“This might be the golden age for natural gas,” Birol said at the World Future Energy Summit, a conference organized by Abu Dhabi to position itself as a key player in a global shift toward renewable energy. “Natural gas might penetrate the market at a higher rate than any of us has anticipated. If natural gas market continues to follow its path, then life for renewable energy may be tougher than we think.”

Global demand for natural gas is set to rise by 44 percent by 2035, with China and the Middle East driving the bulk of the demand, Birol said. Supply of what he called “unconventional gas,” which refers to gas that isn’t easily pumped (such as natural gas from shale formation), will likely account for 35 percent of the global supply by 2035, he added.

The U.S. and Canada have seen a surge in producing shale gas in recent years, but new supplier countries will surely emerge in the coming decades, he said. Abu Dhabi also announced Thursday that its oil company has selected Los Angeles-based Occidental Petroleum as a partner for a $10 billion plan to extract what’s called sour gas in the emirate. Sour gas contains high concentration of hydrogen sulfide and is difficult and dangerous to extract.

Middle East is one of the regions that will help to drive the 36 percent jump in the global energy demand by 2035. Not surprisingly, China will lead the pack for more energy.

The abundance of natural gas in the marketplace now has given it a new persona as a somewhat eco-friendly form of fossil fuel. Burning natural gas to produce electricity emits about half of the carbon dioxide emissions as burning coal. But let’s not forget that natural gas is still a type of fossil fuel.

The abundance of the gas supply means it’s cheap – so cheap that even natural gas evangelist T. Boone Pickens doesn’t consider it a profitable investment. That has caused a glut in the market, Birol said. The “gas glut will peak soon, but it may dissipate only very slowly,” he added.

Still, IEA is bullish that renewable energy will widen its market share because many governments claim they are committed to adopting policies to reduce carbon emissions. Renewable energy consumption, including hydropower will likely triple between 2008 and 2035, and most of that energy will take the form of electricity. Renewable energy’s share of the electricity supply is predicted to grow to 32 percent in 2035 from 19 percent in 2008, the IEA said.

Some have argued that natural gas, no matter its abundance or pricing, will not have a huge impact in areas that have policies that mandate a growing use of renewable electricity. For example, in the U.S., some states require their utilities to increase their purchase of renewable electricity. At the same time, some renewable energy investors say a lack of national policy to address climate change by the U.S. has dampened investments in renewable energy.

Alex O’Cinneide, director of Abu Dhabi’s cleantech investment arm called Masdar Capital, said China has become an attractive hunting ground for investors because the country has strong policies and capital commitments to bolster renewable energy development. A fund Masdar raised jointly with Deutsche Bank recently invested $50 million in a Chinese wind company.

“Western investors, if you have companies in Silicon Valley and you try to find a market there, you will see there is no (government) support,” O’Cinneide said during a panel discussion at the conference.

Disclaimer: Abu Dhabi government paid for my flight and lodging for the conference.

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The Agua Caliente project will use panels from First Solar, is set for completion in 2014 and is supposed to create 400 construction jobs. Northern California utility PG&E plans to buy the electricity from the project. NRG plans to invest up to $800 million in equity in the project, and the deal between First Solar and NRG requires that First Solar installs, operates and maintains the project.

This is the third big round of DOE loan guarantees for the solar industry. Last summer, the DOE awarded close to $2 billion in loan guarantees to Spanish solar company Abengoa Solar and Colorado-based solar panel maker Abound Solar. Abengoa Solar was awarded a $1.45 billion loan guarantee to help it build Solana, a solar thermal, trough-based, solar farm that is under contract to sell power to Arizona utility APS in Gila Bend, Arizona. BrightSource also received a $1.37 billion loan guarantee to build out BrightSource’s Ivanpah solar project, which is the first new solar thermal power plant being built in California’s deserts in 20 years.

Loan guarantees essentially serve as a promise by the government to make good on a loan if the company can’t, and typically enable better interest rates and lower costs than would otherwise be available to a company for project financing. As DOE Loan Chief Jonathan Silver told us recently, it takes about six months “soup to nuts” to get these applications processed and finalized.

These types of solar projects make sense for the DOE loan guarantee program, because these are the first projects from some of these solar firms in the U.S. The idea is to get a company like BrightSource across the so-called “valley of death,” between proving the technology and building out and scaling up actual plants. Solar projects also offer construction jobs and good press.

