When I recently wrote that we need to invest more aggressively in alternative energy, I got a number of e-mails from readers, including a series of questions from Dan Lubar of Colorado.
First, Mr. Lubar is concerned about the cost, both in time and resources, to transform our energy infrastructure to provide enough alternative energy to meet our needs. "Various transitions that are underway will take time and may in fact cost many times more than our current energy economy can bear during a long transition period, " he cautions.
While I believe biofuels and biomass are two suitable energy sources to replace petroleum-based fuels, Mr. Lubar worries that these are the wrong choices. He asks whether we can really afford to build a second "fuel system" alongside the first and transition away from unsustainable fossil fuels. He suggests that the two best bets are fusion and geothermal energy.
Mr. Lubar also wonders what roles the private sector and the government should play in the switch -- and whether this kind of transition to alternative energy is even possible, in the long run.
Given the disparity between demand and supply, there can be no doubt that the world is facing a monumental decision. One hurdle is that infrastructure costs more to build today than it did 40 or 50 years ago. For instance, a new coal plant in the U.S. costs about $4 million per megawatt to build today, compared with just $1 million per megawatt 30 years ago.
But it is not quite correct that a whole second fuel system has to be built alongside the existing one. Many biofuels being developed now, such as alcohol fuels, can be blended with the current fuel offerings; others, called drop-in fuels, can simply be substituted for existing fuels. With either of those options, we can continue to use existing transportation and refueling infrastructures, making only minor modifications over time.
The increasing cost of infrastructure is mainly due to rising energy costs, which make it more expensive to produce cement, steel and other building materials. By comparison, the incremental costs of the changes I favor are quite small. As the oil industry performs routine maintenance, it can absorb the minor costs of updating its infrastructure to accommodate certain newer fuels. And in the case of drop-in fuels, no changes are necessary.
I would also caution Mr. Lubar and others to be careful about picking "winners" in this debate. As an entrepreneur I have often found that it is precisely when entrenched interests refuse to change that I have had an opportunity to make money by doing things differently. While I'm a big proponent of both nuclear and geothermal energy, these technologies are generally the domain of entrenched interests, and those interests push them very hard. The solar, wind, biomass and energy-efficiency sectors are generally led by entrepreneurs - which is why they have been so successful in the past 10 years, raising more than $150 billion in project finance this year alone.
The big global successes of the past 30 years, such as the mobile phone and the Internet, have been what the Austrian economist Joseph Schumpeter described as "destructive successes." The mobile phone has eclipsed the 100-year-old landline and put traditional telecom companies out of business in many markets. The Internet has revolutionized some marketing, advertising and content companies, while forcing others into dire straits. The same will happen in infrastructure. The time frames we're talking about are relatively short: In just 10 years, the solar and wind industries have gone from virtually a standing start to amassing $150 billion a year in financing. In the energy transition, entrepreneurs and entrepreneurial CEOs will lead the way.
A decade ago, oil cost $20 to $30 per barrel. Today the oil industry says it has to charge closer to $40 per barrel just to break even, and the cost of oil has already reached more than $80 a barrel following the Deepwater spill.
Meanwhile, almost 10 percent of the gasoline in the U.S. now comes from ethanol and, by law, all gasoline sold in Brazil must contain 20 to 25 percent of the fuel. Next-generation biofuels promise cost-effective production within three years. Even if that turns out to be five years, if the price of oil continues to climb l, it may become much more profitable for oil-importing countries like Jamaica to grow crops like sweet sorghum to create its own biofuel, instead of purchasing fossil fuels overseas.
Why are people so reluctant to see the changes going on around them? Maybe this is why entrepreneurs are courted the world over: They see change coming before the mass market does, and in the process they're able to create wealth for themselves and their supporters. Harnessing this talent will help us develop timely and cost-effective ways to modernize infrastructure and transform the world's energy supply.
Questions from readers will be answered in future columns. Please send them to BransonQuestions @ Entrepreneur.com. Please include your name and country in your question.
Image credit: Steffe