What’s next for energy?
Industry gears up for new opportunities, but wants clearer direction on state and federal rules
- November 29, 2010
It’s a transformational time in the energy industry, with new opportunities taking shape. What’s not clear, though, is which technology and resources will gain ground — and development dollars — while others fall by the wayside.
So it’s no wonder that Virginia’s first energy conference in October drew nearly 1,000 people to Richmond. “Everyone’s trying to figure it out — what to do next,” says Mary Doswell, senior vice president for Alternative Energy Solutions for Dominion Resources Services Inc., a unit of Dominion Resources, Virginia’s largest energy supplier.
Doswell is heading up a $35 million, 4-megawatt solar project in Halifax County. If it gains regulatory approval, it would be the largest photovoltaic power plant in Virginia. The Virginia Tobacco Commission already has committed $5 million to the pilot project, in part because it will bring 100 construction jobs to a former tobacco region and 150 permanent jobs once the facility is built.
Solar is one of many renewable sources ripe for investment. Northrop Grumman Corp.’s Newport News shipyard recently formed a partnership with a Spanish energy firm to produce offshore wind turbines, with help from a startup team of 40 engineers in Hampton Roads. Even Google has thrown its hat in the energy ring. It plans to invest $5 billion in an underwater transmission backbone for offshore wind farms along the Atlantic coastline that would run from New Jersey to Norfolk, with a connection point in Virginia.
While Congress is yet to vote on a national policy regarding energy efficiency and greenhouse gases, there’s a growing momentum in Virginia to take charge of its energy destiny. The goal? To create enough new generation to meet future demand. That means energy suppliers won’t need to import nearly 25 percent of Virginia’s electricity from the wholesale market, which makes consumers and businesses vulnerable to volatile pricing.
The challenge, though, is how best to get there. Virginia’s suppliers continue to invest in traditional sources, such as coal and natural gas, as well as alternatives, which currently provide only about 3 percent of the state’s power.
Getting the mix right is important. At stake is Virginia’s ability to provide reliable, affordable energy — a big carrot in attracting new business. But the state and the industry need to move fast to set up the supply chains and work force needed to tap into an emerging new energy economy. “The next step is simple,” says Joe Davis, senior vice president for Artemis Strategies, a Washington, D.C.-based government and public relations firm. “Get politicians and regulators on board with an agenda to create an environment that allows the energy industry to grow and thrive. Investment won’t follow if no one knows what the rules are.”
Some say Virginia already is late to the party. Just before Gov. Bob McDonnell’s energy conference, the Sierra Club released a report that says Virginia is losing the competition for clean energy jobs to neighboring states. The environmental group notes that Virginia is the only mid-Atlantic state without a mandatory renewable portfolio standard (RPS), a market driver for the development of alternative energy.
Already in place in 24 states, an RPS requires that a certain percentage of energy generation come from renewable sources such as solar, wind and biomass by a given date. According to the U.S. Department of Energy, North Carolina will have an RPS of 12.5 percent by 2021. Maryland passed legislation this spring that will accelerate its standard of 20 percent by 2022. Delaware was the first state to commit to building offshore wind turbines with a power purchase agreement for a 450-megawatt wind farm off its coast — an agreement some say is a direct result of its RPS of 20 percent by 2019. “Other states are offering bold new initiatives,” says Glen Besa, Virginia chapter director of the Sierra Club.
By comparison, Virginia is among five states with a voluntary goal. Its renewable energy target is 15 percent of non-nuclear electric production from alternative sources by 2025, with utilities eligible to receive an enhanced rate of return for meeting the standard.
The Sierra Club report urges McDonnell to support mandatory goals for renewable energy and efficiency as opposed to his fierce pursuit of offshore drilling, which could be hard to pull off because of federal regulatory changes stemming from the massive oil spill in the Gulf of Mexico this spring.
Terry McAuliffe, chairman of GreenTech Automotive and a Democratic gubernatorial candidate last year (and some say a likely contender in 2013), supports a standard for Virginia of 25 percent from renewable sources by 2025. “A strong, renewable energy standard creates a market for new energy sources, provides much-needed certainty for investors and allows non-fossil-fuel-based energy sources to compete on a level playing field with more traditional fuels,” he wrote recently in an op-ed piece for the Richmond Times Dispatch.
Cody Nystrom, a senior associate with SJF Ventures, a venture capital fund with an office in Richmond, pointed out during the conference that clean technology is the No. 1 investment area now for venture capital. During the past five years, she said about $400 million per state has gone into states with an RPS, with about 19 companies being funded per state. In Virginia, about $325 million of venture capital money has come in, largely for generation technology at five companies. Virginia’s access to PJM, a regional transmission organization serving it and 12 other states, is also a plus for venture capital, she added, because its gives alternative providers access to the grid and the opportunity to sell at premium prices.
Another reason behind the urgency to move Virginia forward is the potential of green energy jobs. The Sierra Club report says that development of land-based wind energy here could produce more than 3,000 jobs during the construction phase and more than 400 jobs long-term. The potential for offshore wind is greater: more than 10,000 full-time jobs, according to an April 2010 study by the Virginia Coastal Energy Research Consortium. That number is higher than the number of permanent jobs, 1,900, expected to come from offshore production of oil and gas.
Turning Virginia into an East Coast energy leader is one of McDonnell’s stated goals, but don’t look for an RPS from his Republican administration. “We believe in free markets and positive incentives,” says Maureen Matsen, deputy secretary for natural resources and the governor’s senior adviser on energy. Legislation in 2007 that reregulated electricity after a failed attempt at deregulation provided incentives for utilities to include renewables in their portfolios, she notes, while also providing protections for ratepayers.
“Our low rates are one of the things that allow us to attract business. To increase energy costs, and that’s what a mandatory RPS would do, makes no sense at all. If you force them into your portfolio, it will increase costs, because renewables cost more than other sources.”
Even if Virginia did pass a standard, Matsen adds, “It’s still a seven- to nine-year permitting process at the federal level. So how does that advance the offshore wind equation?”
Indeed, some say Uncle Sam’s requirements for lengthy reviews and environmental studies are slowing the development of alternative sources, while other countries forge ahead.
Still, McDonnell and his staff remain convinced that Virginia is well positioned to emerge a leader. It offers a mid-Atlantic location and an abundance of diverse energy sources from coal to uranium, a growing cluster of nuclear companies in Lynchburg and rich reserves of oil and gas off its coastline. Another advantage is Hampton Road’s shipbuilding industry, which would provide the infrastructure and industrial-trained work force needed to support a new offshore wind industry.
“That’s why it was valuable to be together at the conference and to explore which sectors have the greatest potential,” says Matsen. “If we’re going to make an investment and support legislation, or come up with some kind of initiative … where do we get the most bang for the buck in terms of energy for the future and news jobs and tax revenue?”
Judging from the feedback she’s received, the conference gave people a place to make connections. “Folks were pleased, because it was an opportunity to talk business … In fact, there are ideas and projects that might well come out of the conference.”