How we could blow the energy boom

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Editor's note: America's vast new surplus of natural gas could lead to greater prosperity and a cleaner environment, says one of our country's top cleantech private equity investors. But if we don't fix our decrepit, blackout-prone electric grid, we could wind up sitting in the dark, he warns. I first met Jeffrey Leonard nearly 10 years ago, when he was already one of the early cleantech thought leaders. When I read his most recent article for Washington Monthly magazine, I asked if I could include an excerpt. I think you'll find it a valuable read, whether for your own information, or as ammunition to convince others. A link to the full article is at the end. – Jesse Berst

 

By Jeffrey Leonard

 

For the first time in four decades, spanning the last eight presidents, America is poised to break free of its energy crisis. The country finds itself suddenly awash in domestic energy, especially new supplies of natural gas. The economic windfall is already enormous. Economists at Bank of America calculate that the boom contributes nearly $1 billion per day to the economy, equal to 2.2% of GDP.

 

The environmental windfall is also substantial. Relatively clean-burning natural gas is rapidly replacing coal as our primary source of electricity, leading to reductions in greenhouse gas emissions. Gas-fired power plants are also more easily integrated with renewable energy sources such as wind or solar, giving that industry a boost. The potential benefits of the gas boom also include the promise of a manufacturing revival in the U.S. based on the comparative advantage of lower energy costs, and the opportunity for the country to overcome its chronic trade deficits. This "energy dividend" could be, in other words, the biggest game changer in global politics and economics in a generation.

 

But a better future is not assured

Yet this bright shiny future is hardly assured. There are many reasons to fear that we won't succeed in maintaining adequate supplies of economically available natural gas, or in putting enough of it to optimal use – generating electricity.

 

More fundamentally, in order to capitalize on today's energy dividend, we need to meet a second essential precondition: repairing, expanding and modernizing our overstrained electrical grid. It is an inefficient and increasingly blackout-prone tangle of 1950s technology. In its present dilapidated state it is… making us vulnerable to an array of threats that could dramatically impair the U.S. economy tomorrow – regardless of how much surplus energy we have in the ground.

 

We must fix our decrepit, vulnerable and long-neglected electrical grid. Today, the average substation transformer in the U.S. is 42 years old – two years older than its expected lifespan. Even without any major attacks or breakages, most of the equipment on the grid is already so antiquated that roughly 500,000 Americans lose electricity for at least two hours every single day. In many places, the local grid is in such bad shape that even a minor disruption – a single downed power line, for example – can create a domino effect well beyond the damaged area.

The key to a higher standard of living

If we are able to generate a large portion of our electricity using cheap natural gas and then distribute that electricity through efficient and cost saving smart grid technologies, today's children may well grow up to enjoy a higher standard of living than their parents. But that's a big "if," especially if we don't have even a basic plan for how gas and grid will work together.

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The United States is at the cusp of what very well could be the biggest political and economic windfall in a generation. But to realize this windfall, we must ensure that natural gas is maximized as a source of energy generation, and we must commit to a modern regulatory structure that mobilizes major investments in a reliable, secure – and, yes, "smart" – grid. If too many priorities and hair-brained schemes divert our political resolve, we may find that we have blown the energy boom.

 

Jeffrey Leonard is CEO of the Global Environment Fund, a private equity firm founded in 1990. He is the author of five books and numerous articles on issues relating to energy, the environment and economics. Click this link to Washington Monthly to read the full text of his article.

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