The announcement covers incentives for all sorts of renewable energy projects, including wind and solar power, reported Bloomberg. It will affect new projects, not those already in place. Those that have been operating all have long-term contracts to deliver electricity to utilities at guaranteed, premium prices.

The government approved the suspension because the incentives are saddling it with a growing debt at a time when it’s got a big deficit and needs to cut spending. The incentive policy requires utilities to buy renewable energy at rates higher than what they would pay for conventional, fossil-fueled based power.

But instead of allowing utilities to pass the cost onto consumers, the government has required the utilities to carry the costs as government-backed debt, according to Reuters.  Spain didn’t want its residents to see a spike in utility bills during a weak economy. However, the debt created by setting the premium pricing, called feed-in tariffs, reached about €24 billion ($32 billion USD) by the end of 2011.

Spain’s incentive policy was meant to provide some measure of certainty for renewable energy project developers and their equipment suppliers. While it did that to some extent, it also has caused some heartburn when it was repeatedly revised to reflect changing political or economic realities. The country installed a huge number of solar panels in 2007 and 2008, when it set high rates for solar power and thought it wouldn’t be able to reach its goal of installing a total of 400 MW until 2010. Instead, it added 344 MW by Sept. 2007 and added another 2.6 GW in 2008. That prompted the government to set a limit of 500 MW for 2009 and effectively ended the boom.

Spain was a big market for companies such as SunPower, which saw its sales outside of the U.S. fall from 64 percent in 2008 to 57 percent in 2009, partly due to the change in Spain’s feed-in tariff policy, according to its 2010 annual report.

Feed-in tariffs have helped make countries such as Germany and Italy the two largest solar energy markets in the world. China implemented a feed-in tariff policy last year and added somewhere between 2.2 GW and 2.9 GW in 2011, according to different estimates by Bloomberg and NPD Solarbuzz. Those figures made China the third largest market last year.

But those tariffs are subject to change – sometimes more frequent than expected. And the extent of changes, which usually involves lowering the rates, also can be unpredictable. Germany is in the midst of fighting over how to modify its feed-in tariffs to cut costs; the minster of environment wants to lower the rates more frequently, while the minister of economy wants a 1GW annual cap.

Photo courtesy of Lauren Manning via Flickr

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Thermal Gradients

Wherever there is a thermal gradient, our eyes light up because we can create a heat flow across the gradient and capture some fraction of the energy flow to do useful work. This is called a heat engine, the efficiency of which is capped by the theoretical maximum (Th − Tc)/Th, where “h” and “c” subscripts refer to absolute temperatures of the hot and cold reservoirs, respectively.

In the ocean, we are rather limited in how much gradient is available. The surface does not tend to exceed 30°C (303 K), while the depths cannot get much cooler than 0°C (273 K; pressure and salinity allow it to go a few degrees negative). The maximum thermodynamic efficiency therefore tops out at 10 percent, and in practice we might get half of this in a real application. The general scheme of producing energy from thermal gradients in the ocean is called ocean thermal energy conversion (OTEC).

How much energy is available? First of all, water is tremendously efficient at storing thermal energy, packing 4184 Joules per liter per degree (definition of the kilocalorie). Therefore, extracting the heat from a cubic meter of water at 30°C—leaving it at 0°C—represents 125 MJ of energy. Turned into electricity at 5 percent efficiency, we would need to process 160 cubic meters per second to generate a standard power plant’s output of 1 GW.

Remember that we’re using the most extreme temperature difference for our figures. Given that the elevated surface temperatures will only be found in the top 100 m of water (above the thermocline), we must chew through 1.6 m² of ocean area per second to make our gigawatt. In a day, we convert a square patch 370 m on a side.

But this doesn’t get at how much can be sustainably recharged. The thermal energy derives, after all, from solar input. In the tropics, we might expect a patch of ocean to receive 250 W/m² of sunlight on average. It takes a square area 9 km on a side to annually recharge the 1 GW draw (at 5 percent extraction efficiency: the other 95 percent is dumped into the depths as waste heat at close to 0°C). This figure ignores thermal exchange with the air, which will tend to be in the range of 5–20 W/m² per °C difference between air and water. Also, radiative losses will reach 150 W/m² in clear skies. Approximating these effects to produce a net 100 W/m² retained as heat, we need our annual square to be about 14 km on a side.

The 200 km² patch we need to supply a 1 GW “plant” gets multiplied by 13,000 to hit our 13 TW global appetite. That’s an area comparable to the land area of the Indonesian islands: New Guinea, Borneo, Sumatra, etc. (wanted to pick something in warm water to stare at on map). Clearly we have the oceanic space. And as such, we throw OTEC into the “abundant” box. It’s basically a form of solar power at 5 percent efficiency available over a large fraction of the globe. So no real surprise that it should be abundant.

I did not factor in evaporative cooling, which can be rather significant. But it would have a hard time knocking the total resource out of the abundant box. In rough numbers, half of the total solar energy budget reaches the ground, and something like 70 percent of this is absorbed by oceans, for 35 percent of the total. Meanwhile, evaporation claims 23 percent of the solar budget, effectively taking a 2/3 bite out of the thermal energy deposited. So we need something like the area of Australia in the ocean. Like I say — still abundant.

