Clean-Energy Frenzy in Washington State

As the Northwest struggles with soaring fuel and electricity prices, corporate executives and entrepreneurs are joining politicians and activists to develop cleaner, smarter, and self-reliant energy sources.

by George Howland Jr.
Seattle Weekly
December 14 - 20, 2005

Gov. Christine Gregoire is touring the state with a farmer who grows mustard seed used to make biodiesel. U.S. Sen. Maria Cantwell, D-Wash., is demanding that oil executives testify under oath about record profits. First District U.S. Rep. Jay Inslee's crusade for a clean-energy future has been embraced by the leadership of the Democratic Party as a central message for the 2006 elections. After a lengthy study of the cheapest way to generate electricity, Puget Sound Energy, the state's largest private utility, has bought two huge wind farms. Moses Lake Republican state Rep. Janea Holmquist is pushing a law to require the use of up to 10 percent biofuels to run vehicles in the state. Shell Oil has invested in a company building a cellulosic ethanol plant in Idaho. The Northwest Energy Coalition, an environmental group, is planning a voters' initiative to mandate use of clean energy by Washington utilities, because while public support for a policy is strong, legislators won't pass such a law.

Welcome to America's first energy crisis of the 21st century. Northwest politicians and activists are responding to the soaring prices of gas and oil by attacking the status quo, while corporate executives and entrepreneurs are embracing alternatives previously relegated to the fringe.

The latest energy crisis is due to a number of factors. The disastrous invasion of Iraq, of course, has highlighted the military and political costs of dependence on oil from the Middle East. Says Inslee, a Bainbridge Island Democrat: "We are addicted to oil from that region. That's unhealthy for our own security." Hurricanes Katrina and Rita disrupted oil and gas supplies, driving prices higher, and created opportunities for profiteering by big energy companies. "There is no valid reason our gas prices went up after Katrina," claims Democratic Gov. Gregoire. Scientific consensus has developed more strongly around the relationships among global warming, the burning of fossil fuels, and climatic changes. "We are a coastal state fighting desperately against global warming," says the governor.

In the short term, all of this protest and recognition of problems isn't going to do anything to change the high cost of energy or dependence on foreign oil. "Americans will spend over $200 billion more on energy this year than they did last year," says Cantwell, a member of the Senate energy committee. Washington consumers have seen the price of a gallon of regular gas soar from $2.09 to $2.91 in September and drop back to $2.33 last week, according to the American Automobile Association. The Northwest Energy Coalition estimates that the average Washington household will pay $700 more to heat their home this winter than last year.

Even if remedies are not immediate, clean-energy activists and sympathetic politicians hope to use public concern over high energy costs to promote alternatives to fossil fuels. At the federal level, Washington leaders like Inslee and Cantwell are unlikely to make much progress. "Congress is still in the thrall of the oil and gas industries," says Inslee.

At the state level, however, real progress has already occurred, and more is likely. This is no accident. It's the result of activists, politicians, and entrepreneurs working together to build a clean-energy future. Take the Apollo Alliance, named after President Kennedy's initiative to put a man on the moon. It's a broad coalition of environmentalists, organized labor, business executives, civil rights leaders, and politicians, and both Cantwell and Inslee are on the national advisory board. Gregoire is one of nine governors who have endorsed Apollo's call for energy independence within a decade by investing in $300 billion worth of clean-energy infrastructure. The alliance is promoting three areas of benefit that will flow from the clean-energy initiative. The first is energy independence, a goal endorsed by a broad political spectrum, from neoconservatives to greens. The idea is that if the United States can produce its own energy instead of relying on imported fuel, there will be geopolitical benefits, too. Energy independence would free us from the need for imperial wars in the Middle East. Second, clean energy addresses the planet's environmental crisis. It reduces pollution of air, land, and water. It reduces the climate-changing impacts caused by the burning of fossil fuels. Third, the alliance believes, such an undertaking would create 2 million to 3 million new, high-paying, permanent jobs.

