Now and then I will post items written by others because they are articulate, visionary and compelling and above all informative and practical. A few years back I had the pleasure of working for David Crane at NRG Energy where we pursued real clean coal development in the Northeast – IGCC with carbon capture and sequestration.  In many respects these efforts were ahead of their time and the politics and apparent economics proved too hard to overcome – at least for the moment.

For those of you unfamiliar with NRG, it’s one of the largest independent power producers in the country.  David Crane is NRG’s President and CEO.  David has been unwavering in his commitment to coming up with a practical and rational response to climate change and was one of the first leaders within the power industry to recognize that we are moving towards a carbon constrained future. 

But while many today agree on the general direction we’re headed in,  there continues to be widespread disagreement on how to get there and what policies are needed both in the near term and over the long haul to get there. 

David’s is a voice of reason and common sense in a time of change, worry and significant national challenges.  With leaders like David and a newly energized and pragmatic administration under Mr. Obama, I believe we have reason to be hopeful.  Below is a recent speach given by David. 

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 Putting the Common Sense into Sustainability

David Crane, President & CEO – NRG Energy, Inc.

Platts 2nd Annual Lecture December 3, 2008

All of us know that we live in the most perilous of economic times, but as the Energy Industry, it is the most unusual of times as well. A financial crisis-not of our making-nonetheless has descended upon us, impacting us directly in the form of a precipitous decline in the price of all of our core commodities at a time when Wall Street, our traditional source of investment capital, is lying flat on its back, hooked up to the iron lung of the United States Treasury Department. And these two phenomena – falling commodity prices and no access to new capital are all the more jarring – have occurred hard on the heels of a period of sustained record commodity prices and easy money from Wall Street. 

Fortunately our company, and many other energy companies, with the excesses of our industry from early in this decade still firmly planted in our minds, resisted the temptation to over leverage during the period of easy money and, as a result, we find ourselves financially well-prepared for the current downturn and well-positioned to proceed in a business-asusual environment. But even apart from the current financial crisis and economic recession, our industry is by no means entering a business-as-usual period. In fact, it is here and now that our industry needs to respond forcefully and proactively to meet – what I call – the Transcendent Dynamics of our era: Sustainability and Climate Change. I call them Transcendent because their core objectives are moral and absolute. They are not negotiable. And, of course, the proponents of Sustainability and Doing Something about Climate Change, now have a forceful Champion heading to the White House.

But even with his electoral mandate, widespread public support and impassioned activism spearheaded by the next generation of Americans, President Obama cannot do it by himself: He cannot use his executive order authority to mandate that all Americans pursue a sustainable lifestyle. Nor will the passage of federal greenhouse gas legislation itself decarbonize the earth’s atmosphere. 

The challenges of Sustainability and Climate Change are so daunting and so comprehensive that the new President needs to effectively harness the dynamic strength of American capitalism to address these issues if he is to succeed.

Under any circumstances, climate change and sustainability would be a historic challenge but of course the irony is that, six months ago, when the price of all fossil fuels were at historic highs and capital markets were still open,  all of us were much better equipped to foster sustainability and combat climate change than we are right now.   

So it is incumbent upon us that we find a way to work constructively with the Obama Administration to inject the common business sense needed to ensure that we utilize the strength of our free market system to achieve the sustainable decarbonized future that all of us seek for ourselves and our children without suffering severe economic dislocation along the way – dislocation that might lead to a failure of popular or political will and a counterproductive end result.

Since I am talking about a capitalist, free market solution, let me talk not only about achieving a social good, but also about the economic opportunity. Having had a taste of $140/barrel oil and $15/mmbtu gas earlier this year, our customers are ready to begin the transformative shift away from fossil fuels. The economic opportunity embedded within that shift is enormous. Remember that primary energy, worldwide, is a $6 trillion/year business.  

