Hybrid Future

As the age of oil wanes, what will take its place? A little bit of everything Newsweek International Sept. 6-13 issue - "Solutions wanted. No idea too weird." If a classified ad could sum up the world's energy problem, this would be it. Experts generally agree that our current reliance on fossil fuels is unsustainable. Already oil is near $50 per barrel, and the great millions of Chinese and Indians destined to take to the road in the next decades have not yet gotten behind the wheel. If the clamor over global warming seems apocalyptic now, just wait until those two countries are as developed as the West. At the same time, even with higher oil prices, clean energy sources like wind and solar—not to mention hydrogen, an unproven technology barely off the drawing boards—don't yet make enough economic sense to replace oil. That's why many experts are starting to talk of building a hybrid economy. Rather than replacing hydrocarbons entirely, what we need to do is find ways to use less oil—and use it more efficiently. This means changing everything from the kinds of cars we drive, to the homes we live in, to the way we make and distribute electricity. It's a revolution in thought—and in the making. Have a look. This report is a collaboration with the World Economic Forum, which will hold a business summit on Sept. 12-13 in Beijing. © 2004 Newsweek, Inc.

People Power
The hybrid economy is going to need an electrical grid that can accommodate every available power source
By Fred Guterl and Andrew Romano
Newsweek International

Sept. 6-13 issue - It's not hard to imagine corporate executives treating Terry Penney's ideas with skepticism. Penney, an engineering manager at the U.S. government's National Renewable Energy Laboratory in Golden, Colorado, speaks with such enthusiasm that he tends to start on his next thought before finishing the last one. He can also be single-minded to a fault. His idea of recreation, after all, is holing up in his cabin high in the Rocky Mountains and going "off grid"—relying solely on solar panels and batteries big enough to supply heat and electricity for a three-day snowstorm.

Penney seems to have a knack, however, for knowing when a seemingly far-out idea is actually close at hand. Back in 1991, he met with executives from U.S. automobile and fuel companies to propose giving them government funds to develop a prototype car that could run on both a standard internal-combustion engine and batteries. They were skeptical, he says, but in the end "they took the money." Seven years later Toyota started selling its Prius hybrid car, and now U.S. automakers are playing catch-up. Is he prescient? Or just lucky?

These days Penney and his colleagues are cooking up a new and different role for the automobile in our energy future. "Look out in that parking lot," he says with a wave of his hand. "Those are what the utility industry calls stranded assets." The term usually refers to a generating plant that's not working at full capacity. But a car, with a bit of jiggering perhaps, would make a mighty fine little power plant, he says. If you take all the cars in NREL's parking lot (a few hundred) and plug them into the electricity grid, you'd have a megawatt of power—the equivalent of a small power plant. More to the point, if you plugged all the cars sitting in all the parking lots around the world into the power grid, you'd be generating about 10 times more electricity than the world currently consumes. "Talk about a stranded asset!"

Penney's car-as-power-plant idea may turn out to be a big conceptual piece of the energy puzzle. Energy experts know the world economy won't be able to rely on oil and other hydrocarbons forever, and that the future therefore lies in a broad array of energy sources large and small, from solar and wind, to hydrogen fuel cells in cars and basements, to microturbines that burn fuel made from corn and other plants. At present, no energy grid is capable of accommodating such a hodge-podge. With few exceptions, power lines now mostly run one way: from big centralized power plants to homes, factories and cities. More than 300,000 kilometers of power lines crisscross the United States, ferrying a quarter of the world's electrical power over vast distances. On average, 8 percent of this energy is lost as heat from the electricity as it moves through the wires. The blackout last year in the Eastern United States showed how poorly adapted power grids can be even to current energy needs.

If the energy grid were smarter—if it were more decentralized and democratized, like the Internet—it would improve efficiencies by shortening the average distance between energy producers and consumers. It would also make the grid less vulnerable to disruption from overloading, storms and terrorists. The idea is to build a flexible, dynamic grid that goes both ways—that both pumps out energy and accepts contributions from millions of homes. "Essentially you'd have energy producers and users all wound up in one thing," says John Turner, principal scientist at NREL. "It's a whole different look at how we make and use energy."

With a hybrid grid there would be no need to argue the merits of fossil fuels versus renewables. Which is good, not least because the two sides are far apart and both have valid points. Oil advocates are correct in pointing out that no fuel packs more energy per liter than oil. (ExxonMobil executives are fond of saying that the average gas station supplies roughly the same energy as more than 200 square kilometers of solar panels.) And whereas oil flows ready-made from the ground, hydrogen has to be manufactured by electrolysis, a process that involves sending an electrical current through water, which breaks down the liquid into hydrogen and oxygen.

In the context of a hybrid grid, on the other hand, this becomes one of hydrogen's biggest advantages. Just about any energy source can be used to make hydrogen, which in turn can deliver electricity not only to run a home or a factory but a car as well. In a hybrid grid, it would be possible for the first time to supply energy for transportation (now chiefly oil) and electrical power (coal, nuclear and natural gas) from any source whatsoever.

In this view, the automobile of the future begins to look like an underused power plant. Instead of gas, it's got a tank full of hydrogen, which runs its fuel-cell engine. When the tank runs low, you can replenish it at a hydrogen filling station. Or if you prefer, you can tap your hydrogen reserves at home, which your solar cells and windmill have been storing up while you're at work all day. If your energy needs are low and you find that between your car and house you have more than you need, you can always sell it back to the utility. Simply program your home-energy computer to shoot electricity back out over the grid at peak hours, when you can get the best rates. While you're at work sitting in an air-conditioned office, your car can be plugged into the grid, giving you another income stream.

In theory, a hybrid grid could create a dot-com-like burst of innovation in the power industry. It would stimulate interest in hydrogen cars (since you could refuel at home, there'd be no need to wait for hydrogen filling stations to become ubiquitous). It would open up a consumer market for power-generating equipment (solar cells, microturbines and the like). It would create a whole new class of entrepreneur: mom-and-pop energy suppliers.

Before any of that can happen, of course, there are a thousand obstacles. The power industry would have to develop a mind-boggling number of standards and specifications. That's hard but not impossible—many smart engineers are working on it now. The bigger trick will be in getting the utilities, which in most countries are complacent monopolies, to embrace change. To build a hybrid grid, power-industry executives would need to get out of the habit of thinking only in terms of big, expensive infrastructure like power plants. They'd have to think more like their counterparts in the auto industry, who won't look at a product they can't manufacture in the hundreds of thousands. "A car rolls off the assembly line somewhere in the world every two seconds," says NREL's Turner. "The energy industry has to learn from the automotive guys how to manufacture things at high speeds and high volume."

There are already signs that the power industry is changing in small ways. Japan, concerned that it was too reliant on energy imports, embarked in 1993 on an ambitious plan to promote solar power. Now about 170,000 homes in Japan are feeding the power company's grid. Hitoshi Iokawa, a translator and father of three in Utsunomiya, north of Tokyo, installed solar panels on the roof of his house in 1997 for about $33,000 (the government subsidized about $10,000 of it). Since then, he's been able to generate an income of about $460 each year selling electricity back to the power companies, enough to offset his electricity bills. "I like testing new things," he says.

The latter trend is spreading: one Nashville, Tennessee, doctor recently installed a wind turbine at his vacation home in Whangateau, New Zealand, where the power company pays him for the extra electricity the device generates when he's back in America. Ignacio Vella of Sonoma, California, powers the refrigerators in his cheese factory with 234 solar panels, then sells leftover energy back to PG&E, the local utility. More than 100 McMansions lining the streets of San Diego's San Angelo subdivision come equipped with solar panels that promise to cut the monthly power bill in half. And in Germany, thanks to the government's ambitious "100,000 Rooftops" initiative and some of the world's best net metering rates, thousands of wind- and solar-powered homes and businesses are feeding energy into the local grid.

In recent years, the small industry catering to such home-energy enthusiasts has seen a burst of innovation. Renewable Devices Ltd. of Scotland is marketing rooftop windmills that look like large weathervanes but can generate 4,000 kilowatt-hours of electricity a year (the average family uses 10,000 to 15,000kwh). PlugPower, an energy firm on New York's Long Island, is developing home refueling systems—closet-size hydrogen fuel cells—that —provide heat, hot water and electricity, as well as fuel for a hydrogen-powered car. And in May, BP Solar unveiled a solar electric glass that could one day turn windows and skylights into mini power plants.

Of course, most of these gadgets will soon be bought and used in developed countries. But opening up the power grid could be a particular boon to energy-poor countries like India, where power supply lags behind demand. Indian sugar producers, frustrated by the inconsistencies of local utilities, have already begun producing their own electricity from bagasse, a byproduct of sugar cane. In Karnataka and Maharashtra, producers are generating 500 megawatts of power per year, mainly for their own operations, and selling some of it back to the energy utilities. In the next few years the power generated from these plants is expected to increase tenfold, says M. N. Rao of the Indian Sugar Mills Association. The Indian government is supporting the effort as a way to prop up its energy industry. "Exported power to the grid not only improves the commercial viability of the sugar mill, but it also helps in voltage stabilization of the local grid," says a government official in New Delhi.