Silver told us recently that the “first couple biofuels deals” will be announced “shortly” for the loan guarantee program, and that biofuels will likely be among the next several loan guarantees issued. In the coming year, he said, we’re also likely to see “additional interest” in nuclear and “advanced fossil fuel technologies,” such as “clean coal” and carbon capture.

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Bloom Energy, which has raised at least $400 million from investors, is saying that over a 10-year period, it can offer its customers electricity contracts for its Bloom Boxes for a cost less than standard grid power. Bloom says “customers can immediately save up to 20 percent on their energy bills,” and that Walmart, Staples, Coca-Cola, Caltech, Kaiser Permanente and BD have signed up for the program.

Update: According to VentureWire, Bloom has “quietly raised about $100 million more in equity in the past few months . . . according to two people familiar with the matter.”

While Bloom didn’t specify that customers will only save that kind of money in California, or only in states with aggressive subsidies, it seems like the math would work out that way. Lux Research has estimated that the cost of electricity over a Bloom server’s 10-year life is “$0.08/kWh to $0.10/kWh (when running as base-load for 24 hours a day), including government incentives and assuming a $7/mmBTU natural gas long-term contract.” Without subsidies, Lux predicted “electricity would cost $0.13/kWh to $0.14/kWh, with about $0.09/kWh from system cost and about $0.05/kWh coming from fuel cost. Note that this is high compared to average retail U.S. electricity costs of roughly $0.11/kWh.”

Perhaps removing the upfront fee will bring in more customers, though Bloom Energy founder KR Sridhar has maintained that the payback on investment for Bloom Box customers is 3 – 5 years in energy cost savings. Sridhar confirmed to me that the 3 – 5 year claimed payback is with the California and federal subsidy.

If you’re not familiar with the Bloom Box product, it’s a fuel cell that looks like an industrial-sized refrigerator. Fuel cells are kind of like chemical batteries, which combine solutions to create a chemical reaction that delivers electricity. Fuel cells have been under development by hundreds of manufacturers in the consumer electronics and auto industries for decades, but have remained too expensive and have been unable to break into the mainstream.

The nine-year-old Bloom launched last year to much fanfare, at an event with a list of customers like Google, and eBay, and with speeches by its celebrity backers: Kleiner Perkins’ John Doerr and Colin Powell.

The Bloom Box sucks up oxygen on one side and fuel (natural gas, biomass, etc) on the other. Bloom bakes sand and cuts it into little squares that are turned into a ceramic, which are then coated with green and black “inks.” Using a special process, Bloom creates these ceramic discs and stacks them together interspersed with metal plates of “a cheap metal alloy.” The bigger the stack, the more power the Bloom Box will create.

Bloom is having a live press conference to talk more about the announcement at 10:00 a.m. PST at Caltech. Watch it if you want to follow the news.

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It’s hard to say right now. The new Tempe, Ariz.-based True North Venture Partners hasn’t revealed much about its plans, or even specified whether solar power or green technology will be its focus. A First Solar representative told VentureWire that the thin-film solar panel giant isn’t involved in the fund.

Last week’s SEC filing lists Ahearn as the manager of True North Management Partners, which is listed as general partner of True North Venture Partners, but reveals little else about the fund’s purpose.

Nor does it list the investors responsible for the $192 million raised so far. Ahearn, himself, certainly doesn’t lack for cash — in February 2010, he sold 1.3 million shares of First Solar stock for $141.8 million, several months after handing the CEO job to former Honeywell executive Robert Gillette in order to devote his time to lobbying the government on energy policy.

If Ahearn does choose to focus on solar startups, he’ll have good company. Solar power attracted $1.83 billion in VC investment last year, not as high as 2008’s record solar year but on the upswing from a lackluster 2009. While much of that investment has gone toward would-be competitors of First Solar, a good portion has been flowing to software and services for the solar sector as well. Technology to track and manage solar power’s integration with the grid is also an area with room for innovation and growth.

Interestingly, the True North name has its roots in an investment firm called True North Partners that Ahearn founded with John T. Walton, one of the children of Walmart founder Sam Walton, back in 1996. That firm was later renamed JWMA Partners, and remains the single biggest holder of First Solar stock. Walmart invested $25 million in First Solar in 2008 and has been a customer for some time, most recently in a 15-megawatt distributed solar power project including thin-film CIGS solar panel maker Miasole and installer SolarCity.

