Pickens Plan peters out

The New York Times, Wall Street Journal and others have reported that T. Boone Pickens has given up (at least for now) on his plans to to build a four-gigawatt wind farm in the Texas panhandle.

The stated (and undoubtedly important) reason was that his remote wind farm needed transmission lines. At one point he hoped to borrow $2 billion to build his own transmission line, but financing in today’s credit crisis made that impossible. A line is expected to be completed in 2013.

Of course, another reason is that wind power is less competitive due to declining fossil fuel prices — in this case natural gas, which produces about 21% of US electricity.

The 81-year-old oilman was so confident (or aggressive) of his plan that he ordered 687 (some say 667) wind turbines from GE for the first phase, and now has to find something to do with them — either place them in other wind farms or “put ’em in the garage.” With $2 billion tied up in these turbines, it’s quite possible that he’ll never see the turbines used.

Of course, this is a stark reminder of the dependence of wind and solar on transmission capacity, and also (as if we needed it) their vulnerability to shifts in the prices of substitute fuels. But more generally, this is an example of the Achilles heel of both technologies — their low operating costs come due to massive up front capital costs, magnifying the risk to private sector investors who might otherwise eagerly embrace these technologies.

California’s renewable power mandate is one way to reduce that risk, by providing a relatively predictable demand for those building plants and thus committing utility cash flow to keeping such plants open. However, as with all government interventions in the marketplace, there is the risk (in this case, with ratepayer dollars) that such mandates prove to be foolishly bone-headed distortions of the market (something we can’t know until we try).

California’s 33% mandate by 2020 seems particularly risky; a figure of 20-25% after the first decade would be more realistic, giving economists and policymakers a chance to access program success. Instead, the Sacramento politicians (including our governator) want to brag about their legacy to the voters, who will forget (a decade later) about who was responsible if it all turns out badly.

Still, this demonstrates the benefit of the US system of federalism and local policy initiatives: California can try its experiments while others watch. If it’s a great idea, California ratepayers benefit and all the other states will copy it. If it’s a terrible idea — or needs fine-tuning — other states can try something different and only Californians pay the price.

More good news for Tesla

Tesla has landed $465m in a federal loans for its electric car development; the other winners with Ford ($5.9b) and Nissan ($1.6b). The award was prominently played in the FT — curious whether it will become a trade issue (as French and German subsidies for Airbus have become).

It’s been part of a string of good news for Tesla and CEO Elon Musk recently, which includes favorable reviews for the Roadster in the FT. Tesla says it’s getting production costs for its $109k roadster down to $80k, from the former $140k (losing money on every unit, making it up on volume).

It still has an ongoing lawsuit with founder Martin Eberhard. The WSJ (blog) said

Eberhard unfurls a long list of grievances against Tesla and Musk in the complaint, accusing Musk of trying to “appropriate control of Tesla…and Eberhard’s legacy as the company’s founder and visionary” from the moment he became involved in the company as a first-round investor in 2004.

He claims that Musk caused the delay of the launch of the Roadster, Tesla’s two-seater, luxury sports car, compromised the company’s finances and engineered his ousting in November 2007. The lawsuit also lists a number of occasions in which Musk is portrayed publicly in the media as the founder of the company and doesn’t try to rectify that, and another number of instances when Musk says that Eberhard was to blame for the Roadster’s delay and the company’s financial difficulties.

Musk counters on his blog. The WSJ summarized it as

Much of the dispute with Eberhard centers on delays in getting Tesla’s cars on the road. Eberhard blames Musk’s ambitions, while Musk cites Eberhard’s unrealistic business plan (which he said foresaw a $65,000 price tag for the Roadster after 25 units produced) and ill-chosen suppliers.

The reason the Roadster cost so much to develop is that Tesla had to spend development money twice, Musk said. After Eberhard was asked to leave two years ago, the company had to redesign or retool many of the cars’ vital parts, including the body and power electronics, he said.

