Energy Generation

– Wind
– Solar
– Hydro/ Marine
– Biofuels
– Geothermal
– Other

Acquamarine Power gets funding – Atlantis Resources charging ahead?

Posted on by S Klamp

Acquamarine Power, an Edinburgh based business, received another £11m in funding. One of its Investors, Scottish and Southern Energy wrote an investment case study that is worth taking a look at. Some details on the technology concept can be found here. Another key investor is Edinburgh based Sigma Capital Group.

The Press release can be found on Clean Edge’s website.

A company to watch is Atlantis Resources, Singapore and London HQs. They are backed by Morgan Stanley. The company is targeting China and India. From an investment perspective it is worth following their progress we think. The firm presented at the Offshore Engineering Society. Earlier in 2010, Atlantis raised $14m with Statkraft leading the round and Morgan Stanley upping on their existing investment. We wrote about Stafkraft’s Osmotic Energy Plant in the past. From where we sit, we believe that Statkraft has the background and capabilities to see through the risks associated with investments in this segment. Thus worth noting what they are up to.

The NY Times Green Blog recently wrote an update blog on the outlook for Tidal Power. Although the author is not making any judgments it follows the European Energy Association suggestion that Tidal Power could yield 5x current global electricity needs.

We think that the concept is intriguing but returns are still a long way off.

Capturing the value in Efficiency

Posted on by brettalan

Reducing energy use through improved efficiency measures is often a better investment when compared to investing in cleaner energy generation sources as we have noted on this blog. While the returns to the consumer are documented well in our previous posts (3.0x-4.0x ROI)- how do investors capture these excellent returns?

Let’s first identify the business. A company seeks residential and/or commercial clients who need to retrofit an existing building. The firm may implement measures such as: improved insulation, replace lighting, replace roofing materials, install energy usage monitoring equipment and replace some appliances for more efficient versions. On some occasions these firms may offer to install solar panels or micro turbines.  For discussion’s sake- let’s focus on the efficiency side and ignore the generation component.

The question I pose to our readers is this: With such an excellent return profile for the clients, how can the firms delivering the value from efficiency also earn a good return?

Installing equipment is not very “value added” and does not differ much from any typical contractor who could also be installing a new pool or painting a house for example. The returns on these labor services are small and also very competitive in most markets. The value added, in my opinion, comes from the expertise of the efficiency firm in determining how to best maximize returns for the client when deciding where and how to invest the capital. The experts can best procure products and customize solutions for the individual needs of each building and house. Labor can be outsourced or done in house.

So, does a firm simply charge a fee to the client for their expertise? Again, margins on re-selling equipment and labor are not likely to be very productive. In this entire value chain, it seems like the biggest value is delivered to the end-client who will then save money once their return on investment is received. Perhaps efficiency firms could negotiate to capture a percentage of the energy savings until a target is met, using historical energy use and cost as a baseline model? It would be an ‘incentive’ payment of sorts- of course with many caveats.

What do you think? Your comments below are highly suggested.

PS. Check out two firms I’m currently reading about in the sector: OPower and GridPoint (who just bought Standard Renewable Energy)

Path to Greener Flight – Part 2

Posted on by maxdemaria

If we are to consider other forms of energy storage we should also explore how it could be put to use. Developments with superconductors are laying the way for very high power to weight electric motors that could be used for aviation with the potential to be lighter than a turbofan based propulsion system, allowing the use of an energy store that does not need to be ejected to create thrust. With the potential development of room-temperature superconductors (currently at 254K or -19 degrees C), this becomes even more appealing by making refrigeration of the motors redundant (another sizeable weight saving).