First Solar has been doing its share of acquisitions as well. It bought up solar panel tracking equipment maker RayTracker for an undisclosed sum last month, and is said to be considering buying 5N Plus, a company that produces the tellurium required for its cadmium-telluride thin-film panels.

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Image courtesy of me and the sysop.

Batteries are not environmentally or financially the best solution for grid-scale storage. Pumped Storage Hydro (PSH) — the only GW-scale storage technology deployed — and Compressed Air Energy Storage (CAES), with only two plants in operation globally, have given good results. But the construction of these energy storage options is costly, time consuming and wrought with environmental concerns.

So what’s the alternative? The answer may actually lie in digging deep rather than building up.

Pumped storage hydro uses gravity to store energy that is sourced from the grid by raising water to a higher altitude, creating potential energy. That potential is then converted to electricity when the water returns to its original level, passing through a turbine on the way. Storage capacity can be increased by adding mass and/or the storage height. An ideal site for pumped storage hydro would provide:

• a large elevation difference between two reservoirs (hundreds of meters or more);
• high power potential (1000 megawatts or more);
• large energy storage capacity (4 hours or more at rated power);
• negligible adverse environmental impact;
• proximity to power transmission lines and a major electricity market, such as a city.

Unfortunately, such ideal sites for pumped storage hydro do not exist.

However, a new technology now being developed exploits widely available analogous sites, using the proven technological components of pumped storage hydro in a completely new way.

Gravity Power Module

The figure above illustrates the basic design of the “Gravity Power Module” or GPM, which is being developed by 21Ventures portfolio company Gravity Power. Full Disclosure: As is the case with any venture capitalist like myself, there is some self-serving message here.

The GPM uses a very large piston that is suspended in a deep, water-filled shaft, with sliding seals to prevent leakage around the piston and a return pipe connecting to a pump-turbine at ground level. The piston is comprised of pancakes made from concrete and iron ore for high density and low cost. The shaft is filled with water once, at the start of operations, but is then sealed and no additional water is required.

As the piston drops, it forces water down the storage shaft, up the return pipe and through the turbine, and spins a motor/generator to produce electricity. To store energy, grid power drives the motor/generator in reverse, spinning the pump to force water down the return pipe and into the shaft, lifting the piston. Hundreds of megawatt-hours per shaft can be stored with high efficiency, since pump-turbines have low losses and friction is negligible at modest piston speeds.

Tackling the cost issue, economic operation of the GPM system depends heavily on the construction cost of the shaft, which is surprisingly low. This is because the GPM system will require less excavation per storage capacity than many existing pumped storage hydro facilities and because that excavation can be automated. A small footprint and unobtrusive operation will allow multi-shaft installations to be constructed even in dense urban areas.

Advantages include: modularity; use of existing technology; environmental compatibility; flexible siting; fast permitting; rapid construction; low cost per megawatt-hour; long lifetime; high efficiency; and a short time from project start to revenue.

The pump-turbine is capable of ramping from zero to full power in less than twenty seconds and has a broad power range, making GPMs technically superior to gas turbine power plants for ancillary services such as frequency regulation. Larger GPMs built in arrays can replace gas turbine peaking plants, providing a substantially lower levelized cost of energy (LCOE), and can replace intermediate power plants at comparable LCOE. The general parameters of two GPM installation types are listed below.

To really satisfy the world’s growing utility-scale energy storage needs, a technology must:

1. Provide hundreds of megawatts for several hours, per installation, with the dynamic operating characteristics required by the grid. Many storage technologies could do this, in theory. So far, only PSH and Compressed Air Energy Storage (CAES) have.
2. Achieve a competitive cost. Again, only PSH and CAES have met this goal, and few other technologies appear likely to.
3. Be deployable on a truly gargantuan scale. The International Energy Agency, in its 2008 Baseline scenario, estimated a worldwide need for over 250 GW of new coal-fired and gas-fired power plant capacity, per year, from 2005-2050. Avoiding an environmental catastrophe will require replacement of much of this with renewable generation and storage. Many current storage technologies will have beneficial roles to play, but none of them can achieve this goal.

