Taking on the ENERGY CRUNCH
How corporate America is working to develop alternatives to oil and gas--and lower its bills.
By Marc Gunther

(FORTUNE Magazine) – The U.S. economy runs on cheap, abundant fossil fuels--but that can't last. Even if supplies of oil, coal, and natural gas were unlimited, burning them in mass quantities generates greenhouse gases that contribute to climate change. With oil and gas prices rising, businesses like General Electric and General Motors are plowing money into new technologies and finding ways to cut their own energy consumption. Here are some innovative solutions, beginning with a renewed commitment to an age-old energy source.


The company invests billions in air power.

In 1888 a brilliant inventor named Charles Francis Brush built a giant wind turbine in the backyard of his mansion in Cleveland that, for the first time, turned wind into electricity on a large scale. "As an example of thoroughgoing engineering work, it cannot be excelled," wrote the journal Scientific American.

Now that breakthrough is finally becoming big business in the U.S. General Electric, which acquired Enron's wind-manufacturing assets out of bankruptcy, expects to generate about $2 billion in revenues this year from the sale and servicing of wind turbines. FPL Energy, the power generation unit of the $9-billion-a-year FPL Group, has become the biggest owner of wind farms in the U.S. It operates 43 of them in 15 states that account for about 40% of the nation's wind capacity. MidAmerican Energy, a company that is 80%-owned by Warren Buffett's Berkshire Hathaway, began construction this past fall on an Iowa wind farm that will be one of the world's largest. These firms bring capital and credibility to an industry that has historically been short of both.

Wind energy is now the fastest-growing form of electricity generation in the world. Global demand is expected to increase by more than 15% a year. "This industry has gone from a science project to something that is viable, on a utility scale, in the past five or ten years," says Steve Zwolinski, president of GE Wind Energy. In Western Europe, where fossil fuels are costly and renewables are heavily subsidized, wind produces more than 25% of the electricity needs of some regions. By contrast, wind fuels less than 1% of the electric power in the U.S. "Will it get to 50% in the U.S.? Probably not," says GE's Zwolinski. "But will it get to 10%, 15% long term, maybe a little more in the Midwestern states that are wind rich? Yes, I think it can."

The appeal of wind power is obvious. Fuel costs are zero. So are emissions. Supply is plentiful. "The winds of the Great Plains are so abundant that the energy potential from just three states--North Dakota, Texas, and Kansas--were it fully developed, would match the electrical needs of the entire country," says Mike Pasqualetti, a geography professor at Arizona State University.

Today's wind turbines are bigger, more efficient, and more reliable than their predecessors. GE's 1.5-megawatt turbine, which produces enough electricity to power 460 homes, is 328 feet tall (as high as a 32-story building) and has rotors that stretch 231 feet across (longer than the wingspan of a Boeing 747). A utility-scale turbine, as a result, now produces electricity for 3 cents to 4 cents a kilowatt hour, after tax incentives are taken into account, down from 20 cents a kilowatt hour in the early 1980s. That's competitive with coal or new natural gas plants in parts of the country.

Like the rest of the energy industry, wind power needs--and gets--government help. A production tax credit first adopted in 1992 now provides about 2 cents per kilowatt hour in benefits to wind farm owners. But because the tax credit has lapsed several times, including for nine months last year, the industry has suffered from boom-and-bust cycles during which companies failed, plants were shut, and workers lost their jobs.

Wind energy has also been aided by so-called renewables portfolio standards that have been adopted by 17 states, including California, Texas, New York, and Massachusetts. The rules differ from state to state, but they essentially require utilities to buy set percentages of their electricity from renewable sources. In Texas, for instance--where then-governor George W. Bush signed the standards into law in 1999--utilities must add a total of 2,000 megawatts of renewables to their portfolios, based on their yearly electricity sales, by 2009.

Substantial obstacles remain to wind power's growth. The production tax credit expires at the end of 2006; without an extension, wind-turbine production may go through another downturn. Transmission problems are another major impediment. High-wind areas, where the costs of wind power are lowest, tend to be far from population centers where demand is great.

