Energy crunch and opportunity

Blue Ridge Business Journal

By Diane Price
November 28, 2005

Frequently, energy awareness starts in our wallets. The impact of rising costs of oil and natural gas consumption is endemic. Even at local laundromats newly posted signs read: "Due to the increase in energy costs we are forced to raise our dryer prices."

As oil and natural gas costs escalate, Virginians are seeking information on alternative energy resources to save money, especially during the winter heating months.

"There is no need for a huge increase in prices in oil," says John H. Saunders, financial advisor and wealth advisory specialist at Legg Mason Wood Walker Inc. in Roanoke. "If you look at the raw data, there is adequate financial stats and heating oil in the system. The other types of energy, before they can have a major impact on the economy, there will have to be usage going up. There is unlikely to be a short-term blip in those alternative energy sources.

"Clearly, the energy firms are profiting handsomely, as are intermediaries. They are all profiting handsomely in light of the higher energy prices. If you look at the demand and supply of refined petroleum products, we have enough in inventory." Today, about 90 percent of vehicular fuel needs are met by oil. To cut costs by getting more miles per gallon consumers are buying hybrids; still others are waiting for the hybrids to improve.

"There is really no difference in the hybrids and our other cars, except the hybrids are practically zero emissions," says Chuck Baker, general manager, Hayley Toyota in Roanoke. "People often buy them because they are great cars for the environment. They are considered green cars." Popular hybrids for 2006 are the Ford Escape, the Honda Civic and the growing Toyota cadre of hybrids: the Highlander Hybrid and Lexus RX 400h hybrid SUVs, and the Prius hybrid sedan.

More hybrids

"The wait is a little bit longer now for the Prius," says Baker. "It has been in high demand, and low supply since it came out in 2001." Toyota will introduce a hybrid version of its top-selling Camry sedan next year, as well as a hybrid version of the Lexus GS luxury sedan.

Helping to drive up the hybrid market are incentives: If you buy a hybrid new, you may be eligible for a one-time federal income tax deduction of up to $2,000. According to the Association of Peak Oil & Gas, of the 235 million vehicles licensed today, only 275,000 are hybrid electrics.

As the hybrid market matures, so will bio-diesel fuels, a 20 percent soybean-based bio-diesel, with a federal "blender tax credit" of up to 99 cents a gallon for fuel containing bio-diesel. The bio-diesel fuels are now competitive, if not cheaper. "In the states there is also a micro economic factor with investment in soybean-related stock," says Saunders. "There is growth and demand for vegetarian foods. There are other factors at work driving interest in investing in soybean related companies."

Some analysts are saying for now, buy bio-diesel. Much of the commercially sold bio-diesel is domestically made from soybeans. Bio-fuels are energy-containing fuels derived from biomass "biomass" refers to organic materials derived from plants or animals]. Manufactured from vegetable oil, bio-diesel can be used in pure form or blended with diesel to make a cleaner-burning fuel that reduces vehicle emissions. Locally, Public Policy Virginia (www.ppvir.org) is planning an educational forum in Danville on December 10th that will focus on bio-fuels that can be grown economically in Southside Virginia as a viable source of biomass for ethanol, as well as a potential economic boon to the region's farmers and local economy, moving our nation away from dependence on foreign oil, and keeping millions of additional dollars in the local economy.

Renewable

Generally, renewable energy alternatives are on the rise. Findings indicate we may soon rely on fuel cells (which convert a fuel, such as hydrogen, into electricity, with no pollution), or hydrogen power (a clean fuel with great potential), or solar and wind power. And, there's coal.

"People are investing in options. It is not necessarily related to the price of oil. For example, in coal, it is that the old coal companies-with their high-cost structures and their unattractive benefit burden, and labor agreements with unionized work forces- have gone out of business," says Saunders. "Newly formed companies that don't have to carry the burden of those past agreements have acquired their assets. There is a micro-economic factor at work supporting coal in particular."

Coal creates more than half of all the electricity made in the U.S., and we seem to have an inexhaustible reservoir of coal. Coal prices from central Appalachia have doubled-from $30 per ton to $60 per ton-over the past year. With U.S. coal production at record highs, coal companies are hiring again. Good news for Virginia, as the ninth-largest coal producing state in America, and particularly good news in the coal area of Southwest Virginia, where the industry employs 5,000 people (down from 10,000 in 1987).

From digging coal under the ground to up in the sky, solar companies are growing in Virginia. Out of 30 solar businesses scattered throughout the Commonwealth, three solar businesses found homes in Broadway, Christiansburg and Vesuvius.