Comparing the daily volume/area draw to the recharge area, we compute an interesting timescale: 4 years. In other words, if we isolated a patch of ocean 14 km on a side that could generate 1 GW of OTEC power, it would take 4 years to process the entire volume (above 100 m depth). This is reassuringly longer than the one year recharge time, allowing for seasonal variation and adequate mixing.

OTEC Wrinkles

A look at the map above shows the regions for which our 30°C assumption is valid. These regions tend not to be near the major demand. If we want to park an OTEC plant off the shore of a more temperate location, several things happen. The temperature difference and therefore the quantity of thermal storage obviously shrinks (by roughly factor of two). The thermodynamic efficiency likewise takes a factor of two hit. And the warm layer is shallower at higher latitudes (say a factor of two). The net effect is a factor of 8 greater area of water processing per 1 GW OTEC plant. The area for solar collection likewise increases — by almost a factor of two for reduced insolation, and by an additional factor of two to account for reduced efficiency.

Since the energy produced is a quadratic function of ΔT, a temperate OTEC plant becomes seriously impaired in the winter. At 40° latitude off the U.S. coast, I calculate that the winter production is at 40 percent the summer production in both the Atlantic and Pacific oceans.

Operating and maintaining an offshore power plant in seawater, transmitting the power to land, dealing with storms and other mishaps are serious challenges. OTEC reduces to a low efficiency, operationally difficult method for harvesting solar thermal energy. It seems we would be better off getting 15 percent in solar thermal plants in sunny areas.

I’m not sure why we’d waste our time on OTEC when there are better (cheaper) ways to collect the abundant energy of the Sun. OTEC has some advantage in not having to build the collector, and in the fluid delivery system, but this would seem to be a minor plus stacked against the operational disadvantages. OTEC deserves a spot in the abundant box, but practicalities limit its likely role.

Ocean Currents

Much as tuna was once marketed as the “chicken of the sea,” ocean currents are the “wind energy of the sea.” Recalling that the kinetic power in a fluid flow is ½ρAv³, where ρ is the density of the fluid, A is the area described by the collecting rotor, and v is the velocity of the fluid, we note that the density of water is about 800 times that of air. Big score! But the velocity tends to be smaller, and has a cubic power to knock it back. A strong mid-ocean current might reach 2 knots, or 1 m/s. Compared to a wind speed of 10 m/s (22 m.p.h.), we get 1,000 times less power per rotor area. So we’re right back to where we were with wind.

We have a lot more ocean area than land area. And we are not as constrained in the ocean as we are on land to keep our turbines near the surface, so we could exploit more vertical space — to a point. Ocean currents tend to be confined to the upper 400 meters of water, so the depth gain is only a factor of 2–3 times what we access for wind. On the plus side, we note that ocean currents are far more steady/robust, so we would not be plagued by intermittency the way we are with solar and wind. On balance, wind fell into the “potent” box, so ocean currents surely deserve at least this rating — practicalities aside, of course.

We would naturally first want to exploit pinch-points (straits, narrow inlets, etc.), where currents may be up to 5 m/s, now delivering 100 times the power per area compared to a windmill at 10 m/s. But currents tend to be large in these pinch points due to tidal fluctuations, not steady flow, so we’re just tapping into the tidal energy budget—previously characterized as a niche source. To the extent that steady-current pinch points exist, they make a natural choice for locating underwater turbines, but such places are limited—especially in terms of area or they would not be “pinch” points—so the total power available is small.

Given a Choice?

We saw that a given rotor area will deliver comparable power whether placed in open ocean currents or on land in a moderate wind. Now I ask you: is it easier/cheaper to put a giant turbine on land, or upside-down at sea? Think about access for maintenance, salt water corrosion, transmission of electric power, all the bruised fish, etc.

Wave Energy

Most of us have marveled at the awesome power of waves crashing into a beach, pier, or headland. It’s enough to knock us over, unlike solar or wind power. And all that coastline — surely it’s a winner!

Wave Energetics

Waves represent third-string solar energy: solar energy is absorbed by land and sea, making thermal gradients in the air that generate wind. Wind then pushes on the surface of water, building up waves. The wind-wave interaction is self-reinforcing: the higher a wave sticks up, the more energy the wind can dump into it. Many of the waves arriving on a coastline were generated in storms somewhere across the ocean.

The Earth absorbs about 120,000 TW of solar energy (that which isn’t directly reflected). About 1 percent of this ends up being dissipated in winds (1200 TW). Of this, about 5 percent (60 TW) goes into wave generation. Some of this fights itself (wind against wave), some wave energy dissipates on its own via viscosity and turbulence, and some gets eaten up in shallow waters (e.g., around archipelagos) without making landfall. All of these chip away at the amount of wave energy accessible near land. I might venture a guess that we receive something comparable to our 13 TW global demand on our shores.

I want to satisfy myself with a ground-up estimate to see if the numbers make sense. Let’s say a 2 m-high wave (trough to crest) arrives every ten seconds, traveling at a jogging speed of 3 m/s. The waves are therefore 30 m apart. Each meter of wave-front then has a volume of about 30 cubic meters (average height is 1 m above the trough for a sinusoidal shape). The gravitational potential energy, mgh, above the trough comes to 225 kJ, and the kinetic energy, ½mv², is 135 kJ. If we were able to capture all of this energy, we would collect 360 kJ every 10 seconds, or 36 kW of power for each meter of coastline. Compared to solar or wind power density—at approximately 200 and 30 W/m², respectively—this sounds like a huge number: 36,000 W/m. But the fact that the denominator is linear in length and not a square makes a gigantic difference. The Earth has far more square meters than linear meters of coastline.

