Shifting the Market Balance - The Initiative

People are like water, they follow the easiest path downstream. If you want to introduce a new product in the market you better make it VERY EASY for the customer to acquire. Otherwise you will find yourself soon out of business.

Perhaps it would be useful to make sure that greentech, as a product, covers the basic principles of commercialization.

How do you make a product “easy to acquire”?

First of all, there should be a group of people which you recognize as your “target market” and they should have a real (or created) need for your product. Second, you have to design a very easy path for their money to reach your account and for the product to reach their house or office (or whatever other place they will need it). Whereas you accomplish this by placing your product in the most visible shelves of the top retailers or by having a super well designed website with a full feature checkout process that accepts all sorts of payment methods. The customer needs to feel at ease spending that amount of money in exchange for that product.

Perhaps you think the aforementioned concepts are very simple and easy to follow, but many greentech initiatives lack these principles (at least according to me!)

Look at “alternative energy” as a product. Is it “easy to acquire”? The short answer is: NO. Is there a group of people that want to “buy” it (target market): YES, count me in! Is it affordable? Right now, NO. Can it reach your home or office easily? Right now, NO.

So, can we change the commercialization strategy for “alternative energy” to make it VERY EASY to acquire? YES, I believe so.

The biggest hurdle for alternative energy is competitive pricing. Neither I nor thousands of others are willing to pay more for our electricity than what we are paying right now. So, should we wait for the technology to become more cost efficient or is there something that can be done now?

IF WE INCLUDE THE CONSEQUENCE OF STAYING WITH OIL AND COAL (THE ENVIRONMENTAL IMPACT, PUBLIC HEALTH, AND PERHAPS A FUTURE ENERGY CRISIS) INTO THE EQUATION, THEN WE SHOULD BE ABLE TO MAKE ALTERNATIVE ENERGY COST COMPETITIVE.

One way to achieve this is by implementing the “cap and trade” system. A central authority (usually government) sets a limit or “cap” on the amount of a pollutant that can be emitted. Companies that need to increase their emission allowance must buy credits from those who pollute less (or “trade” with pollution off setters).

By taxing the pollution and giving incentives to the “problem solvers” we could shift the market balance towards alternative energy, making it easier to acquire.

There are BIG RISKS when the balance of the market is pushed artificially. For example, what will happen if, after implementing the “cap and trade” system, a new more efficient source of energy becomes available? The capital available for new power plants is limited, if most of it is captured by the less efficient method, just because it was available before the other one and it leveraged on the “cap and trade” advantage, then we would have created “false demand”. Eventually, the company with the more efficient product could disappear and the company with the less efficient, but sooner to market, product could become the market leader.

On the other hand, it could be a very long road to mainstream for alternative energy if we don’t put some incentives in place. The possible consequences of this scenario are VERY FRIGHTENING. If we wait for alternative energy to become competitive by itself we could risk a worldwide energy crisis or even worst consequences (depending to which scientist you want to believe).

Like everything in life, there should be a balance. Regulators will need to be very smart and flexible and individuals will have to accommodate certain changes in their “consumer patterns”.

Aside from “alternative energy” there are thousands of products and services in the greentech universe that need help to make them “easy to acquire”. It could be argued that money is always the problem solver. But, greentech (unlike Internet, for the “dot com” boom) is not distributed across the world instantly. Most greentech products are born out of an idea, then they require a proof of concept, then it needs to be tested in the field, eventually it should have market acceptance and finally it needs to develop a distribution network to become accessible worldwide. And, although, this process takes considerable amounts of money, they also require “connections”. The inventor needs to connect with strong management; the company needs to connect with an ideal testing site; then the company needs to connect with the best initial market that will help launch its product; many times the company needs to connect with the available incentives for its product; and finally the company has to connect with the best fitted distributors for its product.

