I'm doing my own renewable energy startup right now, with our own innovations in turbine design. And while the engineering is critical, it is not the problem with the industry.
Energy startups fail primarily due to a lack of appreciation for the intensive capital required to make renewable energy work.
This is an industry where every project will cost millions of dollars, hundreds of millions, or even a billion for truly large-scale operations.
And that is EVERY project. You do not just come up with a design, test it, then repeat it 500 times. Each site has its own unique properties, each turbine need to be manufactured and shipped, connected into a grid, operated and maintained.
So you need a permanent source of massive amounts of cash to operate. Your standard VC firm normally is not an option because the ROI is likely to be 10 years out, and that is too long for most investors.
When the ROI does come in, it is massive. But this is a high-risk, long-term play, and it just doesn't match the interest of most VCs.
We have built our first production units, field tested them, and are ready to roll, but have spent the last 3 months lining up finances because we do not want to be another failed company added to the list.
Plus, you get power when the wind blows or the sun shines -- and none when they don't. Given the mean and standard deviation of cash flows, you can figure the proper debt to equity mix. But how well does the industry support that information for a particular project? Natural gas plants have very stable output so are more easily levered up. In a capital intensive industry, that's a very serious financing disadvantage.
This financing problem reflects a real economic problem. Risk -- cash flow variability -- is a real economic quantity. Failure to manage it causes real economic hardship and loss. If 50% of the power supply is wind, and it's down due to weather, someone on the grid is going down. Economically, the financing problem signals the importance of addressing that contingency. So this isn't just bankers being mean.
Actually with wind you also don't get power when the wind blows too hard, meaning you're at risk of being in a blackout for a lot of hurricane and tornado season.
What I don't understand is that these areas they refer to as natural wind resources are incidentally the areas that have had the highest instances of major tornadoes and hurricanes. I'm sorry, but erecting a structure purposefully designed to maximize wind drag in a storm zone is pretty stupid.
Nuclear power is the only viable method to go carbon-neutral before we hit the next century. It's also not likely to colossally fuck up our environment (see: Weather response to management of a large wind turbine array.), IE warning that it could shift the movement of cyclones in the atlantic.
Are you taking into account the extensive carbon emissions that come from mining fuel, transport, containment, etc. for nuclear power? As the supply of uranium and quality uranium decreases, the emissions will only get higher.
This is an area where I think government should provide generous grants and investments. Innovation for this type of problem is possible, but it takes more than 2 guys in a basement. Plus, as you mentioned, few VCs will want to wait a decade to see the results. Government can wait, however.
I'm not in the field, so I'll naively ask: Is the US government, or any government for that matter, doing anything about it?
Energy production is one of the purest of the wealth producers. If the energy producer can't break even on their own strength, then needing government subsidy (especially indefinitely) is all but a mathematical proof that the subsidized energy production method is a net loss to society as a whole; were it not, they would be profitable and not need the subsidy. See also corn-based ethanol.
Yes, I am aware of subsidizing R&D but that has diminishing returns too, and given the amount already poured in around the world and the rather dismal returns, I'm underwhelmed by the proposition that pouring even more in will turn things around. You can always claim that if you just keep pouring the money in it'll all turn around; it's a null argument when it comes down to it. (We'd almost certainly be better off pouring equal funds into getting nuclear going instead.)
Energy production is one of the purest of the wealth producers.
Extractive energy production where you can dump negative externalities onto the public or hide your subsidy in a part of the budget that is not directly traceable to you (e.g. Marines in Iraq and destroyers in the straits of Hormuz) is surely one of the purest wealth producers, but if forced to actually compete on its own the equations would look a bit different...
It would still be radically net positive. Oil is a stonking great deal; you put in one joule and get something like 10 to 30 back. (Note how I phrased that in energy terms this time, that's an important point.) You can't actually subsidize something of that size to profitability, because the energy industry is on of the bases of the economy; if oil is a net loss, the whole edifice comes crumbling down regardless of what you do. You can't subsidize the oil industry into net energy profitability with wealth taxed away from dry cleaners and accountants, and it doesn't matter what games you play with dollars if you aren't making a true net energy profit at the base of the economic structure.
Wind and solar both generally barely break even or barely above if you take a full accounting of their energy inputs and costs, biofuels are often a net loss (depends on the crop, but I think the balance of the argument has corn ethanol as a net loss, cane sugar seems to be a net gain, but...), and the problem is they're competing with things that easily get tens of times of returns on energy expended with the fossil fuels and nuclear power.
One of the things you rarely see correctly computed is what it would truly take to power our entire society with renewable energy, including the sudden new energy expenditures necessary to keep our purely-renewable infrastructure maintained with replacement gear. As the net energy benefit of the average piece of gear approaches 1x, the necessary expenditures approach infinity. Replacing 10-25x sources with 1.5-3x sources requires yet again far more resources than the naive multiplications and divisions would imply, if you don't make the mistake of assuming free infrastructure that never decays, or one-time-cost infrastructure that never decays.
(Incidentally, this is why cheap solar, in the sense of truly cheaper without government subsidy solar, is exciting. A solar panel that can make back 5-10x the expenditure to make and install it, and isn't a massive expenditure of metal and glass and silicon is a big deal, it makes things practical that weren't before. Or a solar installation consisting of lots of cheap reflectors concentrating the energy on a centralized station. I still think we might be able to go both net positive and practical on solar. Wind I'm less optimistic about, it's difficult to see what we can cut out of our wind generators and still have wind generators the way we can cut down on the mass/energy footprint of a solar installation with clever engineering. In the limiting case, a reflector is a sheet of foil and an amortized central station; a wind generator is an entire wind generator.)
The US government is doing a lot to fund renewable energy R&D since the creation of ARPA-E in 2009: http://arpa-e.energy.gov/ I suspect, but do not know for sure, that China is doing more of this sort of investment, particularly in wind.
If I were John Boehner (leader of the US opposition), I'd take money from corn and oil subsidies and use it to fund more R&D, but I'm not (or at least I won't admit to being him in this public forum).
Yes, many governments (including the US) are setting up funds to support renewable energy projects. However, we are finding more support from developing nations, who are not as entrenched in fossil fuels as the US.
As we are in the midst of funding talks, we don't have much public info to share on a blog right now. Once we close on funding, I intend to increase our social communications.
Investment requirement for each project is huge.
Check.
ROI is 10 years out.
Check.
When (if?) ROI comes in it is huge.
Check.
Hmm...sounds a lot like the oil business.
Energy startups fail primarily due to a lack of appreciation for the intensive capital required to make renewable energy work.
This is an industry where every project will cost millions of dollars, hundreds of millions, or even a billion for truly large-scale operations.
And that is EVERY project. You do not just come up with a design, test it, then repeat it 500 times. Each site has its own unique properties, each turbine need to be manufactured and shipped, connected into a grid, operated and maintained.
So you need a permanent source of massive amounts of cash to operate. Your standard VC firm normally is not an option because the ROI is likely to be 10 years out, and that is too long for most investors.
When the ROI does come in, it is massive. But this is a high-risk, long-term play, and it just doesn't match the interest of most VCs.
We have built our first production units, field tested them, and are ready to roll, but have spent the last 3 months lining up finances because we do not want to be another failed company added to the list.