I have noticed that startup companies generally pay careful attention to making sure that certain key players are well chosen and are on board to participate in the critical planning and decisions that are so crucial to the earliest phases of a startup’s existence.  However, there is a common pattern to the choices that speaks to the inexperience of many founders of such startups – at least when considering companies that plan to manufacture a product.

Most would agree that it is common-sensensical for the founders to include a business-type, a technical-type, a finance person, a commercial attorney and an IP attorney.  Some even skimp on adding a full-time business-type, apparently assuming that the job can be shared by the other two founders.  This minimalist approach may be barely feasible during the angel round of financing because the founders are trying to focus on a business plan and it is quite possible that the two of them have enough intellectual horsepower and prior experience to pull together a passible initial business plan.

Assuming the team ever gets a chance to pitch to a real live venture capitalist, they will quickly discover that VCs value the strength of the startup management team almost as much as their having an attractive business plan.  Not having a well-seasoned business person will likely be seen as a critical weakness, even in the financing phase before the startup begins initial operations.  However, even the VCs frequently fail to focus on a key competency that must be represented on the startup team.

All too often when initial operations are being planned and the need to establish key supply agreements comes to the fore, the startup team fails to add a key player – a seasoned purchasing person.  They don’t just don’t forget this position, they don’t even know what the function does.  Part of this situation is a result of the key players’ past experiences.  In most organizations, purchasing, as well as materials management as a whole, is not ordinarily encountered or understood.  The simple truth is that when operations are running smoothly, few stop to think how good a job purchasing, materials control and logistics (materials management) are doing.  Since purchasing usually supports operations without a visible presence, it’s easy to assume they have a subsidiary role until actual operations are at hand.  This is a long-winded way of saying “Out of sight, out of mind”.

I encountered the problems caused by the lack of a purchasing professional in a consulting job with a startup.  Several exceptionally important purchasing agreements were being negotiated by the vice president of engineering.  He was a bright and experienced engineering manager who came from a major company.  However, the fact that he had risen through the ranks of his previous company in engineering, resulted in his having only an advanced layman’s understanding of all of the purchasing and material control ramifications of many of the issues he negotiated.  When I attempted to explain that these issues were every bit as important to the purchasing agreement as the pricing of the assemblies he intended to buy, he listened politely but failed to change his focus.  Bottom line, when a purchasing professional was finally brought on board, he inherited a desperately incomplete and one-sided set of agreements regarding forecasting of purchasing requirements, scheduling of subsequent purchases and management of the logistics.  Warranty terms, liability terms and myriad financial and legal issues were defaulted to the supplier’s purchase order terms and conditions because my client only had a set of buyer’s purchasing Ts&Cs that someone had cribbed from another company.  I never saw my client’s alleged Ts&Cs and I suspect most of his team hadn’t either.  The result was a very lop-sided allocation of risks to my client, rather than a sharing of the risks.  Furthermore, the supplier knew my client needed to conclude the agreement quickly due to financing and product launch pressures.  The supplier was under no such pressure and merely had to hang tough until my client had to concede on key points solely for the sake of expediency.

Does any of this sound familiar?  If it does, then whether you are on the startup side of the equation or are on the VC side, the subject of purchasing merits as much scrutiny in structuring the deal as do the finances.

I think we can all agree that the supply of plausible renewable energy sources; i.e., non-fossil energy sources, is effectively inexhaustible. The inventory of such sources comes back to three plausible non-nuclear sources: solar, gravity and geothermal.  Solar includes photovoltaics, wind and waves, just to name three (you need the sun for wind and waves).  Gravity gives us potential energy like hydroelectric and kinetic energy like tides. Geothermal gives us heat to make steam for turbines or to power thermopiles.

Wait a minute.  What about biofuels, biomasses and such?  Well, technically, these are all solar-based in the final analysis.  And sources that use chemical potential energy to generate electricity, such as batteries and fuel cells, are powered by the three energy sources listed above that are used to manufacture the chemical fuels upon which they are based.

I’ve mentioned in previous blogs the future for solar, photovoltaic and any other intermittent energy sources is relatively bleak since the options for storing energy from these sources is so constrained. In fact, only pumped hydroelectric and pressurized gas have been proven so far to be commercially viable.  Better yet, both are scalable.  However, both of these storage systems have their own unique geographic weaknesses:  hydroelectric requires a convenient nearby large elevation change and pressurized gas is normally contained in an artificial cavern formed using hot water in a nearby thick salt bed underground.  The latter is how the US’s strategic oil reserve is stored.

Other technologies, such as batteries, capacitors and flywheels fall short due to economic and/or technical shortcomings.  Although each approach has its own unique set of weaknesses, the lack of scalability and the high cost of their materials and/or construction are shared liabilities.  Lack of scalability means that each of these technologies requires the addition of multiple identical units in parallel in order to provide commercially useful amounts of energy.

Recently, a lot press has been devoted to the concept of flow batteries.  Flow batteries can be roughly divided into two technologies: molten metal (for example, molten magnesium and antimony separated by a layer of molten salt) and redox (chemistry shorthand for reduction-oxidation).  Both technologies use relatively cheap materials, have long working lives (at least in principle) and are scalable.  Neither technology is ready for commercialization and, as usual, have their own set of complicating issues which need to be solved.  Molten metal flow batteries are problematic because of their high temperatures.  However, my bet is on redox flow batteries because they seem likely to be able to be scaled to residences all the way to industries.

