Company’s failure reveals biggest test for power grid
Sometimes you can learn as much from a failed business as a successful one, and that is undoubtedly true of Houston’s now-defunct Clean Line Energy.
Michael Skelly followed in the footsteps of many ambitious Houstonians. He challenged an entrenched industry with a newfangled business plan and a goal of saving the world. But his company’s failure says more about American society than it does his business acumen.
Skelly is the subject of a new book called “Superpower: One Man’s Quest to Transform American Energy,” by my friend and Wall Street Journal reporter Russell Gold. My wife works in the renewable energy industry and knows Skelly, so this is not an arms-length column.
What happened to Clean Line, though, is an example of how selfishness can trump good intentions, and how the second
mouse can get the cheese.
In the early 2000s, Skelly teamed with Michael Zilkha to create Zilkha Renewables. They sold the company to Goldman Sachs in 2005, when it became Horizon Wind Energy. Skelly left in 2007 when Goldman sold it to EDP, a Portuguese energy company with global ambitions.
While developing wind projects, Skelly struggled against the lack of interstate electricity transmission lines. While the United States has an interstate highway system, state public utility commissions oversee transmission, making it impossible to connect clean energy resources in the middle of the country to the populations on the coasts.
Skelly dedicated his career’s second act to solving what is the biggest problem facing U.S. power grids.
Typically, the companies that string cables are tightly regulated. Public utility commissions decide when a new transmission line is needed, and companies string them using old-school technology. Transmission is the most boring part of a boring industry.
States often share power, and some have multistate grid operators that balance generation across entire regions. But Skelly wanted to do something more; he wanted to take wind energy from the Oklahoma panhandle and deliver it across the Mississippi River so it could power homes in Georgia.
Clean Line’s value proposition was also more akin to a pipeline than a public utility. Skelly wanted to make money delivering high-voltage direct current as a commodity across multiple states and grids.
Most Americans assume this already happens. But the transmission lines we see on road trips typically deliver power within one grid, and the electrons travel only a few hundred miles. Transmission is also hard to build because every landowner and political jurisdiction must sign off, and all expect some benefit.
The federal government also gets involved whenever something crosses a state line. Technology was never an issue; the challenge was negotiating with all the landowners and politicians, each with an agenda.
Gold captures the excitement as Skelly built his team with a start-up ethos and almost religious zeal. Skelly calls in every favor and uses every contact to get the authorizations he needs. He almost succeeds.
Then came the opposition.
A property owner in Arkansas mobilized grassroots opposition and pressured tea party lawmakers to oppose the line because she thought it did nothing for local residents. Skelly encounters cowardly political appointees in Washington who saddle his project with preconditions that an oil or gas pipeline company would never countenance.
Then-Sen. Lamar Alexander, an enemy of renewable energy, uses his pull over the Tennessee Valley Authority to keep Clean Line from crossing the Mississippi. Add in long-suffering investors and a double-crossing business partner and the transmission business is suddenly not so dull.
Clean Line failed, but other companies are picking through the remains. But whether we build a better, national grid really depends on us.
“This is a political decision. Is this something that we want? Is this something as a country where somebody says with a 10-year investment, we can have more clean power, less expensive power, and it provides this new reliability benefit?” Gold asked me. “I would love to see someone make that case. Skelly was not the right person because he was a businessman, so everyone looked at him and said: ‘You’re just trying to make money.’”
The debate over whether the country needs an interstate power grid to boost reliability and expand renewable energy is the biggest question facing the industry and every electricity customer. Do we connect big wind to the rest of the country or rely on distributed generation closer to where the power is consumed?
Incumbents are doing all they can to block innovation, and Gold’s book presages the more significant fight ahead. Clean Line’s $100 million loss is ultimately a case study of how self-interest can defeat the greater good.