One of the biggest question marks is whether the energy-buying public is going to go for a hybrid grid in a big way. How many people want to worry about whether they remembered to plug in the car when they parked it? Silvia Diaz, for one, doesn't seem to mind. She's one of the few homeowners in America who still plans her laundry schedules around the weather. If it's cloudy out, she'll leave the pile of pants and socks and T shirts for later. But if the sun is shining, it's all systems go.

Since August 2003, Diaz and her husband, Rafael, a truckdriver for a local towing company, have lived with their three kids in a Watsonville, California, house that uses both energy-efficient construction and solar-power generators. It's one of 257 Zero Energy Homes in the Vista Montana subdivision. Diaz is keenly aware of the solar panels on her red tile roof, which offset the energy her family consumes (mostly through videogames, she jokes). She always consults her meter before deciding whether to wash the whites. "The meter is right next to the laundry room," she says. "We can see how much energy we're generating and how much we're using." The Diazes were sold on their current home when they found out they'd save two thirds of their utility bills. "We weren't energy conscious at all," she says. "But now we definitely are." That's a phrase that's bound to catch on.

With Kay Itoi in Tokyo and Sudip Mazumdar in New Delhi
© 2004 Newsweek, Inc.

Digging Deep
Even remote patches of oil are starting to look more and more attractive
By Adam Piore
Newsweek International

Sept. 6-13 issue - Its approach echoes across the desolate plains of northern Alberta like the Tyrannosaurus rex that ruled here 265 million years ago. But even a three-story carnivore would have been no match for the Caterpillar 797 dump trucks that dominate the area now. Each of these metal behemoths rides on four-meter tires and carries 363 metric tons of oil-soaked tar sands, scooped out by gigantic shovels nearby. Owned by Shell, the machines are transforming this barren landscape—and the way oil companies think about fossil fuels.
For years, most such firms ignored the kind of oil that soaks these sandy steppes, dismissing it as too difficult and costly to get out of the ground. But the business is changing rapidly. Today, established fields in the Lower 48 United States yield less than half what they did at the peak in the 1970s. Some experts believe supplies from the oil-rich Middle East may begin to decline sometime in the next decade. Yet industrialized nations show no signs of slowing down consumption. Indeed, most analysts predict China's hunger for oil will soon surpass that of even SUV-choked America.
With oil prices high and demand outstripping supply, companies are increasingly venturing into rugged areas that only a few years ago they would've scoffed at. "High oil prices are here to stay," says former Venezuelan Oil minister Humberto Calderon. "The world has to be prepared." That means exploiting reserves of oil that have until now been uneconomical.
Geologists are venturing into the remote, icebound waters off the coast of Norway. At the massive Kazakh oilfield of Kashagan, oil companies have constructed two islands to stabilize their equipment and drill in freezing temperatures without endangering the local environment. In Chad, similar firms have begun to construct a massive infrastructure that includes roads, pipelines, housing and the drilling machines required to extract deposits. All these projects are expensive and seemed impractical only a few years ago. Now, regardless of what oil prices do in the coming weeks and months, many experts believe that such investments will eventually pay off.
Today's prices only make the investment easier to sell—crude futures recently topped $49 a barrel, more than four times the price in 1998. That kind of price jump makes all the difference in places like Alberta, where the cost of extraction is 10 times as high as in some Middle Eastern countries. Although Alberta is on a par with Saudi Arabian oilfields in terms of the sheer amount of oil trapped in the ground, nature has made that oil much less accessible. Both sets of deposits were formed over millions of years, as organisms fell to the bottom of nutrient-rich seas and were buried, before they could decay, under a sheen of sediment. Then heat and pressure slowly baked the mass of energy-rich material into oil. But whereas rock formed a protective layer over the fields of the Persian Gulf and Texas, the Alberta oil leached out, mingling with sand, rock and other materials on the surface. Separating it out is difficult and expensive—in Kuwait, it costs a mere $2 to get a barrel of oil out of the ground. It costs Shell $15 to produce a barrel from the tar sands of Alberta—which is why the reserves sat largely untapped throughout the 1980s and 1990s. "The prime driver of what's being extracted is the cost per barrel," says John Gibson, president and CEO of Halliburton's Energy Services Group. "When the price of oil is back down in the 20s and high teens, there's a lot of risk."
Twenty years ago you couldn't build tires large enough to support the 182-metric-ton payloads that Shell's trucks now haul across Alberta. The technology to separate out the oil was not nearly as energy efficient, either. Now the trucks dump the sand into huge crushers, which grind it down to fine oil-coated grains. Conveyor belts carry the result into huge vats and mix the sand with hot water, then spin it in centrifuges to separate out the oil. "In the last decade, our process has become 40 percent less energy intensive because of technology," says Neil Camarta, senior vice president of oil sales for Shell Canada, which began operations in Alberta last year.
Venezuela's previously untouched fields of oil sludge—oil so dense as to be almost useless without special treatment—are also getting a hard look. New computer technology allows engineers to map these underground oil deposits by taking seismic images; they can then use joysticks to adjust the angle of drilling and drive wells nearly horizontally. Even so, it costs $10 more to remove the oil from the gooey tar.
Other advances in technology are reaching into even more remote and inaccessible places. Deep-water oil, where reserves are sunk more than 7,000 meters below the surface, is a newly hot contender for extraction. High-speed computers monitor the treacherous currents swirling around floating oil rigs, and adjust drills continuously to make sure they remain on course. Engineers have driven down the cost of offshore oil to between $15 and $20 per barrel. "If it weren't for advances, the cost could easily be $100," Gibson says. Shell, Texaco and BP among others are currently exploring deep in the Gulf of Mexico, Brazil's Atlantic coast and the west coast of Africa. There might be 100 other offshore deposits worth checking out as well, says Gibson.
"If the perception takes hold that we're going to have $40 oil year after year after year, then you would see even more activity in exploration and production in remote places far from developed infrastructure," says Robert Ebel, chairman of the energy program at the Center for Strategic and International Studies in Washington. If so, tomorrow's oil tycoons could rise from the ranks of Native American landowners in Alberta and tribesmen in the African bush. For most of us, the changes means that the price of gas may continue to rise, but the pumps won't run out any time soon.
With Phil Gunson in Caracas and Frank Brown in Moscow
© 2004 Newsweek, Inc.
URL: http://www.msnbc.msn.com/id/5821973/site/newsweek/

The Alaskan Front
Where the battle of greens versus big oil is heating up, once again
By Brad Stone
Newsweek International

Sept. 6-13 issue - In early August this year the remote Arctic National Wildlife Refuge in northern Alaska was gripped with unseasonably mild weather: 20 degree afternoons, ravenous mosquitoes past prime insect season and dry tundra in the typically swampy lowlands of the coastal plain. These may be early signs of global warming, which is ironic, because the Arctic refuge is the 19 million-acre nature preserve that the Bush administration has targeted as the optimum spot to drill for oil and natural gas, the very fossil fuels whose use drives climate warming in the first place. "The debate over new oil exploration gets even more confusing when we have to factor in climate change," says University of Alaska, Fairbanks, biologist David Klein.
Despite concerns over global warming, recent events have intensified pressure to develop new oil and natural-gas resources in Alaska. Instability in the Middle East, Venezuela and Russia have fueled calls in the United States for oil independence, while rising oil prices make new exploration and development more profitable. Despite setbacks for his energy proposals in Congress, President George W. Bush touts developing Alaska as a top priority for a second term. Environmentalists say the potential of Arctic Alaska is too small to justify the threat drilling poses to a unique wilderness, where migratory caribou roam and arctic terns nest for the summer. But Vice President Dick Cheney told campaign audiences recently that "we are at the mercy of international oil prices" because "we've taken large chunks of the country and put it off limits to any kind of exploration or development."
In the past, oil interests have won the battle of energy versus the environment at times when oil prices and geopolitical tensions were high. Congress authorized the 1,287km, $8 billion Alaska oil pipeline in the early 1970s, when the OPEC embargo sent prices skyward. Now analysts estimate that a total of 3 billion barrels could be profitably produced from the Arctic refuge at $20 a barrel—and far more at recent highs of more than $49 a barrel. "With high oil prices and the pressure on oil companies to grow, some of the projects that used to be looked at only marginally are now becoming viable," says Jay Saunders, an energy analyst at Deutsche Bank. In the past few months various oil companies and the state of Alaska have proposed opening new wells off the coast of ANWR and in the National Petroleum Reserve to the west of Prudhoe Bay, and have unveiled detailed plans to build a natural-gas pipeline from Prudhoe Bay east to Canada and south to Valdez, Alaska.
Environmentalists argue that increased oil exploration in the Arctic does not curb prices or lessen U.S. dependence on foreign oil. They also say that the rapidly changing Arctic climate is increasingly vulnerable to drilling. Melting permafrost underneath the soil is currently altering the rich vegetation that sustain caribou; the shorter winters are hampering the construction of ice roads and other tools of environmentally sensitive oil exploration. "The oil industry does not have the methodologies and techniques worked out for a rapidly changing environment," warns biologist Klein. Still, for as long U.S. energy security appears threatened, the environmentalist stand will be vulnerable, too.
© 2004 Newsweek, Inc.
URL: http://www.msnbc.msn.com/id/5821954/site/newsweek/

Oil Isn't Going Away
The real threat is the ever-rising challenge of meeting global demand
Newsweek International