Happily, my figure compares well with values you can find by searching for “wave energy potential map” in Google. A 2,000 km coastline might therefore net 70 GW if one could catch all the energy at 100 percent efficiency. The lower-48 in the U.S. might then collect something like 200 GW of wave power to the chagrin of surfers, representing something like 7% of the total domestic power demand. A very recent report puts the wave energy off California’s 1,800 km coastline at 140 TWh per year, working out to an average of 16 GW—coming in a good deal less than my stupid calculation.

The full report for the U.S. cites a total available continental shelf wave energy for the lower 48 states as 910 TWh per year, amounting to 104 GW of continuous power.  But only about half of this is deemed to be recoverable, totaling 54 GW.  This puts it in the same ballpark as hydroelectric, if fully developed across our continental shelves.

Using my 35 kW/m number for a global calculation, I will make the crude estimate that there is enough coastline to circle the globe twice—considering that not all coastline faces the prevailing swell and is therefore penalized. Whatever. This makes for 80,000 km of coastline, delivering 2.8 TW—or about 20 percent of global demand, if fully developed.

A quick Google search shows estimates of global wave power of 2 TW, 3.5 TW, 1–10 TW: all roughly consistent with my crude estimate.

Waves in a Box

The numbers push me into putting wave energy in the “niche” box, since my criterion for “potent” is the ability to satisfy a quarter of our need if fully developed. It might possibly qualify as potent, but it’s borderline. Where did the 60 TW of total dissipation into wave energy go? A bit of digging suggests that half is lost in deep-water breaking (think of the “roaring 50′s” in the southern hemisphere). The rest is lost in wave-turbulence interaction and bottom friction. It would seem that there is greater inefficiency than I appreciated in delivering wave energy to land.

Critters in Common

Each of the three energy resources we’ve discussed here require placement of energy conversion equipment into the sea. I’ve seen what sunken ships look like even after a few decades. They’re beautiful in one sense — teeming with colorful life — but not so much if functionality is more important. I cringe to think of the maintenance costs of our energy infrastructure placed out to sea.

Washed Up?

The ocean covers 72 percent of the Earth’s area, absorbing vast amounts of solar energy as heat, moving around the globe in great conveyor belts, and capturing some fraction of wind energy in its waves. Ocean thermal earns a spot in the abundant box, ocean currents easily meet the potent criterion — being greater than wind potential, while waves fall short into the niche box. All three forms of ocean energy just add to the pile of alternative methods for creating electricity, being useless for heat or directly as transportation fuel.

Furthermore, only wave energy is conveniently delivered to our shores. Practically speaking, scaling facilities to capture ocean thermal and ocean current energy crosses a line of practicality that we are unlikely to exceed as long as other large-scale energy options (solar photovoltaics, solar thermal, wind, nuclear) remain more convenient. And yes, for all its complication, I would still guess nuclear to be easier to accomplish at scale than the ocean technologies. Anything on land gets an immediate boost in my book.

In this sense, ocean energy — much like solar energy in space, or pools of methane on Titan — falls into more of a “so what” category for me. Sure, it’s there, and I’m pleased to say it is even abundant. But practicalities will likely preclude us from pursuing it in a big way — at least in the near term when we face our great transition from fossil fuels. Wave energy is slightly less impractical, but the widely varying technologies I have seen demonstrated strike me as no more than cute, given the puny amount of power available in total.

So as I cast about looking for reasons why I should not worry about our energy future, I find little solace when I look to the sea. We’ll see nuclear fusion next week. No, really.

This post originally appeared on Tom Murphy’s blog, Do the Math: Using physics and estimation to assess energy, growth, options.

Tom Murphy is an associate professor of physics at the University of California, San Diego. An amateur astronomer in high school, physics major at Georgia Tech, and Ph.D. student in physics at Caltech, Murphy has spent decades reveling in the study of astrophysics. He currently leads a project to test general relativity by bouncing laser pulses off the reflectors left on the moon by the Apollo astronauts, achieving one-millimeter-range precision. Murphy’s keen interest in energy topics began with his teaching a course on energy and the environment for nonscience majors at UCSD. Motivated by the unprecedented challenges we face, he has applied his instrumentation skills to exploring alternative energy and associated measurement schemes. Following his natural instincts to educate, Murphy is eager to get people thinking about the quantitatively convincing case that our pursuit of an ever-bigger scale of life faces gigantic challenges and carries significant risks.

Image courtesy of Repoort, Swami Stream, jinxmcc, jixatu, Official U.S. Navy Imagery, El Colleccionista.

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All the terms of the loan and repayment details are in the filing (if you are interested). Alberta Investment Management is also a limited partner in Khosla Ventures.

