Wednesday, April 22, 2009

Who is holding Greentech back?

"He who is firmly seated in authority soon learns to think security, and not progress, the highest lesson of statecraft" James Russell Lowell

If you want to know what else is wrong about today's economic model, you have to talk to any entrepreneur who is trying to implement a new Greentech initiative in a commercial scale.

The logical general path of a new product or service towards market implementation is the following:(1) An idea is conceived;(2) The concept is proven;(3) The product or service is launched to the market. Generally speaking, almost any new product that addresses a big enough market requires a big capital injection at the time of launch to market. Most of the companies seek this capital from banks and financial institutions.

The problem with this sources of capital is that they are very risk averse (now, even more that before!). Therefore, the decision maker for lending money towards a new Greentech product or service will be intrinsically against taking a risk on a new technology, even if that technology represents higher margins, and more so if that technology "only" represents lower carbon emissions.

Think about a new solar cell that is able to generate 5 times more electricity than classical cells being used nowadays. Lets assume that the product has been tested and proven worthy of initial investment. When this product is proposed for a large solar field to generate electricity for an entire town the project is presented to the banks. The bank's loan committee will look at this loan and will try to asses their risk. Someone will ask "has anyone proven these cells for a lifespan of 20 years, which is the loan period we are considering?". A long silence will follow until someone answers "we are not sure how these cells will behave past their first year of life, which is what was tested so far". What do you think the outcome of the loan committee will be?

A similar problem occurs with regulators. When a new greentech product is trying to get into the market is up to the regulators to provide a permit for this product to be commercially feasible. These regulators are also risk averse, at the end of the day they don't get any reward for approving better technologies, but they get punished for approving faulty ones!

To summarize, the lending committees of the world and the regulators are setting the limits to the type of technology we can access. This severely skews the outcome of the technologies being developed and presented to solve today's energy, water and waste management problems. I PROPOSE THE FOLLOWING: LET'S BUILD THE GREENTECH BANK, hire experts in each field to really asses the possible risks of each technology and let's give financial backing to the technologies that deserve to be launched (and hope regulators will follow suit).

Here are some comments I received from The Good News, the Bad News and the Ugly News:

I am sorry, your point escapes me, even after reading your blog. What are you trying to say here? We need to be thinking in terms of substantial changes in the supply of types of energies and the methods of delivering those supplies that are economic and feasible. Man, that is a life-altering experience. Greentech is still a pipe-dream with wet diapers.

Interesting and relevant news. Consistent with what I am seeing. The economy has certainly slowed (but not stopped)

Provide more capital to small start ups - there are thousands of people out there in garages - we do not need the big to protect the markets and have it their way - at one point there were 200 car companies - same here - protect the small and help them grow

Comments from The obstacles to Alternative Energy implementation are in our heads. Are they?:

That's only part of the problem. The other problem is that we are too rich, so we don't give a damn, and can throw away hundreds of dollars per month without even knowing it. The conscious people are satisfied with talking the talk and walking the walk for themselves

The barriers to entry in the Energy Market are in your mind in this respect -- Don't allow anyone person, company & entity to impede your progress. If you provide smart business answers, the volume will follow

I do not think you are wrong, but is the green or alternative energy infrastructure large enough to be part of the mainstream?

Why don't we spend time and money coming up with ideas to use wisely the energy supplied by renewable energies. If we do not have electricity for one hour or a couple of hours, do we die? No, so many millions in the world do not have and they live every day. Mr Shiro is completely right. It is our own brain, which is creating the problem

Really big obstacles exist, I am currently making suggestions to my local Politician to asses and draw up protective outlines to govern the hapless new wave of installers and dealers of this new technology. Residential involvement seems to want more guidelines on how new dealers with almost no experience can suddenly appear out of nowhere and work on your home or office for a high dollar price. Where will this lead? Homeowners dealing with a nightmare of no set rules and guidelines orchestrating the professional as these newbies call themselves without getting proper identification, certification, licensing and insurance to facilitate these constituents of our local, state, or even federal areas. New dealers are not the only problem; New manufacturers are also popping up and claiming remarkable and physical science impossibility with these products. These New Manufacturers also need to make sure that they express that there systems only work at these outputs, and that the material has been reviewed by either DOE or NREL and certified by UL or consumer reports. We set up rules and guidelines to safe guard our peoples vehicles they ride in in the United States. If you build a car that does not meet the DOT crash standards for instance; it will not be sold to the people. This same concept is what I am proposing to the renewable energy field

Until next time: SHALOM!

1 comment:

Andrew Strachan said...

Sami,
“ It is the long term investor, he who most promotes the public interest, who in practice come in for the most criticism wherever investment funds are managed by committees or boards or banks. It is in the essence of his behavior that he should be eccentric, unconventional and rash in the eyes of average opinion” J.M. Keynes, General Theory, 1936”
The ‘patient’ money for these investments will not come from the mainstream bank sources but from Venture and Private Equity. That being said, everything cannot be financed and it is at the VC entry point into a new idea that some basic economics come into play. VC’s are not philanthropists to better the world at their expense however. They are Adam Smith’s self interested man who have a fiduciary duty to limited partners to make a return on the money that has been entrusted to them. It is at the university and government funded level where the first ‘money’ enters the picture and their goal is not necessarily to make money but to plant lots of seeds. It is the VC that takes the young sprouts, analyses them and decides which ones may have earnings potential. We need to foster lots of ideas to get a few good ones. Have a good idea that can attract profitable customers and the VC’s will come.
Governments are starting to step up to the plate but there are lots of vested interest and it is going to be a long struggle to get to Copenhagen in December and from there see positive results. There is a limbo at the moment that without clear regulatory guidance on pricing it is difficult to value anything in renewables. However, it is in energy efficiency where there are lots of opportunities in the meantime. Any company should be happy in these times to have someone walk in the door and tell them they can reduce operating costs almost immediately and often with little effort. The top line isn’t growing at the moment so margin creation has to come from a cost squeeze.
My final opinion is that it is always going to be difficult but that it shouldn’t stop anybody from trying, it is part of the survivability of the human race to persevere and win. It is government policy that is the most critical missing factor and it may just take a big catastrophe before they actually really address the problem. It may just take an event like what Munich Re discussed in 1997 (quite a while ago!) to get government off the rocking chair and into action:
“According to current estimates, the possible extent of losses caused by extreme natural catastrophes in one of the world’s major metropolises or industrial centres would be so great as to cause the collapse of entire countries’ economic systems and could even bring about the collapse of the world’s financial markets”.
We need to persevere, but projects still need an acceptable ROI!