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Andrew McKillop: Silicon Valley’s Green Geek Scenario Goes Belly Up

Silicon Valley’s green geek scenario, which we can date at around 2005-2009 is now gurgling down the WC pan of history. Its elitist and totally unreal notions of extreme high priced electric cars for Nice People Saving the Planet, and designer Low Energy homes for the same Nice People, and nobody else, has gone down the tube.

In an October 26 Bloomberg article that has all the hallmarks of a mea culpa, the former chief technology officer at Microsoft Corporation, Nathan Myrhvold, explains how Silicon Valley venture capitalists and entrepreneurs set their sights on clean energy as the Next Big Thing. Unable to understand the difference between shifting information along copper wires of a few millimetres cross section, and “reinventing” the world energy industry supplying a total of about 85 000 million barrels of oil equivalent energy each year, their audacious plans have flopped, one after the other. Big names, starting with the biggest possible like Bill Gates, Bill Joy, Vinod Khosla and Steve Jobs RIP were able to lose money, sometimes a lot of it applying “incredibly inventive” IT notions to the energy sector but finding they really do not work.

For Silicon Valley adventurers in the Energy Ark losing money is a no-no, reserved for average investors, taxpayers, consumers and governments – the patsies and losers, that is.

As Myrhvold recounts, some of the best venture capitalists in the business, including his friends Gates, Joy and Khosla, detached from their computing roots and focused on what they thought were profitable plays in soft energy. The result was a staggering surge of capital into clean-energy technologies. Worldwide, from 2006 to 2010, about $535 billion in venture capital, private equity and initial public offerings as well as mergers and acquisitions flowed into a total of more than 4200 clean-tech start ups and businesses, over 65% of which have already failed, according to a recent analysis by GlobalData. The spending amount sounds grandiose, but could be compared with the growth of Greek sovereign debt from January 2010 to October 2011, about $180 billion, or average spending in only the oil & gas upstream of development and prospecting: over $400 billion a year.

The big difference, of course, is that oil & gas spending produces energy. Failed Silicon Valley start ups and the Cleantech hedge funds that go with them do not, time after time. Mortality rates in Cleantech were and are extremely high, but Myrhvold shrugs this aside as venture-capital investing being inherently high-risk. More spectacular examples, like the collapse of Solyndra LLC the solar-cell company and its fallout reaching right up to the White House are reminiscent of the dotcom-telecom crash at the turn of the century, for Myrhvold. For others, they are yet another proof that Silicon Valley-type investing in green energy is the wrong model: incompetently analysed, badly programmed, sloppily managed and born to fail.

THE WRONG MODEL

What is worrying is that almost a decade of Silicon Valley-type energy investing hasn’t produced any home runs — no green-energy equivalents of eBay, Amazon, Google or Facebook. The modest, incremental advances claimed by apologists for the Silicon Valley-style roulette wheel model of “investing” do not even perceptibly move the needle on the energy problem. The slightest tremor of would-be economic recovery in the debt-strapped US, Japan or Europe of today sends oil prices soaring – because oil consumption moves up in lockstep. The same applies to natural gas and coal demand, for the simple reason they power the real world which includes IT and communications, and the real world existed an awful long time before Internet-enabled cellphones fell off a production line in China.

Showing that even IT geeks understand where easy money exists in the energy sector, some players, like Myrhvold himself are shifting into nuclear power with various gimmicks for tweaking more saleable power out of these lumbering Doomsday Machines before “somebody else”, that is governments and taxpayers pay to Safestor decommission them. More to the point – much more to the point – Myrhvold spends more than a half of the cited article “iconizing” a rigorously non-Silicon Valley figure: the son of a Greek goatherd who immigrated to the U.S. and who has plugged away in the oil & gas industry since 1946, called George Mitchell. While still far behind Bill Gates or other Royal Geeks of the Valley with double-digit billions, Mitchell has earned billions of dollars himself, especially with his improvements and cost-cutting for shale fracking to extract tight gas, a technology that also works on coalseam gas. Mitchell has really reinvented energy – not talked, postured and preened about it.

Mitchell was told it couldnt be done but he was stubborn. Besides, his goal of getting gas out of hitherto uneconomic geological formations was nothing like Shockley’s invention of the transistor in 1954, or the invention of language C and other new machine codes by another Bell Labs worker, Dennis Ritchie. Mitchell drew on attempts at getting tight gas and coalseam gas out of the ground at low cost that go back as far as 1795, and include even the use of nitroglycerine in the 1860s!

As we know, fracking with water, sand and chemicals has unlocked enormous deposits of shale gas, tight gas and coal-bed methane across the world. Mitchell’s work has much more than doubled the world’s known reserves of extractible natural gas, and in many countries has changed the gas resource picture from absolute penury to total wealth. No iPhone and downloadable app could ever pretend to do that and get away with it.

CAN SILICON VALLEY REINVENT ITS GREEN ENERGY PLAY?

Shale and coalseam gas are literally New Paradigm. The only way to make these resources disappear from view is to claim they are dangerously high CO2 emitters, like coal and oil, and producing them can cause household water taps to spew flames, under carefully staged and filmed conditions. In his mea culpa, Nathan Myrhvold is forced to say that gas fracking – which interested none of Silicon Valley’s “intrepid entrpreneurs” until much too late – has unlocked such vast new resources of relatively clean, easy to transport energy that the long-running story of energy security, heavily used by Silicon Valley geeks when peddling green energy, is pushed right off screen.

