Betting on Black Swans

The phrase “Black Swan” was coined in the book of the same name by author Nassim Taleb to describe an event that is hugely important and influential that was not anticipated but yet in retrospect could have been.

September 11, 2001 is a classic example of a Black Swan.  It was only a failure of imagination by most Americans (including myself) to never have contemplated beforehand the possibility of such a dreadful day.  But, the terror attacks of that fateful day were pulled off with pitiful ease, without requiring any enabling technical or social developments.  Upon reflection, we should have seen it coming.  And, because it came, most countries around the world undertook a host of incredibly expensive actions.  Everything changed on 9/11.  The trajectory of human events was irrevocably and dramatically altered.

Of course, there have been many other Black Swans in recent history:  the Pearl Harbor attacks, the unveiling of the atomic bomb, the launch of Sputnik, JFK’s assassination, and so on.  Each was shocking, and changed the course of history.

These are all geopolitical examples, but there have been commercial examples as well.  In the past 50 years, the way we live has been wholly altered by such inventions as the transistor, graphic user interfaces (GUIs), touchscreens, and the Internet.  The way medicine is practiced has been overturned with the advent of medical imaging and non-invasive surgery, and the Genome project promises radical breakthroughs that we generally can’t foresee yet.

In energy, probably the most significant Black Swans in our lifetimes so far relate to advanced methods for discovering or extracting oil and gas from resources that were previously believed to have little economic opportunity.  This most notably includes hydraulic fracturing (a.k.a. “fracking”) to tap natural gas and oil from shale formations, but also embraces deepwater offshore exploration/production and steam-assisted gravity drainage (SAGD) recovery of the Athabasca oil sands in Alberta — all of which were pipe dreams (at best) a decade or two ago.

These hydrocarbon breakthroughs were largely made possible by the emergence of massive computational power to enable 3-D seismic imaging of deep geology and precision control of drilling and subsurface operations, assisted by dramatic improvements (in many cases, evolutionary over decades) in materials and mechanical technologies.  Some wags have said that the best rocket science occurring today is not aimed towards the heavens but instead is aimed underground.

Needless to say, these Black Swans in energy have transformed the oil/gas sector — one of the largest economic enterprises on the planet — which in turn has shifted the economic and financial fortunes of many players in the industry by untold billions of dollars.

So, the question becomes, are there Black Swans lurking ahead in the cleantech space?

Vinod Khosla certainly thinks so.  One of the most visible of the cleantech venture capitalists, Khosla penned last year a wide-ranging and ambitious thought-piece entitled “Black Swans Thesis of Energy Transformation”.

Khosla thinks that many other venture capitalists — including, presumably, me — are too cautious in pursuing “what could be” in energy.  By focusing mostly on the potential for attractive returns, venture capitalists have become captive to the pursuit of incremental improvement, and are thus overlooking “game-changers” that admittedly have higher risks.  A large part of his argument is built on the notion that forecasts are largely bogus, and too much weight in investing and managing is placed on the projections of the future by even the most expert of observers.

Khosla acknowledges that failure is a strong possibility with his bolder philosophy, but that is the price to be paid for aiming high and achieving great things.  Quoting Robert F. Kennedy, “only those who dare to fail greatly can ever achieve greatly.”  Now, maybe having a billion dollars of your own wealth, stemming mainly from his role in founding Sun Microsystems, helps to give Khosla the confidence to accept a high likelihood of failure.  However, through his fund vehicle Khosla Ventures, he is investing other people’s money too, so he can’t afford to be too cavalier — at least for very long.

Khosla’s mantra is “shots on goal”:  making lots of bets in potentially transformative technology areas.  In his paper, he singles out twelve of the portfolio companies of Khosla Ventures as being particularly ambitious, with the potential for huge returns.

His lament is that there aren’t more firms or funds or organizations taking similarly audacious and numerous “shots on goal”.  “If there were a hundred such Black Swan venture funds [similar to ours], each with its own points of view, we would have 10,000 ‘technology’ shots on goal over a decade, or at least more than 1,000 non-overlapping attempts.  With that number of shots, or even just a thousand, I believe we would have a near certainty of at least ten assumption-shattering successes in major market segments.”

I don’t have a clue as to where the other 99 funds like Khosla’s will come from.  I don’t know many investors who have that risk-appetite, especially in today’s turbulent world.  There may be some needles in the haystack out there, but they are few and far between.  Moreover, it’s unclear how much wealth those rare individuals possess and can allocate to helping hatch the Black Swans of cleantech.

It’s notable that Khosla supports the efforts of ARPA-E, the group within the U.S. Department of Energy tasked with providing funds to risky but promising energy innovations.  He probably knows that the other Black Swan funds he’d like to see from the private sector aren’t likely to emerge.  Indeed, in his white paper, Khosla really doesn’t offer much of a logical investment thesis for Black Swan investing, beyond some wishful thinking and a deep trust in the law of large numbers.

Alas, low-cost public sector capital is simply more well-suited than private capital to cleantech Black Swans, which after all are big/bold bets offering large long-term social value.

In turn, this reliance on public sector grant support for new energy innovation causes many observers in the political realm to buck up their backs in opposition, complaining that the government shouldn’t be in the business of “picking winners and losers”.  Unstated but underlying this criticism is the belief that our conventional energy system based on hydrocarbons never benefited from such largesse, so why should cleantech?

Tell that to George Mitchell.

For many years during the 1980s and 1990s, Mitchell and his firm experimented with fracking, with limited success.  Many in the oil patch told him that he was wasting his time…and his money, about $6 million of it.

But, as this recent analysis by The Breakthrough Institute concludes convincingly, the development of fracking technology to enable the production of shale gas would not have happened if the U.S. DOE hadn’t provided a substantial amount of support for decades along the way.

Today, years later, shale gas has dramatically reshaped the playing field in the energy sector.  The tireless efforts of George Mitchell and his willingness to bet big bucks have rewarded him with a fortune worth billions.  He built that Black Swan.

But, then, he did so with the help of U.S. taxpayers.  Mitchell almost certainly wouldn’t have achieved what he did without substantial involvement of the government.

It’s the kind of public-private partnership that will need to be replicated to achieve more breakthroughs in cleantech in the decades to come.  The resulting Black Swans will also generate a number of cleantech fortunes, and these should be celebrated, as the appetite for risk-taking by devoted entrepreneurs and inventors must be commensurately rewarded by enough examples of success.

And, it should be hoped, these future cleantech billionaires can plow back large shares of their fortunes into philanthropy and investment in efforts to address and solve the world’s problems of that later era for subsequent generations.  Much like Vinod Khosla is doing today.

The Deeper Meaning of Sandy

Watching the video feeds from the New York and New Jersey areas in the wake of Sandy reminded me of the images seven years ago from New Orleans being decimated by Katrina.

Other than perhaps providing a warning not to call a particular geographic area “New” anything, what do these storms tell us?

Like Katrina did, Sandy reminds us most poignantly how little most Americans think about the reliability and importance of energy – until it’s not there.  And then, they think about it – a lot.

The sight of people lining up for gasoline, and fighting about who gets to the pump first, is evidence of the dependence of our society on commodities over which individuals ultimately have minimal control.

The sight of people screaming at civic leaders about the slow pace of power restoration says volumes about the resentment about our subservience to technology – and the necessary prerequisites that enable technology to actually work.

The sight of people desperately tapping into scattered energized cell phone charging sites, so that they can maintain connectivity to others that they depend on or that depend on them, confirms the observation that our species is no longer able to be truly self-sufficient, much as some may like to think otherwise.

Sandy thus reminds us that our vehicles and our buildings and our communications need constant access to energy, whether electricity, gasoline, diesel or natural gas.  Without energy, these artifacts of modernity quickly become irrelevant.  Without energy, 21st Century humans can barely survive at all.

In turn, the supply line of energy provision is an immense enterprise that can nevertheless be easily disrupted.  The short-term consequences can be acutely tragic, with damaging economic effects that can linger for a long, long time.

One consequence of Sandy is that, like Katrina, it has elevated the topic of climate change in the national discourse.

Many advocates had been complaining about “climate silence” during the 2012 Presidential campaign, but New York Mayor Michael Bloomberg threw the issue into the spotlight in the wake of Sandy by endorsing Obama over Romney.  The endorsement came in large part because Bloomberg believed that Sandy was amplified by climate change, and that candidate Obama was more committed to taking action to combat climate change, thereby reducing the risks to low-lying places such as New York in the future.

The hand-wringing conversations occurring now are similar to those immediately post-Katrina, and I expect that the U.S. will similarly act on climate change now as it has consistently since then – with no action.

Alas, that’s because the political climate in Washington is probably in worse shape than the atmospheric climate covering the planet.

Although we can’t say for sure that Sandy (or Katrina, or any of the other mega-storms of recent years) were caused or even worsened by anthropogenic climate change, most experts agree that the frequency and magnitude of extreme weather events is likely to increase as the energetic content of the atmosphere and oceans has risen with decades of carbon dioxide emissions – from consuming the energy upon which we so utterly rely.

Moreover, experts also agree that the emissions of the past decades have still yet to exert their full impact on the climate, so some additional worsening is likely baked in, even if the world (especially the U.S.) finally decides to do something to control emissions on a going-forward basis.

So:  Expect more Sandies and Katrinas.  Expect more heat waves.  Expect more droughts.

In fact, expect more blizzards too.  The average temperature of the planet may be increasing, but the probability distribution of temperatures is widening, which means cold events will still happen on occasion.  And, when they do, they may well be accompanied by more moisture – hence, blizzards.

All of this illuminates a central thrust of how the cleantech sector can best help mankind in the decades to come, in the face of what is likely to be increasing climate chaos:  adaptation.

Adaptation has many forms.  For instance, adaptation should force a re-think about the wisdom of civil construction right along ocean shorelines.  Adaption might involve people relocating to live within reasonable walking distance of their workplace, not reliant on vehicles or public transportation.

Adaptation also suggests that, given an increasing exposure to storms like Sandy (and other threats such as terror attacks), the energy system should be designed and built with greater redundancy and dispersion of assets, to be more robust in the face of overwhelming events – of which Sandy is just the latest.

