The first Pike Research Smart Energy Annual Report is due out soon (Q2 of 2012), and in it Pike Research calculates the size and value of the global smart energy market in 2011.  We define smart energy as “the range of efficient technological options available to providing electricity in a distributed fashion, either for local use or for grid support,” covering renewable energy, biopower, energy storage and advanced conversion technologies such as fuel cells and CHP technology.  But we don’t cover developments in the natural gas market.  Why? Because it remains unclear whether the developing natural gas market in the US will harm or help the smart energy market.

Daniel Yergin in his article for CNN is cautiously optimistic that in the US natural gas will not crowd out the developing renewable energy market, but will more likely replace and then displace coal and nuclear for power production.  In Europe I believe that governments are starting to move away from the dash-to-gas due to the increased geopolitical tensions caused by the location of most of natural gas reserves.  In Austria, for example, the region of Güssing has a policy of 100% renewable, locally produced, power.  As I covered in the past in an article for Fierce Energy, this includes 50 MWs of distributed fuel cell power using locally produced biogas.  The United Kingdom has taken a slightly different approach, and has to date limited the use of hydraulic fracturing, or “fracking,” due to the increased incidences of minor earthquakes in the vicinity of a nuclear waste storage facility.

But how will the surge in natural gas supplies affect the overall smart energy paradigm – the production, storage and use of efficient, distributed power?  From my own personal perspective it’s likely to be a good thing.  Over three quarters of all fuel cell systems deployed today use either natural gas or a form of fuel in which natural gas is the main component.  The addition of natural gas-powered fuel cells will in some cases help a renewable installation in the same grid system win contracts, as it can guarantee steady, predictable baseload power.  A win-win surely and a prefect example of the systems based approach that we see rapidly developing in the smart energy market.

One scenario we could see developing is utilities providing smart energy systems, rather than electrons and heat, where a package that combines a natural gas-fuelled fuel cell, solar and wind capacity, and an advanced battery for hydrogen-based storage are deployed together in a turn-key system.  This could be everything from 1-5-kilowatt (kW) systems for homes right up to 50-100 megawatts for communities or towns.  Joining the dots in this way will increase the overall efficiency of the power and heat production network, and emissions will decrease.  So, note to self: Next year in the 2013 Smart Energy Annual Report – include natural gas.

Europe has been operating huge wind turbines offshore for more than a decade, while here in the U.S., this cutting edge clean technology seems perennially “five years off.”

The infamous project proposed offshore of Cape Cod, Massachusetts has been under deliberation for more than 10 years. During that time, Denmark, Germany, the United Kingdom, and seven other countries have already installed 53 offshore wind farms totaling 3,813 megawatts (MW) of carbon free electricity. That is enough power to keep the lights on for more than 2.8 million American homes, or a city larger than the size of Chicago.

The international wind power industry is watching Washington, DC to see if lawmakers will extend the federal production tax credit (PTC) for wind power. But their eyes are also focused on Trenton, the state capital of New Jersey, to see if state regulators there will help launch America’s long-awaited offshore wind energy industry.

In August of 2010, New Jersey Governor Chris Christie signed into law the Offshore Wind Economic Development Act, which authorizes up $100 million in ratepayer-funded subsidies for offshore wind developments in the Atlantic Ocean that connect to the New Jersey grid.  Special “offshore renewable energy credits” (ORECs) help make projects more economic, but unlike the Solyndra federal government loan guarantees, these subsidies are only awarded after projects meet a cost/benefit criteria and produce renewable energy delivered state consumers. In addition, a “Clean Energy Manufacturing Fund” offers additional grants and loans based on local job creation.  Many experts consider New Jersey’s offshore wind program to be the most well conceived state policy initiative in the nation.

Perhaps the most unusual company pursuing the Garden State’s offshore wind power opportunity is Fishermen’s Energy, based in Cape May, New Jersey.  Several of the East Coast’s largest commercial fishing companies have partnered to create the company, which has been developing a 25 MW project for several years. In contrast to Cape Wind and other ambitious proposals, the New Jersey-based consortium chose a step-by-step approach: a demonstration project. It is siting its five turbine windfarm within the three-mile state-controlled boundary off Atlantic City, a city looking to extend its image – and economy – beyond casino gambling.  If building America’s first offshore windfarm were a race, Fishermen’s Energy might look like the tortoise to Cape Wind’s hare.

Showcasing a savvy approach, Fishermen’s Energy has trimmed pre-development costs and shortened the development cycle to what may be less than half that of the Cape Wind project by doing the following:

• Sited its first project in state waters, thereby eliminating redundancy in permits/paperwork and limiting federal agency reviews to the Army Corps of Engineers
• Relied upon shore-based anemometers, radar, and new laser-based technologies to collect data, eliminating the need for site-based meteorological towers in the ocean
• Engaged environmentalists and recreational fishermen in dialogue about the merits of its pilot project in advance of large-scale developments off the New Jersey coastline
• Discovered data on avian and sea life studies performed by a credible third-party company – Geo-Marine – that covers almost 127 miles of coastline (including its project site), to help secure its permits from the Department of Environmental Protection
• Used one of its company’s vessels – an 85-foot former fishing boat – to install a buoy at the installation site to monitor whale activity for two years
• Recruited financial support from XEMC, a Chinese industrial giant known as “China’s GE,” in planning for a 5MWdirect drive wind turbine

All these innovative steps – and more – add up to project savings, a critical accomplishment in light of the tight fiscal constraints imposed by the state OREC program.

