Recent Posts:

NIMBY in My Backyard

Rob Day: August 25, 2011, 8:33 AM

When my travel-heavy schedule permits, I try to show up at the meetings for my town's Renewable Energy Committee. They're usually a quiet affair, as the committee is a small group of volunteers who help the town assembly look into issues like energy efficiency improvements to the schools, some renewable energy opportunities, streetlight replacements, etc.

So I was pretty surprised to show up last night to find that instead of the usual four-person meeting, there was a packed room of around 20. Why? Because of recent local newspaper articles suggesting that the REC was about to put up a wind turbine at the town's middle school.

I sat back and just watched, and it was a fascinating look at the tensions that naturally result from efforts to put up local wind projects, particularly here in New England. To everyone's credit, it was a constructive and respectful conversation, even though (judging from the shaky voices and hands of some folks making comments) emotions were running high.  But instead of a fight, it was a very good open airing of facts and concerns all around, aided in large part by the fact that there was no real decision point on the project, which is far from being recommended to the town assembly, much less approved.

But after having looked at a number of wind turbine and wind developer investment opportunities over the past few years, it was my first opportunity to actually sit in a room while one such town conversation was held.

The concerns raised were numerous.

What about examples from towns in Maine, in Illinois, and elsewhere, where people complain about noise, light flickering, and falling property values? In some of these cases, there have been lawsuits. Turns out that evaluating noise and flickering was a mandatory part of the feasibility study, which is still being reviewed. But such concerns are being treated seriously. "People are getting sick!" exclaimed one attendee, but that wasn't really addressed in the conversation except to note that health concerns were naturally also part of the feasibility study.

How big would the turbine be? The analyst had evaluated several options and recommended a 75-meter-tall model, said one member of the committee. "What is that in feet? Please use feet!" another attendee interjected. "It's big," acknowledged one of the committee members, "and that's something we're concerned about."

What's the payback period? Sixteen years, if it is done as a straight one-time investment of capital with no financing.  One software salesman in the audience expressed incredulity that anything like that would be considered, since in the private sector people are looking for 18-month payback periods. And the committee agreed that a 16-year payback was pretty bad and not something they were interested in, but pointed out that there are potential financing options available that could result in lower-cost electricity from day one and would not necessarily require a capex/payback calculation -- all of which is still being learned about and thought through. The town simply may not have the wind resources to make it an attractive project, regardless of neighborhood concerns.

How much town money has already been spent on this?  None. It's a volunteer committee and the feasibility study was paid for by the state.

In the end, everyone there had an opportunity to say their piece, and it was all within the context of this volunteer committee still digesting the feasibility study. For the most part, the concerns raised were valid ones that the committee was also wrestling with. I didn't hear any concerns that were strictly political or anti-green; in fact, the opposite was true -- some in the audience expressed strong support for the goals of the committee even while they were worried about this particular potential project. I thought it was a really fascinating look at wind project siting issues in local communities.  

More broadly, NIMBY ('not in my backyard') issues are not going to go away in the U.S., nor should they just be dismissed as being uninformed or unimportant. These concerns expressed at the meeting last night were for the most part well-founded, thoughtful and understandable. Yet I've seen renewable energy proponents, entrepreneurs and investors sometimes failing to give NIMBYism enough consideration in their processes of idea creation and evaluation. Anyone hoping for a "tipping point" where Americans will eagerly welcome large renewable energy projects in their backyards is probably engaging in wishful thinking.

Big Dreams and Narrow Niches

Rob Day: August 10, 2011, 11:43 PM

For cleantech entrepreneurs who were out raising funds from VCs three years ago, it was easy: Just make the biggest claims possible. Talk about reinventing the entire planet, VCs wanted to think big. Bigger dreams just meant bigger rounds.

These days, market disruption is still a major goal of many VCs investing the sector. But pragmatism, capital efficiency, and execution are the watchwords of the day. This presents the cleantech entrepreneur with a dilemma -- do they talk in very focused terms about a couple of market sub-segments where they know they can do well, or do they talk about massive market disruption but risk coming across as not being serious enough?

For what it's worth, my advice is: Do both.

Just as in the consumer web, the 'long tail' concept applies well to cleantech market opportunities. In both cases, "niches" can be very lucrative. Focusing in on one or two niches, at least at first, allows the entrepreneur to really get to know their initial target customers; to get to know all the major players in that market segment's value chain; to understand exactly what customers are looking for beyond the basic "cost per kilowatt-hour" type metric; to assess what other specific alternatives these customers have in front of them, and design a value proposition that beats them all.

You can't be all things to all customers, so this sort of narrow focus enables superior execution. Plus, it allows for a tailoring of the value proposition to get out of the "commodity trap" and capture better margins and some level of defensibility.  And also, by the way, it helps give investors comfort that the management team is deeply engaged and digging into all the details of their market in a really thorough way.

"Niche market" is still a dirty word in some VC circles because it sounds like a limited market opportunity. But in cleantech, even very niche-y markets can be huge. Your component is focused initially only on the personal scooter and motorcycle market? Well, that's going to be a 75M-unit annual market by 2015. Your lighting system is targeted initially at industrial buildings?  Turns out industrial-segment lighting is a multibillion dollar annual market in the U.S. alone. You can home in on some very specific niches even within these subcategories and find markets running in the hundreds of millions of annual dollars or more, providing plenty of beach for an initial bridgehead.

And yet... VCs still want to go for huge-win opportunities. Not only because of the returns profiles, but also because that's how they make a name for themselves even aside from their returns. Therefore, if you're raising venture capital, you also want to have a Grand Vision for how you're going to eventually break out of your bridgehead niche, and take on reinventing much larger swaths of the market. How can you use your initial niche-focused market entry to create an unfair advantage for yourself when then expanding into other large, related markets? How is your core business model and/or technology well positioned beyond your initial market niche? How are you going to use success in selling into the personal scooter market, to better enable the electrification of drivetrains across the broader transportation sector? What is the reinventive potential for "embedded intelligence" in the lighting market even beyond industrial buildings? These are the kinds of exciting stories that entrepreneurs should also be ready to tell, so that their passion and the broader opportunity is clear to them, their teams, and potential investors and strategic partners.

The key is: Have the stories ready to tell. Keep them in mind as long-term strategic guideposts. But make sure that on a day-to-day basis you're absolutely killing it within your initial niche. Think big, but be focused.