In Redwood City we talked with entrepreneur Steve Bisset about the business model of Terrajoule and the technology behind. Furthermore, Steve shares his learnings and advice for young entrepreneurs.

The transcription of the interview is upload below.

INTRODUCTION

Martin: Hi, today we are at Terrajoule in Redwood City. Steve, who are you and what do you do?

Steve: My name is Steve Bisset. I’m the chief executive officer at Terrajoule Corporation. We’re a relatively new startup, founded in 2009 for the purpose of introducing a very significant new kind of electricity generation equipment into the world market.

Martin: What did you do before you started this company?

Steve: Like a lot of people these days, I’ve done a variety of things. My original background was an engineer, I got a degree in electrical engineering from Caltech, but I have had a business passion from the beginning for reasons that no one can ever explain. So, from doing newspaper delivering routes, to cutting lawns, to exporting surfboards from Australia to the United States, I did a number of things. But basically the core of my background is in starting up businesses that design, manufacture and sell capital equipment to customers. So, I very much like things that cost about million dollars each, because if they cost a billion dollars, you have to be a politician and the sales process is a certain kind of thing; if it’s consumer goods, I have no intuition for that, everything, every product I like, it’s discontinued because nobody else likes it, so my taste in that is useless. But basically commercial industrial customers, the things cost a million or ten million dollars, you’re providing something that is critical and important to them, so they can pay attention to it. The process has a large rational component to it, it is always emotion and relationship, but it’s basically rational, so if you can understand customer’s problem in economic and practical terms and you can provide a solution to that customer that’s important to them and better than the next best solution, they’ll buy it from you and then the customer’s happy and you’re happy and have a relationship and that all make sense. So this is my view of business.

Martin: Let’s get to some insights on how you started and you did define on find this business idea.

Steve: My background, as I said was semi conductor capital equipment making test equipment for companies like Intel, and then I did a number of different things that I won’t take up time here, but including anywhere from travel to mathematics education. But for a long time I was really interested in the energy business. Energy is, I really can’t explain such a thing. Some people like cars, some people like energy. To me, energy is very big, it’s really important, it’s really influential on the world, there’s World Bank study that shows this very close correlation between the availability of dependable electric power at low-cost and standard of living. It’s a fundamental driver to civilization. And for me, for many years, just the appeal at a hobby level it was very interesting to me. Clearly there’s a lot change happening with the technology, there’s a lot of opportunity to make a difference, there’s a huge amount of growth and demand, a lot of developing economies that are developing now that weren’t developing before. And some really unresolved problems, so global warming is certainly one of them. That’s really, I see that, I understand it, it’s important, it’s really too big of a problem. To me to really think about something that’s sort of more media in the philosophical sense, that if you can put power, if you can distribute power, if you can distribute electrical power, the control of it, the ownership of it, you’re also distributing an economic power, you’re also distributing political power. And when you do that as oppose to having central control of it, it makes the world safer for democracy and the nice people. And it’s generally, I think, good for economic growth.

So, both of the philosophical level and on practical level, we have growing economies, the supply of electricity within those economies is the fundamental need and then gigantic, gigantic business opportunity, perhaps the biggest. And if you had a good distributed power generation gadget, that would generate electricity in smaller chunks, not hundred megawatts or a gigawatt, but a megawatt or 10 megawatts, it’s industrial sized, city sized, village sized and you can spread that around, that is potentially more economical way to do things, if you have the right gadget, then building big power stations and trying to control big robust grids, as things are building and changing. It’s really not just an economic issue, it’s not fundamentally one is better than the other, but if you can come up with the right distributed electricity gadget at the right price, then it has some really great advantages and we saw the opportunity to do this with solar power, and perhaps make one of the really significant changes in the way electricity is generated in the world and therefore have a lot of fun to do something that’s good and potentially make a multibillion dollar business out of it, which is absolutely our plan and our vision.

BUSINESS MODEL

Martin: So, let’s talk about the business model, Steve.

Steve: Yes.

Martin: From my understanding, it’s a decentralized, energy producing and storage and distribution system that you are planning to do. Can you tell us a little bit more about how this works and also together from a technology point of view?

