Hydro Energy Entrepreneur Wayne Krouse (Part 6)

SM: Outside of the US hydropower is viewed in a positive light. Here it has a stigma. Why is this?

WK: I think there have been a number of large lawsuits brought by the environmental community over the years that the government has lost. They have dealt with the health of the ecosystem, and the Endangered Species act. People do not realize all of the benefits of hydropower. First, hydropower provides emission-free renewable energy. Second, it provides recreation in the form of lakes people can boat on. Third, in many cases it provides irrigation and drinking supply. Our technology is very fish friendly. We recognized from the very beginning that fish were the issue with hydro, so our initial design parameters were to have 100% fish survivability.

SM: How did you do that?

WK: Our design only rotates at 21 rpm, it is more like a revolving door at the airport. You could literally swim through our turbine. It is twelve feet in diameter and has three blades. It is a very different type of machine than what you see in a conventional system.

SM: What is your business model? Do you get a percentage of the extra power generated?

WK: For Hastings we have a power purchase agreement with the city. We get a percentage of the revenue that comes from power generation. More than likely, as we go forward, we would do it as an equipment sale since it is a patented system that can bring royalty back to the company. We also have some greenfield projects we are trying to do on our own. In that case we would be the power operator and negotiate a power purchase agreement with the end users. We have a number of projects in Alaska where remote towns are off grid and use diesel to generate power. The equivalent cost per kilowatt hour can be 74-80 cents an hour. The state of Alaska gives rebates for some of that, but the end user still sees 20 cents or more per kilowatt hour for their power cost.

We are putting these systems in the water on a seasonal basis. We cannot do it year round because ice on the river could damage the equipment. We can do that at a very low cost compared with diesel, and we eliminate the emissions during that time as well.

SM: Operationally, how is the company working? Who manufactures the equipment?

WK: Our first unit is being manufactured via various sites. Our engineering firm is the project manager and we are going to be assembling it onsite. As we go forward our strategy is to use contract manufacturing. We have already been in discussions with an automobile manufacturer that does not have as much business as they had in the past. They have plants here in the US and Canada and already do some manufacturing for some renewable energy companies. They have the skill set to do not only manufacturing but assembly as well.

SM: Now you need big dollars.

WK: Exactly. We are in due diligence with five firms at this point, and it looks like we will receive the funding we need. We have a New York Stock Exchange EPC company that is acting as a strategic lead. It is an interesting group because it brings in the core disciplines we need such as manufacturing, design, and knowledge of application points where we can deploy this technology in the future.

SM: How are you dealing with valuation issues between your first round and your next round?

WK: We are doing it based on contracts that are being negotiated. We also have a nice pipeline. By the end of 2009 we should have $20 million on the books in sales. Recurring revenue is also generated from power purchase agreements.

When we go to existing hydro facilities and do the non-capacity amendment to the license, we expect FERC to issue the license for the remainder of the existing license. In the case of Hastings, they have 23 years left on their license, so this should be in for 23 years. We will also be first to market in the US with a FERC-issued license for hydrokinetic generation. We are getting first mover advantage, revenue generation in Q4 2008, and a number of potential $5-$10 million projects that have the possibility of closing in Q4 2008. We have a nice pipeline and have a lot of interest from Europe and Kyoto Protocol countries that have emission reduction targets. The intellectual property is also valuable.

SM: Sounds like you have good traction and have made those first four years start paying off! Congratulations.

This segment is part 6 in the series : Hydro Energy Entrepreneur Wayne Krouse
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