Luncheon Speech
by
SCOTT SKLAR
before

ACORE Conference

October 17, 2005

I decided that I did not want to put up a bunch of charts for this talk - it would detract from the issues I am addressing. But this speech and the quotes and statistics I use will be accessible for those interested on the ACORE web site.

When I became an overnight Senate energy aide after the first oil embargo in ‘74, the “instant energy policy experts” gravitated to five large solutions - shale oil, coal liquefaction/in-situ gasification, nuclear fission/fusion, off-shore oil & gas/enhanced recovery, and a distant fifth - alternative technologies. In fact, the first three options never really saw the light of day, while the last two - enhanced and offshore oil and gas AND renewables/energy efficiency/clean distribute generation are soundly in the market.

Except for those that believed in the ‘miracle' of new technology (who were Republican and Democrats comprising about 30 percent of the Congress) there was actually a very strong ‘push back' against this ‘portfolio' approach of pushing this new, ungainly set of technologies compared to the solid ‘four' traditional resources/technologies I mentioned above.

I own a copy of what a subset of electric utilities published in quite glossy format against Amory Lovins in the mid 1970's - castigating the concept that the US economy could expand without using more energy - essentially a parallel track. Now the US economy has grown with per capita energy use going down many times - but the concept was antithetical at the time.

In the mid 1970's, for those of us who talked about 3.6 MW wind turbines, 100 MW/year photovoltaics manufacturing plants, multi-hundred free flow hydropower units, billions of gallons of ethanol per year (all of which we have achieved in 2005), I received the same roll of the yes from members of Congress that I now receive from my twelve year old daughter.

So my first point today - is that technology experts sometimes don't know the value of their technologies or the impact their use could bring. Just two I randomly chose for you is:

Inventor and pioneer of wireless telegraphy and radio Lee Defoe was quoted in the New York Times in 1926, “While theoretically an technically, television may be feasible - commercially and financially I consider it an impossibility, a development of which we need waste little time dreaming.

And 17 years later, the founder of IBM, Thomas John Watson was quoted in 1943, “I think there is a world market for about five computers”.

In 1974, most legislators would have believed these 2004 statistics and predictions possible:

The World Energy Outlook was released by the International Energy Agency estimates in a reference scenario that electricity generated from renewable energy will increase by a factor of six by 2030. Platts Research has stated that the potential for renewable demand within four years in markets with green energy, is offered could reach 6 percent of generation capacity. The global wind power industry installed nearly 8,000 MW of new wind turbines in 2004 according to the Global Wind Energy Council Total wind capacity is now at 47,317 MW with 6,740 MWs in the US.

Worldwide solar cell production reached 1,256 MW in 2004 which was a 67 percent increase over the 750 MW output in 2003. Concentrating solar power produces 354 MW of electricity, with 1 MW now built in Arizona and 64 MWs contracted for in Boulder City, Nevada and being built by Solargenix Energy.

The US Energy information Administration predicts that biomass will generate 3 percent of all generation by 2020. Biomass now provides 7,000 MW of capacity in the US and produces 37 billion kWh of electricity each year. By 2060 Shell Renewables forecasts that traditional and new forms of biomass will provide 30 - 40 percent of worldwide energy demand - that includes fueling everything from power generation to automobiles to automobiles to industrial facilities.

Geothermal can produce another 9,000 MW with 2228 MW installed in the US and a global total of 7,974.06 MWs.

Twenty percent of the world's energy comes from hydropower. Norway produces more than 99 percent of its electricity from hydropower. Hydropower in the US and meets the needs of 28 million residential consumers.

So let me say emphatically, that the ‘portfolio' of clean energy technologies have made it through adolescence, and ready for the ‘real world' Phase I is at an end, and Phase II is the future mandate.

BUT how did we get through Phase I that ACORE so classifies? Well, again in 1974, I was visited by a handful of companies in the renewable energy business - a few who are still with us today. McBurney Corporation (GA) founded its biomass energy business in the 1960's, Ormat (NV) , the geothermal company founded in 1969, FAFCO (CA) one of the first modern solar thermal companies, and in that same 1969 year Spire Corp (MA) developing lamination machines for photovoltaics.. And finally, 1974, Northern Power Systems (VT) offering wind systems. Also, by 1974, the Solar Energy Industries Association (SEIA) was incorporated here in Washington, DC, which I believe was the first of the renewable energy trade associations. Of course followed by wind (AWEA), biopower (NBIA), hydropower (NHA), biofuels (RFA) and geothermal (GEA).

By 1977, the Solar Energy Research Institute (SERI) was formed, that you now know as NREL, and there were regional applied R&D centers as part of that political compromise. The Congressional Solar Coalition was formed by a group of us that year, and Bergey Windpower was founded in OK that year.

By 1978 the Public Utilities Policies Act was passed requiring the right of interconnection by ‘qualified facilities' (private power producers) and be paid a ‘fair rate” which was termed ‘avoided cost' - theoretically the cost it would be for the electric utility to generate the electric power itself. The same year the Energy tax act was passed which had the first investment credit for solar and geothermal.

1980 - the United States was producing 175 million gallons of ethanol.

And in 1981, Economic Recovery Act instituted 5-year accelerated depreciation for renewable energy property.

