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MIGRATING
TO NEW ENERGY PARADIGMS Thank you for your recent email wherein you informed me of your having reviewed my Moving to New Energy Paradigms series at http://www.newenergyandfuel.com/ You made the following comment in your review article of August 22nd 2007: “I’m not sure why, but the implication is that Brian is withholding the three new technologies as a means to market his novel. Or I might be wrong. There is little doubt that as soon as the novel goes to print that these technologies will be out in the wild for all to see. As Brian is often pointing out, the need to get on with it as time is a significant factor in any future prediction.” This is deserving of a full reply – on two levels: On the first level, there is a degree of truth in your observation. Facilitated by the Internet, The Publishing Industry in today’s world is drowning in opportunity and it is virtually impossible for an author of a novel to find a Literary Agent and/or get a first novel published. Having been writing for public consumption for something over 20 years, I took an Executive Decision that Beyond Neanderthal was one novel that was going to see the light of day no matter what. Its energy message is too important not be presented to the public – as opposed to scientists and engineers who have been overlooking and/or impeding the various technologies for many years; for reasons which I will explain below. The novel’s humanity related messages are also critically important in that the storyline allows for investigation of possible (likely?) causes of the so-called Clash of Civilizations, and what we might do about that. My research into these areas led me to some startling discoveries which, if revealed in context, may lead to a permanent resolution of all the bickering and chest thumping. I therefore decided to create advance demand for the novel and, thankfully so far, the demand has been sufficient to interest a publisher to enter into a Joint Venture with me. The book will be jointly published. It is also important to understand that writing a novel which carries a message is an exceptionally difficult challenge. Editing of the already completed manuscript needs to give rise to a fine balance between a “compellingly entertaining story line” and “eye glazingly boring, soap-box oratory”. That is why it will take some months to complete the editing process. I am targeting to publish in March/April 2008. The second level is far more complex, and it is to address the issues at this level that is the primary objective of this detailed response. Hopefully, you will publish it on your website and it will reassure readers that there is a compelling logic for my approach. Hopefully, it will also give rise to yet more (a flood of?) registrations of interest. In my view, time is certainly of the essence here. Because the USA and Australia failed to ratify the Kyoto protocols, the natural process of energy evolution was impeded, and the “march to market” of new energy paradigms was delayed by upwards of a decade. In hindsight, the issue was not really CO2. Reducing CO2 emissions would have been the “excuse” (the “driver” if you will) to force the evolution of new energy technologies which should have already, by now, been penetrating the world markets and be competing for market share. That wastage of a decade of time has become life-threatening to all of humanity because the evidence suggests that our current Global Warming problem may really be the tail end of an 11,500 year warming cycle; and that our planet will soon (from 2012 onwards) begin to experience Global Cooling. The effects of this cooling will possibly escalate until we hit Ice Age conditions some time well before the year 2050. The “strategy” which I devised was predicated on an emerging Ice Age in the certain knowledge that even if I turn out to be dead wrong, no harm will be done. However, if the Global Warming camp turns out to be dead wrong (and it turns out that I am right) their proposed solutions to Peak Oil and CO2 emissions (top drawer of which is Nuclear Fission generated electricity distributed via overhead cable) will likely lead to decimation of the human population. This is the likely outcome given that 88% - 90% of the world’s population lives in the Northern Hemisphere, and given that the overhead cable networks will almost certainly become dysfunctional across the Northern Hemisphere under Ice Age conditions. Essentially, we need to plan for the worst and hope for the best. “So”, you may well ask “If time is of the essence, why is Bloom being so cute about it? Just tell us about the new energy technologies and let’s get on with it.” If only it were that easy! Twenty years ago I joined Citibank as a Venture Capitalist because I understood then that we were heading for Peak Oil. In my mind, I thought I would be joining an organization which would be well placed to fund the technologies that would emerge to replace oil. To my surprise, they never emerged. That was how I eventually came to understand the financial power of the oil and coal lobbies and the true significance of our failure to ratify the Kyoto Protocols. However, I also learned some hard nosed lessons about Return on Investment (ROI). No new energy technology will be financed unless it can generate above benchmark ROI to the investors within (say) 5-7 years – preferable five. What happens as a result of this not negotiable condition-precedent demand is that (energy) technologies evolve slowly, and step by step. They go first from conception to R&D – and this might take many years with zero ROI. It requires superhuman persistence – a special breed of passionately dedicated human – to keep focussed under these circumstances. The technologies then go from R&D to