Monday, November 20, 2006

Strange deal under the Sun.

I saw this $330 Million piece of merger news last week and I'm puzzled. What is the point of SunPower and Powerlight merging? I already posted the question over at Cleantech blog.

SunPowerLight will combine two steps in the solar value chain: making modules and installing them. But these are distinct activities and it is hard to see major cost savings by attempts to integrate them. Meanwhile I see clear risks to both business as existing customers/suppliers try to realign business that will currently benefit a "new" competitor.

Don't get me wrong, there are major cost savings to be had both in making modules cheaper (longtime readers will know that I am developing IP in this area) and bringing down costs on the installer end. Unfortunately this appears to be a defensive merger in an otherwise expanding marketplace. The best analysis on the topic seems to conclude that SunPower thinks owning Powerlight will ensure it a distribution channel and help it maintain market share as the silicon shortage draws to a close sometime in the next 12 months.

While an end to the shortage would be good news on the cost side for SunPower, all its competitors will benefit as well, leading to fierce price competition. If demand were not to increase as costs drop, a glut could develop. My personal opinion is that demand will explode as costs fall. Many people quote the kilowatt hour (kwh) cost of solar in the $0.25-$0.30 range today. By several methods of analysis the price of solar is likely to fall by 20-40% over the next 5 years. Many sources point to a 5-6%/yr historical decline in the cost of solar which would suggest a 25-30% decline. Combine historical trends with a potentially large drop in the cost of silicon (by 30% or more as the recent silicon price squeeze unwinds) and the delivered cost of solar drops to $0.15-$0.18 kwh with a reasonable degree of probablitiy. At these prices, solar becomes fully competative with delivered power in several major markets (Japan, NY, Hawaii) without subsidy.

I can't help but think that SunPower competitors must be cheering this deal as it will distract the management team for at least the next 6 months.

Thursday, November 16, 2006

A new energy policy

The democrats, so far as I’ve heard, are not considering any sweeping changes to our energy policy. The few action items they’ve discussed, like repealing tax breaks to oil companies and extending incentives for renewables and biofuels are certainly sensible steps. Unfortunately we need much more aggressive action.

Why do I think we need aggressive action? Like it or not climate crisis and peak oil will transform our economy within 30 years. For readers not familiar with peak oil theory, the idea is simply that there is a finite amount of oil in any given oil field (and in the world) and that once roughly half the oil has been removed future extraction rates will fall. Drilling more wells, using better technology and any other way of throwing money at the problem may extend/smooth out the peak into a plateau but only makes the future rate of decline that much faster. Many believe the world is on the brink of peak oil today. Unfortunately a peak in oil extraction, much like the top of a stock market bubble, is only obvious after the fact. There is a heated debate about when global peak oil will occur. Some say it has happened or is happening as we speak, others say it is five, ten, or twenty years off, nobody thinks it is more than 40 years away. The point is that once we are sure global oil production has peaked (i.e. at some point after the peak) it will be too late to make the changes we need to make to avoid economic collapse. Similarly once we have pinned down global warming with absolute certainty and have the proof (beyond a reasonable doubt) in hand, it will be too late to avoid environmental collapse.

It is far wiser to invest the resources today to make our economy more efficient and resilient to future oil and environmental shocks. One serious problem is that our “free market” does not incorporate CO2 pollution costs or the risks of peak oil into the price of energy today. Since energy prices don’t capture these external costs, we invest less money than we should in using energy efficiently.

If fossil fuels (coal, oil and natural gas) were to cost 25% more tomorrow (and everyone expects they would remain more expensive) we would change our behavior to use less energy. All of the technologies that use energy more efficiently like CFL/swirl bulbs, hybrid cars, alternative fuels (ethanol and bio-diesel), solar, wind and wave power would have faster payoffs for those who invest in them. If more people invest these energy saving technologies they will become even cheaper leading to a virtuous circle of more adoption.

Any “big solution” like a CO2 cap and trade system or a carbon tax will take years to implement, once we’ve taken the time (potentially years) to discuss and analyze it. For example, I believe a carbon tax (for payroll swap) should be phased in over 5-10 years to prevent major market disruptions.

All the more reason to start putting forward bold ideas, and passing aggressive legislation (even if it gets vetoed by Bush) during the next two years to kick start the discussion and analysis.

A new direction in Iraq

I recently read an excellent post exposing a fatal flaw present in the Iraq Study Group. Not one expert on Iraq in the group. I suppose this should not come as such a surprise considering that the whole occupation has suffered from a dearth of Iraqi translators. The military did not trust the few qualified department of state translators that were available, and Bremer sent them away despite the obvious need to improve communication with Iraqis from day one. Even more to the point, the study group is meeting about 4 years TOO LATE!

Another idea that is being put forward by John McCain, among others, is that we need to send in more US troops. Since even General Abizaid is admitting today (now that Rummy is out) that we didn’t have enough troops from the start, this call for more troops has a certain logic to it. Unfortunately the number of troops that we could send in, even if we want to, is so small (20,000 seems the upper limit and even that would be a temporary bump) at this point that it won’t make a difference except to increase the US casualty count. More troops at the very start (say 100,000 more) might have provided enough security to prevent the literal death spiral of violence that Iraq is in today. Even two years ago, a serious boost in troop strength (~70,000 more) might have changed the dynamic by stabilizing the security situation after it was clear that troop levels were not sufficient to provide adequate security for training Iraqi troops and rebuilding Iraq. At this point sending more troops in would simply be too little too late.