Sept. 6-13 issue - ExxonMobil CEO Lee Raymond is known as an oil man's oil man, with little patience for fuzzy green alternatives. Who better to ask about the semisoft idea behind the hybrid economy—reducing rather than replacing fossil fuels in the energy system? NEWSWEEK's Tony Emerson spoke to Raymond in his Irving, Texas, office. Excerpts:
EMERSON: Do you think the hybrid idea has applications beyond cars—for homes, society?
RAYMOND: Well, the fundamental energy used in the home is electricity, and there's a legitimate debate about how you generate electricity. Is it going to be oil-fired, gas-fired, nuclear? The facts are [that] large-scale electricity generation is going to have to come from fossil fuels in the near term, and perhaps more nuclear in the long term.
So you foresee a fossil-fuel society.
Correct. For the next 20 years, growth in the world economy is going to raise demand by oil and oil equivalents from something on the order of 65 to 85 million barrels a day, to 330 million [barrels], which is a huge, huge number. It's like eight Saudi Arabias. It's hard for anyone to be able to grasp the immensity of the energy system, and what that leads to is, unfortunately, people who are well intentioned talking about items that are not significant.
Such as?
Wind and solar. I'm not against wind. I'm not against solar. But they are uneconomic. They don't compete on a stand-up basis with fossil fuels. They require huge subsidies. If you assume 20 percent growth in wind and solar for 20 years, it's still a half of 1 percent of the world's energy.
You've said the natural decline in oil supplies is misunderstood—how so?
It's the compounding of large numbers. Demand grows at something like 2 percent a year. Doesn't sound like much, but back in 1972, that came to 800,000 barrels a day; now it's 2 million barrels a day. At the same time, the base from which you produce is in decline at 3 to 4 percent a year, or about 1.5 million barrels a day in 1972, and 3 to 4 million barrels a day today. So the gap has grown from about 2 million to 6 million barrels a day. What needs to be done every year to fill the gap becomes an increasingly immense task.
And this leads where?
Well, if you get the philosophers into the room, they will tell you that ultimately oil is a finite resource and therefore there has to be a point at which you're not able to fill this gap, so to speak. That's a little bit simplistic, because the amount of any commodity is not independent of the price.
Do you agree with those who say the long-term price of oil is rising?
I'm a skeptic. In 40 years, I've heard at least five or six times that we are going through a new paradigm in the oil price. It has never happened.
Is there a "next oil"?
Thirty to 40 years from now, the combination of price and new technology is going to make unconventional oils—heavy oil, tar sands—conventional.
As a critic of the "myth of energy independence," what do you think of our current national policy?
What national policy? Would you articulate what the current policy is? [Laughing] Then I'll comment.
Well, your call for governments to focus on supply sounds like the Bush policy—is he on track?
Well, I'm not going to get into a political one-versus-the-other kind of thing, but the idea of "energy independence" is just a flawed notion. I've heard about it going back to Johnson. I'd make the same comment, doesn't matter who's in the White House. Independence just appeals to Americans. It's a national trait, but it's not realistic in energy.
What about conservation?
We should be better in how we consume energy. But contrary to our critics, we are probably the most efficient users of energy in the world. These people say, well, we have only 2 percent of the world's population and use 30 percent of the energy. Yeah, but we produce 35 percent of the world's products, too, so you need to keep this in perspective in terms of what we do here. Now, do we want to give up our way of life? If you ran a poll you'd get a pretty resounding—well, some people would say yes, but the vast majority would say no.
Your strategists say the non-OPEC supply is going to start falling around 2015. How does that affect your planning?
Well, I know what the planners say, but they come to me every 10 years saying the same thing, and the decline is always 10 years off. I just don't see it happening.
© 2004 Newsweek, Inc.
URL: http://www.msnbc.msn.com/id/5829947/site/newsweek/

The High Road
If China steers its auto industry toward hybrids and perhaps hydrogen cars, the world may have no choice but to follow
By Craig Simons
Newsweek International

Sept. 6-13 issue - Yu Zhuoping hasn't taken a vacation in two years. Nor does the 44-year-old take many weekends off. Instead he logs 12-hour days in a soccer-pitch-size laboratory filled with flashing computer screens and disemboweled electric motors. He's trying to build the future—in the form of hydrogen-powered cars that can not only work, but can sell. Since Yu's team of 28 Ph.D.-level scientists and 200 students at Shanghai's Tongji University began the work in 2002, they've come out with two generations of cars—built with Chinese technology.
"That's something that nobody thought we could do," he says, glancing out from under the silver hood of Start II, the project's newest prototype. "Now people say we won't be able to make them marketable. So we'll just keep working."
In China such optimism is par for the course. Beijing is undaunted in its ambitions to become a world leader in hydrogen-fuel-cell-powered cars. The dream is not farfetched. Making hydrogen cars a reality is only partly a matter of coming up with technological breakthroughs. It also involves replacing gasoline filling stations, refineries and internal-combustion engines with hydrogen equivalents. China's relative lack of development may thus be a virtue; the country's leadership has a relatively clean slate upon which to build a hydrogen-car industry, should it choose to do so.
If the technology could be made cost-competitive with fossil fuels—which many analysts predict will happen in the next two decades—hydrogen cars would make sense as a national strategy. By making China the world's biggest market for hydrogen cars, Beijing could attract investment in the latest technology and bootstrap a world-class Chinese auto industry, reducing China's demand for imported oil in the bargain. Of course, there's a sizable industry that is pushing the country in the opposite direction, toward fast growth using quick and dirty conventional technology and fuels—and even fighting against tighter emissions controls than in the West.
Which strategy China chooses stands to have a huge impact on the country—and on the rest of the world. At present, the Middle Kingdom is traversed by relatively few cars—only about 20 million. That amounts to barely eight cars per 1,000 people, which is a far cry from the 100 in Brazil or the 940 in the United States. China is catching up quickly, however. At its current rate of growth, the country will surpass Japan and become the world's second largest auto market by 2011, with annual sales of 5 million cars, says Yale Zhang, a research director for the consulting firm CSM Worldwide. China, already the world's second largest importer of oil, would have to double imports every seven or eight years to keep all these wheels spinning, says James Brock, an energy consultant in Beijing. By steering China toward more fuel-efficient hybrid cars as a precursor to a hydrogen-based auto industry, Beijing would take a giant step toward curbing greenhouse-gas emissions and reducing the worldwide demand for oil. It would also give the big carmakers an incentive to develop similar vehicles for the China market.
A coterie of engineers are working to make that happen. They've got a good deal of support from Beijing, which has pumped nearly $200 million into fuel-cell research in the past two years. (The United States plans to spend $1.7 billion over five years.) Wan Gang, the chief scientist in charge of China's electric-vehicles project, expects funding to increase "several-fold" in coming years. The money has been parceled out to Chinese universities and local industries that have so far produced more than 1,000 patent applications and created a domestic capacity to build hybrid cars and fuel-cell buses. Chinese President Hu Jintao and other top leaders "definitely talk about sustainable growth, energy efficiency and environment-friendly vehicle technology," says David Chen, general manager of GM's Beijing office. And the talk isn't just rhetoric. The government funds a program to develop electric cars, with more than half its $320 million, five-year budget going toward fuel-cell R&D. "The Chinese government," says Wan, "will go to all lengths to make fuel-cell cars work."
Beijing has already begun to create an alternative-energy-vehicle fleet of buses. The central Yangtze port city of Wuhan runs several hybrid buses and, Wan says, city officials are planning to buy more. Beijing's public-transportation armada includes 120 pure-battery buses. Beijing and Shanghai plan to build hydrogen fueling stations next year. That will help them when it comes time to convert the country's 190,000 natural-gas taxis and buses, one of the world's biggest natural-gas fleets, to hydrogen.
State-funded R&D centers are also spinning off for-profit companies that would export hydrogen-technology-based products. Ouyang Minggao, director of China's National Laboratory of Automotive Safety and Energy, also heads the start-up company SinoHytec, launched by Tsinghua University, China's MIT. SinoHytec plans to start building fuel-cell buses, with a plan to sell them by 2010.
If companies like SinoHytec are profitable, they could create a big enough market to drop the price of fuel cells and to finance an infrastructure of hydrogen fueling stations. That, Tongji's Yu says, would make a fuel-cell-vehicle market possible by pushing the price of domestically produced fuel-cell cars down to about $42,000 per automobile. The government, he says, would help out by creating a "favorable marketplace" with incentives for fuel-cell- car buyers. Tongji's for-profit start-up, Shanghai FCV Powertrain, expects to sell 250,000 fuel-cell cars by 2020.
Before that happens, though, China will have to overcome some formidable technical obstacles. Most difficult will be reducing the cost and increasing the life spans of fuel cells themselves. If fuel-cell buses went on the market today, they'd cost at least $1 million and could travel only 200 kilometers between fill-ups. Enough fuel-cell batteries to run a bus would cost roughly $100,000. There's also the problem of storing and transporting hydrogen safely and affordably. Some are skeptical about whether China will be able to pull off the conversion. "In a lab you can show that [the technology] is working in one experiment," says a Western auto executive based in Beijing. "But taking that to selling it at Kmart is a different thing."
China won't have to go it alone, thanks to a bevy of international companies eager to bring new technology to the mainland. GM joint-venture partner Shanghai Automotive Industry is working with Tongji University, and Toyota is considering producing its hybrid car, Prius, on the mainland. Palcan Fuel Cells, one of the world's top manufacturers of hydrogen storage tanks, hopes to partner with Tongji's FCV Powertrain to build fuel-cell scooters for export to Europe. For the moment, Palcan's two China-based manufacturing plants are for export only. But, Canadian-Chinese CEO John Shen says, "In the long term, China will be our top market."
Perhaps the biggest barrier to China's hydrogen strategy is the country's existing auto and fossil-fuel lobby, which has a big stake in the status quo. Despite all the green rhetoric in Beijing, China is building big highways and lining them with gas stations. Although China recently tightened its fuel-economy standards, emissions standards remain lax. Indeed, one of the tragedies of China's pell-mell development is that the country hasn't carefully considered the social costs of its growth model. Rather than encouraging private car ownership, China could have chosen to promote public transit, heavily tax road use and put surcharges on gas to avoid the pitfalls encountered by the United States. Yet so far it hasn't.
In the next few years, China's hydrogen proponents will be pressing their case. Hydrogen, they argue, may be a matter of survival. For one thing, the nation's growing demand for oil poses a national-security risk. Developing a hydrogen-based economy would relieve that pressure. China's growing environmental problems are another argument for developing hydrogen. Rapid growth has made Chinese metropolises some of the world's dirtiest. Car emissions are the No. 1 culprit, and a switch to hydrogen fuel cells—which emit no pollutants—would solve much of the problem.
The most convincing argument may be success. Yu and his team of researchers are due to finish their third-generation prototype of the Start fuel-cell car, built in a Volkswagen Santana body that the company donated, later this year. It will be lighter and more durable than its predecessor, which Yu says will make it "more marketable." After they get that done, they'll turn to Start IV. "We have the spirit to succeed," Yu says. If China does, the whole world will know it.
© 2004 Newsweek, Inc.
URL: http://www.msnbc.msn.com/id/5829986/site/newsweek/