The turbofan propulsion system used in a Boeing 747 is powered on jet fuel (Kerosene) with an energy density of about 45MJ/kg. Currently only being able to hypothesise on energy conversion efficiencies and weight reductions obtainable above, it would only be realistic to power an aircraft with an energy store with a comparable energy density. EEstor is a battery company claiming to have a device (a form of an ultracapacitor) capable of 1.47 MJ/kg. This claim is not without its sceptics, after all this is three times the energy density of today’s lithium-ion batteries (0.58 MJ/kg). While well suited to automotive applications, this is currently far too low to be used for aviation but progress is progress. Lithium-air batteries offer hope with theoretical energy densities in excess of 5,000 Wh/kg (18 MJ/kg). While battery energy densities may not reach the required levels to allow for all-electric propulsion (or no hydrocarbon fuels), a hybrid generator powering superconductor engines could be the path of the future.

A Boeing 747 has an average power consumption of 140MW. Power delivery is as crucial as energy density for an aircraft. Numbers of this scale are normally associated with power stations. If we look far enough into the future it may be reasonable to put a power station on an aircraft, after all we do have nuclear submarines. Granted, there is no shortage of obstacles when it comes to considering a flying nuclear power station. However, there is a lot of progress being made on nuclear fusion. There is a program being funded by DARPA for naval power generation with the aim of developing a 100MW-1GW fusion reactor for ship propulsion.
IEC Fusion, if successful, would be able to provide a source of nuclear energy generation within a relatively tiny space, producing no nuclear waste and no risk of a runaway nuclear reaction via a proton-Boron fuel (PB11). Updates available on their blog. The ignition and waste products of this reaction are not radioactive, in fact far safer than current aviation fuel. On the other hand, if nuclear fusion would be able to be harnessed on a commercial aircraft I think we would have found a solution to a much larger problem. The final alternative to flight dependent energy storage is none (well, excluding reserve systems and batteries at least). Strictly speaking I am referring to remote energy generation and transmission.

The electrical genius Nikola Tesla had a vision of global wireless power at the turn of the 20th century. This has eventually led to technologies such as electromagnetic resonance and microwave transmission.Witricity is focusing on using short-range energy transmission at home, providing a means to charge devices without wires within several meters. While electromagnetic induction is well suited for domestic applications, microwave appears the only current feasible contender for wireless energy transmission to aircraft. Whilst microwave power transmission has been proved to be very efficient obstacles remain with distance (currently effective up to 1km) and public image. No one wants to be boiled from the inside out on their way to a summer retreat.

Air travel may be seen as indispensable in modern times; however there are possibilities of replacing long-haul flights with a greener alternative. Why do we fly? – To get across vast distances on earth in short periods of time. For shorter distances a dedicated maglev train with speeds reaching over 350 mph would be a possible substitute. If green air travel can be achieved, it will start with shorter distances. The real issue is transatlantic / long-haul flights. A variation of the maglev offers an alternative with an exceptional engineering challenge. The Discovery Channel recently aired an episode of Extreme Engineering called Transatlantic Tunnel which explored this option. Known as a Vactrain, it is merely a maglev train placed within a vacuum tube. The reduced drag from wind resistance and friction offers speeds in excess of 4,000 mph, shortening a trip from London to New York to around one hour. The costs of submerging a transatlantic vacuum-pumped tunnel 300m below sea level for nearly 3,500 miles are staggering (estimated at $1trillion). Of course this would require a clean energy source to be considered green. The good news is that it wouldn’t have to be airborne.

Path to Greener Flight – Part 1

Beneficial Biofuels and the Trilemma

Posted on by S Klamp

Robert Socolow, Princeton

Robert Socolow, Princeton

We saw a recent article published by www.sciencemag.org, co-authored by Robert Socolow. The following quote stood out: “The search for beneficial biofuels should focus on sustainable biomass feedstocks that neither compete with food crops nor directly or indirectly cause land-clearing and that offer advantages in reducing greenhouse-gas emissions.”

The bio-fuels and ethanol discussion is certainly not new. Yet, we agree that the ‘trilemma’ between a need for a reduction in green-house gas emissions, increased transport and the wealth effect (leading to higher consumption of protein rich meats etc.) conflict. We previously addressed the issue in a post ‘Crop per Drop‘ which looks at the global pockets that could drive yields. We reiterate here that Deutsche Bank’s report on the agricultural sector is relevant for anyone looking at the food chain and vis-a-vis at the biofuels/ ethanol market.

