March 18, 2007
Venture Capitalists Place Big Energy Bets

VCs see huge riches in creating the next great energy source.

In 2006, venture capitalists put $727 million into 39 alternative energy start-ups, compared with $195 million in 18 such firms for 2005, according to the National Venture Capital Association.

For investors in alternatives to oil and gas, the driving force has been the belief that whoever develops the next great energy sources will enjoy spoils that will make the gains from creating the next Amazon.com or Google seem puny in comparison.

Unless we are hitting peak oil right now I do not expect it to make much of a dent on world economic development. Oil prices are already high enough to cause a flood of money into energy technologies.

The VCs are also upping the spending on fossil fuels technologies.

Yet money has also flowed into start-ups built to serve the oil and gas industries. In 2006, venture capitalists put $163 million into 18 such companies, up from $56 million in 14 oil and gas ventures in 2005. This is an investment category that has ebbed and flowed and that was as high as $586 million in 1999, the height of the dot-com bubble.

There's big money in energy. Consider just oil. At about 85 million barrels a day of world oil production and $60 per barrel that is about $5.1 billion dollars per day. Throw in coal, natural gas, nuclear electric, hydro, and assorted other energy sources and the amount of money spent on energy is enormous. This enormous quantity of money and the growing demand for energy assure that investment money for research, development, and capital investments will be there to find new solutions as old energy sources dry up.

My arguments about energy are motivated by a desire to switch away from dirty fossil fuels sooner and to develop cheaper energy sources that are simultaneously cleaner. I also want to avoid switching to biomass to an extent that the demand for biomass drives large scale habitat destruction.

Share |      Randall Parker, 2007 March 18 10:25 PM  Energy Policy


Comments
Bigelow said at March 20, 2007 11:29 AM:

Timing is everything. If Saudi Arabia has peaked, we in a heap o’ trouble.

“Consideration of a number of implementation scenarios provided some fundamental insights, as follows:

Waiting until world oil production peaks before taking crash program action leaves the world with a significant liquid fuel deficit for more than two decades.

Initiating a mitigation crash program 10 years before world oil peaking helps considerably but still leaves a liquid fuels shortfall roughly a decade after the time that oil would have peaked.

Initiating a mitigation crash program 20 years before peaking offers the possibility of avoiding a world liquid fuels shortfall for the forecast period.
10 Hirsch, R.L., Bezdek, R. and Wendling, R. Peaking of World Oil”

The Inevitable Peaking of World Oil Production
Robert L. Hirsch
http://www.acus.org/docs/051007-Hirsch_World_Oil_Production.pdf


Bigelow


Al Fin said at March 20, 2007 8:23 PM:

If someone really knew production had peaked, they could make a lot of money on the market. The futures market in oil represents professional analysts' best guess. Most professionals believe there is more oil still under the ground and under the sea than has been used by humans over all the years of oil consumption. That should give enough time to develop alternatives, although the oil will get more expensive--a lot more expensive.

Randall Parker said at March 20, 2007 9:57 PM:

Bigelow,

If Saudi Arabia has peaked then I expect to see coal-to-liquid take off in a big big way and very rapidly too. That'll prevent a short term liquid fuels shortage.

We need better battery tech. With that we can switch most transportation to electric from nuclear, wind, and eventually solar. I do not know when solar will get cheap enough. We could switch to nuclear now. Though it would take 5 years to get a large number of new nukes operating.

BootsW said at March 21, 2007 7:54 AM:

Hydrogen from wind generators is it. How many 2 megawatt wind turbines would we need to make the equivilant to what energy we use today for transportation and home use. We'd have to put them up in the dakotas, then build a network of pipes to transport the hydrogen from its generation source. How much money would it really take. Consider 1 million dollars a mile for pipeline and 9000 miles of pipeline to get it to a good distribution level. Now consider that a wind turbine generating 2 megawatts costs 1.25 million dollars and an electrolyzer from NORSK (The only one I've seen that is close to the scale that is needed). I say about 20 Billion dollars, and it could be done finished in the next ten years. Where do I find that kind of venture capatilist. 10 dollars a month from any working persons paycheck in America. That would be about a billion dollars a month, considering that a little less than 1/3 of the country works.

David A. Young said at March 21, 2007 10:26 AM:

Speaking of new energy options, here's a link to an interesting piece from DefenseNews about an alternate nuclear fusion technology developed by Richard Bussard (of Bussard ramjet fame) that might actually be workable near-term. The process uses Boron-11 (very common), would produce no radioactive byproducts, and is purported to be about 95% effective. Sounds too good to be true, but the article quotes people who seem to have credibility. Bussard needs $2 million to produce a new prototype to prove the process. Considering the possible rewards, that would seem a good deal to an ambitious and well-heeled venture capitalist.

http://www.defensenews.com/story.php?F=2584496&C=america

Randall Parker said at March 21, 2007 6:14 PM:

BootsW,

First off, the cost per mile for the pipeline would be a lot more than $1 million.

