Little-Known Filth Fouls Clean Energy, Costing Trillions

NEW YORK (TheStreet) -- My friends at Lux Research last month released a report titled "Cloudy with a Chance of Energy: Evaluating Technologies to Manage Grid Intermittency."

Since many are turning to manufactured energy-storage devices like batteries, supercapacitors and flywheels to improve grid stability -- and the PR summary said, "To minimize curtailment, utilities will have to install enough grid storage to capture and shift at least 0.5% of the total electricity generated over the course of the year" -- I was like a kid on Christmas morning when my copy arrived.

The sentence that really got my blood pumping said: "At 30% renewables penetration, over the course of a year, only around 0.5% of electricity generation capacity will require storage. Yet in 2009, over 20,132,212 GWh of electricity was produced globally, indicating a market potential of over 100,000 GWh for storage from the 1,482 MWh currently installed if and when renewable generation around the world approaches 30%."

As I started thinking about the immensity of that number, however, my BS sensors started flashing because manufactured energy-storage systems cost over a billion dollars per GWh.

It certainly focused my attention on the technical and economic issues.

The two essential attributes for an industrial society's electric grid are reliability and stability. We demand 99.9% service reliability from utilities and expect stable voltage without surges, sags or power outages.

Since electricity must be used (or stored) the instant it's generated, intermittency is the mortal enemy of a reliable and stable power grid. While renewable power sources like wind turbines and solar panels produce squeaky-clean green electrons, the electric current they feed into the grid is filthy because it's intermittent.

Wind farm output can easily fluctuate up or down by 3% over a 10-minute interval, 10% over a one-hour interval and 16% over a two-hour interval. Solar panel output can plunge by 50% or more in five minutes. To avoid grid collapse, somebody else has to be ready, willing and able to step in and fill the intermittency gap. Providing that service is not cheap or easy.

Renewable power is, quite literally, pollution of the electric grid with intermittency and the lion's share of the cost of the smart grid, automated demand response, dispatchable standby power, and energy storage is, in reality, the cost of pollution abatement.

In a 1968 essay titled "The Tragedy of the Commons," Garrett Hardin described pollution of the commons as follows:

"In a reverse way, the tragedy of the commons reappears in problems of pollution. Here it is not a question of taking something out of the commons, but of putting something in -- sewage, or chemical, radioactive, and heat wastes into water; noxious and dangerous fumes into the air; and distracting and unpleasant advertising signs into the line of sight. The calculations of utility are much the same as before. The rational man finds that his share of the cost of the wastes he discharges into the commons is less than the cost of purifying his wastes before releasing them. Since this is true for everyone, we are locked into a system of "fouling our own nest," so long as we behave only as independent, rational, free enterprisers."

Currently, renewable power producers enjoy a variety of financial incentives including feed-in tariffs, investment tax credits, production tax credits and renewable energy certificates that make their intermittent power more valuable than reliable power from conventional producers. To add insult to injury, they're not usually required to bear the costs of the standby facilities that are essential to integrate their intermittency into a public commons that values stability above all.

In the end, rate payers are saddled with the premium price of renewable power and the premium price of the standby facilities required to make that power stable, and, therefore, useful to society.

There is a simple solution to the tragedy of the renewable power commons. We can require each producer of intermittent power to pay the true cost of the standby facilities required to make their power stable. Without a rational approach that places the burden of intermittency abatement on the producers that create the problem, rate payers will be stuck with a hundred-trillion-dollar tab.

As an investor in and consultant to the battery industry, I'm delighted by the opportunities that intermittency abatement creates. My interests will thrive no matter who pays. As a member of an industrial society who thinks reliable electric power ranks right up there with shelter, food, water and a fast Internet connection, I want to ensure that the hidden costs of intermittency abatement are paid by the people who create the problem.

John Petersen, a lawyer and CPA, has specialized in advising companies on corporate finance and business development for more than 30 years. He writes the deathless prose and dire warnings investors read in offering documents and SEC reports. While Petersen has served as a board member or executive officer for a handful of public companies, the bulk of his work is behind the scenes where precision and a passion for detail are essential.

Petersen's investing style is that of "elephant hunter," and nothing grabs his attention like a "multi-bagger" in the rough. His investing time horizon is two to four years. On the long side, Petersen looks for blood in the streets and stock prices that have been beaten down to unconscionably low levels. On the short side, he seeks out high-profile companies that trade at unsustainable levels while hype-intoxicated executives make the same tactical mistakes he's suffered through with clients. Petersen's sector focus is batteries and efficient transportation because he has almost a decade of experience in the industry, including a three-year stint as board chairman of an R&D-stage battery-technology developer. He's convinced these sectors are emerging investment mega-trends.