The New Jersey Board of Public Utilities (BPU) is currently reviewing the company’s proposed pilot project.  By modestly committing consumer dollars to the pilot project, New Jersey would lock in its leadership of an entirely new industry: offshore wind power.  If the Fishermen Energy’s pilot project is allowed to move forward, more than 500 MW of additional offshore wind capacity could come online to serve New Jersey within the next five years, creating as many as 11,000 manufacturing, installation and ongoing operation and maintenance jobs for the Garden State.

While many government officials nervously await the outcome of the November elections and speculate as to its implications for the cleantech sector, one federal department is likely to be relatively unaffected regardless of the outcome: Defense.

According to panelists at the recent “Mission Critical: Clean Energy and the U.S. Military“ event in Denver, the military’s growing commitment to reducing its use of fossil fuel, for both national security and economic reasons, will not waver regardless of who’s in charge in the White House or the Congress.

Senator Mark Udall of Colorado rattled off a series of statistics that underline the reasons for the military’s emphasis on becoming as green as the army’s uniforms:

• The military is 25 percent of government’s energy burden
• The Pentagon is biggest consumer of fossil fuels in the world, burning 300,000 barrels of oil per day at a cost of more than $30 million in fuel per day
• A $1 increase in the price of oil increases DoD’s energy cost by $100 million per year
• 1 out of every 50 convoys in a combat zone results in a casualty, and the Army has accrued more than 3300 fatalities in convoys since 2001
• Convoy and security costs $100 per gallon for combat zones

Udall emphasized that the military is implementing many fuel-reducing technologies because of the high human price paid in getting fuel to the front lines. “Saving energy saves lives,” he said, adding that adopting clean energy technologies is “one of the most patriotic things we can do.”

Despite any changes that might occur in the leadership in the executive or legislative branches, the military will continue to be an early adopter of clean technologies that enable it to become more energy independent. These includes making military bases self-sufficient (and less vulnerable to attack) by creating microgrids, and purchasing a large number of hybrid and electric vehicles for its non-combat fleet.

While investors may be endangering the cleantech industry by exiting or staying out of the market, the military remains committed to deploying solar and wind. The military will generate 25 percent of its energy from renewables by 2025, according to Mark Mahoney, director of the Army Regional Environmental and Energy Office.  Mahoney said one benefit to renewable adoption is that a platoon can reduce the load it carries by 700 pounds simply by replacing portable generators with solar chargers.

Fort Carson, Colorado, recently achieved the challenging trifecta of becoming a “net zero” facility for energy, water and waste. Fort Carson became the second such army facility, joining Fort Bliss in El Paso, Texas.  The military’s unrelenting commitment to clean energy is consistent with its overarching mantra of preparedness.  According to Mahoney, we can’t “afford to wait until the next international energy crisis … or national tragedy forces us to act.”

Fresh off its $7.9 billion acquisition of Constellation Energy, Exelon Corp. – now the nation’s largest competitive power producer, with total generation capacity of 34 gigawatts – reported weak quarterly earnings this week due to a historically mild winter, the plunging price of natural gas, and costs associated with the merger with Constellation.  Also the largest U.S. nuclear power company, Exelon faces rough sailing ahead under new CEO Christopher Crane.  Confronted with a natural gas glut with no end in sight, plateauing demand for electricity, and forthcoming stringent regulations on greenhouse gas (GHG) emissions, particularly from aging coal plants, U.S. utilities are going through a wave of consolidation and cost cutting as they attempt to weather the stormy transition to more sustainable forms of power generation.  The Exelon-Constellation announcement was followed by Duke Energy’s purchase of Progress Energy for $13.7 billion in stock, in January.

Chicago-based Exelon is in a particularly interesting, not to say dicey, position because of the big bets that Crane’s predecessor, John Rowe, placed on nuclear power.  A blunt-spoken “lawyer and amateur historian with a fascination for antiquities and a love of the podium,” as Crain’s Chicago Business described him, Rowe had become a familiar figure in Washington, D.C.’s corridors of power and a leading advocate for the heralded “nuclear renaissance.” He believed that the shift away from coal and other carbon-emitting forms of power would favor nuclear power, which supplies 20% of America’s electricity and remains cheap compared to other forms of clean energy, including renewables.

“The single most disruptive technology in my 28 years as a CEO was shale-gas fracking,” Mr. Rowe told an energy conference in March. The natural gas boom represents “a huge challenge for my successors at Exelon.”

That’s not exactly a rousing vote of confidence for Crane, who never finished college and who started out as an electrician at nuclear plants in the 1970s.  Exelon’s share price has lost 18% of its value since its peak in November 2011, before the full extent of the domestic natural gas supply became evident.  That now seems like another era.  Few people foresaw the gas glut that’s now proving to be an economic boost for the United States and a huge challenge for big producers of power from coal (like American Electric Power) and nuclear, like Exelon.

Exelon is also locked in a political battle over a new 650-megawatt plant planned by Omaha-based operator Tenaska, Inc. on Exelon’s home turf of Illinois.  Tenaska had originally planned a $3 billion next-generation “clean coal” plant for its Taylorville, Ill. site.  Faced with strong opposition from state politicians and influential business figures including John Rowe, Tenaska this week said it would shift gears and build a natural gas plant instead, at a third of the cost.  How Exelon will respond remains to be seen.

The waves rippling across the energy industry represent the biggest change in the utility business since deregulation, in the 1990s.  How these new power behemoths navigate the tossing energy seas will play a major role in determining the structure of the U.S. energy industry for a generation.