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The Energy Tech Chronicles: Will Bust Turn to Boom?

Overcoming many obstacles, energy technology continues to have potential.
Fortnightly Magazine - February 15 2002

versus available grid power (typically measured on a per kilowatt basis). One way to avoid this calculus is, as discussed earlier, to consider the value of electricity given its reliability. A second way is to consider the value of electricity in areas that do not have an electric grid.

It is estimated that more than 2 billion people worldwide (755 million homes) do not have access to electricity. The Central Intelligence Agency projects that over the next 15 years, sustained economic growth, along with population increases, will drive a nearly 50 percent increase in demand for energy worldwide. And even in those countries, or areas, with electricity, other problems exist. For example, the World Bank estimates that urban areas of China lose 20 percent of potential economic output due to dirty energy's health effects.

Rather, it will be much more efficient and economical to rely on distributed technologies. Running power lines to a remote village does not make sense. BP Solar, through a project led by the Philippine Department of Agrarian Reform, used solar power to promote electricity to 400,000 residents living in 150 isolated villages in the Philippines. And in India, it is estimated that 1.2 gigawatts of wind turbine capacity were installed in 2000. Just as mobile phone adoption rates are higher in countries without an existing telephonic infrastructure, DG and other energy technologies will have higher adoption rates in countries without electric grids.

Government Spending: A Lifeline for Energy Tech?

Increased environmental regulation, as well as federal and state government spending, are also driving opportunities in energy technology.

While government regulation is never sufficient (given its unpredictability) to create solid investment opportunity, environmental regulations are helpful to energy technology companies. Although the U.S. is not a signatory to the Kyoto Protocol, there is no dispute that the environmental concerns are a critical problem, both domestically and globally. Federal clean water, clean air, and particulate matter emission regulations all contain restrictions spurring clean fuel technologies, and certain states have also adopted pro-technology regulations. California requires that 2 percent of the vehicles sold in the state in 2003 have zero emissions, and 8 percent have less pollution. New York is considering a proposal that by 2006 would require a percentage of cars sold in the state to have zero emissions.

The Problem:
Why Energy Tech Hasn't Taken Off

Concerns about energy technology companies have been caused by four factors:

1.The California Deregulation Debacle

One of the catalysts for investor interest in energy technology has been the promise of deregulation. As doubts about deregulation have grown as a result of the California crisis, so too have concerns about energy technology companies.

2. Lower Energy Prices

A second catalyst for investor interest in energy technology companies was anticipation of high electricity prices. The crisis in California focused many on the opportunities of new technologies to provide cheaper power. As electric prices have fallen, this opportunity is seen as less compelling.

In March 2001, electricity spot prices in the Western United States were $600 to $700 a megawatt. By summer, prices had dropped to