By Fred Guterl and Andrew Romano

Newsweek International

Sept. 6-13 issue - It's not hard to imagine corporate executives treating Terry Penney's ideas with skepticism. Penney, an engineering manager at the U.S. government's National Renewable Energy Laboratory in Golden, Colorado, speaks with such enthusiasm that he tends to start on his next thought before finishing the last one. He can also be single-minded to a fault. His idea of recreation, after all, is holing up in his cabin high in the Rocky Mountains and going "off grid"—relying solely on solar panels and batteries big enough to supply heat and electricity for a three-day snowstorm.

Penney seems to have a knack, however, for knowing when a seemingly far-out idea is actually close at hand. Back in 1991, he met with executives from U.S. automobile and fuel companies to propose giving them government funds to develop a prototype car that could run on both a standard internal-combustion engine and batteries. They were skeptical, he says, but in the end "they took the money." Seven years later Toyota started selling its Prius hybrid car, and now U.S. automakers are playing catch-up. Is he prescient? Or just lucky?

These days Penney and his colleagues are cooking up a new and different role for the automobile in our energy future. "Look out in that parking lot," he says with a wave of his hand. "Those are what the utility industry calls stranded assets." The term usually refers to a generating plant that's not working at full capacity. But a car, with a bit of jiggering perhaps, would make a mighty fine little power plant, he says. If you take all the cars in NREL's parking lot (a few hundred) and plug them into the electricity grid, you'd have a megawatt of power—the equivalent of a small power plant. More to the point, if you plugged all the cars sitting in all the parking lots around the world into the power grid, you'd be generating about 10 times more electricity than the world currently consumes. "Talk about a stranded asset!"

Penney's car-as-power-plant idea may turn out to be a big conceptual piece of the energy puzzle. Energy experts know the world economy won't be able to rely on oil and other hydrocarbons forever, and that the future therefore lies in a broad array of energy sources large and small, from solar and wind, to hydrogen fuel cells in cars and basements, to microturbines that burn fuel made from corn and other plants. At present, no energy grid is capable of accommodating such a hodge-podge. With few exceptions, power lines now mostly run one way: from big centralized power plants to homes, factories and cities. More than 300,000 kilometers of power lines crisscross the United States, ferrying a quarter of the world's electrical power over vast distances. On average, 8 percent of this energy is lost as heat from the electricity as it moves through the wires. The blackout last year in the Eastern United States showed how poorly adapted power grids can be even to current energy needs.

If the energy grid were smarter—if it were more decentralized and democratized, like the Internet—it would improve efficiencies by shortening the average distance between energy producers and consumers. It would also make the grid less vulnerable to disruption from overloading, storms and terrorists. The idea is to build a flexible, dynamic grid that goes both ways—that both pumps out energy and accepts contributions from millions of homes. "Essentially you'd have energy producers and users all wound up in one thing," says John Turner, principal scientist at NREL. "It's a whole different look at how we make and use energy."

With a hybrid grid there would be no need to argue the merits of fossil fuels versus renewables. Which is good, not least because the two sides are far apart and both have valid points. Oil advocates are correct in pointing out that no fuel packs more energy per liter than oil. (ExxonMobil executives are fond of saying that the average gas station supplies roughly the same energy as more than 200 square kilometers of solar panels.) And whereas oil flows ready-made from the ground, hydrogen has to be manufactured by electrolysis, a process that involves sending an electrical current through water, which breaks down the liquid into hydrogen and oxygen.

In the context of a hybrid grid, on the other hand, this becomes one of hydrogen's biggest advantages. Just about any energy source can be used to make hydrogen, which in turn can deliver electricity not only to run a home or a factory but a car as well. In a hybrid grid, it would be possible for the first time to supply energy for transportation (now chiefly oil) and electrical power (coal, nuclear and natural gas) from any source whatsoever.

In this view, the automobile of the future begins to look like an underused power plant. Instead of gas, it's got a tank full of hydrogen, which runs its fuel-cell engine. When the tank runs low, you can replenish it at a hydrogen filling station. Or if you prefer, you can tap your hydrogen reserves at home, which your solar cells and windmill have been storing up while you're at work all day. If your energy needs are low and you find that between your car and house you have more than you need, you can always sell it back to the utility. Simply program your home-energy computer to shoot electricity back out over the grid at peak hours, when you can get the best rates. While you're at work sitting in an air-conditioned office, your car can be plugged into the grid, giving you another income stream.

In theory, a hybrid grid could create a dot-com-like burst of innovation in the power industry. It would stimulate interest in hydrogen cars (since you could refuel at home, there'd be no need to wait for hydrogen filling stations to become ubiquitous). It would open up a consumer market for power-generating equipment (solar cells, microturbines and the like). It would create a whole new class of entrepreneur: mom-and-pop energy suppliers.