Agricultural output is only possible and yield enhancing methodologies can (only) work if access to water is procured and secured. We looked at the water play in the ‘Water Scarcity‘ post. To round up, if one plays the bio-fuels and ethanol market, one invariably plays also in the water sector: ‘Why invest in water‘.

Efficiency, King of Power

Posted on by brettalan

A recent panel discussion with John Doerr (KPCB), Vinod Khosla (Khosla Ventures) and John Holland (Foundation Capital) in the WSJ caught my attention. The lesser known of the three panelists, John Holland, had a quote I felt trumped his two better known colleagues when asked what is “hot” in the CleanTech sector.

Mr. Holland:  “We’ve focused our efforts around the demand side, around energy efficiency, smart grid, smart materials and so forth. I’m disappointed in, but I’m not surprised by, some of the things that we’ve seen—you know, technology’s trying to drive to sort of a lower cost per watt. That’s just a very, very difficult place to play. You’re making a bet that your set of scientists is going to beat the other 500 sets of scientists that are working on that one particular piece. And then how long is that competitive advantage going to last?”

This quote I believes sums up a remarkable albeit less discussed facet of the CleanTech sector which is that a  efficiency company can trump an energy supply side company anyday, anywhere. Here is why:

Supply side technologies face replacement risk. E.g. a competing solar or wind technology may out engineer or innovate your firm’s basis for existence whereas a consumer will always have a need for a device or system that reduces the need to spend money on electricity so long as the economics are favorable. For example, I can and would purchase multiple technologies such as a smart grid technology, more efficient lighting, windows, and insulation for one place even though some of these products offer better economics than the others. If a newer and more efficient version of these demand reduction products arrives, my existing products are still viable and offer cost savings to me, the consumer.  Contrast this to selling solar panels, where a competitor’s improvement notches you further back on the supply curve if you have higher capital costs or a less productive panel. A consumer has no incentive to buy a less efficient producer of electricity, all else equal, whereas the same is not true for products that reduce consumption/save money.

Consumers seek efficiency even if it is not a market leader, perhaps seeking it at a lower price but still desire the cost savings offered whereas an outdated energy producer might be used until it no longer functions and then scrapped. From the investor’s perspective, you want your investment’s product to be as relevant and attractive as long as possible despite competitive entrants to the market.

The Asymmetry Principle: Reducing consumption of one watt of energy, saves the production of 50 watts of energy. Accounting for the inefficiencies of electricity production, transmission and conversion to light, in this example, it takes 50 watts to receive one watt of work (light.) Thus, reducing the consumption of watts is a much more efficient product than attempting to marginally improve production of watts. For a lightbulb this ratio is 50:1 as noted, for a car it is 6:1 and for many common household products this ratio is somewhere between these two examples.  The Asymmetry Principle heavily weighs the odds in favor of efficiency over production in both cost savings and efficient use of resources. (Credit to Peter Tertzakian, The End of Energy Obesity.)

Credit: Peter Tertzakian

An advantage in efficiency is why it is inevitable that one day electric cars will replace the internal combustion engine as we note here. An improvement in efficiency for existing technologies is easily the most cost “efficient” way to lessen electricity demand and consequently lower emissions as we note here.

With this in mind, no improvements in efficiency will ever wipe out all demand, only lessen it of course. There is and always will clearly be an enormous market for innovation in the power markets (“supply side.”) John Holland’s quote merely helps point out that when comparing the two, one side of the fence is safer, more economic, readily distributed and likely a safer, long term investment.

If you live in the US, check here to see if you are eligible for financing assistance to improve the efficiency of your home or business here. Link to DOE. List of Programs.

Bloom Energy, or Wilt Energy?