The Gas Misers
Toyota's new hybrid may just be the biggest thing in cars since the combustion engine
By Michael Hastings
Newsweek International

Sept. 6-13 issue - Richard Pearce has turned out his old love, a 1989 Dodge pickup truck. In 2002 the 50-year-old retired soldier and his wife decided to bring a Toyota Prius hybrid back to their Virginia home. They "fell in love with the technology," which uses an electric motor at low speeds and a small engine at high speeds to power the car with a lot less gas. Now a new, 2004 Prius sits in the garage alongside the older model, and the pickup languishes in the driveway, used sparingly to haul garbage to the landfill. Pearce says he'd never think of taking the truck on his 26-mile commute. It gets less than 20 miles a gallon, while the Prius gets 60, so he wouldn't be able to use the special lane Virginia has set up for fuel-efficient cars. "We'll never have anything but a hybrid again," he says.
Pearce's extreme embrace of the Prius was once the stuff of wild dreams for the Toyota engineers who developed the brand. They had hoped the gas-electric hybrid, introduced in Japan in 1997, would become nothing less than a new Corolla or Camry—sedans that made the company's reputation in America. Last year sales of those two models helped push Toyota past Ford to become the world's second largest carmaker, laying huge tire tracks for the unproven Prius to fill. The first hybrids sold at such a high premium over regular sedans that buyers couldn't save enough on fuel to come out ahead—yet were so expensive to make, Toyota took a big loss on each one. While Toyota's engineers made grand statements about the car of the future, its bean counters wondered whether there would ever be a mainstream market for these things.
The answer has caught Toyota off guard. Since October, Toyota has had to increase production of the Prius three times, most dramatically in August when it announced a 50 percent boost for next year to 15,000 vehicles a month worldwide. That's a fraction of its Corolla output, but enough to raise serious questions about whether Toyota innovations are once again leading a major revolution in the American market. While the automaker plans to send most of the new production run to the United States, there are still 22,000 customers on waiting lists for the car. "We didn't know how the consumers would react to this technology," says Don Esmond, a senior vice president and general manager at Toyota. "They've voted for it, they've voted with their dollars."
To be sure, the hybrid phenomenon is still only a ripple in the pool of American gas guzzlers. The highest estimates for the United States predict annual sales of 500,000 hybrid cars by 2009—about 3 percent of the 16.7 million car market. Analysts think that the price of fuel would have to hit $3 a gallon to see bigger sales sooner. Yet already the Prius is the first significant departure from the combustion engine to make any major inroads in the auto industry since Henry Ford invented the Model T in 1908. And major carmakers have learned never to ignore the ambitions of Toyota, arguably the best-run big automobile company in the world, with a reported stock-market value of $107 billion, almost four times more than GM or Ford. "For Toyota," says prominent Japanese car critic and environmental-technology specialist Tadashi Tateuchi, the hybrid car "may well be the key to world domination."
The key to the Prius story is rapidly advancing technology. The original project was launched in 1993 under the code name G21, for 21st Century Generation, with strong backing from Toyota chairman Shoichirou Toyoda, an heir of the founder. When the first Prius was unveiled seven years ago, it was an undersized, underpowered and overpriced experimental box of a car, which competitors felt free to ignore. Most rivals said they would concentrate on fuel cells and other fuel-efficient technology that wouldn't be widely available until 2010. When Toyota introduced the Prius to North America in 2000, it sold only 15,000 cars its first year—a minor hit, but mainly with environmentalists and Hollywood liberals like Leonardo DiCaprio and Cameron Diaz.
Toyota's napping rivals had given it a five- to 10-year technological lead by the time the new Prius came out last October, says Tateuchi. The new model's electric motor was 50 percent more powerful, its interior was almost twice as roomy and its body was designed to look like a futuristic sedan rather than an ecological-science project. The redesign cost Toyota untold millions, and putting that much into a product that "consumers didn't even know they wanted yet," says Esmond, was "a bit of a crapshoot."
The new Prius appears to be moving rapidly out of its green niche. Sales in the United States shot up by 153 percent in the first half of this year, by a whopping 874 percent in Europe; in Japan they increased tenfold. According to Esmond, once skeptical rivals are now jumping on the bandwagon. "I don't want to say they're scrambling, but they are trying to quickly put together their own hybrids," he says.
So far Honda has given Toyota the only competition for the hybrid market with the Civic and the Insight. But the first hybrid SUV, Ford's Escape, hits the streets in September. Nissan recently announced that its hybrid Altima sedan will arrive next year. Later this year Dodge plans to roll out a diesel-electric pickup. GM plans hybrid —models of the GMC Sierra and the Chevy Silverado. Honda plans to unveil a hybridized Accord in the fall. Hyundai says its hybrid will be ready in "the near future." According to CSM Worldwide, a Detroit-based research firm, by 2007 there will be some 22 hybrid options for popular models, including even Hummer's H2.
In America the lust for the largest gas guzzlers seems to be slowly waning. Though SUVs are still the top-selling vehicles, the mix of SUVs is tilting toward smaller models. And because big SUVs have driven the average gas mileage of the American fleet down to 20.4 miles per gallon, its lowest level in two decades, the Big Four automakers risk falling afoul of fuel-efficiency regulations. That's one reason many of the new American hybrid designs are for SUV models. But the bigger reason is Toyota. "We can't just sit here as a major corporation and say, 'Trust us, you'll get a fuel cell from us and in the meantime, we're not doing anything'," says GM vice chair-?man Bob Lutz. "With more and more of our competitors playing the hybrid card, there was just no way we could ignore that."
Europe has been slower to respond. It has already chosen diesel as its cleaner, more efficient fuel, and the diesel market is dominated by German carmakers. Indeed, one reason Toyota pursued hybrids was that it was so far behind in the diesel market. But growing sales of the new Prius could change all that. Lindsay Brooke, an analyst at CSM, says every big car company has to be thinking that "if the Japanese kick-start this thing, you've got to have this technology on the shelf, especially if the fuel price really rises."
The Prius faces two critical turning points before it can be called a true mass-market car. It needs to be profitable, and practical. When Toyota first introduced the Prius, it was reportedly losing $3,000 on each car. The company now says the line is profitable, but analysts aren't convinced. "I know engineers at rival carmakers who've done total teardowns of the Prius—comprehensive, bolt-by-bolt cost analysis," says Brooke. "Toyota is getting close to breaking even," probably within the next five years.
Reaching that point takes longer for the consumer. Most hybrids sell for $2, 000 to $3,000 more than comparable sedans, and drivers would need at least 10 years and 100,000 miles to recoup that much in gas savings, analysts say. But those who say hybrids must narrow that gap to boost sales ignore the power of instant gratification: Richard Pearce says he pays $10 a week in gas, compared with his neighbor's $60.
Last year Toyota launched a U.S. ad campaign pitching the Prius as a big, sexy "real car," not a green techno curiosity. One spot called Prius "the world's biggest hybrid," and showed the universe being sucked into the car's yawning rear hatch. The ad also noted that "you never plug it in"—an attempt to distance the Prius from old electric cars. A Toyota ad this summer billed "mpg" as more peaceful getaways, over a picture of a scantily clad couple on the beach.
It's also worth noting how much attention Toyota is focusing on hybrid technology. Toyota is posting record sales and building a cash reserve of more than $40 billion while other carmakers are struggling. "They could eat a number of other car manufacturers for lunch without even noticing it on their balance sheet," says auto analyst Ryan Tutak at Ducker Worldwide. Yet Toyota has avoided the recent frenzy of industry mergers and instead focused on key models, including hybrids. A hybrid luxury SUV will appear next year and a hybrid Camry in 2006. "Ford and GM have more brands than anyone, but Toyota is piling up the money," says Tutak. "Which horse are you going to bet on?" For Toyota at least, hybrids look like a winner.
With Keith Naughton in Detroit, Masato Kawaguchi in Tokyo and Bureau Reports
© 2004 Newsweek, Inc.
URL: http://www.msnbc.msn.com/id/5830015/site/newsweek/

