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.

Aiming to reduce greenhouse gas (GHG) emissions from coal-fired power plants, the Environmental Protection Agency (EPA) recently released its “new source performance standard” to sharply limit such emissions from coal plants that will be built in the future (the standard does not apply to plants constructed in the next 12 months).  The new rules will allow existing coal plants to continue to operate, though EPA could eventually issue standards to reduce carbon pollution from these plants, too.

In June 2011, the Supreme Court declared that the EPA has the authority to curb greenhouse gas (GHG) emissions under the Clean Air Act.   While the EPA determines new source standards, it shares the responsibility to do so with the states for existing sources.

The “new source performance standard” requires that new plants meet a specified emissions rate that is both technically feasible and economically viable. Although the standard does not dictate which fuels a plant can burn, it essentially requires that new coal plants cut CO2 emissions by 50% to match emissions from natural gas plants.

Coal power plants are the nation’s largest source of GHG pollution, emitting almost 1.9 billion tons of CO2 equivalent into the air every year.  Nevertheless, the EPA continues to be challenged by various political groups and factions of the coal and power industries who are determined to derail its new standard.  Some claim that EPA’s rules will cause power shortages and blackouts, but the Department of Energy has concluded that the nation’s need for increasing supplies of electricity can be met by a combination of renewable resources, natural gas plants, and much improved energy efficiency measures and demand response systems in commercial, industrial, and residential sectors.  The tools to meet our growing appetite for electricity are available; the question is whether the tough new limits on new coal plants will survive.

According to our recent report on building automation systems, the market for building automation controls today totals over $75 billion per year.  There’s still room for growth, however, not just in developing regions but even in North America and Western Europe.  Automation systems and controls relating to HVAC and lighting are not always required by code, but they can play an important role in maintaining high levels of energy efficiency.  As LEED certifications soar (recently passing 2 billion square feet of commercial certified space worldwide) and organizations look to reduce their energy consumption and carbon emissions, such controls are one of the key enabling technologies that achieve high levels of energy performance in buildings.  Although some of this growth is due to the increasing stringency of building energy efficiency regulations, such as the EU Energy Performance of Buildings Directive, which will require all new construction in Europe to achieve nearly zero-energy levels by 2021, much of the investment in building automation controls will be voluntary, as companies aim to improve energy efficiency in their building portfolios.

At the same time, building automation systems are becoming more intelligent.  Increasingly, controls are not designed to be “set and left” but are connected to a building management system (BMS) that continuously monitors data streams from building controls and feeds them into energy displays that help facilities managers and other decision-makers gain visibility into how their buildings are performing.  This is enabled by the convergence of IT with building controls, a process that, despite arriving later to the building industry than to other industries like telecom, is now transforming the way energy is managed in buildings.  Controls were originally imagined as standalone devices that would to some extent take control of building energy out of occupants’ hands to “make sure the lights got turned off.”  The new wave of intelligent controls, ironically, aims to put control over controls back in the occupants’ hands, albeit under the guidance of sophisticated BMS and building energy management systems.

BAS Market Size by Region, World Markets, 2011-2021

These advances in building automation technology are occurring just as demand for higher levels of energy efficiency is rising.  As a result, Pike Research expects the market for building automation systems to grow to $146 billion in 2021 – a near doubling of the market today.  Much of this growth will come from rapid construction activity in China, where 2 billion square meters of new space are added every year, and where much of that new space will integrate sophisticated controls over time.  The fastest growth categories will be those that relate directly to energy efficiency, such as lighting controls.  As these devices are rolled out, they will usher in a new generation of intelligent buildings that are less expensive to operate and easier to manage than ever before.

C3, the energy management software firm, announced on May 1 that it is acquiring Efficiency 2.0, a software company whose software-as-a-service (SaaS) product focuses on improving the efficiency of residential and small business customers.  This move rounds out C3’s portfolio of utility energy management services, which has until now focused on large commercial and industrial customers.

If you’re familiar with OPOWER, then you’ve seen the role that some energy management software firms are looking to play in helping utilities meet their demand-side management (DSM) goals for energy efficiency.  Efficiency 2.0 aims to aggregate residential and small commercial sites – some of the hardest-to-reach customers in energy efficiency programs – and document the results in a way that helps utilities comply with efficiency mandates and qualify for incentives from their state public utility commissions.

C3 has been very busy since it formally opened its doors to the public last August, as I covered on our blog, with both its utility and corporate customers.  The firm is already working with Pacific Gas & Electric, for whom it provides a white-labeled version of its software to help PG&E’s account managers identify and implement energy conservation measures with PG&E’s largest commercial and industrial customers.  The acquisition of Efficiency 2.0 rounds out C3’s offering for utilities by helping it address a full range of customer types, ranging from individual homeowners to facilities with peak loads in the hundreds of kilowatts.  Through the acquisition, C3 and Efficiency 2.0 now boast a combined customer base of fourteen utilities, in addition to many other corporate customers.