Sandy should provide an impetus for increased installation of uninterruptible power systems and backup/standby generators – especially at gasoline stations, many of which in the Northeast were put out of commission due to lack of electricity – as well as an awareness NOT to situate these devices in places where they will be flooded and hence unusable exactly when they’re most needed.

More broadly, becoming more resilient in a more turbulent world implies a move away from a centralized energy topology based on large-scale refineries and powerplants, and the huge corporations that own and operate them.

Making that transition would not only be expensive, as it implies a massive change-out in the nation’s energy infrastructure, but it would be highly uncomfortable.

Although they like to think that the nation has been built largely from the bottom-up via individual initiative, Americans are stuck in an outdated “top-down” mentality when it comes to the energy sector.

Americans are complacent about their reliance on the power grid and on petroleum-fueled vehicles.  They want continuous access to any form of energy at virtually no cost.  While they prefer minimal environmental impact and detest the strategic reliance on the Middle East for oil, they heartily trade off higher emissions or ongoing geopolitical subjugation for a just few cents cheaper.

Americans may not much like Big Oil, or utility monopolies, or the dirtiness of the coal sector, but they don’t want to sully themselves by doing much to disrupt them from their current dominance.  They certainly have limited appetite for taking energy matters into their own hands by supporting novel smaller-scale distributed energy approaches being pursued by cleantech innovators that may entail a little more cost (at least currently).

In many ways, the American willingness to go along with the energy status quo mirrors the American dependence on large institutions – governments and corporations alike – that are nevertheless widely-hated and even antithetical to the idealized notion of American self-reliance.

Sandy thus has highlighted the deeply-seated fear and loathing of the United States, circa 2012, in a way that would do Hunter S. Thompson proud.  The physical damage wrought by Sandy upon New York and New Jersey is a metaphor for the salt that Sandy has thrown in the open wounds of the collective American psyche.

There is a joke that asks “How many psychiatrists does it take to change a lightbulb?”  The answer is “Just one, but the light bulb really has to want to change.”

Whether Americans in the wake of Sandy will want to undertake the effort to change, in order to not only heal themselves but inoculate themselves against challenges posed by future storms like Sandy, is a major question.  The evidence, post-Katrina, indicates a high willingness to moan and groan, but a limited appetite for making the necessary commitments and sacrifices to effect meaningful long-term improvement.

Meanwhile, the cleantech community continues to press forward, under the forecast that opportunities for positive impact will only increase in the years to come.

The Proper Role of Government in Energy

Since tomorrow’s election is heavily focused on the appropriate scope of government, I have spent a little time lately reflecting upon the proper role of government in the energy sector.

In regards to the U.S. Presidential race, I will refrain from analyzing the respective policies and stances concerning energy of the two candidates.  This recent article from Fortune does a not-bad job of that.

Rather than get down into the weeds with an inordinately long list of specific ideas for a highly complex economic sector, I prefer to keep this discussion at a high-level, articulating basic principles that offer suggestions to guide elected officials and bureaucrats on how energy policies and regulations should be set.

This would be my short-list:

  1. Establish marketplace rules with long-term clarity to enable best investment decisions on long-lived assets and business strategies
  2. Ensure externalities from free-riders causing economic harm to society are fully internalized into market pricing signals
  3. Deregulate those services that can be provided competitively, force breakups where there is excessive market power preventing competition from being effective, and aggressively regulate services where competitive alternatives don’t exist (providing incentives for cost efficiency and non-discrimination)
  4. Promote full disclosure and transparency of information to all market participants to help in making optimal decisions
  5. Privatize public sector assets in competitive market sectors, and hold (potentially acquire?) assets in non-competitive segments to eliminate the possibility of exploitation by for-profit monopolists
  6. Set minimum standards of health, safety and environmental compliance, ensure these standards are met by all market participants, and enforce via meaningful penalties
  7. Facilitate responsible development and production of energy resources – as long as all health, safety and environmental standards are fully met
  8. Provide tax credits for pre-commercial research on new energy technologies to spur further innovation
  9. Structure incentives or mandates based on desired market, social or environmental outcomes rather than technological outcomes

As you can see, I am a big believer in the power of markets to most efficiently allocate capital and drive consumer behavior.   But, that doesn’t mean that the energy sector should be completely unregulated, and that the government should have little role in it.

Dating back all the way to Adam Smith over 200 years ago, it is widely-accepted among economists (at least non-Marxist ones) that free markets only produce efficient outcomes for the economy as a whole — and even then, don’t necessarily produce equitable outcomes — when (1) no participant in the market has undue power (i.e., no monopolists or monopsonists), (2) all information is available to all parties, and (3) there are no externalities (or they have otherwise been folded appropriately into market prices).

Alas, these pre-conditions do not widely apply to the current state of play in the U.S. energy sector.  As a result, even without considering questions of fairness, there is a clear need for government intervention to ensure socially-efficient outcomes.

The principles above are my thoughts on the extent and limits of proper intervention.

And, it should be noted that the principles I outlined above will only work well to produce socially-efficient outcomes when they’re all followed pretty faithfully.  For instance, without fully internalizing the social costs of carbon emissions in energy prices as stipulated in my second principle, other artificial mechanisms (e.g., renewable portfolio standards and renewable fuel standards, focused government R&D programs on low-emission energy technologies) in violation of my eighth principle are sometimes “second-best” solutions to make up for deficient attention to the second principle.

It should be evident that neither Romney nor Obama are particularly beholden to my proposed set of principles, as their campaigns pick and choose some to trumpet and disregard or oppose others.

How would you characterize what the role of government in the U.S. energy sector should be?  While it may influence how you might vote tomorrow, don’t expect either Presidential candidate ultimately to have much impact, as the U.S. President has less influence on the energy sector than is generally supposed.

At the outset of the October 16 debate, the candidates were asked by a citizen what they would do to push down gasoline prices.  Both Obama and Romney responded by touting how they had, or were going to, increase domestic production of oil (as well as natural gas).  That can help drive down prices a little, but the impact is pretty marginal:  oil and gasoline prices are set by conditions in world markets, by factors well beyond the control of the President of the United States.

Bluntly, the underlying premise of the question was horribly flawed:  the President can’t move gasoline prices, and the President can only move supply and demand a very little bit…and even then, only over an extended period of time (for instance, as new auto fuel efficiency standards come into effect or as expanded oil exploration and production opportunities are brought into play).

By the fundamental structure of the Constitution, all powers not reserved for the Federal government are delegated down to the States.  And, in many issues pertaining to energy, it’s really state policy that matters.  That allows the energy economy of California to look increasingly like the energy economy of Germany, while the energy economy of Louisiana looks more like the energy economy of Saudi Arabia.

The most one can expect from a U.S. President, when it comes to energy, is the espousal and dedicated ongoing pursuit of general principles akin to those I outlined above.  He (or someday, she) has a bully-pulpit to argue for pressing ahead on a broad vision, and taking supportive actions with lots of little strokes — many of which are far more symbolic than substantive.  (Remember Jimmy Carter placing solar thermal panels on the roof of the White House?  Remember Ronald Reagan taking them off?)

When choosing between Obama and Romney — at least for me, at least when it comes to energy — it’s a choice of lesser-among-two-evils.  Both of them are beholden to the over-simplistic dogma of their respective parties.  Neither of them is able to discard outdated or ineffective planks of his party’s overall energy platforms, or to embrace new ideas not typically advocated by his core constituencies.

Even though our choices are far from perfect — on energy policy and a whole range of other important matters — I urge all Americans to uphold their civic duty and exercise their right to vote.  As my aunt Doris used to say, you have no moral authority to complain about the government if you don’t vote.

Meanwhile, my proposed principles of energy policy remain, standing by, for some future American leader to consider.

A123 Goes 3,2,1,0

On October 12, the lithium-ion battery maker A123 (NASDAQ: AONE) essentially ran the white flag up the pole:  filing for Chapter 11 bankruptcy, agreeing to sell its automotive-related assets to Johnson Controls (NYSE: JCI), and fielding bids for its grid-storage business.

This is a big come-down from a company that not long ago had a market capitalization of over $2 billion, and was viewed as a high-flyer in the cleantech sector, having been one of the few VC-backed cleantech companies to achieve an IPO.

Alas, the markets for A123’s batteries — both in electric vehicles and on the electricity grid — didn’t grow as rapidly as many had anticipated.  Frankly, that isn’t terribly surprising, given how risk-averse and conservative the automotive and electricity industries are in adopting new technologies.  Not to mention, the economics just aren’t there yet, and while battery costs have come down and battery performance has gone up, continuing subsidies on fossil fuels makes the breakeven point challenging.

A few months ago, A123 had announced plans to obtain financing from Wanxiang, a Chinese manufacturer of auto parts, that would have kept A123 afloat (although may have only postponed the inevitable).  The proposed deal produced a din of objections that American-funded battery technology shouldn’t end up in foreign (especially Chinese) hands.  So, now it won’t, though I’m sure that holders of A123 equity aren’t particularly happy about the consequences.

As noted in this reportage by Forbes, the demise of A123 as a company doesn’t mean the demise of its technology — or of the benefits to American customers from using its technology or American employees in making products based on its technology.  This point is no doubt lost on those who bitterly complain about A123 having received U.S. government financial support as yet another bad investment and more evidence that the public sector is lousy at and therefore ill-advised to “picking winners and losers”.

As is often the case, only time will tell.  It will be interesting to report in a few years on how much value Johnson Controls will have been able to generate with A123’s technology.  And only then can a true reckoning be made of the cost-benefit of U.S. public financial support for this technology.

Midwestern Sensibilities: Report from North Central Cleantech Open

Last week, I served as a judge for the North Central regional contest of the Cleantech Open in Minneapolis.

The Cleantech Open is a annual contest to identify the most promising cleantech ventures from across the U.S. (along with some foreign entries).  This year’s event will be held on November 8-9 in San Jose.  Advancing there from the North Central region — which includes much of the Midwestern U.S. — will be the following three ventures:

  • HEVT, a Chicago-based venture commercializing technology developed at the Illinois Institute of Technology to eliminate the need for volatile-priced and environmentally-damaging rare earth metals in high-efficiency motors.
  • IrriGreen, a Minneapolis-based company offering an elegantly-simple solution for lawn sprinkling that is much lower cost and uses much less water for more thorough coverage.
  • SiNode, a Chicago-based student-led spin-out from Northwestern University working on superior anodes for batteries that promise longer talk-times and shorter recharge times for smartphones.

