CleanTech Outlook - Why Sentiment and Subsidy Will Not Get You There - Interview with Venture Capitalist Lincoln Bleveans
This is an interview with Lincoln Bleveans the CEO of Hullspeed Energy Development & Finance. Lincoln is a seasoned energy industry executive whose 15-year career has spanned domestic and international greenfield IPP development, acquisition, management, and divestiture, utility holding company governance, financial reporting, restructuring, and compliance as well as start-up and board experience.
Richard Herbert: I really do appreciate you taking the time to speak with me.
Lincoln Bleveans: Oh sure, sure.
Richard Herbert: So what I'd like to do is on my blog as I indicated I like to interview various VCs to get their thoughts about what is going on in the CleanTech markets.
Lincoln Bleveans: Sounds good, I saw you had spoken to Rahul, very, very smart guy, every time I talk to him I learn at least a half a dozen things.
Richard Herbert: Yeah, he is a good guy to work with and so what's your capacity over at Oscilla Power, you're an advisor board member?
Lincoln Bleveans: Yeah, it is advisory board. I've been putting together a startup about year and year and a half ago and basically to commercialize large-scale energy generation technology in the Middle East and North Africa. It's a very fertile ground but we started talking about the central application of their wave energy generation technology in the Mediterranean, because there are some interesting things going on with slowing offshore wind in the Mediterranean given the nature of that sea. So we were talking about project development there, bringing the technology to market successfully at the large scale and it got to a certain point where he said you should be just be in my advisory board so we can have a formal structure around the conversation. So it's been very, very useful on both sides every since.
Richard Herbert: It was interesting how that device is getting picked from other applications....down hole applications. You start out with great intentions from a cleantech perspective and then here comes the old world energy guys saying, hey this could work for us.
Lincoln Bleveans: Right, you know, It's funny the way those things kind of happen and all of a sudden you have a new application, you have some stake holders who want to help you commercialize it, who have great reputable brand names, and maybe there is an income stream associated with it, you have to do it, those are happy problems to have.
Richard Herbert: Let's talk about the difficulties from a geopolitical standpoint of where your target market VC world and the power generation standpoint. What do you see going on in the next say two to three years in the clean tech sector and the VC sector here the United States given our outstanding political climate and you the Koch Brothers and drill baby drill mentality, what do see in the next several years from a clean tech perspective? Are you going to see, a downturn in VC investments in the clean tech sector or you think it's going to be a mentality of this is something we have to do anyway and it will eventually bear fruit?
Lincoln Bleveans: That's a great question. I think it and let me link up my answer to the part of the distance I know, which is the big stuff, big plants and big transmission lines, big distribution lines. There are two things I think that really, well maybe three things that are the fundamental characteristics of new technology in the energy space in the US. One is that the capital requirements are orders of magnitude generally beyond what venture capital community is placed, is used to investing. Instead of investing $5 million, you are investing $50 million, instead of $50 million you're investing $100 million. It's just incredibly high capital cost business. I think the thing that folks are realizing is that the sales cycle, the adoption cycle in the power business is a lot longer than anyone who is developing a new technology would like it t be.
Richard Herbert: Right.
Lincoln Bleveans: In the power industry and having spent a few years in the utility, I can speak from that perspective of it as well, it's a very conservative industry by design. You know we had a couple hour power outage at my house this morning and that's you know in this country that's a huge surprise when the lights go out. We depend on a level of reliability in residential, commercial, industrial that is really pretty astounding and the utilities achieves that by very careful and by necessity very conservative planning and procurement, so showing anything to a utility takes a major claim, showing a new technology with a risk of failure, you know with any sort of technology, it becomes many, many times geometrically more difficult and I think that's a big surprise to people. I think the other thing that has caught and continues to catch the investment community by surprise is how much political risk that there is in energy in general and in alternative energy … and you know really going to your questions in the next two years, yeah I think economic conditions will drive how much money is available to be invested and frankly the financial markets will drive whether these sorts of alternate asset classes are extracted and how what sort of returns investors can mandate. But I think that in the next few years we will really be defined by that political aspect with subsidies. You have to call them what they are, they are subsidies, subsidies in flux.....you see Vestas laying people off. I think it was Nordex who just announced you know a significant lowers sales forecast. You have got a lot of turmoil on the solar side of the business… and all of that is based on calculations and political risk. So you look at who is going to be the next President of the United States all the way to what is the legislative branch going to look like and that's going to drive billions of dollars in risk and risk capital.