Many firms in the energy management world have been eyeing utilities as potential customers.  For example, Pulse Energy, the Vancouver-based software firm, has retooled its entire strategy to focus on utility customers rather than building owners.  The business model for energy management is considerably different for utilities, as utilities benefit less from energy cost reductions (as building owners do) and more from increased visibility into and control over customers’ energy consumption as well as from compliance with energy efficiency mandates.  Through this acquisition, C3 is one of the few (if not the only) vendors that can address a utility’s entire customer base using a single platform.

The news of yet another acquisition in the energy management space also takes the era of the energy management startup, which has been gestating over the last few years, one step closer to its natural conclusion, when virtually all startups will either be acquired or close their doors.  C3’s executives, many of whom were previously in executive roles at Siebel Systems, the software firm that Oracle acquired in 2005 for $5.8 billion, know that as well as anyone.  Demand for energy management solutions for utilities will continue to mature over the next few years, and, as it does, companies like C3 will be well-positioned to help utilities improve their customers’ energy efficiency.

Power provider NRG Energy’s proposed settlement with the California Public Utilities Commission (CPUC), which would include the company’s ownership of EV charging equipment across the state, was lauded by some EV manufacturers and met with displeasure from EV industry participants and competitors.  The company responded by adjusting its settlement offer, and along with the CPUC on April 27 filed an amended settlement offer with the Federal Energy Regulatory Commission (FERC), which has 90 days to review the deal.

I submitted questions to NRG about the changes to the revised agreement and the impact on Californians, and below is an edited transcript of the email exchange with Arun Banskota, president of NRG Energy’s EV Services division.

Pike Research: How do you think that this agreement will accelerate the demand for PEV ownership in California?

Arun Banskota: This is a significant investment of capital that addresses the “Chicken and Egg” problem facing the industry as a whole: how do you build a network when there aren’t enough cars on the road? NRG’s investment and innovation in DC fast-chargers will break open the EV market by addressing the number one challenge facing the industry–range anxiety.  This settlement puts the state on the path to creating a “backbone” of fast-charging stations and work place and residential charging as well as charging at institutions such as schools, hospitals and community colleges that are crucial to meeting California’s goal of having 1.5 million EVs on the road by 2025.  More EVs on the road means more opportunities for companies throughout the sector as we create a technology- and vendor-neutral infrastructure to encourage EV adoption and demand growth.

PR: What are the benefits from the settlement to California ratepayers who don’t own an electric vehicle?

AB: NRG’s EV infrastructure will deliver multiple benefits to California families and businesses, including those that don’t currently use EVs.  NRG’s project will:

• Create jobs and new investment in California;
• Open up increased market opportunities for existing and new businesses in the EV sector, from technology to manufacturing to EV charging hosts;
• Improve air quality in the of the state’s largest most densely populated metropolitan areas;
• Make EVs more accessible to consumers of all socioeconomic backgrounds;
• Give consumers another choice for transportation amidst rising oil prices;
• Reduce greenhouse gas pollution;
• Provide greater exposure to the benefits of EVs through the car sharing program we will support.

PR: Can you explain how the modifications to the agreement address the concerns filed by Ecotality?

AB: NRG worked closely with the CPUC to ensure that this settlement will drive growth and preserve competition in the EV market so that Californians can meet their clean energy goals.  California is targeting 1.5 million EVs on the road by 2025.  To get there, the state needs the kind of investment that we are making – and then some.  The 200 public freedom stations and the make ready sites will be spread across 55,000 square miles of the most densely populated metropolitan areas in California.  While it is significant, it doesn’t saturate the market.  Additionally, a good percentage of our infrastructure will be built in low and moderate income areas, something that was unlikely to happen outside the scope of this type of settlement.

Most importantly, there is no exclusivity for the locations where the Make-Readies or the Freedom Stations will be installed–our competitors can build right next to our installations.  Additionally, the make ready infrastructure is being built for and will be delivered to the citizens, businesses and property owners of California.  This investment will enable other companies to make subsequent investments in a more mature market as we are taking the up-front risk to create longer-term value for the entire sector by paying to build an infrastructure that our competition will have access to after 18 months.  By building the make readies, we are lowering the barrier to entry for the entire market.  The infrastructure cost (approximately $10,000-$15,000) is the most significant portion of the overall cost to install chargers.

PR: Other EV charging services companies have objected to the 18-month period where NRG gets exclusive access to installing charging equipment at the make ready locations.  Why was this clause inserted and how can it expand rather than impede competition in EV charging services?