If you like to think in historical terms, think of the fortunes made by those individuals and those companies who were on the right side of the shift from the horse to the internal combustion engine. Think of the fortunes lost by those who continued to make horse whips and buggies. It will be the same here: over the next few decades, fortunes will be made by those who lead the way to a decarbonized world; and fortunes will be lost by those who don’t adapt. My intent certainly is to put NRG in the former category. This is what I plan to speak about today.

Let’s start with the basic fact – there is no rationally attainable definition of Sustainability that will NOT require the global energy industry to produce a lot more energy over the coming decades.  If we set for ourselves the target of pulling the 6 billion poorest people on the earth today up to the average lifestyle of the 1 billion richest, energy consumption will need to triple.

If energy consumption is to triple from today’s levels with greenhouse gas emissions being cut dramatically in absolute terms that means both a lot less fossil fuels as a percentage of total energy supply and the fossil fuels that continue to be used being used in a manner that prevents their carbon content being vented into the atmosphere.

To achieve this, it is going to take an energy plan. It has become quite popular again in intellectual and public policy circles in the United States to decry the absence of a long-term national energy plan. I think the problem is not that there is no energy plan: but, in fact, that there are too many energy plans, championed by everyone from Al Gore to Boone Pickens to almost every think tank in Washington. 

Since I only have an hour, I will spare you the “Crane Plan”, but I would like to mention two absolutely critical elements that I find missing from almost every plan – and that is the critical elements of timing and regional differences.

And that is the thing that about most energy plans, they fail to differentiate between what we can do right now – which in energy terms means the next 3-10 years – versus where we can hope to get to by 2030-2050. My focus is on the here and now because we simply don’t have a generation to spare in terms of addressing climate change. We all need to focus on decarbonizing solutions that can be deployed here and now.

My “here and now” Energy Plan would take the first steps towards a national energy grid but with a relentlessly regional focus and technological solutions which are ready for large scale deployment immediately. Energy Plans, like Healthcare Plans, tend to be long and complicated so I am going to give you my energy plan in just 31 words:

• The West gets the Sun
• The Midwest gets the Wind
• The South gets Nuclear
• We as a Nation pursue “Clean Coal” as a national priority;
• And we all buy Electric Cars.

The West gets the Sun. Al Gore’s vision of a Sonora Desert covered in a 90 sq mile sea of solar thermal mirrors powering the entire country is admirably aspirational, but as a starter, let’s focus initially on a solar powered California. California certainly provides sufficient scale, its electricity demand is co-incident with peak solar and it is only 250 miles from the Sonora desert into the heart of the southern California load pocket – 50 miles if you use the Mojave desert.

The Midwest gets the Wind. While wind currently is the predominant true renewable in the United States for it to be a major factor in the energy mix going forward we need to solve the intermittency issue and we need to tap into the currently stranded wind resources of the upper Great Plains states. For some reason, to date, the wind focus on the Great Plains has been on getting their wind resources from places like southeastern Wyoming to California. Instead, I say let’s take wind from the Dakotas and feed it into the Chicago load pocket. It is 1200 miles from Cheyenne Wyoming to Los Angeles but only 500 miles from South Dakota to Chicago.

The South gets Nuclear. Public policy-makers in the Democratic Party, with their laser beam focus on wind, solar and efficiency, need to recognize that the South, still one of the most dynamic growth areas of the Country, lacks suitable wind and solar resources. Even in the case of clean coal, the geology of the South is not well-suited for long term carbon sequestration. On the other hand, the populace of the South (and that includes Texas) is generally comfortable with nuclear power and its incumbent utilities are deeply experienced with nuclear operations. So let’s think of Nuclear as the “Renewable of the South.” 

And we all Work on Developing and Deploying Clean Coal. We must set as a national priority – perhaps a “national project” – the demonstration and large scale deployment of “clean coal.” All of the zero carbon regional solutions described above, if forcefully

implemented, could have a meaningful impact on US carbon emissions, but only “clean coal” can have the necessary impact on carbon emissions from China and India. As I always remind people,

“If you do the math, you will learn that you cannot solve global warming through clean coal alone, but without clean coal, you simply cannot solve global warming.”

