News that investor Carl Icahn will buy Dynergy, a Houston-based energy supplier and trader (think Pepsi to Enron's Coke) drew yawns from the financial press.

 

Dynegy owns 9 coal and gas-fired generation plants, mostly in California and Illinois. After getting burned in trading, and nearly going bankrupt, it became a collection of parts. That's how Wall Street evaluated it. Most coverage focused on a failed bid from Blackstone Group, which basically wanted to sell the company in pieces.

 

If Icahn has a play it's assumed to be a bet on economic growth, and higher energy prices, that might let him sell the remaining assets at a profit.

 

But what if he has something else in mind? Dynegy began de-emphasizing coal last year. Trading seemed discredited by the Enron debacle, by charges of price manipulation.

 

Still, if Icahn has patience, and access to capital, he could help Dynegy do what Enron only pretended to do, and what the grid needs most right now. That is, create a serious marketplace for electrical capacity.

 

Enron was something of a fraud from the start because you couldn't really store electricity. You couldn't bank it and wait on a higher price. The only way to adjust capacity is to turn power plants on-and-off, which is why coal and gas are so beloved by utility executives. Both types of plants are easy to turn on-and-off.

 

Storage, whether through water, air, or hydrogen, is the key to grid flexibility. What it lacks is financial heft.

 

Carl Icahn has financial heft.


The best way to build both an active electricity market and a renewable fuels market is through storage technology. Boone Pickens' wind farm scam never had a chance because it depended on the construction of new power lines, which would lose half that power on its way to market and couldn't really store that power anyway.

 

Dynegy's transmission contracts and utility industry connections let Icahn in on the ground floor of the storage opportunity. Storage capacity would allow the kind of price and supply arbitrage necessary for a real market to develop. The fact that it would also give renewables a serious utility market opportunity is a bonus.

 

But it's a nice bonus.

 

Companies like First Solar are scaling up factories. First Solar will build multiple gigawatts of capacity next year. Abound plans to build a plant that can create 640 MW. 


That's just two American companies and one technology, thin film solar. Now consider all the companies doing other types of solar, all the wind companies, all the geothermal, and the fact that this is a global opportunity, just as storage is a global opportunity.

 

Buy and build out electrical storage, make renewables an integral part of the grid, arbitrage prices, and Icahn can make a fortune off Dynegy.

 

Or he can sell off the pieces when the market looks better and settle for pennies.