AB: I would emphasize that the CPUC wanted someone with “skin in the game” to ensure this infrastructure was successful by incenting NRG to site this infrastructure at properties with a higher probability of attracting EV drivers.  The 18-month period allows us to have a short amount of time to try to take advantage of our $40 million investments, but is short enough to ensure that competitors can take advantage of it as well when this period is over.

PR: Is NRG required to give away any vehicle charging services or equipment as part of the agreement? I understand that the make-ready wiring and upgrades will become property of the location or residential EV owner, but will power be given to EV owners at no cost, or will any of the charging equipment be owned by the location owners?

AB: The make ready sites, a $40 million investment by NRG, will be turned over to the facility owner after the expiration of the 18 month exclusivity period and NRG will not own this infrastructure.  By design, neither the actual chargers nor the electricity will be part of the infrastructure we supply to enable the property owners or our competitors to take advantage of the infrastructure in a way that best fits their respective business models.

PR: How does the equipment provided by this agreement compare with the free charging equipment given to PEV owners via the EV Project and ChargePoint America?

AB: The EV equipment we use will be acquired through a technology- and vendor-neutral RFP process.  Probably one of the most important comparisons is the difference that our equipment is privately funded to ensure a sustainable business model that is only dependent on success of EV adoption.

Is this a good deal for EV owners, the industry, and California as a whole? Should FERC okay this with the 18-month exclusivity contract intact? Please share your comments below.

In articles, op-eds, and books like Power Hungry, Robert Bryce has become America’s foremost skeptic of renewable energy generation.  It’s not that Bryce doesn’t like wind, and solar, and biofuels; he just scoffs at the notion that they are going to provide enough power, at low enough prices, over the next few decades to make a dent in energy demand.  (Disclosure: when Bryce was editing the website Energy Tribune I contributed a few articles, and his work is mentioned in my new book SuperFuel.)  Now Bryce has written an article for Slate demanding to know why President Obama is so “blind” to the big production surges coming from domestic oil and gas resources.

In 1990, Bryce writes, the United States had 33.8 billion barrels of proven oil reserves.  Today that figure stands at 31 billion barrels.  Over the two decades from 1990 to 2010, “the domestic oil sector produced about 52 billion barrels of oil.  In other words, between 1990 and 2010, the United States produced nearly twice as much oil as we believed the whole country had in 1990, and yet at the end of that period, we still had about the same amount in proven reserves.  What’s going on?”

The answer, of course, lies in the “shale revolution” – the technological advances that have allowed producers to wring oil and natural gas from so-called “tight rock,” reserves that 10 or even five years ago would have been uneconomic to produce.  So far, this is inarguable.  But Bryce, who has a penchant for drawing sweeping conclusions from data that could be interpreted in varying ways, goes on to claim that Obama is not only anti-Big Oil but is ignoring (or ignorant of) the economic and geopolitical ramifications of the shale revolution.  Obama is “wrong about what those percentages mean, and his wrongness reflects a fundamental misunderstanding of the oil and gas industry.”

The Innovation Debate

There are two things wrong with Bryce’s argument. No. 1 is that Obama is hardly blind to the achievements of the domestic oil and gas industry.  To be sure, Obama has tried to balance political demands from his Democratic base with the oil industry’s demand for more pipelines and more drilling.  But here’s part of Obama’s Jan. 18 statement when he essentially put off a decision on approval for the Keystone XL pipeline expansion: “This decision … does not change my Administration’s commitment to American-made energy that creates jobs and reduces our dependence on oil.  Under my Administration, domestic oil and natural gas production is up, while imports of foreign oil are down.  In the months ahead, we will continue to look for new ways to partner with the oil and gas industry to increase our energy security –including the potential development of an oil pipeline from Cushing, Oklahoma to the Gulf of Mexico – even as we set higher efficiency standards for cars and trucks and invest in alternatives like biofuels and natural gas.  And we will do so in a way that benefits American workers and businesses without risking the health and safety of the American people and the environment.”

That is hardly the language of a man ignorant of rising domestic oil and gas production.  Obama wants to move toward a non-fossil-fuel energy system while producing domestic oil and, in particular, natural gas to fuel U.S. industry and create jobs.  Even Bryce would have a hard time arguing with that strategy.

The No. 2 caveat to Bryce’s Slate article is that the following statement is blatantly untrue:  “Over the past few years, the oil and gas sector has out-innovated the political darlings of the moment: solar and wind energy.”  Innovation in the wind and solar sectors has been second to none, without the increasingly apparent environmental damage that hydraulic fracturing, or fracking, is causing in tight-rock oil and gas production areas.  As my colleague Peter Asmus has pointed out, the price of power from solar photovoltaic arrays has declined to near grid-parity levels, even as federal subsidies are being phased out.  Bryce strays into ignorant territory himself when he suggests that the practice of pumping chemicals into the ground to break up geologic shale formations is somehow more “innovative” than the rapid advances in solar technology.

