Wild Is The Wind

Late May, the wind industry flocked to Anaheim for its annual gathering, Windpower, hosted by the American Wind Energy Association (AWEA).  For the first time in quite awhile, attendance was down from the previous year – estimated at 14,000, compared to a reported 25,000 in Dallas in 2010.  At least part of the reason was geographic:  it’s simply more time-consuming and expensive for many to travel to the West Coast as opposed to the center of the country.  However, there’s no doubt that the vibe was more subdued.

I returned from the show ruminating on several questions:

When will new players stop entering the wind turbine market?   I am not exaggerating when I estimate the number of companies with turbine products on display at 50.  I have never heard of many of these companies, but somehow they must be able to somehow scrounge up what clearly is a significant amount of capital to amass the tooling, fabricate at least a few units, and design and staff fancy and massive booths.  A number of these no/new-name companies are Asian, presumably with lots of excess cash and considerable naivete on how to penetrate the North American wind market.  The rush is probably five years too late and clearly unsustainable – but it seems to be getting more acute rather than better.  As the old adage from the financial sector says, “the market can stay irrational much longer than you can stay solvent.”   If any of these “who-dat?” companies were public, I’d recommend shorting them.

How will consolidation unfold?  Many wind turbine manufacturers are enormous corporations with solid balance sheets, unaccustomed to being something other than a top three player.   It’s a “who’s who” of Fortune 100 companies, including the usual suspects GE (NYSE: GE) and Siemens (NYSE: SIE), newcomer United Technologies (NYSE: UTX) via its December 2010 acquisition of Clipper, mega-corporates from France Alstom (Euronext: ALO) and Areva (Euronext: CEI), the Spanish armada of Gamesa (BMAD: GAM) and Acciona (BMAD: ANA), Japanese Mitsubishi, the Koreans Daewoo, Hyundai and Samsung, Chinese Sinovel, Goldwind and other ambitious entrants, and on and on.  Indeed, this impressive list doesn’t include industry-leader Vestas, the former high-flyer Suzlon from India, and some excellent German producers including Enercon, Fuhrlander, Kenersys, Nordex and RePower.  Most of these firms have the appetite to play for keeps, and the funding to enable it for an extended period, so it will be an interesting game of musical chairs in the coming years – and a good opportunity forthcoming for M&A investment banking in the wind sector.  There’s no way they can all be successful and remain in the market.  It’s just way too crowded.

What will happen to the production tax credit (PTC)?  It’s been shown vividly that the wind industry suffers from booms-and-busts in cycles as the dominant U.S. policy pertaining to wind, the PTC, is allowed to expire and then is extended (typically for no longer than the two year duration of a House member).  It’s due to expire (again) at the end of 2012, and while the industry is optimistic about a good 2011 and 2012, after that is a guessing game – particularly in the current political climate and budget woes.  The only consensus is that the PTC won’t be addressed at all until the lame duck session after the 2012 election, but it may not be dealt with at all until 2013 – in which case the North American wind industry will experience a big setback (again).

What about domestic manufacturing for wind?  Over the years, a major force for political support to the wind industry has been the participation – both actual and potential – of American manufacturing in the supply chain.  Based on some murmurings of industry insiders, it appears that the American supply chain is in fact getting more stressed and less competitive relative to foreign (mainly, you guessed it, Chinese) sources.  If American manufacturing continues to lose ground in the wind sector, one of the most important pro-wind voices will stop throwing its considerable weight around – and the North American wind market will be the worse for it.  Stay tuned for domestic content debates, and/or examples of “reshoring” production of components back to the U.S.A., to patch this potential hole in the wind dyke.

How will onshore wind co-exist with offshore wind?  In Europe, this has been a non-issue, because the wind industry basically had to move offshore as all the plausible sites onshore had been developed.  Not so straightforward in the U.S.:  the vast majority of the wind industry remains focused on still-ample onshore wind opportunities and doesn’t want to see any resources or policies diverted from its objectives in order to support the emergence of a new segment of the wind industry offshore.  For those who are interested in accelerating the potential of offshore wind (such as myself), especially in places of the U.S. east of the Mississippi River where most of the demand and transmission exists but good onshore wind opportunities are much more limited, the competing interests of the more well-established onshore wind industry is a frustrating source of tension.  It’s a microcosm of the U.S. economic system:  protecting the near-term by minimizing the long-term.  This dilemma is the main reason that the Offshore Wind Development Coalition was established, so that offshore wind interests could independently express themselves in the corridors of D.C.  Alas, the distinction between onshore wind and offshore wind is lost among most public officials, so the existence of multiple organizations that seemingly are operating in parallel in advocacy and education is not a helpful fact to both segments of the wind industry.

It’s never easy to make it in a sector that must fight entrenched incumbents with economic advantages, but the next couple of years in the U.S. wind market will likely be an especially bumpy ride.

Will Crystalline Solar Kill Thin Film? A Conversation with Applied Material’s Solar Head Charlie Gay

By Neal Dikeman

I had a chance to chat today with Dr. Charlie Gay, the President of Applied Material’s solar division.  You may recall, we broke the story in the blogosphere 5 years ago about Applied’s entry into solar, which was anchored with a highly touted and very aggressive strategy for turnkey large format amorphous silicon and tandem cell plants called SunFab.

Charlie reminded me that when they began 5 years ago, they did so along two major thrusts:  The acquisition of Applied Films in June 2006 getting an inline coating system for deposition of silicon nitride passivation layers on crystalline and in parallel an internal project to adapt their large flat panel display manufacturing technology for photovoltaics.

They still like the large module format, for a simple reason, cost in the field for large scale solar farms is heavily about getting area costs down relative to power output.  I was excited for another simple reason, when major capital equipment developers get involved, manufacturing maturity is not far behind, it forces everyone to rethink scale in different ways.

After a huge initial splash outselling everyone’s expectations in that SunFab concept, many industry analysts later kind of wrote them off as flash in the pan when they were reported having problems as implementations came in slower and smaller and harder than expected on their SunFab lines a couple of years ago, and a saw a major restructuring in 2009. But they’ve had success with that product anyways, EVERYONE saw a major restructuring in 2009, and more importantly the original vision of leading solar into mass manufacturing is still going strong, now across a range of products and technologies in thin film and crystalline manufacturing equipment.  Let’s put it this way, in their annual report they call themselves the largest equipment manufacturer to the solar sector, they have $1.5 Billion in annual revenues in the Energy & Environmental division, which is heavily PV, and there are like 120 mentions of the word solar in their annual report, almost once per page.