Regarding scalability, any battery’s cell voltage is established by the electrochemical potential of its chemical reactions.  In the case of redox flow batteries, the cell voltage can vary from 1.1V to 1.4V/cell.  Consequently, cells need to be connected in series to add up to the desired voltage of the battery.  Likewise, the cell strings need to be connected in parallel to provide the desired power storage capacity of the battery.  Using an analogy, the difference between a conventional battery like Li-ion and a flow battery,  is that in an array of series- and parallel-connected cells, Li-ion batteries are like a whole set of small internal combustion (IC) engines, each with its own small fuel tank.  A comparable flow battery array is like a whole set of large, powerful IC engines that share an enormous common fuel tank.

Redox flow batteries work somewhat like a fuel cell in the sense that two dissimilar materials are brought into close proximity at a permeable membrane and the potential chemical energy is harvested during an exchange of ions and electrons in a redox reaction (for example, the reversible redox reaction between sulfuric acid and various vanadium salt solutions).  However, unlike a fuel cell, both flow battery technologies work in reverse; i.e. they can store energy or provide energy.  A fuel cell cannot be recharged and is solely a source of energy.

Flow cell scalability is a consequence of the fact that the electrolytes can be stored in arbitrarily large vessels and be brought into proximity for the critical ion exchange chemistry to work without any degradation of the cathode or electrode such as that which occurs in all versions of batteries.  Unlike a battery, there are no electrodes that are part of the electrochemical reaction and therefore, there is no obvious limit on lifetime of the battery.  However, the plumbing and precise design of the redox apparatus of a liquid redox flow battery is daunting.  Furthermore, a useful battery is unequivocally large and heavy.  This means it has value in an electric grid but not in a motor vehicle.  Maybe a ship or locomotive though.

Unlike the liquid metal flow battery, the redox battery operates at room temperature.  However, both are highly efficient, quick responding, have simple state-of –charge indications (by comparison, Li-ion batteries are very difficult to monitor), multiple deep discharge cycle capability without degradation and insensitivity to overcharging.

In short, if flow batteries can be developed to the point where they are commercially available, they may represent the key to the emergence of the Third Industrial Revolution (see my December 31, 2011 blog) based on abundant, yet transient renewable energy sources such as photovoltaics and wind.  The world still awaits the solution to the conundrum of a similarly effective solution for mobile use.

In 1919, Captain Dwight D. Eisenhower led a convoy of about 80 army trucks from Washington DC (a monument now marks the spot) to San Francisco.  They followed the then-famous Lincoln Highway and completed the epic 3000 mile journey in 62 days.  That experience, along with having used the Nazi-built autobahns during the dash across Germany to get to Berlin ahead of the Soviets in 1945, convinced Eisenhower to support the building of the US’s Autobahn-inspired interstate highway system, starting in 1956.  It’s now possible to take Eisenhower’s same approximate route in three to four days. The Interstate Highway System arguably was a key enabler of the vast economic expansion of the post-WWII US.

Such monumental infrastructure creation in the US is now in our rear view mirror.  Nothing approaching the significance of this now-complete system and the enormous economic expansion that followed, appears anywhere on the road ahead.  Nothing resembling the technology stimulating lunar mission program of the 1960s is on the horizon.  All of these facts have direct bearing on what is now becoming the new normal in the US’s economy.

Simply put, we are now encountering the effects of the final stages of the Second Industrial Revolution.  As I stated in my previous blogs of 25 and 31 December, 2011, we now have nearly completed the economic expansions enabled by the Second Industrial Revolution and have yet to segue into what one would hope to be a resumption of economic growth enabled by the Third Industrial Revolution (TIR).

While the economic, technological and political changes our country underwent in the first two economic revolutions were astonishingly transformative and unprecedented from the perspective of history, the transition between the two epochs was evolutionary in the sense that change was driven by the availability of new opportunities and occurred without much societal ado.  While we were willingly pulled along to prosperity for over two hundred years, the situation we all face now is that transitioning to the TIR will be driven by the irresistible need to change the fundamental basis for our economic and political systems.

Another salient feature of the Second Revolution is that the revolution is largely a story of Western Europe, North America and later, Japan. Now, in these waning decades of this revolution the enormous presence of India and China has begun to strain the so-called “built out” infrastructure I mentioned above.  India and China are two mammoth economies that have been plopped down somewhere in the middle of the Second Industrial Revolution from an economic development and infrastructure standpoint — yet with many characteristics of our own late-stage position, primarily in regard to energy, raw material consumption and wireless communications.   As a result, we are now being pushed by a changed world largely out of our direct control to a new economic and political state of affairs that we haven’t yet been able to imagine, much less control its nature or timing.

The consequences of this situation can play out in many ways.  One thing is certain, the incentives to develop reliable and affordable renewable energy sources will become much more pressing.  Unfortunately, history teaches that humans rarely act to get ahead of events and will nearly always be guided by their self interest, thus allowing opportunities to manage transformation in an orderly manner to slip through our collective fingers.  Competition for scarce resources promotes instability.

