Utilities can transform the world’s energy economy.
In the earliest written legends of King Arthur and Camelot, Perceval was a knight of the round table. He was one of the grail knights, who quested for the mystical Holy Grail in hopes of returning Britain to a state of grace and prosperity. Perceval’s sagas are largely forgotten today, but at least one of them serves as a useful metaphor for an industry seeking the proverbial Holy Grail of clean-energy technology—specifically, the tale of Perceval and the Fisher King.
While on his quest, in the midst of a barren wasteland, Perceval meets a nobleman called the Fisher King. The king is wounded—just like his domain—yet he invites Perceval to supper at his castle. During the feast, the Fisher King presents Perceval with an engraved sword. Then Perceval witnesses a parade of young people bearing strange relics—including a lance that oozes blood, a candelabrum and a jeweled cup.
Perceval says nothing, because he finds this procession bewildering, and fears to seem discourteous to his host. But after he leaves the castle, Perceval learns the cup was indeed the Holy Grail. If only he had asked a question about it, the grail would have healed the wounded king and restored vitality to the land.
The Fisher King legend is one of many mythic stories in which a hero faces some kind of test, whose outcome determines the fate of a suffering kingdom. But what differentiates Perceval’s tale—and makes it pertinent for the utility industry today—is the nature of the challenge, and the manner of the hero’s failure. For want of a single question, Perceval missed his opportunity to secure the Holy Grail, and heal an ailing world.
The importance of transforming the global energy economy can hardly be overstated. In a very real sense, the fate of the world might depend on the outcome of the challenge facing the world’s energy industries. As if the Iraq war and melting polar ice weren’t sufficient warning signs, we now see a third harbinger of what’s to come: hunger.
The United Nations released a report in April detailing the dire state of the world’s food supply (Synthesis Report of the International Assessment of Agricultural Knowledge, Science and Technology for Development). At the same time, rising food prices in Haiti sparked rioting in the streets, and Egypt’s government deployed troops and police to quash protests over skyrocketing bread prices.
Hunger and unrest likely will spread as the world’s human population expands—and as energy resources become increasingly scarce and expensive. A food crisis is really an energy crisis in disguise, because a huge share of our energy output is dedicated to producing food.
As Richard Manning pointed out in, “The Oil We Eat: Following the Food Chain Back to Iraq,” (Harper’s, February 2004), “All together the food-processing industry in the United States uses about 10 calories of fossil-fuel energy for every calorie of food energy it produces.” And as the U.N. report indicated, growing use of food crops for biofuel feedstocks is exacerbating the problem by further driving up the cost of food.
While we don’t burn much oil in power plants anymore, all energy sources can be considered proxies for “the Prize.” Long-term price trends move in concert for all fossil fuels, and electricity is playing an increasingly important role in the global energy challenge.
With the right technologies in place, we could be using electricity—produced from a wide variety of energy sources—to power many of the processes that now require petroleum. Even incremental shifts away from petroleum can make a significant difference, in terms of energy costs and dependence on fuel imports, and just might start a wholesale transformation.
But that will require the utility industry to step up and accept a bigger challenge than it’s faced since electrification in the early 20th century. Hearkening back to Perceval and the Fisher King, it requires the industry to accept the mantle of hero—and to ask the questions that will allow the green-energy transformation to happen.
This transformation will require a major commitment to research, development and commercialization of new technologies (see “Cultivating Clean Tech”). It also will require a new cooperative partnership among utilities, policy makers and green-energy companies, to allow utility shareholders to benefit from a greener utility business model. And that cooperation might be the most difficult aspect of the green revolution, because it requires a cultural shift.
Since the 1980s, many utility companies have viewed green-energy solutions—such as renewable energy and conservation—as bitter pills shoved down their throats by do-gooder politicians. But this viewpoint merely reflects the harsh realities they’ve faced.
First, the Public Utility Regulatory Policies Act (PURPA) and integrated resource planning (IRP) forced utilities to absorb the costs of green energy, rather than rewarding them for making those investments. This backward approach made life more difficult for utilities—both financially and operationally—and left a bad taste in their mouths.
Next, the structure of the renewable production tax credit (PTC) has driven utilities to buy the output of renewable energy plants rather than to build those projects themselves and add them to the rate base. Utilities increasingly are investing in renewable energy plants anyway, but even today a utility offtaker can claim only 50 percent of the tax benefits from the renewable power it buys or generates for its own use. While power purchase agreements (PPA) can transfer some of these benefits as a function of prices, the PTC’s structure has sent utilities a clear message: They shouldn’t profit from the green energy revolution.
Finally, the PTC itself has held back the renewable energy industry. It has obscured the true value of renewable energy in the market, by discouraging utilities from entering PPAs or building renewable capacity when PTC renewal looks uncertain—as it invariably does every couple of years. Irrespective of whether prices would be attractive even without the PTC, utilities can’t reasonably commit to buy power at prices that likely will get cheaper after Congress finally gets around to renewing the PTC. (And utilities aren’t pushing very hard to change this situation, because it’s giving them taxpayer-subsidized green energy.)
In short, U.S. policies give utilities every reason to view green energy as a political tool at best—and a tree-hugger conspiracy at worst. This is frustrating for utility executives and regulators who view smart (and green) electricity services as a vital solution for the world’s energy challenges.
Utilities need to stop viewing green energy and conservation as a threat to their businesses—and green-energy companies need to stop viewing utilities as villains. Instead, the entire industry needs to ask tough questions about policy structures that are hindering the green-energy transformation. Likewise, policy makers need to accept the political challenge this transformation represents. Transformation is never cheap, and political leadership is necessary to ensure the costs incurred are lower than the costs of complacency.
Creating a greener regulatory compact will require all stakeholders to demonstrate courage and wisdom in the face of major changes. But with policy structures that ensure adequate R&D support and reward utilities for pursuing green business strategies, the U.S. electricity industry can help transform the world’s energy economy into something more cost effective, sustainable and peaceful. The Holy Grail is within reach, if we have the courage to ask the right questions.