So what I really wanted to talk to Charlie about was the future of PV manufacturing. He frames the future by drawing a mirrored parallel between photovoltaics and integrated circuit manufacturing, beyond just semiconductors:

  • In IC, dozens to hundreds of device architectures exist, but basically one material, silicon.
  • In PV, there is essentially one architecture: the diode, but dozens to hundreds of material choices.

But silicon has been the mainstay material of PV for a number of reasons.  So we got into one of my favorite topics, the manufacturing improvement potential in crystalline silicon.

His version of Moore’s law for solar runs like this:  the thickness of the solar cell decreases by half every 10 years.  Today it’s 180 microns thick.  The practical possibility exists to get down to about 40 microns, with some performance improvement by making it thinner, but we can’t go much below 40 without being too thin to absorb enough light.  This fits with other conversations I’ve had suggesting that over the past couple of years most of the major crystalline solar manufacturers were working on paths to take an order of magnitude out of cell thickness.

If this comes to fruition, crystalline can literally wipe the floor with the existing thin film technologies.  Basically think sub $1 per watt modules with the performance of high grade crystalline modules today.  And as cost per watt equalizes, that higher efficiency starts to really tell, as since Balance of Systems costs have fallen at 10-12% per doubling of installed fleet, compared to module costs falling at 18-20%, in a world where BOS increasingly matters, the old saw about lower area cost per unit of power installed starts to actually bite for once.  Think ultra thin high performance low cost large format x-Si modules with fancy anti reflective coatings and snazzy high grade modules with on module inverters or DC optimizers mounted on highly automated, low cost durable trackers.  Think solar farms approaching effective relative capacity factors of 2.5-3 mm kW Hours per year per MW on 25 year systems at $2-3 per Watt installed.  Possibly the only thing on the planet that could match shale gas.

In fact, the entire thesis of thin film as a business and venture capital prospect has been built on the premise that crystalline material costs were just too high to get to grid parity. I’ve got scads of early thin film business plans touting that.  That thesis is under extreme pressure these days. I’d submit that if the industry 7 years ago had really understood how much improvement could be had, we’d have saved billions in potentially stranded thin film development.

Charlie says there are about a dozen different paths for enabling 40 micron cells.  The most interesting approach to him is an epitaxial growth process on reusable silicon templates.  A process which grows a thin layer of silicon on top of a reusable layer of silicon, using perhaps one mm thick silicon templates, etching the surface, and directly depositing silicon from trichlorosilane gas.  The idea would be to rack templates into a module array, grow the cells in an oven to your 40 micron level, then glue the glass module to the back side, and then separate it off to form a “ready to go assemble” module.  The challenge is basically oven and materials handling designs that get it cost efficient in high volume.

In essence, all you’d be doing is integrating a silicon ingot growth process directly into a module. Instead of growing ingots, cutting thick wafers, forming cells, then building modules from them, you grow cells racked into their own module personally instead of growing ingots first.

Hella cool.  A process like that means using fairly manageable capital equipment and materials handling technology development in known device and module technologies we could literally rip the ever living guts out of crystalline manufacturing costs.  And there are 11 more paths to play with???

The way he thinks about it, on a broader perspective more people are working in photovoltaic solar R&D today, by his estimate some 70,000 researchers and $3 billion per year, than in all of the prior PV history.   And that means whereas perhaps five main innovations over 35 years drove almost all of crystalline PV manufacturing costs (screen printing, glass tedlar modules, adapting steel from tires for cutting wafers, silicon nitride processes, and fast metrology tools), in today’s world, Charlie thinks we see 5 equivalent innovations in PV manufacturing technology every 2 years.

So I asked him to comment on whether there were parallel cost-down opportunities for thin films or whether it is an also ran waiting to happen.  He thinks there are.  He mentioned organics.  I pushed back hard, as organics have been written off by almost everyone for never seeing yield or performance, so where does he see the opportunity?  He responded that he picked organics to keep me from narrowing the materials field prematurely to just A-Si, CdTe, CIGS, and GaAS.  Silicon just like carbon can surprise us, e.g. bucky balls, carbon nanotubes, and just because early materials had stability and process issues, doesn’t mean we’ve exhausted the opportunities.

He says what he wants us to recall is that we are currently operating in PV manufacturing today with the materials that were on the radar in the energy crisis from 1974-1980.  That is changing in the lab and universities these days.  And given time the results will surprise us.

He draws a parallel between photography and photovoltaics, both invented in 1839, both rely on sunlight acting on materials. In photography, people started off putting films on glass, then putting films on mylar, and running things continuously.  Implying that in solar, we’re still on glass c. 1890.

He said to think about the original Ovonics/Unisolar vision in thinking about how you get to high speed continuous processing with thin film (think paper manufacturing, where done roll to roll it’s far more consistent than one-offs can be done).  If that is still our ultimate thin film paradigm (got to love the chance to use the word “paradigm”), the stars are still in front of us with what thin film COULD do.  And while roll to roll has had significant materials technology and process control challenges for the current class of materials, let’s go back to the mirror parallel to integrated circuits, in photovoltaics, one main device, scads of material options.  Just a matter of R&D hours and time.

He markedly did NOT suppose that the current state of thin film devices could beat 40 micron crystalline silicon by themselves.  It’s worth considering that we may look back and find that thin film, CdTe and First Solar were the stepping stones to 40 micron crystalline, not the other way around.  Maybe my next question to Charlie is whether he and I should set up Neal and Charlie’s 40 Micron Solar Company of America yet. 😉


Cleantech Investing: A Primer on Risks

I sense that many in the cleantech world generally hold a negative view of venture investors.  Although rarely worded as such, I can almost hear the pleas:  “Why don’t you invest more in cleantech?  Why don’t you do more cleantech deals?”

Well, as a venture capitalist, I can tell you plainly that our capital is very scarce.  I wish we had a lot more money to work with.  Not rolling in dough, we have to be very picky about the deals in which we invest.