Here in Miami we are launching an initiative, which I hope will tap into this opportunity. Our intentions are to help companies “connect” with management, test sites, market, incentives, and distributors as well as finding available sources of funding for promising greentech products and companies. This initiative is in its VERY EARLY stages, but I have the hope that it will become a model of the types of initiatives that can be undertaken by the private sector in each city.

I will keep you posted of future developments in this area.Until next week, SHALOM!

Elections and Greentech, are they related?

As we head to vote here in the US and elect a new president (hopefully, at the end of the week we shall know the results), I wonder what is at stake for Greentech.

Originally, one of my opening arguments for Greentech investment was the great performance of Greentech when compared to regular stocks (see chart below)

Even though the index is bouncing back faster than the S&P500, this argument is not as powerful as it used to be (in September when the Cleantech Index was 20% to 40% above S&P500).

So, why invest on Greentech?. I believe that, in spite of Wall Street's valuation of Greentech, there is still an undeniable wave towards alternative energy, water purification and irrigation, as well as waste management optimization. Because enough people have come to realize we need to get off oil and start finding alternatives. They have also realized we need to treat our environment with respect in order to have a place where to live.

Looking at the hard facts, in today's economy, governments have become the largest corporations. As times get harder for the private sector, the governments (in theory) can print as much money as necessary to keep them afloat. Here in the US, one of the key points of the campaign was "Alternative Energy". Therefore: The largest corporation in the world has promised to pour money into Greentech

Moreover, when both candidates were asked to name plans that will get cut and plans that will remain under the new economic reality; both, Obama and McCain specifically named their Energy Policy plan as being a priority.

So, what is their plan? I will try to be as neutral as possible and list (directly from their website) their Energy and Environmental initiatives:

McCAIN

ENERGY:

• Will Commit Our Country To Expanding Domestic Oil Exploration
• Promoting And Expanding The Use Of Our Domestic Supplies Of Natural Gas
• The Nation Cannot Reduce Its Dependency On Oil Unless We Change How We Power Our Transportation Sector
• Clean Car Challenge: $5,000 tax credit for each and every customer who buys a zero carbon emission car
• A $300 Million Prize To Improve Battery Technology
• Flex-Fuel Vehicles (FFVs): calls on automakers to make a more rapid and complete switch to FFVs (automakers have committed to make 50 percent of their cars FFVs by 2012)
• Alcohol-Based Fuels Hold Great Promise As Both An Alternative To Gasoline And As A Means of Expanding Consumers' Choices
• Today, Isolationist Tariffs And Wasteful Special Interest Subsidies Are Not Moving Us Toward An Energy Solution
• Will Effectively Enforce Existing CAFE Standards (CAFE standards - the mileage requirements that automobile manufacturers' cars must meet)
• The U.S. Must Become A Leader In A New International Green Economy. Green jobs and green technology will be vital to our economic future
• Will Commit $2 Billion Annually To Advancing Clean Coal Technologies
• Will Put His Administration On Track To Construct 45 New Nuclear Power Plants By 2030 With The Ultimate Goal Of Eventually Constructing 100 New Plants
• Will Establish A Permanent Tax Credit Equal To 10 Percent Of Wages Spent On R&D
• Will Encourage The Market For Alternative, Low Carbon Fuels Such As Wind, Hydro And Solar Power
• Proposes A Cap-And-Trade System That Would Set Limits On Greenhouse Gas Emissions While Encouraging The Development Of Low-Cost Compliance Options
• Greenhouse Gas Emission Targets And Timetables:
  2012: To 2005 Levels (18% Above* 1990 Levels)
  2020: To 1990 Levels (15% Below 2005 Levels)
  2030: 22 Percent Below 1990 Levels (34% Below 2005 Levels)
  2050: 60% Below 1990 Levels (66% Below 2005 Levels)
• Will Make Greening The Federal Government A Priority Of His Administration
• Will Move The United States Toward Electricity Grid And Metering Improvements To Save Energy
• Believes We Must Understand The Role Speculation Is Playing In Our Soaring Energy Prices
• Does Not Support A Windfall Profits Tax. A windfall profits tax on the oil companies will ultimately result in increasing our dependence on foreign oil