Seattle Superbus
A northwest oasis is the main testing ground for hybrid mass transit
By Andrew Romano
Newsweek International

Sept. 6-13 issue - Jim Boon is a hybrid kind of guy. He drives a Toyota hybrid to work, a Honda hybrid on weekends, and as a manager for Seattle's public transportation system, he recently placed the world's largest order for hybrid electric buses.
Now, with the biggest hybrid bus fleet in the world, Seattle has become the main testing ground for a technology that claims it can drastically cut air pollution and fuel consumption. In the late 1990s, small demo fleets of 35 buses or less started cropping up in cities such as Tempe, Arizona. Sixteen of these early hybrids still service Genoa, Italy, where drivers switch from diesel to electric power when passing the city's downtown architectural treasures. But no city has gone as far as Seattle, which last year bought 235 GM hybrid buses at $645,000 a pop. When the final one hits the streets this December, the region's bus system will be 15 percent hybrid.
But why Seattle, and why now? The Pacific Northwest has long been a hotbed of both crunchy green politics and cutting-edge technology. Fourteen years ago, the Seattle area bought 236 Italian-made Breda buses to service a kilometer-long downtown tunnel. They were supposed to operate as clean and silent electric trolleys underground, but the switching mechanism often failed and "the bus drove through the tunnel as a diesel," says Boon. "It was pretty loud and smoky."
When the Bredas hit mandatory retirement age in 2002, Boon went shopping. He chose the GM model because it uses an automatic transmission and diesel boosts that provide the power needed to scale inclines without strain. In hilly Seattle, the prospect of a hybrid that could climb like a diesel but accelerate without belching black fumes helped justify its price, which is about $200,000 higher than a conventional bus. "The days of seeing a diesel pull away and pour out smoke are over," says Boon. "After we drove these hybrid buses across the country, I wiped a handkerchief inside the tailpipe. It came out spotless. I bet there are tables in your living room that are dirtier."
Experts say buses are critical to realizing the hybrid dream of greater efficiency and cleaner air. It would take thousands of hybrid cars to save as many liters of gas (3.4 million) as Boon expects his buses to save Seattle each year. GM claims that compared to conventional diesels, its hybrids also churn out 90 percent less particulate matter—a known carcinogen. "Buses are a major source of pollution in any city," says Dave Kircher of the Puget Sound Clean Air Agency. "They operate where people are breathing this exhaust, so this is major step forward in terms of emissions."
And a major step forward in the marketplace: Philadelphia; Honolulu; Long Beach, California; and Albuquerque, New Mexico have all bought the GM buses in recent months. GM has launched an ad campaign called All Aboard the Magic Bus, touting itself as the top hybrid bus innovator. But the game is heating up: Siemens is among the global giants dueling GM for new business, and New York plans to deploy 325 BAE Systems hybrids by 2006. "There's room for competition," says James Cannon, editor of Hybrid Vehicles newsletter. Seems Seattle isn't the only city trying to leave grunge behind.
© 2004 Newsweek, Inc.
URL: http://www.msnbc.msn.com/id/5829996/site/newsweek/

Healthy Homes
New building technologies and innovative add-ons are making nearly-zero-energy houses a real possibility
By William Underhill and Malcolm Beith
Newsweek International

Sept. 6-13 issue - Imagine a community for the deeply green. Walls half-a-meter thick keep temperatures comfortable year-round. Windows are triple-glazed. A wind-driven ventilation system feeds fresh air into each house—and grabs the heat from stale outgoing air. Outsize conservatories face south to trap the light and warmth of the sun. Most of the energy-saving technology isn't flashy, though solar panels do provide enough power to run the community's pool of electric cars. The architecture is modish and even the most modest apartment has its own garden. Of course, residents enjoy an organic-vegetable delivery service, too.
This might sound like a limousine-liberal fantasy—the kind of high-tech oasis where the superrich can soothe their consciences deep in the woods. But it's actually an 84-home development, called BedZED, on the site of a disused sewage-treatment plant in an unfashionable patch of South London. Its residents aren't well-meaning ecozealots: many are tenants of a housing charity. But they are all at the forefront of a global trend toward reducing energy consumption in the home.
In Europe and America, buildings guzzle around 40 percent of all energy—about 10 percent more than transport—and create the same proportion of carbon-dioxide emissions. As the world adjusts to life without cheap hydrocarbon fuels, improving energy efficiency across the board is going to be essential. BedZED and other initiatives show that trimming excess energy consumption needn't be difficult or even high tech—just a matter of intelligent design. "People are sick and tired of environmental campaigners' presenting doom-and-gloom scenarios without offering solutions," says BedZED architect Bill Dunster.
The key is finding ways to maximize efficiency in the simplest ways possible: the "zed" in BedZED stands for "zero energy." Whatever little juice the London homes need after taking advantage of their built-in energy-savers comes from an on-site power plant, fueled by waste timber. Simple also means cheap; build 5,000 Zedhomes, says Dunster, and the economies of scale mean the cost is no more than that of constructing a normal home: the price of components tumbles as production numbers rise. It's no wonder such ideas are gaining admirers. Over the past two years, BedZED has attracted thousands of visitors from as far away as India and China. In the fall, Dunster's company, ZedFactory, begins work on two separate projects elsewhere in Britain. In the United States, zero-energy communities have been constructed from Elk Grove, California, to Loudoun County, Virginia, spurring interest among forward-thinking builders and homeowners alike. "Once people know about it, they want to live there," says David Meisegeier, an energy-efficiency specialist at Virginia-based ICF Consulting. "Who wouldn't?"
The technologies could already be used much more widely. Things like triple-glazing windows to add extra insulation, tightening duct systems and using structural insulated panels for floors and walls are easy and cost-effective—and could cut the fuel consumption of the world's buildings by 20 percent by 2010. "You can accomplish a tremendous amount with the technologies that we have already," says Randall Bowie, a Swedish official working on energy efficiency for the European Commission in Brussels. Take today's domestic boilers, which are generally 30 percent more efficient than the previous generation—or new refrigerators in the U.S. market that use 75 percent less electricity than those from the 1970s. Even simple gadgets like programmable thermostats or light timers noticeably decrease energy use and costs. "This is about doing a lot of unglamorous stuff," says Andrew Warren of the European Alliance of Companies for Energy Efficiency in Buildings.
Major momentum for these ho-hum changes has come from European governments worried by threats to energy supplies and the need to meet energy-reduction goals agreed to under the Kyoto accords. They've started to issue grants and tax breaks for energy-efficient builders, as well as stricter regulations. The standards set by national building codes are ratcheting up, and an EU directive that takes effect at the end of next year will require house builders, landlords or sellers to show an energy-efficiency label, setting out how —well a building performs. A similar EU decree on energy labeling for household appliances has boosted demand for the top-rated items.
The U.S. government, too, has been doing its part. Through the Energy Star program, it has set tough regulations on everything from home construction to major appliances and consumer electronics. "Energy Star is transforming the market so that energy-efficient technologies become standard practice—and a moneymaker for companies, too," says Jennifer Thorne-Amann of the American Council for an Energy-Efficient Economy (ACEEE). Energy Star has also created brand recognition, prompting a flood of applications from companies. "Once you get one manufacturer onboard, everybody wants in," says Meisegeier. "And everyone wins because of the environmental impact."
There's also comfort to be taken in the growing cooperation between government, scientists and the environmental lobby. At the government-funded Lawrence Berkeley National Laboratory in California, Steve Selkowitz's windows-and-building-technology team has made incredible progress with such innovations as dimmable windows that can minimize hot sunlight while preserving the view; the windows could save homeowners thousands of dollars a year in air-conditioning costs. And in Europe, lavish grants from Austria's provincial governments have spurred interest in so-called Passive Houses, which aim to expend only minimal energy and are forecast to account for a quarter of the country's new building by 2010.
Even more gee-whiz developments are creeping onto the market. Solar power is becoming more affordable, as are tankless water heaters, composting toilets and biomass heating systems like corn stoves, which heat homes by burning corn instead of declining resources like wood. In India, Development Alternatives, a New Delhi-based nonprofit devoted to sustainable development, has helped supply mini power stations—fueled by weeds and agricultural wastes like rice husks—to villages across the country. Beneath thousands of new homes in Sweden, a system of fluid-filled pipes taps the warmth of the surrounding earth and feeds it back to heat pumps inside the houses. And more and more houses are being built with microgenerators—hyperefficient power plants that can sit in the basement. A new mini-CHP—a Combined Heat and Power plant that's no bigger than a dishwasher—can double as a water heater and a generator with minimum wastage. Heat energy from the hot water is recaptured to power lights and run household appliances.
It's too early to know whether the public will embrace such measures fully. "From the marketing point of view, energy efficiency is still a very hard sell," says David Strong of Britain's Building Research Establishment. "Nobody makes television programs about insulating the loft, and people don't hold parties to show off their new boilers," adds the European Alliance's Warren. Although recent months have indeed seen some nasty price hikes, in real terms fuel prices have tumbled over recent decades. "Energy prices haven't quite reached a point where they hit the wallet," says ICF's Meisegeier.
Still, as governments, scientists and builders continue to provide the "market push" toward energy efficiency, says Meisegeier, the "consumer pull" will be stimulated. There won't be any one device that solves all the energy-consumption problems of homeowners. But each new development will push us closer to what one might call the hybrid home, in which energy is conserved through a combination of improved appliances and building techniques. "The technologies will be able to support each other," says the ACEEE's Thorne-Amann. "Solar panels, appliances, heat-pump water heaters—the synergy will improve the whole building." And our whole future.
With John Sparks in New York
© 2004 Newsweek, Inc.
URL: http://www.msnbc.msn.com/id/5830575/site/newsweek/

