Behind GE's clean-energy push

You can say clean technologies have gone mainstream when General Electric gets into the act.

The industrial giant began a few years ago to buy up some of the renewable-energy divisions from larger companies like Enron. Now, GE is increasing its R&D and marketing development budgets to create a larger name for itself in coal gasification, wind power and fuel cells.

Ali Iz, the general manager of technology growth at General Electric, the group that oversees GE's solar and other alternative-energy efforts, recently sat down with News.com Editor at Large Michael Kanellos to discuss how the conglomerate will bring out products that will pollute less and add to GE's bottom line.

Q: GE has been running a lot of ads on alternative energy lately. Is this a new direction for the company, or are you just bringing attention to it now?
Iz: We entered wind four years ago and solar a year and a half ago. We're working on integrated coal gasification. There wasn't an epiphany earlier this year or last year where we said, "We're going to do cleaner and better stuff." We've always been doing it. It's just that it has not been focused.

One thing we are doing though is doubling the R&D spending from about $700 million to a billion and a half by 2010 on cleaner technologies. That's a major commitment, and that includes fuel cells, wind, coal gasification, combined cycle and cleaner gas-turbine technology.

And this is not just energy. Cleaner products and technology also will impact our transportation business, rail and our aircraft engine business.

When you look at the alternatives, which ones seem most promising? What do you like about solar, for instance?
Iz: The installation today is costly. It has to be a lot less. The inverter has to be more robust and less costly than today. We're going to be introducing a new inverter (a device that converts direct current into alternating current) in early '06 for residential applications that is going to be, we believe, significantly more reliable.

Also, we are working on module technologies that integrate seamlessly with rooftops. If you integrate seamlessly, it doesn't jut out of the roof. It's a great product.

It's been very successful in California. We're in 55 home development sites in California. The home builders see it as a differentiated house, and it reduces the electricity bill of the buyer significantly--like to about a third. In Ladera Ranch in Orange County, many home builders are using solar. Our consumer finance, GE Consumer Finance, came up with a mortgage product (for solar homes).

Here's a good example. Shafer Vineyards in Napa Valley installed a 129-kilowatt solar system, and they are 100 percent solar powered. That includes their processing units, refrigeration, their offices. It's a 100 percent solar powered facility.

One thing that has hurt solar before is that the panels make it look like you're putting up an aircraft hangar on your roof. They are very ugly.
Iz: Right. So we want to do away with that, and we've done it with concrete roof tiles. We're also working on other roof systems.

At the end of the day, solar has to be under $3 a watt without incentives to become mainstream because, under $3 a watt, it will compete with the retail price of electricity. And that's the key. Today it's between $6 and $8. (Editor's note: Japan, Germany and several U.S. states give rebates and tax cuts to property owners who install solar systems.)

Who is buying solar? Demand is obviously way up because of the shortage in panels.
Iz: Even today with all the attention solar is getting in the U.S., the U.S. market is about 10 percent of the total. Japan is about 30 percent, Europe is about 50 percent. And the biggest market in Europe--in the world, actually--is Germany, a country that is really not known for its abundance in sun, right? Germany grew by 90 percent last year.

Is geography ever a problem? You can't really expect solar to do well in Alaska.
Iz: You do want sunshine, but there are some subtleties in the technology. For example, thin film can generate more power with less sunshine versus conventional technology. But in general, the more sunshine there is, the more electricity you're going to have to generate. You're always going to produce more in California, Arizona, Nevada than, say, in Minnesota.

Now how about coal gasification? A lot of start-ups have recently landed VC money for this.
Iz: We acquired ChevronTexaco's gasification technology about a year ago, and we've been working on that, and we believe that is going to be a significant growth opportunity for it. It is certainly much cleaner, and we are close to getting the cost to a point where it's going to be competitive with pulverized coal--very close. It's still a little bit more expensive but we recently received our first order.

It just makes sense. It's less polluting. You're gasifying and burning it like natural gas. And the technology has been around a long time. The Germans had something like this during World War II.

And there is a lot of coal, not only in the U.S., but in China and elsewhere.

How about wind?
Iz: Wind has been a tremendous growth story for us. When we acquired Enron's wind business--in 2001, I believe--the revenues were about a few hundred million, and in '06 we're expecting $3.5 billion.

If you covered 7 percent of Arizona with solar panels, it would be sufficient to power the entire U.S. It sounds fantastic, but you aren't going to do that.

Europe has been very big for the past couple of years. The U.S. now is booming. As the turbine--the machines--get bigger, the cost will come down. The turbines are getting larger, and the diameters on the blades are increasing, and so they can capture more wind.

We believe shortly wind is going to be competitive with centralized generation--particularly with turbines located offshore. This is now the major growth initiative.

Do you mean offshore as in something that would resemble an oil platform?
Iz: Well, no. These are wind farms anchored to the sea bottom, not too far offshore. There are good winds there, and you don't have as many issues with land use.

Are emerging nations looking at alternative energy technologies? The additional expense sometimes has a tendency to push these ideas into established markets. China has been kind of the vanguard of how to make a country really dirty.
Iz: Actually, cleaner energy is really no longer limited to Europe and the U.S. I think just about every country is concerned about cleaner environment. Thailand is one of the countries promoting solar and wind.

Are you doing anything in wave? A lot of experts shake their heads when someone proposes trying to install this sort of heavy equipment in stormy seas.
Iz: We're evaluating it. When you look at statistics on solar...I've read somewhere that if you covered 7 percent of Arizona with solar panels, it would be sufficient to power the entire U.S. It sounds fantastic, but you aren't going to do that. The same logic applies to wave. Yes, there may be sufficient potential wave power, but how much area do you need? And where do you put it? And what are the technology issues? It's early.

Now onto fuel cells. I'm just guessing where GE is mostly looking at residential fuel cells.
Iz: Well, actually our fuel cell effort is focused on not necessarily the residential and the small commercial, but bigger systems, so substation megawatt-plus systems. We also have our global research center working on the hydrogen economy. It's still early.

How would a megawatt fuel cell substation operate anyway?
Iz: In the U.S. and in a lot of the developed world, we believe our utility customers, instead of building peaker power plants, may opt for putting a small 1-to-5-megawatt fuel cell hybrid in a substation. These would be solid oxide fuel cells.