Miller's method

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The following is H. Keith Henson's commentary on suggestions by Charles Miller.

Charles Miller wrote:

The problem is to bring an SSP industry into existence. This means closing the business case for SSP systems, helping them make good return on their money on those systems, which is then invested in the second generation systems that brings cost down further and taps into a larger part of the market. The strategy being to create a positive self-reinforcing cycle.

The #1 issue for all serious investors -- whether it be VCs, big corporations, small corporations, investment banks, angels or all the above -- is the size and nature of market demand, and the competitive alternatives for that demand. Investors want proven large markets. The more money to be invested -- the larger and more proven the markets need to be. They have a short hand saying for this -- "Will the dog eat the dog chow?"

If the market demand issues are answered, they then worry about how alternatives can steal the market away from them. ("Will somebody else eat my dog chow.") (The classic example being Iridium, where cells phones ate their market.) Since energy is a huge proven market, this market-related issue is actually more important. The availability of competitive alternatives for the proven demand is the issue that smart people like Elon Musk and Pete Worden focus upon.

Even though demand issues are primary, most policy thinkers tend to focus on supply-side incentives, rather than demand-side incentives. This may be because >95% of politicians and >99% of government bureaucrats do not understand how investors think.

Early this year (2008) I ran across a story indicating that Germany was now the world's leader in the ground solar industry. This struck me as odd, since Germany has about half the solar flux of the south Western United States, making it a poor place to make money (and close the business case) for ground solar power. But Germany was clearly doing something that worked.

It turns out the reason Germany is now the world leader in ground solar power industry is quite simple. They passed a law that mandated that German electric utilities buy all the ground solar electricity generated in Germany at a high fixed price (per KWH) for 20 years. The cost is then passed on to the consumers in the form of higher electricity rates.

Following is a story that talks a little bit about their success ... but is mostly focused upon a problem created by their success. The ground solar industry has grown so large that it is starting to have a significant on electricity costs to German consumers, making it a major political issue.

The German law has been credited with making the country the top solar market in the world where it now holds roughly half of the installed global solar-electric capacity. The law has also been credited with jumpstarting the industry.

I first publicly mentioned the proven German model as a possible approach at the ISDC this May, where I chaired a session that discussed ideas for how to "Close the SSP business case". To get people thinking, I suggested that U.S. electric utilities might be mandated to buy up to 1% of their total electricity capacity at $1 per KWH. Since total U.S. electric capacity is in the neighborhood of 400 GW continuous, this would mean that U.S. electric utilities would be mandated to buy 4 GW continuous at $1 per KWH (over $8000 per KW per year).

This would be the equivalent to $32 Billion per year of proven demand for SSP delivered power. American SSP companies could use this demand to justify major investments in SSP ventures.

NOTE: There are many many ways to tweak the basic concept. Keith, for example, has been focused on creating tranches at different prices (e.g., requiring utilities to even more SSP power (over 1%) at lower price levels). I know of an executive in a major U.S. aerospace company who has already completed a parametric analysis of the basic concept, and has concluded that this approach will work.

One key challenge is "political" ... e.g., getting such a mandate passed through the U.S. Congress. IMO, the idea is simple, and it will work. Getting it through Congress is the hard part.

At full utilization, the price for electricity for every consumer in America would be raised by 1¢ per KWH. Considering the benefits of SSP, I am thinking this would be politically acceptable--especially if the cost could be rapidly lowered below current prices.

However, the politics become quite complex. Right now there are many "energy interests" that are much more powerful than the SSP constituency is. The forces for solar, wind, nuclear, tidal, geothermal, coal, natural gas, etc. have orders of magnitude more influence than we have. They would almost certainly over this idea, and make it their own. As Mark Hopkins pointed out, any mandate targeted narrowly SSP in the final legislation (if it passed) would almost certainly be eliminated. Other clean energy alternatives would say "Why give SSP special treatment?" The mandate would likely be for "clean energy", without a specific set aside for SSP. (This goes right to the discussion I mention above of "Will somebody else eat my dog chow?")

Keith comments:

Space based solar is the *only* primary power source that can replace fossil fuels. I am fairly sure that given the problems alcohol from corn caused that the provisions could be worded such that SSP would be the only one in the running. (Non nuclear, able to scale to 50 TW, without long distance transmission, etc.

Charles Miller continues:

I personally think we will need a full up SSP demonstrator -- to create reality among the public and our elected representatives -- in order to get an SSP purchase mandate passed through Congress.

Keith again:

The grim reality is that building a demonstration power sat without building the transportation infrastructure doesn't make economic sense. If you hauled up the parts on existing rockets the transport cost would exceed what you need to expend to get the transport cost down into the $100/kg range. Specifically:

10,000,000 kg at $20,000/kg is $200 billion. And that's for a 5 GW power sat of 2kg/kW. If it takes 4 kg/kW it would take $400 billion for the first one. Building the entire transport infrastructure, either the partial elevator rocket combination or the pop up with a rocket and push with an ablation laser are thought to be less than $350 billion. Either should push the transport cost down to $100/kg or less. So we have a choice of building a demonstration power sat or the infrastructure to turn them out like hot cakes *and* a few demonstration power sats for the same expenditure.

Charles Miller has proposed legislation be passed similar to that in Germany which provides that the utilities have to buy solar power at a high per kWh rate for a limited amount and pass on the cost to their customers. We are still tuning the economic model, for one thing, we are still trying to reach a consensus that $350 billion is enough to finance the operation through profitability

I have been trying to draft something that makes an international cooperative possible. Try this for size. Please comment:

International provisions

It is in the national interest of the United States for all countries to have access to abundant, low cost, renewable energy, particularly non nuclear energy.

Therefore the market guarantee provisions of this legislation are open on a reciprocal basis to companies based in any country that enacts essential identical market guarantees to those in the above financing model for the purchase of space based solar energy.

Because world wide energy security contributes greatly to US national security, it is the intent of this legislation to remove barriers to shared technology to solve shared energy problems. In particular, all technologies related to space based solar power are exempted from ITAR.

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