alpha24seven

Can Big Oil Balance Shareholder Interest Against National Interest?

Your assumptions regarding my dislike of VCs is interesting considering I used to be one. I did my first RE deal in 2002 as a JV with BP Solar.

BP And Oil Links:

business.timesonline.c...

money.cnn.com/2008/03/...

www.shell.com/home/con...

www.shell.com/home/con...

Khosla 87:

venturebeat.com/2006/1.../

venturebeat.com/2006/0.../

If you want to contact me offline we can discuss further.

alpha24seven (at) gmail.com

Can Big Oil Balance Shareholder Interest Against National Interest?

More distortions Vikram. I'm beginning to doubt your reading comprehension or maybe it is you are trying to purposely distort others and or spread misinformation about others.

1) The oil industry has big skin in the renewable energy business. Maybe not to your liking or the unwashed masses that fall victim to the never ending innuendo that big oil is out to get them. I've toured the BP solar plant in Linthicum. Shell is a huge player in PV. I think you've fixated on Exxon and are painting the entire oil industry (aka "Big Oil" in your parlance) with the same brush. This is my point exactly. The oil industry IS doing much in renewables but commentary from you and many others make it sound as if they are not only -- not -- involved but on a constant Jihad to kill renewables which is completely false.

2) Re the VC input on the CA legislation. So tell us then who would be funding the start ups (commercial non-academic) Tell us who would be choosing the winning ideas for funding and tell us who would then be administrating the start ups to the liquidity event. Now we all know it is the VC community except again for maybe you. Apparently there is some phantom government committee/apparatus never mentioned in any of the legislation that would suddenly show up and fund the commercial start ups. It's the VCs and you know it. VCs make money on the exit. Bada boom. What is so hard for you to understand about this?

3) I take no aim at investors in RE. Again reread my posts. You are distorting what I've said to make dissociative point. I never assailed any investors in RE. I assailed subsidies that are not needed that are actually taken directly from the poor and disadvantaged every single month in their utility bill to help a rich homeowner get a shiny new PV system on his roof. AND I'm against any subsidy that would accomplish this while zeroing the monthly utility bill of the rich guy while the disadvantaged ratepayer has no relief on their monthly utility bill. It is wrong and not in the spirit of fair play nor in good taste. MANY in the solar industry wince knowing this is the case but as I've said getting off the gravy train ain't easy...

4) I NEVER said VCs were charlatans! Again you misrepresent and distort. My posts are right there for the reading. I said that this legislation was a charlatan enterprise. I've consistently said the VC system is fantastic and that we don't need new taxes/legislation for renewables because the VC system works so well. ANYBODY with a good RE idea can get venture funded today. It isn't lack of investment money! It is lack of good solid ideas! More money isn't the answer. More money would just end up creating a super RE bubble like "green" Webvans and dogfood.com. C'mon everyone knows there is tons of money in and going into cleantech. Are you somehow suggesting that VCs will give up their carry on these deals because they are great guys out to save the environment. It is about green -- green as in money green. Laughable...

5) Haven't you heard of NREL? How about the great & fantastic work done at Argonne National Labs? You continue to objectify Khosla as some sort of knight. You then go on to distort again this whole "halo" angle for him saying that "he only uses his own money on these pie in the sky ideas" which is completely false. As I mentioned (and either you do know or are purposely misleading by not including) that he took $640mm from CALPERS public retirement fund to invest in cleantech. So not only he is raising capital but he is from public entities and their retirement funds. Why are you not mentioning and purposely sailing past this? This is what he should have done in the first place instead of tarnishing his reputation with the failed legislation. A proper venture/limited partner relationship whereby everybody knows where everybody stands instead of some poorly constructed attempt to patronize the public into bilking hundreds of millions out of the oil industry as synthetic limited partner investors. Scandalous and shameful.

6) I live in California and for you to say that people aren't zeroing their bills with net metering is ridiculous. I would say it is indicative of your body of knowledge in the entire area. Don't you realize that it is one of the largest selling point on the residential side. Seriously if you really think that people aren't taking advantage of net metering and driving their bills to zero (Appropriately sized pv array) then why are you making all this high minded fuss about "Americas energy shame". Understand the basics first. You can zero your bill. You will not get paid for more than you produce put back on the grid.