Before any of that can happen, of course, there are a thousand obstacles. The power industry would have to develop a mind-boggling number of standards and specifications. That's hard but not impossible—many smart engineers are working on it now. The bigger trick will be in getting the utilities, which in most countries are complacent monopolies, to embrace change. To build a hybrid grid, power-industry executives would need to get out of the habit of thinking only in terms of big, expensive infrastructure like power plants. They'd have to think more like their counterparts in the auto industry, who won't look at a product they can't manufacture in the hundreds of thousands. "A car rolls off the assembly line somewhere in the world every two seconds," says NREL's Turner. "The energy industry has to learn from the automotive guys how to manufacture things at high speeds and high volume."

There are already signs that the power industry is changing in small ways. Japan, concerned that it was too reliant on energy imports, embarked in 1993 on an ambitious plan to promote solar power. Now about 170,000 homes in Japan are feeding the power company's grid. Hitoshi Iokawa, a translator and father of three in Utsunomiya, north of Tokyo, installed solar panels on the roof of his house in 1997 for about $33,000 (the government subsidized about $10,000 of it). Since then, he's been able to generate an income of about $460 each year selling electricity back to the power companies, enough to offset his electricity bills. "I like testing new things," he says.

The latter trend is spreading: one Nashville, Tennessee, doctor recently installed a wind turbine at his vacation home in Whangateau, New Zealand, where the power company pays him for the extra electricity the device generates when he's back in America. Ignacio Vella of Sonoma, California, powers the refrigerators in his cheese factory with 234 solar panels, then sells leftover energy back to PG&E, the local utility. More than 100 McMansions lining the streets of San Diego's San Angelo subdivision come equipped with solar panels that promise to cut the monthly power bill in half. And in Germany, thanks to the government's ambitious "100,000 Rooftops" initiative and some of the world's best net metering rates, thousands of wind- and solar-powered homes and businesses are feeding energy into the local grid.

In recent years, the small industry catering to such home-energy enthusiasts has seen a burst of innovation. Renewable Devices Ltd. of Scotland is marketing rooftop windmills that look like large weathervanes but can generate 4,000 kilowatt-hours of electricity a year (the average family uses 10,000 to 15,000kwh). PlugPower, an energy firm on New York's Long Island, is developing home refueling systems—closet-size hydrogen fuel cells—that —provide heat, hot water and electricity, as well as fuel for a hydrogen-powered car. And in May, BP Solar unveiled a solar electric glass that could one day turn windows and skylights into mini power plants.

Of course, most of these gadgets will soon be bought and used in developed countries. But opening up the power grid could be a particular boon to energy-poor countries like India, where power supply lags behind demand. Indian sugar producers, frustrated by the inconsistencies of local utilities, have already begun producing their own electricity from bagasse, a byproduct of sugar cane. In Karnataka and Maharashtra, producers are generating 500 megawatts of power per year, mainly for their own operations, and selling some of it back to the energy utilities. In the next few years the power generated from these plants is expected to increase tenfold, says M. N. Rao of the Indian Sugar Mills Association. The Indian government is supporting the effort as a way to prop up its energy industry. "Exported power to the grid not only improves the commercial viability of the sugar mill, but it also helps in voltage stabilization of the local grid," says a government official in New Delhi.

One of the biggest question marks is whether the energy-buying public is going to go for a hybrid grid in a big way. How many people want to worry about whether they remembered to plug in the car when they parked it? Silvia Diaz, for one, doesn't seem to mind. She's one of the few homeowners in America who still plans her laundry schedules around the weather. If it's cloudy out, she'll leave the pile of pants and socks and T shirts for later. But if the sun is shining, it's all systems go.

Since August 2003, Diaz and her husband, Rafael, a truckdriver for a local towing company, have lived with their three kids in a Watsonville, California, house that uses both energy-efficient construction and solar-power generators. It's one of 257 Zero Energy Homes in the Vista Montana subdivision. Diaz is keenly aware of the solar panels on her red tile roof, which offset the energy her family consumes (mostly through videogames, she jokes). She always consults her meter before deciding whether to wash the whites. "The meter is right next to the laundry room," she says. "We can see how much energy we're generating and how much we're using." The Diazes were sold on their current home when they found out they'd save two thirds of their utility bills. "We weren't energy conscious at all," she says. "But now we definitely are." That's a phrase that's bound to catch on.

With Kay Itoi in Tokyo and Sudip Mazumdar in New Delhi