Second, what to do with the hydrogen once it gets pumped somewhere? It is extremely difficult to store, especially in cars.

I can see hydrogen getting used to reduce plant material into gasoline. Make biomass energy more energy dense. See my post Biomass Plus Hydrogen For Transportation for the details.

BootsW said at March 22, 2007 9:17 AM:

Randall

How much does a high capacity pipeline cost per mile for hydrogen???

There is the question... what to do with it... It is energy. I guess it would have to be expended. The only home use for it now would be home heating, cooling. Could make it into electricity using a modified coal fired power plant(even possible??), but of course that would emulate the line loss for fossil fuels in terms of ineffiency. I suppose my end result after producing that many terrawatts of stored energy is to apply it to things that were previously fossil fueled. I am positing this because we really need to do something to wean ourselves off of crude oil. I believe the hydrogen energy carrier is the answer if it is fed by wind turbines, geothermal energy, solar(when it becomes more efficient), wave energy, and hydroelectric. I didn't include the attractive nuclear option in that liteny of sources because the mothers of america wouldn't let it happen, also I sort of detracted from wind hydrogen, though my thoughts are only to step away from fossil fuels. I envision a national network of pipelines replenishing themselves from sources other than fossil fuels.

Btw I want this because every time I go to the gas station I feel like I'm paying my enemy for fuel so he can fight me. I am in the military.

Bigelow said at March 22, 2007 1:06 PM:

Randall,

A bottleneck caused by shortages could stretch your "five years" to get nukes going into much longer. Right now while there is excess oil everything is possible. The rub is to adapt takes time. The Hirsh quote doesn’t go into the disruption caused by the transition.

Bigelow

P.S. My hopes are for electric rail and autos, nuclear and distributed solar, wind and geothermal, while coal to liquids fills a decreasing need for liquid fuels; my fears are for riots and government run camps.

Randall Parker said at March 22, 2007 6:23 PM:

BootsW,

See here: Using Natural Gas Transmission Pipeline Costs to Estimate Hydrogen Pipeline Costs. Download and read the PDF file. Report back.

My skepticism about hydrogen from wind stems from two reasons:

1) Wind still costs too much for electric generation. That may change.

2) We need better ways to store hydrogen to make it practical in cars.

If we could solve #2 we could always generate the electric from nuclear or coal.

The harder problem is not where to get the electricity. The harder problem is how to convert it into a form useful for transportation. There are a few plausible approaches:

A) Better batteries. These are coming. Lots of investment going in this direction. Johnson Controls is working on it for example.

B) Ways to store hydrogen in cars. I think this one is going to take much longer than better batteries.

C) Ways to use electricity or special nuclear plants to produce hydrogen that then gets used to make biomass liquids that are more potent. Again, see my link Biomass Plus Hydrogen For Transportation for the details. Note that special nuclear plants that generate much higher temperature heat could be used to split hydrogen from water more efficiently than first generating electricity from heat.

Paying your enemy: Yes, that's one of my arguments for why we should greatly accelerate the development of new energy technologies. Stop funding the Muslims.

Randall Parker said at March 22, 2007 6:50 PM:

Bigelow,

If peak oil is 20 years off we do not have to prepare for it. In 20 years we'll be able to power most transportation from electricity. We can generate the electricity from nuclear, solar, wind, and geothermal. Much of the transition away from oil for ground transportation will already have happened due to lower costs of using electricity to charge up cars.

I'm a lot more worried if peak oil hits now. Maybe it is peaking now. Oil keeps staying high in price and is once more north of $60 per barrel.

Boots said at March 23, 2007 1:46 PM:

Randall

Do you suppose that economy of scale would solve the wind generation problem. I.E. if tens of thousands of wind turbines were purchased in the next few years, would this drive the price of wind turbines down to an acceptable level???

Also do you know off hand the price per KWH/MWH for geothermal energy... Seems to me this would be cheaper, just not located conviently(another job for the hydrogen energy carrier).

I have a question... what do you think of the practical application of Nuclear energy as a source for hydrogen?? Do you think it will be possible given the current social animosity twards it?

Your point about using Hydrogen to make biomass fuel better is valid in more ways than one.. The current fueling industry uses hydrogen to refine crude. I am not sure how this is done or how it relates to biomass but the fact is that hydrogen already is helping to make gas better.

If refining biomass helps take America away from opec I'm all for it. I will endeavor to make hydrogen one day and when I do maybe I'll make an expensive pipeline to the cornfields of America in an effort refine biofuels.