Steve: Yes, I’ll be happy to do that. So, what the product we’re selling is, is a small power plant. It provides electricity in the form that is valuable to people. In other words, what’s valuable to people is AC electricity of 50 or 60 hertz, depending on where you are, at a defined voltage, where you have it available on demand, it’s available to run your school, your factory, your home, your air-conditioning. When you put in or when you turn on your equipment, it adjusts and it provides controlled voltage and frequency so that you can run it. When you have such electricity at reasonable cost, people invest in homes, they invest in factories, they invest in industry, it creates wealth, it creates economic growth. Any other kind of electricity that’s uncontrolled it’s not particularly useful. So having said that, that’s what you have to provide, by the way, that’s what a lot of power distributive parable comes to big diesel generators, where they do exactly that, they provide excellent power, but you have to keep feeding them with diesel, it’s very expensive, it’s polluting, it’s insecure, it’s unpredictable and so for. That is really one of the key targets, is diesel generated power, because it’s already expensive, but it works very well.

So, what we’re providing basically is little power plants that do what a big diesel generator does, but instead of running on diesel they run on sunlight. So, sunlight in, electricity on, 24 hours a day. In order to do that, you have to have a means to take the sunlight and convert it to electricity, but you have to have a buffer, you have to have a fuel tank, with diesel engine doesn’t work without a fuel tank. The tanker arrives, it fills up the fuel tank, then you run for a while. So, in the case of sunlight, it’s already distributed, it’s just distributed to your doorstep daily, on most days. It’s free, it’s untaxed, so far, and, but it doesn’t come out on a form of a AC voltage, so you have to have a way to capture it, you have to hold on to the energy in it and then convert it to electricity on demand, at a time that you do it.

So, technically and thermodynamically, what we’re doing is taking some very old, well-established technologies that people spent thousands of man year, person years developing, and perfecting and refining, so we’re not big entrepreneurs who’re going to invent some fundamental breakthrough in science. We’re too impatient for that. We really need to exploit technologies that have been used and find a way to put them together to solve a problem. So, the technologies that we’re using is solar power, so the first fundamental element is concentrating solar thermal power. So this has been done by many people before in many scales and forms, where you take a mirror, a set of mirrors, you concentrate sunlight into a much smaller space, so it creates high temperature, you absorb that sunlight into some sort of a fluid, you use that fluid to go through a heat exchange and to generate steam at high pressure. And then that steam is used to go through machine, to turn a shaft to drive an electrical generator to make AC power. Now, I would guess that most people in the audience are going to go “Ah, you’re talking about a steam turbine”. And in fact, steam turbines are coal fired plant and nuclear plant, combined cycle gas plant. I mean a lot of the world runs off electricity generated by steam turbines, the vast majority of it is done this way, but it’s not what we do, because it doesn’t solve the problem that we need.

Steam turbines are great at 100 megawatts and up, they’re great at a gigawatt, it’s a wonderful thing, and it requires you to have an extremely large power plant and a very robust distribution network. If you want to do it at a megawatt or 5 megawatts or 10 megawatts, steam turbines are not useful at all, for two reasons.

  • Number one is for technical, physical reasons, they become very inefficient in the small scale.
  • But the other reason is that steam turbines provide what’s called base load power, which is useful in a big electric grid, but it’s useless in a distributed sense, because base load power means you turn it on, and it runs on one power outlet. So, if you’re running at 10 megawatts into a factory and you turn on or turn off equipment, you’re not drawing 10 megawatts, you’re drawing a variable amount of power, and this is what a diesel generator provides very well, but turbines don’t do that.

So, for efficiency reasons and the fact that they’re not a variable power output, they’re quite useless to solve this distributed generation opportunity. But, the thermodynamics is the same, the whole industrial revolution was built on steam piston engines. Not the same ones that go into a steam locomotive, but very much the same that’s going to large steam ship. All the steam ship through World War 2 were primarily driven by steam, as was distributed power generation, where coal was delivered to a factory and you burn it and use the steam engine to generate electricity.

So, this technology through the 1930s was very highly advanced for your efficient, for your robust, for your reliable, and if you know where to look, the documentation there this wealth of technological know-how exists. It hasn’t entirely stopped in sense that it’s a piston engine, and much of the world now runs on internal combustion engines, which are piston engines, and the technology and the supply chains, and the factories are designing, and analyzing, and manufacturing those has advanced enormously over the last 80 years, but none on steam, based on combustion.

Basically, if you take high pressure steam and you put in the piston, it will move the piston which will turn a crankshaft which will create electricity, and this is an old, old principle.

