Friday, December 28, 2007

Investments in alternative energy technologies and models of innovation.

A perspective that seeks to put news on investments in solar energy in context of an array of alternative energy technologies. This perspective has underlying simplistic assumptions to keep this post brief and to provoke discussion- you are welcome to challenge specific points, ideas and flow of thought.

How do we cut through the hype in the varied landscape of alternative energy technologies? From time to time, there is a lot of excitement about a particular technology connected with alternative energy sources.

A recent article on a particular technology for Solar Power:

Here’s Vinod Khosla’s talk on the topic:

Observations on all similar articles on Nanosolar:

1. The good news: Germany has placed huge bets on coal energy. Its dependence on coal fire plants is similar to that of the US. A serious investment like that in Germany could correlate to investments in the US.

2. The articles miss a point that folks live and die by in technology- TCO. $1 per watt sounds like zero TCO- $1 seems to fail to account for the entire value chain or the "Total Cost of Ownership". Energy storage is a critical component of the value chain too. For now, lets assume distribution is zero. This is further based the assumption that Solar energy is not the only energy source we are going to rely on; i.e. "regular" power is still paying for the distribution infrastructure. The good news? Khosla’s talk covers this point of view. So someone has that figured out to a degree.

3. Of course, just as investments in solar power are improving cost and efficiency, investments in (recent bad boy) ethanol and coal technologies are improving the cost and efficiency of those sources of energy. Non polluting coal power plants have 35% efficiency on coal. Solar energy based approaches of the type mentioned in the article hope to get there by 2011. Anyone betting on breakthroughs (safety, TCO, etc.) in nuclear power?

While multiple approaches to the energy crisis are the only way forward, it is really going to boil down to models of innovation. Or is it?

While simplistically comparing the various bets being laid on energy technologies, the fundamental question that pops up is: Would monolithic firms making delta changes to existing energy cash cows do a better job than a set of entrepreneurs hacking away at the problem in their own manner? Rephrasing, does the cathedral work better than the bazaar on this problem?

1. Nuclear energy has peculiar regulatory issues. It requires massive upfront capital investments to make a dent into the existing theoretical and engineering frameworks. With a rarified, closed community engaged in this industry and its ancillaries, the prospects of a mad scientist and an entrepreneur coming together to pursue an idea are dim.

2. Solar energy approaches, at the other extreme, are oscillating closer to their tipping points. Tipping points here would be breakthroughs that encorage early adoption and reduce cash flow uncertainty.

The one insight that stands out from the points above:
1. Both models are funneling resources toward an ever narrowing focus of problem solving.
2. Neither of the two cases are pursuing a large set of hugely diverse approaches being pursued at the same time.
3. Large, disruptive innovation might impact both models.

However, this is where I would lay my bets on solar power and biofuels. Eventually, increased attention:
1. Helps accelerate a technology's thrust towards its tipping point and,
2. Increases the odds of maverick, disruptive innovation arising out of risk-taking.
I see little chance of nuclear power breakthroughs anytime soon.

Between solar power and biofuels, solar power has the edge in terms of being closer to its tipping point. We have to thank an inconvenient truth for that- CA (one of the US innovation diamonds) is likely to become a dust bowl.