Even having said that... the Hydrogen energy carrier may still be used for electricity on demand.

Randall Parker said at March 23, 2007 5:18 PM:

Boots,

Wind costs: Some argue that the trend toward larger blades will eventually make wind cheaper than nuclear and coal. Some of wind's decline in cost so far as come from larger blades according to some accounts.

But I can see diminishing returns from that. The bigger the blades the more structural material needed to build its tower for a few reasons:

1) The blades weigh more.

2) The longer the blades the taller they have to be off the ground at their center.

3) The tower's taller structure has to be thicker support more upper tower structure.

When does the trade-off start working against longer blades? Can the generators and the blades be made of lighter weight materials? Surely this'll happen eventually due to advances in nanotech.

Randall Parker said at March 23, 2007 5:27 PM:

Boots,

Geothermal: See my Energy Geothermal category archive. A recent MIT study claims we could eventually get 100 GW from geothermal by 2050. That's less than 100 new nuclear power plants. Substantial but still just a slice of total demand by then.

Nuclear for hydrogen: I do not expect it to attract much research or investment until far better methods of storing hydrogen are developed. I do not think that popular opposition is a major factor holding back nuclear in general. I think cost is the biggest factor.

Nuclear has two trends going for it:

1) Natural gas has become too expensive for electric generation.

2) Coal is too dirty for electric generation and the public continues to become less tolerant of pollution.

What could work against nuclear:

A) Lower costs methods to clean up coal emissions.

B) Lower cost wind.

C) Lower cost photovoltaics.

Photovoltaics have the biggest cost problem. Can clean coal be made cheap? How fast and far will wind's cost fall?

Nick said at March 26, 2007 1:15 PM:

"2) The longer the blades the taller they have to be off the ground at their center. "

This is actually an advantage. Wind speed is a function of height (reduces friction with the ground), and energy is the cube of wind speed.

I would estimate that costs rise as a linear function of blade length, while power is the square of of blade length.

Right now, blades are almost handmade, with relatively expensive and complex processes. These costs will come down pretty reliably with manufacturing volume.

Finally, offshore wind will likely get substantially cheaper with floating platforms:

http://www.technologyreview.com/Energy/16801/

"Giant Wind Turbines
Floating wind farms placed far offshore could lead to affordable electricity -- without cluttering the view."

Randall Parker said at March 26, 2007 6:33 PM:

Nick,

Why do you think costs rise as a linear function of the blade length? I'd expect that as the blades get longer they have to get thicker and stronger closer in toward the center in order to be able to withstand the forces generated by the longer parts of the blade further out along the radius.

Also, as the towers get taller and reach up into stronger winds then the towers and the blades have to get stronger to withstand the wind forces.

If the economics of larger blades are so compelling then why haven't blade sizes already gone up to wherever they might be headed? Is development of large blade fabrication technology a pacing technology for improving the economics of wind?

I think of those massive ship propellers as examples of huge blades that have been getting built for a century. But I bet they are far too heavy to put on towers up in the air.

BootsW said at March 28, 2007 1:32 PM:

Randall

What impact do you suppose readily available hydrogen(for whatever use there is) would have on society. What I mean is what do you think would happen if every American had access to a cheap endless supply of hydrogen???? This is the thought that will drive my life for the far future...

Just Curious,
Boots.

Nick said at March 28, 2007 3:51 PM:

"Why do you think costs rise as a linear function of the blade length? I'd expect that as the blades get longer they have to get thicker and stronger closer in toward the center in order to be able to withstand the forces generated by the longer parts of the blade further out along the radius.

Also, as the towers get taller and reach up into stronger winds then the towers and the blades have to get stronger to withstand the wind forces."

It's an interesting question - There are a lot of variables here. My estimation is based on the assumptions that 1) material costs are only a fraction of the cost of the structures, but the power generation denominator applies to all costs (which makes linearity a simplifying assumption), and 2) that each generation's design will be improved, and reduce material costs.

"If the economics of larger blades are so compelling then why haven't blade sizes already gone up to wherever they might be headed? "

I think it's engineering conservatism, and the time required to grow and get experience. Each generation gets larger by roughly a factor of 1.5 to 2. Wind turbines were less than 100KW just a couple of decades ago, and 3MW are now beginning to be standard. 5MB are just starting to be installed, and 10MB are on the drawing board.

Nick said at March 28, 2007 3:54 PM:

Oops. MW, not MB.

Randall Parker said at March 28, 2007 5:51 PM:

BootsW,

Hydrogen is useless for transportation without better storage mechanisms.

Any energy source that could generate hydrogen now is better used today to generate electricity or do other things.

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