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