That's a long way from where we are today. The nightly news brings flesh-and-blood reminders of the cost of our reliance on Middle East oil. Our national government is a pipeline of corporate welfare for environment-besmirching oil and gas companies. At the state level, Washington has a tiny clean-energy industry. Tony Usabelli, director of the Energy Policy Division at the state Department of Community Trade and Economic Development (CTED), says his department will soon release a report on the clean-energy sector, which employs only around 3,000 to 4,000 people and has annual sales of a mere $900 million. While Usabelli notes that the industry has grown from $750 million in sales in the past five years, "The numbers are smaller than I would have expected."

The sexy star of the industry is biodiesel. Although there is only one biodiesel refinery in the state, which employs 12 people, and no biodiesel crops are grown commercially in Washington, biodiesel has captured the media's, the public's, and the politicians' imaginations.

The rising star of the clean-energy industry is wind electricity generation, which is primed for major growth due to a convergence of technological improvement, federal subsidy, and the rapid escalation in price of its chief competitor, natural gas­powered generation.

The largest player in the clean-energy industry is efficiency­energy conservation. Energy efficiency companies employing technologies like compact fluorescent lightbulbs are the sector's largest employers and save far more energy­in effect, generate far more­than any "renewable" energy source except hydroelectricity generation. Renewable energy is that which comes from resources like water, wind, and crops. They cannot be exhausted. Oil and coal, on the other hand, are finite.

Biofuels, wind, and energy efficiency are worth exploring in detail, because they are emerging in the Northwest and illustrate where we are and how far we have to go before we can realize Apollo's vision.

What is happening on the shores of the Duwamish River in Seattle is either the start of an industrial revolution or the answer to a Trivial Pursuit question in 10 years. In a 7,000-square-foot warehouse next to a cement plant, Seattle Biodiesel has opened the state's first biodiesel refinery.

Biodiesel is made from vegetable oil and can be used in most car and truck diesel engines. Currently, Washington consumes around 1 billion gallons of conventional diesel fuel and 1.5 million to 2 million gallons of biodiesel annually, according to Usabelli of the state Energy Policy Division. Biodiesel has many advantages over its petrochemical cousin, conventional gasoline, explains Patrick Mazza, a researcher at Climate Solutions, an environmental group focused on the Pacific Northwest and Vancouver, B.C. Biodiesel is relatively simple to make and can be manufactured without creating significant toxic by-products. In vehicle engines, biodiesel burns cleaner than petrochemical diesel. "It offers really dramatic reductions in air toxicity," says Mazza. The one problematic emission from biodiesel-fueled vehicles is nitrogen oxide, which is not an air pollution concern in Washington but is in California and has kept the fuel from taking off commercially in the Golden State.

Biodiesel can be used alone or blended with conventional diesel. The latter is recommended if the temperature drops below freezing.

Since the fuel is made from vegetable oil, it can be produced domestically. While biodiesel can be made from waste vegetable oil and produced in a garage, the industry is not one of anticapitalist ecotopians. The fuel's source is produced by agribusiness cooperatives in the Midwest that grow soybeans conventionally and have banded together to build refineries to supply a new market. The National Biodiesel Board, an industry group, says last year 25 million gallons of biodiesel were sold in the U.S., up from 500,000 gallons five years ago.

Biodiesel's big disadvantage is that it costs more to buy than conventional diesel. Last week, at Laurelhurst Oil, a University District gas station, conventional diesel was selling for $2.79 per gallon, while biodiesel cost $3.17.

Seattle Biodiesel CEO Martin Tobias says his company's refinery can make 5 million gallons of biodiesel a year. Seattle Biodiesel started selling the product in May and, in the first six months, sold more than 360,000 gallons. The company started two years ago when commercial airline pilot John Plaza, now the company's president, mortgaged his home, sold his boats and cars, and borrowed against his 401(k) plan to get the alternative fuels venture up and running. Software entrepreneur Tobias, a former Microsoftie and founder of the streaming media company Loudeye, officially became the company's CEO in May. Seattle Biodiesel brings soybean oil from Iowa by rail. In huge tanks that have been recycled from the old Rainier Brewery on Interstate 5, the soybean oil is refined to a purer state.