commercialisation. Unfortunately, meeting benchmark ROI’s under this commercialisation scenario is exceptionally rare. Very few newly emerging technologies deliver on expectations at the commercialisation phase because it requires rare and powerful entrepreneurial skills, and the “inventors” (those who have been superhumanly dedicated to their cause) typically have technical skills but are devoid of business skills. In the process, maybe 97% of all new ideas fall by the wayside as a result with (say) 3% surviving to become available for sensible investment in the expansion phase. Readers need to understand that maybe 15 – 20 years could have passed before the lucky 3% reach the expansion phase, and probably under the guidance of different management. At this point, a different problem manifests. Deals like these are highly sought after by investors who typically couldn’t care less about the technology. All they can see is the money. What happens as a result is that deals are structured which are calculated to “maximise” ROI within (say) 3-5 years, and the businesses are structured accordingly. As a wild generalisation, one can imagine a 50cc engine being revved up to full revs to get maximum speed. When that maximum speed is reached, the investors bail out with fat profits but, by now, damage has been done to the motor which might take some years to repair. What should have happened in the expansion phase was that the vehicle (business) should have been fitted with a 4,000cc V8 motor; or maybe even a jet engine. That would have allowed the business to be ramped up once and for all. Unfortunately, the problem with this approach is that it screws the ROI because it increases significantly the amount of money that needs to be invested. So, paradoxically, the act of a business entering an expansion phase that is funded by professional “Venture Capital” is that it prolongs the time required to fully penetrate the market. Again as a wild generalisation, it might delay the arrival of the “consolidation” phase of the business by between 5-10 years. The reason Venture Capitalists make so much money in this phase is that they are selling a silver tongued dream into an IPO. The public typically clamours to participate and the price explodes out of all proportion to underlying value. That’s why the Nasdaq suffered so badly when the bubble eventually popped. Under normal circumstances, this delay wouldn’t really matter. Life would just carry on. Under these particular circumstances, we don’t have the time to waste. So, the first part of the answer as to why I am not divulging the details of the technologies is that, understanding the above, I understand that if “professional” ROI driven investors get their hands on these technologies they will likely force corporate structures and financial structures which are sub-optimal and that, as a result, we will almost certainly miss our deadlines. (Remember the story of the tortoise and the hare? We have one crack at this, and we had better darned well get it right. We don’t have the luxury of time to un-stuff anything). This brings me to the second issue – which is also typically associated with professional investing. This has to do with “management quality”. Most professional investors understand this in a qualitative way, but I once took the trouble to try to quantify its importance. Subjectively, I would argue that management of early stage ventures may represent upwards of 70% of the investment success equation, and the technology itself may only represent a mere (say) 15% of the equation. The balance of 15% is split between ownership/management structuring, entry price paid and exit price received. It needs to be remembered that “champions” of technologies (typically scientists, inventors, visionaries) are the very special breed of human being which I described above. These people are also typically possessed of a wonderfully powerful sense of self confidence and self worth. Unfortunately, as far as business is concerned, they typically don’t know enough to know how much they don’t know. So, in the misguided (ego driven) belief that they have the “power” to make squillions of dollars if only they could raise the necessary capital, they stubbornly hang on to “control” of the babies which they have been nurturing. Therefore, in terms of capital-raising, they typically (paradoxically) think small. For example: “My spreadsheets show that if I can sell “x” numbers of widgets in the next three years, this whole process of commercialisation will only require $5 million capital. Under these circumstances I would be insane to give away control”. Unfortunately, they typically wildly overestimate the rate of market uptake, and wildly underestimate the amount of capital required. By way of example, one promoter of one of the technologies which caught my eye is in fact looking for around $5 million whilst my calculations show that to deeply penetrate the markets in the shortest possible time the technology might require upwards of $250 million funding – fifty times as much! Of course, I am being hugely conservative and the true answer will lie somewhere between the two extremes. The irony is that the combined value of the world markets for the combination of technologies I have been examining are so stupendously large (in my view around $3 trillion to $5 trillion p.a.) that $250 million is a drop in the ocean and the ROI on $250 million will likely be phenomenal. Unfortunately, the flip side is that this order of magnitude of capital raising will probably result in the champion having to land up giving away “control”, and so if I were to talk about $250 million, the promoters would choose not to hear this. This single issue is the largest contributory reason why many potentially wonderful technologies just fade away into oblivion. The