As always, Musk is not lacking in confidence:

"We don't need to raise more money; we may choose to, but we're not out there beating the bushes to find other investors." And he predicted "the entire automotive market will eventually become fully electric, mark my word. It's just a question of how long."

Asked why he was so sure, Musk offered Tesla's recent sales as proof. "We sold 1,000 cars in a month and a half without having the money secured from the DOE, in the worst economy since the Great Depression, and with no advertising. What more do you need?"

At the time of Daimler’s ≈10% investment in Tesla last month, one estimate placed a post-money valuation of Tesla at $550m. With $700m in VC funding, the VCs will still want another 10x-20x increase in the market cap before they sell Tesla to Daimler (or another car company).

Despite the good news, the Merc quoted one analyst as remaining skeptical about Tesla’s ability to reach adequate scale.

Automobile analyst Philip Gott with IHS Global Insight welcomed Tuesday's announcement, but he wondered whether a niche company like Tesla, despite its innovative prowess, was the best place to put government money. …

"This will be a very tough global race for technological superiority over the next decade," he said. "It's about time we got started. But with all due respect to Tesla, and I admire their entrepreneurial zeal and perseverance, my view is their business model works only in a very specialized premium market. And I wonder if our tax money would be better spent on a more mainstream player."

Multinationals' inconsistent cleantech committment

This morning’s Financial Times reports a potential strategic shift by the MNC formerly known as British Petroleum:

The head of BP's alternative energy division is to retire at the end of the month as the company sharply scales back its rate of investment in the business.

The decision by Vivienne Cox, 49, to retire is somewhat ambiguous, because in a previous interview she mentioned a desire to assure that her two small children (now 10 and 5) continued to get enough time. The website women-omics.com saw Cox’s departure (being replaced by Katrina Landis) as a sign of a “female brain drain.”

However, the broader issue is BP’s commitment to developing renewable energy, which caused the company in 2000 to adopt the slogan “beyond petroleum.” The division includes biofuels, wind farms, and manufacturing solar modules, as well as power stations that capture and store CO₂ emissions.

BP planned to invest $8b from 2005-2015. Last year it spent $1.4b but this year the spending is expected to be $0.5b-$1.0b, as part of broader cost cuts (which apparently are hitting solar investments hard).

For the past 30 years, big energy (i.e. oil) companies have been providing much of the funding for solar power manufacturing — either directly through their own actions, or indirectly by providing an exit strategy for innovative startups seeking to provide liquidity for their investors (and gain access to additional growth capital). Such has been the insurance bets that these companies have been placing to remain in business should alternative energy eventually trump petroleum as our major energy source.

However, like all public companies, they have a short-term focus that emphasizes quarterly results. If alternative energy will be huge 5 years from now, then these MNCs need to be aggressively invested in the future. If it turns out to be 20 years, they gain no kudos from their shareholders or the stock market for being 15-18 years early.

Finally, there is the clash between entrepreneurial visionaries and corporate bureaucracies that applies to all corporate innovation — both for ideas developed within the big firm and for entrepreneurial startups acquired later.

On the one hand, this leaves the burden for developing new technologies and new markets on focused entrepreneurial startups run by visionaries with a passion to do one thing, and one thing well. This is not something that any MNC could ever provide.

On the other hand, this is a troubling sign for AE startups, because it suggests that BP (and perhaps other big companies) see the payoff period lengthening for investments in AE. This means that VCs (and other investors, supplemented by government subsidies) will have to provide the capital for AE development for much longer, and making acquisition less likely for VCs who were hoping for the conventional 3-7 year exit.

Less carbon in the skies

Today there was an interesting op-ed in the WSJ on three approaches for lowering carbon emissions from commercial aviation, signed by the president of Boeing Commercial Airplanes.

