Shock of the new energy business models

David Crane is one of the most interesting and refreshing voices in the international energy industry. He is the CEO of NRG, one of the largest energy producers in the US with some 24GW of generation, and, until recently, one of the most polluting.

Over the past five years however, Crane has moved to turn the company towards clean energy resources. His principal message is that the old “hub and spoke” systems of centralized energy sources and poles and wires may soon be passed its used by date. He is a big fan of decentralized energy – something of a rarity in the established energy industry.

This week, he was interviewed at the Bloomberg New Energy Finance summit this week in New York. He explains why distributed solar is the biggest game changer in the industry in the last few decades, why the worst thing that happened to energy last year was that it became a political football, and his concerns about nuclear. You can watch the video here (22mins), but if you don’t have the time, here’s some highlights.

On solar PV: He says he tells business that if they evaluated the economics of rooftop solar a year ago, they are way out of date. If they did it three months ago, they are way out of date. “The price of solar PV has dropped like a stone,” he says. Within a year or two, he says, rooftop solar PV will available to American consumers at 12-13c/kWh – well below the retail price in most states. “That’s as much of a game-changer that I have seen in my 25 years in the industry.”

“Even though the price of natural gas has dropped like a the price of utility power in US gone up more than inflation in each of last 5 years. That is greatest opportunity that distributed solar has. What we been focused on is consumer awareness. People don’t like to think about electricity. It is a boring topic. People are used to it coming through the wall and they don’t know where it comes from and don’t care until it stops coming through the wall. “

On wind: “We started about 5 years ago going down the renewables path. We were very, very carbon intensive, but we decided that we needed to decarbonise for a whole series of reasons.” NRG bought a wind company, and developed several hundred megawatts in Texas, but sold the company. What he didn’t like was that to make efficiencies, the wind industry was making ever bigger turbines and having to site them further away from demand.

“We never believed that there would be a high voltage transmission system across this country. People don’t like them. People don’t want them.” He said he shifted to solar because of the huge technological improvements and because it could be done in a distributed way. “We’ve put all renewable eggs into solar at this point.”

On Electric vehicles: I thought the game changer would be the electric vehicle … it still might, but they are coming too slowly.” He own three EVs himself, but blames the lack of creativity among financiers for their slow rollout. “I would have thought by now for EVs people would have split off the battery and finance it separately. But you see companies emerging that are financing distributed solar.” (Apparently hasn’t heard of Better Place and its deal with GE)

The politics of energy: Crane says the worst thing that has happened in the energy industry in the past year has been the bomb throwing, and the politicization of renewable energy. “Wind and solar are seen as the construct of Democrats., the Republican used to be an “all of the above’ party.” Not any more. (Ed: And neither, it seems, the Tories in England, Canada and Australia).

Shale gas: There is no group of people that are less enthusiastic about the shale gas revolution than utility CEOs. The worst thing that can happen is that this becomes a single fuel sector. Multi-fuels is the best thing we have got going, but gas is destroying that.

Nuclear: Crane says he is a “fundamental believer” that nuclear power is a green solution. But he says that since Fukushima, the nuclear industry is in a “bad place”, where no one can be happy be they supporters or opponents. He says India and China will now lead the world on nuclear safety. “I feel more comfortable when the US does that – but you are not leading on safety when you are not building new technology.”

He says nuclear will not get built in the US because it cannot compete with gas. “When you are developing a nuclear power plant – there is no room for failure,” he says. “I don’t want to even quote the money we spent on developing a nuclear plant up until last year. But if we put a solar array on top of a roof and we get pricing wrong, what are we going to lose, $20,000 or something. You can afford to make mistakes when doing something on a distributed basis. You cannot afford to make mistakes when building a nuclear plant.”

Loan guarantees: NRG was the largest recipients of loan guarantees from the Obama Administration, $some $6 billion, and has three large scale solar projects under development in the south west of the US. Now that the program is winding down, he says these mega projects will be succeeded in the future by “lots and lots” of smaller projects.

Part of the problem is the attitude of the banks. “I don’t know why banks don’t like this business – you’ve got an off-take agreement with a California utility, and PV is one of the easiest things to install you have ever seen. I think this is low risk.” Crane says he imagines solar PV on 50 million rooftops in the US. “Even as the capital cost of solar comes down …that is a lot of money. … there is going to a lot of pressure on the CFO and the finance people to come innovative financing.”

Final word: “Nuclear, coal and natural gas plants are all getting more expensive – they are changing kinetic or thermal energy into electric energy, Solar is a chemistry, like a nano-technology – and there is so much room for continued improvement in price. I can’t imagine a situation where we would walk away from solar power. “