Another likely outcome is that we will discover the current economic downturn affecting Europe, Japan and the US, along with our current levels of employment, is the new normal.  For instance, productivity in the US jumped 20% in the decade between 1990 and 2000.  This improvement is additive to decades of similar improvements.  The dividends are astonishing.  For example, according to the American Enterprise Institute, a 21 inch color TV from the 1964 Sears catalog cost $750.  In 2011 dollars, the same amount of money can buy a much larger flat screen TV, a washer and dryer, a laptop, an iPad, a GPS and a BluRay player with amplifier, with money left over.  Said another way, we can meet the demand for goods and services with the current workforce.  This means the current “downturn” (regardless of how it got started) is, in fact, a seismic economic contraction with an attendant permanent loss of jobs, abetted by very low birth rates and aging populations.   Logically, future economic activity will substantially consist of replacing infrastructure as it ages and supplying new consumer goods and services to a shrinking population ( the exception, of course, being health care.)

The unknown variable is whether Western economies can participate in any meaningful way in helping to satisfy the needs and wants of the vast and growing middle classes of India and China.  If so, growth in sales of high value-added consumer products and services will help grow employment figures.  Forget commodities, low value consumer goods and raw materials.

All of the above will play out for longer than any of us will want (decades) before the TIR will become real enough to sustain a global economy based on nearly universal access to renewable energy sources and the attendant improvement in the standard of living it should bring.  I hope we can last long enough to see it happen.

If you’ve not read my earlier blog “The Industrial Revolution”, I suggest that you start with it before reading this edition.  In the earlier blog, I mentioned that Jeremy Rifkin has written a book entitled “The Third Industrial Revolution”.  The premise of his book can be summarized by a quotation from it:

“Even with the mounting evidence that the industrial age based on fossil fuels is dying …the human race by and large refuses to recognize the reality of the situation.”

Rifkin has no trouble in exposing the real culprits behind this state of affairs:

“Government subsidies and favoritism artificially prop up the aging energy sector, giving it unfair advantage over the new green energy industries”

Finally, if you don’t buy his perspective on things:

“Opposition to my ideas from governments is a result of ignorance.  How else can their resistance be explained?”

Now that I’ve gotten over Rifkin’s snarky dismissal of the hoi polloi I’d like to discuss the parts of his public policy observation that make a lot of sense and are well worth consideration.

The Third Industrial Revolution

Rifkin has proposed five “Pillars” of his proposal for the transition to a green energy system. They are:

1. Shifting to renewable energy

2. Transforming the building stock of every continent into micro-power plants to collect renewable energy on site.

3. Deploying hydrogen and other storage technologies in every building throughout the infrastructure to store intermittent energies.

4. Using internet technology to transform the power grid of every continent into an energy sharing “intergrid”, just like the internet.

5. Transitioning the transport fleet to electric plug-in and fuel cell vehicles that can buy and sell electricity in the intergrid.

Renewable energy sources include solar, wind, hydro (including wave action), geothermal and biomass.  It is necessary to call upon diverse sources (1) due to the intermittency of some sources or uneven geographical availability (2) the sources are dispersed, rather than concentrated, so intergrid energy generation and distribution is an efficient architecture compared to today’s electric grid.

He has pitched the concept embodied in these Five Pillars far and wide.  He has gotten particularly favorable reception from governments in the EU, with countries such as Germany formally adopting plans based on the Five Pillars, along with intermediate goals.  Elsewhere, the concepts are often well received but tempered by the prospect of the formidable assumed technical
and economic bases upon which the Five Pillars rest.  Said more simply, not all of the technology to accomplish all of these goals exists and the funding of more than demonstration or pilot programs is not in hand in most countries.

The reasonable response is that the vision has a time horizon of decades, not years.  One should recall that the build out of the electric grid in the US took decades and substantial funding by the government for huge projects like the Tennessee Valley Authority (TVA) to extend basic electrical service to rural Appalachia.  The same for telephone service, fuel pipelines and gasoline stations.  We are still struggling with the “last mile” problem for providing broadband internet connectivity.

As for mass storage of intermittent energy sources, the outlook is very murky.  The list of candidate storage media seems endless: batteries, water, compressed gas, molten salts, flywheels and on and
on.  Unfortunately, there are no obvious winners either technically or cost-wise.  The cost of mass storage on a meaningful scale for an economy the size of the US would be stupendous, even spread over decades.

The same doubts apply to the glib assumption that plug-in vehicles (implying batteries for storage) and hydrogen powered vehicles (implying fuel cells for generation) will meet the need for transportation energy.  Even though these are technologies that are long in use, neither has ever been developed to the point where they are affordable and have sufficiently long life spans.  Ideas abound, but proof is lacking that providing alternate energy having an energy density equivalent to gasoline is yet attainable.  Therefore, providing clean energy for personal transportation will require nearly complete reversion to the transportation mode of the nineteenth century, namely, use personal transportation for local travel and mass transit for distances greater than, say, fifty miles.

Also, consider the matter of the system for generating, distributing, storing and delivering hydrogen gas to consumers and industry.  Even though no analogous system existed for gasoline at the start of the twentieth century, no new technologies were required to deploy such a system.  However, the same is not true for hydrogen since its only commercially viable form for distribution and storage is a liquid at -423 F (or -253 C).  The energy to run the cryogenic cooling system to deliver liquid hydrogen (assuming it is possible) would equal or exceed the energy value of the hydrogen being delivered – a net loss.

