Industry Focus: Alternative Energy

A group of Nevada’s alternative energy leaders recently met at the offices of City National Bank to discuss the trends and obstacles facing their industry.

STANDING: Dr. Alan Gertler, Desert Research Institute; Pat Egan, NV Energy; Mark McVeigh, City National BankDr. Oliver Hemmers, UNLV, Harry Reid Center for Environmental Studies; SITTING: Fred Schmidt, Holland & Hart; Tom Polikalas, Southwest Energy Efficiency Project (SWEEP)

Nevada’s alternative energy sector is changing with new projects and regulations as well as the buyout of Nevada’s major utility. Industry experts are expecting a resurgence of the industry as well as more conservation efforts. Recently, executives representing the alternative energy industry met at the Reno offices of City National Bank to discuss their changing industry.

Connie Brennan, publisher of Nevada Business Magazine, served as moderator for the event. These monthly meetings are designed to bring leaders together to discuss issues relevant to their industries. Following is a condensed version of the roundtable discussion.

What challenges does alternative energy face?

Dr. Oliver Hemmers: The biggest challenge is cost, even though it’s getting more and more competitive; the costs are still a major driving factor that defines the industry. That still causes the renewable energy industry to struggle. We’ll move forward and it’s here to stay but there’s still a cost issue that needs to be addressed. That’s the biggest barrier I see from my perspective.

Dr. Alan Gertler: The economics are not always what you’d think. We’ve failed to account for a lot of the externalities of different energy systems. In other words, what are the other associated costs that one may have [with alternative energy]? We don’t account for that. There are cost issues that we really don’t take into account coupled with the fact that we currently have extremely low costs for natural gas. When we have very low costs from current energy sources, then, of course, you’re not going to go with things that are more expensive. We don’t account for that. Renewable energy has become politicized and that often causes people to look at it and not have a truly honest discussion about the pros and cons of what we have.

Tom Polikalas: When I was working on my masters of economics at UNR I got indoctrinated into the concept of the “nega-watt”. The “nega-watt” is the energy that we don’t use and the opportunity for savings. I represent the “nega-watt” industry as an alternative industry which is a challenge in and of itself because it’s so fractured. There aren’t four or five major players in “nega-watts” across the state. There are a multiplicity of vendors and installers from HVAC contractors, installation contractors and lighting vendors. [The energy savings industry] has turned into a $20 billion bonanza. Nevada’s slice of that $20 billion represents about $3.4 billion in net GDP growth that could be cumulatively accrued through 2020 by pursuing an optimal mix of energy efficiency policies. There is a cost barrier. We want to see the community come together and craft policies that make an investment in “nega-watt” so that the utility is not facing any barrier to pursuing optimally cost effective policies. Those are the kinds of discussions that we need to get together and look for the optimum incentives to take advantage of new and changing technologies. The technologies are evolving continuously. How do we match policy to take advantage of those opportunities so that everyone benefits? There are some cost barriers but there are opportunities so that everybody can benefit.

Pat Egan: In my mind, the biggest challenge is to balance economics with technology and the customer expectation. There are so many interesting and new things happening that are legitimate technologies that work and are improving year over year. The question is, how much of that can be put through the system in a way that the customer is benefitted ultimately? The other challenge is, getting back to all of the different technologies. When you look at the energy future, we don’t have a great handle, and I mean the utility industry, on what the demands are going to be. If you look at, for example data centers and some of the other large energy users, no one has a crystal ball to say exactly what that usage pattern is going to be.

Frederick Schmidt: Right now I think the challenges are in the electric industry and dealing with the fact that it’s a monopoly that provides service and everyone has to work with, or in conjunction with them. Getting NV Energy to do things is very important to those businesses, whether you’re a new start up company trying to build distributive generation on solar rooftop, photovoltaic or you’re a large developer trying to build another project. Senate Bill 123 (see glossary) is interesting in that it provides new life to that industry in terms of providing an opportunity for another round of proposals. That’s significant. It also gets us down the road to closing coal plants that we have in the state. As a Nevada business issue, it’s important that we develop our economy. Coal doesn’t develop our economy; coal develops the economy of Wyoming and Colorado. Nevada needs to develop what it does best. I’ve always felt that Nevada is uniquely positioned to build solar because of the number of sunny days we have here and geothermal because of the infrastructure, the ground geology that we have in the state.

How is the energy market changing?

Schmidt: It’s about energy imbalance markets (see glossary) which will allow for a much more efficient exchange of those resources. If we focus on really good resources for our state and develop the grid (see glossary) more, we’ll be good.

Egan: The energy imbalance markets will benefit, not just developers, but our customers. In the West, you have these 38 balancing authorities. One of the things this energy imbalance market does is essentially looks for the lowest cost resource. It breaks down the barriers and that’s one of the important differences for Nevadans. We call it “match.com for electrons”. We get access to sell where it benefits and access to buy where it benefits. The California ISO (see glossary) is not going to be able to reach in and pull resources from Nevadans when it doesn’t benefit Nevada. It’s still subject to further review but we believe the economics will work to the benefit of renewable energy.

Does Nevada have the capacity to be a leader in alternative energy?