Tobias says his company cannot fill all the orders it gets. Seattle Biodiesel hopes to have a second refinery up and running by the middle of next year. Tobias says the industry does not need a separate distribution infrastructure, because traditional tanker trucks can haul biodiesel and conventional diesel tanks can be easily converted to pump biodiesel at service stations. The National Biodiesel Board lists 29 service stations where biodiesel is currently available in Washington, all but one in the Puget Sound region.

Washington politicians are giddy about biodiesel. It's easy to see why. Gov. Gregoire quotes John Steinbeck: "The bank is more than men; it is a monster." Says the governor, "Replace bank with foreign oil." She sees biodiesel as an opportunity to tear down the Cascade Curtain and unite the red and blue parts of the state. "This is an opportunity for us to work together as a state," she says enthusiastically. Washington has the agricultural potential east of the mountains to grow oil-seed crops. Mustard seed and canola seed (aka rapeseed) are the most frequently mentioned. Oil-seed crops can be grown in rotation with others­wheat, for instance­throughout Eastern Washington. Western Washington consumers, with their liberal politics and environmental values, represent a great market for the product­even if it's more expensive.

Right now, it doesn't make economic sense, however, for Washington farmers to grow oil-seed crops, because the market won't pay enough to make it worthwhile.

On Jan. 9, the Legislature will convene for its annual session, and biofuels for vehicles are going to receive some kind of boost. "We need to seize the crisis as an opportunity," says Gregoire. "Maybe this time we can come together and seize a common agenda. If we wait another legislative session, the crisis may be gone and apathy will set in." Republicans and Democrats agree there will be a host of tax breaks for everything connected to biodiesel, but some legislators want to go further.

House Capital Budget Committee Chair Hans Dunshee, D-Snohomish, wants to use state money to build the big, expensive crushers that convert oil-seed crops into oil. Since the state constitution prohibits direct payments to private industry, Dunshee says the money would likely go to an Eastern Washington port district or some other governmental entity. "Canola will get grown," Dunshee predicts. "It will get crushed." He says farmers in the central Washington area of Odessa, in Lincoln County, have been working with Seattle Biodiesel and are the group that has most fully developed a business plan. "The economics are still iffy," Dunshee admits. But, "It's better than a stadium."

The most controversial idea is to require that a certain percentage of the state's gasoline and diesel supplies be biofuels by a certain date. Seattle Biodiesel CEO Tobias says these so-called fuel standards are the most important thing government can do for the biofuels industry. "If the government does these renewable fuel standards, that gives the investors a long-term reason to invest in these industries," he says. Last year, the Minnesota Legislature passed a law that requires gasoline there to be 20 percent ethanol by 2013. In Washington, Democratic and Republican lawmakers will push mandatory standards for both biodiesel and ethanol.

While the Democrats are extremely supportive of the idea and have plenty of votes in the House to pass such legislation, Republicans in the Senate are not as enthusiastic. Senate Minority Leader Bill Finkbeiner, R-Kirkland, who announced last month he is stepping down from his post, cautioned that his caucus doesn't like to see a lot of interference with free-market capitalism. Finkbeiner says, "I don't want to be knee-jerk against it, but if you just set an arbitrary standard, you haven't really done the job." Since the Democrats only control the Senate by three votes, and two conservative Democrats frequently vote with Republicans, fuel standards are not a sure thing. It should help that GOP legislators from Moses Lake­Holmquist and Sen. Joyce Mulliken­are in favor of standards. Oil-company lobbyists, however, have already been calling lawmakers to express their unhappiness. "We oppose mandates," says Frank Holmes of the Western States Petroleum Association.

Of course, diesel is not the dominant fuel in Washington or anywhere else. "Our biggest use of energy is petroleum­4.7 billion gallons of gasoline in Washington's cars and trucks," says state economic development official Usabelli.

