Rising oil prices are boosting interest in alternative energy, but industry experts say it will still be years before such alternatives play a major role in the nation's energy future. Fuel cells, solar power, wind power and other alternatives generally remain more costly than oil, gasoline and natural gas despite the recent increases in the price of crude oil and other fuels.
HARTFORD, Conn. — Rising oil prices are boosting interest in alternative energy, but industry experts say it will still be years before such alternatives play a major role in the nation's energy future.
Fuel cells, solar power, wind power and other alternatives generally remain more costly than oil, gasoline and natural gas despite the recent increases in the price of crude oil and other fuels.
Nevertheless, the soaring prices and supply squeezes seen in the wake of Hurricane Katrina have focused the attention of buyers and investors alike on the need for alternative technologies, which are also environmentally cleaner than burning hydrocarbons.
"The price spike produced by Katrina adds to the pressure to rethink America's energy future," said Daniel C. Esty, a professor of environmental law and policy at Yale University.
Even before the latest spike in fuel prices, clean energy technologies had seen an influx of investor and consumer interest.
Solar, wind and fuel cell markets grew from $9.5 billion in 2002 to more than $16 billion last year, according to Clean Edge, a San Francisco-based market research firm. The company expects the market for alternative energy to expand sixfold by 2014, to more than $100 billion.
Among the three most widely recognized "clean" technologies -- solar, wind and fuel cells -- fuel cells are poised for the most growth, from $900 million in revenue last year to an expected $15.1 billion in revenue annually by 2014.
The prospects for alternative energy are of particular interest in Connecticut, which is home to several companies that develop and market fuel cell technologies.
At Wallingford's Distributed Energy Systems Inc., Chief Executive Walter "Chip" Schroeder said investor interest in alternative energy was growing smartly even before Katrina knocked out eight oil refineries in the Gulf of Mexico.
"A rising price will help bring some of these advanced technologies closer to commercial viability," Schroeder said. "The flow of investor dollars searching for legitimate investment opportunities beyond carbon is unlike anything we've seen in our nine years of being a company and five years of being a public company."
Through its Proton Energy subsidiary, Distributed Energy makes technology that produces the hydrogen fuel used to power many fuel cells.
Steven Eschbach, a spokesman for Danbury-based FuelCell Energy, said the recent passage of federal energy legislation containing tax incentives for fuel cell power plants is also boosting interest in the technology.
"It's going to make a lot of sense in terms of making projects a lot more attractive," he said.
Share prices for Distributed Energy Systems and FuelCell Energy have climbed steadily since the spring, when prices for oil began to rise noticeably. In addition, FuelCell Energy recently announced preparations to raise another $150 million in capital by selling stock or bonds.
Beyond the cost, alternative energy sources can offer advantages in reliability.
When Katrina's winds and flooding interrupted electricity for much of the Gulf Coast, it also underlined the need for a distributed energy system that's more resilient to shocks, said Jan van Dokkum, president of the UTC Power division of United Technologies Corp.
That, combined with rising prices and growing demand, is making fuel cells increasingly attractive, van Dokkum said. "We feel that we have a great opportunity ahead of us that's being helped by the prices being as high as they are," he said.
Not all investors are convinced, however.
"I do not like the prospects for most alternative energy companies, even with oil at such high prices," said Wenhua Zhang, a technology analyst at T. Rowe Price.
Zhang pointed to drawbacks in clean technologies. Fuel cells, for example, rely in part on underlying fuels, such as hydrogen, for their primary energy source. Converting hydrogen to another form of energy requires electricity, which itself is generated from conventional energy sources.
Because fuel cell production is not completely divorced from traditional energy, spikes in conventional energy prices moderate the cost-effectiveness of fuel cells, as well.
"Fuel cells are only an energy conversion device. So they're not a direct beneficiary of higher energy costs," Zhang said.
Even so, many experts believe that spending on alternative energy sources is likely to continue growing smartly for the foreseeable future.
"With the price of oil going up, with concerns about energy security going up, with concerns about issues like acid rain and ozone and potential links to asthma, there are a lot of reasons that people are saying there's money to be made in clean energy these days," said Brad Gentry, a senior lecturer at the Yale School of Forestry & Environmental Studies.
Joel Gordes, a consultant with Environmental Energy Solutions in West Hartford, agreed that rising prices make alternatives more competitive, but that the gap remains significant.
"It's going to be a long transition, no question about it. But we are making strides," he said.
Investors seem more sanguine about alternatives such as wind. Because of breakthroughs in turbine technology developed by companies such as Pratt & Whitney, electricity from wind now costs about 5 cents per kilowatt-hour, about half the cost of producing electricity through natural gas, the predominant fuel for producing electricity, according to Thomas Overbye, an engineering professor at the University of Illinois at Urbana-Champaign.
Wind technology has significant backers. Corporate giant General Electric, which has more than 7,000 wind turbine installations worldwide, expects wind revenue to grow to more than $2 billion this year, up 300 percent from $500 million its first year of wind operations in 2002.
Wind now accounts for about 0.3 percent of the country's electricity generation. Some economists expect it to increase to 1 or 2 percent by the end of the decade.
"Wind is big business. Wind is a business that has a very good future," T. Rowe's Zhang said.
But even wind has its drawbacks. Wind turbines occupy enormous swaths of land -- about one square mile for every 20 megawatts of electricity -- and often face opposition from neighbors who don't want giant windmills in their vicinity.
When the turbines are placed in remote areas, such as North Dakota, transporting the electricity to the Northeast can be a problem.
"Don't forget that if we change where we get our energy, we have to invest in a better electric transmission system. We already have transmission constraints, and those would be exacerbated if we start moving energy from the Great Plains into the Northeast," Overbye said.
Meanwhile, technologies such as solar power are still expensive. At 20 cents per kilowatt-hour, producing electricity from solar power simply can't compete with natural gas, experts said.
And as for the skyrocketing gasoline prices that have fueled the current interest in renewable energy sources, experts say not to expect a revolution anytime soon. Even at their best, clean technologies such as wind and solar cannot fuel cars.
"It's hard to beat gasoline in a car for transportation. You can use batteries, you can try to use hydrogen, but you're not going to beat gasoline," Overbye said. "Fossil fuels are a good way to store energy. Like it or not, it's really hard to beat getting energy out of the ground."
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Source: Knight Ridder/Tribune Business News
