Some of these new technologies will undoubtedly revolutionize the energy generation sector in decades to come. Nevertheless, over the past 15 years, GEF has generally shied away from these investments. Several factors influenced our view. First, choosing the “winners” from a multitude of emergent solutions – for example, nearly a dozen consortia have licensed Oak Ridge laboratory technology for thin-film lithium batteries – is a daunting challenge and an inherently risky strategy for diversified investment partnerships. Second, venture capitalists are not particularly well-equipped to estimate accurately the time- and cost-to-market of “enertech” research and development.

Because three-fourths of America’s electricity is generated from fossil-fuel sources, we believe that investments that enable industrial and commercial operations to cut energy consumption will have a double payoff – first, in reducing operating costs and second in reducing environmental emissions from electricity generation. GEF’s energy technology investment strategy has centered on identifying opportunities in America’s “rustbelt” and “oil patch” areas, where the most energy-intensive, high-pollution industries are located. We scour these areas more actively than the “hydrogen highway” of the future. And, we tend to focus much more on finding companies whose technologies are reducing energy use in industry and buildings than on next-wave energy generation.

At GEF, we believe that the memorandum received on the desk of every operating executive in corporate America in early September 2005 did not say: “Switch to renewable energy,” or “Check out fuel cells.” Rather the message was simple and terse: “Cut energy usage and costs — now!” It is this urgent demand that lies at the heart of GEF’s energy technology investment strategy.

We have recently begun to take a closer look at the entire electricity delivery chain – from the point of generation to the point of use – as an investment proposition. A recent stimulus to invest in technologies to improve the grid is the 1724-page, $12-billion Energy Policy Act of 2005. It includes a call for nationwide standards for reliability and other provisions likely to stimulate new technologies and new “intelligent” systems.

In point of fact, we believe this national energy legislation is actually trailing, not driving, an explosion of new investment in the electrical grid. The real drivers of technological innovation have been on the horizon for much of the past decade, and are now beginning to gather momentum. These include the antiquated nature of most technologies that still form the backbone of the electricity grid information system; the destabilizing and somewhat erratic effects of deregulation in the electric utility industry; the demand for real time pricing and information; and the pressing need to increase efficiency.

As a result of nearly three decades of neglect, the entire power grid of the United States is characterized by aging infrastructure and old technology. It is estimated that at least 60% of the current equipment needs replacement during the coming decade. As the investment cycle reaches a critical juncture for reinvestment in and optimization of the infrastructure, we believe there is enormous “pent-up” demand to apply computer and electronics technologies that have already gone into the telecommunications, medical, aerospace and manufacturing industries.

Rapid adoption of such technologies will, we believe, ensue in the coming decade for several reasons. First, electricity consumers are demanding much greater efficiency and capability from the grid. Electricity distribution systems must achieve far more for much less in the next round of capital expenditures. Second, for first time, large investments must be made in technologies that upgrade and protect the quality of power as well as the reliability. This concern is driven in part by the explosion of the “digital economy.” High-reliability, high-quality power is increasingly at the core of the value proposition for computer- and Internet-based industries and for the telecommunications sector. Finally, since the last time the electricity grid was modernized, the development of pervasive computing and networked devices enable pioneering companies to deploy two-way communications and networked technologies and applications throughout the electricity grid.

We see growing technology markets in areas such as: Advanced Meters; Sensors, Monitors and Controls; New Power Electronics Systems and Networks; and Smart Equipment and Appliances. In short, we believe that new technologies, new policies, new pricing regimes, and de-regulation are all driving new business models in the electrical grid. All these areas complement and expand GEF’s long-standing Clean Technology investment program.

Reprinted with permission from Smart Grid Newsletter, www.smartgridnews.com .