KiOR started building the initial stage of its commercial production facility in Columbus, Miss., in the first quarter of 2011, and the company plans to finish the facility by the first half of 2012. According to KiOR’s latest quarterly statement, that first project required another $114 million. KiOR plans to start building its larger standard commercial production facilities in the second half of 2012, in Newton, Miss., and this size of facility is expected to cost around $350 million.

According to the filing the Alberta group is loaning KiOR $50 million and Khosla Ventures is loaning KiOR $25 million. A portion of the loan will go to paying $6.72 million of existing debt.

KiOR has yet to generate any revenues, has accumulated a deficit of $115.4 million since inception, and expects to incur operating losses through at least 2013. The company won’t start generating revenues until at least the second half of 2012, assuming it finishes building its first initial-scale facility on time.

If KiOR can make it past this “valley of death” — where precommercial technologies move into commercial technologies — it could one day be a game-changer in the oil industry. KiOR has developed a technology that allows it to convert biomass into a bio substitute for crude oil.

Check out my extensive piece on KiOR I published a couple of weeks ago: The perils of cleantech investing: KiOR and the long-term, high-risk view. KiOR is trading around $12.60 in morning trading, slightly down on Friday, but up since the beginning of the year.

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However, I’m interested in what seems to be a growing number of startups and entrepreneurs at the event, and that seems to be a sign that real innovation and new business models are actually starting to happen when it comes to adding digital intelligence to the power grid and managing energy data.

Here are the top 10 trends that I took away from the event:

1. Managing big data. Managing large streams of energy data is fundamental to the future of the grid, as well as for helping consumers reduce their energy consumption. What methods the software companies use will also determine how well they’ll do in the industry. Startups like Opower and Tendril are essentially big-data plays, using cloud computing tools and sophisticated analytics, and both companies released interesting news at the show. Oracle, touting its software and data management, had a huge booth on the floor. I chatted with both the newly acquired Ecologic Analytics (bought by Landis+Gyr) and eMeter (acquired by Siemens), and these companies manage the massive amounts of data that flow off of meters for utilities. Cloud computing is no longer a dirty word for utilities; in fact, it’s likely the future of this business.

Cisco's connected grid router, ruggedized, inside

2. The Internet of Things. Beyond connecting meters and grid devices, the smart grid really extends to create the Internet of Things, connecting cars, home batteries, solar panels, light bulbs, thermostats, and consumer electronics like televisions and cell phones. The term the Internet of Things is oft-used in IT circles, but hasn’t really caught on in the smart grid and utility industries. But it will, and it will also provide new lines of business for the power grid vendors.

3. Prepaid electricity. Prepaid meters and electricity might not catch on in the U.S. all that quickly, but throughout the world it’s becoming a phenomenon — particularly in countries with low rates of credit card holders, and high percentages of populations that don’t have a steady income stream, like farmers. There were a couple of startups at the show selling these meters and software systems, like PayGo, but I’m not sure this is a startup play at this point. I’d expect the big meter companies to create their own solutions.

Prepaid energy and meters via PayGo

4. The year of the smart thermostat. I already did a slide show on this, but it seems like 2012 is the year utilities, consumers and device makers are starting to really pay attention to smart thermostats. As one show attendee explained to me, it’s the low-hanging fruit and the area where utilities can see the most “bang for buck.” Smart thermostats, which can be controlled by utilities, can help utilities shave off consumer power consumption when they need it (called demand response). Other players like Nest (which I didn’t see at the show) are looking to sell a coveted connected thermostat straight to consumers.

5. Energy storage batteries moving into commercial deployments. Battery makers made an appearance at the show, touting batteries that could provide energy storage and frequency regulation for the grid. Some are even selling batteries for homes, to connect with solar panels, and I could see many homes having their own batteries one day. Batteries for energy storage have long been discussed, but the problem has always been that they are one of the most expensive forms of energy storage. However, some power producers and utilities now have commercial battery farm deployments in place, so we’ll see this year how popular batteries for energy storage become.

6. Ditch the hardware; focus on software. After talking with a variety of home energy management startups, it feels like there has been an acknowledgement that focusing on the hardware piece of home energy management hasn’t worked out all that well, and that software is a much better bet for most companies. EnergyHub did a slight pivot to focus more on software to manage smart thermostats, and the company tells me it’s having its best financial year to date. Tendril also doesn’t focus at all on hardware anymore, and is only focusing on creating an open platform for connecting devices. However, Nest is the outlier in this, and is basing its business around its device.

7. The pivot. Constant reinvention is common in Silicon Valley and for startups. I feel like there’s a perception that it’s not that acceptable in the utility and power worlds. However, it’s becoming increasingly O.K. to openly discuss changing strategies and working out various business models. As the smart grid industry matures, the pivot is going to become a more common maneuver. Embrace change!

8. Cellular coming on strong. A few years ago, the cellphone companies were charging utilities way too much to use their networks for the backbone of the smart grid. But today, phone companies like Verizon have changed their pricing strategy and are actively working with utilities on strategies around a per meter basis. As I wrote earlier this week, there’s no longer a big debate about what type of wireless to use, from cellular, to mesh, to Wi-Fi to WiMAX. The network companies are offering them all to be flexible to the utility.

9. M&A still rolling. The smart grid is still one of the best places across the cleantech sector to sell a startup. Since the IPO market is pretty crappy right now, who could buy who was a topic of conversation at the show.