Richard Herbert: It also depends on who may get onto various committees if the house changes hands and then you know who is going to be heading those committees.
Lincoln Bleveans: I think that's going to be huge issue. I think on more practical level one thing to me that is emerging is a trend that's actually quite favorable is the US military's willingness to look, to be early adopters of renewable technologies and the advantage there. First of all they're not doing it to save the world, they are doing it for very pragmatic tactical reasons, which is always a better driver than either sentiment or subsidy but although they seem to be willing to be early adopters willing to you know work with less than you know commercial level technologies. If an entrepreneur can get a stamp of approval say with the army on a solar panel or a solar application, even though the revenue associated with that army contract may not be very big, but that stamp of approval puts you on the path to more mainstream applications. Commercialization is always going to be a process of identifying the eager audiences and anybody who is doing it for pragmatic reasons like the military is going to be much more preferable than the sentiment or subsidy, because those things are very fickle.
Richard Herbert: So true...well, now given the DOD has been a big driver and I think you might be able to argue the point that the driver has been multi-pronged wars where they have to have some sort of...as you were saying non-commercialized energy source because they are in the middle of nowhere. It seems as though the US is moving to extricate itself from those regions. If the US does pull us out of Afghanistan and does extricate itself from other regions, do you think that the DOD driver might decrease and lead to a stagnation of new energy technology development?
Lincoln Bleveans: You know it's a great question. I'll give you my and this is nothing more than a gut feeling is that I don't think so. If I can put on my military strategist hat for just a second, I think there is a fundamental understanding that even if we are out of Afghanistan and we are out of Iraq, the military conflict for the foreseeable future will be in the places where the resources are and the places where the resources are such as Middle East, Central Asia, North Africa that and theaters to use WWII term. Those theaters of operation are places where you are in the middle of nowhere, you need lightweight compact, highly reliability, high-efficiency solar power, you need a way to convert very brackish well water into something potable. I think that from a military planning perspective that is going to be the mindset. Thinking back to when I was a kid in the 70s and everyone is worried about the Russian tanks driving through the forests into Western Europe.....that's where all the money went and very few people thought about fighting insurgents in the deserts. But that's the world we live in now and I think, I'm guessing it will be kind of a steady drumbeat in the background even if it's not at the forefront as a function of a conflict.
Richard Herbert: Just to ensure effectiveness and mobility.
Lincoln Bleveans: Absolutely.
Richard Herbert: Okay, earlier you mentioned..... well several things, one the utilities or large-scale power generation, they are very conservative and the wind and solar industries are kind of getting hammered at this time. I think a lot of people agree that for those technologies to come full circle and really come to fruition, there has to be a really stellar utility scale energy storage application. What are your thoughts on when utility scale energy storage may come to fruition?
Lincoln Bleveans: Yeah. I think it's certainly necessary....I am thinking about wind farm that I just did in Idaho and you try to forecast what's going to happen and what they are going to put out onto the grid and when, but the only way you see large-scale renewable penetration is with a storage solution. I think what's happening on the storage side is that everybody is looking for the Google or the Facebook and the thing about energy, about the power industry is that there is never one winner. It's very, very need specific, very market specific. You look at something like Beacon Power's Flywheel solution that's an amazing thing and I remember talking to guys 10 years, well the predecessor 10 years ago when they were first starting out. That's an amazing application for a specific set of circumstances. You look at molten salt storage that's another amazing technology but again for a very specific set of circumstances. You look at something like large scale batteries or something like gravity power were you are actually doing pumped hydro underground. You know again in the same way that you can't effectively run a traditional utility system without something like a coal plant or a nuclear plant to provides base load, something like combined cycle gas plant to provide mid-merit power, intermediate power and some peaking plants to provide peaking power and when you cite for a generating unit you have to take all those things into consideration, what does the market need, what problem am I trying to solve. It's the same thing with storage. There is no one magic bullet. There is, you know there are potentially great technologies for different circumstances on the grid. You can see something like Beacon Power working very successfully here in the Northeast where maybe the need is less for a large-scale generation replacement sort of storage and more for a sort of ride through storage, large-scale ride through storage where you need a faster response but for a shorter time, maybe something like molten salt or gravity power pumped hydro is more applicable in the Southwest where you have more renewables and therefore you need a more generation like sort of storage source. Again, there is never a single machine that's going to be appropriate for every situation, you are always going to have different machines with different characteristics that match up with different problems on the different channels with just different opportunities on the grid.