The GPM can achieve all three.

GPM construction is less complicated than conventional power plants and uses commodity materials with local labor, making them suitable for fast, wide deployment in both developed and developing countries. Market penetration rates will be constrained only by the availability of trained construction crews and project financing. No new equipment factories will be needed for at least the first decade of deployment.

The availability of massive electricity storage will free renewable generation from one of its most challenging constraints—variability.  And because that storage can be constructed in place of conventional power plants, the incremental cost will be very small, perhaps even nonexistent. Wind and solar can provide the energy to fuel the world economy, and advances in energy storage capabilities such as the gravity power module will help.

David Anthony is the Managing Partner of 21Ventures, LLC, a VC management firm that has provided seed, growth, and bridge capital to over 40 technology ventures across the globe mainly in the cleantech arena. David Anthony is also Adjunct Professor at the New York Academy of Sciences (NYAS) and the NYU Stern School of business where he began teaching technology entrepreneurship in 2009.

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• China Mints Two Wind Billionaires, As It Overtakes the U.S. in Capacity – Forbes
• California’s Solar Power Increasingly Chinese Made – Grist.org
• Evergreen Solar’s Exodus to China – Solar Industry Magazine
• Special Report: Is a Solar Trade War About to Flare – Reuters
• Duke Energy, China’s ENN Join to Develop Green Technologies – Bloomberg
• America Turns to China for Partnerships in Clean Energy — NPR’s Marketplace
• GE Plans to Announce Projects (Rail, Clean Energy, Aviation) in China Yielding $2.1 Billion in Revenue – Bloomberg
• Applied Materials, Peking University, the China National Energy Administration (NEA) and the DOE are bringing the Solar Decathlon to China – release.
• The Key to China’s Smart Grid Market: Partnerships – Earth2Tech
• Big Chinese Wind Power to Ring In 2011 – Earth2Tech

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Well, those are the visions. However, there are major hurdles to implementing these ideas. Here are the road blocks:

Infrastructure Investment

First and foremost, there will be a colossal investment needed for both clean power and electric car infrastructure to make their way onto the market, and both will take a lot of time. Author and professor Vaclav Smil has explained in his recent book that an all-electric U.S. fleet would conservatively need 980 TWh of electricity per year to run, which was 25 percent of the U.S. electricity generation in 2008. Smil thinks utilities wouldn’t realistically be able to build that additional amount of electricity generation within two decades.

In addition, that extra generation would have to come from clean power to be carbon-reductive. As anyone who has followed the utility-scale solar market knows, it takes years for utility-scale solar projects to move from drawing board to supplying electricity. In the case of BrightSource Energy’s inaugural solar thermal project Ivanpah, it has taken over three years to just get regulatory approval, and now here come all the environmental protests.

California’s utilities have struggled to meet the state mandate that says they need to buy 20 percent of their electricity supply from clean power by 2010. Most utilities weren’t likely to make that deadline, but state regulation gives them until the end of 2013 to comply. Meanwhile, the utilities will have to make sure they line up enough contracts or install their own projects to meet the 33 percent goal by 2020. And this is just in California, which has an aggressive state mandate.

Utility scale wind is a more mature market, but wind installations slowed in the U.S. considerably in 2010 due to the slowed economy. In addition, because of intermittency, Smil and other researchers think wind could never be a dominant form of clean power. In fact, it’s far from clear if solar and wind will be able to provide baseload power (provides energy 24/7), and the U.S. will have to rely on other forms of clean power like nuclear, geothermal, and hydro.

From a plug-in vehicle market perspective, perhaps it’s not such a bad thing that clean power will take such a long time to get built out. Because plug-in car adoption will take just as long. Bloomberg New Energy Finance predicts there will be 1.6 million plug-in cars sold by 2015, rising to 7.6 million by 2020. In 2010, the U.S. had about 245 million passenger cars, SUVs, vans, and light trucks.

EV + Clean Power

Clearly, it’s going to take decades for both clean power and electric vehicles to make a sizable dent in the U.S. infrastructure. In the mean time, some utilities and companies are looking at ways to use or sell clean power for electric vehicle projects.

