Will Innovation Transform Energy?

Something big is going on throughout the energysituation today. The reasons are multiple.
business. It's a great bubbling of innovation in every partPrices and worry about supplies and energy security
of the industry. This bubbling is the brew of manyare important. So is the prospect of the vast growth in
different ingredients-from the impact of high prices andenergy demand in Asia, which will change the global
geopolitical uncertainty to the growing focus on "cleanenergy balance. Also looming large are environmental
tech" and climate change. Will Innovation Transformworries and the growing quest to reduce carbon
Energy?emissions because of climate-change concerns.
Though invisible to the consumer, an enormous amountAll these factors mean that energy is now a major
of technological advance is embedded in every gallonfocus for technology investment. Governments and
of gasoline. Less than 30 years ago, the absolutecompanies 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 calledResearch-and-development spending by the U.S.
ultra-deep water, drilling through as much as 12,000Department of Energy was $1.8 billion last year and is
feet of ocean. Explorers can now use a newcurrently 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 saltAnd 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 ofin information technology and life sciences-and created
informationtechnology capabilities to turn the "digitalSilicon Valley along the way-are now honing in on the
oilfield of the future" into the digital oilfield of theenergy industry. To be sure, some prominent venture
present, increasing efficiency and output. Thefirms 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 thesee 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 andsignificantly. In North America, venture-capital
ample supplies. Their rebirth is partly the result ofinvestment in energy reached $2.1 billion in 2006-four
market forces. But it is also driven by continuingtimes what it was in 2004, according to the Cleantech
technology improvements and by mandates andVenture Network. Venture capital is not merely a
subsidies from federal and state governments in thesource of money; it is also a source of focused,
United States and the European Union, and by similarresults-driven discipline. This also means a wide
programs in countries like India, China and a growingdiversity 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 andventure's version of dry wells. That's the character of
mandates expanded in the United States, as is alreadyresearch and development- and venture investing. The
evident with the higher target for ethanol in the Statekind 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 feltInternet boom. That boom left many deflated hopes
in unexpected ways. Growth in renewables is going soand even more deflated valuations. But it also initiated
fast that it is straining capacity in people, materials anda transformation of the way the world works.
supplies. If you want to order turbines and blades forAnd, 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 withopportunity is clear and can be measured against
Mexicans for whom tortillas are a staple arecosts and prices in the marketplace.
complaining about the sharp rise in the price of cornThe innovation frontier in energy is very broad. The
being fueled by rapid growth in corn-based ethanolsystematic 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 theybeing called a "firstgeneration" biofuel, and there is a
already constitute a considerable business. The one isgrowing 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 considerableAnother 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 isthe United States has made little progress on energy
estimated at over $40 billion. Yet, while the prospectsconservation or energy efficiency. In fact, the United
for renewables are very large, they also need to beStates, along with countries like Japan, is twice as
seen in context. In this case, the context is the hugeenergy efficient as it was in the 1970s.
scale of the overall system and the long lead timesMuch 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 establishStates. German Chancellor Angela Merkel has made
themselves as economically competitive in theenergy efficiency the centerpiece of her agenda as
marketplace on a large scale. Even with all thechairman of the G-8 nations and president of the
advances, they are still a very small part of the overallEuropean Union.
energy mix. In the United States, wind is 1 percent ofThis "great bubbling" represents what is the broadest
total electric generating capacity. But wind and thedrive 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 growingtransformations 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 energyTwo ingredients will likely be required if it is to have this
research and development for the U.S. Department ofeffect. 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 forcethat gets to the second ingredient: Prices, and what
was also relatively low. After all, in the aftermath ofpeople expect of them, will also be an important part
the First Gulf War, there was little concern about theof this brewing future. One way or the other, they will
availability of future supplies. Climate change waslikely add much spice over the coming years.
hardly on the horizon as an issue. It's a very different