Solar energy bodes well for future energy use. Unlike fossil fuels, the sun's radiant energy does not have to be burned to be useful, and it does not produce air pollutants. Although the equipment for collecting solar energy can be costly, the sun's energy has no cost.

Solar studies

Colleges in the region are pushing the envelop and research on solar energy possibilities, like in the 2005 Solar Decathlon, where Virginia Tech won the two top categories, architecture and livability (dwelling) awards, and placed fourth in the overall competition.

"There were 18 schools involved as far away as Madrid, Spain included in the Solar Decathlon competition this past October in Washington, D.C. One of the categories dealt with the manufacture and distribution of the solar houses," says Ben Johnson, professor of landscape architecture at Virginia Tech. "Our notion was not simply research, it was the application to society, and the business application to manufacture. Ours is a very buildable house."

Energy-saving products abound in Virginia Tech's solar house. A key part of solar collection is solar insulation panels that prevent the heat inside a solar collector from moving to the outside where the temperature is lower.

Talk has it that people are looking at 50 percent higher costs to heat their homes. Part of the cost from rising oil prices has impacted the price of insulation material. "It went up 9 percent, across the board November 14. All the insulation manufacturers went up 9 percent," says Wayne Toler, president of Toler Insulation in Lynchburg. "That happened, then my products went up 9 percent."

Regular insulation is in peak demand this winter. "In the residential marketplace we have seen an instant impact of people saying, 'I need to do something before winter' to try to cut the problems," says Toler. "My expenses on fuel for running 20 vehicles this year cost more. By August of this year, I paid out in fuel what it cost for all of 2004." Both the insulation and window replacement businesses at Toler Insulation doubled this year.

"The smart investors are selling oil and buying other energy producers. The other group of stocks that have benefited greatly from the hurricane season have been natural resources companies," says Saunders. "All of those stocks are trading at high multiples" Wind energy has media attention, along with solar power and biomass. In Virginia, favorable wind locations are located in the western mountains, and along the Atlantic coast. No commercial wind-energy generators operate within the state.

Then, there is hydropower (the energy exerted by water, as it moves in response to the force of gravity), perhaps one of the oldest sources of energy. In Virginia, more than 16 percent of the state's combined utility and non-utility generating capacity is hydroelectric.

Geothermal energy is yet another renewable resource that taps into the earth's internal heat to create electricity and to heat and cool buildings. There are numerous determinations of temperature and geothermal gradient in Blacksburg and Bridgewater.

It all takes energy

Encouragement of nuclear plants in Virginia runs high. They are relatively inexpensive to run, and they emit virtually no air pollutants. The only significant environmental concern is for nearby waterways used to cool the reactors (that and, of course, the potential of a meltdown). Nuclear plants generate about 20 percent of the nation's electricity and 34 percent of Dominion Virginia Power's consumer load.

All this begs but one question: With increased demand and adoption of alternative energy products and solutions, is it possible to offset the rising costs of petroleum?

"Most people lose sight of, whether it is wind-generation system, solar power or solar-thermal, that all these materials are rooted in petroleum. It takes energy to make the metal for the wind-generator housing; it takes energy to make the aluminum on the panels; and, all of these things are rooted in petroleum," answers Bob Schubert, associate dean for research and outreach at the college of architecture and urban studies at Virginia Tech. "With the increased demand of solar panels, or petroleum, the costs should come down."

That's hard to envision, as reports this year find that Royal Dutch Shell reported a 68 percent jump in profits in October, to $9.03 billion; Chevron posted a profit of more than $4 billion; and Exxon chalked up record earnings as its third-quarter net income jumped 75 percent, to $9.92 billion. This year's sales, which topped $100 billion in the last quarter, are expected to exceed those of Wal-Mart.

Then, there is Wal-Mart. Over the next three years, Wal-Mart expects to get 100 percent of its energy from renewable sources, cut energy use in stores by 30 percent and cut fuel consumption in its truck fleet by 25 percent, according to the Christian Science Monitor. Energy efficiency and renewable energy, including numerous solar PV arrays, small wind turbines, a bio-fuel boiler to recycle and burn recovered oil from store operations, and a nearly endless list of energy-saving and sustainable design principles, are part of its corporate goals for its U.S. stores.

"If we are going to change society, those cultural patterns that we live by, then we have to find ways of doing it so that it is acceptable for society to change," says Johnson. "We have to lead that change opposed to whatever goes to hell in a handbasket that we do."

While skeptics among us may suspect Wal-Mart of promoting social-good efforts to escape the label of a sweatshop, Wal-Mart is now the undisputed champion for cultural change in adopting renewable energy resources.

(Diane Price is the CEO of ASAVI, a creative ideas and solutions corporation with an office in Lynchburg. www.asavi.com)

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