SAP and German utility MVV Energie are starting a pilot project using 30 corporate SAP electric vehicles that will be powered exclusively by the utility’s clean power. MVV Energie will be building and operating the smart charging stations that are capable of filling electric cars exclusively with certified green energy.

Better Place, the electric vehicle infrastructure company, plans to incorporate clean power into its networks, particularly in its launch region in Israel. In 2008, when Better Place CEO and founder Shai Agassi announced the Israel Better Place launch, he said the infrastructure will be powered by “batteries, that get their energy from green sustainable electricity sources.” (We’re thinking that’ll be mostly solar, given Israel’s climate).

Batteries as Aid for the Power Grid

While we’re waiting for EVs to be powered by the sun, electric car batteries could be an aid to getting clean power onto the grid. A network of electric cars could offer the potential of distributed energy storage and grid services like load balancing or frequency regulation.

The power grid works by constantly balancing supply and demand (generation and load) and must be kept at a 60 Hz frequency. That’s a complex and difficult task given today’s grid has little energy storage capacity. So if the frequency goes too high or low, the utility must respond by shifting generation and load. For example, PJM, a regional transmission organization serving a population of 51 million, pings generators to control regulation as often as hundreds of times per day. Electric vehicle batteries could act as the real-time, distributed intelligent frequency regulators, replacing generators.

PJM has a project with the University of Delaware using electric vehicles in a demand response program, but John Gartner, an analyst with Pike Research, says, “We don’t see this as a commercial application until at least 2015.” However, after the issues are resolved, the arrival of electric vehicles will provide greater flexibility for utilities to integrate higher percentages of wind and solar power, says Gartner.

Image courtesy of Better Place.

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The lawsuit contends that federal agencies, including the Bureau of Land Management and Fish and Wildlife Service, didn’t do enough of an environmental review of the 392-megawatt project before approving it last fall. The environmental group wants the agencies to withdraw their approvals.

BrightSource spokesman Keely Wachs said the company has no comment about the lawsuit since it didn’t name the company as a defendant. BrightSource broke ground on Ivanpah last October.

The legal challenge is the latest to highlight the recurring opposition by some environmental groups several solar energy projects that are set to rise in California’s desert in the next few years. The federal government approved nine solar projects in western United States last year.

The California Energy Commission approved nine projects within four months last year, and some of the projects are part of the nine permitted by the federal government within months last year. The speed of approval was so swift that we thought lawsuits seemed inevitable.

Both state and federal agencies said they wanted to approve the projects before Dec. 31, 2010, when a federal grant program that subsidizes renewable energy projects was set to expire. Congress ended up extending the program for another year in late December.

Many of these projects are due to deliver electricity to California’s investor-owned utilities, which need to have 20 percent of their energy supplies from renewable sources by 2010 and 33 percent by 2020. Lawmakers also see these projects as job creators.

The Sierra Club filed a lawsuit against the California Energy Commission last month over the approval of a Calico Solar project. The lawsuit argued that the commission didn’t do enough to minimize the project’s impact on the desert wildlife. Calico was under development by Tessera Solar, which sold it recently to K Road Sun after having trouble raising enough money to build it. K Road plans to line up money and start construction of the 850-megawatt project this year, its spokesman told us.

American Indian tribes also have filed similar legal challenges. A group called La Cuna de Aztlan, which includes Chemehuevi and Apache tribes, filed a lawsuit challenging the federal government’s approval of six solar farms (including Ivanpah). The group said the government didn’t do enough to protect cultural resources, such as burial sites, while reviewing the solar projects.

Meanwhile, the Quechan Indian Tribe won a temporary injunction in federal court last month to halt the development of the 709-megawatt Imperial Valley solar project, also by Tessera. The tribe said the federal government failed to adequately consult with the tribe about the project’s impact on burial grounds before approving the project.

A group that includes the Audubon Society also is suing to stop a proposed project by Solargen in central California, Reuters reported.

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Well, now that we’ve entered into 2011, oil prices have shot back up, and are hovering once again around $100 a barrel, at their highest level in two years. The oft-cited oil benchmarks the West Texas Intermediate and Brent have yet to hit $100, but some of the more under the radar crudes are already trading above $100, points out the Financial Times. Other indicators are that hedge funds have raised bets on rising oil prices.

