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GE Energy's Rob Wallace explains business strategy on wind power, clean coal, climate

With major investments in wind power and coal gasification, General Electric Co. has positioned itself to be a key provider of low or no-carbon sources of energy. During today's OnPoint, Rob Wallace, manager of government relations for GE Energy, discusses the company's fast-growing wind power division. He also explains how electric utilities have responded to GE's decision to offer cutting-edge coal gasification units. Plus, Wallace explains the company's stance on global warming and the different climate change policies under consideration in the Senate.

Transcript

Brian Stempeck: Hello and welcome to OnPoint. I'm Brian Stempeck. Joining me today is Rob Wallace. He's the manager of government relations for GE Energy. Rob, thanks a lot for being here today.

Rob Wallace: Brian, thank you for having us.

Brian Stempeck: Your company recently launched its "ecomagination" campaign, talking about everything from more efficient locomotives to wind power to a lot of things that GE is working on. My question for you is you've been at GE Energy for about 10 years now, what's been kind of the tipping point where energy became such more of a focus for the company as a whole?

Rob Wallace: Well I think, Brian, Jeff Immelt took over in 2001 and Jeff brought with him a view that the world is changing. And that our customers are going to be faced with many more complicated issues to have to manage in the issue, among them, managing scarcer resources, especially when it comes to air, energy, water. And I think he has come to the understanding that our customers are going to have to get a lot smarter about the way they use energy in the future and think about CO2 and greenhouse gases. And I think that was the genesis behind the ecomagination push in June of last year.

Brian Stempeck: What policies, I guess, pushed you towards making that announcement? I mean obviously we've seen the Kyoto Protocol go into effect, a lot more talk about climate change from the U.S. Congress. Were there policies that made this decision for you or is it more of a business approach?

Rob Wallace: Probably a little of both. The policies, I think, I felt more directly by our customers. And it's our customers and our outreach to them that sort of got us thinking about a new look at the way we go to market and the kind of products that we have available for our customers to use.

Brian Stempeck: Now one of the biggest places where GE has seen a lot of growth is in wind power. I think currently your company provides about 60 percent of the turbines in the United States right now. What, in your opinion, have been the biggest drivers behind the explosion of wind that we're really seeing in the past year or two?

Rob Wallace: Well, in terms of public policy, without a doubt, the production tax credit that the Congress re-extended in the Energy Policy Act that passed in August of last year. Without a doubt that has been the biggest driver in the wind industry. Just a couple of numbers of interest to you, in 2004 with no production tax credit the industry put in about 400 megawatts of wind in '04. Last year the PTC was extended in August and by the end of the year they put in 2,500 megawatts of wind. So a very direct correlation to the benefit of that tax credit.

Brian Stempeck: In the past it's been kind of a boom-and-bust cycle for the wind industry, whether Congress decides to renew that credit each year, it's kind of leaving things up in the air. Do you think that's changed? Are we going to see a more permanent commitment towards wind because of more interest from Congress right now?

Rob Wallace: I hope so. You know the members of Congress have budget concerns. And the way they score these multi-year tax extensions are of a concern. But if you're in the wind industry and you go to USA Gear Box Manufacturer and say Brian, I need a thousand units for '06 and '07. And you say great, I'll be glad to do that, but I've got to hire people, go to the bank and get a loan and retool my factories. So I can't do this unless you give me a contract out to 2010, 2011. That's the area in managing this wonderful opportunity that we, as a business, have to be cognizant of. The longer and more predictable the production tax credit is the easier it is to get renewables into the mix at a much more rapid rate.

Brian Stempeck: There's also been a lot more resistance to some of the wind farms that are being planned, most notably, up in Nantucket. We're seeing an offshore wind farm there, a great deal of opposition to that. How is GE dealing with that? What can happen there from a policy perspective in terms of the federal government coming up with a regulatory scheme to deal with offshore wind farms or onshore as well?

Rob Wallace: Well, I would hope that it's more of a predictable climate for wind, where both developers and equipment manufacturers know what the rules are, know what the permitting process is and have an approximate idea of the time is going to take to do it. And then they can make much more reasoned business decisions. You know, in the case of the project off Nantucket, very controversial, we understand that. And I think the regulatory framework, of which offshore wind is to be developed under, it would be a very important step to understand.

Brian Stempeck: Do you think that that's something that's going to happen this year? Is that something you're kind of actively working on on the Hill?

Rob Wallace: We know that in the regulatory provisions in the Energy Policy Act it transferred a lot of the responsibilities from the Corps of Engineers to the Department of Interior.

Brian Stempeck: Right.

Rob Wallace: And they're working on regulations right now to set the guidelines and we're following it quite closely, yes.

Brian Stempeck: One of the other issues that GE has been very active on is coal gasification. I know right now your company is working with American Electric Power to build an IGCC plant in Ohio. That's kind of a first-ever type plant with gasification technology being used. What's the status of that plant right now and other GE efforts in the same kind of technology?

Rob Wallace: We're still working on the reference plant, which we hope will become the basis for a number of IGCC plants in the East. We're also quite interested in the Western coal demonstration program that Senator Thomas and others got into the Energy Policy Act in 2005 that will encourage programs at DOE to get us looking more seriously at Powder River Basin coals. That's also an IGCC opportunity for our technology. When you build an IGCC plant in the West, the gasifier works fine, but you lose some efficiency points with the lower sulphur coal and the higher altitude of which the system is operating.