I’ve been looking at early-stage cleantech opportunities for over a dozen years now, starting well before the word “cleantech” had been coined.  Good news:  the quality of entrepreneurs and their ideas in the cleantech space has improved dramatically.

And yet, many inventors still lack a basic grasp of what makes a start-up a potentially investible prospect.  So, it is with this posting that I aim to provide a bit of guidance for those that want to create a successful cleantech company, especially if they want to get it funded by investors.

For the most part, venture capital investors are managing other people’s money.  VCs are compelled to provide good returns to their investors, or else they will be out of business when they try to raise their next fund. 

Like most money managers, VCs aim to assess the potential risks of an investment against the potential rewards.  In early-stage companies, there are many risks, so the rewards have to be quite high.

Usually, entrepreneurs have little problem in touting the upsides of their deals.  In many cases, the potential is overestimated or naively broached.  “The energy sector is a $6 trillion annual industry — all we have to do is capture 1% of it and we’ll be a $60 billion business!” 

Yes…but…securing that 1% is really damn hard, as the companies selling in the market aren’t going to roll over, and customers will be demanding and slow to change.  And, oh by the way:  your addressable market is only a small portion of that $6 trillion, unless your idea can somehow fuel any vehicle, generate electricity anywhere at all times, and also provide heat.

As naive as they can be in describing the potential rewards,  it’s on the risk side that many inventors fail to think through their business opportunity with sufficient depth and insight.  There are many elements of risk in all ventures, but several of these are especially pronounced in cleantech ventures:

Technology Risk

This is one area in which most inventors at least have a bit of a clue how to approach.  Most know that they have to show that their gizmo will actually work — even if all they’ve done so far is conceptual analysis, and have not established “proof-of-concept” with a real working prototype.  But, what so many entrepreneurs fail to appreciate is that actual operability — and also reliability — is only half the battle.  Just as important, maybe more important, is that the widget has to be manufacturable at a cost level that enables a profitable sale at a price point that will be competitive in the marketplace so that customers will actually want to buy it.

To illustrate, I spoke last week with perhaps the 100th person I’ve encountered in the past decade that’s trying to commercialize a new wind turbine design for on-site application.  When asked about the economics of the design, the leader of the team praised its advantages in manufacturability — an important enabler of cost-competitiveness, but by no means the whole story.  Then, the entrepreneur mentioned a cost level, in $/watt installed, that should be achieveable.  There followed a pause, as if this should be a compelling answer. 

However, the important pricing level for any electricity-generating device is not $/watt installed, but cents/kilowatt-hour over the life of the equipment.  No-one cares if they spend $10,000 on a wind turbine:  they want to know whether they’ll save money relative to other options available to them — specifically, in this case, power bought from the grid at maybe 15 cents/kilowatt-hour in certain locations where electricity is not cheap. 

Translating $/watt to cents/kilowatt-hour means figuring out how many kilowatt-hours the turbine will generate, and also adding the occasional maintenance and replacement costs after installation.  Doing these calculations in a back-of-the-envelope manner, we arrived at an estimated 22 cents/kilowatt-hour.  The entrepreneur was non-plussed, but I was very plussed:  22 cents/kilowatt-hour isn’t close to being competitive for the electric generating sector except in the very highest cost islands in the middle of oceans. 

At best, then, this is a niche play, although the entrepreneur had been pitching the technology as a ubiquitous world-beater.  I needed to hear a cost number that was no higher than 10 cents/kilowatt-hour — just because eager inventors are virtually always too optimistic about their technology, and will thus tend to underestimate costs — for me to retain any interest in this opportunity.

While this person’s wind turbine may well actually work, it’s commercially irrelevant if it can’t generate electricity at a cost level anywhere close to other sources of electricity generation.  It’s more likely that cost reductions will bottom out at 30 cents/kilowatt-hour than they will reach 18 cents/kilowatt-hour — much less the 12 cents/kilowatt-hour it would need to be to offer a sufficient competitive advantage to grid power to make customers in most parts of the world adopt.  So, I can’t imagine spending any more time on this one — as much as anything, because the entrepreneur did not have a well-informed view of the market requirements of his proposed product.

Competitor Risk

Of course, we live in a market-based society, and a new cleantech product will have to beat out other alternatives.  While it’s relatively easy to assess the current competitive landscape, that’s hardly all that’s important to scope out.  If you’re developing a new product, one that will take a couple of years to fully mature and introduce, you’re aiming for a moving target.  What will the competitive alternatives be at that time?  This is much, much harder to assess.

It’s especially hard to assess in a dynamic and stealthy segment of cleantech adoption.  I’m always troubled when an entrpreneur says that they have a unique solution, perhaps even patented, in a market space that has attracted lots of investment capital.  What are all those ventures doing with all the capital they’ve raised?  And, what about the companies you don’t even know about?  Is the distinctiveness of your technology all it’s really cracked up to be, given what everyone else is doing?

A side note about patents:  overrated!  First of all, anything can be patented; just because something is patented doesn’t mean it’s commercially interesting.  More importantly, I’ve heard intellectual property attorneys say that patents are only a ticket to a lawsuit, and my limited experience in this is that those lawsuits are both very expensive and hard to win.  This is doubly so when you vie against some really deep-pocketed large corporation that can easily afford to outspend a venture on legal fees by a ratio of 10-to-1 or more.  Patents may be necessary to establish a competitive advantage, but they are usually insufficient.  Best is a combination of patents and trade secrets — proprietary know-how (i.e., “secret sauce”) that is difficult to reverse engineer and that is not published, as patents are.

Adoption Risk

Just about every entrepreneur thinks they have developed a better mousetrap.  Of course; they have to.  Let’s assume they’re right and they have made a true innovation with commercial relevance.  Entrepreneurs are also prone to believing that customers will be dying to buy their baby once it’s on the market.  Not so fast, my friend.

For the most part, customers have become very accustomed to what they buy today.  Even when their current purchases aren’t fully satisfactory, customers generally believe that it’s the least of all evils, that the other alternatives in the marketplace are somehow inferior to what they currently obtain.  And, they have made accomodations in their businesses or in their lives to the less-than-optimal aspects of what they buy now.