Hot Green Gizmos
A range of energy-saving devices for the home
Newsweek International

Sept. 6-13 issue - HEATING
Nice Warm Ears
Electric heat is costly, and burning coal is dirty. So why not burn corn? Corn stoves have been around since the '70s, but new models increase efficiency by better regulating the flow of corn into (and air through) the burn box. Most manufacturers are in corn country: the United States and Canada. Amaizablaze models range from $1,325 to $2,095 apiece. The midsize unit (50,000 Btu; $1,859) doubles as a fireplace insert. Northern's NorthStar Corn Stove ($2,030 at northerntool.com) boasts self-cleaning features. Countryside Corn Stove by American Energy Systems (about $2,500) has recently been modified for smaller European homes.
—Kathryn Williams
LUXURIES
Soak And Save
Utah-based Bullfrog Spas plans to unveil a patented hot-tub design called JetPaks at a September trade show in Paris. While running a traditional tub costs about $40 per month, a Bullfrog costs around $13. The reason: 90 percent of the plumbing is contained inside the Bullfrog's shell, so heat can't escape as easily as it does from a normal tub. Bullfrog spas have been available in Europe under a Belgian brand, but the company is now taking over under its own name. (Former Russian president Boris Yeltsin owns one, and he has a reputation for knowing how to relax.) The new JetPaks models will sell for $3,000 to $10,000 at bullfrogspas.com and are expected to be in retail locations in Europe and Asia by the end of the year.
—Sandy Lawrence Edry
INSULATION
All Paper
Warmcel is an insulation made from recycled newspaper and treated with inorganic salt for fire resistance. Because it's a loose cellulose fiber, Warmcel fills nooks that quilt insulation can't, and saves 20 to 40 percent more energy. Made by Britain's Excel Industries, Warmcel has been around for 20 years, but new injection methods now make it possible to install in walls, as well as attics. Available in Europe and North America.
—William Underhill
SENSORS
On Time
Smarthome.com is the Amazon.com of the electronic home-improvement market. Among its thousands of energy-saving gizmos are motion-sensor light switches, smart thermo-stats that connect to your alarm system to tell when you're home, and a computerized timer that allows homeowners to control lights, even dim them, when they're away. The timer's touchless switch responds to a wave of the hand. It sells for $29.99. Smarthome ships worldwide.
—K.W.
POWER
Not Just Hot Air
A small German firm called SenerTec has created a home version of an industrial cogeneration plant, which recaptures waste heat to increase fuel efficiency. Introduced 18 months ago, SenerTec's combo generator/ hot-water heater turns out five kilowatts of power and uses waste energy to produce hot water. Its fuel-efficiency rating of 90 percent is double that of ordinary hot-water heaters. Units sold: 8,000. Cost: €13,000.
—John Sparks
LAUNDRY
Clean And Green
Maytag's Neptune Front-Load washer and dryer helped set the standard for front loaders, which use up to 40 percent less water and 65 percent less energy than the old top loaders. Rather than agitate clothes, a front loader turns the wash over and over while waterfall baffles scoop water and shower it on top. Prices are coming down: the Neptune now goes for $999 to $1,519—still double the price of top loaders. But Maytag insists owners can recover the price premium within a few years by lowering their utility costs. Savings for an average family can amount to $165 a year, which helps ease the sticker shock. Available worldwide.
—S.L.E.
© 2004 Newsweek, Inc.
URL: http://www.msnbc.msn.com/id/5852737/site/newsweek/

The Price Is Wrong
Even $50 a barrel can't wean the world from oil. Only government can
By Leonardo Maugeri
Newsweek International

Sept. 6-13 issue - Is the internal-combustion engine dead? listening to all the voices calling hybrid vehicles the future of transportation, you might think so. Alternative energy is back in style among the chattering classes. But oil prices would have to go a lot higher to make so-called renewables—such as solar and wind energy—commercially viable. That means their future won't be decided by consumer tastes or market conditions, but by government policy.
These are facts. Any oil company will use whatever energy source makes economic sense, since its basic mission is not to pump oil. It's to create value from energy. We figure the cost of one kilowatt of solar photovoltaic power at a minimum of five times the cost of oil power, even when oil is hovering near $50 a barrel—a price we don't expect to hold up for long. Solar power is even less competitive against cheaper fossil fuels like coal and natural gas, and relies on mature technology. A radically new technology—perhaps replacing the silicon in photovoltaic cells with polymers—will be needed to make solar cost effective. That day is at least 20 years off. Wind and biomass are closer than solar to becoming competitive with fossil fuels, but their capacity to supply large amounts of energy is limited. And even the most modern windmills have inspired a popular backlash on esthetic grounds.
Many energy industrialists think nuclear is the answer, but they rely on a misleading analysis of its cost competitiveness. Even if you ignore the political concerns surrounding nuclear waste, producers often fail to correctly calculate the real price of electricity produced from nuclear energy. It costs about as much to close a nuclear plant as it does to build a new one, which is why nuclear power companies are now lobbying worldwide to delay planned plant closings.
There's also a lot of fuzzy talk about things like hybrid homes and cars. Many analysts note that while consumers still pay a lot more for hybrid cars than they can make back in gas savings, this gap is closing. What this line of reasoning ignores is that no technology competes only against itself, and combustion engines are rapidly evolving, too. The rush to innovate is led by the makers of diesel engines, which nearly match the gas efficiency of hybrids, but at much lower cost to consumers. Diesel also cuts greenhouse emissions by 30 to 40 percent compared with gas.
The conclusion is that even with real oil prices at their highest levels in 20 years, no alternative can compete head to head with fossil fuels on a scale broad enough to challenge their market dominance. Given this outlook, market forces won't wean society away from oil, gas and coal. Only government can do this. And since the late 1970s and early 1980s, public funding for R&D in the energy sector has been halved in the United States and Europe. Incentives and subsidies to produce alternative energy sources have fallen throughout the developed world with only a few exceptions—Japan, Germany, Denmark and a few others. This is why, for example, the bulk of U.S. solar hardware is exported to Germany and Japan.
In the United States, public policy continues to support America's love of the sport utility vehicle, which is the major factor behind the continued surge of American oil demand. An absurd loophole allows SUVs to be considered light trucks—and thereby not subject to passenger-vehicle emission requirements. The average total (federal plus local) tax on gas is 25 percent, compared with 50 percent in Japan and more than 70 percent in Western Europe, which partly explains why an American consumes twice the energy of a European. Yet any attack on this policy structure is seen as an attack on the American lifestyle, a quick form of career suicide for politicians.
Europe also faces large (but very different) obstacles to the adoption of new energy sources. For example, high gasoline taxes do encourage conservation, but they also count as the third or fourth largest source of revenue for most European governments. This gives policymakers a double-edged incentive to maintain the fossil-fuel status quo, because a transition to cleaner alternatives would cut their tax income, while raising outlays to subsidize the transition.
Yet the road to a society less dependent on oil is clear. If politicians were serious about these goals, the solution would be at hand: a mix of tax increases on oil products; more rigid mileage and emissions standards for automakers, and incentives to retire old cars and buy cleaner new ones. The transportation sector is crucial, since it will account for about 80 percent of the growth in world oil consumption over the next 25 years. These measures would motivate automakers to step up research, development and production of new cars, and consumers to buy them. But knowing the best road doesn't guarantee that society will take it.
Maugeri is group senior vice president for corporate strategies at Eni, the Italian oil and gas company.
© 2004 Newsweek, Inc.
URL: http://www.msnbc.msn.com/id/5852664/site/newsweek/

Fuel's Future
Business sees clean natural gas as the next dominant fossil fuel. But there will be political storms along the way
By Christopher Dickey
Newsweek International