The current "green" candidate that can be blended with gasoline is cellulosic ethanol. Currently, corn-based ethanol dominates the market, but it is considered inferior because it takes more energy to make than it provides. Cellulosic ethanol uses agricultural waste like wheat straw to create ethanol and uses less energy to boot. Iogen, a Canadian company, with one of its investors, Shell Oil, wants to build the first American cellulosic ethanol plant in Idaho. The industry has potential but no reality.

While the Legislature has gone gaga over biofuels, members express no such enthusiasm for boosting renewable clean electricity. This is both good and bad news. It's good because it means that the clean-electricity industry is already doing well, so well that even key Democratic legislators, like House energy committee Chair Jeff Morris, D- Anacortes, are not convinced more needs to be done. It's bad news because "dirty" electricity from coal burning might see its market share rise in the Northwest because clean electricity isn't getting enough help.

The most dramatic evidence of clean electricity's strength is the enthusiasm of Puget Sound Energy (PSE), the state's largest electric utility with 1.2 million customers in eight counties. State regulators require utilities to extensively study what the lowest-cost alternative is for their future energy needs. PSE began energy acquisition planning in 2004, received 100 proposals from energy developers, and found that the best two projects were wind farms: Hopkins Ridge Wind Project in southeastern Washington's Columbia County and Wild Horse Wind Power Project in central Washington's Kittitas County.

In those breezy parts of the state, huge wind-driven blades­on towers up to 200 feet tall­drive generators. Windmills are clean, quiet, ugly, and take up a lot of space. For instance, Wild Horse is being built on 9,200 acres of open rangeland, 11 miles east of Ellensburg.

PSE's two new wind farms will boost wind's tiny share of the state electricity market considerably. Washington uses around 10,500 average megawatts (aMW) of electricity annually. Hydroelectricity accounts for 66.6 percent of Washington usage, coal is next at 17.7 percent, natural gas is third at 9.8 percent, and nuclear power accounts for 4.6 percent. Wind is a mere 0.4 percent, or 42 aMW annually. PSE's wind farms will add 114 aMW to the mix.

Wind energy has become economically viable for a number of reasons. First, newer wind turbines are more efficient. Second, the cost of the most popular new source of electricity in Washington in recent years­natural-gas-fired turbines­has skyrocketed. Natural gas prices have increased from between $2 and $3 per million British thermal units (Btu) in 2004 to $8.50 per million Btu this year, and the price is expected to rise to $10 per million Btu next year. Finally, the federal government provides a subsidy to operators of wind farms that brings the cost down from between $40 and $50 per megawatt hour (MWh) to $32.

All of this has convinced the Northwest Power Planning Council (NWPPC), a regional planning entity created by the federal government, that wind can produce 100 new aMW per year over the next 20 years in Washington, Oregon, Montana, and Idaho. The NWPPC estimates that the region's use of electricity will grow by around 360 aMW per year, so wind will become a major player. Like biofuels, wind is not an anticorporate ecotopian industry. The major U.S. supplier of wind turbines is General Electric; they bought the business from Enron.

Also like biofuels, wind has competition from a cheap fossil-fuel alternative: coal. Environmentalists want to keep wind growing and limit coal's development by enacting a renewable energy portfolio­essentially, the equivalent of fuel standards for electricity. Activists and legislators agree that mandatory goals for clean electricity will not pass the Legislature. Environmentalists, led by the Northwest Energy Coalition, have pushed the measure in Olympia for the past three sessions and have been unsuccessful. Democratic state House energy committee Chair Morris doesn't support the idea. He says the proposal he has seen would require that 20 percent of new energy be from renewable sources. "The folks who are acquiring resources are already acquiring 60 percent renewable resources," says Morris. So there's no need for a renewable energy portfolio, he argues.