In contrast, a new purchase entails a whole host of risks.  Will it really work as promised?  Will it really cost what is promised?  Will it really deliver the benefits that are promised?  Ultimately, these are questions of trust.  In the case of cleantech, most of the purchasing decisions are capital-intensive and have significant associated time horizons and serious consequences of failure, so the buyer is going to have to trust the product — and its supplier — for a long, long time.

Thus, it’s often safer for customers to keep with the status quo, even when presented with something that at least superficially looks better.  Between the trust issues and the hassle factor of doing/learning something new, customer inertia of “do nothing” is frequently the easiest path forward.  With the exception of perhaps the Tesla (NASDAQ: TSLA), cleantech goods are generally not trendy, so it’s not like buying the newest consumer gadget, in which edginess or coolness matters and people may buy on a whim.

Financing Risk

Of course, ventures burn through capital.  That’s why venture capitalists exist.  But, it’s one thing to burn through a few million dollars of capital raised in a couple of rounds of financing, than to require hundreds of millions of dollars of capital raised over 5, 6, or more rounds of financing.

The former typifies many ventures in the information technology space.  It’s not that expensive to hire a few programmers and develop a commercial solution that can start generating revenues.  Once a company gets to breakeven, the entrepreneur can consider raising boatloads of cash to accelerate growth, at pretty favorable terms, because the business concept has been validated:  the appeal of the value proposition, the go-to-market strategy, and the profitability of delivering on the promise to customers. 

Alas, the latter typifies many ventures in the cleantech arena.  Whether you’re developing a new solar technology, a new biofuels concept, a new vehicle, or a new battery — each of these requires a lot of technical equipment and engineering/scientific staff to prove out the physical aspects of the technology.  (Physical stuff is a lot more expensive than virtual stuff!)  Also, once it’s proven in concept, then — because of the risk-averseness of the customer base — the technology often either (1) needs to be proven at large-scale before it will be bought commercially, or (2) requires major manufacturing scale-up investments required to achieve economies of scale to reach price points that will be viable in the marketplace.

Raising tens of millions of dollars over multiple rounds of financing brings a huge element of risk into play:  when your next round of capital is required, what will be the condition of the financial markets at that time?  Notoriously volatile, if the capital markets are bearish, it will be damn hard to raise big bucks at attractive terms — no matter how well you’ve held up your end of the bargain as an inventor/entrepreneur.  The investors who came along for the ride in the early days will be squashed alongside of you, and avoiding this fate is why many early-stage VCs (like me) are attracted to investment opportunities that don’t require a lot of additional capital to be raised in later rounds.

Policy Risk

This is arguably the biggest risk factor in the cleantech universe.  As I’ve discussed many times in previous posts, cleantech is largely shaped by regulations and legislation:  environmental laws, utility regulations, tax incentives, permitting rules, and on and on and on.  These issues dramatically affect the economics, the market potential and in fact even the applicability of cleantech technologies.  This is arguably much more so the case than for any other segment of venture investing (with the possible exception of health care and life sciences).

The entrepreneur must understand that this issue is so scary to potential investors because the rules of the game that may make a cleantech opportunity favorable can be changed essentially by whim to make an opportunity unfavorable.  A solar entrepreneur can tout his/her business model based on a feed-in tariff in Germany — but if that feed-in tariff is wiped away by some political or budgetary force, the business model becomes unviable, the venture dies, and the investor loses his/her capital.

Thus, it takes a particular kind of venture capitalist, one who can assess the degree by which a particular set of laws or regulations are stable, to participate in the cleantech realm.  Some policies are much more stable than others.  If a cleantech venture requires a particular policy to work, that policy better be very stout across the political spectrum, and not strenuously opposed by a phalanx of powerful (read, wealthy and willing-to-spend) incumbent companies, if the entrepreneur wants to raise any significant amount of capital from institutional investors beyond the “three f’s” of friends, family and fools.

Execution Risk

Even if you’ve got all the conceptual risks boxed in and managed effectively, the company still has to perform.  This is as true in cleantech as it is in any other sector.  The sales force has to close sales.  The production side still has to deliver at the costs and quality that were promised to the customers. 

This is not nearly as easy as people think.  It requires a dedicated team, led by disciplined and principled entrepreneurs who can artfully dance around obstacles that are encountered many times every single day.  Ultimately, venture-building is all about people.  And, venture investors spend a lot of time considering the key team members in each deal — both when evaluating a potential investment, and even more so after an investment has been made by seeking to fill out the team with critical skills that may be deficient.

In the cleantech world, there are relatively few accomplished entrepreneurs — though, thankfully, this is definitely changing for the better, as the cleantech sector attracts talent from other realms of technology, due both to the size of the opportunity and its importance to the world.

I liken the game of venture-building to walking the length of a football field strewn with land mines:  you might negotiate 95 yards successfully and be within 5 yards of the end-zone…and then blow up.  Any one of these risks can kill or seriously damage a venture, and they can arise at almost any time.  There’s lots of risks for any venture, and maybe a bit more or a bit more acute for cleantech ventures than for other sectors of the economy.  As a result, few big winners have yet to emerge in cleantech venturing.  For every cleantech company that has IPO’ed — most recently, Solazyme (NASDAQ: SZYM) — there are probably twenty that have crashed-and-burned ignominiously or are sputtering along in zombie-land.  And, even many of the ones that have IPO’ed have withered in the glare of Wall Street.

My nominee for most successful cleantech venture would have to be First Solar (NASDAQ: FSLR), which is now a dominant player in the solar photovoltaics marketplace.  With a current market capitalization of over $10 billion, it’s clearly a big-time winner since its IPO in late 2006.  So it seems like it should be a poster-child for cleantech VC success — until one considers that it was formed in 1999, as a restart of a prior venture called McMaster Energy that spun out of the University of Toledo in the late 1980s, and had the hardest time in raising any capital for years.  In other words, it was about 20 years from the time of true technological origin to commercial success for First Solar — not to mention, a lot of washed-out investors along the way.

