Over the last few months, with the precipitous rise in petroleum prices, we've seen the call from many politicians and thought-leaders for an "alternative energy Manhattan Project" or "the renewable energy equivalent to the Apollo program."
At the risk of sounding ungrateful for the attention to the industry that I work and personally invest in, I think that this is misguided.
These two historically significant exercises in national will had a key point in common that is critically missing from the requirements of the next energy solution. Both of these efforts were based on MNO budgets. Money No Object. They were about the demonstration of our political will and technical capabilities, not about cost effectiveness or affordability.
If it was determined to be in our national interest to build a 100MW photovoltaic power-plant in orbit above the earth and to microwave the power down to a receiver station in the Mojave desert, we could do it. The question is would it be easier and cheaper than two frame 7F, 50MW GE gas turbines? Probably not so much.
The unique challenge is that we need to develop not only novel solutions to our energy supply problems but to do so in a way that is either directly cost competitive or close enough that relatively modest public policy efforts can make them so (e.g. tax credits, feed in tariffs, etc.).
The problems we face with petroleum is two-fold. First, is the high and growing demand for a product whose price is controlled by a cartel. From a pure Michael Porter competitive forces viewpoint, if you can't find an alternate supplier you had better find a substitute product.
The second problem is the more talked about issues of climate change. The high and getting higher levels of CO2 in our atmosphere are at best, worrisome and at worst, disastrous. Compounding this problem for us is that, on a statistical basis, most people in the world don't care.
They care about getting out of poverty. They care about food, clean water and better transportation - immediate needs for family and self that overwhelm what might be in so many years. In short, the renewable energy solution that they need is the one that is cheaper than fossil fuels.
In each case, as painful as price increases around crude oil are, they make us that much closer to a cheaper solution to both problems around the world as well as at home.
Now that we have admired these world-class problems, what might the US government (or other capitalism-based government do to solve them?
In part 1 of this story, I identified a chasm of funding for new technologies. They can best be characterized as projects too expensive to attract venture capital and too new to attract debt.
If I may criticize my own industry, others in it tend to call for government intervention (subsidies, credits, etc.) all too often to help our cause. Since I have been relatively quiet on this topic, I now feel that it is my turn to ask.
There has been a program in the US Federal Government's Small Business Administration to invest in venture capital. I know because Fluke Venture Partners, where I am a limited partner has the SBA as a special limited partner. The SBA takes a special position whereby they get a limited but preferred return on their investment. FVP gets to nearly triple the size of their pool of investable funds. The other limited partners get the prospects of the lion's share of the returns after (and only after) the SBA takes their cut.
While this SBA program is now being curtailed, I think that it or a similarly structured debt fund is an excellent approach for solving our new technology funding chasm-the chasm that impedes the commercial scale deployment of new, innovative energy technologies.
Now some will say "aren't there government loan guarantee programs that would accomplish that?" Actually, no. While there must be exceptions, every loan gaurantee program that I've come in contact with was either administrated directly by a government agency (=very risk adverse) or by a commercial bank that lacked depth of industry or technology experience. In both cases, guarantees seemed to go to the firms that did the best job of schmoozing the administrator rather than advancing the state of the industry.
The creation of such a project finance fund would allow the government to direct where the money goes generally - project finance for first commercial scale (call it 50MW) use renewable energy technologies while allowing talented fund managers with real track records to pick those projects that have the right mix of talent, technology and risk mitigation.
But this is a presidential election year, small chance of that happening. Oh well.