On December 5, a panel of experts gathered at the Ferry Building in San Francisco, California, for the third Principal Voices roundtable of 2006. The guests discussed the future of alternative energy sources in front of an invited audience.

An essay about the discussion can be read here and a page of key quotes here. Following is a full transcript of the roundtable.

Participants:

• Vinod Khosla, entrepreneur and co-founder of Sun Microsystems, who now heads Khosla Ventures, an investment vehicle focusing particularly on alternative energies.
• Bill Gross, founder of Idealab, a well-known incubator of high-tech companies, which has already created companies including CitySearch and eToys.
• Harrison Fraker, Dean of the College of Environmental Design, part of the University of California, Berkeley.
• Martin Roscheisen, President and CEO of Nanosolar Inc., a leading solar power company based in California.

Moderators: Michael Holmes (CNN) and Robert Friedman (Fortune magazine).

Throughout the transcript, underlined words are linked to news stories or reference in outside Web sites offering more information on that particular subject. CNN does not take any responsibility for the content of outside Web sites.

For ease of navigation, the discussion is separated into the following parts:

1/ Introductions, Vinod Khosla argues that oil nations and companies have powerful vested interests in preventing the growth of alternative fuels, and discusses the use of ethanol. Click here
2/ Bill Gross discusses solar power, and its increasing cost effectiveness. Click here
3/ Harrison Fraker talks about plans to build energy self-sufficient communities in China, and argues that building design is often neglected. Click here
4/ Martin Roscheisen explains how solar power can often be more competitive than it seems when compared against other energy sources. Click here
5/ How the gradual development of the necessary infrastructure is slowing the growth in use of solar power and similar energies. Click here
6/ Vinod Khosla argues that the secondary costs of traditional fuels such as pollution and waste should be taken into account when comparing prices. Click here
7/ Harrison Fraker argues that much of the technology needed to build highly energy-efficient communities already exists. Click here
8/ The role of big corporations and venture capitalists in encouraging the growth of alternative energies. Click here
9/ What can -- and should -- governments do to promote such alternative fuels? Click here
10/ International cooperation in alternative energies. The panel argues that the use of new technologies will be good for economic growth. Click here

INTRODUCTION to the discussion by Robert Friedman and PANEL INTRODUCED.

ROBERT FRIEDMAN: I want to begin with Vinod. A few months ago I sat in a tent at the Aston Institute in Aston, Colorado, at a Fortune conference at which Vinod was on a panel with Jeroen van der Veer, the CEO of Shell. There was a lively debate about ethanol (click here for explanation of ethanol as a fuel) at which Vinod challenged Jeroen to buy as much ethanol as he wanted from companies that Vinod was prepared to capitalize and run, that he could sell at $1.99 a gallon retail.

Vinod, I wondered if you could just back up a bit and give us your sense of the lay of the land with ethanol, let's start there.

VINOD KHOSLA: Sheikh Yamani (click here for profile of Sheikh Yamani) was, I think, the first person to say in the 60s that the Stone Age didn't end for lack of stone. What isn't often reported is that he went on to say: 'Technology is our enemy, because technology will create alternatives to oil'.

I'm happy to tell you that I'm an optimist in completely believing that that time and that technology is here today. There is no economic reason -- forget the environmental considerations -- that we can't have cheaper fuels than gasoline today.

It's true, whether we use bio-corn or sugar cane, or say, biomass, all those technologies are ready for commercialization. We need to put them into practice, accumulate experience and go down the normal cost learning curve. None of this compares to the risks venture capitalists take in Silicone Valley every day. I would categorize these as modest to moderate risks compared to the kinds of risks we take every day in our business.

So, we can have this alternative. Why isn't it here? The best way to explain it is that every time the price of oil changes by $4, it's worth in asset value to Saudi Arabia a trillion dollars -- for a country with a fraction of the population of California. So there are powerful economic forces focused on keeping the playing field un-level. And if we leveled the playing field and allowed the normal start-up process to happen, I believe these alternatives would be here.

There are huge PR campaigns by the American Petroleum Institute (click here for API home page) focused on convincing people that these alternatives are not real, they are further away. Most of the press believes what the API has to say.

