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Posted: November 23, 2009

Priming the new energy pump

While green energy is blossoming in Colorado - thanks in large part to political incentives - oil and gas is pulling back as low prices curb profits.

Todd Neff

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Having a hands-on job in the Colorado energy business used to mean roughnecking on a rig or laying natural-gas pipe. Jonah Coles’ energy job involves laying silicon sheets on roofs.

Coles, 30, leads a solar panel-installation crew for Boulder-based Independent Power Systems, a company that has doubled in size to about 25 employees since he started there in mid-2007. Coles and two colleagues were recently spending their third day on a 33-degree shingled slope above Denver¹s Hilltop neighborhood, where they installed 24 SunPower photovoltaic panels. He never had an interest in working on a rig.

“I think this is a passion,” Coles said. “Not everybody wants to be on the roof in the summer. But we truly believe we¹re saving the planet when we get up to go to work.” Oil and gas still dominate the Colorado energy world, employing more than 50,000 and generating an estimated $23 billion in economic output, or about 6 percent of the state¹s total. Yet as the oil and gas industry cuts back in reaction to falling prices and, some argue, an uncertain regulatory environment, solar, wind, bio-energy and energy-efficiency businesses appear to have emotional as well as political momentum.

In February, President Barack Obama chose the solar-powered Denver Museum of Nature & Science as the locale to sign the $787 billion economic stimulus bill, which the Rocky Mountain News reported includes $130 million in clean energy and weatherization assistance programs for Colorado. It also includes tax incentives for renewable energy facilities.

Colorado’s “New Energy Economy,” as Gov. Bill Ritter has branded it, is showing no signs of slowing, according to a recent study by the Boulder-based American Solar Energy Society and Washington, D.C., research firm Management Information Services Inc.

The study put 2007 Colorado renewable energy revenues — including wind, photovoltaics, solar thermal, hydroelectric, geothermal, ethanol, biodiesel, biomass power, fuel cells and hydrogen — at $1.1 billion. Much larger yet was the $9.1 billion in energy-efficiency industry sales, which include a wide array of recycling, reuse, and remanufacturing; the production of Energy Star-rated electronics; and green building materials from traditional manufacturers such as Denver-based Johns Manville, among a wide range of goods and services. Colorado is an outsized performer in renewable energy, the study found.

While the state’s economic output totaled just 1.7 percent of the nation¹s in 2007, it had about 6 percent of the U.S. wind and photovoltaics markets and 5 percent of the ethanol and biodiesel markets.

The report estimated direct employment in Colorado renewable energy businesses at 4,400, with energy efficiency-related businesses employing an additional 40,000. Including indirect jobs, renewable energy and energy efficiency activities employ 91,000 Coloradans, the report concludes.

And those numbers will only grow, it says. By 2030, the authors estimate, Colorado¹s renewable energy sector could explode to $13 billion in revenues and 113,000 jobs in the most optimistic scenario. Energy-efficiency businesses would generate an additional $44 billion in revenues and 500,000 jobs.
 
The report also found that, dollar for dollar, renewable energy and energy efficiency generates many more jobs than the oil and gas sector. “If you want to provide an incentive, you get 2 ½ times the jobs in energy efficiency and renewable energy as you would in oil and gas,” said Brad Collins, the American Solar Energy Society¹s executive director.

The relatively enormous contribution the report ascribes to energy efficiency is striking, said Paul Komor, faculty director of the University of Colorado Energy Initiative.

“While it¹s nice to have people on roofs installing solar panels, the reality is that energy efficiency¬ installing, designing new buildings so they¹re energy efficient and retrofitting old ones¬ is likely to generate orders of magnitude more jobs.” Among the reasons, Komor said, is that the oil and gas industry is well automated, producing loads of energy with relatively little labor.

“You can go to an oil and gas field and see a few people do a lot of work,” he said. “Energy efficiency is more labor intensive.” Once Jonah Coles and colleagues move on to the next roof, photovoltaic systems generate few jobs, too. Solar panels lack moving parts and are warranted for 25 years. Wind turbines also need few minders, save those performing occasional maintenance, Xcel Energy spokesman Mark Stutz says.

Xcel has more than 1,000 megawatts of wind energy online in Colorado, with another 152 megawatts scheduled to start spinning late this year.

New energy made here

Colorado is also attracting renewable-energy manufacturing ¬ and jobs: Danish wind-power giant Vestas opened its first U.S. wind-blade factory in Windsor in March 2008, and it employs 650. The company is adding a second blade factory and a nacelle (wind turbine hub) assembly plant in Brighton and a tower factory in Pueblo. Combined, the company will be able to build 1,400 nacelles, 900 towers and 4,000 blades a year in Colorado by the end of 2010, Vestas officials say. By that time, Vestas will have spent $680 million on its Colorado plants and will employ 2,450 here.

