The Interview: Leadership Roundtable

Karl Gawell has been the executive director of the Geothermal Energy Association since 1997. During that time, he's helped oversee a renewed interest for geothermal among policymakers and across the business community. He, too, was honored with a leadership award at the 2011 conference.

Kurt Yeager is the former president of the Electric Power Research Institute and is executive director of the Galvin Electricity Initiative, which seeks to promote an intelligent grid and regulatory reform to further empower electricity consumers. He was the Keynote Speaker at this year's conference.

The Leadership Roundtable was moderated by Stephen Lacey, a Jesse H. Neal Award-winning podcast editor and producer for RenewableEnergyWorld.com.

Stephen Lacey: In this roundtable we are going to talk about what the path forward will look like. The gentlemen represent a deep diverse history in the energy sector and we're going to ask them to share their vision for how we get from where we are today to there, which is cost competitiveness and where renewables are just energy and the intelligent grid is just the grid.

I want to start with policy to set the stage. We have significant budget cuts that are on the table that may impact renewable energy programs. We have a more conservative House and a semi-more conservative Senate, which may impact our ability to get a long-term target for renewables. At the same time we have a supportive administration and the price of oil is skyrocketing. How are all those factors playing into one another?

Gawell: Washington is at a fork in the road, but I'm not sure what the direction is yet. I think people look at what's happening and say we have a Republican leadership in the House and a big mandate to address the federal deficit, which none of us can argue is not a real problem. But the question is where are they going to go on energy? And I don't think that's been decided yet. There is some partisan fighting here and there.

I come back to the 2005 energy bill that was sponsored by Pete Domenici (R-N.M.) in the Senate. The Republican showed that we've always had strong bipartisan support for renewable energy and I can't believe that is totally gone. I can't believe that we've gotten to the situation where the Republicans are now the party of coal and the Democrats are the party of renewables.

Some day we are going to have to have a real energy bill that really does something about the transmission system in this country and that really does something about these long-term energy policies. But we are not going to get there without some really fundamental changes.

Lacey: There are generally two schools of thought that have been playing out over the past year: one is we need to be as aggressive as possible, we need to push for carbon cap and trade trade as a renewable energy target. Another is let's redeploy funds on a state and local level. Let's focus on the areas where renewables have traditionally done best, which is the local level. Karl, is there a contradiction between the two?

Gawell: I don't think there is room to give up on either. The states are a tremendous authority and the renewable standards are still driving the market. The federal government has tremendous leverage across the energy markets. We have to be moving forward on both.

The problem with energy is that it tends not to be driven by election results as much as by crisis. We have talked about improving the economy, improving the environment, addressing the energy problems of our country. We haven't dealt with any of those yet. Our energy infrastructure–our national infrastructure–is deteriorating. When are we going to take leadership in new energy technology?

Environmentally, should we wait for the next climate issue to come up or the next bad weather event to drive a political crisis atmosphere? And talk about energy security, look at the map from Morocco to Pakistan. The Arab world is in turmoil. When are we going to finally address the issue of energy security?

Thirty years ago or more we founded the Department of Energy. It was Gerald Ford who talked about energy independence. We are no closer. We are further away from it than ever. That's why I say we still haven't made that fundamental shift. Whether it is Democrat or Republican in Congress, we have to step up to the plate and we really need to make these tough decisions.

Lacey: Jim Dehlsen, can you speak to how the stop-and-start nature of federal incentives impacts the wind business?

Dehlsen: The approach that we've always taken is to focus on driving down the cost of energy. And so the part that has worked well at the governmental level has been the support of DOE (Department of Energy) for new technology. That's really been a blessing for this country; it's really what caused GE to have a company. It's the fact that there was money up front to help drive early technology to commercialization. So I am encouraged from that standpoint.

I think that America can have leadership in technology. Will the market be there or will we have to compete in a market that isn't being honest about the cost of energy? Until we can reconcile the cost of externalities, I think it is going to be a tough slide. And I think for U.S. technology companies to really be able to advance we are going to have to look to other markets.