And so, my view is very simple: technology has enabled the future Sheikh Yamani talked about. We don't have to debate whether we need it for environmental reasons or not, whether we need carbon reduction or not. We don't need to debate whether we are running out of oil, whether it is peak oil or not. The alternative is here and viable in the marketplace on strict economic grounds.

ROBERT FRIEDMAN: Could you follow that up with a few words specifically on ethanol?

VINOD KHOSLA: Ethanol is a great starting fuel. As a product it probably costs about 25c a gallon to produce today in a decent-size refinery, not a scaler refinery an oil company would build for refining oil. About 25c a gallon is cheaper than gasoline even if gasoline was to decline to $45 or $40 a barrel.

It can achieve unsubsidized market competitiveness, and that to me is the key criteria -- that the technology is ready for scaling. When ethanol has got started in the market there is no question it has its limits. It can supply the first 15 billion gallons or so of fuel. But Brazil has a lot more of it to supply us, and the next set of technologies that can supply scale to replace all of our gasoline are here today.

So that's a very simple statement -- we can in fact solve these problems on strictly economic grounds, without debating peak oil, without debating carbon considerations.

If I might make a slight diversion, the even more exciting point to make is that if we solve this problem in the fashion I am talking about, it will alleviate the single largest problem in the world, which is poverty.

If, in fact, biomass (click here for page explaining biomass energy) becomes a fundamental resource, then Africa, India, Latin America, will all be helped dramatically. The industrial age over the last 100 years has concentrated resources more and more into urban centers. This will cause a distribution of wealth creation, and I can't imagine what could be more powerful for alleviating poverty in Africa than a fundamental return to biomass as a more valuable commodity. Not only can ethanol be produced from it, but I am convinced that all plastics can be produced from it, and we are starting to look at this very aggressively.

Part two

MICHAEL HOLMES: Let's introduce Bill Gross. One of your chief areas is solar power, and I want you to talk a little bit about how you see solar power fitting into this debate today.

BILL GROSS: I think that solar power is going to be a huge part of the answer. I fully agree with Vinod that if we can give energy to people around the world we really can cause a great degree of freedom. Biofuel and ethanol is a form of solar energy -- you are taking the sun and using it to make a fuel. You can just as well take the sun and use it to make electricity. Either one of those two outputs of energy can be hugely liberating for the world and very, very important.

And when you think back, early in history humans could only put out about 50 watts to try and get back about 50 watts of energy into ourselves. We'd grow out crops and use the sun to try and enhance to get that 50 watts back, to keep ourselves alive. When we first figured out that we could leverage 500 watts from an ox and till more soil and make a surplus, that was a huge change and really was the cause of civilization.

When we fast forward to now, we discovered that we could burn fossil fuels to get ourselves 10,000 watts a day, which gives us the completely leisure-full and comfortable lifestyle that we have, but that's not sustainable. We have to figure out the technology solution that can take the sun striking the Earth at the rate of 1,000 watts per square meter -- which is very high -- that is cost effective and can give us the same 10,000 watts, give us this comfort, if we want that, if we want this kind of lifestyle.

The idea that there's a technological solution to do that is so exciting and so powerful that entrepreneurial efforts are finally being started to do that, because the price can be competitive without even worrying about the other issues -- it just makes economic sense. So entrepreneurs are coming in, investors are coming in and funding these technological efforts.

The problem is in terms of physics both hard but do-able -- hard in the sense that you have got to take 1,000 watts striking the Earth for, say, under $100, turn that into 10% of useful energy. But that is not an impossible physics problem, it's a technology problem, that now people are looking at it I think will get solved this century. The trick is, let's try and solve it in the next five years so that we don't have terrific problems.

The total energy used by the whole planet is 15 terawatts. If you divide that by the 6.2 billion people on the planet that's 2,300 watts all day long for every person alive. But that's very unevenly distributed. There's some people with much less than that and there's us in this room that are probably using closer to 10,000, maybe if we have multiple cars 20,000 watts -- continuously, all day long for every member of our family.

Those people who are only using a couple of hundred watts a day want 10,000 watts a day. And the easy path for them to get there if we're not working on these technological solutions is what China's doing -- build a coal power plant every week. Because the coal seems to be unlimited and it's very cost effective to that. You can make kilowatt hours for nine cents by burning coal.

