An update on the second law of thermodynamics:
With the recent rise in interest in alternative energy technologies and other breakthrough clean technologies has come the inevitable rise in questionable business ideas promising unbelievable benefits: "free" energy, "free" electricity, etc. Let's just call these the "Huh" companies -- they typically invite people to sign up to be an early customer for free (just, hey, you will need to write a big deposit check, but you know, you'll get that back, no worries...), so what's not to like?
Any venture capital financing deal is typically the result of a very thorough diligence process, where any business model or technology that can't withstand deep scrutiny will not pass muster. And VCs are by nature pretty jaded on all this kind of wild-eyed stuff. So the "Huh" companies typically don't get venture funding, and cleantech VCs don't pay much mind to them. But as the cleantech sector grows, VCs are going to need to be concerned about the "Huh" companies, simply because when they inevitably implode it can have negative impacts on the overall market acceptance of related, serious approaches -- many of which the VCs have actually backed.
A few illustrative examples:
1. CitizenRe is a solar financing play that promises to let you rent a solar array that they'll place on your home's roof. Here's the great part -- you only have to pay the same rate for electricity that you are currently paying your local utility, for the life of the rental (up to 25 years). They make this claim for most parts of the country. Here's the rub -- how can this possibly work for the several signed-up customers in North Dakota, for example? There, you have extremely low power rates and pretty low government incentives. Even with a breakthrough solar PV technology, it's going to be impossible for CitizenRe to make any profit offering solar power at around 6 cents per kilowatt hour for the life of a 25 year contract.
Furthermore, CitizenRe has previously claimed that they're going to be able to offer these tremendous economics on the basis of "vertical integration" -- they're going to make their own solar cells and panels. Because, you know, coming up with an extremely low-cost PV manufacturing approach that beats the rest of the industry should be pretty easy...
Here's the best part: The most visible member of the leadership team, Rob Styler, has written a book about his previous eye-opening experiences as a trainer for a company called Equinox International that used so-called "multi-level marketing" (a version of a pyramid scheme) in ways that were later deemed fraudulent, resulting in the company being shut down. After successfully promoting his book about these experiences, Rob is now the SVP for Direct Sales at CitizenRe, and is helping them develop their multi-level marketing approach, which is actively soliciting new part-time "Sales Associates", to add to the more than 1,200 who have already signed up... I guess one lesson he learned was that it's important to be at the TOP of the pyramid...
The company claims that they don't make anyone pay for any power that isn't produced. But as it explains on their website, you will owe a deposit when they come out and design (note: not implement) the solar system for your rooftop. CitizenRe sales associates appear to go around the internet slamming critics of the company, so expect the same here. But the above info is all based upon what's available from the company itself on their website.
Who knows, maybe this is a serious effort. Several solar industry insiders don't think so, and they have some pretty damning evidence.
But even if it's a serious effort, signing up customers in places like North Dakota and Montana with this business model suggests they're going to face some pretty stiff challenges in making this all work as promised. And the bad thing is, while they've pushed the solar financing model to an extreme level, there are other solar financing startups that are very serious about similar-sounding approaches (power purchase agreements, etc.) to getting solar out there into the market. Some of these efforts have received significant amounts of venture capital lately.
If a CitizenRe blows up, what impact will that have on downstream solar markets in general, and thus on the overall industry? Especially after such an intense PR effort...
[7/13 update: Here's a very good podcast from Inside Renewable Energy on CitizenRe and the difficulties in matching up their promises with reality]
2. How about an electric vehicle that can carry seven people, goes 350 miles on a single charge, charges up in 10 minutes, and can go from zero to sixty in under five seconds? Sign me up!
According to Forbes.com (cited on Wired's Autopia), California-based ZAP is offering all of this to customers willing to put down a $25k deposit. The catch: The car isn't being made yet. And, btw, the above specs appear to be beyond the capabilities of anything available anytime soon in terms of battery performance. And the company has already gone through one bankruptcy.
[7/9 edit: Inside Greentech is more charitable towards ZAP than I've suggested. They've done homework on ZAP and its suppliers, and believe it's entirely feasible for the company to build what it's claiming. Read Inside Greentech's Look out Tesla... ZAP building electric supercar, Altairnano power play, and PML FlightLink gets wheel for more info.]
Again, maybe this is a serious effort, who knows. ZAP is a publicly-traded company with a serious-looking management team and board. And they are offering more feasible-sounding products than the above wonder-car. Autopia asks if the company is "a flim-flam outfit," but cleantech VCs who have backed other electric vehicle startups have to be asking themselves, "what happens to our industry if ZAP's wonder-car promises blow up in their face?"
3. We've mentioned Steorn before. That's the Irish company that claims to have used a unique configuration of magnets in a motor to be able to achieve "free energy." They even put out a big ad in the Economist and invited scientists to examine their claims.
The company was going to be making a big public unveiling and demonstration of their technology this week. Unfortunately, heat from the display lighting apparently caused them to have to delay things a bit... Funny, wouldn't you think "free energy" experts would be able to predict something as basic as the fact that lights emit heat? Maybe use some of that free energy to power an air conditioner, or use LEDs? Or maybe there were other reasons for the delay...
Let's make one thing clear: The second law of thermodynamics holds true. You can't get "free energy", nor can you make a perpetual motion machine. If you have an enclosed system that appears to provide you with more than the energy you put into it, something's adding energy into the system, you haven't violated the laws of physics.
That having been said, there has been a lot of chatter lately about the use of magnets to provide very good efficiencies based upon certain configurations of electric motors. It's entirely true that a lot of smart engineers are figuring out new ways to use magnets to provide more effective motors. That by itself can be valuable. It's even potentially feasible (we suppose) that the energy being added into an enclosed system is embodied energy being released from the magnets themselves, so that magnets could be used to "fuel" a motor. If so, then the effect should fade over time, and the magnets would have to be replaced -- and where did the magnets come from in the first place, and how much energy was expended in making them? The scientists looking over the Steorn system and others will be drawing their own judgments.
What's clear is that all the hyperbole surrounding "free energy" and the like isn't helping the adoption of any such efficiency-improvement technologies. It's making potential customers even more skeptical, and holding back adoption for these and any other similar-sounding approaches. And thus, VCs are forced to consider the Steorns of the world when they see a new electric motor concept promising significant gains...
The above examples may be legitimate efforts by well-meaning people. Not having done any diligence on any of them, I make no claims either way, and I expect a few flames for having used these examples. But they serve as good illustrations of the kinds of reputation-endangering activities out there in the broader world of cleantech that VCs are having to pay attention to. Because serious or not, when such overly-aggressive claims are put out there it competes with more sober claims being made by VC-backed startups. And if and when these companies fall flat on their face, it could hurt overall market adoption of next generation technologies, making it that much more difficult for VC-backed startups to get traction in the marketplace.