Energy Cache has developed a rather unusual energy storage technology. As described here, Energy Cache is offering a solution that is a hybrid of ski-lifts and mining technology, hauling gravel in buckets to the top of a hill. An offshoot of pumped hydro, Energy Cache consumes electricity during off-peak hours (when electricity is cheap) to lift the gravel, and allows the gravel to fall in the buckets, exploiting gravity to power a generator during peak hours (when electricity is much more valuable).
As Fike notes in his recent commentary, Energy Cache has been the butt of jokes among certain of its peers for its less-than-high technology approach to solving one of the more important needs facing the energy sector: an effective grid-scale storage approach that enables more power to be generated from intermittent wind and solar energy sources.
In contrast to Energy Cache, Fike worries that a number of other cleantech businesses “don’t follow the traditional ‘early adopters/early majority/late majority’ model made famous by Geoffrey Moore, and before that, by Everett Rogers. Instead, with the siren song of the cleantech market being the sheer size of the potential market, most firms position themselves to enter the market by skipping the early-adopters phase, because there is no early-adopters phase.”
Fike continues: “What happens instead is that a company will build a reasonably sized demonstration…and the next attempted step is a [twenty times bigger] plant, with no reasonable path in between. The problem with that step function is that it is nearly impossible to deliver on [because it] requires hundreds of millions of dollars in debt and equity – financing that won’t come without a well-proven track record of performance…Customers and financiers all want to be first in line to back the third major installation…The vicious Catch-22 of ‘You can’t get funding until it is proven; you can’t prove it without funding’ is incredibly strong. Nobody wants to be first.”
To avoid this conundrum, Fike says that Energy Cache consciously looked to develop a business that involved as little technology risk as possible. “When I founded the company, I felt that the biggest problem facing clean technology companies was the marketing and financing problem discussed above, not the technology problem. I set out to come up with a solution which used components from proven industries that we could point to, reducing uncertainty about lifetime, performance, and cost.”
At the conceptual level, without passing judgment on Energy Cache specifically, I think what Fike asserts so far is absolutely terrific, though I disagree with Fike when he later states that “the implicit demands of the investment community and the government finance community are for cool, breakthrough, technology-focused solutions.”
Well, I can’t speak for the “government finance” (i.e., hand-out) community, but as a card-carrying member of the investment community, I can unequivocally state that I (along with many others I know) really don’t care how wonderful a technology is if it can’t make any money. I also really don’t care how mundane a technology is if it makes good money. I am eager to find a boring unsexy investment opportunity that translates to profitable rapid growth with a high-value exit.
That being said, it is usually the case that a high-value exit is only achieved for companies that offer something proprietary — which in turn usually involves technology protected by both issued patents and trade-secret know-how — that prevents other companies from copying the formula for success. This is more often applicable to advanced technologies, though it certainly can apply to low-tech as well.
Maybe Energy Cache has found a technology that offers the ideal combination of proven simplicity and defensible competitive advantage. For many cleantech companies based on more ambitious technologies, Fike closes with a pithy forecast of the unpleasant fate ahead:
“Technology and IT market innovators and early adopters love new technology and are willing to take technology risk to adopt new products. Regulated energy and utility markets do not like, and in some cases are forbidden from, taking technology risk. To grow a cleantech company without recognizing these facts will result in a very painful impact with a very high brick wall.”
However sobering, this advice is a good reminder for all of us working in the cleantech realm to reflect upon periodically.