It's solar power's time to shine

Soaring oil and gas prices have finally persuaded US industry and government to get serious about renewable energy -- and solar thermal energy looks particularly promising.

By Jon Markman

The dirty little secret of the energy biz these days is that exploration executives don't want to see $130 oil, $12 natural gas or $4 gasoline any more than we do. For they fear two words that strike terror into the hearts of oilmen everywhere: demand destruction.

Nobody really knows where the tipping point of energy prices is -- that last straw on the camel's back that makes ordinary citizens and business planners decide enough's enough and, en masse, stop using so much -- but it sure seems close. From where I stand in Seattle, it's already here.

It's that moment when a soccer mom decides not to drive across the state in her Chevrolet Tahoe for a youth tournament, letting her daughter carpool with teammates. That moment when a father in Tucson decides to just keep the home windows open in 95-degree heat instead of turning on the air conditioner. That moment when a regional food-products salesman decides to call his customers on the phone, rather than spend $200 on gas to visit them in person.

It's almost as if you can hear the balance tip, conversation by conversation. And once long-held habits begin to change, the effects can be like a dam burst: shocking, widespread and long-lasting. On the consumer side, we can just look at the report out of General Motors (GM, news, msgs) on Tuesday that shows sales of its macho, gas-guzzling trucks were down 37.5% in May compared with a year ago. Now that is what I call demand destruction.

Our Saudi Arabia of sunshine

And yet it's the business side of the ledger that is far more important, as industry uses an order of magnitude more energy than the public. It may have taken a quintupling of oil prices in five years to ring the alarm bells, but the nation's industrial giants and their lackeys in government have finally decided to get serious about renewable energy and not just talk about it in PR campaigns.

Nothing typifies the renewed focus on renewable-energy sources more than solar energy, as authentic, large projects are just now getting under way in California, Nevada and Texas. This makes sense, as the U.S. Southwest is our Saudi Arabia of sunshine -- meaning it has the greatest need for cooling as well as the best stretches of open desert land for collecting, concentrating and distributing rays.

The rap on solar energy has always been that big arrays of photovoltaic cells are too expensive, too hard to maintain and produce a stream of energy that is too variable with the sunlight for intense industrial exploitation and can't be easily stored for use on rainy days. And in many ways, the photovoltaic story is still a challenging one because of a confounding worldwide shortage of the specialized chips that make it work.

But the real focus these days is on a much more low-profile and, let's face it, duller application: solar thermal energy, or STE if you'd prefer the hip shorthand version. You can forget all the fancy electronics and hippie jokes with solar thermal. Stripped to its core functionality, all that STE producers do is reflect sunshine off a mirror to boil a pressurized liquid that turns into bursts of steam that turn a turbine.

Though a California government mandate demanding that the state's utilities generate 20% of their energy from renewable sources by 2010 has been key in getting the ball rolling for solar thermal, the skyrocketing cost of natural gas and coal is really giving this business a spark. Just check the headlines: On Tuesday afternoon, FPL Group's (FPL, news, msgs) Florida Power & Light announced it was asking state regulators to OK a whopping 16% increase in residential bills -- just to keep up, not for added profits.

Science catches up

Florida Power, it turns out, happens to be one of the country's leaders in developing solar thermal energy, as well as wind farms. It's pure economics, not a green dream anymore. Nathaniel Bullard, a senior analyst at think tank New Energy Finance in San Francisco, told me that utilities see STE as their best hedge against fuel price variability.

If you build a natural-gas or coal plant to help you generate electricity for customers, he said, you are a "price taker" in that you have to accept the world-market cost of natural gas, over which you have no control. In contrast, if you build a wind or solar thermal farm, you are exposed to the cost of steel and labor at the time of construction, but you are never exposed to an increase in the cost of wind or sun.

