Thursday, April 29, 2010

Necessity is a *Mother* ... oh... of invention

This is a short video of how one architect has used very limited space (344 sq. ft) to maximum effect (24 purposes built into that single space) in a city (Hong Kong) where space is at a premium.

I'm not saying this is how we should all strive to live or even how we'll end up living despite our ambitions, however, it does get one to thinking about what we'd do differently if we were faced with scarcity of this sort on more of our design problems.

  • Not enough space to have 3000 sq ft. per home.
  • Not enough fuel to drive 30 miles to work and back. To drive 10 miles for groceries. To ship groceries 1000s of miles to a supermarket.
  • Not enough water to "waste" it on grass or even on washing clothes.
  • Not enough chemical or electrical power to level mountains or keep our homes and workspace air conditioned or heated. Or lit for more than a few hours a day artificially.

I'm not a Luddite, but it seems like thinking as if we had these restrictions might actually result in some greener, more sustainable approaches.

Sunday, April 25, 2010

Two Paths of Full Cost Accounting

If market based capitalism is to "succeed" in-so-far as it makes the world a more livable place for ourselves and other species (i.e. it is sustainable), then something like full cost accounting seems to be necessary. Capitalism is powerful at driving the "right" behavior given the right accounting / incentives.

There seem to be two ways of coming to this conclusion:

1) Pure pragmatism
As outlined in this Wired article "Betting on Climate Change" forward looking companies will make plans for dealing with climate change and the results of other externalized costs because, eventually, those things come back to become real costs (outlays). It doesn't matter why climate change occurred, responsible contingency planning requires dealing with it. If that means incurring costs now to avoid much larger costs later, so be it. That's good ROI.

2) Inspiration & appeal to our "better" nature
As put forward by Robert Kennedy at a speech in 1968 about Gross National Product:
"Too much and too long, we seem to have surrendered community excellence and community values in the mere accumulation of material things. Our gross national product ... if we should judge America by that - counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for those who break them. It counts the destruction of our redwoods and the loss of our natural wonder in chaotic sprawl. It counts napalm and the cost of a nuclear warhead, and armored cars for police who fight riots in our streets. It counts Whitman's rifle and Speck's knife, and the television programs which glorify violence in order to sell toys to our children.

"Yet the gross national product does not allow for the health of our children, the quality of their education, or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages; the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage; neither our wisdom nor our learning; neither our compassion nor our devotion to our country; it measures everything, in short, except that which makes life worthwhile. And it tells us everything about America except why we are proud that we are Americans.

It certainly makes me feel a bit prouder to be a member of the society that came up with the later reason for doing the "right" thing than it does to only be able to claim the former.

Thursday, April 22, 2010

What (Other) Kind of Business Could I Build Around Energy Dashboards?

In my last post, I came up with a bad model for an energy dashboard business based on annuities paid by the utilities companies for energy saved. However, there did seem to be a bright spot for selling the dashboards to the utilities to install themselves. Looking at that a little more closely...

According to the US Energy Information Administration, CA electric utilities generated ~11.1M metric tons of CO2 in 2008. The three year average (2006-2008) was ~10.2M metric tons.
Using the same number of customers in CA and 10% savings factor as assumed before, implementing energy dashboards would save ~ 1.1M tons of CO2. Spread across the ~12.9M customers in CA at the current price for carbon (~$19/ton CO2e), that is about $1.68/customer.

If you add that to the ~$35.6/customer savings in direct generation costs, that is ~$37/customer*yr.
So if a utility is willing to accept a 3 year pay back period, then each installation could cost up to ~$111, for a TAM of around $1.4B for serving all of CA.
Not too bad as long as you have an alternative revenue stream planned for after the initial sale (e.g. s/w license fees for maintaining the dashboard customer feedback, data aggregation, reporting, etc).

The utilities' ROI increases the more effective the actual energy savings and the less expensive the installation. So to compete here you'd need to prove that your system will create and maintain better energy reduction outcomes per $ of installed equipment. If you could do it all in s/w leveraging customer's existing h/w or without any installed h/w, that would be the best.

Tuesday, April 20, 2010

What Kind of Business Could I Build Around Energy Dashboards?

In a previous post, I wrote a bit about why so many smart grid cleantech companies were focusing their efforts on utilities instead of consumers: the power of big numbers leverages small efficiencies into large $ amounts.