In reporting for a cover package on the natural gas boom for Fortune, I spoke to John Deutch, the former CIA director, now an Institute Professor at MIT.  Hardly a tree-hugger, Deutch is all for the economic benefits of the shale revolution; but he sees it through a wider lens than Robert Bryce.

“I recently chaired a committee studying the environmental impacts of shale gas production,” Deutch told me.  “We came to the very strong conclusion that those impacts have to go down over time if the U.S. is going to support those advances in production.

“Air quality, water quality, community effects – these are very important issues. What concrete action are we taking to reduce those problems?  The answer is, ‘Not enough.’”

Taking a measured approach to energy policy, even as cheap natural gas floods the market, is what presidents are supposed to do.  There’s nothing blind about that.

When it comes to navigating the advanced biofuels’ winding pathway to commercialization, no company is faring better than Solazyme.  Whether delivering biojet fuel for commercial flights or producing hundreds of thousands of gallons of advanced fuels to help the U.S. Navy launch its Green Strike Force in 2016, Solazyme has been on a marketing tear.

The company has also unveiled a steady stream of partnerships, with companies such as Unilever and Chevron, in the last few years, securing its place among the companies to watch in biofuels.  Earlier this month, the company made a splash at the Advanced Biofuels Leadership Conference in Washington, D.C., where it announced a new joint venture with Bunge Global Innovation, a subsidiary of agribusiness giant Bunge.  The partnership will build, own, and operate a commercial-scale renewable tailored oils production facility in sugarcane-rich Brazil.

But caught in the backwash of the attention and hype surrounding Solazyme is a more troubling development: the skewing of expectations around algae commercialization.

Not quite an algae company – “traditional” algae companies rely on CO2, sunlight, and water as inputs – Solazyme uses an algae platform that relies on cheap sugars, which it feeds to microalgae in closed steel fermentation tanks.  The sugar-dependent algae platform coupled with the company’s genesis in the traditional algae space no doubt contributes to its characterization as an algae company.

More accurately, it sits alongside a slew of promising companies chasing cheap sugars, including venture-backed startups like Amyris, LS9, and Codexis.  All of these companies have proven adroit at straddling the chemicals and fuel markets.  As discussed in Pike Research’s Biofuels Markets and Technologies report, these companies stand out in the advanced biofuels industry, rebranding their companies around the production of “renewable” or “tailored” oils.  More importantly, they are on a very different commercialization trajectory than the algae-to-fuels industry.

Like any good Shakespeare character worth his salt, Solazyme has expertly used appearance versus reality to its advantage, aligning itself with algae when the industry is hot, and distancing itself when it’s not.  Meanwhile, the long-term impact of the “Solazyme Effect” on the algae industry remains unclear.  On one hand, the company’s recent success has provided important cover for a young algae industry still clawing its way towards commercial viability in the harsh, post-Solyndra landscape; on the other, the Solazyme Effect may be feeding unrealistic expectations about algae’s near-term potential.  If the Solazyme star flames out, the algae industry could suffer collateral damage, further delaying development timelines.

Green Crude Outlook

With or without Solazyme, though, things are starting to heat up for green crude.  Promising companies like Sapphire Energy and Origin Oil are making headway.  As with any new technology, the real test for the algae industry will be managing expectations while marching towards commercial viability.

At the end of the day, what algae has going for it is (potential) scale and infrastructure.  As a biofuels platform capable of producing fuels that can be dropped-into existing pipelines and engines – ground, aviation, or otherwise – the road to commercialization is less onerous from a marketing standpoint than it has been for ethanol or first-gen biodiesel.  And as a renewable energy platform, algae could very well be one of the killer apps that enhances our existing energy infrastructure by cleaning up wastewater or soaking up CO2 exhaust from industrial facilities.

But all this will take time and money.  As Katie Fehrenbacher rightly notes in a recent article at GigaOM, it’s a long, long (long) road for algae fuel.  Pike Research’s Algae-Based Biofuels report projects that biofuels production from algae will rise to just 61 million gallons by 2020, partly owing to early production being soaked up by low-volume, high-value markets like biochemicals and nutraceuticals.  Although we profiled Solazyme in the report, the company’s production forecasts did not factor into our global projections.

For those looking for relief at the pump in the near-term, don’t hold your breath as we don’t see much change in these projections, especially given the growing emphasis on production for non-fuel markets in the near-term.  Nevertheless, algae’s long-term prospects continue to shine.