10. Go big or go home. This one comes courtesy of Tendril’s CEO Adrian Tuck who says he sees a lot of potential consolidation in the energy data management space this year, and he sees companies going big or going home. What do you think?

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This is the same USDA program loan guarantee program that delivered a loan guarantee to now-defunct biofuel maker Range Fuels. To date, none of the next-gen biofuel companies have produced advanced biofuels at any commercial scale, despite hundreds of millions of funding in venture capital and government funds.

The loan guarantee will enable ZeaChem to build a plant in Boardman, Ore., which could produce 25 million gallons per year of products. At least 51 percent of the plant’s production will be cellulosic biofuel (including ethanol), and the rest will be chemicals such as acetic acid and ethyl acetate, the USDA said. The total cost of the project is around $390.5 million, the USDA added.

With the guarantee, the government promises to pay back the loan if ZeaChem isn’t able to. Silicon Valley Bank will arrange the loan, said ZeaChem CEO Jim Imbler during a conference call. The rest of the project cost will be equity coming from “a variety of sources,” but Imbler declined to divulge more details.

ZeaChem will have to meet certain performance goals before the USDA will complete the loan guarantee package, Imbler said. The company will work on meeting them starting this year through a demonstration plant located next to the site for the proposed commercial refinery. ZeaChem announced the completion of the demonstration plant earlier this month, and the plant will make acetic acid and ethyl acetate. ZeaChem also plans to produce cellulosic ethanol at this demonstration plant later this year.

Colorado-based ZeaChem is among the many companies that have been trying to move into commercial production of their advanced biofuel technologies. Problems with technology development and lining up financing have been two big stumbling blocks. Range Fuels shut its refinery in Georgia last year after building it only the year before, and that plant went to another biofuel developer, LanzaTech, in a liquidation sale earlier this month.

Companies such as KiOR and Coskata have sought funding through initial public offerings though they both have yet to reach mass production. KiOR went public last year while Coskata filed for an IPO last December but hasn’t made its public market debut (here is an in-depth look at KiOR’s IPO and why its pre-IPO investors are still waiting for the big payday).

The USDA says ZeaChem’s biorefinery in Oregon will be open for business by late 2014. The company raised a $19 million round from private investors last year. About 30 percent of the feedstock for the refinery will be agricultural waste such as wheat straw and corn stover, while the remainder will be woody biomass from a nearby poplar farm called the GreenWood Tree Farm Fund.

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So the company is looking to live again, and says if approved, it will use the restructuring and equity to continue operations, and will meet its commitments to its suppliers and customers and employees.

Ener1 is officially off the Nasdaq; it was first delisted in Oct. 2011. After this restructuring plan, Ener1 says all that common stock will be “extinguished” and current equity holders “will not receive any distributions.” That’s fun.

One of Ener1′s biggest problems was its support of electric car maker Think, which headed into bankruptcy itself last year. Ener1′s current CEO (the former CEO left a couple of months ago as well as many key execs), Alex Sorokin, explains the market falter in a release Thursday as:

Our business plan was impacted when demand for lithium-ion batteries slowed due to lower-than-expected adoption for electric passenger vehicles. That pressure was exacerbated by volatility in the debt and equity markets that further limited our borrowing ability and the loss of a major customer, Think Global, which filed for bankruptcy in June 2011, and for which we were exclusively providing commercial lithium-ion battery packs.

The restructuring could also shine a light on Ener1′s previous government support. Ener1 is the parent company of EnerDel, which if you remember back to summer 2009, received a $118 million grant from the Department of Energy’s $2.4 billion Electric Drive Battery and Component Manufacturing Initiative.

EnerDel received the funds to help it build a factory that would produce batteries for electric vehicles. The DOE told Inside Indiana Business last year that EnerDel has received $55 million of the grant, and the DOE is closely watching Ener1 and EnerDel.

Update: DOE spokesperson Jen Stutsman emailed me this statement on Ener1′s bankruptcy plans:

The Department of Energy’s grant to EnerDel is supporting a cutting-edge battery manufacturing plant that is producing batteries in America that are being sold across the country and around the world. This grant is part of the Department’s efforts to commercialize promising vehicle technologies that will help America to reduce our dependence on foreign oil and ensure U.S. companies can compete in the global auto industry.  While it’s unfortunate that Ener1, the parent company, has entered a restructuring process, the new infusion of $80 million in private capital demonstrates that the technology has merit. As the company has said, the restructuring is not expected to impact EnerDel’s operations and that they do not expect to reduce employment at the site.

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Boulder announced this week that it’s hired Denver-based law firm Duncan, Ostrander & Dingess, which specializes in a legal process that allows a government to seize private property for projects that will benefit the public. The city would have to pay “just compensation” for the property, and that definition includes fair market value. This process is typically called “eminent domain” and is used more commonly for building roads.

The move to seize the distribution network should send chills down the spine of utilities and serves as one of the most extreme examples of customers pushing back against their utilities and demanding more clean energy. Ratepayers and cities have known to complain about utility programs, such as installing smart meters, but they don’t usually take the steps and money to leave their service providers.

The city would use the eminent domain process only if it isn’t able to successfully negotiate a price with Xcel. So far Xcel hasn’t shown an interest in selling its distribution network, so the city is gearing up for a legal fight, said Sarah Huntley, a spokeswoman for the city.