So, the first part of our technology is to use mirrors to concentrate sunlight to generate high pressure steam, that drives the steam into extensor steam engine and causes to turn a shaft, the crankshaft, which drives an electrical generator and creates electricity. Having said that, that by itself is quite useless, because that’s exactly what a solar panel with an inverter does, and solar panels with inverters are quite cheap nowadays. It’s an amazing progress that’s been made in that area, but they have no practical storage. To create electricity as the sun is shining is not matched to the needs, so a distributed power sense that has no value, really. You can solve this problem with a very large pile of batteries. The batteries today and for the perceivable future are simply too expensive to be economically interesting. They have corners of application that make sense, but it’s a long, it will be ten years or more before batteries are cheap enough to provide mainstream power economically.

So, the reason why we want steam engines is because it allows us to then use an invention in storage technology, which is much cheaper than battery storage. And the way that we do that is we basically use a steal tank, a large steal tank, 10.000 gallons, and a 40 foot container full of water, with installation around it. And basically what you have, with what I described is you have sunlight and mirrors generating steam under pressure at very high volume, but you don’t want to use that while it’s been generated, you want to park it, you want to hang on to it, and then choose when and how much to convert that through the engine into electricity. The steam has huge volume, so it’s not practical to store steam under pressure in volume, but steam is made of water, water changes from liquid to gas, every time you take a breath you’re doing that, every time a plant grows a little bit, it’s doing that. And this is what the whole steam power turbine thing is based on. So, our thermodynamics is exactly the same as those power stations thermodynamics, but it’s done with pistons instead of turbines.

And basically, if you take steam and you squirt it under pressure into water in the tank, the steam will condense, all the available energy in the steam goes into heating and pressurizing the water, so you can squirt a massive volume of steam into a relatively small tank of water. The steam just disappears, but the tank of water gets hotter and more pressurized. And if you open the valve, the top surface of water will boil, and, to be more specific, the latent heat of condensation and the steam that imparted its energy into heating and pressurizing the water is the same as the reciprocal of evaporation required to boil water and turn it back into steam.

So, you have a steel pressure vessel, basically I have a pipe, and massive volume of steam goes into the water, pumps it up, if you will, heats it, pressurizes it, and then at a time of your choosing, you can get back out again a steam and the energy in the steam that comes out is within 95% percent of the energy that went in. And so, this is in means of hanging on to, the energy coming from the sun and then choosing exactly when and how much to convert to power through this efficient steam engine technology that can operate over a very wide range.

The reason it works economically is because the characteristic of the steam engine which is very different from the characteristic of a turbine, that’s that steam engine can operate efficiently over a very wide range of pressure. Which means you can heat the tank up, you can put a lot of energy into the tank, and then you can get a lot of energy out of the tank. And the question is what did the tank cost and how much energy can you get out of it, by the time you convert to the steam engine. And the answer is, the way that numbers work out is when you combine this 1930 steam engine technology with today’s ubiquitous 2500psi tank technology, which is what’s used for propane storage and all sorts of things, that the cost to store and retrieve a kilowatt hour of electricity is less than a 100 dollars per the capacity to store and retrieve a kilowatt hour of electricity.

Martin: That is compared to a conventional ways of storing?

Steve: So, just the other day there was announcement in Southern California that the large utility there done a multi megawatt hour project with lithium ion batteries, and the cost per kilowatt hour of storage capacity was 1,600 dollars. If you talk to, if you listen to, there will be progress in this area, for example Tesla are building a giga factory. So they are going to drive to cost down one day. But realistically now it’s well in a system level, it’s well above 500 and maybe slowly come down below 500, 400 maybe one day 300 at a system level.

Our prototype, not after we build a billion dollar factory, but our prototype, when we build one, was less than a hundred dollars for that same capacity. So it’s really 10:1 breakthrough in the cost of energy storage, and occasionally, if you run into something like this, that addresses the specific problem that we’re trying to address, which is distributed electricity generation from a free source. So, the conversion of the sunlight in the useful electricity is now enabled by a steel tank full of water, and a 1930s steam engine, and some mirrors. And it’s this combination that, and it’s all about the money, it’s a question, what does this piece of capital equipment cost and is it able to generate electricity at a rate, over a period of time, that’s a long life? So it generates a string of value, which means that you don’t have to pay something else for that value, so you’re making capital investment upfront that’s producing a value string, and the question is what is the rate of return on capital. So, it costs a certain amount, it produces a certain amount of electricity, which eliminates the need to buy that much electricity from something else, from that you calculate the rate of return. If that rate of return is more than 15 or 20% it’s enormously attractive in a world full of capital that’s thirsting for something to invest in, and it draws all this capital. So you can think of solar energy with storage as really the world’s biggest lending opportunity ever, in history, because it takes a month by month stream of expenses and allows you to invest in capital equipment that offsets the cost of that monthly expense, in economic terms that’s what it is.

