By David Lammers

Austin owns its own electric utility, Austin Energy, which makes it an interesting test bed for power generation strategies. The city is facing a dilemma: the utility has moved on several fronts — including wind, biomass, and solar — to develop alternatives to coal-generated electricity. However, after a long period of keeping its base rate constant Austin Energy now wants to raise rates by 12 percent overall, and a budget-busting 23 percent for apartment- and house-dwelling customers, provoking an outcry.

The city’s energy debate comes against the global backdrop of high oil prices, the possibility of military conflict with oil-rich Iran, higher temperatures, and a shaken solar industry.

Zooming the focus in to Texas and the U.S. Southwest region, 2011 was the hottest year on record, nearly a full degree warmer than 2006, the previous record year. And the year was marred by extreme drought that has many people increasingly worried about future water supplies for Texas’s growing population.

About a third of Austin’s electricity comes from the coal-fired Fayette power plant, located 90 minutes east of town. It is jointly owned by Austin Energy and the Lower Colorado River Authority (LCRA). Last year, the partners spent $400 million on scrubbers to remove sulfur dioxide and mercury emitted by the plant, but they do little to capture carbon, the pollutant central to the global warming controversy.

Marty Toohy, the environmental reporter at the Austin newspaper, the American-Statesman, wrote that the Fayette power plant “spews more carbon into the atmosphere than all of Austin’s cars combined.”

Mayor Lee Leffingwell, a retired airline pilot who was elected last year, wants to phase out coal from the city’s fuel mix, which could involve selling its stake in the Fayette plant. But the mayor is torn between assuaging the concerns of Austin’s vocal environmentalists, and those of another group of people who worry that the poor will not be able to afford higher electricity rates, particularly during the hot months when air conditioning is essential.

The tug-of-war at the local political level has a statewide parallel. If Austin Energy becomes so “green” that it withdraws from the coal-fired Fayette plant, causing electricity rates to go up quickly, the state legislature, dominated by conservatives, could flex its muscles and demand that Austin’s electricity market be deregulated, opening it up to the same competitive forces which most of the state’s utility market operates under. Deregulation, however, has led to power-generation shortages which created several rolling blackouts in Texas during the super-hot summer of 2011.

Austin’s ownership of its own utility has several benefits. Austin Energy, which now claims it has a $50 million annual deficit, nevertheless contributes about 9 percent of its revenues, or about $100 million, to the city’s general fund to pay for roads, libraries and police. The American-Statesman estimated that the utility contributes as much as $50 million to other city operations, including the city’s economic development department which, in part, woos greentech companies to the city. The utility’s ability to funnel its “profits” to the city is given as the justification for this practice, but it does seem strange that the utility claims a deficit when it funnels so much money to non-energy uses. Perhaps that tracks with the city’s motto of “Keep Austin Weird.”

The utility employs top-notch managers, attracted by Austin’s ability to experiment with cutting-edge alternative energy programs. And the city’s “green” reputation has helped attract several green-tech companies, as well as boosting its reputation among the young people who move here by the thousands every month.

Some of those green programs, while interesting, have run into snags. A plan to subsidize charging stations for electric vehicles has been scaled back severely, for example. Also under scrutiny is a rebate program which seeks to add 300 megawatts of rooftop solar over the next decade.

A decade-old program, called GreenChoice, allows environmentally conscious residents to choose energy derived from wind power generated in West Texas. However, since 2008 that energy has gone unsold to citizens because it costs about 30 percent more than the regular mix of power from nuclear, coal and natural gas sources. Instead, the city bought most of it for its own uses, adding $8.5 million to the city’s budget.

Unfazed by the poor prices on its West Texas wind energy deals, Austin Energy has turned to wind farms on the Gulf Coast, where power costs only about 4 cents per kilowatt hour.

Another bust came in 2008, when Austin Energy made a 20-year deal to buy electricity from a wood-burning plant in East Texas. That biomass power, it turns out, costs nearly two orders of magnitude more than coal-fired energy.

Solar has struggled to find its place as well. A large solar farm north of Austin, in Webberville, finally turned on recently after a year of delays. The solar-generated electricity was priced more than a year ago, at 16.5 cents per kilowatt hour, more than double the average KW/hr cost. Much better terms could be had if a deal were reached today, according to a Statesman report.