Lacey: Can a case be made that a slowdown like we've seen in the wind industry for the last year can be good for the industry because it forces companies to go back to basics, focus on R&D, drive down the cost of energy even further to be competitive with, say, depressed natural gas prices?

Dehlsen: For the wind industry that is hard-drivingand extremely competitive to be hammered every two or three years is a folly. America funded the birth of the wind industry. And we've funded it on and off ever since. But we've managed to lose a whole industry to the rest of the world. It's a several-hundred-billion-dollar piece of business and tens of thousands of people are employed in other parts of the world rather than here because we haven't had continuity in policy.

Lacey: When Chinese companies really start breaking out of the fast-growing Chinese market, do European and American companies have something to worry about?

Dehlsen: Absolutely. Where I think we can do well is to lead with technology. And ultimately all of this comes down to bringing down the cost of energy and we can do that pretty well. We did that in the '90s and it took Europeans well into mid-2005 before they really started to focus on technology. I think that we can innovate through this next wave.

Lacey: What do we need to do encourage energy innovation rather than just develop programs that you say are not working effectively?

Yeager: First and foremost you have to open the market so entrepreneurial innovators at all levels can really bring forward and profit from their technologies and the market chooses the winners. It's not chosen top down, it is chosen by the market. That is how we have basically developed every industry in this country successfully. And I believe that is why you have to open that marketplace, which today is effectively closed. That to me is the fundamental.

Lacey: So for you this is not necessarily a technological issue as much as it is a regulatory issue?

Yeager: It is a legislative issue. The regulations will not change at the regulatory level by and large. They will change through legislation. One of our initiatives beyond demonstrating state of the art distributed generation in micro-grids is to work with states and communities in transforming the legislation.

For example, you cannot connect buildings across the street without it becoming a utility issue, which is total nonsense. Communities should be able to have long-term financing that encourages the kind of investment that is going to be needed here. The returns are so great under any circumstance that it is the height of stupidity not to enable this to happen.

Utilities are the essential engine in the transformation of this country in every dimension through electricity, but it is their business model that I am absolutely opposed to. Their business model must be transformed, so they are encouraged for innovation.

Lacey: The geothermal industry has faced a number of challenges because the financial community to a large degree has been unwilling to step up and finance the early phases of projects. Are the capital markets willing to embrace projects that are in the works today in geothermal?

Gawell: With the economy the way it has been, the capital markets have been acting like utilities: No risk whatsoever. And what's kept things alive has been the tax grant program, which has allowed companies to buy down debt quickly, and the loan guarantee program, although it has taken forever to get the loan guarantee program going.

There are things that could be done that simply come down to changing the rules. We have a very archaic set of rules governing the utilities in this country. Not just the utilities themselves but the transmission system and those have got to change.

That comes down to the worst of all problems: a turf battle. John Dingle (D-Mich.), the Chairman of the House energy committee when I was working for a member of the committee, one day looked at me, wagged his finger and said "Carl, just remember one thing, there's nothing more important than turf!"

We need to address a tax system that discourages a capital investment because renewables are all capital investments. And we need to talk about some way to externalize some of these other costs people pay. Until we can do those kinds of things and get to the meat of the rules on utility systems we are going to limp along and continue to make progress a year at a time.

Audience Question: How do we make the business case that ties renewable energy with job creation?

Yeager: Grid transformation is the greatest potential job creator that we have in this country both directly and indirectly. This country is the greatest exporter of jobs today in the world, but that is not all due to electricity. If I am running a digital company, this country would not be the country that I would want to build a new facility in, because it's going to cost me a lot of extra money to keep the system running and I am going to have to pay very high labor rates. So I am going to go somewhere where I have the combination the other way. To me this is all about job creation.

Lacey: Karl, you came out with a report on jobs in last fall. What was your case?

Gawell: As you know, this is infrastructure and all of these projects are very labor intensive. In fact, what we are trading off is capital investment (which means building these things and creating those jobs) against fuel costs. The jobs message is coming across, but what people don't understand is that this message gets cross-cutted with the issue of international competiveness.