A good venture capitalist has to be either a highly-skeptical optimist or a very open-minded pessimist to survive and be able to hold in mind simultaneously the great rewards and the large number of risks associated with a promising cleantech investment opportunity.  Entrepreneurs must also juggle both perspectives, but at least in the “selling” of their ideas to prospective funders, most tend to focus solely on the upsides.  We venture capitalists cannot afford that luxury.  As a result, I like an entrepreneur who has thought through all the risks,and rather than tip-toes around them to avoid mention, proactively speaks clearly as to how the risks will be addressed.

Rossi Energy Catalyzer: The “New Fire”?

by David Niebauer

I recently listened to an astounding podcast of an interview with Dennis Bushnell, Chief Scientist at NASA’s Langley Research Center, talking about low energy nuclear reactions (LENR) and devices that are apparently generating significant energy in the form of heat, with very little input of raw material and no radioactive waste.

Bushnell credits Andrea Rossi, an Italian inventor, for the breakthrough. Rossi claims to have discovered a previously unknown source of energy, by extensive experimentation, using the early work of Pons and Fleischman as inspiration. Rossi has filed for international patent protection, but he is guarding the precise mechanism as a trade secret until the patent issues.

I first heard of Andrea Rossi in January of this year on the site Next Big Future where it was reported that Rossi had demonstrated his Energy Catalyzer (or E-Cat, for short) in Bologna, monitored by independent scientific representatives of Bologna University.  Ny Teknik, a Swedish technology magazine, reported that, “For about an hour it produced approximately 10 kilowatts of net power, loaded with one gram of nickel powder pressurized with hydrogen.” See Wikipedia entry for background.

Since that time Rossi has repeatedly demonstrated the device and it has received validation from the Swedish Skeptics Society, among others.  Demonstration devices have now been delivered to the University of Bologna, the University of Uppsala and the University of Stockholm for extended testing. Rossi has also entered into agreement with Defkalion Green Technologies, which anticipates having a 1 MW plant completed and operational at its facility in Greece by October 2011.

According to Bushnell, what is occurring in the Rossi device is a nuclear reaction, but it’s not cold fusion.  He claims it is a reaction of the Weak Nuclear Force.  Bushnell believes that heat is generated from beta decay of subatomic particles and that, applying quantum theory, physicists will soon explain the mechanism.  The physics is not well understood, which is fueling a certain amount of skepticism.

I recently met with Andrea Rossi and find him to be genuine and credible.  Rossi told me that he would like to have a 1MW plant operating in the United States by October of this year, in parallel with efforts in Greece with Defkalion.  Rossi is intent on moving his Energy Catalyzer from the testing lab into the field.  He recently entered into an agreement with a US company, Ampenergo, whose partners have links to the U.S. Department of Energy .

According to Rossi, Bushnell is on the wrong track, at least from a theoretical perspective.  “If beta decay explained the reactions in my device, I would have been killed already [by the radiation] and we would have found different isotopes,” Rossi told me.  He claims that he has a good handle on the theory, but he won’t disclose it until his patent is granted.

I don’t pretend to understand the physics, or to be in a position to know for certain whether the Rossi Energy Catalyzer is the breakthrough we have been waiting for.  Dennis Bushnell seems to think so. Here is how he summed up his interview with EVWorld: “I think we are almost over the “we do not understand it” problem. I think we are almost over the “this does not produce anything useful” problem. I think this will go forward fairly rapidly now. If it does, this is capable of, by itself, completely changing geo-economics, geo-politics, and solving climate issues.”

I want Andrea Rossi to succeed. Is his Energy Catalyzer the “New Fire”, as Rossi calls it? We don’t yet know for sure. But it is important that we forward a shared vision of a world with an abundant, inexpensive supply of clean energy.  Our future depends upon it.


David Niebauer is a corporate and transaction attorney, located in San Francisco, whose practice is focused on financing transactions, M&A and cleantech.  www.davidniebauer.com

Cleantech Blog’s Parameters for a Workable Energy Policy

Energy is life, the rest runs on it.

Since the 70s through every presidential administration and every Congress, we have had an energy policy that boiled down to fighting the cold war through oil and getting lucky on locally sourced coal and gas.  It’s not a zero planning energy policy, we’ve spent money, defined policies, written rules, set goals, etc.  We’ve just done our planning with 50 year old assumptions and zig zagged our way to idiocy.

One of my first ever blogs over five years ago touched on this topic:

My comments at the time after the 2005 energy bill:

We need to achieve low oil prices, and ensure that no one country is able to control our fuel supply. We have just passed a new Energy Bill. It does not do so. What we do need to do: Drop the ANWR fight and instead break the back of OPEC, slash consumption, and work closely with China.

But first things first.  This time I’d like to simply lay out the parameters of what ought to be in a workable, comprehensive, energy policy for the US in a post cold war era, where economic powers are shifting, where the war on terror is real, where environment matters, and where energy supply sources are changing and maybe getting more expensive.

Cleantech Blog has defined 20 parameters needed in a good energy plan.

  1. Has a clear cut and articulated vision – including acknowledging that energy security is not just  “energy independence”
  2. Deals with both demand and supply issues holistically
  3. Considers least cost path in any change
  4. Is phased in manageable ways
  5. Takes into account our current supply mix, load growth forecasts, and geographic considerations
  6. Includes both transport fuels and electric power
  7. Provides us with least cost or comparative advantage in energy both today and in the future vis a vis our core economic competitors
  8. Provides secure and interchangeable supply of energy resources and flows both domestic and cross-border
  9. Doesn’t destroy our current energy industry
  10. Allows time for energy and industry change
  11. Does the least environmental damage possible, and includes ongoing improvement in environmental impact
  12. Survivable under multiple energy demand growth scenarios and resource supply shocks in a global world
  13. Provides reliable energy to our industry and population
  14. Deals with or changes the current state and federal regulatory and permitting structures
  15. Considers the practicalities of infrastructure change, both lead time, economics, financing, technology, and regulatory
  16. Deals with the political considerations of OPEC and the Middle East
  17. Takes into account supply resources where we do have a comparative advantage
  18. Is fair and equitable during any shift in costs for one region or group
  19. Addresses and capitalizes on technology improvement in the US and globally
  20. Deals with China and India and Brazil as rising consumers and producers of energy resources

The energy policy itself should be simple in concept, and the energy plan hellishly detailed and complex in implementation.  But we desperately need this energy plan.