These ventures were selected from 20 that made pitches to a team of judges (including myself).  As you might expect, there was some variation in quality among the 20:  the above-noted (and a couple more) were pretty darn interesting, whereas probably ten of the 20 would likely be of interest only to few potential investors.

In addition to the 20 ventures in this year’s regional contest, some winners from the North Central region in prior years of the Cleantech Open participated in an open-house.  Three of these especially stood out to me:

  • Atmosphere Recovery, from the Minneapolis area, which is selling a unique Raman laser gas analyzer to facilities with industrial gas processes, allowing for much more efficient operations.
  • Earth Clean, also from the Minneapolis area, which offers a very promising fire extinguishing material called TetraKO that is far more effective than either water or foam while also being entirely biodegradable.
  • Whole Trees, from Wisconsin, which sells components based on small diameter trees to provide cheaper, stronger and more aesthetic structural building systems than steel.

According to several judges who’ve been involved for several years, the progress made by alumni since their participation in the Cleantech Open suggests that they benefited from the rigor involved in participating in a venture competition.  So, it will be interesting to see how this year’s winners — HEVT, IrriGreen and SiNode — evolve and appear in future years.

While perhaps not as widely-recognized as other geographic areas, promising cleantech innovation is occurring in the Midwestern U.S.  Reflecting the no-nonsense pragmatic ethos of our region, this entrepreneurship is less of the “swing for the fences” variety associated with the bold cleantech gambits made in batteries, electric vehicles, biofuels or solar.  But, as many investors have experienced all too painfully, some of the ventures pursuing big ideas in these spaces may have been “bridges too far”.  Much better, in my humble opinion, to bite off opportunities that are easier to chew — and that’s what largely seems to be happening here in the Midwest.

Stunning Cleantech 2012

It’s been a busy, ummm interesting year.  We’ve tracked profits to founders and investors of $14 Billion in major global IPOs on US  exchanges and $9 Billion in major global M&A exits from venture backed cleantech companies in the last 7-10 years.  Money is being made.  A lot of money.  But wow, not where you’d imagine it.

5 Stunners:

  • Recurrent Energy, bought by Sharp Solar for $305 mm, now on the block by Sharp Solar for $321 mm.  Can we say, what we have here gentlemen, is a failure to integrate?  This was one of the best exits in the sector.
  • Solyndra Sues Chinese solar companies for anti-trust, blaming in part their subsidized loans????????  Did the lawyers miss the whole Solyndra DOE Loan Guarantee part?  It kind of made the papers.
  • A123, announced bought / bailed out by Chinese manufacturer a month ago, now going chapter bankruptcy and debtor in possession from virtually the only US lithium ion battery competitor Johnson Controls?
  • MiaSole, one of the original thin film companies, 9 figure valuation and a $55 mm raise not too long ago (measure in months), cumulative c $400 million in the deal, sold for $30 mm to Chinese Hanergy just a few months later.  (Not that this wasn’t called over and over again by industry analysts.)
  • Solar City files for IPO, finally!


My call for the 5 highest risk mega stunners yet to come:

  • Better Place – Ummmmmmmmmm.  Sorry it makes me cringe to even discuss.  Just think through a breakeven analysis on this one.
  • Solar City – a terrifically neat company, and one that has never had a challenge driving revenues, margin, on the other hand . . .
  • BrightSource – see our earlier blog
  • Kior – again, see our prior comments.  Refining is hard.
  •  Tesla – Currently carrying the day in cleantech exit returns, I’m just really really really struggling to see the combination or sales growth, ontime deliveries, and margins here needed to justify valuation.

I’m not denigrating the investors or teams who made these bets.  Our thesis has been in cleantech, the business is there, but risk is getting mispriced on a grand scale, and the ante up to play the game is huge.


Cleantech VC Etiquette

Being a venture capitalist is not easy.  Being a cleantech venture capitalist is especially not easy.

I remember Ira Ehrenpreis of Technology Partners, one of the deans of the cleantech VC community, commenting archly several years ago at one of the too-many cleantech investment conferences:  “We need a poster child for cleantech venture capital success.”  Well, generally speaking, we’re still waiting.

There aren’t that many cleantech venture capitalists.  You know who you are.  I know, or know of, most of you.  We need to work together, to help each other, achieve some good successes in cleantech venture financing, so as to improve the well-being of our sector.  This will be to our collective benefit.

So, I write a simple plea to my fellow cleantech VC practicioners:  can you at least respond to emails?

I’ve worked on both sides of the cleantech venture finance table — both in trying to raise capital for ventures, and in making investments in ventures — for nearly 15 years.  And, I submit that the courtesy of most investors in the cleantech space is pretty appalling.

Too frequently, when I send an email to an investor claiming to be interested in cleantech deals, inquiring if they potentially would consider looking seriously at one of the deals with which I’m involved, I encounter deafening radio silence.  Nothing.  Not a peep.  As if my message went into a black hole.

Of course, most of these investors probably want to say “No, thank you,” and don’t want to take the time to respond or the effort to come up with a gentle gracious turn-down.  But, really, how hard is it to reply?  I would appreciate some kind of an indication to my emails, to at least ensure that you received the email (i.e., I’ve got the right address), and maybe get some useful feedback.

Not to pat myself on the back inordinately, but I try damn hard to be responsive and make useful suggestions to anyone who sends an email to me seeking financing, in the aim of building goodwill and helping the sector as a whole.  You might even call it trying to foster good karma.

Look, I’ll make it easy for you:  here’s a generic email response that you may feel free to use.


Dear Richard,

Thanks for your email regarding [venture name].  I appreciate you thinking of us.  Unfortunately, we are not in a position to consider an investment, because [choose one or more of the following]:

a)  It’s too small

b)  It’s too big

c)  It’s too early

d)  It’s too late

e)  It’s geographically inconvenient for us

f)  We have a competing investment in this space

g)  We’ve had a similar investment before that didn’t work out well and thus are not attracted to this space

h)  We’re in-between funds and don’t have capital to deploy at present (bonus points for candor!)

You might consider contacting [insert cleantech VC name/firm here], as he/she/they might find this opportunity to fit nicely into their sweet-spot.  Good luck!


See, that wasn’t that hard, was it?

San Diego’s Smart Grid

I have to admit:  it’s hard for me to be terribly enthusiastic about electric utilities.  I know a fair bit about them; by my count, I’ve served about ten utilities in various consulting roles during my career.

While generalizations are always dangerous, for the most part, I think it’s safe to say that electric utilities can be characterized as highly protective of the status quo.  Utility executives and employees are typically competent, and take their mission for “keeping the lights on” very seriously, but they tend to be averse to change — the opposite of visionary.

For those of us who are trying to forge a new and better future, who see the eventual emergence of new and more environmentally-friendly technologies as natural and unstoppable as water flowing downstream, utilities can be large boulders in the river.

So it was with some skepticism that I began reading a couple of recent articles about the technology deployment efforts of San Diego Gas & Electric (SDG&E), an operating unit of the utility holding company Sempra Energy (NYSE: SRE).

In August, Power presented its 2012 Smart Grid Award to SDG&E, largely for its smart grid deployment plan (SGDP), which (in its own words) “empowers customers, increases renewable generation, integrates plug-in electric vehicles (PEVs) and reduces greenhouse gas emissions while maintaining and improving system reliability, operational efficiency, security and customer privacy.”

With this plan, SDG&E is aiming to enable a “smart customer” that is able to make more choices and have more control over energy decisions, a “smart utility” that manages a host of ever-advancing supply- and demand-side resources and the grid that integrates the two, and a “smart market” for customers and energy suppliers that preserves power quality and reliability on the grid while increasing price transparency.

In a separate article in EnergyBiz, a Q&A with SDG&E’s President & COO Michael Niggli reveals how extensive the SGDP roll-out has already been in San Diego.  All customer meters — 1.4 million electric, 850,000 gas — have been upgraded.  18,000 rooftop solar units totaling 138 megawatts (3% of peak demand) have been installed.  1600 PEVs are driving around town and plugging-in at various charging stations, bringing new meaning to the phrase “San Diego chargers”.

On top of this, a host of other less-visible advancements — extensive deployment of updated SCADA systems, weather sensors, wireless communications infrastructure — are bringing the grid in San Diego out of the 20th Century to the 21st Century.

All of this will help SDG&E meet the goal of supplying 33% electricity of its electricity from renewable (mostly intermittent) sources while also accommodating potentially 200,000 PEVs by 2020 — which would be difficult if not impossible to achieve without advanced technologies such as those being deployed as part of the SGDP.

As impressive as this all is — and kudos to SDG&E for their accomplishments — it should be noted that San Diego citizens and California regulators were critical to this outcome.  SDG&E may have rolled out the SGDP effectively, but they may not have developed the plan at all unless there was strong push and pull from outside forces.

San Diego residents have been very proactive in installing new renewable and efficiency technologies in their homes, and have been actively seeking engagement with SDG&E on how to get the most benefit from them.  In Sacramento, California”s ambitious set of energy policies — a renewable portfolio standard (RPS), greenhouse gas reduction legislation (AB32), distributed generation goals, demand response mandates, and improved building and appliance efficiency standards — made it untenable for SDG&E to stand still with aging equipment based on decades-old technologies.

Lacking these external forces, I doubt that SDG&E would have made anywhere near as much progress in the smart grid and wouldn’t be far ahead of most other U.S. utilities, who do generally lack these forces.

The moral of the story is that electric utilities, as regulated companies, are reactive rather than proactive.  SDG&E should be applauded for being highly responsive, but let’s not confuse that with being visionary.  Indeed, it’s naive and maybe even unreasonable to expect utilities to be visionary.  All we, as cleantech advocates can do, to “get” utilities to “get it” is to ensure that there’s enough outside pressure for them to “get it”.

If more places across the U.S. were more like San Diego, the transition to the cleantech economy would probably be further along than it is.

A Cleantech State of the Union

With October now upon us, data providers are beginning to issue their preliminary analyses of cleantech investment in the third quarter of 2012 that just closed. This quarter, the Clean Energy pipeline service of London’s VBResearch is the first to weigh in, counting cleantech venture capital & private equity investment (excluding buyouts) as approximately $1.7 billion.