What you should understand in this business is that the model has already shifted. The investment community doesn't want to engage big oil on development. I will repeat this revelation. NO -- the RE industry and the investment community doesn't want oil involved now. Why? Because investors need an exit and who better than the oil industry sitting on record cash. Consider a disruptive technology that could threaten top line revenue to a major oil company. What will happen? The VCs will shop this company to the oil company for a 1,000 exit! We need the oil industry to horde cash because they are going to be the buyers of all this new technology eventually. Don't think for a single minute Exxon is going to sit idly by and go out of business when some new technology hits the street. These are once oil companies and now they are energy companies. Look at BPs "beyond petroleum" See, everybody in the RE space knows this is the strategy now after the last prop 87 debacle but it doesn't quiet down the chorus of guys like you that still push for something not needed, not wanted and completely non beneficial to grow the industry. I know of one very succesful solar that pulled working their S-1 because the IPO market is weak and they can hold out for a much better (and easy) deal shopping the co to a big energy conglomerate. Consolidation is right around the corner.

You and I want the same thing. I want solar to kick ass and take names (believe me) but we aren't going to get there messing about with all these subsidies. They are drag on the future development. Can you imagine if Dell and HP were subsidized approx 50% for pc's? You're wrist watch would have more processing power and they'd cost $30k and be the size of a Volkswagen. Solar is part of the semi industry yet it DOES-NOT-COMPETE on price or specs because it is propped up by subsidies. Don't you realize that if solar dropped like a stone that it would take the fight directly to your nemesis big oil (and coal, and nuclear, natgas). Plug in hybrids would be common place charged by inexpensive rooftop arrays but that is NOT the case because of -- price. Look at atypical PV system. Decidedly low tech. Absolutely no way it should be priced at $9-10 kWh installed (before rebate) This all may be academic anyways if the promise of Nanosolar is real. They are shipping at .99 per watt but lets see if it holds up in the field. If so the energy revolution is upon us.

I will address you here but I will not write any articles because I'm well known in the solar industry and I'm not going on the record by name with all this -- yet.

Can Big Oil Balance Shareholder Interest Against National Interest?

C'mon Vikram

I'm beginning to see this pattern whereby you try and discredit others opinion because they differ from yours. You keep saying I'm using half truths and propaganda but that is coming from someone that doesn't understand the industry from an inside perspective as I do. Where you an invited guest to the last Vote Solar party in San Francisco? I don't remember meeting you there. The fact is you have a naive view and I will dare say myopic view of how the solar industry works. Being an insider, I do not . What really burns me is that if this industry were to shed the subsidies then the solar revolution would really begin because everybody would compete on price and the cost per installed watt would plummet. You just go around yelling "we need more subsidies to make this work" when in FACT it is just the opposite.

1) The syntax argument is in full effect. Why do you over intellectualize the whole wording regarding "VC". You and everybody else knows damned well that the VC community was the front end to the start up funding. Why do you even question that? Do you just want to be argumentative? For goodness sake, look at the main funding and the architects of the legislation -- VCs.

2) Who gives a damned what happened in the past regarding profitability for the solars. The FACT is today that most are wildly succesful and profitable and still getting their product subsidized by approx 50% from rate and taxpayers. Are you suggesting that there should be a several year overlap of subsidy just because the solars had a rough beginning? What the hell is that?

3) You accurately describe what subsidies and incentives are for. In a word, they are used to achieve scale. They worked. We have scale. We have a very robust industry that no longer needs subsidies by your own description. As far as class warfare and the wealthy paying the majority of the taxes and they should be able to get some back is utter rubbish. Why don't you tell the struggling family that they should kick in their monthly PG&E bill to help some rich guy zero his utility bill. Please...

4) You are stuck on this whole "big oil crushed the renewable incentive scheme on lies and deceit". You act like a good foot soldier in the "Inconvenient Truth" army. Another example of your using straw man arguments. The FACT is that the VCs would have received hundreds of million in free money and everybody knows it -- except for some reason you. You say that isn't true and then go on to base the rest of your position on big oil outspending the opponents and this spending is what caused people to believe the VCs would get a windfall. The problem is they -- would -- have got a windfall and there is no lie, half truth, proganda to that at all. It is a 100% fact.