I wish I could offer a good solution to the problem we face in Iraq, unfortunately I only see bad and worse options. Stay the course hasn’t worked for 3.5 years and in fact has made things significantly worse. Withdrawing all troops immediately is probably the least bad option, even though it appears to be a political non-starter as long as Bush is president. Why does it make sense to withdraw immediately if we could? First because we never should have invaded in the first place, Saddam was no threat to the US (he was perhaps a threat to Iraqis, but considering the chaos that now reigns in Iraq one might rationally dispute even this) there were no WMD, and (as should have been obvious) imposing democracy at gunpoint is perhaps the worst method of promoting it. As occupying powers we are responsible for somewhere between 250k-750k excess deaths in Iraq over the past 3.5 years, a sum which will only stop growing when we end our (illegitimate if not illegal) occupation. We are losing brave young American men and women at a rate of 3 per day (with at least 5 times this number suffering life changing injuries) in an enterprise that is damaging our reputation and interests around the world as well as fueling terrorist groups and record support for their bankrupt ideology. Moreover this war has already cost us over $500 Billion, enough money for every taxpayer in America to own a 1 kW array of solar panels on their homes (a.k.a 100 GW of solar capacity), 100% paid for by Uncle Sam.

The phased withdrawal that the Democrats are requesting may be the more realistic (i.e. politically viable) strategy to allow us to gradually disengage from Iraq without creating a power vacuum. The sooner we butt out, the sooner the Iraqis can get on with building the political institutions they want and rebuilding their country.

Wednesday, November 15, 2006

A first priority for the new Congress

The Democrats are in a position to improve our democracy by taking real steps to reform Congress and reduce corruption. The obvious goal is to reduce the need to raise tens of millions of dollars for campaigns and re-elections. This will be difficult since it amounts to new incumbents unilaterally disarming. Nevertheless, it is clear that the American people are fed up with the current system. Nobody likes the mind-numbing barrage of negative ads.

One idea which powerful media moguls will hate is to mandate that the networks which broadcast using US airwaves (radio and TV) give time, say one primetime hour worth, FREE OF CHARGE to all properly registered candidates to make their pitch to the voters. This will eliminate the “need” to raise huge sums of money to run for congress. A second step is to cap the amount that can be spent by candidates on ads, say $2.5 million for the House and $10 million for the Senate. This, combined with a system where the government contributes money to match (dollar for dollar) the amount raised by the better financed candidate, should stop the spending spiral that has gripped our democracy (and forced candidates to raise millions from special interests who they are then beholden to). Candidates could spend more time on writing legislation and less on fundraising (which I can’t imagine they truly enjoy).

To illustrate say House incumbent A face challenger B. A and B both know that $2.5 million is the ad cap so there is no point raising more than this amount for TV and radio ads. Let’s say incumbent A is well liked by deep pocketed special interests who want him to stay in office and challenger B has zero financial backing. Let’s further assume incumbent A quickly raises $2.5 million for ads from special interests, but now challenger B will get up to $2.5 million of matching funds from the federal government. Both candidates run an approximately equal number of ads so the candidate with the better/more compelling message wins the ad wars (from both the ads and the primetime hour of free coverage).

The cost for this would be at most $1 Billion for each cycle of house races and $330 million per Senate cycle from the government treasury (about half the $2.5 Billion spent this last election with all the implied access and consideration owed to contributors that goes with these contributions).

Wednesday, November 08, 2006

A sigh of relief

I spent a bunch of time making get out the vote calls for Move-On over the past days/weeks. Watching election returns yesterday I was happy that I got involved, even before it became clear how close the races really were. America is developing a curse similar to the ancient Chinese "may you live in interesting times." Ours goes "may you live in a hotly contested voting district". The smears, attack ads, outright lies, muck and phone calls (guilty as charged) together go beyond annoying and certainly approach obnoxious.

While the House has changed over to Democratic control and the Senate hangs in the balance pending recounts, I am nevertheless mindful of how sharply divided our country is. Despite all the corruption, wasteful spending and incompetence of this abysmal rubber stamp congress, many races remain too close to call, depending on a few thousand votes one way or the other.

While I would love nothing more than to go after the administration and nail them to the wall for their deceit and crimes against humanity, the Dems would be far wiser to focus their energy on changing the course of our economy and achieving a dignified retreat in Iraq. Four years ago, the Republicans took a narrow victory and pretended it was a mandate, yesterday they were punished for that, Dems will have to push a more positive agenda if they wish to build on their gains in '08.

With all the (thankfully contained) insanity about new electronic voting machines and widespread glitches, I ran across a really good blog post about voting by mail. While I am a true-blue techie...this may be one place where a thousands of years old (cheap!) technology delivers a safer way to vote and be sure your vote counts.