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A start-up company wants to sow the wind – and reap a bonanza. An interview with David A. Samuels, CFO of Catch the Wind Inc.
Edward Teach, CFO Magazine
February 1, 2010
For years, proponents of alternative energy have claimed that the answer to global warming (and foreign-oil dependence) is literally blowing in the wind. The American Wind Energy Association (AWEA) maintains that wind power has the potential to generate more than double the electricity produced by conventional means today.
But wind power generated just a little over 1% of the total U.S. electricity supply in 2008, according to the AWEA, and to date it has proven less reliable and more expensive than fossil-fuel power. Connecting remote wind farms to the larger electricity grid requires costly infrastructure, and efforts to position turbines closer to towns and cities have met stiff resistance from communities loath to see the giant blades spinning in their backyards or ruining their water views.
The technology is, however, getting a boost from state and, perhaps soon, federal renewable-energy standards, and the 2009 stimulus bill provided tax credits and loan guarantees for wind projects. Meanwhile, the industry is working to increase the reliability and efficiency of wind power. One company with a promising new idea is Catch the Wind, a Manassas, Virginia-based start-up that is developing a product called the Vindicator, which improves the ability of a turbine to position itself more efficiently. CFO David Samuels explains why his company isn't just whistling in the wind.
What does the Vindicator do?
Today's wind turbines have a two-cup rotating anemometer and a wind vane on top of the nacelle [the turbine's housing]. Those two instruments measure the wind after it has passed through the rotor blades, so they are measuring disturbed wind. Our product measures the wind proactively. It is an all-fiber-optic, laser wind sensor. It measures wind speed and direction in front of the turbines. That enables a turbine to be pointed into the wind so that it maximizes the efficiency of the turbine and minimizes the wear and tear on the components of the turbine.
How far out does the sensor measure the wind?
We've got a program for today's wind farms for approximately 300 meters. We can measure out much farther, but we believe that 300 meters provides a long-enough period of time to ensure that the control mechanisms and the algorithms are able to move the turbine into the wind.
Would you call this technology disruptive?
It's a game-changing technology. We are introducing something new to the wind-power-generation industry.
How do you get financing for a new technology in this market?
The company was founded in March 2008. It was a spin-off of another company, called Optical Air Data Systems. We capitalized it with a $15 million private placement. We did a reverse merger with a company called Bayview Public Ventures, which enabled us to secure our current public listing on the TSX Venture Exchange [in Canada]. The funding enabled us to set up a pilot manufacturing facility in our headquarters building in northern Virginia and start manufacturing our prototype units, which are the same units we have been testing with strategic partners.
We secured another round of financing last May for another $20 million–plus, and that was completed at a premium. So when all is said and done, we raised about $35 million of capital in a very onerous environment. Our initial market cap was approximately $50 million, and when we closed the year it was about $110 million. So we had a pretty good year from a shareholder perspective.
Not bad! But you are a one-product company offering something new to a market still struggling to take hold. That must make for some sleepless nights.
We just completed a trial run of a sensor-equipped turbine with the Nebraska Public Power District, and it was very successful. The incremental power improvement during the test period was north of 12%, and in some cases it was 18%. We had told the industry as we developed the prototypes that we thought we could generate a 10% efficiency improvement, so it was a very strong test for us.
We also showed a dramatic reduction in stress load on the turbine, which is the primary reason why Nebraska wanted us to install our product. There is a lot of wear and tear on the blades and the major components, which are very expensive. Our product is great for retrofitting out-of-warranty turbines, and that's really the key focus of our strategy in 2010.
The Vindicator is our first product; we will develop other products based on laser-sensor technology.
What's the opportunity here? How many turbines that could be retrofitted are we talking about?
Worldwide, there are about 100,000 one-megawatt or larger wind turbines; these are the sizable turbines that are our market. So, based just on our $125,000 introductory sales price, 100,000 turbines is almost a $14 billion market. There could be as many as 500,000 one-megawatt or larger turbines worldwide by 2020, judging from industry estimates.
To put the $125,000 price of your product in perspective, how much does a one-megawatt wind turbine cost?
Typically, turbines are priced at about $2 million per megawatt.
What is the payback period?
We believe the cash-on-cash payback period is between two and three years, and that's based only on power improvement. That doesn't include any incremental benefit through reduced wear and tear and increased life of the turbine.
How many units will you have to sell to become cash-flow positive?
We've told our investors that we need to sell approximately 200 to 250 units to be working-capital neutral.
What's to stop turbine manufacturers from making their own laser wind sensor?
We've got many years of testing, engineering, and intellectual property around this technology. We have 27 patents today. About half of those have been granted, and the rest are pending. This product came from the aerospace industry. Optical Air Data Systems has been pioneering these laser-based technologies since 1990; a lot of money, $70 million, has been put into their development. It would be very time-consuming and expensive for someone to develop something that can compete with us.
What kind of background does the CFO of a clean-tech start-up have?
Since 2000, I have been with a variety of what I would call emerging growth companies — most of them public, with either disruptive technologies or disruptive strategies. But prior to that, I guess you could describe me as a classically trained financial executive, with a CPA and MBA. I began my career with KPMG. I spent about 10 years with Marriott Corp., in a variety of senior finance leadership roles. Some of those roles were entrepreneurial in nature.
Could you see an OEM making you an acquisition offer that you couldn't refuse?
Who knows? I can't speculate on that, but it would depend on many, many factors and variables.