Since we are talking misrepresentation and distortion, let's look at what you said in your original piece regarding the tax credit extensions and how you alluded to it being part of a concerted effort to hold back renewable energy by big oil/Republicans (I'll presume) The FACT is that those tax extensions were removed by Reed and Pelosi originally. The industry screamed bloody murder and then they have been trying to get the tax credits extended by a series of legislative additions doomed to fail at the hands of the Republicans. It was a power play led by the Dems! They threw solar under the bus so they could extract maximum political gain. They knew that the extensions would fail but they wanted to be able to say "we took on the Repubs and big oil for renewable energy but we were voted down again by the people trying to hold it down" What a crock. EVERYBODY in the solar industry knows exactly what happened and I'll just say that the Democratic leadership isn't thought highly of right now. But you posit that it was as the Dems said, a big plot to pull renewables down which is a complete distortion on your part. Then you go on to mention that all your positions can be proven through links. Right. You can link to the subsidy strucutre and see that it is paid for by renters and the disadvantaged with no chance of getting solar or a zeroed utility bill -- check. You can link to the proof these companies are now profitable -- check. You can link to articles from inside the solar industry in disgust of Congress for using solar as a political tool -- check. So you go on to allude and distort that somehow what I'm saying isn't verifiable so again as you've said several times, I'm telling half truths and propagating misinformation. Pure crap.

I guess at the highest level I'm not taking your incessant drone of how I am telling half truths and propagating misinformation because in FACT I'm not and actually you are becasue quite simply I don't really think you understand how this actually works. The nitty gritty details and not some fanciful "concept" of the tired old big oil out to get everybody. Simply and utterly false and a misconception that keeps being passed around as some sort of urban legend truth.

Here's a test. If you know so much about this, tell us the two things that keep solar execs up at night and the new fear striking the heart of the wind industry. All the insiders whisper these things so lets see what you really know other than your glammed up version of the tired old "If only America could be proud and take the reigns back from the profiteers" blah blah blah. It's all so very tired and boring to keep hearing the sound byte intellectuals constantly pass it around like cheap booze at a camp fire. Answer the questions and we will see what you really know.

Can Big Oil Balance Shareholder Interest Against National Interest?

@ Vikram

You are simply trying to hard to come off as this really "smart guy". To the point of being of obnoxious. You are now engaging in straw man and syntax arguments which is quite unfortunate. This is not high school debate.

Look, if you post a thesis here then you must accept that people with real connections and ties to this industry will counter your positions. The reason we are discussing past proposed legislation is because it was full vetted and defeated. You are basically rehashing what we already defeated with the notion of "tax big oil to pay for renewables". I'm not sure why you wouldn't understand why are discussing this as it is extremely relevant.

I'm not anti VC at all. Reread my posts. I'm anti charlatan which are two completely different things.

You completely missed the point about solar subsidies. I was talking about the solar industry gaming the system to insure that they were able to have a subsidy. This subsidy is paid for by the poor and disadvantaged to the benefit of the upwardly mobile. The entire "subsidy scheme" was prepared by the solar industry on their behalf. I'm sorry but it is an undeniable fact and many in the solar industry consider it to be their own Sword of Damocles. But of course that still doesn't stop them from pushing for money which is the shame in it all. Can you explain how this industry is printing million and billionaires and has extraordinary profit yet still screams that would die immediately if the subsidies ended? I'm guessing this where you will fly into the "well what about the oil subsidies" which is a completely unintelligent correlation considering they are akin to bowling balls and cotton balls...

I think you are a pretty book smart guy, but street smarts, not so much...

Let's adds some comedy to this. I'll be Thornton Melon (Rodney Dangerfield) and you will be Dr. Barbay from that classic lecture hall scene where the Dr. is lecturing the students on how business "works" not realizing that Thornton (who is a very succesful real businessman) actually schools him on the way things REALLY work. The Back to School movie starring Dangerfield is hilarious movie. I'd really recommend you see it.

This about sums it all up.

Thornton Melon: Oh, you left out a bunch of stuff.

Dr. Phillip Barbay: Oh really? Like what for instance?

Thornton Melon: First of all you're going to have to grease the local politicians for the sudden zoning problems that always come up. Then there's the kickbacks to the carpenters, and if you plan on using any cement in this building I'm sure the teamsters would like to have a little chat with ya, and that'll cost ya. Oh and don't forget a little something for the building inspectors. Then there's long term costs such as waste disposal. I don't know if you're familiar with who runs that business but I assure you it's not the boyscouts.