The cost of sovereignty

Boulder also plans to hire legal counsel for what could be another contentious process: asking the Federal Energy Regulatory Commission (FERC) to decide whether and how much Boulder would have to compensate Xcel for the investments Xcel said it’s put up in anticipation of having to serve Boulder for many years to come. This fee is called “stranded cost,” and Xcel told Boulder last year the stranded cost was estimated to be $335.7 million.

Boulder, however, questions whether it should pay the stranded at all, Huntley said. In a memo the city staff prepared last year, it noted that Boulder began looking into forming its own utility in early 2000′s, so Xcel shouldn’t have made investments assuming that it would continue to serve the city for a long time.

Xcel estimated the stranded cost based on its belief that it would get a 20-year renewal of a franchise agreement to serve the city. The previous agreement expired in 2010, but the city and Xcel couldn’t agree on the terms of the new agreement, which was to include the construction of a new wind farm.

FERC hasn’t had to issue many rulings on stranded costs, so its decision on the Boulder/Xcel case could set a precedent, Huntley said.

Although Boulder thought about forming its own utility for a while, it began that process in earnest when Xcel sought to renew its franchise agreement. The city asked voters last November whether it should investigate the process and costs of running its own utility. Voters narrowly approved a measure to give the city a go-ahead and another measure to allow the city to collect $1.9 million in taxes per year until the end of 2017 and use the money for hiring legal counsel and consultants to figure out various costs. There have been some early estimates of how much it will take for Boulder to form its own utility – the city said last November the cost would be $227 million while Xcel said it would be over $1 billion.

Promise to ratepayers

The city has said that it would form the utility if it’s able to charge the same rates as Xcel at the time it buys the distribution network from Xcel. So, if the final cost estimate for forming its own utility is too high, then the city will have to abandon the plan or it could ask voters if they still want to proceed.

Xcel has argued that, as a municipal utility, Boulder wouldn’t have the resources to get away from buying power generated from coal or natural gas. Wind or solar electricity isn’t available around the clock, for one thing. Renewable electricity also is more expensive, so it’s not likely to be cost effective for Boulder to run its own power service.

“The question is do they really care about renewable energy or do they just want to municipalize?” said Xcel spokesman Gabriel Romero when I spoke with him last year. “It’s disingenuous for them to say we want to do it because we want to be green. That’s not a valid agreement in the eyes of Xcel Energy.”

Photos from Boulder and Xcel Energy

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Knowing what matters requires you to:

• Think through your own values. Few people do. Ask yourself the really hard questions, and be brutally honest.
• Make sure you understand which values your fellow co-founders and early employees consider non-negotiable, and screen for them in yourself and others. If these values can’t be reconciled, it’s a showstopper.
• Make sure you understand which values your co-founders consider important but not non-negotiable. Talk through what the lack of alignment means in practice: What types of issues may arise and how do you deal with them? Make sure everyone has the same expectations.

Several people who thought this made sense contacted me, because they weren’t sure how to operationalize the advice. Having learned from past mistakes, we created a set of “Value Alignment Questions” before starting Otelic.com. I’m sharing them with you below in the hope it will eliminate a lot of “WTF?!” moments for you down the road — whether you already have or are about to start a company.

It took us two days to go through the questions and build a thorough understanding of each other’s perspectives. While that’s not an insignificant time investment, I think it might be the cheapest form of risk mitigation a founder will ever find.

Personal Values

Starting a company is an emotional and probably financial rollercoaster. Why are you doing it? What’s the intrinsic drive that’s going to power you through all the obstacles ahead?

What you might hear: “I want to make a dent in the universe.” “I want to be invited to Davos” “I want to attract more gold diggers than the 1848 Gold Rush.”

What are your personal constraints? 

What you might hear: “I have a kid, so I’m only staying in the office for eight hours a day” “I’m committing a maximum of three years to this venture, because after that I think I might need a sabbatical.”

What are your biggest fears about the venture? 

What you might hear: “That it will turn into an enterprise company.” “That my wife gets tired of our financial struggles and leaves me.” “That I don’t get enough say about product direction.”

What are the things that really tend to bother you? 

What you might hear: “Lack of progress.” “Music in the office.” “Lack of ownership/accountability.” “Not having crystal-clear goals.” “Not shipping or testing a new version of our product at least weekly.”

What would cause you to want to shut down or leave the company? 

What you might hear: “When it’s not fun anymore.”

What are your character flaws, and what are you bad at? 

What you might hear: “I tend to over-promise and under-deliver.” “I am not good at time management.” “I can be irritable.” “I’m easily distracted.” “I just can’t stand doing certain types of work, including XYZ.”

What are your character strengths, and what are you really good at?

What you might hear: “I consider my signature strengths to be love of learning, humility and integrity, and I’m really good at XYZ.”

What about working hours and working weekends? 

What you might hear: “40-hour weeks” or “16 hours per day, including weekends.”

What about time off? 

What you might hear: “Five weeks per year.” “Two weeks per year.” “Nothing until the company is profitable.”

What types of people do you want, and do you not want, to work with?

What you might hear: “I only want to work with people who can X.” “I refuse to work with anyone that is Y.”