Stamford, Conn.-based Hexel Corp. will add 100 jobs at a new $50 million, 100,000-square-foot plant near Vestas’ Windsor plant to produce epoxy resins used in blade production. It is scheduled to open in the second half of 2009.

Colorado State University spinoff AVA Solar intends to produce, on its under-construction Longmont production lines, cadmium telluride-based solar panels at roughly one-third the cost of traditional silicon panels. The plant will employ perhaps 500, company officials say. Renewable Energy Systems Americas moved its headquarters and about 140 jobs from Austin, Texas to Broomfield.

Ascent Solar Technologies is building an $85 million thin-film photovoltaic plant in Thornton, which could add 300 workers by 2010. Siemens Energy is adding a 50-person wind turbine research and development center in Denver, too.

After several years of flat budgets, things are also looking up for the National Renewable Energy Laboratory, Colorado¹s largest renewable-energy employer. The lab¹s annual budget has grown from about $200 million in 2007 to $330 million and now employs about 1,200, with plans to add 200 to 300 jobs in the next 12 months to 18 months, said NREL spokesman George Douglas.

Still, the New Energy Economy is not immune to general economic trends. The credit crunch and its resulting slowdown are being felt, Collins said.

“It ripples into renewable energy. Companies are having a harder time going to financial markets to borrow a quarter of a billion dollars to build a plant,” Collins said. “And homeowners are having a harder time tapping into the equity in their homes.” Financing rooftop solar systems was a major hurdle even before the economic meltdown, said Tom Plant, director of the Governor¹s Energy Office.

“Buying a solar system can be a very good investment, but you need to have the right financing in place to make it workable for most people,” he said. “It¹s like a buying a car. Most people don¹t walk in and plop down $20,000.” Plant¹s office has financing problems of its own. Its 2007 budget of $7 million fell to $3.9 million last year and, due to state budget woes, is headed for zero in 2009.

“We¹re hoping the federal stimulus is going to kick in,” Plant said.

Subsidizing new energy

The recovery package includes $42 billion in energy-related investments, including $3.2 billion in energy-efficiency and conservation block grants, $5 billion in weatherization assistance, $3.1 billion for the state energy program, $2 billion for advanced batteries, $4.4 billion to modernize the electricity grid and $500 million for biofuel projects, according to a breakdown compiled by propublica.org. About $3.4 billion has been targeted for fossil energy research and development.

And make no mistake: Subsidies remain vital to renewable energy development. As federal tax incentives for wind power expire ¬which they periodically do, given the short-term nature of the so-called production tax credit ¬wind-farm investment craters.

Xcel Energy cut its Solar Rewards program rebate from $4.50 per installed watt to $3.50 per watt in November 2008 as new federal tax credits of up to 30 percent of total system cost kicked in. The net effect is that consumers still get a roughly 50 percent rebate on their rooftop systems but now have to wait a year for the federal portion of the rebate. Applications for the program fell from an average of 100 to 200 a month to 23 in November and 34 in December, Stutz said.

Stutz said Xcel spent more than $33 million on the rebate program in 2008, which is mandated by Colorado¹s state renewable energy portfolio standard requiring 20 percent of electricity be produced by renewable sources by 2020. The Xcel program is paid for by a 1.46 percent renewable-energy rider on customer electricity bills. Xcel is also a player in energy efficiency, intending to spend $63 million this year and $80 million in 2010 on so-called demand-side management programs, Stutz said. The aim is to obviate the need for 700 megawatts of electricity-generation capacity, or about the output of a major coal-fired power plant, he said.

In the policy realm, the state Legislature beefed up the renewable portfolio standard in 2007. A 2004 state ballot initiative - a first - had required 10 percent renewable generation by 2015; lawmakers raised it to 20 percent by 2020, and Xcel is poised to beat that figure by several years, Stutz said.

About half the states have such standards. Komor says a federal standard, which failed during the Bush Administration, could happen. In addition, a cap-and-trade system putting a price tag on heat-trapping carbon dioxide emissions would make carbon-neutral renewable energy relatively more affordable, he said.

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Sun, wind meet fossil fuel

With all this attention to the new energy economy, one might expect resentment from an oil and gas business in contraction. Not so.

John Swartout, government affairs and policy director for the Colorado Oil and Gas Association, calls renewables and traditional sources "complementary." "I think the nation needs additional energy resources, and they should get them from where they can," he said.

