Power Source

The first time Don Points visited Kramer Junction, California, he didn't know what to expect. It was 2001, and the retired finance executive had booked a tour of Solel Corp.'s solar thermal power plant in the Mojave Desert. Although Points had heard about solar electric-generating plants from his friend John Myles, CEO of Solargenix Energy, he hadn't given the concept much thought. But as the former McDevitt Street Bovis finance chief stood in the barren desert, out among the endless rows of sky-blue reflectors, he felt as though he had stepped into an alien world. Points still recalls the eerie silence, punctuated only by the soft electronic whir of actuators moving giant mirrors 1/16th of an inch. "I was awestruck," he says. "I knew right then that this technology would work."

Points came out of retirement to join Solargenix as finance chief in 2004. His timing could not have been better. With fuel costs rocketing to the top of the worry list for CFOs (see By the Numbers), finance executives in the clean-fuel sector — once seen as a noble but foolhardy pursuit — now find themselves at the center of the action.

Indeed, the clean-energy industry (solar, wind, geothermal, biomass, hydrogen, fusion) has moved far beyond its early tree-hugger image. Legislators in several states, worried as much about potential power shortages as they are about the environment, have set aggressive targets for clean-fuel production of electricity. Business leaders, too, are exploring ways to insulate their companies from price spikes. One company, natural- and organic-food retailer Whole Foods Market, now meets all of its electricity needs through wind power, a technology whose fuel source is free.

The build-out of the clean-fuels industry has commenced in earnest. Nationwide, there are 101 ethanol mills, and another 40 are being constructed or expanded. General Motors Corp. is ramping up production of vehicles that can run on the high-octane home brew as well as gasoline. Commercial wind farms have cropped up in 34 states, with turbines dotting the rolling farmland near Walla Walla, Washington, and the marshes outside Atlantic City, New Jersey. Close to Las Vegas, Solargenix recently broke ground on a 64-megawatt solar thermal plant — the largest to be built in nearly 15 years. All in, research and publishing firm CleanEdge predicts that by 2015, sales of clean fuels will hit $167 billion. (That's more than the revenue currently generated by the U.S. airline industry.) "Renewables are poised to grow," insists Dan Goldman, CFO at clean-energy specialist New Energy Capital Corp., headquartered in Hanover, New Hampshire. "We're at a tipping point."

The switch from novelty to commodity is no sure thing, however. Securing capital remains difficult for new-fuel businesses, particularly those short on earnings. To obtain funding, CFOs at these outfits must convince lenders of the viability of often-exotic technologies — no easy sell. And regardless of fears about global warming, clean fuels will not catch on unless they cost as little as fossil fuels. That puts CFOs at alternative-energy companies squarely on the hot seat. "We're past the crunchy-granola stage," says Richard Baxter, senior technology analyst at Ardour Capital Investments LLC. "This is about money. If clean fuels aren't competitively priced, they won't last."

Corn Stalkers
The track record bears this out. In 1973, the Arab oil embargo jump-started scores of alternative-fuel projects, many of which faded away when petroleum prices dropped. The wind-power industry has practically shut down every time the federal production tax credit has been left to expire.

Clean-fuel executives know they can't avoid every risk. OPEC could flood the market with cheap oil. Big-oil companies could jump into the renewable-fuels business, pushing smaller players aside in the process. (The former British Petroleum is now BP Plc, and brands itself as "Beyond Petroleum.") Or, they could take their massive cash reserves and buy alternative-power technologies — and then let them wither.

So-called clean fuels (that is, fuels that do not release carbon dioxide into the air or those that come from renewable resources) are not entirely problem-free, either. In May, the Federal Aviation Administration, concerned about the effects of wind turbines on radar, placed a moratorium on the construction of new wind farms in the Midwest. Critics of solar photovoltaic cells predict the technology will only exacerbate the current worldwide shortage of silicon. Ethanol bashers contend that the grain alcohol requires more energy to make than it creates.

The Department of Agriculture disagrees. But such criticisms haunt ethanol investors like New Energy Capital. New Energy, which is funded partly by the California State Teachers' Retirement System, is close to completing a dry mill ethanol factory in Rensselaer, Indiana. Financing for the $70 million project came from several backers, including Farm Credit Services of Mid-America and 300 local farmers and businesses.

When analyzing long-term biofuel investments, Goldman gauges things like commodity risk (the price of ethanol and feedstock like corn) and legislative risks (the biodiesel tax credit expires in 2008). Nonetheless, the New Energy Capital CFO can't control negative press about ethanol's impact on food prices, nor shifting political whims in Washington, D.C. Says Goldman: "There is some wariness that this boom may end."

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