How do you expect to grow as a person from building this company and what to you hope to learn?

What you might hear: “In the short term, I want to get better at lean startup methodology.”

What support do you need from your co-founder(s)?

What you might hear: “I need you to understand my financial situation and not pressure me to take risks I can’t afford.”

Execution Values

What role do you see yourself in two years down the road?

What you might hear: “CEO.” “I couldn’t care less.”

What if others don’t feel this role is a good fit?

What you might hear: “Then I’m flexible.” “Honestly, then I’ll probably leave.”

How do you want us to make day-to-day decisions?

What you might hear: “I want veto right on X.” “I think I should decide everything related to Y, and I don’t care about the rest.”

How do you want us to make major decisions like firing, selling the company and raising funds?

What you might hear: “I want to vote on executive hiring/firing, parting ways with co-founder, raising funding and issuing stock options.”

What barriers are you worried about us running into? 

What you might hear: “Funding.” “Burnout.” “Product direction.”

Financial Values

What would be your fair market salary?

What you might hear: “I’m currently making $140,000 per year, but could probably get another $20k somewhere else.”

What’s the minimum salary you’d be willing to work for and for how long?

What you might hear: “Six months with no pay plus 18 months with $50,000 per year.”

What your maximum “tolerable” opportunity cost?

What you might hear: “$120,000, because my market salary is $100,000 post-tax, and I’m willing to work for two years at $40,000 per year. That’s the most I can afford.”

What do you think of the possible financing solutions: paying customers, venture funding, consulting, keeping our day jobs, etc.?

What you might hear: “Getting venture funding is probably a requirement for me. I don’t want to **** around and do random consulting just to keep the boat afloat.”

What do you think is a fair approach to splitting the founders’ pie? 

What you might hear: “Equal parts.” “Founders’ Pie Calculator.” “I don’t know; make me an offer, and let’s take it from there.”

What valuation would make you want to sell the company?

What you might hear: “$5 million.” “$1B”, “I don’t ever want to sell. Are you in it for the money?!”

I recommend writing down and revisiting the answers to these questions periodically. The answers will inevitably change as you move forward. Your personal circumstances will change; your knowledge of the market will change, and the company itself will change. Still, if you do proper values due diligence on day one, you have a good foundation to stand on as you move forward together.

Best of luck, and feel free to suggest additional questions in the commenting area!

Thanks to Dave Kashen and Sean Abrahams for reading a draft of this.

Image courtesy of Alexander Drachmann.

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Cisco's connected grid router, ruggedized, inside

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In the past six weeks, Buffett’s MidAmerican Energy Holdings Company has been on a renewable-energy investment spree, buying up the $2 billion Topaz Solar Farm, in Southern California; a 49 percent interest in the $1.8 billion Agua Caliente solar project, in Arizona; and, last week, another wind project acquisition in Illinois, which brings the company’s wind power portfolio to $6 billion.

The solar acquisitions, in particular, are new, and they make you wonder: Did the Buffett investment machine see some seriously undervalued assets, even as most investors viewed solar as a train wreck?

Read the rest of my weekly column on GigaOM Pro (subscription required).

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In Panasonic’s booth — the company bought controlling interest in Sanyo back in 2009  — a battery box was featured. The box strings together hundreds of small format lithium-ion laptop batteries in much the way Tesla for its electric car battery. (Note: Tesla also uses Panasonic laptop batteries.) A couple of battery stacks would be enough for a single family home, combined with an inverter already retailing in Germany (one of the largest rooftop solar markets) for less than $5,000. A few years ago there were reports this battery could store a week’s worth of electricity.

A startup from Costa Rica, Heart Transverter, was showing off a box that can combine inverters and batteries and connect with distributed power generation like a fuel cell or solar system. The idea is to put one of these in your basement or backyard and you’re set to plug in all your off grid power needs. An on-looker in front of Heart’s booth called the transverter the most sophisticated inverter and energy storage system out there.

Panasonic might have a residential home battery product for market, but it’s is mostly targeting larger commercial building operators and utilities (see the photo the left), and the battery maker is already supplying batteries for some utility pilot programs in the U.S. Lithium-ion batteries are starting to be more regularly explored by utilities and power producers and both AES and China State Grid have built massive battery farms using batteries from A123 Systems and BYD, respectively.

Then there’s home energy storage potential of electric cars. EVs could be used as grid regulation through a two-way connection with the utility known as V2G, and older EV batteries could also find a second home as a battery after it’s no longer useful for the car (see Nissan’s project with its LEAF).

While the batteries I’ve mentioned so far are pretty expensive right now, and will likely be sold in the developed world, the developing world is more rapidly adopting much smaller (and less advanced and expensive) batteries connected with tiny solar panels. Fenix International makes a lead acid battery box with connectors for charging cell phones and distributed clean power.

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OnStar could grab that clean power signal and deliver it to the electric car owner via a dashboard or mobile app and enable the car owner to decide when to charge the car. OnStar says Google is testing out the tech on 17 of its Volts at its headquarters. OnStar is showing off the tech at the DistribuTECH show in San Antonio, Texas this week and I got a brief glimpse of the tech at the booth.