Gertler: If you look to the resource assessment, the solar assessment and over here to the geothermal assessment, clearly it’s here. We have the resources. We can be a leader in terms of production, no doubt about it. But, it’s not just production and exporting. How do we develop our economy so it’s more of a knowledge based economy? I think we’re much further behind. Yes, we have the resources. Maybe that can attract companies here and maybe we can start building. But, I don’t believe we have the educational infrastructure to develop that knowledge based economy at this point.

Schmidt: I think we were a leader but we’ve been stagnant. We were a leader in the late 90s and early 2000s in renewable energy. We were one of the first states that did an RPS (see glossary) law. We had one of the most aggressive laws. For the last five, six years, we’ve been a little bit stagnant. We’ve had no renewable energy market until SB123 came along. Even though plants that had been approved were coming online in that time frame, we weren’t getting any new and we lost a number of company’s interest in Nevada because of that. SB123 has the chance to reinvigorate that.

Egan: Ultimately, energy supports the underlying economy. We look at economic development across the board. Whether its transportation, infrastructure or education and workforce, we’re a piece of that picture. Whatever the implementation of SB123 is, we need to recognize that there will be impacts one way or another. We should be able to say, with a straight face, this direction is something that is going to benefit Nevadans.

Could the alternative energy industry survive without subsidies and credits?

Schmidt: We still have some tax credits that are expiring soon but there’s not a lot of artificial subsidy. There is subsidy in the sense that when you commit to paying a higher price and it’s fairly levelized, like the way we’ve been building and buying renewable, it can spike the price in the short term but it hasn’t really done that. The PUC did a study that showed all the renewable energy we’ve done today hasn’t resulted in more than about a 5 percent impact on rates. NV Energy put out numbers on SB123 as to what it would cost utilizing the best information they had. They said that the price would not go up over the next decade because of that bill more than 2 percent.

Polikalas: The economics are, in many cases, far superior to saving energy than to producing energy and that still needs to be a part of the discussion. There are opportunities where, through energy services, the state as a whole could still save a lot of money and that has net economic benefits that are substantial.

Egan: We want to put the customer in charge of whatever their energy future is. If we’ve got a program, they need to know about it, they need to know that we’re sincere about delivering on it and it’s definitely a positive savings for them. NV Energy has a good history of supporting that, but it’s been somewhat episodic. We want to make sure that’s stable and customers know that if there is a program offered in year one, it should also be in year two, three and four, as long as it works for them. Whatever we’re employing, whatever the resources, whether its energy efficiency, new technology or base load services, it ultimately has to even out in a way that it’s at least a digestible impact for the customer. This is particularly true with the economic downturns we’ve seen in the last few years.

What kinds of alternative energy projects are in the works?

Schmidt: Our client, Sempra, has built three projects: CMS (Copper Mountain Solar) one, two and three. They are now up to about 300 megawatts of solar in the El Dorado Valley, outside of Vegas, and there are other plants proposed. They’ve got a cogeneration (see glossary) plant that used a facility that the San Diego Gas Electric built a number of years ago. There are at least a dozen of those scale of solar projects undergoing various stages of development or exploration right now. In fact, Friday, one of the projects that was licensed for construction for a 350 megawatt solar project called K Road, right outside the Crystal sub-station on the Moapa Indian Reservation, is going to be transferred in part to the power company.

Polikalas: There are a couple of start-ups. ElectraTherm, for example, which is located not too far away, produces electricity off of waste heat.

Gertler: Ormat’s a great example too of what happens when you have an international company here.

How important is a diversified economy to alternative energy?

Gertler: If we’re looking at what we want to do, what types of jobs we want to really create in the state, we have the resources. Can we build a more knowledge based economy involving renewable energy where technologies are developed here? Not developed outside and then put in here but, have an economy based on the different components of what it takes develop those technologies and at different energy conservation techniques. If we’re looking at true job creation, especially from small business starting-up and other things, it’s going to be technology based. How do we develop those technology based jobs in Nevada to really change the type of economy that we have?

Egan: If you’re going to develop any industry, it doesn’t matter if its widgets or renewable energy, [you must] have a base of a strong workforce development and a strong education system. The tax policy for this state, from an employer’s standpoint is very good, very beneficial and you have a great transportation system but if you want to build a business, you have to pause and say, “Do I have everything I need from a workforce development standpoint?”

Schmidt: That has started here in Nevada. We have the Mackay School of Mines which is well-recognized and why our mining industry is so strong here, we have that educational base. Ormat and NVEnergy started a program for UNR to develop a minor and develop a program for training operators for geothermal plants.

Hemmers: At UNLV, you have the solar minor education program. The problem of course is developing new research for education programs. It still costs money so the universities operate within a certain budget and they have their programs. Even when we just want to develop one new program, you have to take money from somewhere to fund this. It’s not that we don’t want to do it; it’s a resource problem in the education system that cannot do what it could to its full potential because of the lack of funding.

Gertler: If you pull back and look at where we are going worldwide, not just in Nevada, and start looking at a lot of the trends of installed solar, wind and geothermal, they’re going up. If you couple that with the trends in terms of efficiency of solar photovoltaic and they’re driving the cost down. We may not see it in Nevada because the economy in the past few years has been tough, but when you look at those worldwide trends, it says that renewables are going up.