So the rest of the world who wants to get like us is just building coal plants as fast as they can. We need to be able to compete with that, and there are technological solutions. It's very exciting to be alive at a time when these technological solutions are actually in reach and the investment is going on to make that happen.

MICHAEL HOLMES: That was a question I was going to ask you -- how close are we to implementing those solutions?

BILL GROSS: You'd be amazed. It's only about a factor of two-and-a-half or three. Right now, if you buy an off-the-shelf solar panel, it costs 24 cents to make a kilowatt hour, and from coal it costs nine cents. So, we just have to close that gap. Already that gap is being closed by a lot of technological solutions, and it's being covered by subsidies in some places. But the whole idea is to make electricity for 8.9 cents a kilowatt hour, with no subsidies. Finally, people are realizing, that is within reach.

The time frame is five years, I think, if everybody keeps on working as aggressively as they are now. The thing that could upset that would be a dramatic reduction in the price of fossil fuels, that would stop the capital investment. But I don't see that happening. It does worry me, that someone could artificially change the price, that could put a damper in this investment.

Part three

ROBERT FRIEDMAN: Harrison Fraker, you have an architectural background, you think about the end use of these various energy options. What are your thoughts in terms of integrating some of these alternative fuels into the way we live?

HARRISON FRAKER: I'm here because I think that the challenge that we have is a whole systems integration and design problem. We have the technologies, they have been isolated into certain silos and thought about separately. When you think about designing a neighborhood in China, and you think about the resources that are available to that neighborhood and you start thinking about how to integrate them, you can make extraordinarily efficient -- indeed, self-sufficient -- neighborhoods. You don't have to build centralized power plants, sewage treatment plants and water systems, you can make these things.

But it requires a whole new way of doing business in the design professions and the development world, and we're trying to do this in China. It starts with a couple of simple ideas: first of all, you have to conserve energy at the scale of the unit and you need to have the most efficient appliances and lighting you can possible get. The technology in this area is advancing tremendously.

You start with that and you use the natural climate with the envelope of the building to start with. So you have a very low heating load, because you've used passive solar, and a very low cooling load because you've used natural ventilation. Then the opportunity for renewables is really there, it's waiting to be dealt with.

We have found that if you combine wind energy systems on the tops of the tall buildings, if you use photovoltaics (click here for a Web page explaining photovoltaics) on the roofs and as sunshades for the windows, those two sources together can provide as much as 70% to 80% of the electric demand.

So where do you get the rest? Here is the most undeveloped resource in terms of the design disciplines -- that's the landscape. In urban neighborhoods, even in the density of China, which is like 150 units to the acre, you have 40% to 50% of the land available to grow biomass fuels. You can grow on urban forest, that you harvest, and you can grow grasses and cellulose that you can use either to create methane for hot water and cooking, or you can have biomass that you burn to create the back up electricity.

So, when you think of all of these things together, you can size each of the systems optimally, because they don't have to do the whole job. You don't have to have ten times as many solar panels because you are trying to collect enough energy to put it in batteries for the night-time, because you've got the wind, and you've got your biomass. You don't have to have all biomass doing it because during the day the solar basically does the job. So you start using these systems and you use the landscape knowledge not only as an aesthetic and climate controlling thing, you also use it as a fuel source.

The numbers are very, very exciting. It's possible at a scale of anything from 5,000 units to 10,000 units on about a one kilometer square to make neighborhood entirely self sufficient. By the way, if you can also pump into the grid you also make money. These neighborhoods now are energy generators and you can charge back to the grid.

ROBERT FRIEDMAN: What grade would you give your profession in terms of recognizing these issues and actually moving in that direction?

HARRISON FRAKER: About a D minus. It is a real challenge to think holistically. The design disciplines really have become compartmentalized. This is a whole systems design challenge which is really, really exciting. The wonderful thing about being at Berkeley (click here for university home page) is it's such a comprehensive university, you get the best minds in all of these area. We can cross these boundaries, and that's why I'm involved with the new Berkeley Institute of the Environment (click here for Institute home page).

