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Power Source

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

The concessions acknowledge Nevada’s ambitious goals for clean-energy production (20 percent by 2015), with at least one-quarter coming from solar power. The reliance on solar energy makes sense for a state that generally records as many as 320 sunny days a year in prime locales such as Las Vegas. The electricity produced by Nevada Solar One will bring Sierra Power Resources into compliance through 2009. Past that, the Nevada utility will have to scare up additional supplies of solar power.

Twenty-two other states have similar aims. Called renewable portfolio standards (RPSs), the programs have gained considerable support. In 2002, following the California energy crisis and Enron-manipulated blackouts, Gov. Arnold Schwarzenegger raised California’s already high targets. “I’m not sure he even knew what he was doing,” says Ardour Capital Investments’s Baxter. “But other states then said, ‘We can do that.’”

The Check’s on the Wall

In theory, the RPSs will prevent future outages and cut back on pollution-related illnesses and deaths. In practice, the targets mean utility operators have little choice but to purchase power from distributed generators (small-scale power generators located close to where the electricity is used). This has not escaped the notice of institutional investors.

Last year, for example, the three largest U.S. initial public offerings for venture-backed businesses were for companies in the solar-energy industry, including the nearly $400 million offering for China-based Suntech Power. Even more telling: investment bank Goldman Sachs purchased a Texas wind-farm development company in 2005 and has earmarked $1 billion for similar acquisitions.

Conventional power producers have also gone on a buying spree. In April, Portland General Electric announced plans to acquire the development rights to Biglow Canyon Wind Farm in Oregon. In May, Iberdrola, a Spanish energy concern and the largest owner and operator of renewable-energy facilities in the world, acquired Community Energy Inc., a Pennsylvania-based company that markets and develops wind energy in the United States. Even Solargenix was bought last November by Acciona Group, a Madrid-based energy and construction company with 2005 revenues of $5.8 billion.

At the same time, a few utilities have developed creative ways to meet clean-energy mandates. In May, Princeton, New Jersey–based NRG Energy Inc. formed a joint initiative with GreenFuel Technologies. The purpose: to test GreenFuel’s algae-bioreactor technology on NRG’s coal-fueled power plant in Dunkirk, New York. For NRG, the agreement means the utility can try out the technology without actually buying it. In exchange, GreenFuel gets to perform a utility-scale test on its bioreactor system without footing the bill.

That’s crucial for a company that still tapes copies of customer checks on the walls of offices that are otherwise free of adornment or amenity. When GreenFuel moved into its new office in Cambridge, Massachusetts, in January, management didn’t have time to paint or install carpet. “We couldn’t afford the distraction,” explains Cary Bullock, CEO and de facto finance chief. “We went right to work.”

What GreenFuel is working on is pond scum. No kidding. The company, which sells to power producers and manufacturers, constructs bioreactors that contain a special strain of algae. The algae are deployed in modules at a power plant or factory. Those modules are connected to a smokestack through a pipe or hose. When emissions from fossil-fuel generators pass through the flue, the algae convert carbon dioxide into starch and nitrous oxide into lipids. Once the algae are harvested (that is, the water is removed), the starch can be turned into ethanol or biodiesel. Early tests suggest the process yields about 10,000 gallons annually of bioethanol and a comparable amount of biodiesel per acre. By comparison, an acre of soybeans produces just 60 gallons of biodiesel. In essence, the algae turn smoke into fuel.

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