Perhaps the biggest limit to wind power's growth is its intermittent nature. "Mother Nature decides when we are going to make electricity," says Michael O'Sullivan, a senior vice president of FPL Energy, which has invested more than $2 billion in wind projects in the past few years.

It's impossible to know what the pioneering Charles Francis Brush would have thought of all this. His backyard turbine ran for 20 years, storing electricity in batteries in his basement, before he shut it down. Brush, who also invented arc lamps to light streets, became a wealthy man whose company, Brush Electric, merged with a competitor in 1889, and two years later combined with Thomas Edison's Edison Electric--to form General Electric.


Turning landfill emissions into fuel.

Anyone who has stood by a garbage dump knows that rotting trash gives off a nasty stink. Worse, about 50% of the gas emitted by landfills is methane, a greenhouse gas that traps 20 times as much heat as carbon dioxide and contributes to climate change. There's an elegant solution to these foul problems. Methane from landfills can substitute for natural gas in industrial boilers. It can also be burned to make electricity. Companies like General Motors, BMW, and S.C. Johnson are buying landfill gas to save money. It's cheaper than natural gasand helps clean the air.

GM burns landfill gas at five assembly plants, making it the largest industrial user of waste gas. Each plant cuts GM's energy bill by about $500,000 a year, says Joseph Bibeau, who's in charge of GM's energy usage. Landfill gas is considered green power by the World Resources Institute, a nonprofit that works with companies like GM on environmental practices. New technologies to trap and transport landfill gas have made such efforts more economical. The EPA says 150 new landfill gas projects have been added since 1999, for a total of 375. Another 600 garbage dumps could be tapped as energy sources. "Until they stop adding waste to those landfills, there's no end in sight," says Bibeau.


Alcan wants to use more scrap to make aluminum.

In the recycling industry, aluminum cans are golden. Making new cans from used ones requires 95% less energy than making them from bauxite. Put another way, recycling a single can saves enough energy to run a TV set for three hours.

The aluminum industry spends $750 million annually for used cans. Leading the way is Alcan, a $26-billion-a-year Canadian firm that recycles more cans than any other entity--22 billion last year, about half of which move through the world's largest recycling plant in Berea, Ky. But Alcan would like to process many more. Only about 45% of the aluminum cans sold in the U.S. are recycled. (In Brazil, where poor people scavenge for cans, the rate is 90%.) In fact, overall U.S. recycling rates are down, much to the dismay of Kate Krebs, executive director of the industry-backed National Recycling Coalition. "We haven't done enough to convince Americans of the value of recycling, and why it makes sense," she says.

Alcan is doing what it can to promote recycling. It struck a pathbreaking deal with Ford Motor to recapture scrap aluminum from auto manufacturing. It sponsors recycling contests that benefit nonprofits like Habitat for Humanity. And it lobbies for government initiatives such as one being tested in Philadelphia that will reward people who recycle with coupons for local stores and restaurants.


Green buildings benefit from light and air.

Two bold ideas shaped the design of Pittsburgh's David L. Lawrence Convention Center, a sleek $385 million meeting place that is said to be the world's largest "green" building. The architects used windows to light the space. And they used vents to cool it. Neither was an easy sell. Most convention centers are enclosed boxes where light and air are tightly controlled. "People weren't comfortable with the idea of daylight," says Rebecca Flora, executive director of Green Building Alliance in Pittsburgh. But using natural rather than artificial light saves electricity and cooling costs. Vents save energy, too, by allowing cool air to flow through the building. These green design elements and others are projected to reduce energy costs by 35% a year. More important, the convention center has turned out to be a remarkably hospitable place since it opened in 2003. Event bookings are robust.

The green building movement in the U.S. has taken off since the U.S. Green Building Council, a nonprofit group, adopted its LEED (Leadership in Energy and Environmental Design) standards in 2000. Ford, Herman Miller, Honda, Pfizer, PNC Bank, Nestlé, and Toyota are among the companies that have built LEED-certified buildings in the U.S. Developers of 1,700 buildings are seeking certification, and all new federal buildings must now meet minimum LEED standards.