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Technology Corridor

Will state budget shortfalls threaten tax credits and subsidies?
Fortnightly Magazine - January 1 2003

34 percent in 2001 to 11.2 million square feet and had a value of $32.4 million. Total value (domestic shipments plus exports) rose 13 percent to $305 million.

Investment in solar collectors and photovoltaics for the home and small businesses is at least as much about environmental awareness, lifestyle, quality of life and advances in the technology of building as it is about the cost of non-solar energy. Thus, the first-ever Solar Decathlon (SD) in October 2002 on the Mall in Washington, D.C., attracted an enormous crowd.

Fourteen colleges from across the United States and Puerto Rico competed at the SD by showing off the solar technology employed within houses they constructed on the mall. The equipment and building technologies used supported all the power, heat and cooling needs of the households, with enough power left over to power electric vehicles used to move around and beyond the site.

Most schools were represented by more than a dozen students who interacted with the public, explaining the features of the home and the equipment. Several emphasized that most everything used to support solar energy service could be obtained off the shelf.

Solar demonstrations such as the SD and supporting material offered on Web sites and at Home Depots, low interest rates and high natural gas prices are expected to contribute to increased investments in solar technologies in 2002.

Distributed Microturbines Offer Significant Opportunities for Utilities

The ordering of micro-turbines and micro-cogenerators in 2002 was negatively influenced by corporate restructuring taking place in the wholesale part of the natural gas and power business, and by the expectation that wholesale natural gas prices will stay high relative to wholesale power prices over the next several years. Yet, distributed microturbines offer utilities and other retailers important opportunities to defer expenditures on major expansion of generation capacity and supporting infrastructure. This equipment allows companies to scale capacity upward in steps as uncertainties in additional loads get reduced. The greater the uncertainty associated with the timing and amount of additional loads and the price of power and price of the generation fuel used to generate the power, the greater the value associated with distributed technologies.

Uncertainty warns against supporting major expansions in generation capacity. The uncertainty and the ability or option to defer major expenditures by utilities can be translated into a dollar value calculation by using real option approaches to investment valuation rather than the computationally convenient net present value (NPV) approach. NPV calculations usually assume the uncertainty away and are unrealistic for that reason. The real world is represented by calculating real option value associated with the uncertainty involving the value of additional investments. Yet, real option calculations aren't used much even though important commissions have required utilities to consider and prepare requests for proposals for distributed generation as part of the utility planning process.

The problem is that the real option approach requires the estimation of statistics and models that are much more complicated than an NPV calculation. This is particularly important in light of Enron, because models that managers and the investment community did