Finally, we have the “intergrid” to consider.  Rifkin does not seem to understand that the distributed architecture of the Internet is based upon the ability to take strings of light pulses representing binary ones and zeroes via fiber optics, break them into smaller packets, assign a destination address to each packet (IP address), transmit the packets willy-nilly around the world and then assemble the various packets at the desired address in their original order.  Unfortunately, it is difficult to imagine that petawatts  of energy could be distributed in any analogous manner.

Rifkin gets absolutely giddy at the prospect of every conceivable building or dwelling being retrofitted with the means to capture and store green energy.  In his view, such a superabundance will make electricity essentially free when distributed over the Intergrid.  Of course, “free” means ignoring the cost to install this vast utopian infrastructure over the entire planet.  The loopiness of his enthusiasm is self-evident.

In short, I’m very supportive when it comes to Rifkin’s stated goals.   Even though I find some of his positions to be naïve or just wrong, his provision of a framework for discussion serves to promote the right kind of dialog.   However, based upon the above list of problems, I feel compelled to observe that the Emperor has no clothes.  I think that fossil fuels will be around a lot longer than anyone wishes because we will be forced to adopt a hybrid of renewable energy and fossil fuel over many decades of transition.

A very wise and articulate man by the name of Jeremy Rifkin has just had his latest book, entitled The Third Industrial Revolution, published.  Rifkin is not exactly a household name, but he is extraordinarily influential in high government circles in the US and especially in the EU.  He is in big demand as a speaker, advisor and futurist.  As Rifkin would say: “When Jeremy Rifkin
talks, heads of state listen.”  Did I mention that modesty isn’t his long suit?

Rifkin’s model of the Third Industrial Revolution (“TIR”) is based upon what he characterizes as the First and Second Industrial Revolutions.  In point of fact, he posits that “we” (the inhabitants of Planet Earth) are in the waning years of the Second Industrial Revolution.  Continuing, he asserts that each revolution is characterized by adoption of a dominant source of energy, which in turn
enables a paradigm shift in the means of communications among the peoples of the Earth.

The First Industrial Revolution

For example, the First Industrial Revolution began in the late 18^th and early 19^th centuries with the advent of the harnessing of steam power.  So, in Rifkin’s model, steam is the dominant
source of energy for the First Revolution. The accompanying paradigm shift in communications is the steam powered printing press.  The rapid adoption of steam power to run factory machines, lift heavy loads, pump water or cultivate the soil and the like, vastly multiplied human productivity.  As a direct result, the costs of goods and services dropped, enabling a large portion of humanity to escape hand-to-mouth existence that had been the norm since the dawn of civilization.  However, then as now, the new technology reduced the number of jobs required to meet the economic demands of that time.  Such widespread and sudden changes in the nature and numbers of the workforce resulted in social movements to resist such change.  The most famous example was the
Luddites in England, eponymously named for Ned Ludd, a founder of the first organized resistance to what we now know as the Industrial Revolution.  In France, protestors threw their wooden
shoes, sabots in French, into the gears of factory machinery.  These acts are now memorialized in the word “saboteur”.

The steam powered printing press represents the paradigm shift in communications.  It was not so controversial because it allowed the vast expansion of newspapers, books, pamphlets (a prime method of getting one’s opinions to the public at the time) and so on.  To this juncture, the near monopoly on access to information was a powerful tool in the hands of the government and the Church.  It is really true that “knowledge is power”. Now, with widespread access to writings not sanctioned by the State or the Church, ordinary citizens had incentive to learn to read.  With literacy rates on the rise and with common citizens having access to a wealth of previously embargoed information, both governments and organized religions saw their power sharply curtailed. Cheap and widespread access to information was transformative, democratic and resulted in irreversible societal changes. The result was the emergence of an entirely new participant in the affairs of nations: the middle class.

All of this change happened over a relatively short time by historical standards and would have had a destabilizing effect on society were it not for the fact that these very changes enabled rapid expansion of the economies of nations.  This expansion created better paying jobs and increased demand at every level of societies.  Factories were established to mass produce products so inexpensively that many consumer goods enjoyed by the rich were for the first time affordable to the new middle class.  In short order,even the lower economic classes became part of the consumer market.

Rifkin and others have made the compelling case that the “Industrial Revolution” was, in fact, the “First Industrial Revolution”, which ended during the end of the nineteenth century when
petroleum and its byproducts first came into widespread use as a source of energy.

The Second Industrial Revolution

The Second Industrial Revolution was presaged by the adoption of the use of fossil fuels to fire steam boilers and in communications, the widespread adoption of the telegraph. The beginning of
the Second Industrial Revolution adopted petroleum and natural gas, as a source of power and of illumination during the last quarter of the nineteenth century.  This forever made the killing of whales (for lamp oil, for example) completely unjustified.   And, according to Rifkin’s rule of the duality of such revolutions, the communication transformation now included wireless telegraph, radio, eventually television and finally, the Internet.  Access to information became truly democratic, much to the chagrin of totalitarian states worldwide who had much to lose.