Shale gas can be produced over huge swaths of the planet, not only Russia, Qatar, Iran, Norway, Algeria and other places where high gas prices are a way of life bringing Silicon Valley-type easy profits to lucky and greedy players. In the future, hard work is likely be a better model than counting on “incredible innovation” and other peoples’ cash.

Shale and coalseam gas isnt under the control of desert dictators, stuck in the Arctic or submerged miles beneath the seabed. In countries, especially in Europe which have banned the development of shale and coalseam gas, supposedly through Climate Correct Concern (but in fact due to high-priced long-term supply contracts and huge gas development projects in producer countries), this last ditch attempt to prevent change will soon disappear. To be sure the environment must and will be protected, but the frenzied attempt to reinvent energy, Silicon Valley-style has already shown it does not work.

What we find is that supposedly free market-inspired venture capitalists in green energy really want, and even worse believe they deserve are huge government subsidies and credulous patsy investors to supply them with the cash to play around with pet themes. Floating on a magic carpet of cash extracted from the public through near-total-monopoly ventures such as Microsoft Corp and Apple, these rightly named players imagine they are Too Big To Fail, exactly the Wall Street investment banking fraternity.

Their present only line of defense for why they should go on receiving support, after “energy security” is stripped away, is that Green Energy is automatically a Low Carbon protector of the environment and of course “creates jobs”.

Claims like this might have worked even as recently as 2009, but are now outdated and contradicted by reality.

Regarding technology, Silicon Valley has invented little or nothing for a decade or more; its supposed largest successes in Green Energy Cleantech only confirm this readout. So-called successes like Tesla Motor are based on technology no more sophisticated than cramming 6800 laptop batteries into a 450-kilogram battery pack and claiming this $105 000 two-person sports car is an “answer” to road transport energy dependence on oil.

REARGUARD ACTION

Myrhvold and similar apologists for Silicon Valley’s failure to do anything with the billions of dollars of other peoples’ money it literally threw at a random selection of New Things in the energy sector like to claim that “anyway cheap gas wont work with transport”. To be sure, T Boone Pickens might agree but would have another analysis on why it didnt work – so far. The geeks line on why gas cant work for transport is that cars, buses and trucks operating on gas have a limited range because, even when compressed, natural gas doesn’t have the energy density of gasoline or diesel fuel. To them, a $40 000 Nissan Leaf or Chevrolet Volt, or a Tesla Roadster at $110 000 is OK ! The sales patter for electric cars, we can note, is obliged to start with the argument that 80% of cars travel less than 80 miles a day – so battery charging is not such a big problem as most persons rationally fear. Leafs for example, styled as the “industry standard full-size all electric”, have a real range per charge of not much above 80 miles under the most favorable operating conditions.

For the price of a Nissan Leaf, any motorist can buy and run an all-natural gas car for many times its lifetime of 10-15 years and have plenty of loose change left over.

Myrhvold, being scholarly, tells us that his own research contradicts gas producers who never miss a chance to point out that burning gas emits less CO2 than burning coal does. But detailed research, including his own shows that switching from coal-fired electricity plants to gas-fired ones would have almost no effect on CO2 emissions. Coal-fired electricity used for charging electric cars, according to publicity from Renault, Nissan, GM, Daimler Benz, BYD and other electric car hopefuls including Silicon Valley green energy geeks however claims this delivers “Zero Emission” cars!

Cheap gas, we are told by the Silicon Valley crowd as they beat the retreat just reinforces our use of carbon-based energy: exactly the same which runs the economy generating the jobs and spending power used to buy Silicon Valley IT gadgets and gimmicks. In fact, as almost any of the Green Geeks will add when saying why they deserve a second round of $ 500 billion easy financing to mostly throw away, their breakthroughs need high energy prices and depend on high energy prices. As Myrhvold puts it in his mea culpa article: “Getting an alternative-energy technology off the ground is much easier if the price of conventional energy is high”, adding that “A carbon tax could provide this price incentive, but with the world teetering on the edge of financial ruin, the political appetite for new taxes has evaporated”. Isnt that a surprise?

WAKING UP TO REALITY

Surprisingly enough and for a stack of one-off and unrepeatable reasons, Silicon Valley had an almost totally protected long home run. Cranking up near-total-monopolies while gargling Free Enterprise slogans worked for a long time, but that time ended quite a long time ago. With energy, the Silicon Valley geeks were in competition with the real world from Day 1 and what happened? They failed.

Many people, including our political rulers and corporate deciders still seem to believe that the cost of oil and gas could rise indefinitely, on some kind of Magic Carpet ride enriching Arab, Russian, African and other rightly named lucky players and greedy exporters. With shale and coalseam gas this flimsy concept has been smashed, much to the chagrin of the Silicon Valley venture capitalists who caught the green-energy bug and thought they could feed off the same gravy train.

Energy tech is also changing, in part due to high energy prices, in part due to innovation, trimming the extremes of the black-and-white picture of permanent energy crisis on one hand, and energy abundance on the other. Under any rational scenario shale and coalseam gas will be used for road and land transport and electric power production, especially in co-generation CHP (combined heat and power) applications. Oil will stay expensive, coal will stay cheap.

The Silicon Valley geek scenario, which we can date at around 2005-2009 is now gurgling down the WC pan of history. Its elitist and totally unreal notions of extreme high priced electric cars for Nice People Saving the Planet, and designer Low Energy homes for the same Nice People, and nobody else, has gone down the tube. We can hope so.

Andrew McKillop is a former in-house policy and programming expert, DG XVII Energy, European Commission