Scott Carson started at the obvious takeoff point — better fuel efficiency:

There's plenty of incentive to develop more efficient airplanes. Historically, fuel has been the airlines' second-biggest operating expense next to labor. Last year, with oil reaching $140 a barrel, fuel costs even outstripped labor costs, rising to 40% of total airline operating expenses. So airlines have demanded increased efficiency from airplane and engine manufacturers. And manufacturers have responded big time. Over the past 50 years, the efficiency of commercial jets has risen an astounding 70%. This means that carbon emissions per mile flown have dropped 70% -- all without a regulatory requirement for greenhouse gas emissions.

That said, Boeing with GE (and others?) wants to encourage fuel efficiency standards for new airplanes — sort of like a CAFE in the skies.

Carson listed two other ideas for reducing carbon emissions. One is more efficient routing — a plan to shift from the 1950s-era traffic corridors to GPS-enabled point-to-point routing (NextGen). The idea of flying point to point is welcomed by all segments of the aviation industry, but the question is how to pay for the huge capital costs: private pilots welcome the idea of fuel/ticket taxes while airlines oppose it.

Surprisingly, Carson suggested that biofuels could also reduce carbon emissions:

Third, we have been testing various advanced, sustainable biofuels with the goal of finding renewable fuels for aviation that don't compete with food crops for land and water and that emit 50%-80% less carbon than petroleum. We have conducted test flights using mixtures of standard jet fuel and several different sustainable biofuels, among them fuels made from algae and camelina (a plant that produces seeds that aren't used for food).

However — as with other cleantech efforts — Carson requests government subsidies to get the new fuels off the ground.

One proposal is that government could provide loans to refiners to make biofuels competitive when the price of petroleum is low and get repaid when the price of petroleum is high. We hope government officials will seriously consider such ideas because biofuels, in our view, are the ultimate answer to aviation's carbon-emissions challenge.

Looking further out, ATAG (an industry trade association) has an interesting overview of near-term and long-term fuel alternatives that argues that hydrogen is the long-term solution.

As it turns out, this week I received (from a NASA historian) a copy of the NASA book Taming Liquid Hydrogen. The book is about how NASA’s Lewis Research Center and industry researchers learned in the 1950s and 1960s how to create safe and reliable hydrogen-fueled rockets, at a time when rival groups said it couldn’t be done.

Researchers at Lewis (now Glenn) co-authored a 2006 report evaluating all the aviation fuel alternatives. Ironically, they are more pessimistic about hydrogen as an aviation fuel:

Liquid hydrogen (LH2) not only presents very substantial airport infrastructure and airplane design issues, but because of the need for heavy fuel tanks, a short-range airplane would experience a 28 percent decrease in energy efficiency while on a 500-nautical-mile (nmi) mission. However, because airplanes need to carry much more fuel for a long range flight, and Liquid Hydrogen (LH2) fuel is quite lightweight the lighter takeoff weight of the airplane results in an energy efficiency loss of only 2 percent while on a 3,000-nm mission.

As they note, the key driver of hydrogen is that it’s not an energy source, but a way of converting ground-based electricity generation into a portable fuel. If there is (someday) enough electricity generating capacity that doesn’t produce carbon emissions — nuclear, hydro, solar, wind, tidal —then a use of hydrogen-based fuels is the one solution that would eliminate commercial aviation’s carbon footprint.

CAFE, NiMH, and EV

The administration’s proposed CAFE standards should be good news for the EV industry. The standards will naturally force Americans into smaller cars than they would otherwise buy, perhaps more in line with the rest of the world (where gasoline is more expensive and urban parking is more scarce).

If an SUV is twice the mass of an econobox, it’s pretty cheap to build a gas tank twice as big. (Yes, there’s more steel in the body and iron in the engine block, but…).

Thus far electric vehicles have been on the small side, in large part due to battery size and cost issues. Batteries have been the biggest cost for EVs (and HEVs and PHEVs) asw ell as the major technological limiting factor. So having buyers used to smaller cars makes it more feasible to sell small EVs — and to design smaller EVs with smaller batteries that are more cost competitive with efficient gasoline-powered cars. (My next car is more likely to be a $15k 35mpg econobox than a $40k Chevy Volt.)

