The Scale of Solyndra

Megan McArdle is continuing to investigate Solyndra. Don’t miss her latest, which includes some well-informed comments from investor “Circleglider”. Who must be right because he agrees with me!

(…) Green technology occupies a special niche here in Silicon Valley. Yes, some VCs invest in green deals. But most don’t. This is because these deals are not viewed as being able to stand on their own merits – for any of them to succeed, market distortions are required, typically in the form of government subsidies, tax credits, mandates, regulations or funding guarantees. This means that green deals are basically political deals – whether or not your deal works depends entirely upon what happens in Sacramento or Washington. So VCs who do invest in green deals are comfortable with these distortions, and factor them into their investment decisions.

Solyndra appears to be the result of a combination of many of these factors: certain investors were comfortable with the political aspects of the deal, they were institutionally predisposed to assume the Company was an on-going concern, and very large sums were available for investment. As a class, it appears that the total exposure of VC firms in Solyndra was around $150M (data from Solyndra’s S-1 filing with the SEC). Private equity firms, however, appear to have sunk nearly $650M into Solyndra.

Megan concludes with this:

More to the point, cleantech has in fact received billions and billions in both front end and back end subsidies. A billion doesn’t seem to be enough. This makes one wonder if any sum will be.

This is a very informative – read the whole analysis.

Inducing Innovation: What a Carbon Price Can and Can’t Do

The Breakthrough Institute quotes this ITIF study PDF because it supports their view that carbon prices are nice but what is required to accelerate de-carbonization is increased government R&D.

The study offers some empirical evidence in the form of anecdotes [the automobile, agricultural mechanization, airplanes, radio and television, ...]. These innovations were not incentivized by price factors. Excerpt:

WHAT A CARBON PRICE CAN DO

The above examples do not necessarily imply that there is no place for a carbon price in spurring the development and deployment of new clean technologies. To the contrary, a modest carbon price could help to alter individual consumption as well as investment decisions in the power sector to boost the diffusion of mature, available alternatives, initially through incremental substitution — the so-called low-hanging fruit, including wind at peak hours, and energy efficiency measures. In the energy context, a marginal increase in the price of fossil energy may induce a manufacturer to seek more energy- efficient capital equipment or processes, as happened in the 1970s. And as many have pointed out, there could be substantial economic gain from incremental improvements in energy efficiency and carbon productivity, even if efficiency gains are only part of a sound strategy for decarbonization. For example, the McKinsey Institute has estimated that $170 billion in investments over ten years could yield $900 billion in energy savings.63

The tendency for firms to seek low-hanging fruit first is aligned precisely with the original insight on induced innovation, provided by economist John Hicks early in the twentieth century: “A change in the relative prices of the factors of production is itself a spur to invention, and to invention of a particular kind — directed to economizing the use of a factor which has become relatively expensive.”64 In other words, when an input gets more expensive, private firms will seek the least expensive means to minimize that input. A higher price on carbon means a more energy-efficient economy, but does not mean the large-scale substitution of new clean technologies for dirty old ones, unless viable, low-risk, reliable, and affordable new technologies are readily available—and they are not currently available in the clean energy space.

Incidentally, please comment if you’ve seen a good study that demonstrates a significant causal connection between EU fuel prices and driving consumption. I’m interested in teasing out the contributions of two factors: geography vs. fuel prices.

Toyota, Tesla Give China’s Rare Earths the Electric Car Snub

Very interesting: as you probably already know, Tesla Motors’ drive train does not require rare earth magnets (that includes the motors for both the roadster and the Model S). You may not know that Toyota has contracted with Tesla for technical assistance in the development of a Toyota rare-earth-free electric motor. Very prescient considering reports that China will effectively quarantine 75% of their rare earth production for their own internal uses (I have not tried to verify that claim).

BTW, Tesla is a “drive train company” NOT a “car company”. The cars are just part of the engineering development strategy. The company’s plans are based upon licensing and technology development deals.

An excerpt from NYT VentureBeat by Iris Kuo:

(…) Toyota’s move feels reminiscent of electric car makers saying “booyah” to oil. It also shows that at least one major automaker is bearish on the prospect of the rare earth shortages lessening any time soon. The article also notes that Toyota’s electric RAV4 (pictured), which it paid Tesla $60 million to help develop, will use a special Tesla induction motor that rare earths-free. The motor is similar to the (also rare earths-free) technology in Tesla’s all-electric Roadster sports car and 2012 Model S sedan.

It’s an interesting tactic. And, if it works, it could put Toyota — and Tesla — ahead of the curve if rare earth prices soar out of control. It also shows that at least one major automaker is anticipating the current rare earths shortage to continue, and is actively preparing a contingency plan to keep supply of its green cars stable should things get worse.

Read the whole thing »

Fund for Innovative Climate and Energy Research

Two of the bright lights in the climate change arena are Ken Caldeira and David Keith, who jointly lead the Fund for Innovative Climate and Energy Research (FICER). The fund is setting a strong example for transparency on both inputs and outputs. Bill Gates is providing the funding (personally, not the Gates Foundation). Here are a couple of Q/A examples from the FICER information page:

Q. What is the source and size of the fund? Who administers the fund?

A. Since its inception in 2007, FICER has given out grants to 13 research projects and various scientific meetings totaling $4.6 million. Internationally known climate scientists Dr. David Keith of University of Calgary and Dr. Ken Caldeira of the Carnegie Institution select projects that receive support from the fund. While Mr. Gates provides input from time to time on the fund, Drs. Keith and Caldera make final decisions on projects.

Q. Does the fund support research into geoengineering? Does the fund support research into “clean energy”?

A. Yes, the fund supports research into both geoengineering and clean energy, as well as basic climate science research. The directors of the fund believe that society should be spending many tens-of-billions of dollars per year developing and deploying affordable, scalable, near zero-carbon energy sources.

“Geoengineering” is a term that different people use in different ways. Some proposed technologies, for example capturing and sequestering excess carbon dioxide from the atmosphere, attempt to address the root causes of climate change. These approaches are relatively uncontroversial. Other proposed technologies, for example solar radiation management (SRM) attempt to reduce the effects of climate change but don’t address the root causes. SRM aims to cool the planet, for example by adding reflective aerosols (small particles suspended in air) to the stratosphere where they will reflect some incoming sunlight, cooling the planet. These approaches, which would be a human intervention in the climate system with potential environmental risks, are more controversial.

However, much important research into these approaches, such as computer modeling, laboratory experiments, or passive observations of nature, can be done without any interference in the climate system. This research is as important in determining which geoengineering technologies have limited efficacy, scalability or unacceptable environmental risks as it is in finding viable solutions, and the fund supports these kinds of projects. Further, research will help inform the development of much needed international conventions for any geoengineering field tests.

Q. Does the fund support field testing of geoengineering?

A. FICER has not supported and will not support any field tests of methods that introduce new kinds of interference into the climate system (e.g., solar radiation management, ocean fertilization). We are in favor of field testing industrial processes that can remove excess carbon dioxide from the atmosphere.