So, in terms of business model, really, from us, we have to have manufactured integrate and sell boxes of equipment in 40 foot containers with mirrors that get installed. These systems will have a capital cost anywhere from a couple million dollars to a raise of them that might cost 50 million. It’s very flexible in that regard. The typical arrangement of the world is the world is divided into people who purchase electricity on a monthly basis and people who invest in power plants to sell electricity to those customers. So, there are many variations on this theme, but for the most part, we will be selling our product to the people on power plants, who raise capital from investors, who buy that capital. That operation sells electricity to the people used to buying it, they get paid for it monthly and there is a rate of return for that investment, and providing the cost of our system solves their problem, as you can plug it in and are able to use it and are happy with it. And the rate of return is good, then you have a growth business.

COMPETITIVE ADVANTAGE

Martin: Steve, Terrajoule is very good example of combining different technology that is used, well known and well established and combining it, integrating it and making a new kind of integration, integrated product. But how do you increase your barriers to enter? So, how do you keep your competitive advantage? Because, as you said, everybody could do this because the technologies are well known.

Steve: Yes, the technology is well known, and the mirror systems that creates steam, there are multiple suppliers you can purchase them. The pressure vessel, there are hundreds of suppliers in the world, that you could purchase that. Where are you going to buy steam engine?

Martin: I guess at Terrajoule, I don’t know.

Steve: You can’t. There are, there really are no companies, there’s really no market in the world for steam engines. There’s a German company that makes some for certain specialized application. Steam engine technology like other engines has different technologies through it, so they are good for different purposes. And for what we need, if this was 1930, we could’ve purchased engines that could do what we want with some adaptation to the system needs of the solar and the storage, but basically, that technology existed. It has not been manufactured since 1955.

So what, so the biggest barrier to entry, apart from the fact that we have a core patent on our architecture that allows the storage to accrue which we think will be very robust, that’s issued in China, Australia, Mexico. We expect it to issue in the United States really soon, and another places. But patents are form of protection, but they’re not rock solid. You basically have to be the best one at solving your customers problems so they choose to buy from you. And the barrier of entry is the steam engine. It’s really the steam engine. So, through investment we spent over 10 million dollars so far prototyping, understanding, filling in the gaps of the knowledge, the experts who knew how to do this, there’s a lot of literature and documentation than we are students, we are diligent students of history, of digging out the information other people know. But unfortunately, we can’t go and hire 10 people who have years of experience designing and manufacturing steam engines, they’re dead. And so we dig out the literature, some of the key information was trade secrets, it was competitive proprietary information between steam engine companies.

So we had to build prototypes full scale, find the gaps in the knowledge, find the things that broke, and go back and reexamine the literature, figure out what they really meant, refine that models and get it to the point within we know how to design a modern piston engine. To do that, we contracted with a company called Roush Industries in Detroit. Detroit is the place, Detroit is the Silicon Valley of piston engines, that’s why they know how to do it. There are 3000+ organization firm that does a lot of outsource engine design to go into manufacture. They also low volume manufacture, they do it for car companies and a lot of other businesses and they support three Nascar teams, so they build race car engine. So these are world class guys that know how to do piston engines.

So we take our steam engine knowledge and their knowledge of piston engines, and longevity and reliability and maintainability and all their knowledge of the whole supply chain. They know how to do that, so we put those together and we’re now at a point where we’re about to release tools and start building the first production versions of these engines. So we will go into testing next year.

So, this is a huge barrier to entry, because to decide to do it, you have to see the opportunity, you have to see that old-fashioned steam engine technology is the key to it; you have to be not doing what everybody else is doing; you have to be not thinking solar panels and batteries; you have to be not thinking steam turbines; you have to be not thinking centralized power; you have to be not thinking attaching something to a grid with net metering that depends on government policy. You have to be looking at this distributed worldwide power generation energy on demand opportunity, and see that there’s a way of doing it, and then somehow persuade people to give you money that you need to get that technology recreated and do it. That’s not so easy.

ADVICE TO ENTREPRENEURS

Martin: Steve, what have been your major learnings and what advice can you give the young entrepreneurs?

Steve: I don’t think there’s really a lot of magic advice and I’m not going to, I have nothing really brilliant to say that hasn’t been said by other people. The difference between an entrepreneur and somebody who’s not an entrepreneur is not thinking of the ideas, it’s that you actually do it.

But, the particular thing and the thing that’s governed my own pathway through different entrepreneurship is you have to understand that there’s a problem worth solving.