Posted on by brettalan

K.R. Sridhar of Bloom Energy at the unveiling

On Sunday, February 21st Bloom Energy was profiled on the American News Show 60 Minutes. Three days later Bloom unveiled for the first time to the public a fuel cell that had been under development for 8 years with Governor Schwarzenegger and General Colin Powell present. Between the media, the hype, the celebrities and the backers Kleiner Perkins it is safe to say the CleanTech world is buzzing about this potentially disruptive electricity source. At the press conference John Doerr of KPCB added: “The Bloom Box is intended to replace the grid. It is cheaper than the grid. It is cleaner than the grid.”  So, let’s take a closer look.

Product: A compact, fuel cell able to provide 24/7 baseload power on or off the grid.
Fuel Source: waste landfill gas, or regular natural gas
Supply Materials: Generic beach sand gives us zirconium oxide which gives us a ceramic plate (mix in secret Bloom coating at some point.) No precious metals used or hard to find materials.
Price tag: For a 100kw box, $700-$800k. That implies a $7,000/kw capital cost. Compare this to say $1,200/kw for Combined Cycle gas, $2,600 for wind, $4,500 for geothermal or $6,500 for solar. On the 60 minutes interview K.R. claims an American home could be powered by a $3,000 version. Really?
Cost of power: Bloom’s Stu Aaron told Lux Research and the NY Times that with incentives, over the 10 year life of the fuel cell, your rate is $.08 to .10 cents/kWh, compared to the average American rates of about $.12/kWh.
Warranty: 10 years
Funding/Investors: Bloom has raised $400MM from backers such as Kleiner Perkins and NEA
Clients: Wal-Mart, Ebay, Google, Coca Cola, Fed-Ex and others. Ebay claims they are happy with their investment and it is already providing returns in the first year.
Tax Credits: In the US, a 30% investment tax credit. In California, an additional $2,500/kw . Thus for the above California clients their Bloom Boxes were nearly 50% off retail prices.
Calculated Payback: One calculation (via Oildrum) shows a return on investment in 15 years with no subsidies. K.R. claimed at the unveiling that it is 3-5 years with subsidies. Using the Oildrum numbers with subsidies would lead to a ROI around 7-8 years, not 3-5.
Cost Cutting: Earth2Tech’s Katie Fehrenbacher caught NEA GP Scott Sandell who claims Bloom will be able to cut costs 60-70% within a few years due primarily to economies of scale. A bold prediction and quite helpful if it occurs!

Conclusion: It is challenging to criticize a product that clearly brings several large technological breakthroughs to the market.  Their source materials, fuel source and overall concept are top notch. The idea of providing cleaner, steady, off the grid energy 24/7 is a massive improvement over the well known variables for both solar and wind. Bloom may have accomplished what other, well funded companies could not in the past 30 years.

However the current economics without subsidies are atrocious at rates 2-3x current renewables and we can see Bloom uses optimistic assumptions in their numbers. On the positive side, there is room and real hope for improvement and their current clients appear happy with the product from a financial perspective.  If you are fortunate to live in a state or region where tax credits are strong the Bloom Box is economic now. For the rest of us, we may need a decade or so before we prepare a spot in our homes for a fuel cell. If you are fortunate to be John Doerr, you just made even more money.

Side Note: Bloom has also patented a fuel cell design that uses wind and solar generated electricity to produce hydrogen which will then be used as a fuel for the cells. “That’s the killer app” said K.R. Sridhar of the side development they hope to release within a decade.  Interesting that he could be more excited by this other, potential product. To be continued..
See YouTube interview here with K.R. Sridhar

Collapse

Posted on by brettalan

Instead of Clean Technologies- let’s talk oil. Why? Because oil competes with clean technologies, affects government and consumer choices and in large part determines the success or lack thereof of much of what we discuss here. Consumers are much more willing to pay premiums for electric vehicles, biofuels or renewable energy if it does not have the burdensome variable cost of crude oil attached.