Data from other providers, like Dow Jones VentureSourceBloomberg New Energy FinancePwC/NVCA MoneyTree, and Cleantech Group will follow in the coming days. No two providers’ numbers will be the same, given differences in how they define cleantech and what exactly they track.

Based on latest quantitative and qualitative data we at Kachan & Co. have access to, here’s our own analysis of the state of the union in the global cleantech market, and why.

Consider the following a snapshot of the current health of the cleantech sector, informed by—but not simply an analysis of—the third quarter numbers.

3Q12 investment is expected to be approximately the same as the one previous. Venture investment in cleantech is going to be down overall this year over last.
The second quarters of the year in cleantech are usually down, if you look at historical data—so a relatively poor 2Q12 was no surprise—but third quarters are historically usually the best quarter of the year for global cleantech investment. Based on deals we’ve seen, we’re expecting about $2b in venture investment in global cleantech in the third quarter of this year once all the data is in, and that sometimes takes a few month after the quarter closes. $2b is not great, as compared to previous years on record, but it’s okay. It’s not as if cleantech investment has halted. Cleantech is still one of the world’s dominant investment themes.

For interest, some of the largest deals of the quarter:

  • $200m to China Auto Rental, efficiency/collaborative consumption, Beijing
  • $136m to, efficiency/smart grid, Virginia
  • $104 to Elevance Renewable Sciences, biochemistry, Illinois
  • $104 to Fiskar Automotive, transportation, Irvine CA
  • $93M to Element Materials Technology, advanced materials, the Netherlands

Venture #s aren’t just down because of natural gas.
Last year, we predicted global venture and investment into cleantech to fall. Not dramatically. But we expected cleantech venture in 2012 to show its first decline following the recovery from the financial crash of 2008. Why? Three big reasons: the lag time of negative investor sentiment towards cleantech that started in 2011, waning policy support for cleantech in the developed world and an overall maturation of the sector that’s making it arguably less dependent on venture capital as corporations take a more significant role.

When you the continued low price of natural gas undermining clean energy innovation and project deployment, it should be no surprise that cleantech metrics are down.

But while the price of natural gas is one of the reasons cleantech is depressed, it doesn’t mean the end of the line for the whole of the space. Natural gas is eroding the compellingness of clean energy, but cleantech is more than just energy. Cleantech, as defined, is much broader, and includes transportation, agriculture and other categories that may actually see benefit from lower natural gas prices.

Plus, there are natural gas innovations that could be key to the success of future renewable energy. Renewable natural gas—gas from non-fossil-based sources—could end up the most important form of renewable energy, because it could be distributed in today’s transmission infrastructure, and help utilities generate baseload renewable power without solar or wind, or expensive renewable energy storage. Kachan & Co. has published a report in conjunction with a gas company that profiles seven firms at the forefront of generating large quantities of pipeline-grade renewable natural gas from biomass, based in Germany, the Netherlands, Norway, Switzerland, the U.S. and Canada.

With venture down, pay attention to the increasingly important role of corporations in cleantech. Large global multinationals are increasingly participating as clean technology investors, incubators and acquirers. With the largest companies worldwide sitting on trillions in cash, the climate is right for increased corporate multinational M&A, investment in and purchases from cleantech companies. Corporations have become the source of cleantech capital to pay closest attention to going forward.

Investors are worried about returns in cleantech; some are distancing themselves from the sector. Will that leave governments and large corporations to help companies through the valley of commercialization death?
Not all cleantech investments have worked out as planned. Investors are still waiting for their cleantech portfolios to produce expected returns. Why? Many cleantech investments are still sitting in managers’ portfolios waiting for an exit.

The cleantech exit environment is indeed suffering. The North American and European IPO markets remain shut, while public exits are alive and well in China. There were 9 clean technology IPOs raising a total of $1.79 billion in 2Q12, the last quarter for which data is publicly available at this writing, and ALL of them took place in China. We first raised alarms about this trend a couple of years ago. It’s the major area of concern for investors currently. And cleantech mergers and acquisitions are still depressed. Global cleantech M&A activity totaled $16.3 billion in 3Q12, according to VBResearch. That’s a 68% increase on the $9.7 billion in 2Q12 but a 30% decrease on the $23.2 billion recorded in the same period last year.

Of the capital that is being deployed, less of it is going to early stage deals. Venture investment in early stage cleantech rounds fell to a mere $382 million in 3Q12, the lowest quarterly volume since 2009, by today’s Clean Energy pipeline numbers. The large year-on-year decrease was caused by an absence of large solar deals, according to the company.

Limited partners (LPs), the institutions that fund venture capital firms, are less enthusiastic about cleantech today. Why? Mixed returns. The 5-year old CalPERS Clean Energy and Technology Fund, a fund-of-funds-type program, had a net internal rate of return since inception of -10% on $331.7 million invested as of Dec. 31, 2011, the last period for which data is available, according to data obtained by Pensions & Investments. Contrast that with the performance of Riverstone/Carlyle Renewable and Alternative Energy II. While only some $172 million of its $300 million commitment in September 2008 has actually been invested, the pension fund has seen a 12% net IRR from the investment as of Dec. 31, 2011. CalPERS’ $25 million commitment to VantagePoint CleanTech Partners LP, made in 2006, has earned a 12.4% net IRR—again, according to Pensions & Investments.

Most cleantech investors will have heard of Moore’s Law. Now some are learning, if they hadn’t known of it by name previously, of Sturgeon’s Law, that ‘90% of everything is cr*p.’ Which, unfortunately, but clearly, also applies to cleantech investments.

It begs the question: If venture investing is down and large corporations are taking more of a role in fostering cleantech innovation, can they and governments (which we argue should get out of the business of funding cleantech companies) be trusted to support emerging cleantech innovation as it struggles to reach meaningful commercial scale and availability? Increasingly, venture investors are proving reluctant to play this role in cleantech, given the large sums required.

What will propel cleantech’s success.
While much has been written about how global policy support has waned in cleantech, a silver lining is to be found in Japan. Japan’s new feed-in tariffs are among the most impressive the planet has yet seen, even more so than Germany’s former solar support. Japan is showing signs of helping breathe life back into the solar sector in an important way (download this free report that details Japan’s newfound commitment to cleantech.)

Say what you will about the murkiness of the future of clean energy, the fundamental drivers of the wider cleantech market persist. The sheer sizes of the addressable markets many cleantech companies target, and the possibilities for massive associated returns, will continue to spur innovation and support for the sector. Why? The world is still running out of the raw materials it needs. Some countries value their energy independence. More than ever, economies need to do more with less. Oh, and there’s that climate thing.

Cleantech is the future, undeniably. It can’t NOT be. We need to reinvent every major infrastructure system on the planet, from energy to agriculture to water to transportation and more. And we have to live more efficiently to accommodate more people than ever. Large corporations see record opportunity for profits in doing this—and that’s what’s going to be the biggest driver of clean technology, we believe, institutional investment hiccups aside.

Don’t focus too much on quarterly ups and downs.
Finally, note that quarterly numbers are a good leading indicator of transitions. But there’s a danger in reading too much into quarterly figures, and lumpiness of individual quarters, which are easily skewed by large individual deals.

This article was originally published here and was reposted with permission.


A former managing director of the Cleantech Group, Dallas Kachan is now managing partner of Kachan & Co., a cleantech research and advisory firm that does business worldwide from San Francisco, Toronto and Vancouver. Kachan & Co. staff have been covering, publishing about and helping propel clean technology since 2006. Kachan & Co. offers cleantech research reports, consulting and other services that help accelerate its clients’ success in clean technology. Details at

Look What’s Now Patently Obvious in Cleantech

Anyone can look up at the sky and make a guess at tomorrow’s weather. But having actual data informs your opinion and makes your guess a little more accurate.

Which is why, as a managing director of a leading cleantech data provider and responsible for the presentation of its quarterly global cleantech data, I developed a real respect for venture investment figures.

Because while everyone’s got an opinion about the health of the cleantech space, as in weather forecasting, data matters.

Venture investment, the rationale goes, is one of the best leading indicators of the health of the cleantech sector. Where venture investment goes, so eventually goes private equity, corporate investment, and—if all goes well—exits, ultimately. Venture investment serves as a sort of proxy for what tech sectors are hot, what geographies are up and coming and is an indication (though not the only one) of which companies and investors to watch.

In presenting this quarterly data, however, I’d always been interested in other data types so as to be able to offer a fuller picture of the overall health of cleantech globally. I’d always wanted insight into patents, specifically. So I’m pleased that Berkeley, Calif.-based IP Checkups, a longtime collaborator, just introduced its CleanTech PatentEdge service—an online searchable database of international patent data.

IP Checkups has performed custom patent searches in cleantech since 2006. It has supported us at Kachan & Co. with data in our cleantech advisory consulting engagements, such as the competitive assessment project abstracted here that leveraged patent data to find companies quietly pursuing ethylene from methane.

And now, with its new service, anyone can access the patent database IP Checkups has built, query 1.5 million patent grant and application entries from the US, EP, WO and JP patent databases and produce attractive charts and tables.

Why do we believe this patent service is a big deal?

  • Cleantech vendors can use this data to learn about competitors
  • Large corporations can find emerging or established companies with strong patent portfolios for strategic partnership and/or acquisition
  • Investors can verify the protection (and defensibility) of their portfolio companies’ IP and potentially find new investment opportunities in cleantech sectors rife with innovation
  • Market research firms can study cleantech patent trends over time, compare technology sectors and research individual companies

Doesn’t patent information want to be free?
With free data available from patent offices, and in a world where digital information is chomping at its virtual bit, why pay for the PatentEdge service? Because it’s not easy to search the multiple free online patent databases around the world and normalize the results you get back. When importing into Excel, you’re limited to pasting 65,000 records at a time, and can only have 1,048,576 rows total (and there are a lot more than 1,048,576 patents in cleantech.) Then you then need to cut the data and develop the charts you seek, and even run the risk of the data being out of date by the time you’re done.

By contrast, PatentEdge pre-sorts patent data in a nice online interface, features analytic tools, monthly updated results and enterprise sharing capabilities.

The relationship between cleantech funding, products and patents
I’d long wondered whether the quarterly velocity of patent filings in cleantech mapped to quarterly venture investment. Could they also be used as a leading indicator of where the industry was heading?