Energy is life, the rest runs on it.

Cleantech Industrial Policy for the United States

I’ve been thinking a lot over the past several months about industrial policy: actions by the public sector to help promote a fledgling industry so as to ensure, foster and/or accelerate its emergence.

In the cleantech sector, questions about industrial policy are particularly salient. It’s no secret that many aspects of cleantech – especially low carbon energy technologies – are not economically competitive at present, and that large profitable corporations in the U.S. are happier with the status quo than with supporting any push to accelerate a cleantech future. In other words, cleantech generally needs policy help to successfully penetrate the market, but helping cleantech is viewed by many as damaging to the economy.

Given that the incumbents have much more financial resources than the cleantech upstarts, they also tend to spend more on lobbying to preserve this status quo as much as possible, so it’s no wonder cleantech consistently faces such an uphill battle in the corridors of elected power.

Former Michigan Governor Jennifer Granholm is currently serving as a Senior Advisor to the Clean Energy Program of the Pew Charitable Trusts, and is doing a road-show to argue for Federal clean energy policies (excluding cap-and-trade as a non-starter in the current political climate) as a platform of long-term economic revitalization for the U.S. At her recent stop in Columbus at the University Clean Energy Alliance of Ohio annual meeting, I asked her what objection she most frequently encounters with her pitch, and how she attempts to overcome the objection. She was unhesitant: opponents don’t think that the government should be in the business of picking winners and losers.

What’s the retort? Granholm pointed to Pew’s recent report, The Clean Energy Race, and asserted the view that objections to industrial policy were “obsolete”, hangovers from an era in which the U.S. didn’t need proactive industrial policy because it was the only giant standing the wake of World War II and through the costly Cold War.  Today, China, Japan, Germany, Spain, the United Kingdom and others are going gangbusters in cleantech, far more willing to pull the levers of industrial policy to pursue leadership positions in the cleantech future, and Granholm (and others) argue the U.S. will surely be totally left out of the biggest game of the rest of the 21st Century if we don’t act.

Let’s pause for a minute and consider the strategy of these other countries. Will their proactive approach to promoting the cleantech sector create many thousands of jobs and immense fortunes for investors in these countries? Or, does their instinct for meddling with the market lead them down the path towards a financial calamity at some point in the future when public coffers can no longer afford supporting the promises that were made?

Consider some of the carcasses littered along the road of history, in which U.S. energy policy to promote some market or technology has often failed miserably, costing U.S. taxpayers large sums of money and thereby adding to our woefully immense national debt.  This sad history is amply chronicled in this paper written by Peter Grossman, Professor of Economics at Butler University.

Can we afford proactive cleantech industrial policy in the U.S.? Can we afford not to? Are the biases against industrial policy in the U.S. really “obsolete”?

“Industrial policy” is one of those terms fraught with baggage. To some, its very essence connotes “socialism” and just about everything negative that can be associated with government intervention. One of the great things about America has been that our capital and labor markets are very flexible, so that resources can be shifted quickly from one opportunity area to another as circumstances change.  And, isn’t it the business of industry to spawn and grow new industries?

But, it would be inaccurate to claim that the U.S. doesn’t do industrial policy. As Jesse Jenkins of the Breakthrough Institute notes with his excellent report Where Good Technologies Come From, the U.S. Federal government is pretty much solely responsible for creating the market and therein seizing U.S. leadership in a host of innovations dating back to the birth of the nation. The government played an essential role in cultivating innumerable technologies – and just as importantly, the markets and hence the companies that commercialized them and brought benefits to American customers and jobs to American citizens.  We’ve actually been picking winners for decades, centuries even.

More generally, the case can be made that the overarching U.S. industrial policy is to favor the industry of consumption. We have Federal taxes on income and capital gains, but with some minor exceptions, no Federal sales tax. We have deductions on home mortgages and accelerated depreciation of capital equipment, but precious little encouragement of productive investments in research.

These choices have broad implications on the shape of America: as Bruce Katz of Brookings noted in his excellent talk at the annual meeting of the Greater Cleveland Partnership in April, the cumulative effect of these policies has been to tilt the U.S. economy away from manufacturing and away from the Midwest, towards the coasts with its subsidized real estate and towards the service/consumption economy we know so well today.

Let’s face it: consumers are inherently fickle and are obsessed with the short-term. For the most part, individual Americans will not do what’s in the long-term strategic interests of their own selves, much less for their own country. For the sake of saving a few dollars, the average American is perfectly content to walk into Wal-Mart and buy clothing made in China, cheerfully saying hello to the greeter with the wan smile who used to work at the local textile mill, and worrying about how to pay the credit card bill later. If we in the U.S. want a more secure and sustainable future, putting it all in the hands of the customer is not the answer.

Unless you’re safely in the top few percent of American income or wealth and also don’t really care about the rest or about the future of this country at large, you would probably agree that the consumerist-industrial policy the U.S. has followed for decades, as described above, hasn’t served us particularly well.

Dennis Bushnell, Chief Scientist at NASA Langley, noted in a recent talk at the Blue Tech Forum that “China has a thousand year strategic plan, but the longest planning horizon of relevance in the U.S. is four years, associated with the Presidential election cycle.  As a result, America is terminally tactical.”  If one’s greatest strength is also one’s greatest weakness, then America’s fondness for market forces at the expense of industrial policy represents not only economic and social lubricity, but also a case of attention-deficit disorder in a deficit-laden society and economy.

While it’s true that industrial policy mitigates the flexibility of a fully free-market system, it also prevents the possibility of taking our eye off the ball for awhile if circumstances become unfavorable for a period — as it did for energy in the U.S. between 1986 and 2006, or for manufacturing since the 1970s.

An American cleantech industrial policy offers the possibility for the resurgence of manufacturing – a sector in which the U.S. used to excel. The status quo represents the ongoing dominance of resource-extraction – a sector that historically is highly correlated with corruption and kleptocracy, in addition to environmental degradation and social injustice.

This doesn’t mean stopping resource extraction in the U.S.  But, it does mean making sure that resource-extraction to feed rampant consumerism isn’t the primary leg of the future economic stool of the U.S.

