July 14, 2008

Automakers, Utilities Seek Alternatives

High prices for oil and natural gas are leading utilities and automakers to seek alternative energy solutions, but they are facing challenges that may take years to solve, writes Robert McNatt of BusinessWeek.

Alternative energy prices should be more viable now that traditional sources of energy are more costly, but McNatt writes that it will take years for alternative energy to generate more than its current two percent share of U.S. electricity, (excluding hydroelectricity or nuclear power) and once the technologies are in place, they must also negotiate the minefield of government and regulatory policy and approvals.

While automakers are transitioning towards producing more hybrid cars, it’s facing challenges as some plants are idle from efforts to cut down production of trucks and SUVs. Furthermore, profit margins for hybrid cars are small due to competition and high cost of production.

McNatts offers an insight into the problems alternative energy may face in the future:

1.    Hydrogen fuel-cell technology-
Even if automakers perfect the technology and dramatically reduce its now-astronomical costs, someone will have to pay the massive cost of building enough hydrogen fueling stations to make widespread use practical.

2.    Electric utilities-
Caught in a bind: Growing power demands at lower rates and tougher environmental mandates. States are increasingly mandating the use of renewable portfolio standards, and at an uncertain cost, this could “result in the chief credit risk for utilities,” says S&P credit analyst Anne Selting.

3.    Wind power-
Many people dislike the look of big propeller turbines, and environmentalists are concerned about their effect on birds and other wildlife. What’s more, it is weather-dependent and suitable locations for generating wind energy are often far away, so transmission could be costly.

4.    Solar power-
Only makes true economic sense mainly in sun-intense areas of New Mexico and Arizona.

5.    Hydropower-
Opportunities in the U.S. have been tapped out. Very few places left where the water source for sizable hydropower is abundant enough to build dams to harness it.

6.    Nuclear energy-
Controversial. No nuclear power plants has been built for decades and while some companies are considering this option, it’s uncertain if these efforts will come to fruition.

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