The overwhelming advantage of petroleum-derived fuels like gasoline and diesel and natural gas was so self evident that by the start of the twentieth century, the steam-driven First Revolution became passé in an astonishingly short time, arguably about twenty years.  Why so quickly?  The simplistic answer was that the Second Revolution was relatively cheap and undisruptive.  Vestiges of the first revolution hung around for a long time while the Second Revolution was rapidly building infrastructure to support newly liberated consumers who wanted to travel everywhere all the
time in their gasoline powered horseless carriages.  Into the breach strode visionaries such as Henry Ford and Will Durant who were wildly successful in assuring the victory of the Second Industrial Revolution.

The Third Industrial Revolution

Rifkin’s thesis is that we are now in the waning years of the Second Revolution.  His book describes the Third Industrial Revolution and what must be accomplished for it to succeed.  However, this time around, there is vast cultural and economic inertia and there are powerful political forces for maintaining the status quo.  Restated, thoughtful people agree that this transformation is much to be desired.  However, changeover will be difficult and uneconomical by today’s standards.  No quick and easy transition will be possible. And contrary to Rifkin’s utopian visions, there will be winners and losers.

Unfortunately, the winners and losers are already being identified.  One could argue that the economies and infrastructure attached to the Second Industrial Revolution have been “built out” and the sustained growth that marked most of the twentieth century has ended and won’t revive.  We are now in the maintenance mode and with the exception of a few industries such as renewable energy, jobs growth will essentially stop until the transition to the TIR is well along.

The Third Industrial Revolution is the topic of my next blog.

Much is made of the high cost of photovoltaic (PV) cells versus conventional sources of electrical energy.  It remains a fact that at a consumer level, PV (or solar) arrays are cost prohibitive without generous government subsidies. But what segment of consumers who use electricity (that’s pretty much all of us) can make a case for investing in a personal solar array?  Well, in that segment there are people who are not physically close to the commercial electric grid who really need some sort of electrical power and there are people who view spending their money to claim they are “living off the grid” as a positive political statement.  In most cases the solar array is a retrofit and few consumers are seduced by getting a payback on such an upfront investment “in a few years”.

On the other hand, if only new residential and commercial buildings are considered, a phased-in federally mandated installation of solar arrays to meet, say 30 – 50% of these new structure’s energy equirements, could be viable since the cost of the array is part of the original purchase price.  This is a strategy used by carmakers for years.  The precedent for such a mandate are federal requirements for flow rate restrictors on showers, low flush toilets, phase-out of incandescent bulbs and so on.

OK, let’s shift to the next rung of the market – businesses, including manufacturing industries.  Businesses don’t make decisions about major investments; e.g., solar arrays, much differently than consumers.  The main difference, aside from the size of the investment being considered, is a decision-making process that considers whether the solar array investment will make enough profit over a period of time better than taking the same amount of money and putting it into a safe, non-depreciating, investment.  Usually the period of time being considered is ten years and the assumed hypothetical alternative investment yields 12 – 15% annually.  Equal or better that hypothetical investment return and the solar array investment would be solid.  Can a business case for solar arrays, based on the current lowest cost solar arrays available worldwide, be successfully made?  Generally, no.

Well then, what drives the PV market?  The answer is:  it can be affected by one or more of the following factors:

1. A sovereign government’s policy aimed at reducing carbon emissions, achieving energy independence or both, and/or
2. The real economic growth rate of a country, and/or
3. A country’s latitude.

Government Policy

If a government wishes to meet policy goals by using solar energy, they will offer generous economic incentives for consumers and businesses to do so.  We’ve already seen that encouraging consumers to use solar arrays doesn’t make much difference statistically, but by making such consumer arrays commonplace, this government policy promotes a positive mindshare
in their citizenry (solar arrays are generally ugly).  And familiarity breeds …well, familiarity.  You just stop noticing them.

Incentives for business can work indirectly through a carbon cap and trade system imposed nationwide.  Businesses really don’t want to be in the electricity business.  They just want to plug into the grid and will generally even pay a premium if forced to do so.  However, if by adding a solar array, valuable carbon credits are created that can be sold at auction to carbon-emitting companies being forced to live under caps (limits) on their carbon emissions, the proposition could be a genuine money making proposition.  However, unless a non-carbon emitting company makes products whose costs are highly dependent upon electricity’s cost, most companies would be reluctant to make such an investment purely as a profit center.

Regarding public policy and promotion of energy independence, that is a tougher sell.  Authoritarian governments have (and use) various carrot-and-stick tactics to achieve this policy goal.  Less authoritarian governments with these policy goals are almost obliged to get into the energy business and force their citizenry to underwrite the added cost through taxation.

Economically Growing Countries

One can fairly characterize most first world economies as mature; i.e., their real year-to-year economic growth is modest. Correspondingly, such countries’ usage of electricity grows relatively
slowly.  In the US, electrical demand grows slowly and plenty of power generation capacity exists.  What’s missing in the US (but not the subject of this blog) is a capable electrical distribution grid.  For example, Alexander Graham Bell would be astonished at the communication infrastructure and technology of the 21^st Century US.  Thomas Edison, on the other hand, would feel right at home and recognize most aspects of the infrastructure and technology of the US’s electric grid.  The point is, the US is not being really pressed to keep up with electrical power generation needs like fast-developing countries such as India and China.  I’ve heard one estimate to the effect that China needs the equivalent of one new medium sized conventional power generating plant per day to keep up with electrical demand.  Sounds like an exageration, but like most ear-catching claims, it has a basis in truth.