Many well qualified geologists and experts are claiming that the Earth has already given us her easy to find oil and that we have peaked.  See this video for a good summary. Probably the most famous detailed review of our Earth’s supplies can be found in Matt Simmons’ book “Twilight in the Desert” or also in Jared Diamond’s “Collapse.” Peak oil is a controversial idea to many that draws passionate disagreements from those in the oil industry. Let’s take a more reserved approach to this giant question with facts we can understand much easier than how much oil exists miles beneath the surface: Oil Demand.

Fact #1: If oil demand outpaces oil supply, more people bid for the less per capita supplies. Oil prices increase.
Fact #2: We all know the global population is increasing but that’s not the issue. What matters more is that the per capita oil consumption is increasing. Developing countries, are- developing.

Population projections

Fact #3: If oil supply is to continue to increase, it’s got a lot of work to do to replace maturing oil fields. If it can increase, good luck keeping pace with demand. The IEA has been warning about sluggish supply growth, and if Saudi Arabia has so much oil in reserves- why are they spending billions to drill off shore now?
Fact #4: Oil prices have remained constant, at relatively higher prices during one of the world’s worst recessions in memory. Imagine what price it would be if oil demand had not actually dipped two years in a row! Where do prices go when the economy recovers, never mind the other above issues? Demand down 4% in 2009 and 5.4% in 2008. We have no substantial reason to believe that demand won’t recover when the economy does.

Rebuttals: What about horizontal drilling, new discoveries and those Canadian Oil Sands? Those are accounted for in the both the IEA and all three studies linked to in the first paragraph of this blog. Secondly- if the Canadian Oil Sands are depended upon as a significant source of future, global oil supplies- then we’re still in very bullish oil pricing territory given the very high variable cost to procure a barrel’s worth of oil from Alberta.  And that ignores the logistical and environmental issues of the oil sands. See the Cambridge Energy Research Associates supply curve posted below. The easy oil has already been found. The expensive oil is now depended upon to take up the slack of a flat supply curve.

Projected Global Demand. Source: EIA

Conclusions: Oil prices are bound to increase significantly. The price of oil largely affects the economics (consumer choices and firm profitability) of many CleanTech related firms in areas of electric transportation, electricity generation and energy storage.

Chinese Consumption increasing faster than population

Think of oil consumption occurring by two different groups of people- those from developed countries (4.7 bbl/day) and those from developing. As countries develop, so do their consumption rates. Welcome China, India and Brazil to the developed world (slowly!). Again, while very few people have the information, expertise and experience to speculate on global oil supplies, it is much easier to grasp the demand side and consequently oil pricing and its impacts.

I strongly suggest the above two books by Matt Simmons and Jared Diamond for anyone with a relevant career in Clean Technologies or even just Energy.

Coincidentally, a documentary is being released today covering this exact topic and is receiving great reviews. It is called “Collapse” and is narrated by Michael Ruppert. See reviews here and here.

Courtesy of the Oil Drum

The easy, cheap oil has been found. (Courtesy of CERA)

Start Ups vs. Large OEMs

Posted on by brettalan

Before one can invest in a technology or firm, an investor must first believe in the relevant sector. If this prerequisite is satisfied to a high degree, the next logical step is to decide how to best capture the upside of the sector. In Clean Technology many start up firms hope to be bought out by larger, more established firms. Very few firms will be lucky enough to IPO and establish themselves as an independent player in the market, while many other start ups will unfortunately die a slow, financial bleeding death.

Several years ago I spoke to a Senior Executive for Exxon Corporation. The gentleman I spoke with, while agreeing with much of what I said about the need for Exxon to hedge its position in oil with at least a few of the upcoming alternatives told me that Exxon, in 2003 anyways, had absolutely no desire nor immediate plans to get involved with Clean Technology. After an awkward pause on the call he said, “Why should we risk money and waste time developing something when we have enough cash to just buy whatever we want once it becomes established?” Wow, how could I argue with that- he did have a valid point. Which brings us to 2010:

This blog often profiles technology developments from the investor’s perspective. Many of the VC firms we discuss invest in small start ups in sectors like biofuels, solar, wind and energy storage. But there’s another way to capture these sectors if you want to participate- investing in the large OEM. In fact, Exxon later on did invest $600MM in a biofuel firm called Synthetic Genomics and is “prepared to invest billions more to scale up the technology.”

