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Power Source

How a fresh crop of CFOs is propelling the alternative-fuels industry.

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.”

Here Comes the Sun

Solargenix’s experience reflects this uncertainty. The company is building a large solar thermal electric power plant in Boulder City, Nevada. Roughly akin to a big magnifying glass, such a facility uses thousands of mirrors (called troughs) to focus the sun on a synthetic liquid. Eventually, the super-hot fluid (750°F) creates steam, which spins a turbine. Technology under development will allow additional heat to be stored in liquid salt, enabling the plant to produce electricity after sunset.

Although the Department of Energy estimates that such facilities could compete with traditional power plants in as little as five years, the Solargenix project, dubbed Nevada Solar One, has been repeatedly delayed by financial constraints. “When I joined Solargenix,” says CFO Points, “I knew our biggest problem would be convincing lenders that the technology is commercially viable.”

The shaky credit status of Nevada Solar One’s only customer, Sierra Pacific Resources (the parent of Nevada’s two electric utilities), didn’t help. Eventually, the state stepped in. Points worked with a task force set up by Nevada governor Kenny C. Guinn and hammered out amended power-purchase statutes. Under the setup, Sierra Pacific revenues that are attributable to renewable energy sources will be funneled into a trust guaranteeing Solargenix’s payment. Local officials also okayed about $15 million in incentives for Nevada Solar One, including a $9 million property-tax abatement.

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