NEW WEST ANALYSIS

The Alternative Energy Revolution Is Not For You

By Christian Probasco, 12-02-10

	The Valley of Death: Illustration by Christian Probasco. Graph courtesy U.S. Department of Energy

If you’ve been watching the alternative energy/cleantech industry closely for the last few years, you’ve probably noticed a few disturbing trends.

First is the sort of “pump and dump” syndrome practiced by seemingly reputable institutions like MIT, Harvard and Caltech whereby a breakthrough fuel cell, battery or solar technology is announced to, and then by, a gullible press which has no idea what the guys in the lab coats are talking about, but it must be brilliant.

Said press reports that the new gadget/process/synergy should be commercially available within a few years, after glitches are worked out. Then the institution forms a partnership with a corporation which says it can monetize the invention, and then there’s a lucrative IPO and then … nothing. The innovation, the appliance, the new production technique, the “nano” something, fades away. Ultimately the startup goes bankrupt.

Usually there’s a government grant, or several grants, involved in the process.

Sometimes a venture capital firm will buy the eggheads, their research and the accompanying patents outright. But the result is the same: hype, IPO, slow fade, bankruptcy.

Only a depressingly small fraction of the green-friendly innovations you read about in press releases, magazines and technology websites will survive the so-called “Valley of Death” and be realized as viable products.

Even more depressing, on the rare occasions they do become real products, 90 percent of the time, they are marketed only to government agencies or industrial markets.

“There are no legitimate consumer markets for them,” says Robert Gelinas, a systems engineer, anthropogenic global warming skeptic, author and business and technology writer for American Thinker.

“A lucrative IPO should not be confused as anything other than an exit strategy for early venture capital investors who cash out on hype and a government grant/contract and are long gone before the company has to generate a positive cash flow,” he says.

Here’s another funny trend: those few startups which survive the Valley of Death and begin to turn a profit are often bought up, along with the rights to their innovations, by mega-corporations concerned about their potentially “disruptive” technology. And they’re not just concerned with startups. Chevron, for example, now owns GM’s patents for the once-promising large nickel-metal hydride batteries which might have been powering your car by now for far less than what you’d spend on gasoline.

A few innovations have made it to market. Fuel injection allows our vehicles to suck less gas than the carbureted clunkers we drove decades ago. The infernal internal combustion engine has become steadily more efficient and less polluting. The Toyota Prius is proof that automobile mileage can be extended with hybrid technology. Most of us are at least beginning to use more efficient compact fluorescent (CFL) light bulbs. We have the option of buying more energy-efficient appliances. We can even buy more powerful batteries for our cameras and laptops.

However, we were promised much more. If even a fraction of the research on alternative energy sources initiated during the energy crunch of the seventies had been translated into viable products, the computer you’re staring at would be powered by ultra-cheap, long lasting, deep cycle batteries fed by even cheaper thin solar panels on your roof, or a bank of high-output wind turbines from Wal Mart. Your car would run off similar long-lived batteries, or perhaps hydrogen fuel cells. You would be able to “fill ‘er up” for $4 or less.

The much-touted breakthroughs in the general direction of those fantasies have serious drawbacks. The Prius is sold at a loss. Tesla Motors received a loan from the federal government to the tune of nearly half a billion dollars. The cutting-edge manufacturer is currently selling its Sportsters to the rich for $100,000, though it may someday be involved in the release of a more affordable product.

The hybrid Chevy Volt, which can only travel 40 to 50 miles on battery power, will have a sticker price of $41,000 . Buyers will only pay $33,500, however; $7,500 of the price will be picked up by the federal government, i.e. American taxpayers. 

Energy-efficient appliances generally have higher prices and are more difficult to come by second-hand. CFL bulbs are filled with mercury and don’t live up to manufacturers’ claims about longevity. As for wind energy, according to technology market analyst Duncan Davidson, creator of Planet Yelnick (http://yelnick.typepad.com/):
“Most of the windfarms built in the eighties are dead today. Something like 14,000 of the 15,000 turbines installed in California don’t work. The blades spin but the turbines are off.”

Davidson says “big wind farms don’t follow Moore’s Law, so we can’t expect them to get much more economical than they are now.”

A growing number of analysts fear that the big bottlenecks and perverse incentives in the field of cleantech has already led to another “bubble” economy similar to the one that devastated the dot-com industry and more recently, the housing market. That would be nonsense if the federal government wasn’t involved.

The U.S. government has set aside over $100 billion for investments in cleantech. China may be allocating twice that amount. That translates into a flood of cash chasing a miniscule number of viable technologies.

“The green bubble will burst when the subsidies run out,” says Davidson. “The political support for alternative energy sources (during the last energy crunch) was gone by 1984 but the subsidies lasted until 1991. Expect a similar trajectory here. Somewhere around 2017-2020 green projects will be hugely challenged to operate on their own economic merits.”

In other words, more dead wind farms, plus maybe more abandoned solar plants, unless rent-seeking lobbyists for green industries can generate new markets through regulatory schemes like “cap-and-trade.”

A national cap-and-trade policy seems as unlikely now as a Republican resurgence did two years ago. However, California is already implementing its own version.

Meanwhile, European nations that began generating artificial alternative energy markets much earlier than the U.S. and China are dropping subsidies for wind and solar power.

Cleantech proponents have been clamoring for governments to eliminate similar subsidies for entrenched oil and coal industries. Estimates on how much the United States spend to prop up fossil fuels vary according to the political bias of the institutes crunching the numbers. The controversy revolves around what constitutes a “subsidy.” Some groups factor wars in the Middle East into their equations, but there’s no way to quantify such claims, and there’s no guarantee the U.S. wouldn’t be fighting trade wars or hot wars over platinum, tellurium or other rare minerals which might become vital for an alternative energy infrastructure.

The bottom line is, some day cleantech startups will have to compete with the dirtytech corporations they hope to supplant, in a real, and sometimes unfair, economy. They will have to come up with viable, inexpensive technological innovations which can be marketed to regular consumers and then somehow avoid the temptation to sell their patents to Chevron or BP. 

But hype springs eternal. Davidson has his eye on several promising technologies. He says “For about $10 billion, we could have a thorium nuke industry.” He also thinks relatively low-tech solar thermal “has a shot at being economical.”

John Rubino of Moscow, Idaho, author of “Clean Money: Picking Winners in the Green Tech Boom” and “How to Profit from the Coming Real Estate Bust”, published in 2003, is bullish on First Solar and other thin solar film startups. He’s impressed by the mysterious “Bloom Box” fuel cells powering Google’s and eBay’s operations. He also likes “smart grid” technology where residential usage is monitored via power lines and modulated by suppliers.

Says Rubino, “In the coming years some game-changing biofuels and batteries will hit the market. Radical change is coming; it just takes longer than the hype would lead one to believe.”
It’s hard to argue with someone who predicted the housing market crash but “coming years” leaves a lot of wiggle room.

Full disclosure: Christian Probasco is an inveterate amateur alternative energy fidgeter who just installed solar panels on his house in Mt. Pleasant, Utah. He is currently trying, and mostly failing, to improve the fuel efficiency of his brick-like “Heep” CJ-5 with mileage enhancing gadgets of his own invention.

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