India and China have already benefitted from starting their periods of economic growth late in the technology cycle for communications. They, and many third world countries, have skipped creating a wired telecommunications infrastructure and migrated directly to wireless communications.   Somewhat analogously, since India and China are being strongly challenged to bring more electrical generating capacity on line, they have the opportunity and incentive to consider solar energy on its economic merits and also upon its merits as an instrument of national policy (previous section).  Given this synergy, it not surprising that China is so dominant in solar energy.

Latitude

Let’s face it, solar cells are less and less efficient as one moves from the equator to higher latitudes.  For countries in Northern Europe, Russia and Canada solar costs are much higher because of these latitude effects.  That’s why one needs to be very careful when expressing the cost of solar cells in terms of dollars per watt.  The importance of how the value proposition of solar arrays is expressed can’t be overstated. This will be the topic of my next blog.

In my last couple of blogs I expressed my skepticism that photovoltaic (PV or “solar”) cells are an economically realistic alternative to traditional fossil-fuel and nuclear energy sources.  My conclusion was that they are not, and will not be, until the cost curves of conventional electricity and the true, all-in cost of PV electricity, cross.  Furthermore, adoption of PV electricity is
seriously hampered by the fact that PVs only generate electricity at close to their peak efficiencies from about 9 AM to 3 PM.  Add clouds to the daytime solar enemies and one ends up with an electrical source that will vary wildly even during its peak hours.  One can add expensive buffers such as batteries, flywheels, compressed gas, molten salts, etc., but the underlying impracticality of PV energy persists – except, perhaps as an element of a much larger, more comprehensive solution.

However, my prior arguments against PV electricity don’t mean that they won’t be a prominent part of your mid-term future (five to fifteen years) if you live anywhere in the EU and in parts of the US, especially in California.  For instance, The State of California recently signed a long-term agreement to buy electricity from a large-scale PV start up company.  Consumers in California will be paying US 28 cents/KWHr for this energy – compared to less than half that amount for conventionally generated electricity. Why?  Because the Government of California believes this is the prudent and responsible path to the reduction of carbon emissions and dependence upon fossil fuels.  Sounds pretty good when stated in those terms.  Yet this piecemeal approach to implementing any environmental standards in the US usually starts in California  and causes its unlucky citizens to bear the premium costs associated with being an early adopter. However, do the citizens of California want their energy costs to double and have the prime beneficiaries be the other states in the  US Union or,for that matter, for China and India?  I doubt it.

Even though altruism and the attendant concern about global warming make powerful arguments for why thinking and caring global citizens should be willing to absorb added energy costs and inconvenience to stave off the impending world-wide climate catastrophe. Unfortunately, the vast majority of global citizens make their personal economic decisions with their stomachs and have no way to afford energy even at its current price, much less at prices doubled or more.  Even more unfortunately, these same people have no way to opt out or stand on the sidelines while the US and the EU (and perhaps later, Brazil, China and India) proceed inevitably towards renewable energy sources.  By 2050, fixed power generation plants in the Developed World will consist substantially of some type of renewable energy-based generators.  No matter how we wish otherwise, the wealthy nations won’t be able to subsidize the developing countries to make the same transition.  Instead, these countries will have to get along on ever diminishing supplies of fossil fuels whose costs will become astronomical by today’s US$100/barrel standard.

What is to become of the billions on our planet who are merely passengers on the renewable energy train and have no control over the train’s destination?  The need for an answer to this question is much more profound than the technological and societal innovations that will enable such an energy transformation.  So profound, in fact, that our train’s schedule could be delayed by a decade or more and that worldwide civil unrest, perhaps violence, will accompany the entirety of the period of transition –likely several decades.

The good news is that there are abundant alternative renewable energy technologies that if wisely employed as a suite of solutions, will mitigate the numerous shortcomings of each individual energy source by itself.  The bad news is that these solutions don’t lend themselves to solving the urgent portable energy needs of land, sea and air transport presently served very well by gasoline, diesel fuel
and oil.

The Apocalypse?   No, but the changes the world will suffer through will create a few winners and lots of losers. Nothing in human history will compare to the strains that will be placed on our collective civilization.  And none of us will escape being affected.

Next on this blog:  The end of the Second Industrial Revolution.

This blog continues my blog dated October 7, 2011.
Packaging Costs

All PV cells of any configuration or technology need to be electrically interconnected with each other, physically protected from the environment and mechanical damage and have external electrical connections that are accessible for electrically connecting each cell into a larger array.   Traditionally, the electrical interconnections were done with thin wire bonds that are ultrasonically welded between metallic pads on each cell and a conducting frame that incorporates the external connection points.  This assembly is encapsulated in plastic with an optically transparent cap with the external connectors outside the package.
This is the process often used to package integrated circuits.  The process is highly automated, but relatively expensive and may introduce a defective connection from time to time, thereby causing yield loss. There are many other variations on this packaging scheme, all of which add to the overhead cost of the original bare PV cell.  The overriding emphasis is on low internal resistance that doesn’t degrade over time.