These four components of the “Here and Now” energy plan will both demonstrate and deploy sustainable technologies and lay a foundation for a national electricity solution, complete with a national high voltage transmission grid, should one of the regional solutions emerge as clearly superior in terms of cost, reliability and safety. 

While right now there is no reason or basis to choose solar, wind, nuclear or clean coal for mass national deployment, I think particular attention needs to be paid to the nuclear renaissance. Given its much greater scale and reliability than the others, and that advanced nuclear technology is fully proven, we need to consider the importance of new nuclear power in the context of the transportation industry’s considerable contribution to the greenhouse gas problem.

The 240 million cars and light trucks in the United States emit about 17% of our country’s greenhouse gas emissions. If all 240 million of those vehicles were converted to plug in hybrids – the reduction in emissions would be very meaningful and doubly so if the electricity “fueling” those plug-ins was generated by zero emission nuclear power. 

And this is an area where we don’t have to appeal to the American consumer’s better environmental instinct; we can appeal also to their economic interest. Based on the projected cost of our new nuclear plant in Texas, we expect to be able to fuel electric cars for a cost equivalent to 97 cents/gallon. The prospect of 97 cents/gallon will sell a lot of electric cars. 

So the nuclear renaissance begins, and as I suggested before, it will begin in the South. NRG expects to be on the point of the spear in the nuclear renaissance. We were the first to file a COLA application with the NRC last year; the ultra heavy forgings for our reactor pressure vessels are being fabricated in Japan as we speak; and we expect to be the first to pour safety-related concrete and the first to achieve commercial operation at our South Texas site.

We are highly confident that we will succeed with our project and we believe that a couple other projects sponsored by utilities in the Deep South will succeed as well, but there is a big difference between getting three new nuclear projects pushed across the line in the latter part of the next decade and a sustained move toward a nuclear power solution. 

In other words, “three nuclear plants is a good start, but does NOT necessarily constitute a nuclear renaissance.”

A national energy plan would need to include a master plan to bring successive waves of nuclear plants on line, ideally in coordination with a timetable for the mass conversion of our light transport sector to the electric car.

For a true wave of new nuclear plants, we need more sites for nuclear plants. That means, potentially, more nuclear plants on federal land, particularly at or near existing federal nuclear facilities, more ability to site at refineries and other heavy industry facilities away from population center. We need a domestic supply chain that does not require all long lead time equipment orders to be funneled through one steel-making foundry in Hokkaido, Japan. Creating that supply chain won’t necessarily be easy but it will mean “green jobs” and a step towards revitalization of our industrial base on a scale and in a sector that America needs.

In short, within a national energy plan, the nuclear renaissance needs its own chapter.

Role of Infrastructure Funding.

The Energy Policy Act of 2005, passed in October of that year, well before the current financial crisis, recognized that the first wave of new nuclear construction in the US, after a 29 year hiatus would require some Government assistance.

Now, the Government is on the verge of considering a much broader, more immediate and possibly much bigger role in infrastructure funding.  When Congress returns in 2009, it is likely that the first item on their agenda will be passage of a massive financial stimulus package. As a major part of that Stimulus, the Government may allocate as much as $50-200 billion to “infrastructure” projects in an effort to have a component of the Stimulus which is both immediate and sustainable in its effect.  

That the Government should invest in infrastructure, and that infrastructure investment properly done, is itself sustainable in the sense that jobs are created and physical assets are built which should make a positive contribution to society for 30-50 years. On these points, I am sure that all of us can agree. 

But how are we to make sure that massive infrastructure investment is “properly done”? How are we to ensure that an infrastructure stimulus does not become the biggest piece of pork barrel legislation in the history of the United States with the end result being not one “bridge to nowhere” but a whole load of “bridges to nowhere” – projects which are neither economic in their own right nor in sync with what hopefully will be a national energy plan?

