thEnergy Blog Part 4 - Dynamic Demand Challenge Finalists

Published: Fri 04 Apr 2014
A blog entry by Isobel Chillman

Contributed by:

Isobel Chillman
Programme Delivery Manager
Engerati

Isobel Chillman's Blog

By Tom Lipinski, Finalist, thEnergy

How much for Clean Tech?

It gets to a point when you have to look at the cost of goods question (COGs) and work out how much you are going to charge for the stuff as it be one of the deciders whether your business lives or dies. The scale is rather simple – at one end you could free issue your tech (relying on some sort of service or subscription model) at the other end you could charge 10 times over what the market will bear. CleanTech has done a lot of the latter relying on subsidies, legislation or just the demand for ‘clean’ (either purchased to help CSR reporting in B2B space or as an ambitious statement in the B2C one). In the first instance (free issue) you will almost certainly run out of money and go bust, in the second case it’s more like 100% with timescale depending on a subsidy cut or a new fad tech coming out.

So what is CleanTech and how much can we charge for it? How much can I charge for it?

Generating a unit of economic output (or any ‘utility’) without the negative impact on the environment? Or environmental efficiency - reducing that impact (efficiency measures allowing us to do more with less damage to the environment, more comfort, miles, etc)? How much is this ‘extra’ efficiency worth?

What about economic efficiency? Is there, or must there be a trade-off between environmental and economic efficiency? Does it make sense to use more inputs sometimes to create the same volume of output for the sake of the environment? Or is this an economic crime?

The renewables industry, with the well published ‘job intensity’ figures (5x jobs per the unit of energy than oil) would concur. Others could say that these ‘job intensity’ figures are just a cover up for inefficient use of labour and should have no place in the 21st century, claiming that we are, at least in economic sense, pushing back the evolutionary clock.

Clean means efficient, no? We seem to get blinded by environmental efficiency tag and forge that labour productivity and all other inputs (sustainable or not) should also be accounted for. When this is ignored we end up with Solyndra, Better Place and countless others who ignored the economic reality. Surely CleanTech means producing more (adding more value) with less.

Well, that leaves me in a rather tight spot – my COGs are way too high to make immediate economic sense and will stay there until I get to scale up. This requires serious investment not just in technology (it needs to get a lot better, more reliable and integrate seamlessly) and manufacturing but also in sales, technical support, installer base and maintenance/management capability.

Nobody will throw a £10M cheque at me after a prototype demonstration, these things just don’t happen.
So what about the tech that has the potential to scale and get to a stage of economic sanity but requires years of research and breakthroughs to get there (environmentally clean but economically dirty)? Is this the space for venture capital to play part and help the tech on its journey to economic sensibility or is this the space for the government to take large bets for the sake of the public good and externalities? Or is this the area for government to set policy to alter the economics and make the unprofitable profitable encouraging venture capital to invest (or customers to buy)?

Countless examples (business corpuses) testify against the reliance on policy in spite of economic logic (think of policies such as Feed-in Tariff or Green Deal, or Carbon Trading to get the idea). Betting on stable government policy seems riskier than betting on internet start-ups.

Can CleanTech, or environmental efficiency override economic sanity?

There is a space for Government intervention where economic efficiency of Clean Tech is not yet achievable: grants, direct R&D purchasing (SBRI) and other financial instruments (ETI, EPSRC etc). There is also a case for vibrant venture capital activity where CleanTech stands for adding more value out of fewer inputs including externalities.

As I am not yet there the success of my journey will depend on careful balancing between the two...