With that knowledge, what kind of business could I build around selling energy dashboards to the utilities?

A few assumptions, some of which are probably pretty optimistic just to simplify things without really changing the conclusion (I hope):
  • I want to run a business based on annuities (utilities pay me a "subscription") rather than hardware and s/w services (utilities buy my h/w and s/w directly).
  • I manage to get 100% of electric utilities in CA to put my product in 100% of customers' buildings [~12.9M customers]
  • The utilities agree to pay me 50% of the saved costs of generation [~$17.82/customer*yr]
  • A customer dashboard costs my business $35 installed.
  • I take out 15% profit and have 10% overhead costs to run finance, HR, facilities, etc. 
  • 35% of my workforce is engineering or other functions not directly customer facing / supporting.
  • It costs $200k/yr to hire, compensate and retain each employee on average.
 Two key numbers come out of this:
  • $453M - The cost to install the equipment at all the customers' locations. That's serious start up capital or a very slow ramp of the business. Starting isn't going to be easy.
  • 23,000 - The number of customers per non-engineering employee that would have to be supported assuming I could start the company, pay off my debt and get to a steady state. If I'm paid actual savings, that means I need to get all the customers to actively use their dashboards and change behavior. The challenge of getting a diverse population (the state of CA) to sustainably change behavior over time with such a ratio is staggering.
As of that weren't enough, it would make sense for the power utility to shift their baseline over time rather than pay me for the same level of performance forever as it would be cheaper to address the problem themselves. This means that I'd not only have to get people to achieve good energy savings (target 10% on average - per the previous post), I'd have to increase this over time to avoid going out of business or avoid drastically shrinking the business.

I think I can throw this business plan out as a case where annuities are a bad business model.

However, that $453M number does suggest that selling h/w and analysis / customer feedback infrastructure to the utilities might be a better way to go. Maybe I could even write a game to make engagement fun.

Photo credit: Leften on Flickr ... not a picture of CA ...

Thursday, April 15, 2010

A Couple of Examples

A couple of masterful examples of people really digging into the details of energy usage and what that MEANS in the context of things we can understand and visualize.

This, from the O'Reilly Emerging Technology Conference, San Diego, CA, March 4, 2008, by Saul Griffith, is long but great:

This, by Catherine Mohr, is much shorter but very educational:

I like the plan but, uh, spare me the details please.

Green design and green building sound great.
Cleantech sounds great.
Sustainability sounds great.

But those terms hide a considerable amount of detail that, I think, makes the average American squirm. I wrote a bit about this at the end of this blog entry. Seth Godin also posted about this same idea here with the key message:
"This is a great opportunity for marketers and others that want to engage with the public. If you can figure out how to communicate, "it's not your fault," then people will be grateful, and they'll return. It might not be right, it might not be mature and it might not be the behavior society wants to advance, but it works.
Even better, figure out how to teach your customers to enjoy taking responsibility. It's the long term solution that builds a healthy relationship between customer and vendor... you coach them on good choices and they embrace what happens after they make them. "
 If I start talking about water conservation through composting toilets or about peak phosphorus and the implications that has for human waste recycling, like having urine separating toilets in your home or office, I think it's safe to say I'll turn off most people. I certainly wouldn't try to lead my marketing campaign with a picture of any of those things.

If I start talking about the details of sustainable agriculture and the cycle of waste to food, no matter how delicious or natural the results, I think I'll end up with the same problem: Most people will think it's gross and will be turned off.

So how do you reach a broad audience with cleantech aimed at addressing these kinds of sustainability problems?
Maybe it can made it into a game?

Or maybe it takes a few generations of bringing it up in classes and mainstream media for people in general to accept it.
Or maybe it just requires that everyone become European, where this kind of thing doesn't seem to be quite so disturbing to talk about.

 A marketing problem worth thinking about.

Certainly helps clarify why we hear so much about solar, wind and LED lighting anyway...

Monday, April 12, 2010

What if Tech Were a Fad?

This is an actual conversation I had:
- Buddhist scholar: "Tech is a fad."
- Engineer (me): "I think you may be right. But it's a fad that will last for the rest of my lifetime."

So what if I was wrong?
Not to say I believe that statement was wrong, but what might you get by thinking about things as if my Buddhist friend were right?