strategy I devised in Article #6 would leave the promoters with ownership control, but (in my view) this may not be in society’s long term interests. The next problem is probably the most important of all. It may be described as the “Not Invented Here” syndrome. It needs to be borne in mind that whilst $5 million might be raised from a few (manageable) high net worth visionaries or so-called Angels, $250 million is a whole different ballgame. This will quite appropriately require professional sign-off by independent technical experts. As it happens, when I first came across one of the technologies – which I saw operating with my own eyes – I decided to pass it across the desk of one of these experts. Just for the hell of it. I was virtually certain of what the answer would be in principle, but I thought I would give it a whorl. Through a mutual friend I bounced it off a guy who had been chairman of some or other association of Physicists. The physicist’s answer to my friend (paraphrased) “Tell your friend to take whatever money he might have wasted on this technology and give it to charity. This technology has no hope in hell of delivering on its promise”. Now, please accept that this is not my ego talking. I’m merely passing on a couple of facts. I am not some sort of wide eyed babe-in-arms schmuck who is prepared to buy the Brooklyn Bridge at a deep discount. In the 1980s, I was a Vice President in the Venture Capital Division of the largest financial institution on the planet – when the rules of Venture Capital investing were being written. One might even say that I participated in writing the book of rules for this kind of investment. That doesn’t necessarily make me right, but I would have thought that it might have carried some weight. Whilst the physicist in question may or may not be right, he wasn’t even prepared to investigate because his filtration mechanism had filtered the technology out a priori. As far as he was concerned, it didn’t even bear investigation. What chance do you think that this technology – which I am absolutely convinced justifies serious investigation and which I think has (say) an 80% probability of delivering on its promise based on “Common Sense” – will ever get unqualified sign-off from an Independent Expert? This knee-jerk reaction on the part of the physicist needs to be examined further because it goes to the heart of other problems facing humanity. Hopefully, the reader will indulge me with some leeway here. Readers will doubtless be aware of the story of Copernicus – the guy who argued that the Earth revolved around the Sun when everyone knew for a fact that the flat Earth was the centre of our Universe. In researching this particular issue for Beyond Neanderthal, I went back 5,000 years in history and this is some of what I found:
The above information provides irrefutable proof to anyone but the insanely dogmatic that humanity has known for thousands of years that the Earth revolves around our sun, and that our sun is only a speck of lint on the sleeve of the Universe. This begs the questions: “How did humanity come to forget these facts by the time Copernicus came along?” and “Why did Copernicus have so much trouble getting his supposedly radical view accepted?” We can only speculate as to possible answers to the first question – which I do in some depth in the novel – but it seems virtually certain that Charles Darwin missed something critically important. As Shakespeare once put it: “There are more things in heaven and earth, Horatio, Than are dreamt of in your philosophy.” The answer to the second question goes to the heart of the reason why I finally decided to write a novel as opposed to a non-fiction treatise on the technologies – and also why I decided to withhold information on the technologies. At the heart of all human problems, in my view, lie two factors: Ego (men and women) and Testosterone (men). The Church, which wielded extraordinary power in those days, had strong views on the structure of the Universe. Their grab for power, like that of our leaders of today, was most likely driven by ego and/or testosterone. It certainly was not driven by the humility which was preached by Jesus Christ. (See Matthew 23:11 & 12) For example (and I hesitate to get personal here, but in this case it will serve to illustrate the point): What do we think is really driving Hillary Rodham Clinton in her bid for the Presidency? My five cents says it’s her ego. So, with the help of the husband who was so famously unfaithful to her, she has positioned herself to raise so much money that she is virtually assured of winning. She will literally be buying the Presidency. Does the world really want/need a President of the most powerful nation on the planet whose actions might be blinded by her own ego in the way Margaret Thatcher’s actions were when she lit the Global Warming CO2 linkage fuse? Unfortunately, our entire system is structured to allow for ego masturbation. It’s highly likely that every aspirant US President in today’s world is ultimately driven by ego. By definition, travelling the campaign trail is a chest beating exercise. “Vote for me and here’s why I’m the best leader to come along since Moses”. When ego is the motivating force for decisions, you can bet your last dollar that sub-optimal decisions will be taken! Bill Clinton was not only unfaithful, he lied about it on TV to the Nation afterwards. If you think that democracy as it is currently structured will protect us from the egos of our leaders, then I’ve got this great bridge in Brooklyn I can sell you cheap. So, turning now to the Not Invented Here syndrome and the new technologies and ego: What do we think are the most likely questions that an egocentric “Independent Expert” is going to need to address about any new technology? Here