Doug Hock, spokesman for EnCana Oil & Gas (USA), one of the state's largest gas producers, echoed the sentiment, saying "We're going to need all the energy we can get, in addition to conservation." Natural gas plays a big role in balancing out renewable power anyway, he added, which unless interconnected to a grid much larger and smarter than today's, is inherently intermittent as winds die off and the sun dips behind the mountains.

"What people don't appreciate is how much new natural gas infrastructure in pipeline and gas storage is needed to back up intermittent wind with natural-gas turbines," said John Harpole, president of Mercator Energy in Denver. He pointed to Colorado Interstate Gas' Totem Natural Gas Storage Project north of Bennett and the company's and Xcel Energy's High Plains Expansion pipeline project as examples. Although the 164-mile pipeline and 10.7 billion cubic foot reservoir will serve many purposes, the combined $370 million projects explicitly stated electricity generation as a motivator, he said.

Indeed, the oil and gas business, following explosive growth in recent years, is slowing down. Prices are a big driver, Harpole said. "You can't see a $100 drop in the price of crude in three months and not see it impact natural gas," he said.

Natural gas prices have plunged, with late-January Henry Hub spot prices of less than $5 per million Btu compared to more than $13 per million Btu at their July 2008 peak. With this drop, the number of natural-gas drilling rigs has also fallen. According to data from oilfield service firm Baker Hughes, there were an average of 116 rigs drilling in Colorado last August.

As of late January, just 77 were active. EnCana averaged about 15 rigs last year, Hock said. Now they are averaging about five, he said. That some of Colorado¹s richest natural gas fields happen to be in the Western Slope's Piceance Basin is also a factor. Hock called the basin "the most price-sensitive basin in which we operate." The Colorado Energy Research Institute's 2007 report put the price of an average Piceance Basin well at $1.6 million, nearly triple the $550,000 cost in the Northern Denver Basin and $611,000 in southern Colorado.

Harpole said "devastating" credit market conditions and a lack of pipeline capacity were additional short-term business problems facing the Colorado gas industry. El Paso Corp.¹s forthcoming Ruby pipeline, 680 miles of tube scheduled for opening in early 2011, will send Rocky Mountain gas to California markets and help on that front, he said.

Oil and gas face new rule

Then there is the regulatory landscape. Harpole, Swartout and Hock all said new regulations put forth by the Colorado Oil and Gas Conservation Commission should be reconsidered.

The state Legislature in 2007 instructed the commission to develop the rules to take better account of environmental health amid exploding gas development. Created in concert with industry, the rules were the product of more than a year of effort, including 24 days of hearings and thousands of pages of comments. They came out in December and, barring legislative action, will go into effect this spring.

Legislators might just act, though. Senate Minority Leader Josh Penry, R-Fruita, has been the rules' most outspoken opponent. But despite broad Democratic support, frustration bleeds across the aisle. Wes McKinley, D-Walsh, called the rules "too far-reaching" and giving "way too much authority to the Colorado Division of Wildlife." He and others have proposed bills that would alter the rules, and the Colorado Legislative Council is considering whether they follow the 2007 law's intent.

McKinley's bill (HB 09-1167) failed in committee on Feb. 10 in a 7-6 vote, with McKinley joining the House Committee on Agriculture, Livestock, & Natural Resources' five Republicans in defeat. Swartout contends the rules, "which industry did support, went beyond legislative intent" in several areas. First, he said, new rules surrounding landowner consent leave too much discretion to the commission. Second, the rules with respect to wildlife lack clarity. Third, new potential for administrative appeals could delay the permitting process. Finally, Swartout said, the commission is jumping the gun in its desire to open a new round of rulemaking in 2009 before the dust settles. The net effect, he said, is to introduce uncertainty and make the state less attractive to oil and gas developers.

David Neslin, the commission¹s director, countered that many of the new rules come straight from language industry submitted and that the current downturn's impact should be muted by grandfathering all permits issued before April 1 on private land and May 1 on federal land. The state issued a record 8,027 drilling permits in 2008, 27 percent more than 2007, the previous record. Neslin says the industry is coming into 2009 with 4,500 unused drilling permits, all to which the old rules apply. That's more than enough to cover a year's worth of drilling, he said.

Whether it involves drilling for fossilized sunshine or soaking in modern-day rays, Colorado's energy business is poised for success, says Dag Nummedal, director of the Colorado Energy Research Institute at the Colorado School of Mines.

"I think Colorado is exceptionally well-positioned -- probably better than any state in the country -- to really benefit economically from the changes going on in the energy industry," Nummedal said. "We are the only place with expertise and business savvy both in fossil energy and renewable energy."

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