On an unrelated note, Tuesday Daimler announced a 10% stake in Tesla Motors that Business Week guesstimates is worth $50 million. The investment from the world’s oldest (and once most prestigious) car company should go a long way to legitimate the San Carlos-based startup. The company has already pulled away from its startup competitors, but partnering with Daimler could help it overcome the liability of newness facing all startups.

Ethanol: what's not to hate?

Ed Wallace at Business Week lays out the case against the current lobbying efforts to increase the proportion of ethanol in American gasoline:

For the fourth time in our history the ethanol industry has come undone and is quickly failing nationally. Of course it's one thing when Detroit collapsed with the economy; after all, that is a truly free-market enterprise and the economy hasn't been good. But the fact that the ethanol industry is going bankrupt, when the only reason we use this additive is a massive government mandate, is outrageous at best.

Then again, the ethanol lobby and refiners have a solution to ethanol's failure in America: Hire retired General Wesley Clark as your point man and lobby the government to increase the amount of ethanol in our fuel to 15%. The problems with that proposition are real—unlike ethanol's benefits.

He lists four problems:

• Ethanol creates more smog
• Ethanol is a net energy loser
• Ethanol reduces gasoline efficiency — E85 (85% ethanol) reduces efficiency by up to 40%.
• Ethanol has pushed up fuel prices worldwide

But, as Wallace drily notes, “It gets better.”

As delivered, the E85 blend also cause damage to cars, even those designed to run E85. For example:

Lexus ordered a massive recall of certain 2006 to 2008 models, including the GS Series, IS and LS sedans. According to the recall notice, the problem is that "Ethanol fuels with low moisture content will corrode the internal surface of the fuel rails." In layman's terms, ethanol causes pinpoint leaks in the fuel system; when leaking fuel catches your engine on fire, that's an exciting way to have your insurance company buy your Lexus. Using ethanol will cost Toyota (TM) untold millions.

As he concludes:

The entire politically stated purpose of using ethanol had already been proven to be a false one before the program even got fully under way.

No surprise there. The premise that ethanol could give America the freedom to one day stop importing oil has always been fraudulent.
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Sadly, when a truly bad idea is exposed today, Washington's answer is to double-down on the bet, mandate more of the same, and make the problem worse.

What's old is new again

InfoWorld is raving about a new environmentally-conscious printer from Xerox. Most eco-friendly printers are about saving milliwatts in standby mode, or making the case of recycled plastic, but Xerox has tackled head on one of the key problems with today’s printers: disposable consumables.

The new printer, the ColorQube 9200, has no toner or ink cartridges. Instead, the printer melts solid ink sticks and applies them to the page. This keeps all those cartridges out of landfills, eliminates the materials used to produce the cartridges, and all the reverse logistics of getting the cartridges back for partial reuse. (Of course, control of consumables is a big issue for printer vendors who want to control the profits of their "razor and razor blade" business model.)

I’m guessing that this Xerox technology is based on its 1999 acquisition of the color printer division of Tektronix, which had at least one solid ink printer more than a decade ago. Since the bulk of the color market was inkjets and laser printers — dominated by HP and the Japanese — Tektronix had created high-end niches that offered unique products that commanded a premium price (hence the interest by Xerox).

The announcement gave me a sense of déjà vu, from working with solid ink printers 20 years ago. My company was helping a small New Hampshire firm break into the Macintosh color printer market by writing software for their printer, the Howtek PixelMaster. The advantages were a more vivid image, but a disadvantage was that the thick ink dramatically increased the weight of the page.

Even back then, solid ink printers seemed like they were a great innovation that weren’t quite competitive enough to overcome their disadvantages. Now that consumable use (and waste) is an increasing concern, let’s hope they can be successful in this new waste not, want not era.