Wednesday, January 5, 2011

You Call This "Cleantech"?

Invest in a solar, biofuels, or LED lighting company, and nobody will question the company’s cleantech pedigree.  Invest in a manufacturer of network switch upgrades for telephone companies, then call it “cleantech” and you’ll see a lot of raised eyebrows.  I know, because we did just that. 

We are investors in Aztek Networks, a company that makes replacements for the TDM switches that handle much of the phone traffic from standard landline phones.  Telecom companies are excited about Aztek’s product because it enables them, for the first time, to incrementally switch out their old TDM switches rather than doing an extremely expensive complete system overlay. Aztek’s technology also enables them to provide IP-based functionality.  Aztek’s switches are IP-based but can co-exist in the network architecture with both IP-based and “old world” GR303-based switches.  Our cleantech company, Aztek, is enabling telecom companies to accelerate their entry into modern IP-based technology.

Eyebrows raised yet?  Now, for the rest of the story… 

Aztek’s switches also reduce energy consumption by 90%.  How big of a deal is that?  The roughly 16,000 TDM switches in the U.S. and Canada alone consume about 15,000 gigawatt-hours each year – roughly 0.4% of all electricity used in those two countries.  Given that these switches run 24/7/365, they are a base load draw.  That means that burning fossil fuels produces the vast majority of electricity utilized by them.  The result is over 8 trillion tons of carbon emitted every year.

To put that in perspective replacing the aging TDM switches with Aztek’s technology is equivalent to installing over 42 million square meters of solar panels in Arizona where insolation is extraordinary (assumes insolation of 6.5 kwh/m2/day and 15% overall system efficiency).  That would be almost 20 times the amount of electricity produced by all solar power in the U.S. in 2009.

What’s even more compelling about Aztek’s technology is that it also provides a phenomenal economic return to its customers.  As an example, in California eliminating a pound of carbon emissions per year with solar costs roughly $3.50 or about $1.80 with all federal and state tax credits.  Aztek eliminates a pound of carbon emissions each year for an equivalent cost of less than 50 cents per pound – without any tax credits.  As much as 60% of the operating costs incurred by telecom companies for their TDM switches are from energy costs.  With Aztek that cost is reduced by 90%.  On top of this, those old TDM switches are huge and require extensive maintenance.  Aztek’s technology is 90% smaller, yielding large real estate savings, and requires about 30% less maintenance.  The overall payback on the technology can be as little as one year.  And without Aztek’s technology, telecom companies would not be able to move as fast to replace TDM switches because of the complexities and costs of doing complete network overlays. 

Now that’s what I call turning Green into Gold! Aztek is a cleantech company and the best kind at that – one that also delivers a huge return on investment to customers without any government subsidy.  Our bet is that Aztek’s environmental impact will exceed many companies in more stereotypical cleantech segments.  And that will raise some eyebrows as well. 


Lee said...

Well put.

REAL cleantech that reduces energy consumption or produces cleaner fuels doesn't need operating subsidies almost by definition.

Anonymous said...

Good point, supported by useful data, expanding perceptions of CleanTech to include Green ICT.

I quoted it to reinforce the importance of the "C" in Green ICT:


Oster said...

Improving efficiency is the lowest hanging fruit in cleantech. Efficiency is not just about energy efficiency, but also materials efficiency, and capital efficiency. The ROI in your case (1 year) represents very good value, that should win in the market place.

Some telcoms fight the switch to VOIP as it kills their cash cow -- landlines and/or cell phones. Many contracts do not allow using DSL or aircards for VOIP.

Alas, much if not all of the savings will be displaced by the millions of routers in peoples homes and businesses have a power adapter that runs all the time regardless of use.

Grant Arbuckle said...

David: Enjoyed your comments. I occupy the RE/EE desk at a equipment leasing company in Canada. Without knowing all the costs/margins/sales channels, etc. it sounds like a solid opportunity for an ESCO play. ESCO (AZTEK) installs equipment at client for no cost (operating lease concept) and shares the savings based on a formula. Leasing company pays AZTEK for equipment and gets paid back over time from savings. My experience with EE is that unless you can monetize the savings and turn them into revenue for your client then your clients legal and accounting issues (balance sheet, capital budgets, etc. versus an operating expense) will provide a major hurdle to product uptake. Unless of course the technology is so vastly superior that they can't do without it for competitive reasons.

Everbody claims a better mousetrap, hence a sales process to endure often resulting in status quo. Not too many firms will put quasi equity into their clients business and facilitate a win/win.


Rafael Coven said...

THIS is the way to think about cleantech. Cleantech is about resource efficiency and avoiding negative externalities WHILE creating economic wealth in the process.

As such Cleantech isn't a sector, per se, it's not even a specific group of technologies. It is technology-based products and services that have the aforementioned characteristics. Moreover, there has to be significant intellectual property involved which is why Aztech Technologies is a cleantech company, but commodity producers of activated charcoal or waste hauling firms are not.

Clearly the impact of Aztek's products on the economy and environment are far superior to those of residential solar in North America, it just may not be as "sexy" to average person.

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