are the most important questions that the Investors are going to expect him/her to answer (quite apart from the technical questions): “Hey Mr Independent Expert, the energy market is worth upwards of $2 trillion a year. Please explain to us, if this technology is so great: “why is the world not beating a path to its door? (Are we likely to be the Patsies here coz we would hate to look stupid?)” “why is it not yet on the market? (Are we likely to be Patsies here ……?)” There will be HUGE scepticism relating to any new technology that is radically different, and the Independent Expert is going to have to put his reputation on the line in the face of this huge scepticism. It is going to require an exceptionally brave man/woman who will be prepared to stick his/her neck out under such circumstances. Far easier will be to find reasons why the technology will fail. In that way, the Independent Expert can simultaneously justify his/her exorbitant fee and preserve his/her reputation to be called in again to validate “safer” technologies where there is no chance of being ridiculed by his/her peers. Ego (in this case the fear of having the ego damaged) will almost certainly prevent an Independent Expert from validating any new technology that requires a $250 million capital investment. $5 million, maybe. $250 million? Hell no! That’s a lot of money to lose if the expert turns out to be wrong! “I’m not going stick my neck out that far! I must be crazy!” So what’s the best way around this? After some pondering, the conclusion I came to was to present the information directly to the public – who typically have significantly less intense issues relating to ego. By definition, the average person has average ego problems and, on average, women have fewer ego hang-ups than men. That’s one reason why Beyond Neanderthal tells a “romantic” story. Hopefully, women will read and enjoy it, and then get their menfolk to read it because it also has some macho stuff in it. But it is not only a romantic story. It is also a story of adventure and scientific discovery – and that typically appeals to men. Its got something for everyone. If a sufficient number of copies of Beyond Neanderthal can be sold, so that a large number of average people can be presented with the how, why and wherefore of these technologies, then the egos of the Independent Experts can be turned against them in the way a judo expert uses his opponent’s weight against the opponent. The experts will no longer be able to hide behind techno-babble and “authority of position” to reject the technologies. They will be accountable to the public at large. They will need to prove beyond a shadow of doubt that these technologies will not work and why. That’s a lot harder to do than just be dismissive, dig up a dozen or so supporting references and rely on authority of position to get away with such arrogance. It’s a question of “negotiation tactics”. To get these technologies accepted, we need to be on the front foot, and the Independent Experts need to be on the back foot. Then the technologies will have a chance of success. Yes, it might take a few months extra, but (provided there is sufficient ground-swell of public pressure) the broad-based interest will likely facilitate slicing through all the red tape and facilitate a relatively fast track commercialisation process. We might reduce the typical 15-25 years to 10-15 years. Thereby we might claw back the 10 years that were lost because of the egos of our politicians who saw fit to block the Kyoto Protocols because they thought they were protecting the US and Australian economies and thereby ensuring voter support at the next election. Remember, the mantra of the politicians is “full employment” . Do we still remember: “It’s the economy stupid”? BC was being smarter than the average bear. He understood the value of a sound bite. So, in closing, the above hopefully answers your implied question as to why I am being so cute about not divulging details of the technologies. The timing and method of divulging them are critically important. We are not playing games here. What can the average concerned citizen do? Two things, actually:
By way of a (perhaps amusing if not sad) anecdote: As an experiment, I thought I would test my views on the Not Invented Here syndrome. I tried (twice) to contact Senator Bingaman whilst he was drafting his Energy Bill. I also faxed Senators Clinton and Obama. To all three I made (conditional) offers to share the fruits of my twenty odd years of research into emerging energy technologies. In the case of Senator Bingaman, I was even sufficiently rude on the second occasion to remind him of Thomas Paine’s vision that Politicians should be the servants and not the masters of the people. Result? Not one of the three gave me even the courtesy of a canned computerised response. For whatever reason, even though I went through the formal channels, I was totally ignored. Perhaps the formal channels are merely a formality? Perhaps it was because I’m an Australian Citizen and my vote means nothing in the USA? Would I talk to these so-called leaders now? Not a hope in hell! To do so would defy common sense. By and large, the politicians of today cannot offer solutions when they themselves represent a large part of the problem. If I were to open dialogue with any one of these three people, assessment of the technologies would likely get so bogged down in a process of “box ticking and ass covering” that they would likely never see the light of day. At the end of the day, the rate of take-up of these new technologies will be a function of public pressure in a so-called democratic world; and may God help us to be smart enough to see that this is one issue that cannot just be allowed to slide past.
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