In fact, landfill gas projects have become so popular that competition for suitable sites is heating up, says Jennifer Layke, deputy director for the climate and energy program with the World Resources Institute (WRI) in Washington D.C. "There's a finite number of usable sites and a lot of them are already being tapped, so you come across cases where companies are taking an option on a nearby site, while they conduct feasibility studies, to prevent other local companies [from] using it instead," Layke notes.

What's the panic? Even though Wall Street has been celebrating lower oil prices, current levels adjusted for inflation are comparable to the records set in the late 1970′s. Additionally, there is a discernible upward-trending pattern, at least in absolute terms: At $60 per barrel, oil is more than double its price in 2000 and 2001, and close to six times its price in 1997 and 1998.

ANOTHER REASON TO SWITCH

But while these are worrisome numbers, most of the forward-thinking companies seeking out options to oil and gas are not exclusively focused on price. They are equally concerned with the prospect of significantly tighter regulations on use of fossil fuels in the near future, given the mounting evidence that their consumption is altering the earth's climate. For these pioneers, it's time to venture into the murky world of alternative energy.

Until relatively recently, alternative (or renewable) energy was ineffective as a physical hedge because impractical technology resulted in big upfront costs. But soaring conventional prices, coupled with improvements in technology, have given alternatives a relative advantage. As a result, solar panels, wind turbines, landfill gas and biofuels are all being used increasingly to reduce corporate exposure to conventional energy. "We're seeing a significant shift to alternative energies because of higher costs for conventional energy," says Peter Fusaro, chairman and founder of New York-based consulting firm Global Change Associates. "Five years ago, green power programs were not working very well. Now, they're really taking off."

At the beginning of 2005, alternative energy accounted for 160 gigawatts (or 4%) of the world's generating capacity, according to REN 21, a global energy policy forum and advocate of renewable energy. That may not sound like much, but record levels of investment in alternative energy generation should see capacity grow rapidly. In 2004, $30 billion was invested globally in alternative energy–that's fully one-fifth of the total amount invested in all forms of energy generation.

THE ALTERNATIVES IN ALTERNATIVE

As things stand, hydropower and wind power account for 68% of all alternative energy generating capacity, with solar power making up a paltry 3%. But this picture, too, is expected to change as the photovoltaic cells that enable the sun's rays to be converted into electricity drop in cost.

Some companies are already taking advantage. In Rancho Cucamonga, Calif., GM is currently covering the roof of its service parts operations warehouse with enough solar cells to satisfy 100% of the facility's electricity needs (when the sun is shining). Over the year, the one-megawatt panel is expected to produce about half of the necessary power supply. "The project was more about reducing our carbon emissions than reducing our exposure to price risk, but because the project would also help avoid price volatility, it definitely made it more appealing," says Al Hildreth, manager for supply contracts and renewable energy at GM Energy and Utility Services. The project is expected to be finished sometime this spring.

So, what's available and financially feasible for pioneering companies? In states with a deregulated energy market, some utilities are now offering wind power contracts directly to corporate customers. Wind power could cost as little as five cents per kilowatt-hour, according to Kyle Datta, the senior director of research and consulting for the Rocky Mountain Institute (RMI), an environmental think tank and consulting group. By comparison, Datta says, a five-year gas contract in today's market would cost "more like six cents or 6.5 cents. So where you're allowed to buy wind contracts, it can be much cheaper."

Since 2000, utility company Austin Energy has offered its "Green Choice" program, in which all of the energy purchased is produced by wind turbines. Not surprisingly, over the last couple of years, it has witnessed an explosion of interest as companies have come looking for a way to manage the price risk associated with conventional energy. "Our residential customers tend to go for Green Choice out of environmental concern. But for corporates, the ability to hedge against rising energy prices is just as important," says Michael McClusky, senior vice president for wholesale and retail markets at Austin Energy, which serves the state capital of Texas and Travis county.