Sept. 6-13 issue - The moment of maximum danger came suddenly on the evening of January 19.
The scene was the Algerian port of Skikda, where processing plants take natural gas pumped from the Sahara and cool it under enormous pressure to 162 degrees below zero Celsius. At that temperature the gas turns into a liquid that can be shipped all over the world in a new breed of refrigerated supertankers. When it arrives at its destination, liquefied natural gas, commonly called LNG, is then warmed very carefully until it becomes, again, the clean-burning stuff with the fine blue flame that sizzles hamburgers in countless kitchens, warms offices and bedrooms, and generates an increasingly large share of the electricity in the United States.
At 6:39 that January evening, one of the plant operators at Skikda noticed that the steam-pressure indicator in "Train 40," an array of compressors and separators, was rising fast. He tried to slow the fuel flow to the burners. One minute later, another operator reported that a vapor cloud was forming around Train 40. A disaster was taking shape.
For years oil companies have seen natural gas as the environmentally friendly fossil fuel of the future. Power companies have invested billions in new gas-fired plants that meet increasingly stringent emissions requirements. "Gas could overtake oil as the global No. 1 fuel of choice by 2025," says Malcolm Brinded, CEO of Shell Exploration and Production. Yet, as with other promising energy sources in the past, there's serious tension between the industry's best-laid plans and public perception of the risks that come with them.
On the plus side, virtually untapped natural-gas reserves are found all around the world. There's no gas cartel to deal with, at least for the moment. And the environmental benefits are manifest. Britain's switch from coal to gas at its power plants during the 1990s helped it more than meet its Kyoto emissions standards for 2010. Brinded even dreams that "young people" will learn "to think as positively about gas as they do about renewables such as wind and solar."
From the industry point of view, the main challenge has been the cost and difficulty of shipping the stuff. Gas can be sent through pipelines, but pipelines don't cross oceans, and many of the biggest gas fields are in terrain that's as politically problematic as the oilfields—Russia, the Middle East. Pipelines also distort markets, making it impossible to sell to the highest bidder.
The solution is LNG. As global demand has gone up, so has the financial incentive to build "liquefaction" plants like those operating in Algeria and "regasification" facilities like the one at Everett, Massachusetts, which sits in the heart of Boston. These are hugely expensive. Shell's new liquefaction plant in Sakhalin, Russia, cost more than $11 billion. But with economies of scale, the price of moving LNG goes down. Long-distance-delivery costs have been cut by more than half since 1990, and wholesale-gas prices have risen more than 50 percent in the last two years.
ExxonMobil predicts that natural gas will be the fastest-growing major energy source through 2020, and CEO Lee Raymond calls LNG "a huge deal" for the industry. Europe and Asia are now the main buyers, but North America has the most growth potential. Only four receiving terminals operate in the continental United States, but more than 30 are planned. Unless at least some are completed, many new gas-fired power plants—which are already built—simply won't be able to function. Raymond says that with North American natural-gas reserves running low, new supplies will have to be imported or brand-new power plants will "have to be junked," and "that's just not going to happen."
But are the liquefaction and regasification plants safe? The question has loomed large ever since 1944, when a badly engineered LNG storage tank leaked into the Cleveland, Ohio, storm drains and blew up, killing 128 people and injuring 435. Since September 11, 2001, fears have grown that terrorists could target LNG ships. "Because LNG infrastructure is highly visible and easily identified, it can be vulnerable to terrorist attack," warned the U.S. Congressional Research Service last year. The Coast Guard, the Office of Pipeline Safety and the Transportation Security Administration have all recently tightened security. Sen. John Kerry has recommended that Boston raise its alert level every time an LNG tanker sails into the harbor.
The industry, meanwhile, has pointed to an admirable safety record. It argues that unless LNG mixes with air at a specific ratio it won't ignite, and since facilities are designed to prevent that from happening they are not bombs-in-waiting, as alarmists claim. "Such risks, while significant, are not as serious as is popularly believed," the same congressional study said last year.
But at 6:40 p.m. on Jan. 19, according to a subsequent report on the Skikda incident by the Algerian state energy company, Sonatrach, "a first explosion was heard, followed immediately by a second more massive explosion and a huge fireball." The va—por cloud, said the report, "was unfortunately at the right explosion ratio." Flames quickly engulfed Train 40, and 30 and 20. When the fire was contained eight hours later, 27 people were dead and 56 wounded. The political and financial shock waves reached the United States, stalling or stopping plans to build receiving terminals in California, Maine and Alabama. Never mind that new plants bear little resemblance to the Algerian plants, which date to the 1970s. "People have the fear of LNG that it's going to go boom," says another oil-company executive. "If people believe it's an issue, then it's an issue."
Still, most industry sources believe the demand for natural gas will just keep growing, while development of the huge fields in Qatar, Iran, Russia and elsewhere will continue to provide ample supply at reasonable cost. Even if most of the terminal projects now planned for North America are never built, and only four or five are eventually completed, that could be enough for the next decade or so. The same executive predicts that "there will be sufficient terminals in friendly areas"—particularly more remote locations that need the jobs.
And in the long term? Malaysia and some other countries already use compressed natural gas to power taxis and public vehicles. Oil companies are developing "gas to liquid" processes to make more sophisticated fuels. But the lesson of Skikda is that fear and politics will also shape the search for affordable energy supplies.
© 2004 Newsweek, Inc.
URL: http://www.msnbc.msn.com/id/5853559/site/newsweek/

Solar? Eclipsed.
Why does wall street continue to look down on renewable energy?
By Rana Foroohar
Newsweek International

Sept. 6-13 issue - If alternative-energy companies are so hot, why are their stocks so unpopular? Record-high oil prices make wind and solar increasingly competitive. Fear of climate change should brighten prospects for any alternative to fossil fuels, which release the greenhouse gases that cause global warming. Yet over the past two years, the worldwide stock-market value of companies developing renewable energy—which includes everything from wind and solar to recycling—fell from $13 billion to $10.7 billion, while the value of fossil-fuel companies surged to record highs of more than $1.2 trillion.
The reason, in a word, is uncertainty. Despite all the clamor about climate change, governments around the world have yet to ratify the Kyoto Protocol on reducing greenhouse-gas emissions. The result is piecemeal national rules and on-again, off-again support for subsidizing alternatives. Until it's clear how much green energy individuals and companies have to use, and by when, the renewables market will continue to suffer, says Mark Campanale, a manager at Henderson Global Investors in London: "There's simply not a feeling of certainty in the market about renewable energy."
Memories of the bubble don't help. In the late 1990s many of these companies rose and fell like dot-coms, burning through cash without turning a profit. The poster child for green hype was Ballard Power Systems—a fuel-cell maker that was trading recently at $8, down from a 2000 peak of $192. Wind power suffered from tight margins, thanks to high RD costs and a limited number of equipment manufacturers. The solar industry suffered, too, from high cash burn and accounting troubles at some companies. The once high-flying U.S. solar-cell company ECD has seen its share price tumble more than 70 percent, and a competitor, Delaware-based AstroPower, filed for bankruptcy in February. "All of these companies tend to track the NASDAQ," says Steve Taub, head of renewables for Cambridge Energy Research Associates in Boston. "When it fell, so did they."
The market is infamous for thinking short term. Meanwhile, multinationals like Sharp, Kyocera, Shell, BP, Sanyo and Mitsubishi are making long-term investments in solar. Sharp earns $1 billion in annual revenue from its solar division. General Electric has turned Enron's old wind-turbine operation into a $1.2 billion-a-year business. Yet the markets aren't rewarding these investments, says Campanale, in part because the operations are still "very much on the margins" for large multinationals.
That's not likely to change soon. Several high-profile solar IPOs are being planned for 2005. Q Cells, a German solar-cell company, could be worth as much as $1 billion, says analyst Michael Rogal at CSLA. That's not bad. But Q Cells is only one company, and the solar sector as a whole is still lagging. For now, at least, the energy stocks that benefit most from high oil prices are other fossil fuels, not alternatives.
© 2004 Newsweek, Inc.
URL: http://www.msnbc.msn.com/id/5852665/site/newsweek/

A Mightier Wind
Wind turbines may soon be ready to compete with conventional power
By Brad Stone
Newsweek International