My view is that we all need to focus, and focus now, on how an infrastructure stimulus would be implemented. I respectfully suggest that to guard against these pitfalls, President Obama should create a new public corporation to be a recipient and dispenser of the infrastructure stimulus funds. That corporation would be Government-owned but operated on strictly private sector principles (like the profit motive) ideally by experienced business

professionals – somewhat similar to the infrastructure funds set up by KKR, Macquarie Bank and the like.

The key investment principle of a public infrastructure corporation would be that it would piggyback on projects deemed economically viable by the private sector by only co-investing in projects that the private sector is itself willing to invest in. In other words, if the project sponsors are not willing “to put their money where there mouth is”, than neither would the Government.

The advantages of an Infrastructure Stimulus implemented through an Infrastructure Corporation are many:

1. First, the private sector can deploy capital quicker and more effectively than the Government and with a relative minimum of political interference.  
2. Second, the investment will be managed prudently by the project sponsor who is seeking at all times to protect its own investment; and
3. Third, the economy will benefit from an investment multiplier effect since the Government’s Infrastructure Stimulus will be unlocking private sector investment that otherwise would not occur in the current environment;
4. Finally, if the Corporation invests on economic principles and with private sector hurdle rates, it will be investing in projects that make good money. After a certain hold period, the Federal Infrastructure Corporation could choose to sell down its interest or it could choose to reap the recurring revenues as they are earned. In either case, the program ultimately will become a self-sustaining source of future infrastructure investment.

 In any case, it probably is inevitable that even if President Obama and Congress were to elect to channel the Infrastructure Stimulus through a public corporation, that the public corporation would not be allowed to operate purely on the profit principle. Almost certainly the infrastructure corporation would be tasked with pursuing a socio-environmental agenda centered around sustainability and climate change. To me, that is not a problem. We are ready for the large scale demonstration of various technologies aimed at keeping greenhouse gases out of the atmosphere. My only point is let us not let the socio-environmental goal overwhelm the basic business principle. If we do, we will end up as we did with the Synfuels Corporation in the 1980s, when the immediate crisis passed, the Government moved on to other financial priorities and, unable to make a go of it in the private sector economy, the Synfuels Corp went bust.

Whatever funding role the Government is going to take in infrastructure sector going forward, we need – above all else – long term continuity over multiple four year election cycles.

And we need input. While I am very encouraged by the first steps of the next Administration, let me tell you one thing that concerns me. Given that it seems inevitable that the

Government – now running the banking system and soon to be running our automotive sector – is going to be increasingly in the business of American business – not just as a regulator, but also as lender and equity investor – than we as business people need to do our part to ensure that Government involvement occurs in a sensible way. But what is to be our avenue of communication with the next Administration? 

While the President-elect appears to have made very strong choices in the nominations that he has identified thus far, what has been noteworthy to me is the apparent absence from consideration of any business person for any position – even for Secretary of Commerce.

So if Business is to have to influence from the outside, are we to rely on normal channels. I fear that the traditional channels of the American business community – the Business Roundtable, the U.S. Chamber of Commerce, the National Association of Manufacturers – rightly or wrongly, are so closely identified with the Republican Party in Democratic eyes, that it is difficult to imagine them being accepted as a constructive influence by the Obama Administration. For my part, I hope that new groups which have emerged out of American business in recent years, openly embracing a progressive agenda with respect to energy and the environment, like the US Climate Action Partnership, can be influential in imparting common business sense to the Administration without seeking to compromise or obstruct the Administration’s progressive goals.

It has been fashionable in recent years to call for an “Apollo Project” aimed at this entire realm of energy independence, climate change and sustainability and what is notable to me is how many powerful and influential policy-makers have called for an Apollo Project and how few steps have been taken in Washington towards actually creating one. Perhaps this is because there is a view that great national projects can only be “lead from the front” and that requires the President of the United States, utilizing the full resources of his office and the full stature and authority of his position, to undertake such an endeavor.