Wired Magazine posted an article about Lost Tribes of the Amazon using land that modern people consider unfarmable in order to grow crops. Here is an example of knowledge that was indeed lost about leveraging the natural system in which we live:

" “Human engineering, if we do it cleverly, can work together with natural ecosystem engineering,” said McKey.

The mounds appear to have been constructed from layers of surrounding topsoil, which was shoveled out and layered like cakes. That formed the basis of the mounds, which put crops above the flood line...

Friday, April 9, 2010

Japanese Traditional Building, Sustainability and the Industrial Revolution

I stumbled on an essay written about traditional Japanese building practices by Azby Brown. The author points out some striking parallels to the challenges faced by the world today. Following are some excerpts that I found particularly relevant and reflective of the ideas I blogged about earlier on re-learning lessons about sustainability. These people clearly understood and leveraged the system dynamics of the place in which they lived to make the most of the resources they had.

It is an interesting observation, the same one made by William McDonough & Michael Braungart in Cradle to Cradle, that Azby makes towards the end of his essay: that easy access to large amounts of cheap power brought this need to use leverage to an end. With the loss of that need, so too was (nearly) lost the knowledge of the leverage itself.

"During the Edo period, from the early 17th to the mid 19th centuries, Japan faced environmental problems similar to ours: large population, fuel scarcity, limited arable land, deforestation, a damaged watershed. Through well-thought-out policies that reinforced existing cultural values, and through technical and economic innovation, the nation brought itself back from the brink, and did it in beautiful ways.
 One of the most important lessons is that the primary design response to material and energy shortages of the era was to seek multiform solutions, designs that solved many problems at once. ... the same attitude led to the development of rice paddy irrigation systems, which were almost entirely gravity-fed, acted as cascading filters for the water supply, and could function as solar-heated warm-water tanks for processing hemp and other plant-based textile fibers. The system allowed the paddies themselves to function as wetland habitat for many species in addition to growing food.

The design of the ubiquitous dismantleable Japanese jointed wooden building frame facilitated reusing the posts and beams elsewhere, helping to reduce the stress on forests for lumber supplies.

The constantly refined design of earthen cookstoves minimized fuel use and helped keep fuel consumption well within the available supply, further minimizing the stress on forests.

Forest management was recognized early on as essential for preserving the health of waterways that were vital for transportation and as a food source

 Metal, mainly iron, whose production depended upon a high expenditure of energy in the form of large quantities of charcoal, was an extremely valuable commodity.... The near total absence of metal nails in architectural structures, depending instead on mortises, tenons, pegs and wedges, and the fact that nails were carefully salvaged and reused whenever possible, attests as much to the desire to minimize energy consumption in the form of embodied energy as it does anything else.
 Can this be done without consuming fuel (like weaving)? Can it be made from a rapidly renewed material (bamboo for baskets, or reeds for thatch)? Can it take advantage of recycled material (a broken iron pot becomes a blade)? Is it scalable and able to be customized to suit specific regions, households or individuals (like kimono)? What is the desired degree of durability — is it better to make it last for generations (like cabinetry) or remade every year (like straw boots)? Is there a way to use the material at end-of-life (use the straw as fuel, convert worn cotton fabric to pouches)? and large the intricately interconnected sustainable material production system broke down with the advent of the industrial revolution in Japan in the late 19th century. The widespread introduction of fossil fuels, coal primarily, broke the bond between people and the forests that had supported them..."

Wednesday, April 7, 2010

A Model of Sustainable Management : People

There are a few books and authors whose messages have resonated with me lately. I haven't stopped to consider what they have in common with each other or with my own interests until recently.
The books / authors are:
I've put together a picture of the key messages I took from each and how I see them as relating to each other.

Prof Griffith has a very useful model (TOP Management) for thinking about how business problems are solved most effectively by considering them in the context of Technological capabilities, Organizational structures and limitations and People's capabilities and motivations. I have used this as the overlay for my model.

Dan Pink has convincingly described how intrinsic motivation is key to increased productivity in the new work world. Central to fostering intrinsic motivation (Type I work) are mastery seeking behaviors, personally meaningful purpose and autonomy of task, time and team.