"This is not science fiction anymore -- this is real stuff," Bullard said. Again, it's all business. Once a wind or sun farm has been built, you see, the entrepreneur or developer contracts with an "offtaker," or utility, to provide a certain number of megawatts of electricity at a certain price for the length of the contract.

The problem with solar up until now has been an inability to guarantee a base load, or steady amount of electricity, at all times. But new tweaks of technology from companies such as well-financed Silicon Valley startup Ausra have changed that. Its Compact Linear Fresnel Reflector, which sounds like something Doc Brown might have created in "Back to the Future" with a flip of his flux capacitor, uses some trippy "molten salt" and an ingenious heat storage system to store sunlight for up to 20 hours.

Ausra, which is hellbent to be the Cisco Systems (CSCO, news, msgs) of solar -- which is possible, I suppose, since it is financed by computer networking pioneer Vinod Khosla -- believes that since seasonal and daily patterns of solar rays correlate strongly with electricity use, its inexpensive generation-and-storage system can create enough electricity from a few square miles of Nevada desert to supply half the country with power for electric vehicles. That would be an especially neat trick because it produces virtually no air pollution.

It looks to me that price and need have come together to finally make solar thermal a normal and fast-growing part of the national energy budget. The industry likes to point out that between 1996 and 2005, U.S. utilities built 250 gigawatts of natural-gas-fired plants, now producing a quarter of the nation's total. There's now nothing standing in the way of building another 250 gigawatts of power using pollution-free solar thermal.

Acciona Solar Power, a big Spanish company, has already begun operating a 64-megawatt solar thermal plant near Las Vegas. Solel Solar Systems, of Israel, has built a 550-megawatt solar thermal plant in the Mojave Desert of California and will send most of its capacity to power company PG&E (PCG, news, msgs) of San Francisco. BrightSource Energy, of Oakland, Calif., is building a 400-megawatt solar thermal plant in the Mojave. And Stirling Energy Systems, out of Phoenix, has drawn up plans to build two big solar thermal plants in conjunction with Los Angeles-area utilities.

Most of these companies are private or foreign, and the parts involved are pretty mundane, so thus far there's not a lot for independent investors to buy to take advantage of the boom in solar thermal. But I'll keep looking and keep you posted.

Fine print

To learn more about Ausra, click here. This page explains the technology, which you don't need a doctorate to understand, and this .pdf file provides the history and science behind it. . . . Learn all about the Nevada Solar One project of Acciona here. This page has good photos of the mirror farm. . . . Learn more about Israel's Solel at this site. The FAQ at the site will get you up to speed with such notions that a solar thermal plant 1% the size of the Sahara Desert would fulfill the entire world's energy demand. I don't know if that's true, but it sounds good. You can see the pace of contracts at its press page. . . .

BrightSource Energy is another industry biggie, with $115 million in its latest round of venture financing from heavyweights like Google (GOOG, news, msgs), BP (BP, news, msgs) and StatoilHydro (STO, news, msgs). Click here to learn more. See this page for details on its Power Tower technology, which looks like something right out of a "Star Wars" movie. . . .

It kind of takes your breath away to realize that crude oil went for $40 per barrel as recently as 2004, and that was already considered extremely high. Check out this column from July of that year in which I speculated on the economic depression that would ensue if oil were to double to $80. Whoops. . . . So maybe recent speculation I'm hearing that natural-gas futures could double to $22 over the next two years isn't so outlandish. . . .

There are quite a few songs to put you in the mood of solar thermal stocks, including "Pocketful of Sunshine" by Natasha Bedingfield, "You Are the Sunshine of My Life," by Stevie Wonder and my personal favorite, "Ain't No Sunshine" Bill Withers or Freddie King. For a bit more kitsch, there's always "Good Day Sunshine" by The Beatles, and for those of you who love classic guitar riffs and the stories behind them, you have to check out this short documentary video about the making of Cream's "Sunshine of Your Love."

At the time of publication, Jon Markman did not own or control shares of any company mentioned in this column.

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