Richard Herbert: Okay, great. This has been outstanding, we just hit the 30 minute mark, I don't want to take up anymore of your time, I know you are very busy. To wrap this up.... what is your crystal ball for the VC community for the next 5 to 10 years?
Lincoln Bleveans: I think that you mentioned it before and I think ultimately it comes down pricing all the externalities associated the generation which basically means pricing carbon. Because right now, you are depending on how you look at those externalities, coal, the cost of coal fire generation is now reflected in the price of coal fired generation. So I think we are going to have to get to a point where there is both a political will but also you have got to try and integrate and so you know the political supply, the supply of political will meets the demand where it's actually possible to get something done politically and we can put a carbon tax in place or some sort of carbon market in place that prices carbon with some degree of accuracy, and it simply becomes part of the income statement of a manufacturer, a utility. At that point, you know of course and that's loaded with umpteen different little side topics … you know there are no simple answers in this business unfortunately. I think that's what is going to happen. People you know as I said before, sentiment is....and I think I just coined a phrase...sentiment and subsidy won't get you there.
Richard Herbert: That is great.
Lincoln Bleveans: It's got to be economics. It's got to be fundamentals and I think the only way to take renewable energy from sentiment and subsidy to fundamentals, is really to have a political agreement to change the fundamentals. Right now the fundamentals do not include a price for carbon. If the fundamentals included a price for carbon then it would be very straightforward to adoption of renewable energy both existing technologies and new technologies would become much more straightforward and frankly, the investment decisions could be made without a political risk component. I'll just give you a quick example. I was talking to some investors in Europe....I think it was Switzerland, and they were asking my opinion, you know we want to get involved in renewable energy investment in the US, you know what should we know and I gave then the answer that didn't like at all. I've spent a lot of my career in the emerging markets dealing with political risks of one sort or another and the political risk in the US around renewables is higher than the political risk around renewables in most emerging market countries.
Richard Herbert: Yeah absolutely.
Lincoln Bleveans: And they could not get their mind around that and they didn't like the answer. They very politely wound up the conversation. but I think that's really the case we are looking at an emerging markets political risk equation when it comes to renewable energy.
Richard Herbert: That's a 100% spot on. I mean look at what they are doing with the tidal power in Scotland and I know you have to have a low head turbine what not for the Mississippi but know they finally got the East river project license after how many years and …
Lincoln Bleveans: Oh the Burton Power guys, my hats off to them, I think that's an incredible project. But you're right, I mean you have got to have the patience of Jobe to get these things done and your money is got to have the patience of Jobe.
Richard Herbert: Yeah, no doubt. Well, this is great. I really do you know appreciate you taking the time to chat with me on this Lincoln and …
Lincoln Bleveans: Yeah, it's been fun.
Richard Herbert: This is good stuff and if you don't mind I might use sentiment and subsidy will not get you there for the tag line. That is great, that is just a great statement.
Lincoln Bleveans: If nothing else came out of that conversation, it was a great tag line. I'm going to have to quote myself on that.
Richard Herbert: Absolutely, absolutely. Alright, well Lincoln thank you so much again, you know have a wonderful day and I will shoot this off to you probably next week.
Lincoln Bleveans: Excellent, excellent, thank you Richard.