CLIMATE CHANGE

• Climate Policy Should Be Built On Scientifically-Sound, Mandatory Emission Reduction Targets And Timetables
• Climate Policy Should Utilize A Market-Based Cap And Trade System
• Climate Policy Must Include Mechanisms To Minimize Costs And Work Effectively With Other Markets
• Climate Policy Must Spur The Development And Deployment Of Advanced Technology
• Climate Policy Must Facilitate International Efforts To Solve The Problem

OBAMA

SHORT TERM SOLUTIONS: IMMEDIATE RELIEF FROM PAIN AT THE PUMP

• Emergency Energy Rebate. Will require oil companies to take a reasonable share of their record‐breaking windfall profits and use it to provide direct relief worth $500 for an individual and $1,000 for a married couple
• Crack Down on Excessive Energy Speculation
• Swap Light and Heavy Crude, Release Oil from Strategic Petroleum Reserve to Cut Prices

MID TO LONGTERM SOLUTIONS: NEW ENERGY FOR AMERICA

• Tackle Climate Change
• Implement Cap and Trade Program to Reduce Greenhouse Gas Emissions - 80 percent below 1990 levels by 2050
• Make the U.S. a Leader on Climate Change
• Invest in Our Secure Energy Future and Create 5 Million New Jobs
1. Strategically invest $150 billion over 10 years to accelerate the commercialization of plug‐in hybrids, promote development of commercial scale renewable energy, encourage energy efficiency, invest in low emissions coal plants, advance the next generation of biofuels and fuel infrastructure, and begin transition to a new digital electricity grid
2. “Green Vet Initiative”: more of our veterans can enter the new energy economy
3. Convert our Manufacturing Centers into Clean Technology Leaders
4. Create New Job Training Programs for Clean Technologies
• Make our Cars, Trucks and SUV’s Fuel Efficient
• Increase Fuel Economy Standards: 4 percent per each year
• Invest in Developing Advanced Vehicles and Put 1 Million Plugin Electric Vehicles on the Road by 2015.
• Within one year of becoming President, the entire White House fleet will be converted to plug‐ins as security permits; and
• Half of all cars purchased by the federal government will be plug‐in hybrids or all‐electric by 2012
• Partner with Domestic Automakers: $4 billion retooling tax credits and loan guarantees for domestic auto plants
• Mandate All New Vehicles are Flexible Fuel Vehicles
• Develop the Next Generation of Sustainable Biofuels and Infrastructure: 60 billion gallons of advanced biofuels by 2030
• Establish a National Low Carbon Fuel Standard: fuel suppliers in 2010 to begin reducing the carbon of their fuel by 5 percent within 5 years and 10 percent within 10 years
• Promote the Supply of Domestic Energy
• “Use it or Lose It” Approach to Existing Leases: Oil companies have access to 68 million acres of land, over 40 million offshore, which they are not drilling on
• Promote the Responsible Domestic Production of Oil and Natural Gas
• Bakken Shale in Montana and North Dakota which could have as much as 4 billion recoverable barrels of oil according to the U.S. Geological Survey
• Unconventional natural gas supplies in the Barnett Shale formation in Texas and the Fayetteville Shale in Arkansas
• National Petroleum Reserve‐Alaska (NPR‐A) which comprises 23.5 million acres of federal land set aside by President Harding to secure the nation's petroleum reserves for national security purposes
• Facilitate the construction of the Alaska Natural Gas Pipeline
• Getting More from our Existing Oil Fields: experts believe that up to 85 billion barrels of technically recoverable oil remains stranded in existing fields
• Diversify Our Energy Sources
• Require 10 Percent of Electricity to Come from Renewable Sources by 2012
• Develop and Deploy Clean Coal Technology
• Safe and Secure Nuclear Energy
• Commitment to Efficiency to Reduce Energy Use and Lower Costs
• Deploy the Cheapest, Cleanest, Fastest Energy Source -Energy Efficiency: reduce electricity demand 15 percent from projected levels by 2020
• Set National Building Efficiency Goals: all new buildings carbon neutral, or produce zero emissions, by 2030
• Overhaul Federal Efficiency Standards
• Reduce Federal Energy Consumption: achieve a 15 percent reduction in federal energy consumption by 2015
• Flip Incentives to Energy Utilities: measures will benefit utilities for improving energy efficiency
• Invest in a Smart Grid
• Weatherize One Million Homes Annually
• Weatherize One Million Homes Annually

