Analysis: Laws drive energy expansion
By UPI
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A forum at the three-day Western Governors Association energy summit in New Mexico recently on the financing of future North American energy projects concluded that more legal certainty was needed to encourage investors to be patient and take a chance on promising technologies and individual energy projects that might not produce a huge payoff in the short run.
"Given the long lead times before the revenues come in, who would want to be an early-stage investor in this sector?" James K. Gable, Managing Executive of ChevronTexaco Technology Ventures, asked at the forum sponsored by the corporate law firm of Wilson, Sonsini, Goodrich & Rosati out of Salt Lake City.
Speakers at the forum, which was well represented by venture capital and corporate law sectors, warned that energy projects were more of a long-term investment that often did not produce the kinds of short-term rewards many investors want to see, which can result in venture capital being pulled back before they bear fruit.
The problem, the panelists agreed, was that fledgling companies often have seductive ideas, but are coldly unraveled by shifting short-term regulatory and tax environments that create too much risk.
"There is no closet full of great companies that don't get funded," observed Erik Straser, a general partner in Mohr Davidow Ventures of Menlo Park, Calif. "The real challenge for the industry is to provide the opportunities."
The forum emphasized the financing of smaller energy projects -- ranging from modest natural gas-fired power plants to the kinds of green projects such as wind farms and solar arrays -- that the energy summit was giving a good deal of attention to during its run in Albuquerque.
The attendees, who were all well-versed on the knotty yet very important tax issues that can often vex the energy industry, were enthusiastic about the idea of giving environmentally conscious consumers more opportunities to sign up to pay for electricity produced by solar, wind and other green sources, even though the price generally carries a premium to power from conventional power plants.
Such gestures, said Nancy Floyd of the San Francisco venture firm Nth Power Technologies, can sometimes be the genesis of a nationwide trend.
"If you look along the energy value change, you look for where it is that you innovate to affect the greatest degree of change," she said. "History tells us that most disruptive changes happen with the end consumers."
Dirk McDermott of Alitra Group, a venture firm, agreed, "There are several places in the country where consumers have a choice of where their energy comes from; that has had an impact on the building of new plants."
It will, however, take more than the idea of a popular uprising among concerned utility consumers to seal the deal for many investors.
The use of tax credits to encourage the development of alternative fuels -- ethanol and wind power being prime examples -- is a tried and true idea in the United States, although there were calls recently to keep credits in effect for longer periods and to expand their availability to more investors.
"All of us like credits if we can get them...but if you are going to have a system in which you have these credits, then they have to be a little more predictable," McDermott maintained.
Gov. Bill Richardson of New Mexico served as President Clinton's energy secretary and is a high-profile and adamant supporter of renewable energy. In his role as host of the WGA summit in Albuquerque, Richardson laid out his vision of a major ramp-up of green power on at least a regional scale.
"I haven't done this out of altruism," Richardson stated in his recent keynote address. "I have done it because I believe it is the wave of the future -- the economic tidal wave of the future."
Since taking office last year, Richardson has set off on a drive to make his state the "Saudi Arabia of renewable energy." Because of his state's never-ending supply of wind and sunshine, not to mention abundant natural gas reserves, the genial governor has good reason to dream of becoming an energy supplier not only to California but to other growing western urban areas, such as Phoenix and Las Vegas.
"All of us smaller states may find ourselves turning into renewable-energy farms dedicated only to the goal of meeting Gov. Schwarzenegger's ever-accelerating expectations for renewable energy supplies," Richardson said, adding that such an idea "makes your ears perk up when you're a governor from a state sitting on a mother lode of wind, biomass and solar potential."
New Mexico has enacted a package of tax breaks and incentives to boost renewable energy, including the Renewable Portfolio Standard that requires utilities to buy 10 percent of its electricity from solar and other renewable producers by the end of the decade.
Richardson is as proud as can be of the innovative program and used it to inspire other states to follow his lead and forget about waiting for the stalled Energy Bill, which addresses some of the pertinent issues in its vast expanse but remains frozen in the Senate.
"We can provide some of the leadership needed to make sensible energy policy into a reality," he told his fellow governors recently. "We can make things happen that will change the nation's energy picture -- even if Congress never agrees on an Energy Bill."
