| Something big is going on throughout the energy | | | | situation today. The reasons are multiple. |
| business. It's a great bubbling of innovation in every part | | | | Prices and worry about supplies and energy security |
| of the industry. This bubbling is the brew of many | | | | are important. So is the prospect of the vast growth in |
| different ingredients-from the impact of high prices and | | | | energy demand in Asia, which will change the global |
| geopolitical uncertainty to the growing focus on "clean | | | | energy balance. Also looming large are environmental |
| tech" and climate change. Will Innovation Transform | | | | worries and the growing quest to reduce carbon |
| Energy? | | | | emissions because of climate-change concerns. |
| Though invisible to the consumer, an enormous amount | | | | All these factors mean that energy is now a major |
| of technological advance is embedded in every gallon | | | | focus for technology investment. Governments and |
| of gasoline. Less than 30 years ago, the absolute | | | | companies continue to be big players, and they are |
| "deep water" frontier for drilling was 600 feet of water. | | | | stepping up their investment. |
| Today, companies are working in what is called | | | | Research-and-development spending by the U.S. |
| ultra-deep water, drilling through as much as 12,000 | | | | Department of Energy was $1.8 billion last year and is |
| feet of ocean. Explorers can now use a new | | | | currently expected to grow by at least 25 percent in |
| technology called WAZ-wide azimuth seismic-to "see" | | | | 2007-and could be even more with the new Congress. |
| deep resources previously not visible through salt | | | | And now there are new players: venture capitalists. |
| barriers thousands of feet below the seabed. | | | | The funding sources that brought immense innovation |
| Companies are integrating a wide variety of | | | | in information technology and life sciences-and created |
| informationtechnology capabilities to turn the "digital | | | | Silicon Valley along the way-are now honing in on the |
| oilfield of the future" into the digital oilfield of the | | | | energy industry. To be sure, some prominent venture |
| present, increasing efficiency and output. The | | | | firms are standing back, saying that venture capital |
| large-scale conversion of natural gas into high-quality, | | | | does not fit the longer time horizon and larger capital |
| diesel-like fuel is getting closer. | | | | requirements of the energy business. But many others |
| What is very visible today in the public's eye is the | | | | see this as their next frontier. |
| innovation in renewables of every sort. Renewables | | | | "Clean tech" is the new rubric under which much of |
| received much attention in the 1970s and early 1980s, | | | | this money is flowing, and the flows are increasing |
| but faded away in the face of falling fuel prices and | | | | significantly. In North America, venture-capital |
| ample supplies. Their rebirth is partly the result of | | | | investment in energy reached $2.1 billion in 2006-four |
| market forces. But it is also driven by continuing | | | | times what it was in 2004, according to the Cleantech |
| technology improvements and by mandates and | | | | Venture Network. Venture capital is not merely a |
| subsidies from federal and state governments in the | | | | source of money; it is also a source of focused, |
| United States and the European Union, and by similar | | | | results-driven discipline. This also means a wide |
| programs in countries like India, China and a growing | | | | diversity of ideas and technologies will be explored. |
| number of other nations. | | | | Inevitably, many of the new initiatives will end up being |
| This year will certainly see the incentives and | | | | venture's version of dry wells. That's the character of |
| mandates expanded in the United States, as is already | | | | research and development- and venture investing. The |
| evident with the higher target for ethanol in the State | | | | kind of surge we're seeing today comes not only with |
| of the Union speech. | | | | hope but also with hype. This will remind some of the |
| The effects of the surge in alternatives are being felt | | | | Internet boom. That boom left many deflated hopes |
| in unexpected ways. Growth in renewables is going so | | | | and even more deflated valuations. But it also initiated |
| fast that it is straining capacity in people, materials and | | | | a transformation of the way the world works. |
| supplies. If you want to order turbines and blades for | | | | And, by contrast, in the Internet boom there was often |
| windmills or silicon for solar photovoltaic cells today, | | | | no clear idea of how to make money. It was about |
| you may have trouble finding supply. Livestock raisers | | | | "firstmover advantage" and "land grabs." This time, the |
| and dairy farmers in the United States-along with | | | | opportunity is clear and can be measured against |
| Mexicans for whom tortillas are a staple are | | | | costs and prices in the marketplace. |
| complaining about the sharp rise in the price of corn | | | | The innovation frontier in energy is very broad. The |
| being fueled by rapid growth in corn-based ethanol | | | | systematic application of biology to energy is new, and |
| production. | | | | could end up having a big impact. Ethanol is already |
| Renewables may be called "alternatives," but they | | | | being called a "firstgeneration" biofuel, and there is a |
| already constitute a considerable business. The one is | | | | growing debate as to the biology driven |
| that is well on the way to becoming conventional is | | | | "second-generation" fuels. |
| wind power, which has gone through a considerable | | | | Another area that will receive much greater focus is |
| evolution over the last two decades. Along the way, | | | | energy efficiency. This is building on a more solid |
| costs have declined by a factor of ten. | | | | foundation than may be recognized. It's often said that |
| Last year's worldwide investment in wind and solar is | | | | the United States has made little progress on energy |
| estimated at over $40 billion. Yet, while the prospects | | | | conservation or energy efficiency. In fact, the United |
| for renewables are very large, they also need to be | | | | States, along with countries like Japan, is twice as |
| seen in context. In this case, the context is the huge | | | | energy efficient as it was in the 1970s. |
| scale of the overall system and the long lead times | | | | Much technological effort will go into the effort to |
| that are needed to develop any form of energy. | | | | double once again. This push is not limited to the United |
| Moreover, these sources eventually have to establish | | | | States. German Chancellor Angela Merkel has made |
| themselves as economically competitive in the | | | | energy efficiency the centerpiece of her agenda as |
| marketplace on a large scale. Even with all the | | | | chairman of the G-8 nations and president of the |
| advances, they are still a very small part of the overall | | | | European Union. |
| energy mix. In the United States, wind is 1 percent of | | | | This "great bubbling" represents what is the broadest |
| total electric generating capacity. But wind and the | | | | drive ever for energy innovation. It has the potential |
| other renewables will continue to grow. | | | | over a period of 10 or 15 years to work major |
| Underpinning the "great bubbling" is the rapidly growing | | | | transformations in how energy is produced, |
| spending on energy innovation. | | | | transported and consumed. But it is not a sure thing. |
| A decade ago, I chaired a task force on energy | | | | Two ingredients will likely be required if it is to have this |
| research and development for the U.S. Department of | | | | effect. One is consistency-maintaining the level of |
| Energy. That was a time of low interest in energy; and, | | | | financial commitment and stability over the cycles. And |
| not surprisingly, interest in the subject of our task force | | | | that gets to the second ingredient: Prices, and what |
| was also relatively low. After all, in the aftermath of | | | | people expect of them, will also be an important part |
| the First Gulf War, there was little concern about the | | | | of this brewing future. One way or the other, they will |
| availability of future supplies. Climate change was | | | | likely add much spice over the coming years. |
| hardly on the horizon as an issue. It's a very different | | | | |