Unfortunately not. There’s a lag in being able to access patent filings because patent offices insert an intentional 18 month delay between filing and publishing so as to give entrepreneurs a head start in commercializing their innovations from the time of filing. As a result, patents only appear in the PatentEdge database a year and a half after they’re filed. But they give insight into where to expect cleantech products, according to IP Checkup President Matt Rappaport.


Cleantech investment and patents quarterly

Is there a correlation between venture investment and patent filings? Does one lead the other? Historically, the two are correlated, as these two graphs show, but while an 18-month lag in patent data prevents it being used as a leading indicator of innovation, patent data is a good indicator of where to look for market-ready products. Sources: Cleantech Group and IP Checkups.

Cleantech products, Rappaport notes, generally emerge soon after the 18 month hold period. Cut the patent data by sector or geography, and you suddenly get educated insights about whether a bevvy of new thin film solar offerings are about to emerge from China, say, or what exact types of new biological drop-in biofuel processes from algae you should start to expect to see written about in the press soon. Those are different types of insights than you get from cleantech venture data.

Which sounds like it might help make the business of cleantech market weather forecasting a little more interesting.

CleanTech PatentEdge annual subscriptions begin at $180/month for individual users, and $450/month for 3-5 users. Month-to-month plans, corporate and educational group rates are also available, according to IP Checkups.

This article was originally published here and is reposted by permission.


A former managing director of the Cleantech Group, Dallas Kachan is now managing partner of Kachan & Co., a cleantech research and advisory firm that does business worldwide from San Francisco, Toronto and Vancouver. Kachan & Co. staff have been covering, publishing about and helping propel clean technology since 2006. Kachan & Co. offers cleantech research reports, consulting and other services that help accelerate its clients’ success in clean technology. Details at

Big Data Meets Big Energy

One of the most hyped trends in high-tech is “big data”:  the accumulation, integration, synthesis and interpretation of enormous amounts of data from disparate sources.

Big data is being touted not only as a driver of increased efficiencies for companies, but also increased revenues:  as customers indicate or reveal their preferences through their behavior and choices, companies can then develop new products or services to offer in a very targeted and efficient manner to those most likely to purchase.

With technology enabling faster mass-computation at lower cost, and a growing set of data available from all sorts of places and easily collectable from a thoroughly-connected world, big data could be a boon — especially for those industries for which cost reduction and efficiency opportunities are limited, and for companies desperately searching for new revenue streams.

Energy is a sector potentially well-suited to be mined with big data.  The industry is largely quantitative already, with scads of measured (and if not measured now, measurable) parameters across vast geographies with innumerable supply sources, processing facilities, transportation nodes, and consumption points.  And, for the most part, energy companies are largely stuck in a mode of selling commodity products, and need new twists and differentiators for which a premium can be charged.

Proactively, I went searching the Internet for the best insight, wisdom and perspective on the incursion of big data into energy.  Frankly, I didn’t find terribly much — which tells me that the space at the intersection of big data and energy is ripe for innovation.

One of the better pieces I found was this posting from early 2012 by Katie Fehrenbacher, “10 Ways Big Data is Remaking Energy”, which identifies the 10 types of data that will increasingly be mined in the energy sector:

  1. Weather
  2. Cell phone usage
  3. Thermostats
  4. Hadoop
  5. Solar/wind sources
  6. Electric cars
  7. Power lines
  8. Real estate
  9. Variable energy prices
  10. Behavioral analytics

Although this is a good list of the innovative places from which data will be gathered, it still leaves open for entrepreneurs to identify specific customer needs to be met and value propositions that can be developed from big data.

It seems that a big challenge will be in making data from disparate sources mesh accurately.  As this article from Intelligent Utility indicates, integrating “unstructured data” — especially from hand-written and other manually filled out forms — will be particularly difficult.

Big data in the energy sector will likely be a large opportunity for the major players in the IT sector — IBM, Intel, SAP, Oracle, Google, Microsoft, and so on.  My advice to them is that they will need to be patient:  the big players in big energy move glacially, and big data will take a long time to penetrate in a major way.  But, the opportunity is vast, so it’s probably worth the effort and the waiting…and waiting…and waiting.

Fifty Years

Earlier this month, I turned 50 years old.  Such milestones are natural occasions for reflection.

Beyond recalling many of the phases and individual episodes of my life, my reflection included a consideration of how the world had changed in the 50 years in which I had lived.  And, naturally, given my profession, I pondered what it would have been like to have been a “cleantech” practicioner 50 years ago, in 1962.

Frankly, it’s not really possible to imagine “cleantech” back then.  50 years ago, there wasn’t much “clean” and there wasn’t much “tech”.

In the U.S., the Clean Air Act and the Clean Water Act hadn’t been passed, and there wasn’t even an Environmental Protection Agency.  Silicon Valley was still mainly apple orchards, and computers less powerful than your smartphone barely fit into large warehouses.

In the energy sector, the U.S. still dominated the petroleum industry.  Not only did Americans consume more petroleum than anyone else (accounting for about 40% of world demand), U.S. oil production was still a major factor, representing almost 30% of worldwide production.

The oil industry’s operations would still have been very recognizable by John D. Rockefeller:  production was mainly from “conventional” onshore seesaw pumpers dotting the countryside; remote locations such as Alaska hadn’t yet been touched, nor had any material production yet been achieved from offshore wells.

Other than perhaps by watching the recently-released “Lawrence of Arabia”, few Americans paid much attention to the deserts of the Middle East in 1962.

Though unnoticed by most Americans, important forces in the oil industry were already beginning to shift in the early 1960s.  Although Texas oil production had been decisive in fueling the Allied victory in World War II just two decades previously, by 1962, the U.S. had become a net importer of oil.  Yet, only King Hubbert projected a future waning of American supremacy in oil production.

Oil prices in 1962 were a little less than $3/barrel, largely due to the price-setting powers of the Railroad Commission (RRC) of Texas, then still the source of a significant share of world oil production.  When a hitherto little-noticed group formed in the early 1960s called the Organization of the Petroleum Exporting Countries (OPEC) assumed the dominant influence in pricing oil a decade later, the world would change forever, as oil prices would never again be anywhere near below $10/barrel.

It’s almost quaint to summon up memories of the oil sector of the era.  Remember what filling up at a gas station was like in the 1960s?  The attendant would come out, put the nozzle in the tank (always with the filler behind the rear license plate), cheerfully wipe the windshield and ask “may I check your oil?”.  Looking out the window, I remember seeing “29.9” on the gas pumps.  That’s 29.9 cents per gallon — which seems almost surreal to us now, but remember, oil prices were then only a few percent of what they are today.

Of course, given the now-unbelievably appalling gas mileage of those Detroit beasts, usually under 10 miles per gallon, you still had to fill up about as often then as you do now.  Back then, it was all about horsepower — it certainly wasn’t about efficiency, nor about cleanliness.  (Nor, for that matter, reliability.)

Every once in awhile these days, I find myself behind a 1960s-vintage car at a stoplight, most often on a sunny summer afternoon.  When the light turns green, I am left in a thin cloud of light bluish smoke and the fragrance of octane and unburned hydrocarbons.  Odors of my youth.  You don’t see and smell that anymore — and I don’t miss it.

Thank goodness for a plethora of cleantech innovation during the past decades:  unleaded fuels, pollution controls and fuel injection systems.

And, let’s not forget that these advances were pushed by, only happened because of, foresightful proactive policies.

While the financial bonanzas and corporate/family dramas enabled by oil discoveries and production had thoroughly captured the American imagination by the early 1960s — consider everything from “Giant” to “The Beverly Hillbillies” — natural gas in 1962 was an afterthought.  Other than some use for power generation in Texas and Oklahoma (where there was no local coal resource), natural gas was mostly flared at the wellhead.  In many ways because (and many people now forget this) natural gas prices were then regulated at depressed levels, the companies that produced gas as a side-consequence from oil production didn’t see much value in making the investments necessary to collect it and transport it to markets.  In fact, natural gas was widely considered a nuisance in 1962.

Certainly, gas is no longer considered a nuisance.  In fact, it’s now being touted by politicians across the U.S. as the Godsend:  providing lower energy prices, lower emissions, higher domestic employment and reduced dependence on foreign energy sources.

No, the oil/gas industry — and those two fuels are today inextricably intertwined — is now much more aggressive in capturing and processing every Btu that courses through the markets.

In the late 1960s, our family lived in the Philadelphia area, and I remember being awed – almost scared, really – by the immense flames emitted by the refinery near the mouth of the Schuylkill River.  All those now-valuable hydrocarbons…gone, wasted, up in smoke.  You don’t see that anymore at refineries, thankfully.

Oil company practices have massively changed in the past 50 years to capture everything of possible economic value.  Of course, that’s the effect of a 30x increase in oil prices, driven by a worldwide search and race to find and produce new reserves to replace five decades’ worth of depletion of much of the cheap/easy stuff in the face of a tripling of global oil demand (mostly from outside the U.S.), counterbalanced by technological progress on a host of fronts over the span of five decades.

Today, oil is pretty consistently trading between $80-100/barrel, and while U.S. oil production has rebounded a bit to approach early 1960s levels, American production now accounts for less than 10% of world oil production.

But think about how low U.S. oil production would be and how high oil prices might be today if not for offshore oil production, directional drilling, 3-D seismic, and an untold number of other innovations produced by the oil patch in the last half-century to enable production from hitherto undeveloped places.

Of course, beauty is in the eye of the beholder, and not all of these developments are viewed positively by everyone.  The current debates about fracking and development of the Alberta oil sands would have been unimaginable in 1962.  At the time, fracking barely existed as a practice, and the Alberta oil sands were then hopelessly uneconomic as a source of fuels.  Moreover, there was virtually no environmental movement to give voice to the concerns of citizens.

It wasn’t really until Rachel Carson published Silent Spring just a few weeks after I was born that much attention was paid to pollution.  Later in the decade and into the 1970s came the grassroots emergence of the environmental groups, such as Greenpeace and the Natural Resources Defense Council.

If you are about my age or older, you may well remember this 1971 commercial.  The tagline (“People start pollution, people can stop it”) and the image of the Native American shedding a tear remain indelible decades later.