Certainly that has been the case in the past, not only with John Kennedy and Apollo, but also with Teddy Roosevelt and the Panama Canal and Dwight Eisenhower and the Interstate highway system. And just as certainly, the current President has not been willing to lead from the front on the issues of climate change and sustainability; much less call for a great national endeavor to defeat the former and enshrine the latter.

Without question, President-elect Obama will act but how quickly and how boldly. As we all know, the United States at present has many very substantial and very pressing needs and, by recent historical standards, relatively few available resources to apply against those needs.

President Obama will seek to lead, but will we as a Nation have the Will to follow? Somewhere, over the past couple decades, as a Nation, we seem to have lost our ability to set a long term objective for the Country and to see it through to a successful conclusion even if it involves some short term sacrifice in order to achieve the longer term gain.

Turning back to John Kennedy and Apollo, American school children learn the words from his speech to Congress in May, 1961 when he declared:

“I believe that this Nation should commit itself to achieving the goal, before this decade is out, of landing a man on the moon and returning him safely to earth.”

What I find most remarkable about President Kennedy’s words that day are the thoughts that he went on to express in the very next sentence. In referring to his lofty objective, Kennedy went on to acknowledge:

“No single space project in this period will be more impressive to mankind…and none will be so difficult or expensive to accomplish.” 

Even President Obama with his ability to inspire, his audacity of hope and his ability to “call to action” a new generation of young people in this country has not yet gone where John Kennedy went on that day in 1961 – he has not yet asked the American public to accept some short term sacrifice so that the next generations of Americans can reap the long term benefit. And decarbonizing the economy and establishing sustainability as the prevailing ethos of our consumer society will require that the American public feel some economic pain from their high carbon lifestyles. 

In fact, President Obama obviously is very good with words, but if he is to call for a national effort with respect to climate change and sustainability, I am not sure he could improve upon what Kennedy went on to say to the American people that day: 

“This is a commitment to a new course of action, one that will last for many years and carry with it a very heavy financial burden. If we are to go only half way or retreat in the face of difficulty, in my judgment, it would be better not to go at all.”

I think of Apollo these days not so much in its technical application to the present challenges we face but in what it meant to us individually. Next month I turn 50, and as such the Apollo program was a fundamental part of my experience growing up in America. As a young boy, Apollo imbued within me a sense of the endless promise and limitless possibilities of both my country and of myself, as an individual. 

That unbridled sense of optimism I felt then, we need to feel again today. Thanks to the technologies that are emerging, and the dawning of a new political age in the United States, for the first time in my adult life, we stand poised to take a significant step forward in addressing our nation’s energy needs in a manner that does not mean a step backwards in terms of our stewardship of the global environment.

So as we go forward as an Industry, let us recognize that as we confront these two great transcendent dynamics of Climate Change and Sustainability, Let us remember that fundamental change is more often borne of necessity than of convenience.

Let us present ourselves, and the companies, financial resources and professional expertise that we represent as an essential part of the solution, rather than the problem.

Let us say to the new Administration, “yes, we can …but let’s do it this way” rather than “No you don’t!”

Above all, let us not get depressed at the economic wreckage around us. Let us, instead, savor where we site astride this pivotal sector in this pivotal moment in our history

I want to leave you with the words of, in addressing another great societal challenge of his era, Dr. MLK said: 

“History will record that the greatest tragedy of this period is NOT the denials and obfuscations of the bad people, but the appalling silence and indifference of the good people. Our generation will have to repent not only for the words and actions of the children of darkness, but also for the frightening apathy of the children of light.”

As the Electricity Industry, it should be easy for all of us to identify with Dr. King’s quote. WE ARE THE CHILDREN of LIGHT. Let us go forward now and show the way.   

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Tags: clean coal, climate change, energy policy