While oil prices are infamously volatile — by the end of 2008 oil prices had dropped back down to $37 a barrel — it will be important to see if average oil prices remain above, or around $100, in 2011. In 2008, average annual oil prices were at $99.7 a barrel. Oil prices could easily drop back down in the next few weeks or months.

The oil price prediction game looks a lot like drunken darts: it’s often all over the board, with numerous reasons and explanations (Ford Chairman Bill Ford made that analogy at a conference in 2009). In terms of the economy, high oil prices make consumers nervous, and spend less. Nobua Tanaka, president of the International Energy Agency, has already called the current high oil prices of 2011 “alarming.”

But high oil prices will actually be rather good for the green car sector. All-EV companies like Tesla, and Coda will feel a boost from high oil prices, and big automakers that have been aggressive on EVs and hybrids, like Nissan, GM, and Toyota, could reap rewards as well.

Even automakers that have a solidly mixed car portfolio, like Ford, will benefit from less volatility in oil prices. As Ford Chairman Bill Ford put it in a speech in 2009, he actually endorses a gas tax, to keep prices at a certain level. “If prices are gyrating wildly,” it becomes extremely difficult to know whether the company is planning the right vehicle or technology.

Oil prices seem to be headed upward over the long term. As Department of Energy Chief Steven Chu has put it: “I don’t know what it [oil prices] will do next year or in the next two years,” Chu said, but “the price of oil will go up in 10 or 20 years.” Chu says high oil prices and living in a “carbon constrained world,” means we should take a cue from Wayne Gretzky in terms of low carbon infrastructure: “skate to where the puck is going to be, not where it’s been.”

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The wind industry had close to $4.8 billion in transaction value in 2010, which included private fund-raising deals, initial public offerings, and mergers and acquisitions. Solar generated a transaction value of $3.2 billion, and energy efficiency, which includes smart grid and LED lighting companies, followed with $2.5 billion.

The transaction values run parallel to the cleantech investing numbers for 2010, which found that solar startups continued to draw the most money in venture capital investment last year, while energy-efficiency startups garnered the largest number of deals, according to the Cleantech Group. However, given utility-scale wind is a more matured market, there are fewer investments in next wind technology startups.

A bulk of the transaction value that went to wind was for building energy generation projects, the report noted. An analysis by the Solar Energy Industries Association (SEIA) showed that wind energy companies had grabbed the most money from a Treasury Department program that was set up in 2009 to subsidize renewable energy generation construction. As of November of last year, money that went to wind companies accounted for 85 percent of what the government had given out (solar took 8 percent).

In terms of the number of deals, the energy efficiency sector took the top spot, garnering 104 deals (fundraising rounds and M&A) last year, the Peachtree report said. Solar ranked second with 99 deals, followed by wind with 35 deals.

The report surmised that the strong interest in energy efficiency companies and projects will continue partly because they require less money and give quicker returns than more capital-intensive businesses such as solar and biofuel. Apparently, psychology also played a role, the report said, noting that many so-called energy-efficiency technologies are formerly called information technology and many investors came from the IT world.

Overall, $14.7 billion flowed into 371 fund-raising deals and mergers and acquisitions across all greentech sectors in 2010, and that reflected a 55-percent jump from 2009. Fund-raising deals, including equity investments in companies or projects, totaled $10.1 billion, a 65-percent hike from 2009. Mergers and acquisitions accounted for $4.6 billion in 2010, a 37 percent increase from the previous year.

So who are the losers? Bioenergy firms such as makers of biofuels to power cars. About $1.4 billion flowed into that sector, a 27-percent decline from 2009. Investors showed a strong interest in biofuel a few years back, when gasoline prices jumped dramatically and lawmakers began to approve policies and funds to jumpstart this new industry.

It has become painfully clear since then that figuring out how to make fuels from plants is trickier and takes more time and money than many had anticipated. Many companies have pushed back the time they will start mass-producing biofuels, prompting the government to dramatically scale back its expectation of gradually replacing fossil fuel with more renewable sources.

The energy storage sector, meanwhile, saw a 40-percent drop in deal values. But the report said the number is skewed by A123 Systems’ $378 million IPO in 2009, therefore, the storage business actually had a good year in 2010. Other fields that received less money included ocean and tidal power, carbon capture and sequestration, hydrogen and fuel cell technologies.

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Photo courtesy of Christopher Chappelear