Before this, there was virtually no accountability placed on emitters, and anyone could pretty much dump whatever they wanted, wherever they wanted, whenever they wanted.  And, in the early 1960s, no set of interests benefitted from ongoing inattention to environmental considerations in the U.S. more than the coal sector.  For those with coal interests, the times before environmentalists were truly the glory days — and in 1962, the future for coal in the U.S. at that time was terrifically bright.

Sure, trains had just moved from coal steam to diesel-electric, but over half of all the electricity generated in the U.S. in 1962 was based on burning coal.  With burgeoning demand for electricity (especially to keep pace with the exploding utilization of increasingly-ubiquitous air conditioning), coal was poised for significant growth, as thousands of megawatts of new coal powerplants would be added to the nation’s energy grid each year during the 1960s.

While coal is certainly no poster-child for the cleantech sector today, back in 1962, coal remained a particularly brutish and nasty form of energy.  288 American miners were killed on the job in 1962, and all of the coal burned was subject to minimal pollution control – no electrostatic precipitators or baghouses to capture particulates (i.e., soot), much less scrubbers for sulfur dioxide or selective catalytic reduction for nitrogen oxide emissions.  You pretty much didn’t want to be a coal miner or live anywhere near a coal-burning powerplant, as your health and longevity were seriously at risk.

Indeed, some observers speculate that the uncontrolled emissions from powerplants (not to mention other industrial facilities, such as steel mills) threw up such large amounts of material into the atmosphere that the 1970s became a period of unusually cold temperatures — to the point that many scientists were projecting a future of damaging global cooling.  (Although the then-common theory of global cooling is now mainly forgotten, climate change deniers are quick to employ this prior dead-end of thought as one reason for dismissing the strong likelihood suggested by climate scientists that global warming is probably occurring today.)

Of course, the U.S. still mines coal, lots of it, to fuel lots of coal-fired powerplants.  Production in 2011 was 1.1 billion tons, more than double 1962 levels.  However, employment in the coal industry had fallen by over 40% during the same period.  (And, mercifully, annual fatalities have decreased by a factor of 10.)  The primary factors for these changes:  productivity increases due to new technologies (e.g., longwall mining), lower rates of unionization, and a shift from underground to surface mining (now accounting for nearly 70% of U.S. production).

With respect to the latter factor, Wyoming coal activity has exploded — now representing more than 40% of U.S. production — at the expense of Appalachia, whose coal sector is now but a shell of what it was 50 years ago.  The causes are simple:  the subbituminous Powder River stuff from Wyoming is much more abundant and cheaper to mine, and generally has much lower sulfur content to boot, than what is available from Appalachia.

On a broader level, coal is on the retreat in the U.S.:  while coal still accounts for almost 50% of power generation, this share is dwindling.  It seems as though U.S. coal production levels have plateaued at just over 1 billion tons a year.  While so-called “clean-coal” technologies may at some point provide the basis for a resurgence in the industry, the possibility of future growth certainly seems far from obvious today.

Many legacy coal powerplants – some of which remain in operation from well more than 50 years ago – are fading away.  Tightening emission requirements, particularly on toxic emissions such as mercury, are just one  competitive disadvantage facing coal; coal power is increasingly uncompetitive with cheap and cleaner natural gas powerplants and (in some places) wind and solar energy.

“Wind energy” and “solar energy”:  50 years ago, these would have been oxymorons.  Other than the minute niches of sailboats and waterwell pumping in the Great Plains, a good wind resource had virtually no commercial value in 1962.  At the same time, Bell Labs scientists were wrangling some with solar energy technologies — primarily for satellites – although a lot more attention was being paid to a related device called the semiconductor.

For energy, scientists were mainly working on nuclear power, moving from weapons and Navy submarines to powerplants.  The nuclear era was dawning:  electricity was going to be “too cheap to meter”.

The very first commercial nuclear powerplant, the relatively puny 60 megawatt plant at Shippingport in Western Pennsylvania, had been running for only a few years in 1962, though dozens of nuclear powerplants were just coming onto the drawing boards.  Visionaries were even talking about nuclear-powered automobiles in 1962.  (“Electric vehicles?  Puh-lease.  Batteries are for cheap portable Japanese radios.”)

Perhaps as a psychological defense mechanism to drown out the anxieties associated with potential Armeggedon from a Cold War missile exchange, such was the sense of optimism in the possibilities of the age.

Apparently, no-one could foresee Three Mile Island, Chernobyl or Fukushima at the time.

The future held boundless possibilities.  Back then, who needed to recycle?  To think about efficient utilization of resources?  To care about water quality or air quality?  There was always more and better, somewhere, to be had.  And we Americans would surely obtain it, somehow and someway.  It was Manifest Destiny, ever-onward.

This American philosophy may have confronted its limits early in my lifetime with the ultimate realization, brought home so vividly at the end of the 1960s by the first-ever images of the solitary Earth as provided by the Apollo program, that we’re all utterly dependent upon a finite planet in an infinite sea of otherwise-unpopulable space.  Earth Day followed in April 1970.

To commemorate this first Earth Day, I remember our second-grade class picking up scads of litter along the side of a section of highway.  Upon reflection, I am glad to note how much litter has declined in subsequent years — a case of how values can be reshaped and behaviors can be changed, if people are just a bit more conscious.

That’s a positive take.  However, one can reasonably look back on 50 years of the evolution of the energy sector and say, well, that not that much has really changed in America.

True, the basic structure of American life may not have changed too dramatically.

We still primarily live in single family dwellings, in suburbia, dependent upon cars that look more or less the same, fueled by gasoline available at stations just down the road.  The power grid is still there, powered by central-station powerplants; the light switches and outlets haven’t changed, with refrigerators still in every kitchen and TVs in every living space.

By all measures, Americans are still energy hogs, relative to the rest of the world.

Even so, I would assert that a lot has changed, at both the macro and micro-level, that have consequentially altered the trajectory of resource utilization in America from the path determinedly being travelled 50 years ago.

Admittedly, some of the changes we have experienced are a bummer:  niceties like summer evenings with the windows open are much rarer.  Nevertheless, I claim that most of the changes of the past half-century are positive – and can be attributed to a significant degree to what we now call “cleantech”.

Our energy bounty, improved so significantly by technological innovation, has been achieved while simultaneously improving environmental conditions in almost every respect.  Notwithstanding the substantial increase in carbon dioxide emissions, almost all other manifestations of environmental impact from energy production and use have dramatically improved in the past half-century.  Standards of living enabled by modern energy use, here in America and even more so in the rest of the world, have dramatically improved.

Moreover, the trends for further future improvement on all these fronts are favorable.

With the proliferation of improved technologies such as LED lighting, energy efficiency continues to advance.  Renewable energy continues to gain share:  wind and solar energy represented about a quarter of new U.S. electricity generation additions in 2010.  Citizen understanding of energy and environmental issues continues to become more sophisticated.

Beyond the forces specifically pertaining to the energy sector, a number of broader influences in U.S. society are improving the prospects for accelerating cleantech innovation and adoption.  Entrepreneurship is booming, consumerism is increasingly being called into question, capital markets are more amenable to investment in this sector and more capital is arriving accordingly, and the Internet makes an immense and ever-expanding pool of information freely available to enable better decisions.

Not to mention:  much of the opposition to a transition to the cleantech future emanates from people in generations that are older, that will die out in the next couple of decades, to be replaced by younger generations that are generally more supportive of increased cleantech activity.

So, while it’s easy to get discouraged by the impediments to cleantech progress on a day-to-day basis, over the long-view, it’s pretty apparent that big positive things can happen and in fact are happening.

50 years from now, in 2062, I hope to be alive and well at 100 and still contributing to the cleantech sector.  That may be overoptimistic.  But I don’t think it’s at all overoptimistic that we’ll see more changes, and more changes for the better, in the cleantech realm over the next 50 years than in the previous 50.

Chief Blogger’s Favorite Cleantech Blogs

I’ve personally written hundreds of articles over the years.  I selected a few I thought were pretty timeless or prescient, and worth rereading:

What is Cleantech?  Always a good starting point:

or try, The Seminal List of Cleantech Definitions


The “Rules” in Cleantech Investing – Rereading this one after the cleantech exits study we just did, wow, was I on the money!


VeraSun IPO analysis – Read this carefully, I predicted exactly what would happen, and try the later version Beware the Allure of Ethanol Investing


Cleantech Venture Capitalists Beware, What You Don’t Know about Energy CAN Kill you – The title says it all.



What’s the State of REALLY Advanced Energy?

What’s the state of REALLY advanced energy?  Is there a breakthrough on the horizon that would really change the game in energy?

Fusion?  Small Modular Nuclear Reactors?

Is Cold Fusion or LENR real?  How much work is actually going into the area?  Are VCs funding it?

Can the 1st and 2nd laws of thermodynamics be violated, or at least stretched?  What do physicists say about that?

Check out Dr. Ed Beardsworth’s survey of the state and theory behind New New Energy tomorrow at 10 am pacific.

Sign up here for our class:

Or email Dr. Ed Beardsworth at beardsworth @ for details on members discount.

Cleantech Venture Backed M&A Exits? Well, Yes, Sort of . . .

When people ask me, are investors making money in cleantech, I tell them yes, but not by whom or in what you thought they were.

Most of the analyses of cleantech exits do not differentiate for venture backed companies.  So we conducted our own study.

In the last 10 years,’s Cleantech Venture Backed M&A Exit Study shows a grand total of 27 venture backed cleantech deals > $50 mm.

All in all, very tough returns.   A number of 8 to 10 figure fortunes made, just laregly not by the investors spending the 9 and 10 figure investments.

19 where we had data on both exit values and venture capital invested, 8 where we had revenue estimates.

We found a 2.78x Median Exit Value Multiple on Venture Capital Invested

– Those exit numbers include the founders and management’s shares, so average returns to investors would be somewhat lower.

We found a 2.2x Median Exit Value Multiple on Revenues.

$13 Billion in total M&A exit value.  Not bad, until you realize that’s over 10 years where cleantech has seen tens of billions in investment, and we used a pretty broad definition of “venture backed”.  To get there we included Toshiba’s Landys+Gyr, Total’s Sunpower, EDP’s Horizon and ABB’s Ventyx deals.  Those are the top 5 deals by value, and represent 60% of the $13 Billion.  None were backed by investors you would normally think of as cleantech venture capital powerhouses (Bayard Capital, Cypress Semiconductor, Zilkha and Goldman Sachs, Vista Energy).  Three of them included prior acquisitions themselves.

