As I have been traveling around New Zealand, I have had a lot of discussions about various renewable energy companies. Inevitably, there is some discussion as to why certain approaches have failed. Occasionally, companies failed simply because they were running a scam and lying about what they were doing. More common, however, are companies that failed due to bad assumptions on their part.
Those discussions have led me to reflect on what some of the bad assumptions – or potentially bad assumptions – companies may be making that will result in failure of their business models. Of course I have to make assumptions as well, and I must constantly evaluate those assumptions in light of new evidence. I would say that there are three primary assumptions that influence the decisions I make. They are:
1). Oil prices will continue to rise over time.
2). Biomass prices will rise over time as competition increases.
3). What the government gives, the government can take away. So government subsidies have no place in my long-term business plans.
I think the assumption around the cost of biomass is going to be one of the worst assumptions some companies are making today. I see many companies claim that they will produce cheap biofuel, but when you take a closer look they are basing that on getting cheap, free, or even negatively valued biomass. Unless one can lock up a long-term supply agreement with someone who has a track record of being able to deliver biomass, I don’t think this assumption will hold up. Further, farmers are going to command the highest price they can get for any purpose-grown biomass. So I think the dreams of cheap switchgrass or miscanthus enabling cheap biofuels will fail to materialize. It won’t cost any less than it costs to buy hay from those same farmers today. In fact, it will probably cost more.
Here are some other assumptions that have doomed, and I believe will continue to doom, prospective renewable energy companies:
Results in the lab can be replicated at a larger scale.
The fact is, the vast majority of energy technologies can’t be scaled at all out of the lab, for a variety of reasons. My own observation has been that most technologies die in the lab, and most that make it to the pilot stage die there. Very few survive all the way to commercialization (but government policies/funding can result in some surviving that shouldn’t have survived).
One or two technical breakthroughs will be achieved.
While they are often taken for granted, even one technical breakthrough is asking a lot. If two are needed, it greatly compounds the difficulty of commercializing a process. If you see a company trying to scale a process out of the lab, and they have more than one technology aspect that has never been run in that particular service or at that particular scale, the odds of success are probably slim.
Reported results are typical.
Reported results are almost always the best results that a technology has ever achieved. When someone says “Up to 100 gallons per ton” I discount that heavily. People who tend to hype their technology don’t report typical results. They report the best results to investors, and present them as typical. But when they build their plant, typical results are what they will get.
Government subsidies will bridge the gap until you “figure it out.”
Government subsidies can go away tomorrow, so if you haven’t figured it out yet, then you should probably go do something else if you are hanging your hopes on government subsidies. The end is likely to be unpleasant for everyone involved.
You will “figure it out.”
There is a very long list of companies who had seemingly promising technologies, but for one sticky technical issue. Those sticky issues don’t always have a happy ending.
As you scale your technology and climb the learning curve, costs will go down.
Sometimes costs go up as you figure out the things you missed. Scale-up can result in additional pollution control requirements, noise control requirements, corrosion mitigation, etc. that just weren’t that much of an issue in the lab.
You have invented the wheel.
Almost every new invention you see is merely a modification on a previous idea. Sometimes, the modifications aren’t even improvements. If the original idea wasn’t commercialized, it is best to have a very good understanding of why that was, as well as a historical perspective on what ideas similar to yours have been tried before – and why they failed.
All biomass is created equally.
When you hear someone claim that their bioenergy process can take “any type of biomass”, you should apply a high degree of skepticism. Different feedstocks behave very differently in different processes. In a gasification process, some high ash or high moisture feedstocks can be problematic. In a cellulosic hydrolysis process, there are certain feedstocks that produce strong enzymatic inhibitors. In general, processes are optimized around specific feedstocks, and they don’t respond favorably to having inconsistent feeds.
In conclusion, all of these assumptions are common among renewable energy companies today. Many of these faulty assumptions have already resulted in bankruptcy for a fair number of companies, and will undoubtedly lead to a few more bankruptcies in the future.
Note: I will be in New Zealand until March 30th, and then my posting and commenting should return to normal. We are still working on optimizing the commenting structure, but are still quite open to what readers would prefer.