Brian Stempeck: A lot of the utilities are thinking about building new coal power plants raise two issues really when it comes to IGCC and gasification. They talk about reliability and they talk about cost. I think it's about 20 percent more expensive typically. Are those costs coming down? Is that changing?

Rob Wallace: Absolutely. And once you get X times 50 or so, those costs will continue to go down. So that's one of the things that a reference plant is designed to show us where we, as GE, can go to a potential customer and say we'll warrant the performance, the timeline, the cost of a facility and put a little of our skin in the game too.

Brian Stempeck: The U.S. EPA recently has been saying that in terms of building some of these new coal plants they don't think that IGCC should be kind of the base technology that's used in terms of all new plants that need to be built. Do you think the agency made a mistake there? I mean is this technology basically ready for prime time?

Rob Wallace: No, not necessarily. I think that the technology has to be built, demonstrated that it's workable and we have every confidence that it will prove out. But it's easy to understand why a regulator charged with the efficient distribution of capital and making sure things are operating as planned would, you know, maybe be hesitant until they're up and running.

Brian Stempeck: Now we heard from the CEO of American Electric Power, Mike Morris just a few months ago, during a speech. And he was actually saying that GE kind of led the way for the utilities to get more involved in gasification. What he said was when he saw that GE bought the gasification unit from Chevron, which had been running it previously, that basically sent a signal to the utilities that this technology was going to be backed up by GE's name, by GE service, that sort of thing. What, I guess, led GE to the decision to buy this gasification unit? What was, again, what was the tipping point there in terms of getting more involved in this kind of business?

Rob Wallace: I think it goes back to what we talked about earlier, about the ecomagination, where we sort of assume there's a trend developing in the country where customers want to be smarter about the way they use resources. And we saw IGCC as a perfect fit for us because in addition to the gasifier technology we have gas turbine technology and a lot of power add-on experience, so it gives us a little bit more economy of scales in the coal industry. And we're very excited and upbeat about this new technology.

Brian Stempeck: This also ties into climate change as well because the idea is that IGCC can eventually be used to capture carbon dioxide if you want to do that. The CEO of your company actually said also that GE is committed to reducing greenhouse gases by, I believe, 1 percent over the next number of years. What is your stance, beyond working as a company, on reducing your emissions? What is the company stands in terms of climate legislation or what kind of regulations you'd like to see from Congress or from the White House?

Rob Wallace: Well, I think clearly the most important is some predictability. I mean what's going to be the answer to the question of greenhouse gases? Are we going to regulate it? Not going to regulate it? And if so, under what set of rules? We don't have any particular legislation that we're either for or against, but we, I think, have reached a conclusion that something is going to happen in the near future and when that does our customers are going to demand solutions to help them, you know, manage that issue.

Brian Stempeck: GE was kind of broadly in support of a lot of the bills that were before the Senate last summer, from Senator McCain, Senator Bingaman, Senator Hagel. Is there a reason that the company didn't take a stance in supporting any one of those bills? And why not say that this is the policy that we prefer?

Rob Wallace: Well, it's complicated to anybody that's been involved in the nuances of climate change to say just exactly how you put a scenario together that works. Do you do it economy wide or by sector? How far upstream or downstream do you go? How do you handle the allocation systems? And those are pretty complicated decisions that are, I think, best met by people that have election certificates.

Brian Stempeck: At the same time though, GE is one of the companies that really stands to benefit from these kinds of regulations, with nuclear power, with gasification, with wind. And these are a lot of the solutions people talk about in terms of reducing CO2. So I mean isn't your company, shouldn't they play a key role in kind of formulating these policies and talking with Senator McCain, with Senator Bingaman about what to do next?

Rob Wallace: We do and we have a very robust sort of outreach to public policy makers in this arena. And we primarily explain what our technology can and can't do. And what the upsides are to IGCC, our nuclear technologies and how we think we can help with the problem of physically solving, you know, climate change.

Brian Stempeck: What do you think is the most likely scenario? I mean right now obviously the Kyoto Protocol is going into effect in Europe. And we're seeing a lot of talk about nuclear power, about renewables. Do you think the same thing is going to happen in the U.S. in the new future?

Rob Wallace: We follow quite closely what's going on with the Senate, especially the Senate Energy Committee that's going to have a series of hearings later this month and in April. And we're going to watch that very closely. I guess I can't tell yet what's going to happen, but we know that there's lots of pieces in motion right now. And we're trying to keep an eye on all of them.

Brian Stempeck: A lot of the policies you're dealing with, with wind, with gasification, were already included in the energy bill. So over the course of the coming year obviously this is kind of a short election cycle year, but what kind of policies are you looking for from Congress to best support some of the work that GE is doing?

Rob Wallace: I think now we're glad to step back and take a breather with the enactment of the Energy Policy Act. And we'll like to watch very closely the rule writing for the investment tax credits for IGCC. There's risk insurance. There's production tax credits for new nuclear. There's a number of pieces of the energy bill that are now, you know, in the hands of the Department of Treasury and DOE. So watching what comes out of that will be of great interest to us.

Brian Stempeck: All right Rob, we're out of time. Thanks so much for being on the show.

Rob Wallace: Brian, good to see you.

Brian Stempeck: I'm Brian Stempeck. This is OnPoint. Thanks for watching.

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