Excluding those and looking at only the transactions where we had both valuation and exit data we found and even weaker $3.8 Billion on $1.8 Billion in venture capital, 2.1x.

Most surprising, if you looked at the list of investors in these Nifty 27 exits, you’d have heard of very few of them.  This is truly not your father’s venture capital sector.

The exits have a surprisingly low tech flavor, and were carried by renewable energy project developers, ESCOs, and smart grid, and solar balance of system manufacturers.

If we had limited this to Silicon Valley venture investors in high tech deals, well, you’d have wondered if M&A were a four letter word.

Interesting, isn’t it?  Contact me at with any questions or if you’ve got deal data you’d like to see included.

The Advent of SPS Policy?

In the cleantech sector, pretty much everyone knows the acronym RPS, for Renewable Portfolio Standards.  Since the first RPS policy in the U.S., implemented in Iowa in the late 1990s, 30 states have passed similar policies to promote the installation of renewable energy projects and expedite penetration (overcoming the ambivalence or outright opposition of utilities) of renewable energy in electric power supply.

Now, as reported in this article, California is considering the adoption of what looks to be the first Storage Portfolio Standard:  requirements for utilities to install grid-scale energy storage.  Specifically, in early August, the California Public Utilities Commission (CPUC) voted unanimously to adopt a framework for analyzing the energy storage needs of each utility.  This builds upon a previous bill, AB 2514, which included a mandate for the CPUC to “determine appropriate targets, if any, for each load-serving entity to procure viable and cost-effective energy storage systems to be achieved by” the end of 2015 and 2020.

Not surprisingly, the three major electric “load-serving entities” (i.e., electric utilities) in California — PG&E, SCE and SDG&E — all opposed this movement.  As did the Division of Ratepayer Advocates (DRA), the consumer watchdog organization, which argued that “picking arbitrary procurement levels…would most likely result in sub-optimal market solutions and increase costs to ratepayers without yielding commensurate benefits”.

As one of my former McKinsey colleagues noted on a number of occasions, quoting an executive who worked his entire career at a large electric utility, “No technology has ever been widely adopted by the electric utility industry without having it mandated by the regulators.”

The storage analogue of RPS policy — let’s call it SPS — faces some hurdles, no doubt.  But so did RPS policies.

Given that GE (NYSE: GE) is now working on a grid-scale battery technology, given how much GE’s wind business has benefited from the expansion of RPS policies over the last decade, and given how active GE tends to be in energy policy circles, it’s not a stretch to think that there will be a push for SPS-like policies across the U.S.

It will take time to fully implement, but perhaps grid-scale energy storage will soon be following the path blazed by renewables over the past 15 years, with a domino-effect of SPS requirements spreading across the country.



Is the “Weak Force” the Key to LENR?

By David Niebauer

In the early part of the 20th Century physicists theorized that a mysterious force held the nucleus of an atom together.  When it was demonstrated that this force could be tapped, releasing tremendous amounts of energy, a wave of excitement swept the scientific world.  It took only a few short years before atomic energy theories were experimentally validated in the first nuclear weapon detonations.  Hiroshima and Nagasaki followed.  Most of us alive today were born under the mushroom cloud that has loomed over humanity ever since.  Accessing the power of the strong nuclear force has been a mixed blessing:  it has brought the possibility of energy beyond our wildest dreams but with nightmarish consequences that were literally unimaginable a generation ago.

That physicists would become enamored of the strong nuclear force is understandable:  the energy locked in the nucleus of the atom is potent, it is real, and the challenge of harnessing it for useful purposes has become the “holy grail” of scientific endeavor.

But could another, more subtle, “fundamental force” hold the key to our energy future?

The Fundamental Forces of Nature and the Weak Force

Of the four fundamental forces (gravity, electromagnetism, strong nuclear force and weak nuclear force), the “weak force” is the most enigmatic. Whereas the other three forces act through attraction/repulsion mechanisms, the weak force is responsible for transmutations – changing one element into another – and incremental shifts between mass and energy at the nuclear level.

Simply put, the weak force is the way Nature seeks stability.  Stability at the nuclear level permits elements to form, which make up all of the familiar stuff of our world.  Without the stabilizing action of the weak force, the material world, including our physical bodies, would not exist.  The weak force is responsible for the radioactive decay of heavy (radioactive) elements into their lighter, more stable forms.  But the weak force is also at work in the formation of the lightest of elements, hydrogen and helium, and all the elements in between.

A good way to understand the weak force is in comparison with the actions of the other forces at work in the center of the Sun.  The Sun, although extraordinarily hot (10 million degrees), is cool enough for the constituent parts of matter, quarks, to clump together to form protons.  A proton is necessary to form an element, which occurs when it attracts an electron – the simplest case being hydrogen, which is composed of a single proton and a single electron.  By the force of gravity, protons are pulled together until two of them touch – but because of the electrostatic repulsion of their two positive charges, their total energy becomes unstable and one of the protons undergoes a form of radioactive decay, turning it into a neutron and emitting a positron (the antiparticle of an electron) and a neutrino.  This action forms a deuteron (one proton and one neutron), which is more stable than the two repelling protons.  This transmutation of proton into neutron plus beta particles is mediated by the weak force.

A neutron is slightly heavier, and therefore less stable, than a proton.  So the normal action of the weak force causes a neutron to decay into a proton, an electron and a neutrino.  At any rate, at the center of the Sun, once a deuteron is formed, it will fuse with another free proton to form helium-3 (one neutron and two protons), releasing tremendous amounts of energy.  These helium-3 atoms then fuse to form helium-4 and releasing two more protons and more energy.  The release of energy in these fusion reactions from the strong force is what powers the Sun.  But the entire process is set in motion by the weak force.

Enter “Cold Fusion”

When in 1989 Pons and Fleishman stunned the world by reporting nuclear reaction signatures at room temperatures, physicists were understandably baffled and skeptical.  Given that virtually all nuclear physicists at the time were trained in the powerful energies of the strong force, table top fusion made no sense.  The fact that the phenomenon was dubbed “cold fusion” was unfortunate and likely contributed to almost universal rejection by the scientific community.  Standard theoretical models were not able to explain how cold fusion might even be possible and unless it could be understood it was pointless and a waste of time.  A comment attributed to Wolfgang Pauli describes the reaction of most physicists at the time: “its not right; its not even wrong”.  Without a coherent theory to explain it, it wasn’t even science at all.

This all changed in 2006 with the publication of a paper in the peer-reviewed The European Physical Journal by Allan Widom and Louis Larsen titled “Ultra low momentum neutron catalyzed nuclear reactions on metallic hydride surfaces”.

In this paper for the first time a theoretical basis was put forth that explained many of the anomalous results being reported by experimentalists in the new field of Low Energy Nuclear Reactions (LENR) – and the common explanatory action was the weak force.

As explained by Dennis Bushnell, Chief Scientist at NASA Langley Research Center in his article “Low Energy Nuclear Reactions, the Realism and the Outlook”:

“The Strong Force Particle physicists have evidently been correct all along. “Cold Fusion” is not possible. However, via collective effects/ condensed matter quantum nuclear physics, LENR is allowable without any “miracles.” The theory states that once some energy is added to surfaces loaded with hydrogen/protons, if the surface morphology enables high localized voltage gradients, then heavy electrons leading to ultra low energy neutrons will form– neutrons that never leave the surface. The neutrons set up isotope cascades which result in beta decay, heat and transmutations with the heavy electrons converting the beta decay gamma into heat.”

Brief Description of Widom-Larsen Theory

Not everyone agrees that the Widom-Larsen Theory (“WLT”) accurately explains all, or even most, of the observed phenomenon in LENR experiments.  But it is worth a brief look at what WLT proposes.

In the first step of WLT, a proton captures a charged lepton (an electron) and produces a neutron and a neutrino.  No Coulomb barrier inhibits the reaction.  In fact, a strong Coulomb attraction that can exist between an electron and a nucleus helps the nuclear transmutation proceed.

This process is well known to occur with muons, a type of lepton that can be thought of as very heavy electrons – the increased mass is what pulls the lepton into the nucleus.  For this to occur with electrons in a condensed matter hydrogen system, local electromagnetic field fluctuations are induced to increase the mass of the electron.  Thus, a “mass modified” hydrogen atom can decay into a neutron and a neutrino.  These neutrons are born with ultra low momentum and, because of their long wavelength, get caught in the cavity formed by oscillating protons in the metal lattice.

These ultra low momentum neutrons, which do not escape the immediate vicinity of the cavity and are therefore difficult to detect, yield interesting reaction sequences.  For example, helium-3 and helium-4 are produced often yielding large quantities of heat.  WLT refers to these as neutron catalyzed nuclear reactions.  As Dennis Bushnell explains:  “the neutrons set up isotope cascades which result in beta decay, heat and transmutations.”  Nuclear fusion does not occur and therefore there is no Coulomb barrier obstruction to the resulting neutron catalyzed nuclear reaction.

Brief Description of Brillouin Theory

Robert Godes of Brillouin Energy Corp., claims that WLT explains some, but not all, of the observed LENR phenomena.  As Godes understands the process, metal hydrides stimulated with precise, narrow, high voltage, bipolar pulse frequencies (“Q-pulse”) cause protons or deuterons to undergo electron capture.  The metal lattice stimulation by the Q-pulse reverses the natural decay of neutrons to protons, plus beta particles, catalyzing an electron capture in a first endothermic step.  When the initial proton (or deuteron) is confined in the metal lattice and the total Hamiltonian (total energy of the system) reaches a certain threshold level by means of the Q-pulse stimulation, an ultra cold neutron is formed.  This ultra cold neutron occupies a position in the lattice where dissolved hydrogen tunnels and undergoes transmutation, forming a cascade of transmutations – deuteron, triton, quadrium – by capturing the cold neutron and releasing binding energy.  Such a cascading reaction will result in a beta decay transmutation to helium-4, plus heat.

