May 2001

Power to the People

Continued from page 3

By Peter Fairley

This ability to play the power markets will grow as utilities move toward real-time pricing, where the price of power from the grid reflects the cost to produce it. During times of peak demand, when utilities must fire up their least efficient plants, prices spike. Micropower units will monitor pricing through an Internet connection or via a digital signal embedded in the electricity itself. Using this information, they will compare quotes for gas and electricity and automatically turn themselves on when the spread is favorable.

Yet power generation is not a core competency for most businesses (let alone residential consumers), so it will be important to find the folks who can run micropower smoothly. With natural-gas prices rising, switching on micropower at the wrong time could cost a bundle. "The technology developers and a lot of the investors have placed more focus on getting the technology developed without thinking on the operations side of who's going to support it, who's going to install it, who's going to warranty it," says Exelon's Gardner.

Capstone's best answer is Williams International, a Tulsa, OK-based energy giant that sold or leased 60 of the first 1,000 microturbines that Capstone produced through last November. Williams, whose pipelines carry nearly 20 percent of the U.S. natural-gas supply, provides a complete energy service package: financing the micropower unit, providing power from the grid, and helping consumers determine when peak shaving makes sense (the company is a leading trader of electricity and natural gas). Mory Houshmand, director of the Williams Distributed Power Services unit, says Williams expects its wholesalers in the United States, South America and southeast Asia to install about 1,500 microturbines this year, and another 2,000 to 3,000 in 2002.

Enron-a Houston-based energy giant and rival of Williams-sees the same opportunity coming with fuel cells. Last fall, Enron forged an alliance with FuelCell Energy, investing $5 million in the Danbury, CT, startup and gaining options on another 1.3 million shares of stock if the company sells more than 55 megawatts' worth of its molten-carbonate fuel cells (enough to light up 10,000 homes). Jeremy Blachman, chief operating officer for Enron Energy Services, is bullish on micropower. "When the market price of power pops all over the place and gets to some of the levels that we've seen during peak summer demand-up to $7,000 per megawatt-hour-then distributed generation with fuel cells becomes much more economic." (Even at today's sky-high prices, natural gas would cost less than $100 per megawatt-hour to fire up a microturbine and less than $75 per megawatt-hour to run a fuel cell.)