Seth Godin takes a slightly different approach to looking at motivation and the new world of work through the concept of the "linchpin." This is a person who, through mastery of subject (his "superpower"), through his ability to define his own roadmap regardless of outside pressures to "just do his job" and through his ability to motivate and lead teams towards those ends, becomes essential to the organization.

Peter Senge provides a framework derived from System Dynamics that emphasizes many of the same mastery and purpose aspects as previously mentioned though through a different lens: Personal Mastery (forever accepting that there is more to know), Mental Models (understanding that you have models in your head and that they may be incomplete or wrong) and Shared Vision (ensuring that everyone is basically working towards the same goals). He also emphasizes Dialog (real trading of ideas rather than just defending your own) and Team Learning (practicing for and reflecting on scenarios, not just reacting to them) as important organizational practices.
These disciplines sit on top of the discipline of systems thinking (the 5th discipline). Which Senge elaborates on to define as the analysis of how the parts relate to each other and thereby create the whole; often with unintended, but predictable, side-effects. This provides a nice link back to Prof Griffith's TOP management model which is, essentially, a systems model.

Sunday, April 4, 2010

Sustainable business and the IPO

Once public, a corporation is subject to share holder primacy. This can lead the corporation to do things which may not be in the company's, employees' or planet's best interests.

So if you wanted to be free of share holder primacy concerns and take the company private again what might that mean?

Barring the cases where the company fails and share prices drop resulting in a different set of stakeholders coming in and taking over (private equity takeover), let's assume this means buying back all of your shares on the open market.

Assuming that you used your IPO cash to grow the company (i.e. the cash is gone), you would have to do this through cash on hand and net cash flow. Is this reasonable to do?

An immediate problem that looms is that the higher the earnings, the higher the stock price. So the way you get more cash, makes the company more expensive. Let's pretend that you could freeze a company's stock price and income so that cash flow and stock price stay more or less fixed. Could you buy your company back even then?

Taking Google, a wildly successful company with huge net cash flow, as an example:
As of April 2010, they have a market cap of ~$181B with ~$24.5B in cash and net cash of ~$2.2B/yr (averaged over the last three years).
This means it would take >70 years to buy out their capitalization even if it could be frozen.
That doesn't sound very feasible.

So, while this is vastly oversimplified, it does suggest that going private for a successful company is no small matter. If sustainability is a key concern, going public seems to be potentially difficult act to "recover" from due to the high cost of shaking loose the shareholder primacy yoke.

I need to read Rework and see what 37Signals has to say about staying private.

Photo credit: wallyg (flickr)

Friday, April 2, 2010

How cigarette smoking could help save the planet... sort of...

Ok... not smoking per-se, but the 12V plug they built into every car to run the cigarette lighter.

Many of the electronic items in the home do not require 110V AC. If it has a big plug adapter or a power brick attached, the item is converting the 110V AC down to some smaller (something around 5 - 12V) DC current. Those conversions are not perfect and energy is lost.

What if you recovered those losses by having a single efficient conversion instead of many less efficient ones (or required that all converters be more efficient)?

Assuming that computer power supplies are representative of overall power supply conversion efficiencies, the average AC/DC converter is about 75% efficient. On the upper end, you can get ~90% efficient converters. So say a 15% difference in conversion efficiency between several average converters and one efficient one.

According to the DOE End Use Consumption of Electricity Survey (2001 - latest data), about 15% of a house hold's electricity usage goes to things that could, plausibly, run on 12V DC power. That was about 173.5 Million MWh of electricity. Improve that by 15% and you save 26 Million MWh of power.
The average output of a coal fired power plant is about 233 MW. So, for simplicity, if you assume 100% duty cycle, that 15% efficiency boost becomes the equivalent of 12.7 coal fired power plants.
While that is maybe not world saving (<1% of the 1445 coal fired plants in operation in 2008), that is ~5.5x the total Solar (thermal + PV) generating capacity in 2008... a bigger impact than solar has gotten us so far.

Where DC wiring, rather than just more efficient converters, might be more important is in Solar PV on homes. In that case, the DC output of the panel is converted to AC before being used in the home. That step has about a 90% efficiency.
However, many appliances then convert the AC right back to DC with all the losses noted above. Even with 90% efficient converters, that's a 19% efficiency loss over using the electricity directly from the panels.
Viewed another way, the AC wiring in your house is raising the price of Solar PV by almost 20%!

photo credit: David Baker (Flickr)