Northwest Energy Coalition spokesperson Marc Krasnowsky says Morris is focusing on the positive steps taken by Puget Sound Energy in his analysis of the energy market. Not all utilities are behaving so well, says Krasnowsky. "Utilities in the Northwest have the potential of adding 2,000 megawatts of new coal in the next five to 20 years," he says. A renewable energy portfolio, Krasnowsky argues, would discourage the development of that industry. He agrees with Morris, however, that the measure cannot pass the Legislature. Instead, Northwest Energy Coalition is planning to put an initiative requiring a renewable energy portfolio on the ballot in 2006. Notes Senate Water, Energy, and Environment Committee Chair Erik Poulsen, D­West Seattle, who supports a renewable energy portfolio: "Olympia has shown itself to be resistant to a renewable energy standard for years. The environmental community has a better chance of convincing the public."

But Democrats think they have a winning issue in clean energy in general. Cantwell, who is facing a tough re-election fight against former Safeco Insurance executive Mike McGavick, has begun putting a clean-energy logo on her press releases. She has led the Senate fight against drilling in the Arctic National Wildlife Refuge in Alaska. She championed legislation that would have outlawed "gas-price gouging." Inslee says, "In November '06, energy will be one of the fundamental choices of the American people, because the Democrats are making it so. When the Democrats stand for optimism, we win. I've been arguing this for two and a half years!" Inslee says the leadership of the Democratic Party has finally figured out that clean energy is an issue with which they can win. Whether a clean-energy ballot measure will help boost wind remains to be seen.

Labor leaders in Washington have also signed on with the clean-energy push. Wind energy, however, is not a huge job generator. There are good jobs during the construction of the wind farms, but once the farms are up and running, they do not require a large workforce.

But there are jobs that emerge from wind in surprising places. Down in South Seattle's Georgetown neighborhood, the Gear Works is the best local illustration. The 49-year-old, 110-employee, family-owned business is a throwback. The Gear Works is housed in a pair of wonderful warehouses that were designed by the business' late founder, Ingwald Ramberg. A huge trellis with a rambling wisteria vine covers the three-story southern wall of the main warehouse, and there is a homemade fountain out front. Inside, original posters from Seattle's 1962 World's Fair complement the '60s feel of the architecture. While the place feels frozen in time culturally, Ingwald's son, Roland Ramberg, the firm's president, has made sure the business is on the cutting edge in equipment and pursuit of new markets. The Gear Works makes and repairs industrial gears for everything from draw bridges to race cars to wind turbines. Ten years ago, Ramberg says, the Gear Works did no work on wind turbines. Now it is 20 percent of the business. "We are not only repairing them but building new gear boxes," Ramberg says. "They keep putting up thousands of new machines every year. Those are future customers going up. They are making them more reliable, but sooner or later, they are going to need work," Ramberg says of the turbines. Most of his wind business is from California wind farms, but as the Pacific Northwest's wind sector expands, Ramberg should get plenty more business from nearer by. Ramberg says that's one of the reasons he has built a 20,000-square-foot test-and-repair facility with help from a grant from the U.S. Department of Energy's National Renewal Energy Laboratories. "When your wind turbine starts crapping out, we want to be the place you think of," says Ramberg. Even at the Gear Works, however, wind finds itself in competition with coal. Ramberg points out that 25 percent of his business involves conveyer belts for coal mines in China. Until coal is made to pay for harm from its emissions, wind will keep playing catch-up.

The state's largest industry for clean energy is invisible. That's because the energy- efficiency industry saves energy rather than generates it. In the 1970s, energy efficiency was known as conservation. Northwest Energy Coalition's Krasnowsky explains the reason for the name change: "Conservation creates an image of huddling under a blanket in the dark."