Also, it’s eminently reasonable to be concerned about the unintended consequences associated with a cleantech-oriented industrial policy.  Accordingly we should be careful before acting, thoughtful in designing any programs, and diligent in our ongoing review of impacts.  

Even despite these risks and caveats, I nevertheless conclude that it would be hard to do any worse than what we’ve got now.

Alas, industrial policy involves a kind of public-private collaboration that chafes at both the left (which often distrusts private enterprise and the profit motive) and the right (which dislikes government intervention and would rather let markets sort things out).  This is the uncomfortable middle-ground in which I frequently tread, and in today’s political climate in America, it’s akin to the no-man’s-land between the trenches, getting ripped by machine gun fire from both sides. 

It’s no wonder, then, that stalemate prevails, and little of importance gets accomplished these days in developing a sane cleantech industrial policy for the U.S.

The Elusive Energy Storage Yeti

Large scale energy has proven almost as elusive a Yeti, and perhaps almost as all world saving juicy as the silver bullet for the werewolf or the Holy Grail itself (and not the Monty Python kind).

Energy storage for nearly 15 years has been the energy tech and cleantech version of the ultimate “but-if”.  I.E., but if we had that, life would be grand.  And untold billions have been expended globally on searching for it, here in the US in the distributed generation and fuel cell boom created in large part by Enron and , and through today’s ARPA-E.  Let alone in corporate and national research centers and universities around the globe, and venture capital backed startups galore.  Flywheels, superconducting energy storage, solid oxide fuel cells with internal batteries, hydrogen in metal hydrides, high pressure tanks, and activated carbon, super capacitors, regenerative PEM fuel cells, and those running on methanol and ethanol, new battery chemistries with lithium, zinc, sodium, etc, new battery topologies – bipolar this and left twisted plate that, varying chemistries and systems for flow batteries which look like fuel cells and act like batteries, new materials for old electrodes with nanomaterials, graphite, silicon, carbon nanotubes, and let’s not forget better power electronics to mimic the results, as well as compressed air, plain old ice and massive thermal sinks.   New and reworked energy storage ideas have proved a dime a dozen. Making them work, let alone scaling them up, costing them down and changing the world?  Well, that’s still Yeti-land.

So far we can’t beat the simple cost and expediency of building more power plants, more lines, and burning more natural gas. Let alone beat simply dialing back the usage.  Gravity and liquids and energy efficiency are still the ultimate crown jewel of energy storage.

The Problem basically boils down to this.  Yes, a myriad of technologies work.  Some work well.  Some look cheap on the surface.  Some even scale up. BUT they don’t get widely deployed.  Why?

Probably because at the spear point – at the application that each is best suited for, the costs are higher, the scale up is trickier, the directly applicable market is smaller, and the substitutes relatively better or cheaper or easier than we thought they were.

I’ve taken an only partially tongue in cheek attempt to describe the problem here, in the hope that a firm description of the problem will find us NOT waxing eloquent about the issue 15 years hence,  but find it solved by sharp minds.  Assuming of course that this is a problem that a better mousetrap can solve.  Better mousetrap of course, defined as better and cheaper than the alternatives, and better and cheaper than the value provided, by enough margin to make us get off the dime.

Energy Storage Adoption Problem

Direct Technology Cost x (1.5 to 2 yielding acceptable manufacturing and distribution margins)


Installed Cost x (1 + Service Margin)

= Total Installed Cost

Then where Cost is F(Depr of TIC, O&M Cost, Fuel Cost)

Then TIC / Number of Hours Used Per Unit of Time (Max of Rated Life (Max of Rate Life per Unit of Time)

+ (O&M Cost / Unit of Time) / Number of Hours Used Per Unit of Time

= O&M Cost Per Hour Used

+ Fuel Cost Where Applicable (F of cost of “storing the energy”, e.g. the device literally needs to “buy” and “sell” its energy stored for the time used.

And where Cost /Per Energy Hour Must Be:

Greater than Value of an Energy Hour Used in that Application


Less than the Cost /Per Energy Hour of the Substitutes

On both an LCOE and NPV basis, with adequately large differentials to justify the switching costs

Provided that:

Where DTC is a F(Technology type, Scale of systems, Unit Vol Sold/Unit Time)

Where UVS/Unit Time if F(time and construction and regulatory annoyance for Installed Cost, TC, Rated Life, Actual Field Performance, Availability/performance/cost of substitutes)

And where IC is a F(Scale of systems, Unit Vol Sold/Unit Time) – but a viciously different F than DTC

And where Substitutes can Comprise (Direct energy storage alternatives for that application, Indirect energy storage alternatives at system level that alter the need at that application, downstream energy efficiency projects, downstream demand response projects, downstream production alternatives, infrastructure or capacity expansion and adjustment both at that application and system wide that alters the need at that application, expenditure delays or adjustments in acceptable reliability or reserve margin requirements, and additional energy production both marginal in short term and base load in long term).

And that no subsidies or quotas are factored in.

And if we’ve provided got an articulation and a theoretical formula describing the problem – then it’s time for some to crack it. Peer review requested, fire away.  Provided that, no commentary will be read by the author if it does not either contain reference to one of my acronyms, or introduce a new one.

Into the Blue Yonder

At the invitation of Paul O’Callaghan, the CEO of the water consultancy O2 Environmental, I attended the Blue Tech Forum in San Francisco in early June to get a deeper perspective on water technology innovation.  It was well worth the cross-country trip, even for just a one-day event.

Paul’s opening remarks summarized the state of the water sector very succinctly.  Some key figures:  over 90% of the $350 billion annually spent on water worldwide – about half associated with capital equipment, half on operating expenses – comes from municipal/urban water treatment systems, yet less than 10% of water consumption can be attributed to municipal/urban use.  In contrast, agriculture accounts for 70% of global water use but only 2% of water expenditures, while energy production and other industrial activity accounts for 22% of global water consumption and only 6% of the financial outlays. 

Put bluntly, small point-of-use water consumers – individuals and non-industrial enterprises – heavily subsidize the massive quantities of water used by the producers of food, energy and other goods.  Such a major pricing distortion can only lead to massive unintended consequences and inefficiencies in the global economy.

