Monday, May 4, 2009

Cautionary Words for Energy Tech Optimists

Sometimes you can get caught up in the relentless optimism of new energy evangelists like Better Place's Shai Agassi and believe that a totally different clean tech future is right around the corner. In fact, you want to get caught up.Yet as with almost endeavor, a balanced perspective is best for the long haul.

This post is from approx 6 months ago when oil was at $80 a barrel. Consider it now at $50 ... and how it applies at all other, highly volatile price points in the future. The words are to venture capitalists (VCs) (most often steeped in IT and internet models) and their investors ... but they matter to all of us including DOD:
Be forewarned, you do not have a comparative advantage here. The oil men invented risk taking, AND risk management. The oil men are bigger, faster, smarter, richer, have more scientists and more entreprenuerial spirit than you, AND they know energy.
VC's tend to believe that new technologies will always trump old processes, and they often don't fully grok how very different the energy business is:
In energy, there is no disruptive technology, only disruptive policy that makes some technologies look disruptive after the fact. In energy, the risk is in the scale up, not the R&D, and the end application is so massive, so capital intensive, and so utterly dependent on commodity prices, that you can't invest in it like you invest in IT. It takes longer, 10x as much money, and the ante up to play the game for one project is the size of your largest fund. At scale, there is no capital efficient strategy in energy.
Don't want to burst anyone's bubble, but it's important to keep the gigantic scale and enormous experience of the oil industry in mind at all times. And yet still push for change.

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