Whatever it's called, saving energy is the first choice of private utilities, environmentalists, and public-policy experts when it comes to dealing with an energy crisis. The Northwest has been very successful at employing energy-efficiency strategies over the past 20 years. Tom Eckman, the Northwest Power Planning Council's manager of conservation resources, says that from 1982 through 2002 the region met 40 percent of the need for new electricity. That's 2,500 aMW of energy savings. "You don't see that built," says Eckman. "It's one lightbulb, one piece of insulation, and one showerhead at a time." The NWPPC estimates that the Northwest will find new energy savings equivalent to 2,500 more aMW over the next 20 years. The biggest saver? "Changing the lightbulb," says Eckman­replacing incandescent lightbulbs with compact fluorescent ones.

In industrial plants and office buildings, the latest technology for heating, ventilation, and air conditioning (HVAC), motor drives, conveyers, and pumps is providing precise computer control over everything from lighting to room temperature. "The direct digital control in commercial buildings is a real improvement in terms of creature comfort and energy efficiency," says Eckman. He notes that there is another technological revolution right around the corner as computer controls go wireless, reducing the cost of installing new systems by eliminating the need for stringing cables.

New digital controls are on display on the 37th floor of One Union Square, a 650,000-square-foot, 20-year-old office building in downtown Seattle. "I get so excited when I see this stuff," says Rick Mock, the director of facilities for Washington Real Estate Holdings, which manages One Union Square. As he shows me a computer screen displaying the "chiller system" with graphic and numeric elements, I can understand about one-tenth of what Mock is telling me. But there is no mistaking his enthusiasm. Mock's fascination with the latest gadgets and his zeal to improve the building's energy usage have translated into savings of $450,000 a year in electricity. Mock arrived at One Union Square in 1999 and noticed immediately that he received a lot of complaints from tenants about being too hot or too cold. He began to evaluate the building's HVAC and lighting systems and started to advocate for a major overhaul. "This building was a runaway train," he says. "We had to do something." After working with Seattle City Light and other managers at Washington Real Estate Holdings, the company undertook a $3.5 million renovation of HVAC and lighting. City Light kicked in $750,000 of the overall cost, reducing the time for the project to pay for itself to six years. "It's a neat initiative from a monetary standpoint and from the environmental standpoint," says Tim Holt, vice president at Washington Real Estate Holdings. As an added benefit, tenants are happier now. Mock fields far fewer complaints about temperature.

McKinstry, a 35-year-old, 650-person mechanical contracting company, did the work at One Union Square. Highly respected in the field, McKinstry is an example of a large energy-services firm that has a mature business in energy efficiency but does not rely on that sector alone. Stan Price, executive director of the Northwest Energy Efficiency Council, an 80-company trade group, says the industry includes Fortune 500 companies like Johnson Controls and Siemens as well as small specialty shops and midsized energy firms. Price has watched the industry expand and contract over the past 25 years as energy prices have risen and fallen. "We are in a marketplace more driven by energy prices than we would like," says Price. He predicts there will be no problem meeting the increased demand that the latest round of energy price spikes will engender. Price believes that the lion's share of employment and sales in the state's clean-energy sector are in energy efficiency. Yet he acknowledges that energy efficiency doesn't get the same kind of buzz that surrounds less-significant industries like biofuels. "It's a bit of a sleeper," he says.

Politicians are not clamoring with new proposals to encourage energy efficiency. Last year, the Legislature did pass the nation's first "green building" standards for new construction of public facilities. Mandating new energy efficiency for private construction would be a welcome innovation, but no legislative champion has emerged. Many utilities, though, both public and private, offer grant programs to encourage conservation. Washington state Apollo Alliance coordinator Rich Feldman would like to see Gov. Gregoire launch an ambitious $100 million, zero-interest loan program for retrofitting public buildings with the latest energy- efficiency equipment. The improvements would pay for themselves with the savings, he claims. So far, Gregoire has not adopted the proposal, but she hasn't rejected it, either.

The task facing clean-energy advocates is daunting. The industrial and political challenges ahead are huge. But if we need any flesh-and-blood reminder of how disastrous our nation's current energy policy is, just turn on the nightly news and be reminded of the cost of our reliance on Middle East oil. While a clean-energy future seems a challenge, it's unimaginable that a dirty, blood-soaked energy future will be possible to bear.

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