Ken Silverstein EnergyBiz Insider Editor-in-Chief

Investing in green energy has its risks and its rewards. But consumer awareness in combination with proactive leadership has thrust renewable energy into the mainstream. Indeed, the dual realities that fossil fuels are finite and clean air regulations will only strengthen have prodded all stakeholders to seek cleaner alternatives.

"Five years ago, the voluntary green power market was focused primarily on residential purchasers, and there were only a handful of significant non- residential purchasers," says Douglas Faulkner, acting assistant secretary for Energy Efficiency and Renewable Energy at the U.S. Department of Energy. "The entry of commercial, industrial, and government purchasers into the renewable energy market has resulted in tremendous growth in the development of clean and limitless renewable energy resources."

Faulkner's comments came during the 10th National Green Power Marketing Conference in Austin last week. While there, the Energy Department's National Renewable Energy Lab released a report saying that voluntary power purchases accounted for 2,200 megawatts, which is an increase from 167 MW -- 1,000 percent -- over the last five years. The growth has been spurred by national retailers, universities and manufacturers, along with various government agencies.

For at least the next half century, coal and natural gas will make up the preponderance of fuels that produce electricity. Renewable energy, however, will undoubtedly grow: The Energy Department points out that average green energy price premiums have dropped by 8 percent in the last five years. And that's a trend that could continue with skyrocketing natural gas prices. Today, green power accounts for about 2 percent of America's electricity supply.

In states where wind or solar resources are plentiful, utilities are often under mandate to supply a certain percentage of their power from green energy. Utilities are understandably nervous about putting capital into emerging technologies that may not have an immediate payback and that may not adequately be recovered through the rate base. But, some such as Florida Power & Light and Puget Sound Energy are turning profits on their renewable energy investments.

"Wind is our best value," says Eric Markell, senior vice president of Puget Sound Energy in Washington State. In Puget's case, wind power provides "excellent" cash flow, giving the company a chance to recover its initial investment in just six years.

Mandatory Rules

While mandatory rules may create more marketplace certainty, renewable and other clean-energy technologies must continually strive to be competitive to gain wider acceptance so as to supplant fossil fuels at a faster rate, says the Energy Department. Over the last two decades, the department says that it has invested billions in the research and development of solar, wind, geothermal and biomass technologies.

It's all helped bring down the cost of renewable energy forms. Today, the cost of wind-generated electricity is about five cents a kilowatt-hour compared to 80 cents a kWh in 1980. By 2012, the Energy Department predicts such costs will come down to 3 cents per kWh. Meanwhile, the price of a grid-connected residential solar system is roughly 25 cents per kWh compared to $2 per kWh in 1980. By 2020, the government agency expects the price of solar to be around 6 cents per kWh.

"Using more wind power can quickly and effectively help alleviate the natural gas crisis and stabilize volatile prices -- the more wind power the U.S. installs, the less natural gas and other fuels are needed for electricity generation," says Randall Swisher, executive director of the American Wind Energy Association. "Wind farms can be installed quickly -- typically within two years, with construction requiring less than six months, faster than new fields can be drilled or liquefied natural gas terminals built ... ."

To be sure, it won't be easy to supplant fossil fuel use. According to the Industrial Energy Consumers of America, industrial energy consumers can ill-afford higher power prices. They are already weakened by a fragile economy and the threat of global competitors who have cheaper access to power supplies. Price pressures will only intensify and result in a continued threat to the country's economic well-being, it says.

The Bush administration is fully attuned to this position and the 2005 Energy Law reflects that. The $16 billion package is weighted heavily toward fossil fuel production that is now so prevalent in the generation mix. But the administration and Congress didn't neglect renewable energy, which will receive some favorable tax advantages and millions in government funds to be spent on research and development.

Meantime, provisions that would require a federal renewable portfolio standard were stripped from the law that passed. Conversely, about 20 states have approved policies that require utilities to provide wind, solar, hydro, biomass and geothermal options to consumers. Those technologies are typically more costly than conventional generation and, therefore, the states are trying to help jump start their advancement by enacting portfolio requirements that will spur investment.

Nevada is requiring its major power companies to gradually increase their use of renewable energy. By 2003, Sierra Pacific Power Co. and Nevada Power Co. must produce 5 percent of their power from renewable sources. By 2013, they must generate 15 percent of their power that way. The Bureau of Land Management there expects wind and geothermal production to double in the next three years because of the new law.

Right now, about 300 utilities in 32 states offer renewable energy alternatives. And while some programs are mandated, others are not. Johnson & Johnson is the largest U.S. corporate purchaser of renewable energy. It has committed to reduce its carbon dioxide emissions by 7 percent from its 1990 levels, and by 2010. The company says that its green power use in 2004 accounted for 18 percent of its worldwide electricity use.

"Investing in green power not only benefits the environment, but is also a good business decision . because it provides the company with a reliable and stable supply of energy," says Dennis Canavan, energy manager for Johnson & Johnson.

Despite the obstacles, consumers and policymakers have said they want to see green energy play a greater role in the nation's energy formula. Capital is scarce and cost-effective technologies are not widespread. But the persistence shown by renewable energy advocates is paying off. Greater public-private support, they say, would allow green energy to capture more market share.

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