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Obama reminded viewers that the recent boom in cheap natural gas came from decades of government funding into natural gas drilling research. He also said that the Department of Defense and the Navy will make one of the largest commitments to clean power in history, and he will allow the development of clean energy on enough public land to power three million homes.

Because of federal investments, renewable energy use has nearly doubled. And thousands of Americans have jobs because of it. . . . I will not cede the wind or solar or battery industry to China or Germany because we refuse to make the same commitment here.

But President Obama also fully embraced an investment in all forms of American energy including fossil fuels and offshore oil drilling, and in what will definitely be a controversial move, he said he wants to “open more than 75 percent of our potential offshore oil and gas resources.” Twitter lit up on that line.

The notion of growing all types of domestic energy was a rehash of his State of the Union last year where he called for “80 percent of America’s electricity to come from clean energy sources,” by 2035. In that definition, however, clean energy sources included natural gas, nuclear and clean coal.

Obama also tried to calm any fears of environmental damage from fracking for natural gas — spraying chemicals and water deep into the ground to break up rock. He said: “I’m requiring all companies that drill for gas on public lands to disclose the chemicals they use. America will develop this resource without putting the health and safety of our citizens at risk.”

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The answer to this single question affects every home automation decision down the line because of compatibility. Choosing among ZigBee, X-10, Z-Wave, Insteon and others (I chose Insteon) dictates which compatible devices you can connect in your smart home. With so many choices, maybe a simpler approach is needed, and that’s exactly what Belkin is offering with its new WeMo product line.

Belkin introduced the WeMo products earlier in January, but I only recently realized they were Wi-Fi-based. Using a ubiquitous wireless standard is huge, assuming it works; the first products don’t arrive until March, so I haven’t tested them. A $49 outlet and $99 motion detector with outlet will be the first WeMo offerings, and you just plug in any electrical device you want to control to the WeMo product. The devices can then be controlled with a free smartphone app.

If Belkin’s WeMo products catch on, it means do-it-yourself home automation won’t be relegated to the early adopters and mobile geeks like me, because the technical question of a network protocol simply disappears. That’s important, because Belkin’s products are generally a plug-and-play system; the Wi-Fi modules are in the smart outlets or switches and they connect to the Wi-Fi network that’s likely already in the home.

In my case, using Insteon, I had to add a Wi-Fi access point to my home automation server; that allows me to interface with the “brains” of the system. But the system itself transmits data and commands through the Insteon solution: a separate 900 MHz wireless network that can also use my home’s electrical system to shoot information over the powerlines. For mainstream consumers, this is too much to deal with.

But when consumers hear something is compatible with Wi-Fi, it’s a network they’re already familiar with. They’re used to adding Wi-Fi objects to the home, whether its a television set, a tablet or a digital camera. For most people, Wi-Fi simply works in a “magical” sort of way, which is how Belkin is presenting the new WeMo products.

Does Wi-Fi already own the home as we said several years ago? Yes. Is Wi-Fi the best standard for home automation? That’s arguable, and I’m not sure I’d say yes. Other protocols have advantages in terms of power consumption, lower frequencies for better wall penetration and backup communication methods. But these options are an alphabet soup of acronyms and terms consumers don’t yet understand. Ask someone what Wi-Fi is, however, and I’d bet even a pre-schooler could tell you.

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Honeywell's thermostat with Opower software

There’s a perception in Silicon Valley that smart learning thermostat startup Nest created the world’s first connected and digital smart thermostat. While the Nest thermostat is gorgeous and potentially a game-changing, there’s dozens of companies that are making connected smart thermostats.

I snapped a dozen or so photos of some of these thermostat players (see below) at the DistribuTECH smart grid event in San Antonio, Texas this week. It’s clear from the buzz from big box retailers, utilities, startups, telcos and cable companies that 2012 is morphing into a break out year for the smart thermostat. I wrote a report on the battle for the smart thermostat for our premium research service GigaOM Pro (subscription required) this week, which provides an indepth look at the players around the smart thermostat and who I think will come out on top in 2012.

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As Opower VPof Strategy and Marketing Ogi Kavazovic told me in an interview at Opower’s office in Arlington, Va. late last year, “The next 18 months will be a very interesting time for Opower.” The company has been growing rapidly, has been hiring at both its offices in Arlington and San Francisco, and will be introducing new products this year, including its social app with Facebook and a connected thermostat with Honeywell.

In November Opower even hired a CFO, Thomas Kramer, indicating it’s mulling over a potential IPO. Kramer was previously the CFO at Cvent, and created the e-commerce strategy for Boston Consulting Group.

At the smart grid conference DistribuTECH in San Antonio, Texas this week, Opower not only announced its milestone of 25 million reports, but also launched a new partnership and service called Opower Marketplace, which loops in retailers and coupons into its energy efficiency recommendations and reports. Opower’s first retailer in the program is The Home Depot, and, for example, when an Opower energy report recommends buying CFLs to replace incandescent lighting, The Home Depot could offer a coupon to the customer for discounted CFLs, along with a bar code to track if the customer uses the deal.

While Opower previously had a goal to help its customers reduce one Terawatt of energy by the end of 2012, Opower says it will actually  hit that goal six months early. One terawatt hour (or 1 million megawatt hours) is equivalent to the energy consumed by 100,000 American homes over a year, and is worth a whopping $100 million in consumer’s utility savings.

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