Why Wait for Energy Independence in 2020?

For all of our faults, America has an excellent track record of setting lofty goals and executing on them. In spite of critics saying it wasn't possible, Franklin Roosevelt told the world America would produce 60,000 warplanes to fight World War II. By 1945, we built 229,000. With our first satellite orbiting the earth only three years prior, President Kennedy said we would have a man on the moon by the end of the 1960s. We did it with six months to spare.

There is a new "impossible goal" which has been set for America: energy independence by 2020. Our leaders claim we can do it, and the outlook looks promising. Call me an optimist, but I think we can do it now.

The boring cousin of energy supply: energy efficiency
Throughout the recent election cycle, all the talk around energy focused on finding more sources. Regardless of whether they come from more oil and gas drilling or from alternative sources, this discussion only addresses the supply side of the equation. Perhaps energy efficiency doesn't make for political talking points, or maybe many people associate efficiency and conservation with sacrificing their current lifestyles. Either way, the demand side of the equation was clearly lacking from public discourse. That's a shame, because the greatest chance for energy independence lies in new energy consumption technology.

This new innovation comes in the form of combined heat and power, or CHP, also known co-generation. Co-generation produces electricity locally, rather than at a centralized location, then uses the hot exhaust gasses from the generators for HVAC (heating, ventilation, and air-conditioning) and hot water. By harnessing thermal energy that would otherwise go to waste, these systems can achieve incredibly high efficiency ratings. Some recent natural gas CHP generators from Caterpillar (NYSE: CAT  ) achieve over 90% total efficiency ratings.

Let's put that efficiency level into perspective. According to the U.S. Energy Information Agency, or EIA, the U.S. requires 70.3 quadrillion BTU's of energy to meet all non-transportation demand. The graphics below break down how the U.S. consumes energy:

Source: U.S. Energy Information Agency (breakdown of energy use in U.S.)

Our current electricity generation systems operate at a 30% efficiency level, and a typical boiler for heat and hot water will operate at an 80% efficiency level. For simplicity, let's assume that all industrial, residential, and commercial energy consumption is for heat and hot water. This means that the total useable energy is 37.8 quadrillion BTUs.

If we were to adapt a 90% efficient co-generation system, we could reduce our total energy consumed by 28.33 quadrillion BTUs, a 46% reduction. That's almost equivalent to the 28.59 quadrillion BTUs of energy from fossil fuels we imported in 2011!

Up until recently, the major CHP generator manufacturers Caterpillar, General Electric (NYSE: GE  ) , and United Technologies (NYSE: UTX  ) Pratt & Whitney division have built generators that run exclusively on natural gas or other traditional fuel sources. This has restricted buyers' options to some degree.

But new developments and the emergence of new technologies from micro-turbine CHP generator manufacturer Capstone Turbine (NASDAQ: CPST  ) , though, have improved generator design to run on a multitude of gaseous fuels such as landfill gas, biogas, and gaseous coal. This development enables companies like Waste Management (NYSE: WM  ) and Veolia Environnement (NYSE: VE  ) , whose landfills and water treatment facilities produce large amounts of biogas, to diversify their revenue streams. Today, landfill gas sales represent 6.6% of total revenue for Waste Management.

What a Fool believes
The emergence of technologies like CHP generators -- which not only provide high levels of efficiency, but can also hold up to more extreme weather conditions -- will be a driving factor in achieving energy independence. America will also see an uptick in the total supply thanks to the recent boom in oil and gas production. For the U.S. to fully achieve energy independence, though, we'll require a multifaceted approach that addresses supply, use, and an effective energy infrastructure to connect supply and demand.

Building out infrastructure to meet this challenge will be the most daunting part of energy independence. Several pipeline companies like Energy Transfer Partners (NYSE: ETP  ) and Magellan Midstream Partners (NYSE: MMP  ) estimate that it will take upwards of $210 billion to bring just our natural gas network up to snuff.

Energy independence could be the next opportunity for America to show the world what it is made of, and these oil and gas midstream companies could be at the epicenter of this movement. This could mean big profits for investors in energy infrastructure. We at The Motley Fool look out for opportunities just like this, and for the companies who stand to profit. This is why we have put together a premium report on Energy Transfer Partners. This report covers the oil and gas boom opportunities for this midstream company and the challenges it will face building out America's energy network. For a copy of this premium report, click here.


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  • Report this Comment On December 30, 2012, at 6:26 PM, RedScourge wrote:

    CHP has been proven to be bullcrap. I admit I am no authority at picking energy stocks, but anyone who believes CHP is anything other than pseudoscience doesn't know energy.

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