Mechanical Array

Each PV cell creates a voltage of about 0.5 volt.  In order to achieve a useful electrical output, PV cells must be connected in series and affixed in some sort of mechanical supporting structure.  For
instance, a stack 48 cells in series will create a 24 volt DC array.  However, this array has only a modest capability to produce current.  Therefore each stack is electrically connected in parallel to boost the current output.  The number of PV cells in a stack depends upon the DC voltage desired and the number of parallel stacks depends upon the DC current output desired.  The power output of the array is simply:   power (in watts) = voltage (in volts) X current (in amps).

It should be noted that PV arrays provide DC current, whereas most applications use AC current.  Therefore, the DC current has to be converted to AC with an inverter.  High power inverters are pretty expensive in their own right. It’s a matter of opinion whether the inverter cost should be included in determining cost per watt.  My opinion is that it should, because we are supposedly looking for an apples to apples comparison to conventional AC power generation costs.

Cost of Installation

The cost of installing and maintaining the high power electrical grid (the “Grid”) that distributes electricity throughout the country is stupendous, as is the local distribution grid that brings AC electricity to your house’s electrical circuit box.  Even so, these costs are amortized and reflected in the price you are billed for electricity (in units of cents per kilowatt-hour) that you access via a wall outlet.  This is the no-fooling, all-in, profit-included, cost of electricity.  We are still struggling to create the same cost figure for solar in this blog, so stick with me.

Solar power necessitates added investment over and above the cost of the Grid because widespread use of solar power distributed over the Grid most likely will force the long overdue conversion of the Grid to the so-called “Smart Grid” to help compensate for solar’s daytime-only output.  There are even suggestions that solar energy be devoted exclively to recharge electric vehicles.  A Smart Grid could do that.  Also, optimum locations for solar array farms (the southwestern US states, for instance) are presently physically far removed from the bulk of the backbone of the Grid.  More cost.  In general, it is also economically better to generate electricity close to where it is needed.

If a solar array is used for private residence, it should be obvious that there will be added costs to get the electricity from the roof or yard to the residence’s circuit box.

Profits

Let’s be honest with each other.  Funds for developing solar energy sources and distribution grids will cost tons of money. This money ultimately comes from investors who are not inclined towards
philanthropy.  In short, they won’t invest the big bucks without knowing they’ll have a reasonable chance to make a fair profit.  It’s really not much more complicated than that.  However, since
electric utilities are local monopolies, they are carefully regulated (in theory) so that their investors are limited to a fair profit and are not shielded from all of the risks of a free market economy.

Weather Patterns and Latitude

The baseline output of a solar array should be characterized as how may watts are created at local noon in a cloudless desert on the equator.  Then one could de-Rate the arrays as follows.

It would be reasonable to expect that adequate historical weather data exists to be able to provide the average hours of sunlight is received by any location in the US at any time of the year compared to a cloud free desert on the equator.  That data could be reduced to a weather de-rating factor (“W”) that can be applied to solar arrays anywhere in the US.

The latitude of a solar array matters since it determines the length of the path of solar energy through the earth’s atmosphere over the course of a year compared to an array at the equator (‘L”).  This figure could also be used to de-rate a solar array’s output.

The de-rating factor (“D”) would be:  D= W X L.

Bottom Line

My premise is that the cost of solar energy in dollars per watt is the sum of all of the costs listed in this blog (and my previous blog) divided by D.  The implication is that solar energy costs must always be calculated in the context of the solar cell’s geographical location.  Any other figure of merit would be wildly misleading.

The most commonly used figure of merit of a photovoltaic cell (solar cell) is its cost per watt of electricity produced.  This sounds straight forward because it implies that this figure can be used to calculate how competitive an array of solar cells having given capacity (measured in kilowatts or megawatts) is with a source of electricity from a conventional power generating source of identical capacity.  Current wisdom is that parity, or near-parity, of these two figures is required to meet the long term objective of financially justifying the conversion a large portion of our domestic electric generation to solar cell arrays.  The most commonly used figure for parity of solar cells is under one US dollar per watt.

What exactly does US$1/watt mean?  To begin with, there’s not a generally accepted definition that allows a meaningful calculation of the real-life use of that solar cell.  It’s not like when one says:  “In September, 2011, pig iron cost US$519 per tonne FOB Brazil.”  That figure rolls up all the costs associated with getting pig iron ready to be shipped from a Brazilian foundry plus profits. Variable cost adders will include freight, duty and insurance involved in getting the iron to your mill, wherever it might be.

Back to solar cells.  To begin with, it is necessary to dispense with the fiction that it is economically meaningful to use  dollars per watt to depict the cost per solar cell.  The only meaningful expression of the real cost is the cost of an installed array of cells in a commercially realistic application. Therefore, what are the cost elements of a solar array in a “commercially realistic application”?  Primarily these:

1. The physics of the cell’s method for converting light to energy
2. The material cost of the cell substrate
3. The net surface of each cell dedicated to collecting light
4. The manufacturing cost of the cell
5. The cost of packaging and interconnection of the cells into an array of multiple cells.
6. The cost of the mechanical structure holding the array.
7. The cost of installation of the array, including hookup.
8. The profits taken by each participant in the valued-added chain that ends with an installed array.
9. The specific annual weather pattern of the locale in which the array is installed; namely, the average number of sunny days per year.
10. The latitude of the array.