Behind the scenes is the new darling: natural gas. Prices have stabilized at attractive levels as companies learn to force natural gas from the earth by injecting water and chemicals. While fracking is an environmentally controversial process, natural gas puts only about half as much carbon into the atmosphere compared with coal.

By David Lammers

This year, 2012, is a “Year of the Dragon” in the Asian zodiac calendar, yet another reason for Samsung Electronics to build a third semiconductor fab in Austin, Texas.

There are 12 animals in the Zodiac menagerie. People born in the Dragon years have assertive personalities, bringing vitality and confidence to their business pursuits. That “Dragon personality” seems to characterize Samsung, which has invested in the semiconductor industry’s down cycles with great success.

All signs point to the need for another Samsung logic fab in the United States. Samsung saw a 73 percent rise in its smartphone/tablet business in the most recent quarter, and the company racked up more than $5 billion in quarterly profits. To meet demand for Apple’s foundry needs and Samsung’s own internal SoC consumption, a new logic fab will be needed.

Ana Hunter

Add to that Samsung’s long-range plan to make foundry equivalent to its memory business. Ana Hunter, the vice president of Samsung’s foundry business, was in Austin recently for a Global Semiconductor Association (GSA) event, and she outlined how important leading-edge foundry is to Samsung’s strategy. Samsung and GlobalFoundries have cooperated on developing a 28nm process aimed at smartphones and tablets, she said, adding that the two foundries “will cooperate on second sourcing and technology and will compete for business.”

Samsung has a 330-acre site in north Austin, with the logic-oriented Main Fab (earlier called Fab 2 or S2) reaching high yields soon after completion of the $3.6 billion expansion project. C. J. Muse, an analyst with Barclay’s Capital, predicts that Samsung will need to add ~43,000 wafers a month of 32nm capacity in 2012 to support Apple’s A6 production and internal Samsung application processor demand. To meet that need, Samsung’s LSI operation will nearly double its logic-oriented investment to about $7 billion this year, exceeding Samsung’s memory-related investments, Muse said.

Christian Gregor Dieseldorff, a research director at SEMI, said Samsung has “allocated much more spending for System LSI/Foundry-business, more than ever seen before.” Samsung will increase its installed capacity for System LSI and foundry by more than 30 percent in 2012, from ~530,000 wafers per month (in 200 mm equivalents) at end of 2011 to ~700,000 by the end of this year.

Sure, there are issues which need to be worked out in central Texas. Travis County and Samsung are trying to reach agreement on the tax valuation of the Samsung property and production equipment, a dispute which one would hope will not turn out to be a showstopper. Earlier, Austin’s electric grid was a concern, but Austin Energy added the needed substations.

Probably the biggest challenge is the talent pool. Samsung competes with Intel and the other big chipmakers for experienced technicians and manufacturing engineers, some of whom are more comfortable working for a U.S. company with schedules that are less aggressive than Samsung’s deployment expectations. Unfortunately, Texas schools are not very well funded, and are not turning out enough people who want to learn to maintain an etcher or boost fab productivity.

Recent global events also lean in favor of a new Austin fab. The leadership change in North Korea could easily provoke military conflicts that could impact Samsung’s Kihung fab complex, not far from Seoul. The earthquake and tsunami in Japan is fresh in everyone’s memory, or should be.

There is a new realization that putting all of one’s chips (or disk drives) in one geographical locale is just not smart business. Apple, for all of its legal issues with Samsung’s system designs, needs to source chips from at least one fab complex not in a military or seismic danger zone.

I’ll close with an anecdote garnered when three friends of mine and I gathered at a restaurant in Austin for a holiday burgers-and-beers lunch. “What kind of laptop should I buy after I turn in my company system?” said Greg, who is retiring in March after 40 years of managing J.C. Penney stores. “Oh, I wouldn’t get a laptop,” said Garry, a software engineer, arguing that a new iPad tablet would be able to do everything Greg needs to do. I sat back and thought how ludicrous that would have sounded just two years ago, but how much sense it makes in the Year of the Dragon.

It all adds up to the need for a new logic fab in Austin, opening in mid-2013.