Dr. Phillip Barbay: That will be quite enough, Mr. Melon! Maybe bribes, kickbacks and Mafia payoffs are how YOU do business! But they are NOT part of the legitimate business world! And they are certainly not part of anything I am doing in this class. Do I make myself clear, Mr. Melon!

Can Big Oil Balance Shareholder Interest Against National Interest?

@ Vikram

Let's go over this one at a time

1) Time value of money? Who cares because you are missing the point. The point is that the venture community at large would be getting funding of nearly $400mm without any limited partners to pay back. Your obfuscating simple truths by talking about lotteries and time value of money. It is completely inconsequential or germane to the conversation at hand.

2) I never said Khosla would get the bulk. I said the VCs at large would get the money but of course Khosla was front and center considering he put this thing together and was the main proponent.

3) Read the wording on the legislation. You have it. It clearly states the distribution of IP when the money goes to a research grant. The start-up/seed funding which the VCs would facilitate is conspicuously absent regarding the distribution of the IP. Interesting don't you think. Why don't you go find out otherwise or fill everybody in with some other info you obtain elsewhere. I'm just reading the text and wording of the legislation.

4) I need to understand how the price of gas works? Actually you've done a good job of distorting what I'm trying to say into something completely different -- again. The FACT is this legislation would have purchased purchase approx $2bn worth of "gasoline and diesel" replacement. What are you even talking about with this "need to know how the price of gas works" nonsense. Khosla ventures has 11 different portfolio companies classified (per Khosla) as cellulosic ethanol, corn/sugar fuels and future fuels. The sole reason these companies exist is to -- wait for it -- replace gasoline and diesel. How many gallons would this funding go into the pockets of Khoslas portfolio companies? Who knows, but he's got 11 different companies and there sits $2bn to buy their goods. Is it just me or does this seem like a monumental conflict of interest? Actually a lot of people thought so...

Anyways, if you were inferring that this legislation would have directly caused the price at the pump to go up or down then you are off your branch. I fully understand the fungible oil market from origination through the chain. That still doesn't mean I have any idea why the price REALLY moves. And neither do you for that matter. Every industry expert and pundit are all completely clueless to why oil and gas are actually priced where they are. We all know the mechanics but the "magic numbers" can never be explained other than theory. I use real money at the pump and not theory. So if this legislation passed and over the course of six months the price at the pump went up .45 to $1.00 HOW WOULD YOU KNOW AND WHAT COULD BE DONE ABOUT IT? A big fat no and nothing. So when these guys came out and said that we will protect you at the pump if you vote for this, every single person I know laughed out loud. If we (the citizens) could be protected at the pumps from pricing shenanigans then why is it $4.75-5 today? C'mon lets get real...

My point is that the venture model is fantastic. It should invest in renewable companies of all sorts and is doing so very aggressively. The other point is that it was completely disingenuous and completely dishonest to put forth this legislation on the back of the hatred of big oil. I'm not an apologist for big oil (I have a car) but for f**K sake, the way they put this together and the millions and billions that would be windfall to the venture guys was just outrageous. Anyways it is all water under the bridge now. Done deal but I think that more than few people look at Khosla now with a certain sleaze. I'm out here and maybe you were at another time but when this all went down locally it was quite the talk.

The real shame is that we don't even need this money for solar. Solar is profitable and the solar guys are simply gaming the system for rebates. Take a look at the 10k/q for SPWR and explain why there is a subsidy. If we got rid of all the solar subsidies these companies would be forced compete and the price per watt drop like a rock. The REALITY is that solar is not more entrenched because the solar industry can't get off of the subsidy crack. The other sad part is how it's paid for. Here in CA the current subsidy is paid for ALL rate and taxpayers like renters and the disadvantaged yet the solar assets end up on a rich guys house. He gets his PG&E bill zeroed because of net metering, he gets an increase in home value and everybody else pays for it. It all makes me sick actually. I'm hoping they all get slammed under a price fixing investigation. Solar 2.0 will be the answer anyways and we are between 3-5 years off. I mention this all because it is just another part of the deceit and dishonesty that is being paraded around by the new "green saviors" that are actually out to make big money -- before -- or in lieu of actually helping anyone or the energy crisis...

