from the inside, looking in

Cleantech investment and competition for resources November 27, 2006

With the recent trend of so-called “cleantech” investments in bioethanol and solar, I have yet to see much discussion within the VC community addressing the resource scarcity issues that both these technologies seem to face, so I’m thinking aloud to see if anyone will chime in to discuss the perceived issues.

Brad Feld posted an interesting quote from some guy (the CEO) at Tyson Foods, who blamed bioethanol production for pushing up feed prices.  Much of the bioethanol production in the US is currently based on corn, and bioethanol competes with livestock feed. Increased food production costs are eventually passed on to the consumer. Even in the US, it isn’t like everyone has enough food to go around. More than 10% of the US lives below the official poverty line, that’s more than 30 million people. (National Poverty Center link) It isn’t like the poverty line is set at some inflated value by raving left wing communists either (see definitions at the NPC site).

I am all for sustainable energy, but it seems to me that corn based bioethanol has serious ethical issues, even before we get to the net energy debate.

Proponents of bioethanol then point to cellulosic bioethanol as the end goal, claiming that this would eliminate direct competition with food production.

However, you can’t avoid competition for prime arable land or water resources (the latter is an issue which gets far too little attention IMO, and an obvious cause of future armed conflicts – and more than a billion fellow humans – that is one in every six people – don’t have access to safe drinking water, and water management issues are getting more and more serious by the year in many areas).

There is also the real possibility that corn ethanol producers may not necessarily be the ones who will devise (or hold the rights to) a commercially viable cellulosic ethanol process, although to be fair, the ethanol conversion process is likely to be fairly similar technologically than not. Also, viable feedstock production for cellulosic bioethanol production may not eventually be located in the areas where corn bioethanol plants are being built and an energy density calculation would likely indicate that conversion should take place near the site of feedstock production.

Regarding solar power, there has been a flurry of interest in alternative materials to replace silicon (which in its favour is abundant, and as long as the production sites are located close to cheap, less ecologically unfriendly methods of electricity generation (like hydroelectric) are not too bad – which is why silicon production in Norway seems to be such a good idea compared to say producing it in Japan) given the silicon supply issue. CIS/CIGS technologies are being touted as a silicon competitor.

Which is fine until one realises that these thin film technologies will be major consumers of indium, an element although not scarce (it is about as abundant as silver), faces supply issues as well. Indium consumption is currently also dominated by the flat panel display industry, which is also the reason for the silicon shortage. So, if we go either the silicon route or the thin film route, there are likely to be cost issues as production of photovoltaics ramps up and volumes start to compete in earnest with flat panel displays. The future indium shortage is an issue being taken very seriously by Japanese indium producers and consumers, who are accelerating recycling efforts, but if CIS/CIGS production takes off, indium prices will most likely follow.

In both instances, whilst I agree with the basic idea of more sustainable energy, I feel there is a need to promote more efficient energy usage to much greater effect. Which basically means getting rid of the SUV, for starters. How many times a year does the car get fully loaded? Once? Twice? Never? And forget about getting that 103V Plasma TV, which consumes a virtually criminal 1.5kW of power.

Get a small car and rent a people carrier for the odd occasion where you really need that capacity, and if you really “need” a big TV, go the projection route – just looking at the infrastructure build-out requirements associated with big monolithic flat panel displays vs slimmer than ever RPTV (size for size, RPTVs are now only about double the depth, less than 30cm deep and we’ll see newer models at CES this year which will probably feature average depths approaching flat panel technologies) and comparative electricity consumption requirements should be enough to convince people that big glass/semiconductor sandwhich sheets are really not a very eco-friendly purchase.

Of course, the cited weaknesses in the currently dominant technologies in both areas are actually also opportunities for new entrants and the people who will fund them. The bioethanol issue is most likely going to produce huge value for someone in the biotech or agribusiness industries, and in the solar business we’ll probably see some winners from the electronic materials sector.

There is plenty of technical innovation required in both areas, and in that respect it is right that these energy related businesses are attracting VC money.