On a final note I would like to mention the smart effort that Pickens is doing by linking his plan to politics, by signing up people to create political pressure. Regardless of my liking or disliking the Pickens Plan, the idea deserves kudos (details here)

Until next week... SHALOM!

* Not a typo! It is what is written at the website

What is your plan?

The economy is going down the drains, oil prices are also coming down. Does this mean the end for alternative energy? Are people going to be so submerged in survival mode that they will forget what got them there in the first place? Perhaps.

I do believe in the next 5 years we will see fundamental changes in the way we live. I am not sure what those changes will be, I have a feeling the transition is going to be a painful one. The market values will shift from the more superfluous goods and services (i.e. electronic gadgets and fashion) to others more basic ones (i.e. food and energy).

So, if energy becomes a more precious good then we will certainly shift into renewable energy, right? Not so fast, there is a "Tipping Point" to make the shift from fossil fuels into alternative energy, and the odds are against us.

When resources are scarce it is more difficult to decide on a strategy that requires an up front payment even if this strategy is more convenient over time.

If you offer two plans for certain service: plan "A" consist of monthly payments of $10 (for one year total $120); under plan "B" you just make a single $102 payment at the beginning of the year (a 15% discount!). I am sure people with fewer resources will select the monthly plan more times than the "B" plan, simply because it is easier to deliver $10 each month that it is to come up with the full $102. Only if you have the $102 easily available and you are smart enough to calculate the 15% difference (which is more than what most investments return on capital in today's market!), then you will chose plan "B".

Alternative energy requires an up front "investment" to develop new technology, to create new infrastructure and to change certain patterns in the market and in consumer behavior. The current oil thirsty system needs no change in the short term, only when oil becomes scarce enough, then we shall see the high cost of staying in this path. Its like having plan "A" with the last month's payment at $200 (rather than $10) and no right to renew!

For the time being the oil barrel has dropped from the $140 level to the $60 level. Oil, as any other product, follows the laws of supply and demand (as demand dwindles, the price drops). What some people don't realize is that supply and demand work for infinite availability products (subject to cost of production), oil has a very clear limit (when the end of oil is near, even if demand is low, prices will soar). Another peculiarity about oil is that, as the price decreases, oil supply decreases as well. Some sources of oil are too expensive to operate at $50 a barrel. This works against the cause for alternatives, as the supply diminishes, new sources become cost effective and reduce the impact of the diminishing supply.

What shall we do (we = humanity)??. We should have a plan!

Only by having a plan we can counter the INERTIA of the masses (and right now the inertia points towards more oil dependency).

Mr. T. Boone Pickens has a plan (recently featured in CBS's "60 minutes"), to generate wind power and use natural gas for vehicles (for pros and cons on The Pickens Plan go to Wind Energy).

In Israel and now in Australia, Shai Agassi has a plan to deliver electric cars, coordinating between government, car manufacturers, battery manufacturers and creating a "plug in" infrastructure (for more on this go to The Electric Car).

My plan is to find investment opportunities in Greentech. Opportunities with the best technology, the best management and the best business plan I can find. And hope they will make it big and create a better environment and at the same time give me a hefty return on my investment.

What is your plan?!

Until next week, SHALOM!