If you want the jobs here, if you want the factories here, if you want people to build new projects here, then our country's got to make it a priority. Because these are global markets now; the investment dollar behind clean technologies is totally a global market. They're investing in China, they're investing in Germany; they'll take the money and go somewhere else. They don't feel our country has a commitment in moving forward.

Lacey: In 2009 and 2010 lower demand for power made it very difficult for wind project owners to sign project purchase agreements. How has that impacted the wind industry? What will natural gas prices do going forward with the industry?

Dehlsen: We are assuming that natural gas will be in the $5 or $6 range going forward. Wind is pretty close to being able to compete at that level. But you are not going to be able to get any kind of scale doing that. Yes, you will be doing projects, but to really get the transformation that we are talking about, you need to really make it a pricing mechanism that allows the industry to expand vigorously. The only way to get there is to recognize the cost of carbon.

Audience Question: With respect to the intelligent grid, do you think much of the emphasis of the last couple of years towards smart grid could be counterproductive with more infrastructure that is AC based, or should we think for awhile about how we need to construct this intelligent grid?

Yeager: Most of the transformation that we are talking about as being "intelligent" is moving from analog to electronic control. That will not be a discouragement for direct current. There's a lot of direct current already, but it has to go back and forth to AC and that's where we can begin to make a major transformation fairly quickly and quite cost effectively. That would be a great advantage for all the digital equipment that we have in our buildings and in our homes. It certainly could be completed in a decade, not in 40 or 50 years. We could convert that quite quickly if we chose to do so.

Audience Question: How can you change the utility business models from a government perspective?

Yeager: For any business the primary focus is to make money for their stockholders. The rules in most businesses and in an open market business means they make more money for stockholders by providing better service to consumers. Not so in electricity. The rules have to be changed to be sure that the stockholder and the consumer are on the same page. But you have to write the rules so neither the stockholder nor the consumer is penalized.

What we need are federal standards that hold every state accountable to achieve certain capabilities of empowerment, reliability, efficiency and cleanliness. And every state has to meet those standards. That is not the case today. Until that is done, we are just dealing with a total mess.

Lacey: How is the geothermal industry's relationship with utilities in states that have renewable portfolio standards? How much are they embracing geothermal?

Gawell: I think all renewables have changed dramatically over the last 20 years. PURPA (the Public Utilities Regulatory Policies Act) in 1978 created very hostile relationships between independent producers who produced most of the cogeneration renewable power and the utility sector. Today that is changing dramatically: NV Energy is a member of my board of directors and you see major utilities involved in the wind industry and other renewable industries, as well.

Frankly, the only long-term energy policies we have in this country in the electricity sector are state renewable standards because most states have them and set some kind of horizon. That is something the states need to be commended for.

Lacey: What are some of the difficulties in building some of these new transmission lines to get to centralized projects that are far away from load centers?

Gawell: I have been involved and watching the permitting process for geothermal projects in southern California and it seems we are adding years to the process every time we turn around. We are already seeing the real problems and it has nothing to do with building the transmission; it just has to do with building the plant.

Transmission-wise, we have large transmission lines taking coal-fired power from the southwestern states to California. Could those be reallocated and could we have a process of retiring some of that coal and bringing renewable energy on those lines?

The fundamental question is, is the transmission available and I think the answer is no. It's not just long-range transmission, it's bottlenecks. There's no real process that is going to solve this yet. You've got the DOE funding some study process with the western states, but I don't see the state-level transmission process or federal-level transmissions process coming together that' s really going to solve the problem

Dehlsen: In Europe it's a very coordinated effort, actually. There is great progress now on a grid that will connect the UK and many of the EU countries. It is something that is fundamental to their commitment to a very high percentage of renewable energy in the future. It's a very strong force there.

Audience Question: Do you think we would be advantaged if the federal government required all states to have mandatory renewable portfolio standards?

Gawell: Renewable standards are driving the market. They are critically important. If the federal government pushed that envelope out further it would only help the growth of this industry across the board.

Michelle Fox, editorial intern, produced the transcript of this audio-recorded roundtable. The full conversation can be watched below.