The Q pulse causes a dramatic increase of the phonon activity, driving the system far out of equilibrium.  When this energy reaches a threshold level, neutron production via electron capture becomes a natural path to bring the system back to stability.

Theory and Experiment

Other well-known LENR theorists have implicated the weak force, including Peter Hagelstein, Tadahiko Mizuno, Yasuhiro Iwamura and Mitchell Swartz.  The project now, as with all scientific endeavor, is to match experimental evidence to theory.  The hope is that the electron capture/weak force theories will help guide new, even more successful experiments.  This process will also allow theorists to add refinement and new thinking to their models.  I am reminded of the two “laws” of physicists proposed by an early weak force pioneer:

1. Without experimentalists, theorists tend to drift.

2. Without theorists, experimentalists tend to falter.

(T.D. Lee, as quoted in “The Weak Force: From Fermi to Feynman” by A. Lesov).

Experimentalists have been reporting anomalous heat from metal hydrides since before Pons and Fleischmann.  But without a cogent theory, they have had to rely on ad hoc, trial and error methods.  Given this state of affairs, the progress made in the LENR field in the last twenty years is remarkable.  Perhaps we are now at the beginning of a new era in which theoretical models will guide a rapid transformation of the science.


Scientists have focused on the strong nuclear force due to the immense power that can be released from breaking the nuclear bond.  Less attention has been paid to the weak force, which causes transmutations and the release of energy in more subtle ways.  Recent theories that explain many of the phenomena observed in low energy nuclear reactions (LENR) implicate the weak force.  We are now at the stage where theory and experiment begin to complement each other to allow for the rapid transformation of the new science of LENR.

Journalistic disclosure:  David Niebauer is general legal counsel to Brillouin Energy Corp.

Holy Grail 12.0: Is Our Quest At Its End?

I’ve been working with new energy inventions and their creators for almost 15 years now.  I don’t know how many times I’ve heard a new technology described as “the Holy Grail”:  solving all of the world’s problems forever.

Well, here’s the newest one using the Holy Grail cliche:  a supposedly carbon-neutral method of using microbes to convert electricity into natural gas.

Thanks to an article written by Brita Belli of Ecomagination at GE (NYSE: GE), I was pointed to the recently-reported work of a team of researchers led by Alfred Spormann at Stanford University and Bruce Logan of Penn State University.  These researchers have determined that an organism called Methanobacterium palustre, when submerged in water on an electrically-charged cathode, will produce methane (i.e., natural gas, CH4) — supposedly at an 80% efficiency rate.

The carbon-neutrality of this approach stems from (1) using surplus electricity generation from non-emitting wind or solar and (2) the microbe extracts the carbon atom for the methane from the CO2 in the atmosphere.

So, in theory, one can make an infinite supply of a relatively clean fossil-fuel from renewable electricity by sucking carbon out of the air.  And, given the extensive natural gas pipeline, storage and distribution network, this fuel could be used for baseload power generation, traditional space/water heating and cooking purposes, and even transportation (e.g., natural gas vehicles).

The catch:  as is often the case with early discoveries in university labs, the researchers don’t know how to scale the technology and achieve consistent/stable results at commercially-useful levels.  The economics are also highly uncertain.

Don’t hold your breath.  This type of invention could take a very very long time to turn into something that’s viable for the energy marketplace.  As a long-time executive from one of the supermajors once said to me, it takes 12-24 months to really prove something at the next order of magnitude — and in energy, it’s usually several orders of magnitudes of expansion from the laboratory to the field.  Thus, what seems like an overnight success story usually has a decade or more of development behind it.

So, while this discovery might turn out to be the Holy Grail — and it definitely seems worth monitoring — one should not get too excited just yet.  There are a lot of potential hurdles to be overcome, and some of them may not be surmounted.  Even if the technology develops favorably, it’s a long way from being ready for prime-time.

In the meantime, this is the only Holy Grail to which I will pay attention.

Cold Facts About Air Conditioning

There may be people who understand the big picture about air conditioning better than Stan Cox, but the list is surely a short one.

Cox, who wrote Losing Our Cool:  Uncomfortable Truths About Our Air-Conditioned World, has also just written an excellent brief article called “Cooling A Warming Planet:  A Global Air Conditioning Surge”

In this posting, rather than comment on Cox’s article, some of the facts are so succinctly presented that it makes no sense for me to try to improve upon them.  So, I will excerpt some highlights, starting right off the bat with the introductory paragraph:

“The world is warming, incomes are rising, and smaller families are living in larger houses in hotter places.  One result is a booming market for air conditioning — world sales in 2011 were up 13 percent over 2010, and that growth is expected to accelerate in coming decades…If global consumption for cooling grows as projected to 10 trillion kilowatt-hours per year — equal to half of the world’s electricity supply today — the climate forecast will be grim indeed.”

“The United States has long consumed more energy each year for air conditioning than the rest of the world combined.  In fact, we use more electricity for cooling than the entire continent of Africa, home to a billion people, consumes for all purposes.”

“Because it is so deeply dependent on high-energy cooling, the United States is not very well positioned to call on other countries to exercise restraint for the sake of our common atmosphere…With less exposure to heat, our bodies can fail to acclimatize physiologically to summer conditions, while we develop a mental dependence on cooling.  Community cohesion also has been ruptured, as neighborhoods that on warm summer evenings were once filled with people mingling are now silent — save for the whirring of air-conditioning units.  A half-century of construction on the mondel of refrigerated cooling has left us with homes and offices in which natural ventilation often is either impossible or ineffective.  The result is that the same cooling technology that can save lives during brief, intense heat waves is helping undermine our health at most other times.”

But, “China is already sprinting forward and is expected to surpass the United States as the world’s biggest user of electricity for air conditioning by 2020.  Consider this:  the number of U.S. homes equipped with air conditioning rose from 64 to 100 million between 1993 and 2009, whereas 50 million air-conditioning units were sold in 2010 alone.”

“The greatest demand growth in the post-2020 world is expected to occur elsewhere….Already, [in India], about 40 percent of all electricity consumption in the city of Mumbai goes for air conditioning…Within 15 years, Saudi Arabia could actually be consuming more oil than it exports, due largely to air conditioning.”

“In thinking about global demand for cooling, two key questions emerge:  Is it fair to expect people in Mumbai to go without air conditioning when so many in Miami use it freely?  And if not, can the world find ways to adapt to warmer temperatures that are fair to all and do not depend on the unsupportable growth of air conditioning?”

In response to these two daunting questions, Cox suggests some possible technological paths forward:

“Efforts to develop low-energy methods for warm climates are in progress on every continent.  Passive cooling projects…combine traditional technologies — like wind towers and water evaporation — with newly designed ventilation-friendly architectural features.  Solar adsorption air conditioning performs a magician’s trick, using only the heat of the sun to cool the indoor air….Meanwhile, in India and elsewhere, cooling is being achieved solely with air pumped from underground tunnels.”

This implies a wide space of opportunity for cleantech innovators, entrepreneurs and financiers.  In a short piece in its July 28 edition, The Economist profiled Advantix Systems, which is developing a new air conditioning technology that promises 30-50% less energy consumption.  Hopefully, one of many new entrants to address the pressing cooling challenge facing the world.

How About A Sane Energy Policy Mr. Obamney?

It’s Presidential Election year.  Ergo, time to discuss our 40 year whacked out excuse for an energy policy.  Royally botched up by every President since, umm?


Make US energy supply cheap for the US consumer and industry, fast growing and profitable for the American energy sector, clean, widely available and reliable, and secure, diversified, environmentally friendly and safe for all of us.


Cheap, Clean, Reliable, Secure, Energy


An Energy Policy that leaves us more efficient than our competitors

An Energy Policy that leaves us with more and more diversified, supply than our competitors

An Energy Policy that leaves us more reliable than our competitors

An Energy Policy that makes us healthier and cleaner than our competitors

An Energy Policy that makes us able to develop adopt new technologies faster than our competitors

An Energy Policy that makes it easy for industry to sell technology, energy, and raw materials to our competitors

An Energy Policy that keeps $ home.

A Sane Energy policy


Think more drilling, less regulation on supply, lower tariffs, more investment in R&D, tighter CAFE and energy efficiency standards, simpler and larger subsidies for new technologies, less regulation on infrastructure project development.


A couple of key action items:

  • Support the development of new marginal options for fuel supply, and support options that improve balance of payments, whether EVs ethanol, solar et al
  • Make crude oil, refined products, Gas, LNG and coal easy to import and export
  • Drive energy efficiency like a wedge deep in our economy
  • Support expansion and modernization of gas, electric, and transport infrastructure
  • Support long term R&D in both oil & gas, electric power, and renewables
  • Reduce time to develop and bring online new projects of any type (yes that means pipelines, solar and wind plants, offshore drilling, fracking and transmission lines).
  • Support policies and technology that enable  linking of energy markets
  • Challenge the OPEC cartel like we do EVERY OTHER cartel and break the back of our supply contraints
  • Support the export of our energy industry engineering, services and manufacturing  sectors overseas
  • Incorporate energy access into the core of our trade policy
  • Support deregulation of power markets
  • Support long term improvement in environmental and safety standards
  • Broadly support significant per unit market subsidies for alternatives like PV, wind, biofuels, fracking as they approach competitiveness

Or we could do it the other way:

  • Leave ourselves locked into single sources of supply in a screwy regulated market that involves sending massive checks to countries who’s governments don’t like us because that’s the way we did it in the 50s?
  • Keep massive direct subsidies to darling sectors so the darling sectors can fight each other to keep their subsidies instead of cutting costs?
  • Keep a mashup of state and federal regulatory, carbon and environmental standards making it virtually impossible to change infrastructure when new technology comes around?
  • Promote deregulation in Texas, and screw the consumer in every other market?
  • Every time there’s a crisis, we can shoot the industry messenger in the head, stop work, and subsidize something.
  • Continue the Cold War policy of appeasing OPEC so they can keep us under their thumb for another 30 years
  • And drop a few billion here and there on pet pork projects

Come on guys, stop the politics, let’s get something rational going.  Oh wait, it’s an election year.  Damn.

And in the meantime how about making energy taxes (a MASSIVE chunk of your gasoline and power prices) variable, so they go DOWN when prices go up.  Then at least the government’s pocket book has an incentive to control cost, even if they’re incompetent at putting together a policy that does so.