Then you have to, from my perspective, I’m not in the government grant 10 years of science research, that’s sort of thing, I want to get a product that you can sell. So, you have to be, you have to go find the customer, find who would pay for it and why, what are the limitations, what’s your solution, what’s in that, what do you have to do to get to the point where you can sell something to somebody.

In our case, we started out with a narrow example. I was looking for a vision as to something I wanted to see in solar power generation. I made a decision in 2008, I’m going to find a way into that, because it’s the biggest, most exciting, most worthwhile thing there is and I’ve been thinking about it for years and I wanted to do it. So, this is Silicon Valley, there’s lots of opportunity for people to meet people, a hundred around, I met an Australian engineer by the name of Robert Mierisch, who’s coming from one of those very large turbine based centralized power companies, where that model actually technically was working but financially and business wise wasn’t working. And he’d been pushing for steam engines because they are at the right scale that you can distribute. Now, most people would look at him and go “This is a wacky engineer, he’s a crazy guy, old fashioned steam engine, this is ridiculous. Who would think that this is a game changer, something that’s going to change the modern world? We’re done with that.” And so I, there was an event, and he got up where there were 20 people in the room and the first thing that interested me is that he was talking about something that nobody else was talking about. So, when you’re thinking about starting a company and you look at panel of venture capitalists or stuff like that, whatever they’re talking about their technology is too late, forget about it. They’re ahead of you, they are smart people, they are funded, the odds of you catching up and doing anything actually useful are almost zero. Nobody was talking about steam engines and solar, wow this is interesting. And then he was talking about an opportunity to replace the function of diesel engines driving irrigation pumps in California.

So, to cut the story short. We met, actually we were both born in the same town, I’m also Australian, you may have not realized it, it’s because I’m not speaking Australian at this moment. But we started collaborating, we found that there were many diesel powered irrigation pumps in California. I looked for a company that was selling power systems to those customers that had their trust, we worked through them, we talked to lots of farmers running these irrigation. We understood technically what their needs are and we evolved this technology so that we could at least define a product that you sell to a customer through a channel who would write a check for that, for economic reasons that are well understood and they’re already doing something similar related to it, so that you could see that they would do it. So, it’s closing that loop and finding out you have a customer, this is actually a tiny, tiny sliver of the worldwide market, as our understanding of this develop, you get to start with one customer. Having a million customers who might almost buy your product is no use. You have to find one customer who actually would. And what are all the reasons why they would and why they wouldn’t and what their alternatives are, and then how you get from here to there.

So, this is my way of thinking is, and I think this is true for a lot of businesses, even in internet business, you have to understand who is sitting down and doing what that will cause them to want your product, and what are the reasons why they would or wouldn’t buy it, or yours or somebody else’s, and in the case of capital equipment business it’s very, fortunately it’s very concrete. That it’s economically driven, the customers have spreadsheets, they understand rate of return, they’re keenly aware of it and they understand risk and barriers and also it’s a lot of things that you can’t hunt through, what are all the things that you have to before you can deliver product. And then you start to put together a plan, thinking about the resources, the engineering, how you can get it done, all those sorts of things. But it’s sort of, you have to have a big picture, and then you have to find a representative customers, a very little picture within the big picture, and then kind of work back from that.

Our big picture is there’s a 50 billion dollar a year market for this, for next 30 years. And it will change the world, it will decentralize economic power, it will eliminate an awful lot of carbon pollution, and diesel pollution, it will make the energy supply chain for a lot of parts much more secure,… There’s a lot to like about it, in terms of sense that if we do this, we’re going to be making the world, we’re going to be dong more good than harm to the world, by a long shot. But that is also a practical business. There are distribution channels, there’s a manufacturing supply chain, it doesn’t take a billion dollars of government money to do this, it’s the term foundry, silicon foundry, started with iron foundries, we get iron castings made to make engines from iron foundries. So we can solve the worlds CAD models to, and drawings the specifications, it’s mechanical manufacturing task, with existing distributed energy companies, as channels by which we get to the market.

So, it’s, I don’t think, I think if this were my first startup, it would be pretty difficult to do. Obviously, it’s not, and the fact that it’s similar to, semi conducted capital equipment is not power generation equipment, but it’s selling complicated electro mechanical products to customers who really care about them, and sort of deep industrial food chain thing. To me, it has a lot of the same essential elements to it, and so you learn how to think about that and how to trough the process of doing that.

Martin: Steve, thank you very much for your time and your insights.

Steve: You’re welcome.

Martin: And, let’s make this world a better place with decentralized energy storage and distribution and production. Thank you very much.

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