if they do it right . . . or it could be the same old crisis all over again if they don’t.)

Maybe that’s why the geothermal sector has really been taking off lately–they’ve got to get that clean energy from somewhere, and there’s a vast resource of it right next door in Nevada that’s ripe for development and attracting some big money.

As I mentioned in Monday’s article, the new United Technologies (UTX) geothermal generators being deployed by Raser Technologies (RZ), along with the latter’s exciting new Symetron electromagnetic motor system, could usher in a new era of plug-in hybrid vehicles charged by clean, green geothermal power.

Well, just two days later, Raser announced that it had won the Frost & Sullivan 2007 Product Innovation of the Year Award in the Industrial and Commercial Motors and Drive Category for the Symetron system.

I hope you caught that one, because Raser shot up 27% over the next day and a half!

But that’s not the only hot geothermal play. Consider a small geothermal company that’s been in the Green Chip Stocks portfolio since August 2006.

That stock shot up 94% just in the last nine weeks!

You can find out more about it here .

And yesterday Ormat Technologies (ORA:NYSE) announced a new 30 MW geothermal PPA with Nevada Power Company. The deal will help the utility’s parent company, Sierra Pacific Resources (SRP), meet its RPS of 12% by 2009.

Like the UTC units, this project will use a state-of-the-art Organic Rankine Cycle air-cooled binary or combined steam/binary power plant, which re-injects 100% of all geothermal fluid produced while consuming no water or chemicals. And it runs all the time-24-7. How cool is that?

I can only surmise that investors have read the writing on the wall: California is now required by law to increase its renewable generation.

But it can only build out solar and wind so fast.

And we’re shooting down plans for liquefied natural gas (LNG) import facilities almost as fast as the proposals come in (more on that in a moment).

Since half of California’s electricity comes from natural gas, there’s a real squeeze play going on here.

And the winner could be geothermal . . . little ol’ geothermal, the wallflower of renewable energy, hardly noticed, yet able to generate the cleanest and greenest power around on one tenth of the footprint of solar, a virtually untapped resource literally below our feet.

Now let’s return to the ongoing saga over the proposed new LNG import facilities off the coast.

Things have not been going well for them. A week ago, Governor Schwarzenegger concurred with the previous decision by the State Lands Commission and California Coastal Commission and vetoed plans by BHP Billiton to build an $800 million LNG storage facility and processing plant off the coast of Malibu.

That plant that would’ve sported three giant, 16-story high, 73-million gallon storage tanks, sticking up like three giant space teats out on the ocean, spoiling the view for about 50 miles’ worth of prime Southern California beach from Malibu to Oxnard.

And what was the Governator’s reason?

"[A]ny LNG import facility must meet the strict environmental standards California demands to continue to improve our air quality, protect our coast and preserve our marine environment. The Cabrillo Port LNG project, as designed, fails to meet that test."

No doubt one of his primary concerns was the emissions of the plant, which would have been a step backward from his commitment to reduce the greenhouse gas and air pollutants of California.

"If approved, this LNG project would have emitted up to 200 tons of smog-producing pollutants into the compromised air basins of Ventura and Los Angeles Counties and up to 25 million tons of new life-cycle greenhouse gas emissions each year," said Susan Jordan, director of the California Coastal Protection Network, the nonprofit leading the opposition to LNG.

I’ll take geothermal energy’s zero smog and zero pollutants over that, any day.

Apparently, savvy investors agree.

Until next time,

–Chris