Here's how it compares to conventional options: For conventional energy customers, the utility passes on the cost of rising natural gas prices by regularly adjusting a component of the bill called the "fuel charge." Like a variable rate mortgage when prices are down, it doesn't hurt. But when they are up as they have been for the past few years…ouch! In contrast, while Green Choice customers also pay a special charge, the fee remains fixed for the life of the contract. Although wind power contracts offered so far have initially been at a premium to the conventional fuel charge, the run-up in natural gas prices has meant that Green Choice customers now get their supply at a lower cost than conventional customers, says McClusky: "We raised the fuel charge in January and that made [the contracts] 'in the money,' so to speak." This year's hike saw the fuel charge surge by 30%, resulting in a 10% increase in the overall bill for conventional customers.

IBM is one of the beneficiaries of the Green Choice program. In 2001, the technology giant signed a five-year, fixed-price contract with the utility for two facilities in Austin–one, the development headquarters for IBM's Tivoli Software group, runs 100% on green power, says Fred McNeese, an IBM spokesman. The other, a multi-purpose, two-million-square-foot site, gets 11% of its energy from the Green Choice program. When IBM signed up, the Green Choice contract was more expensive than a conventional contract, but IBM wanted a fixed-price deal to remove the volatility that comes with periodic adjustments to the fuel charge. As it happened, increases in the fuel charge soon made the Green Choice contract cheaper than the conventional contract would have been, and WRI's Layke says that IBM now expects to save more than $60,000 annually as a result.

Many companies are not able to buy wind power directly from their utilities, however. Layke notes that even in states with a deregulated power market, wind power needs to have a distinct price advantage over conventional energy if it is to be seen as a worthwhile investment. She uses Ohio as an example: a deregulated state, but one in which most power plants are coal-fired and have therefore been insulated from the debilitating run-up in natural gas prices.

Still, she says, the WRI is working with large energy consumers in an attempt to convince more energy providers that wind power is the way to go. "If we can get consumers to ask their utilities for this, the latent demand could help providers to overcome their inertia," says Layke.

One alternative to buying wind power from a utility is for companies to generate it themselves. Currently, there are no companies in the U.S. operating large-scale wind turbines for their own benefit, but Layke says that she knows of two companies that are drawing up plans to do exactly that. In Europe, on the other hand, on-site wind power is already an established trend–even for some U.S. companies. Ford Motor Co., for instance, has two 85-meter high turbines generating one megawatt each at its plant in Dagenham outside London. The turbines provide all of the energy needed by a $566 million diesel engine engineering plant. Michelin has double that capacity at a site in France.

USING LESS ALSO WORKS

Some companies are not willing to make the leap to alternatives, but have expended considerable brainpower and financial resources to become more efficient. This strategy only looks attractive if a company can spend less on efficiency measures than it would otherwise have spent meeting energy prices, says RMI's Datta, but many industrial processes are currently so inefficient that there is plenty of room for a quick win. "In heavy products industries there's always a lot of waste heat," he says. "There's always an issue around waste from motors and pumping loops. Meanwhile, if you have office buildings, there are normally issues around ventilation. In both cases, there are opportunities to retrofit and improve them." The result is that improvements in energy efficiency can deliver net savings for most companies across a whole range of industries: "At a pretty fundamental level, it doesn't matter whether you're in mining, pharmaceuticals, computer or chip manufacturing, or steel–most corporates can achieve a net savings of 10% to 15% on their energy costs," Datta contends.

All this is not to say that most companies have abandoned using traditional financial hedging to avoid the sting of rapid price jumps–most are. And there are plenty of skeptics like Leo Drollas, deputy executive director with the London-based Centre for Global Energy Studies (CGES), who says it is "not yet time to start thinking about wind farms and sandals and tree-hugging and God knows what else." But for companies like J&J, General Motors, IBM and Ford, relying on business as usual when it comes to energy was just becoming too expensive–but more importantly, too risky.