I just stopped and looked at the length of the above list and decided that there’s no way I should cover all of those factors in one blog.  Maybe I’ll tackle the first four factors in this blog.

Physics of Light Conversion Process

All solar cells, regardless of their composition and physical configuration, create free electrons (electricity) when photons (sunlight) knock electrons loose from the atoms of the surface of the cell.  How many electrons set loose per incident photon is a preliminary indication of the efficiency of the cell.  If one gets one electron per photon, then the efficiency is 100%.  Even in a theoretical best case calculation, solar cells will always be much less efficient than that.  Next, the freed electrons need to migrate to an electrical connection to be collected as an electrical current.  This current is
reduced by the internal resistance of the cell and the connections.   The best commercial cells achieve about 20% efficiency.

Incidentally, the chlorophyll found in plants and algae is approximately 100% efficient at converting sunlight.  However, chlorophyll has to convert this electrical energy into chemical energy and spend part of this energy to replace chlorophyll molecules.  Each chlorophyll molecule can withstand only a few photon hits before it’s destroyed.  Add up all of the energy overhead in keeping
a tree leaf going and one ends ups with a net of about 10% efficiency.

Material Costs

Solar cells were formerly made exclusively from monocrystalline  (single crystal) silicon.  This material is very expensive and its form factor is circular.  This results in an electrically efficient but inefficient cell array packing density.  Shifting to polycrystalline silicon reduces material costs but didn’t necessarily improve the form factor.

A further shift to amorphous silicon films (or films of a few other exotic semiconductor materials) on glass or flexible polyimide films has greatly reduced to the material cost and allowed the form factor to be improved to a ribbon or a sheet – allowing rectangular cells.  Use of each of these new technologies involves making decisions regarding very difficult cost/performance trade-offs
because moving away from single crystal silicon involves loss of efficiency.

Net Surface Area

However all solar cells are, by necessity, made into many smaller elements so that conductive runners can collect the electrons being generated without undue loss to resistance. These conductive runners take up real estate and set an upper limit on the surface area of the cell available for collecting photons.   Again, a lot of research is devoted to reducing this overhead cost of wasted cell surface real estate.

Manufacturing Costs

Monocrystalline silicon wafers are batch processed in the same way and in the same type of facilities as integrated circuits.  Batch processing is expensive because of labor, equipment and facilities are inherently expensive and inefficient when compared to continuous processing.  Polycrystalline and amorphous silicon films or other more exotic semiconductor films can be deposited on glass or flexible film using chemical vapor deposition, sputtering and even printing  in a continuous process, thereby dramatically reducing manufacturing costs.

As promised, I’ll try to complete the discussion of the above list in the next blog.  I’m sure all two of my readers will be waiting breathlessly.

The recent announcement of bankruptcy of Solyndra LLC, a California solar panel manufacturing startup, would ordinarily be received as an example of the high risk of becoming a player in a rapidly changing high technology industry that is still in its infancy. The difference in this case is that Solyndra was a high profile recipient of a $536 million loan guarantee from the US Department of Energy (DOE) in 2009, as part of the Obama administration’s stimulus program for alternative energy technologies. Unfortunately, Solyndra has drawn all down almost all of its line of credit and finding a buyer of Solyndra’s assets at anywhere near their book value seems unlikely. Prior to the inception of the stimulus program, Solyndra’s demise had been preceded by the collapse of Evergreen Solar. Still in the running are companies such as GE’s PrimeStar Solar and two other companies mentioned below.

Ominously, the loan-guarantee stimulus program has also been extended to other US-based startups such as Abound Solar Inc. ($400 million), SoloPower Inc.($197 million) and 1366 Technologies Inc. ($150 million). The obvious question is whether Solyndra’s case is just par for the course in high tech industry or is it the harbinger of a massive collapse of all of these taxpayer-guaranteed enterprises?

Two heavyweights in this industry, US-based First Solar Inc. and Chinese-based Suntech Power Holdings Company, are the dominant world players, even though the world price of solar cells has dropped by 25% in 2011. They are both still profitable, but the margins are very slim. This price drop is largely due to industry overcapacity resulting from Italy’s recent cutbacks in their solar subsidy program (which in turn, is due to austerity measures demanded by the EU). Until this year, Italy had been the second largest solar cell market after China.

What’s going on here? The simple answer favored by the press is that competition in the photovoltaic (PV) market is being driven by rapidly falling prices. And falling prices are the result of (1) improved PV manufacturing technology and (2) economies of scale. Like all simple answers to complex questions, these two factors are important, but by no means sufficient to explain real underlying factors. This foggy situation is a good example of Brockman’s Theory of Irreducible Complexity (see my blog of December 18, 2009). This current blog and subsequent blogs will try to explore some of the more important, but frustratingly arcane, factors in this conundrum.

Preliminarily, I plan to approach the subject with separate blogs concerning:

1. Market Development Drivers for PVs

2. Cost Factors of PVs

3. How PVs Fit in the Big Picture