1983 - California adopted Standard Offer IV contracts - subsidized generation for baseload RE power

1985 - Energy Policy Act allowed the wind, biomass and residential solar credits to expire, 20,000 US jobs were lost in the RE industries Geothermal industry announces 4,900 MW installed in US

1989 - FERC increased the PURPA 30 MW limit to 80 MWs which allowed the Solar Energy generating plants VIII and IX to be built providing 350 MW of concentrated solar power, which are still generating today. That year, US photovoltaics production was at 33 MW per year.

1994 - Exec Order 12902 advised US Dept of Defense to increase use of renewable energy

1998 - Goldman and Thresher's paper in France announced 1590 MW of wind in the US and in 1999 150 MW of new capacity

2001 - AWEA announced that 913 MW of wind went into TX, more than any other State ever

2003 - GE Wind announced publicly hitting over $1 billion is sales

2004 - Int'l energy Agency announces study announced global installed capacity of solar thermal equaling 70,000 Mwe thermal Renewable Fuels association announced 3.410 billion gallons of ethanol, produced in US. IEA announces 6740 MW wind generation installed

2005 - BP Solar (formerly Enron/Amoco Solar, formerly Solarex) announced it's first year of profitability

Congressional Research Service stated from 1973-2002, the US government spent $14.2 billion (in 2003 constant dollars) for renewable energy research and development (R&D), from $1 million yearly beginning in 1970 to a height of $1.4 billion in 1979 declining to $148 million in 1996 and back to $403 million for 2002.

In conclusion, Phase I has resulted in billions of gallons of ethanol, overall industry sales increases of 20-30 percent per year, auto-mation and semi-automation of components, and standardization of systems, with honorable mentions for PowerLight (CA), Shell Solar's Quick Deploy, Southwest Windpower fast erected towers/turbines, Community Power 50 kW biomass, Verdant Power's freeflow hydropower on pontoons, Gridpoint's smart plug-and-play battery bank, and SkyBuilt's hybrid pv/wind shipping container, and UniSolar/SIT on solar atop metal seamed and membrane roofs.

So as these industry's are college age or ‘Phase II' as ACORE calls it - what is the new policy/market paradigm that is required?

I propose three discreet tracks for your consideration -

• Maximizing ‘choice' for consumers -

• Speedy, transparent, enforceable interconnection from

transmission lines to distribution lines to the

customer-side of the meter

• Flex-fueled vehicles, plug-in hybrids - consumer

options for fuel supply and distribution

• Monetizing all assets - maximum government education

• Green Power is the only real, emerging play with EPA,

FEMP, and State and local governments at play

and establishing a “shaded green” set of products

• But that is only a piece of the ‘asset base'

• other environmental benefits beyond lower

carbon- regulated: SO2, Nox, particulates and

unregulated: mercury SHADES OF GREEN

• reliability - absolute premium for non-

disruptable power - example retail, example

mfg/slurry industry disruptions - MY BUSINESS focuses on this attribute

• offsetting high electric or natural gas rates and

stabilizing energy price/rate fluctuations

PNL study on gas prices in CA

• power quality - ratings and premium - billions of

dollars for surge protectors and billions

more of lost electronics and controls

Note: many retail businesses make their profits for the year in the last two months in the holiday season (Thanksgiving thru New Years), so power outages can be devastating. Similarly, 20 years ago, our country was not a digital economy so power quality really wasn't an issue. But now - surges, swells, and transients - can ruin manufacturing controls, computer and communication systems.

• Long term financing/leasing procurement -

and - secondary financing entities -

Mike Eckhardt - before he sidetracked his

career to ACORE - he actually was doing (and is

still doing something profound) BEFORE USA had a secondary mortgage market for housing, the average bank loan was 7 years - the US Government adopted the concept to make housing more affordable for the life of the user *(purchaser) and now housing starts are one of the key indicators of the health and growth of the US economy. Do I need to say more?

Particularly for the capital intensive (non fuel technologies: geothermal, solar, wind, and water (hydropower and other water technologies - tidal, current, thermal) this would be a profound breakthrough in public policy but market barriers - particularly if it included infrastructure bonds.

What does this mean for traditional incentives such as RD&D and tax incentives? To clarify - we do not have a free energy market in the USA - so traditional, old, incremental improvements of energy technologies by mature companies, in mature markets with mature technology get billions of dollars of incentives -- intangible drilling, depletion allowances, special treatment on coal royalties, overseas refining credit, waivers on environmental rules and pre-emption of local government requirements, etc., etc. So I wish to be clear - that while we orchestrate for the RE market's adult years - we do not become naive that inelegant policy approaches to achieve parity in the market or to compensate for earlier inequities should be foresaken.

But new models and approaches are required - and it is time to say we have graduated, not as an energy side show but a true force, an unstoppable force in the US and global markets - the RE industries need to plan for this ‘relevant' near-term future and be treated accordingly -- and it is "US" in this extended family to drive this new era.. Your appearance at this Phase II Conference shows interest -- now the challenge is the details and the determination. Thank you hearing me out, and me and my company look forward to joining you on this great journey. Thank you again.

Scott Sklar
President
The Stella Group, Ltd.
1616 H Street, N.W., 10 th floor
Washington, D.C. 20006
Phone: 202-347-2214 Fax: 347-2215
E-mail: solarsklar@aol.com
Message beeper: 202-347-2214 via
answering service
Web sites: www.thestellagroupltd.com