While we won’t perform an individual investment analysis of each sector and firm here, we can highlight some key options as well as investment pros and risks.

Investing in the large, diversified OEM Pros:
Limited Downside, Economies of Scale/Faster route to mass market, more established vertical infrastructure and brand name recognition
Cons: Limited Upside/No IPO potential, less nimble & dynamic management team & the fact that you are also investing in many other sectors or technologies you may like/dislike.

Flip all of the above pros/cons when investing in the Start Up Firm. Now- a brief look at investment options:

The Start Up vs. the Large, Diversified OEMs!

Energy Storage
A123, Ener1, EEStor, PowerGenix Panasonic Sanyo, Bosch, Samsung, LG Chem

Wind
Vestas, FloDesign, Ramco GE Wind, Samsung, FPL

Water
Statkraft, Saltworks, Pentair, Israeli Start Ups Zenon (GE Water)

Biofuels
Joule, Cereplast Exxon, BP, Shell

Silicon and the Solar industry – a Boston Consulting Group assessment

Posted on by S Klamp

Phillip Gerbert and Holger Rubel (both Boston Consulting Group) published an interesting review of the Solar sector and its strategic position both in the pre-2009 years and its outlook for the next decade. A research piece by JPMorgan‘s Gokul Hariharan, Shoji Sato and Carrie Liu comes to their support although takes a more holistic, if not biased view.

The key observation remains: despite the phenomenal energy we could generate on the back of the sun, the costs to do so remains restrictive. Today, the authors claim, only 0.1% of the energy mix comes from solar; by 2020 it may be as ‘high’ as 2%. There is the issue of moving variables, Phillip and Holger elude to, but not explore further. Anxillary industries such as the electric vehicle and smart grid companies, may come as helpful support. Ceteris paribus, and if all parts move in the right direction, the path to solar may be faster then expected as the perceived benefits to both companies and society starts to accelerate in the eye of the beholders.

The Venture Capital industry is pumping significant amounts of capital into the solar sector (in fact, the bulk of all renewable investments goes towards solars technologies) which should reap some rewards in the next 3-7 years, subject to vintage years.

Source: The Boston Consulting Group

Focusing on the supply side constrains, the silicon spot price reached a peak at $400 whilst long-term contract deals were struck at a fraction of the price. However, whenever the economic rent is too good to be true, entrepreneurs as well as corporates enter the market and ramp up capacity. Sounds like a typical China-syndrome: becoming a market leader irrespective of the long-term implications whether the supply-demand balance is sustainable. The consequence, margins drop off and firms struggle to survive.

The McKinsey chart below shows that Chinese corporates are significantly ramping up the capabilities in the silicon supply chain. Again, the credo of ‘lets become world leader’ is an interesting one. We had a meeting with a CEO of a Chinese company who proudly presented to us that they had a achieved their goal of being #1 in their industry. He could not answer the question what vision and objectives the firm would focus on from now on. Equally he did not see the issue of now being the one to chase and he did not yet know what industry leadership abilities he had to prove. The silicon industry may walk down a similar path.

An interesting presentation on the silicon industry put together by Wacker Chemie can be found here. Wacker Chemie is one of the leading suppliers of silicon and they have a number of business units that deliver products to the solar industry.

Todays news on MEMC (dropping 17% in intra-day trading) may be a sign for significant struggles ahead. The jury is out when the solar market will take a turn. Meanwhile, we continue to think that investors struggle to extract sustainable returns of the sector. A possible route to see significant total returns may be to back leading VC players who are able to spend significant resources filtering through the many start-ups that are trying to commercialize low-cost solutions. However, patience may be key at this stage.