Part four

MICHAEL HOLMES: Now, Martin Roscheisen, for the layman, what is Nanosolar?

MARTIN ROSCHEISEN: At Nanosolar (click here for Nanosolar home page) we are developing a new generation of thin film solar panels based on a printing process which has much better economics than we have had in the industry so far. Like some of the other people here, we are intensely focused at the system level, on what the industry calls grid parity solar power, meaning that depending on which points of the electric infrastructure you look at, there are various price points at which we can deliver electricity from sunlight which people don't have to pay more for than what they obtain from the grid.

Some of the complexity in solar comes into play because those price points vary. Part of the confusion in the general public is that in one column you have coal, nuclear, solar and in the next column you have cents per kilowatt hour, six, five, 20 or something. That sort of simplistic understanding is hiding a number of things that do matter in the electric industry. They pertain to these various price points -- are they at point of generation, or you might be hundreds of miles out from the urban center.

If you operate typically at the 380 kilowatt level, a very high wattage level, which you first need to transport, to down-transform to your municipal grid wattage levels, at which point you have a very different price point. In the European Union, for instance, nuclear might cost six cents per kilowatt hour at point of generation, but once you are at the municipal 20 kilowatt level, you add another 10 cents. So you're at the 16 cents per kilowatt hour price point.

Then factor in additional distribution costs, factor in the difference between base level power and peak power. So you come up with an infrastructure where you can see what the potential anchor points are for something like solar power. It's something that on the one hand can happen at the edge of the electricity grid.

At retail level you have different levels. You have residential retrofit applications, which are very difficult to get cost efficient because of the installation overheads. So there are other opportunities at the municipal level -- most town have free space around them somewhere, and this is low cost space. In Bavaria these days, you see towns of 50,000 to 60,000 people with a 1 to 2 megawatt solar field out there, which can be done very, very cost efficiently.

And you feed into the electric infrastructure at the 20,000 watt level, so you deal with very different price points than with nuclear power. And you compete without subsidies at that level. You don't have to go up on 10,000 residential rooftops, which is going to be expensive one way or the other.

It's one of these anchor points where solar power will increasingly become visible, and at the grid parity price points will compete with traditional energy sources.

Part five

MICHAEL HOLMES: All of this just makes such great sense -- so why hasn't it been done? Where is the will to make it happen?

BILL GROSS: Well, we are. Solar is just a small industry, only about $4 billion a year, but it's growing at 35% a year and the investment into is growing at, I think, 100% a year. As these products come to market in the coming years of this decade, I think the rate is going to accelerate even faster than that.

It has taken quite a bit of effort to change people's viewpoints to believe in this area. I would say that over the last five years a whole combination of factors have happened, ranging from hybrids and awareness, and people are starting to get into the mindset that this is important.

The real concerted effort in investment in this area has mobilized only recently and will have this much impact in just a decade is unheard of. The infrastructure that we have in place for the other energy industries was developed over a century. We are trying to repeat that in only five or 10 years. So it's hard.

I think it is happening, it's just very hard to scale it fast enough.

HARRISON FRAKER: If I can speak of the China situation, again they have an infrastructure that they have built up over a certain period of time, and it's relatively reliable, although they need to expand it tremendously, and at a huge cost. So they are looking for alternatives.

On the other hand, the officials are very conservative and their political future is at risk if they build something that flops. So to try to do something like this at a neighborhood scale -- 10,000 units, 5,000 units -- is a big risk on the part of a city. I think they're now at the point of doing this, but it is going to require new kinds of development -- investment opportunities and companies to run and operate these distributed systems.

We think there are huge investment opportunities, because they make money and they are going to compete with a centralized system very aggressively. But it takes time to have the business community realize this, because suddenly you're going to have, neighborhood by neighborhood, your own systems, or municipality by municipality.

I think there's a lot of inertia in the existing system, and there's a lot of risk on the part of politicians and policy makers to make this shift, at least in China. What's happening is that the Moore Foundation (click here for foundation home page) is helping to fund the design of these systems, to try to take some of these risks out so we can get one built.

If we can get one built and you can go kick the tires and see how you can improve it, and that it fundamentally works, then I think China has an opportunity to replicate this way faster than we do, because of the political system.

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