This is just for the established markets for water, saying nothing about the billions of people on the planet who have no access to water, or to the 90% of wastewater that gets dumped into oceans untreated.

Although the water sector has historically been slow to innovate, things are changing:  according to Elsevier, water research has been growing at a 30% annual rate since 2000.  In Paul’s view, there are three themes that are guiding water innovation: 

  1. Realizing that all water issues are local.  Unless pure distilled H2O, water is far from homogenous.  Every water stream encountered in the real-world has different chemistries and thus has different water treatment considerations, requiring different technical solutions.  Systems to move and manage water must be done in the context of a specific geography, terrain and climate.
  2. Rethinking efficiency.  Paul noted Amory Lovins’ aphorism that many of us often seek to cut butter with a chain-saw, and then search for ways to improve the efficiency of the chain-saw, rather than looking for a butter knife.  In the case of water systems worldwide, there appear to be lots of chain-saws cutting butter.
  3. Providing water services in unorthodox ways.  Is water really needed to flush a toilet or to cool an engine or many other things for which we use water?  Can these functions be done with something else than water? 

The balance of the morning was organized as a venue for companies doing some of the more interesting research and commercialization in new water technologies to tell their stories.  Sessions were structured around four hot areas of water innovation:   (1) produced water and decentralized treatment/re-use, (2) smart water management and infrastructure, (3) advanced desalination, and (4) energy/resource recovery from wastewater.   For each of these four areas, four companies pre-selected by the forum’s advisory panel presented their novel technologies and strategies to penetrate the marketplace.

I’m a bit jaded, as I attend many conferences at which ventures make their pitches to prospective investors in raising capital.  I am often bored or easily distracted at such events, as many of the presenters fail to capture my attention.  However, I would rate Blue Tech very highly; the advisory panel did an excellent job screening the companies and surfacing some very promising opportunities for big impact and good financial returns. 

Among the companies I particularly liked were (in alphabetical order):   Hydration Technology Innovations (forward osmosis technology for desalination), Soane Energy (polymer monolayers for treating water associated with oil/gas production) and Zeropex (reversible generator/compressor to better manage distributed water systems).  HTI won the “disrupt-o-meter” award as selected by the audience, while Pasteurization Technology Group (technology integrator and project developer for wastewater disinfection and electricity production at water treatment plants) won the award for best go-to-market strategy.

The balance of the afternoon was spent discussing the dynamics of the water industry from various standpoints:  water utilities such as American Water (NYSE: AWK), large corporations serving the water market such as General Electric (NYSE: GE) and Veolia (NYSE:  VIA), venture investors with interests in water such as VantagePoint Venture Partners, Emerald Technology Ventures and XPV Capital

Albeit with different nuances and emphases, all agreed that water technology represented a challenging but nevertheless enormous investment opportunity for the coming decades, and that the richness of innovation and entrepreneurship in water was improving dramatically and rapidly.

Everyone was feeling pretty good about things in the water arena…and then Dennis Bushnell, Chief Scientist at NASA Langley, provided a quite amazing closing keynote talk that defies description.  I’ve written previously about the bearish resource views of Jeremy Grantham, and all I can say is that Dr. Bushnell makes Grantham sound like a ridiculous optimist.  Dr. Bushnell’s remarks went far beyond implications about the water industry to nothing less than the future of the human race and Planet Earth.  His fascinating but grim commentary merits a separate posting at a later date.  By no means did Dr. Bushnell’s speech detract from the Forum, but the conclusions he offered were so dire that it generated a wave of awe-struck head-shaking and nervous giggling from the audience, and sent us all eagerly into the cocktail reception seeking refuge from stronger stuff than clean water.

Geoengineering our Future

The Economist had an article in a recent issue about the “anthropocene” period, our new geologic era, where mankind is the dominant force in the geology of the planet.  A period where our agriculture, cities, dams, etc literally have and will permanently change the face of the earth itself, forever.

The article suggests that we are the driving force on a GEOLOGIC scale, and will never and can never go back to Walden Pond, and that a planet that supports 10 billion of us WILL look vastly different than it used to.  And that it has too.  Or it can’t support 10 billion of us.  And that that may be OK, as long as we worry about how a DIFFERENT look for Earth can be sustainable, even though it is not “pristine” and “natural”.

It got me thinking.

Not too long ago I wrote about some comments by renowned Lawrence Berkeley energy scientist Art Rosenfeld, describing the potential and low cost of white, “cool roofs” both to combat the heat island effect in cities, and to massively and cheaply manage energy use and carbon footprint.  He even commented how coupled with literally changing pavement color could make a massive difference, and called for policies and products to change the game.  Is this not just geoengineering for low impact?

REDD and forestation carbon credits and programs, just coming into their own in a big way, boil down to geoengineering by tree planting – not much different in principle than the geoengineering we’ve done by reworking forests into crop fields and native grasslands into modern hybrids, just optimized for different outcomes.  Is this just sustainable geoengineering optimization?

The Athabasca tar sands from space apparently look like a massive scar on the Earth.  An unmitigated environmental disaster, right? But consider, a few years ago I went back as an adult to the Boy Scout High Adventure camp at Philmont. I’d been there as a boy 15 years before.  When I was first there, the practices were all about low and zero impact backpacking.  Leave no trace was the mantra.  When I went back to a camp handling massively larger volumes of Scouts, that had changed.  You were literally forbidden from leaving the beaten path.  Built in permanent “sumps” for food disposal were in almost EVERY camp site.  Low impact does not mean no impact, and the volumes of people they were handling were much too high, and low impact was becoming high impact, so they’d changed to “concentrated impact” where necessary.  Is Athabasca just another permanent sump?

Are we at the same point as a globe?  Does sustainability need to recognize this?  What if geoengineering for sustainability means low impact needs to also mean concentrated, controllable impact on a global scale?  Does that make the tar sands maybe not quite as bad an environmental disaster as thought?  Because, to paraphrase a statement made to me in one recent conversation, nobody would go there otherwise, so what better place to do it if we have to?

So I ask, what if geoengineering IS our de facto future?  Because we’re just too large a population for anything else.  What if the Economist article is right, and we’re already there and have NO choice?  Does that change our perspective on cleantech, sustainability, and policy?  I think it may.