Sept. 6-13 issue - If Jim Dehlsen ever needs to remind himself why, at 67, he's still trying to save the world, all he has to do is glance outside his window. The offices of his three-year-old firm, Clipper Windpower, look across the tranquil Santa Barbara Channel and, in the distance, to the remote marine sanctuary of Santa Cruz Island. Marring that view are eight oil rigs jutting into the ocean mist. In 1969 a well underneath one platform ruptured, releasing 750,000 liters of crude into the harbor, coating beaches and killing thousands of birds. Today, the oil rigs represent to Dehlsen America's dependence on fossil fuels. "We're not only depleting those resources but reaching the limits of what the planet can absorb, in terms of emissions," he says. "And that is clearing the way for the return of wind power."
Not long ago, wind power was the domain of fringe scientists and environmentalists. In the 1970s the idea of harvesting the wind's kinetic energy and converting it into electrons was not only expensive but impractical: the first rickety, garage-built turbines often self-destructed in storms. The industry grew in the '80s and '90s, but wind was still too costly, generating power at more than 10 cents per kilowatt hour, versus less than five cents for coal and other fossil fuels. Even today, wind power feeds less than half of 1 percent of America's ravenous energy appetite, and about 5 percent of Germany's and Spain's.
But the industry is maturing and growing quickly—and is beginning to find its place as one viable element in the energy puzzle. Dehlsen is one of its pioneers. His first wind company, Zond—founded in 1980 and sold to Enron in 1997—was synonymous with many early breakthroughs. The firm was the first to add wind energy to the California electricity grid and to bring scientific rigor to the locating of wind farms and development of wind turbines. In recent years much bigger companies like General Electric, which bought what was left of Zond after Enron imploded, have entered the field alongside Denmark's Vestas, which last year merged with rival NEG Micon to create a European wind giant. With rapidly improving technology and major corporate muscle behind wind power, costs are falling: wind contracts now average three cents per kilowatt hour (with tax subsidies), cheaper than coal and comparable to natural gas and oil. Because the wind is uncontrolled—it doesn't always blow—the challenge is to drive costs down further. Still, says Bob Thresher of the Department of Energy's National Renewable Energy Lab, "Wind is the first renewable technology that is very nearly competitive in the market for bulk power generation."
For his part, pioneer Dehlsen has returned to the fray with Clipper, which seeks to replay Zond's original game plan: broker new wind farms around the world, and use the revenues to fund advancements in wind technology. Clipper is currently opening farms such as Iowa's Flying Cloud, a 44-megawatt wind plant activated in July, with turbines purchased from General Electric. Phase two, beginning later this year, will see Clipper unveil its own envelope-pushing turbine design. The C93 Liberty is a 2.5-megawatt turbine with a rotor span of 93 meters; it features a sophisticated mechanism to distribute the torque from high-speed winds among four onboard electricity generators. That, Dehlsen boasts, will translate into the most efficient turbine in the industry, making wind power even more attractive when compared with new coal and natural-gas power plants. The new turbines are also optimized for use in regions of moderate winds, which would allow wind farms to be located closer to transmission grids than they typically are today. GE and others are working on similar advances, including larger machines for offshore sites.
New technology alone isn't going to revolutionize an obstinate energy industry. Politics, as much as innovation, governs new energy policy. While European governments heavily subsidize wind production, the United States still funnels far greater resources into tax breaks for oil companies, and has even recently allowed the wind-production tax credit to expire. (Dehlsen and others think Congress will eventually renew the wind tax credit.) Then there's the perennial NIMBY problem: no one wants to open their window shade and see a new industrial turbine creaking in the breeze.
But the most important task, Dehlsen thinks, is to continue to drive costs down and efficiencies up, so that the attraction of wind becomes irresistible. Dehlsen says the cost of wind needs to fall below three cents per kilowatt hour—without tax credits—to truly break society's addiction to fossil fuels. "It's still not there, but we're getting close," he says. He's putting in long days and full weeks, traveling frequently and trying to raise another round of investment dollars for Clipper. (The com-pany has already raised more than $18 million in capital.) He plans to open a wind farm in Oaxaca, Mexico, the largest in Latin America, and in 2006 Clipper will introduce a new turbine with retract-able rotors, so that the size of the turbine can be altered to match the speed of the —wind. (In low winds, longer blades are more productive.) As for the future of the planet, Dehlsen is less sanguine. He plies a visitor with several tracts on climate trends and laments America's insatiable thirst for fossil fuels. The evidence is right outside his window.
© 2004 Newsweek, Inc.
URL: http://www.msnbc.msn.com/id/5852675/site/newsweek/

The Too Slow Flow
Why Indonesia could get all its power from volcanoes—but doesn't
By Peter Janssen
Newsweek International

Sept. 6-13 issue - American giants like ChevronTexaco and Unocal began exploring the vast energy potential trapped in Indonesian volcanoes two decades ago, when Jakarta opened the sector to foreign investors. An archipelago of 17,000 islands spanning three time zones, Indonesia sits on the Asian-Pacific "ring of fire" and boasts the world's highest density of volcanoes—about 500—of which 128 are still active; 65 of these are listed as "dangerous." The upside: volcanoes make Indonesia the only large nation in the world with the potential to generate 100 percent of its electricity from clean, endless stores of geothermal energy. Yet 20 years on, the country has just a few small geothermal plants, including one run by a subsidiary of ChevronTexaco called Amoseas Indonesia Inc.
That may be about to change. In June Indonesia ratified the Kyoto Protocol on global warming, making it eligible for millions in subsidies for projects that cut emissions of greenhouse gases. Amoseas has applied for approximately $5 million in credits that could make or break a planned $100 million expansion of its operations on the Darajat volcano in West Java, more than doubling output to 330 megawatts, enough to power a medium-size city. That's not much, but it would be a step toward reviving Indonesia's geothermal master plan.
Under President Megawati Sukarnoputri, Indonesia is finally building some reform-minded momentum, seven years after the Asian financial crisis derailed an early-1990s plan to develop 11 geothermal plants producing 3,417 megawatts. Tapping a volcano involves drilling wells to reach the hot steam created by underground lava flows; risks are fairly high, and the payback period is long. When the '97 crisis toppled Indonesian dictator Suharto and sent the economy into a spin, seven of the 11 contracts were suspended. But now several are being restructured, led by the Amoseas deal.
Multinationals had several complaints about the way Suharto did business, some of which have been cleared away. A 2001 law ended the requirement that geothermal exploration be conducted in partnership with the state oil company, Pertamina. Under Suharto, Indonesia also required developers to take on a local partner, which often meant one of the dictator's sons, Tommy. Today Tommy is in prison for masterminding the murder of a judge, but the partner rule remains. So, too, do subsidies that continue to undercut alternatives. Until those biases are removed, geothermal "won't take off," warns Emil Salim, a former Environment minister.
Amoseas entered into a contract with Pertamina in 1984 to develop Darajat, and has not yet recovered its initial investment. Company officials say the expansion plans depend on getting Kyoto credits; geothermal plants emit 1,800 times less carbon dioxide than coal-burning plants and 1,600 times less than oil-burning plants. Once again, that's being delayed by bureaucracy; Indonesia has yet to set up an agency to handle applications, as required by the United Nations, which oversees the credit system. It may take years, if not decades, before the country can burn through the red tape and tap its volcanoes.
© 2004 Newsweek, Inc.
URL: http://www.msnbc.msn.com/id/5852678/site/newsweek/

Bottomline Decisions
Concerns about reliable supply willalways trump the call for cleaner energy
By Christoph W. Frei
Newsweek International

Sept. 6-13 issue - Securing supply tops the energy-policy agenda. That is the message coming loud and clear from more than 60 energy-industry leaders, including big-company CEOs and senior government officials, recently surveyed by the World Economic Forum. Geopolitical unrest from Iraq to Nigeria and Russia to Venezuela, cuts in estimated reserves at Shell and concerns about a decreasing rate of new oil discoveries have driven oil prices to record heights. The 1970s oil shocks had a permanent impact on oil prices and the same may be true today—reason enough to focus on securing supplies and finding alternatives to oil.
The security concern forces tough choices. History shows that policymakers will put price and supply before social and environmental concerns. This follows the basic rules of Maslow's Pyramid, the famous device American psychologist Abraham Maslow invented in the 1950s to explain the motivations of a healthy person. As Maslow put it, a healthy person lacking food, love and esteem "would most probably hunger for food more strongly than for anything else." Sounds simple, but this idea goes a long way toward explaining the current comeback of socially and environmentally controversial energy sources, particularly coal, nuclear and large-scale hydro.
Signs are everywhere. The Bush administration's energy plans will advance research on nuclear technology and clean coal. China plans to increase nuclear-power generation from 1.5 percent today to 4 percent by 2020. France's state-run power company, EdF, has just reconfirmed its commitment to build a forerunner to the European Pressurized Water Reactor. Plans for the Grand Inga Dam, a massive new plant on the Congo River, reflect reviving worldwide interest in big hydro.
Geopolitics drives these trends. Nuclear fuel can be stored very efficiently, coal is found in abundance on all the continents, and hydro is a local resource, so all are shielded one way or another from political turmoil. Similar considerations are forcing a rethinking of natural gas, long the poor cousin in the energy family. Qatar's second deputy prime minister, Abdallah bin Hamad al-Attiyah, says his country was disappointed to discover natural gas rather than oil in the 1980s, and took 20 years to realize its value. Now the decreasing cost of liquefying natural gas is making it easier to ship, turning it into an increasingly global and valuable commodity.
Often, security fears and environmental concerns push in opposite directions. Nuclear energy and natural gas benefit from the climate-change debate, coal and nuclear from energy-security concerns. Natural gas is gaining ground in part because it is clean-burning, yet it faces geopolitical security concerns similar to oil's: more than 40 percent of the resources are concentrated in Russia, Qatar and Iran.
As long as supply security dominates the policy agenda, international agreements on higher-order issues, including the Kyoto Protocol on climate change, will face hurdles. Countries that have not secured an affordable electricity supply will look for cheap solutions before committing to an environmental agenda. Building coalitions of those willing to promote clean energy—most likely, among those who can afford it—may have more immediate impact.
As Maslow foretold, people will worry about putting food on the table before they worry about how clean the plates are. Indira Gandhi eloquently captured this idea as it applies to energy when she called poverty the ultimate pollutant. If dirty forms of coal are all people have, that's what they will burn. All too often greens push costly high tech when simple solutions hold more promise. For example, Hussain Sultan, CEO of the Emirates National Oil Co. and a member of the forum, has suggested that liquefied natural gas sold through an existing corporate distribution system like the one run by Coca-Cola, which already reaches some of the most remote spots on the planet, could help fill the demand for energy quickly, cheaply and relatively cleanly.
Supply is thus a priority not justfor Big Oil CEOs. To achieve their goals, environmentalists should put supply first, too, because when push comes to shove, energy security will trump all other issues.
Frei is the associate director for energy industries at the World Economic Forum.
© 2004 Newsweek, Inc.
URL: http://www.msnbc.msn.com/id/5852177/site/newsweek/

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