Terrible.

Can Big Oil Balance Shareholder Interest Against National Interest?

"How convenient that a touch over $200bn would be used for buying ethanol or other diesel replacements -- from companies Khosla had already funded..."

SB $2bn and not $200bn.

Can Big Oil Balance Shareholder Interest Against National Interest?

@ Vikram

As I mentioned Khosla sheepishly backed away from the windfall profit tax -- after -- people peaked under the sheets. Yes he said he would donate the profits to charity but not until after he was called on this. Furthermore, he said he wouldn't accept a seat on the board of this new entity created. How very nice of him considering he wouldn't be asked because it is clearly stated he can't be considered for a board seat because of conflict of interest.

Where does it say only $40mm would be used? The Commercialization Acceleration Account was 9.75% of the total funding. 9.75% of $4bn is $390mm. A far cry from $40mm which is a lot of money on its own. for sake of argument. Consider 40 separate bets on start ups each seeded with $1mm. The venture model is 90% failure so that means 4 start ups with profitable exits at say $100mm = $400mm to the venture guys without any limited partners to payback. But anyways your numbers are off. 10% of $4bn is $400mm and not $40mm. Look at in totality and not annualized which makes it seem benign.

The other part your missing is not just on the capital inflow on the venture side but use of funds by the companies already funded. In other words, this money would be used as guaranteed revenue for companies already funded which would again, make for some very valuable exits. 57.5% of the funding would be used for "Gasoline and Diesel Use Reduction Account". EXACTLY what Khosla is funding -- ethanol. How convenient that a touch over $200bn would be used for buying ethanol or other diesel replacements -- from companies Khosla had already funded...

Another thing. 26.75% of the funding would have gone to "The Research and Innovation Acceleration Account". Basically academia producing RE solutions. Fine. But notice in the fine print that the State of CA wants in on the intellectual property on this funding/results? As it should be. But notice again on the venture side the VCs and their portfolio companies keep the IP. Nice one...

The stem cell thing is apples to oranges. It was a proper partnership and this is a one way street. A giveaway basically. The way it should be done is what just happened. Khosla made the State of CA a proper LP by taking a $640mm investment from the CALPERS. A proper limited partner opportunity for the State.

Look, I'm from the SF Bay Area and I know plenty of venture guys, plenty of RE guys and everybody was scratching their heads how he was going to get this done. EVERYBODY knew he was relying on everybodys hate for the oil companies and would do anything to strike out at them. But we are smarter than that. When the deal points came through and then this legislation "promised" to shield us from rate increases at the pump everybody knew it was BS. I'm sorry but you are just off base on this one. I'm just like everybody else wanting a new eneergy frontier, but if it is based off of intellectual dishonesty from the get go we will NEVER get there.

Let the existing venture model work and everything will be just fine. No damned handouts based on peoples hatred for big oil.

Can Big Oil Balance Shareholder Interest Against National Interest?

C'mon!

We don't need to tax the or force the oilers into renewable energy anything!

Have you seen the amount of money and the wall of brilliant people the venture capital community is throwing at this? Staggering.

Vinod Khosla tried this route and got pounded. He wanted a wind fall profit on oil to fund renewables. Then somebody pointed out how it would make him another billion.

It works like this.

1) Venture capital is funded by limited partners. These are the organizations that put up the money for the venture deals.

2) The VC then choose which idea gets money.

3) They then push the company to a liquidity event. IPO, acquisition etc.

4) The VCs return 80%* of the proceeds of the sale back to the limited partners. The VCs keep 20% *approx.

Now if this windfall profit tax was taking the place of the limited partners, when the company funded by this tax on big oil were to have it's liquidity event, then the VCs didn't have any limited partners to repay! They (VCs) would keep 100% of the proceeds from the venture funded by this tax. This is why Khosla sheepishly backed away when the gig was up. They wanted to use billions in oil tax to fund renewable companies and keep the proceeds! There never was any plan to repatriate any of the proceeds to taxpayers or oil etc. They thought people didn't understand the venture model (which is true) and nearly got away with it.

I think your ideas are best taken on a warm breezy day with a glass of lemonade because they are a disconnect from the full contact of everyday business life.