Thinking about the alternative energy movement, the first images that come to mind might be a beaten up pair of Birkenstocks, hemp clothing, and a Toyota Prius. While we make fun of the “granola” folks, they embody the spirit that enabled this movement to begin in the first place; Independence. Independence from oil, independence from foreign markets, but what does it all mean?
Markets Will Become Efficient on Their Own
As a businessman, I know that in the end markets will become efficient on their own. The old-school business model supports large, established companies. They can squeeze profits and control the supply chain. The new business model disregards anything that worked just fine, and maximizes efficiencies through grassroots, unconventional wisdom. Netflix is a good example of this. They challenged the traditional video-rental model that based itself on a physical location. Their ability and desire to remain nimble and ever-changing has allowed them to challenge Blockbuster on a turf once thought monopolized. Perhaps this sounds like my Entrepreneurial argument posted about earlier.
Doing things unconventionally brings innovation to the forefront and allows companies to either learn the hard way that their strategy is incorrect, or to be rewarded immensely for finally “getting” what the established industry has been unable to figure out.
Small Town in Virginia Looks Towards Self-Sustainability
A town 50 miles west of Washington, D.C. with a population of 8,500 is trying to do just that, or at least their mayor is. Mayor George Fitch of Warrenton, Virginia, has proposed a plan to build a biomass power plant/ethanol production facility at the local land fill. A feasibility study conducted by the Pacific National Laboratories concluded that the plant can provide 5 MW of electricity and 10 million gallons of ethanol.
If this project is successful, it could become the paragon for the rest of the country. City sponsored energy independence would completely remove the centralization argument favored by large, fat industries. The distribution costs and problems the ethanol industry faces from having the majority of its producers located in a remote part of the country are one piece to the ethanol/alternative fuel adoption problem. Decentralizing the energy model and putting it in the hands of municipalities makes more sense from a distribution standpoint and efficiency standpoint.
Municipalities Controlling Alternative Energy Production Benefits End-Consumers
Now I know some of you are up in arms that I could even conceive that a municipality is more efficient than a capitalistic business, but the key word here is diversity. No, it is not about race, it is about feedstock! The only reason why ethanol production is centered around the corn belt is because of its proximity to corn. You will not see a corn-based ethanol plant in Boston running off of imported corn. Supporting the local economies in ethanol production means using local feedstocks. In Warrenton, VA for example, they plan to use the local landfill-gas, and augment the process with local cellulosic feedstocks such as switchgrass, a native plant of Virginia.
Bruce Lee, one of my favorite martial artists, spoke about the spirit of entrepreneurship long before we even knew what the term meant,
I think this quote reflects a position that has yet to be taken in the alternative energy debate. I just realized that there isn’t one solution, there are many, and each one has its own special place and over time will become very good for its end-users.
While corn-based ethanol is disrupting the commodity markets, and consequently downstream markets that require corn as an input, it might be the best solution for the local market. Cellulosic ethanol seems like a better fit for areas with feedstock such as switchgrass, or easy access to paper mill waste. Brazil takes this to the extreme with their wide adoption of sugarcane-based ethanol.
Alternative Energy Specialists Will Challenge the “Blanket” Approach Envisioned by Large Corporations
Becoming a specialist will enable municipalities to bring energy independence to your doorstep. As investors, we should stop focusing on a blanket solution, and focus on end-user demographics and geography. If we can empower local municipalities to take on the same approach as Warrenton in a profitable manner, the country will be better off. Oh, and of course we would expect they outsource the management and construction of these facilities to the experts!
March 27, 2007 at 4:26 pm |
It will be interesting to see what happens with Warrenton, which is actually pretty close to where I live.
You make a good point that there is very likely not one solution for energy troubles in the US. Particularly with ethanol, there simply isn’t enough land area for it to offset a large amount of the US energy needs. However, you are right that it could benefit a locality.
In the long run, I think a “unified” solution could emerge. Perhaps this will be hydrogen, or a more efficient version of electric cars with drop-in batteries that you pick up at a gas station to refuel for long trips, or that you can just plug in if you’re staying within a small radius of your home.
March 27, 2007 at 7:19 pm |
I believe in a unified solution in terms of a fuel, but the feedstock source is another issue. I like the concept of being flexible and catering to the local taste. The idea is somewhat hippy/practical.
Hydrogen: Great for the environment from an emissions standpoint, but I have read it takes ALOT of energy to produce it. Also, you are talking about a compressed gas. The type of distribution this requires and the stations to sell it are not currently available nationwide. I am in favor of ethanol/biodiesel due to the ease of implementation in the current value chain.
Electric: I love this technology. I don’t think batteries will become as efficient as we need them to be to provide the performance/mileage we currently receive from gas cars. I think a hybrid diesel/electric will be the next “big” thing as more domestic and foreign auto companies introduce diesel offerings for passenger cars in 2008.
Also, I believe GM just announced a prototype plug in electric car. While this is good, we have to consider the energy it pulls from the grid (environmental perspective).
Great discourse.
Cheers,
Francesco DeParis
March 27, 2007 at 8:37 pm |
Ah, OK, gotcha on the feedstock point.
In reference to electric, I love the technology as well. One of the great things about electric cars is they’re infinitely more efficient per mile… and the technology is much more simplistic and therefore in theory, easier to repair. For instance, no transmission is required on an electric car.
GM did announce the Chevrolet Volt a few months back, although an article today (http://www.denverpost.com/nuggets/ci_5510138) revealed that they may not be as serious about the Volt as they initially seemed.
In regard to pulling the energy from the grid:
(1) The energy being pulled from the grid to power these cars will mostly be pulled during the night “non-peak” hours, where much of the power plants’ energy will be going to waste to some degree.
(2) Even though “the power must come from somewhere,” moving our energy problem from two sources (mobile plus stationary power) into just one (stationary power) can help us simplify the problem and benefit from economies of scale.
OK I need to sleep now.
Goodnight.
George
March 28, 2007 at 10:14 am |
It’s a “Cool” wind blowing. It’s gonna be neat.
March 28, 2007 at 10:24 am |
Any information on using sweet potatoes in either Ms, or the Carolinas? This should be a really hot prospect.
Is anyone working on this? I’m looking for a spot to get involved.
March 28, 2007 at 10:31 am |
Using Google Blog Search, “Ethanol”, today, I commented on an article that suggested we should look towards sugar rich starches as feedstock for ethanol production. I think its a relatively new concept.
May 3, 2007 at 3:26 pm |
I never thought that Netflix is one of energy efficiency! That means Google could be categorized energy efficiency in data searching, rather than go to the library.
May 3, 2007 at 3:31 pm |
Well I dont know if Netflix uses any type of energy efficient processes in their business, their model does show what vision and innovation can do to established industries. The way the ethanol industry is currently setup, if the corn belt goes down, so does the rest of the country. Using a hub and spoke pattern of producers and distributors (Netflix and Southwest Airlines for example), inefficiencies are reduced by maximizing local processes for local markets.
May 4, 2007 at 6:06 am |
Apparently my idea is not as crazy as it sounds. I just found a post about an Alternative Energy Conference focused around regionalization.
The Eilat Energy Conference will be held on June 5-7, 2007.
May 4, 2007 at 6:35 am |
[...] posted about the promise decentralization/regionalization has for alternative energy a couple of months ago. This morning I ran into a post/notice of an alternative energy conference [...]