Meet the Man Who Draws Money Out of Hot Air

22.05.2017 • Gold and Natural Resources

Andrew Lockley – Exponential Investor (Great Britain)-

 

You might think of heat as something you’d like to keep hold of. After all, that’s why you insulate your house. But in many other settings, we’re only too keen to reject heat. Air conditioning, cooling towers and refrigerators all need to dump heat. Fundamentally, that’s all energy going to waste. Globally, the losses are gargantuan. If only we could find a way to use this energy, it would be a licence to print money.

Now, I’ve found a man who can capture the money that’s locked up in hot air and water.

Today, I’m interviewing Alan Healy, CEO of Exergyn. I originally met him at the Great Private Investor Summit – which I’m visiting again, this Thursday. His firm has developed a cutting-edge power technology, which runs on waste heat.

AL: Hi Alan. Can you start off by telling me a bit about Exergyn?

AH: Hi Andrew. Exergyn is developing an engine – the Exergyn Drive that runs on hot water. It’s a simple but innovative technology. This will enable us to make the product cost-effective. It will facilitate the sustainable use of waste hot water for the first time.

AL: You say your engine runs on hot water. How much hot water is available?

AH: We estimate that the amount of energy lost each year as low-grade waste heat is equivalent to twice the oil and gas output from Saudi Arabia. In the US, the Department of Energy reckons the utility sector wastes enough heat to power Japan.

AL: You’ve previously discussed an “energy trilemma” as being at the heart of this. Can you explain what this means?

AH: As consumers at home or at work, we expect to be able to keep our lights on. We complain if bills are too high – but we also want to have clean power, which doesn’t contribute to climate change. This is a challenge facing the utilities industry – and existing systems cannot deliver on all three. The current investments in renewables are beginning to solve the cost and resource issues. In order to meet our needs, utility companies need access to power which is reliable and available. This must be power we can afford, and which has low (or ideally zero) carbon emissions. Taken together, this isn’t an easy problem to solve. Exergyn can deliver on all three fronts.

AL: Why is this such a big issue now?

AH: Traditional fuel industries, such as coal, are in decline. Within a decade, all the UK’s coal-fired power stations will be closed. Many of our nuclear power stations are old, and proposals for new ones are proving highly controversial.

Many countries are increasing solar and wind capacity. Consequently, costs of these technologies are falling. However, these technologies increase our need for energy storage, which in turn bumps up the cost of our electricity. On cold, calm nights, we are going to be very short of capacity. This means we may struggle to keep the lights on!

AL: So who would stand to benefit from using an Exergyn Drive?

AH: Exergyn delivers on all aspects of the energy trilemma: the Exergyn Drive will deliver reliable, clean, low-cost electricity. We’ll all ultimately benefit.

Disposing of waste heat through the radiators on engines can cost money. Exergyn can turn this cost into revenue, which is highly attractive. There is also increasingly stringent legislation on emissions emerging in many markets all over the globe. The Exergyn Drive can help companies achieve compliance – but without a significant overhaul of their current machinery. We can use the waste heat that goes into the radiator on large engines. Instead of rejecting this heat to the atmosphere, we can put it to good use. Our plant takes this waste heat and uses it to generate electricity. Biogas sites are a good example wherein facilities are remote and often have little use for heat. You’ll often find these biogas plants at landfill sites.

AL: How does your technology work?

AH: We have a developed a very simple machine which uses special wires. These are made from a material called shape memory alloy (“SMA”). Most materials expand when heated. SMA is one of the very few materials which contract – and so forcibly – when heated. It then relaxes to its original size when cooled. If made of SMA, 1m of coat hanger wire could lift four grown adults over 3cm off the ground. The Exergyn Drive relies on a thick bundle of these wires. Together, these could lift a sperm whale.

AL: How many aardvarks could it lift?

AH: About a thousand.

AL: What about opossums?

AH: 13,500 – but that’s a fairly crude estimate, as there’s a fairly broad distribution of sizes in opossums.

AL: Thanks for clearing that up. Your knowledge of animal masses is encyclopedic. As I’m sure you can appreciate, opossum-lifting is a rare use case – although I wouldn’t want to detract from its importance. Can you explain how you obtain useable energy from the system?

AH: When an SMA wire is heated it contracts; when cooled, it relaxes back to its original length. We fix one end of the wire bundle to a piston and the heating/cooling cycles causes the piston to move in and out. We use this to drive a generator via a transmission. It’s not unlike a two-stroke chainsaw engine – but with very low speed, and very high torque.

AL: You mention the SMA used for the wires. Can you tell us more about it?

AH: We use shape memory alloy for our wire. This has applications in medical products and actuators. It’s also used as the underwire in bras; and for novelty products, like self-bending spoons. We use nitinol, which is a unique blend of nickel and titanium. This was first discovered in the 1950s. In our application, we need the wire to expand and contract millions of times, without breaking. When we started, this had never been achieved by anyone – so we are pushing the frontier of the science.

We have had great success in this area, and we have exceeded our original design target of five million cycles. Ironically, our biggest problem is the testing machinery breaking – we have had no problems with the wire.

AL: Aren’t there plenty of other technologies that can utilise waste heat?

AH: Competing processes work best with high-grade heat. These are technologies like steam turbines, thermo-electric generators, turbo expanders and organic Rankine cycle (ORC) generators. Working with low-grade waste heat, at less than 100°C, is a challenge. The Exergyn Drive is the only product that can give a commercially attractive payback at less than 100°C.

AL: What size of engine do you require?

AH: The Exergyn design is modular in 10kWe units. On a 1MWe biogas engine, we could add up to 90kWe. We originally targeted engines with outputs between 200kWe and 10MWe. We have found that there are sites with large amounts of waste heat that could be interested in much larger systems. Some of these sites get their heat from other sources (eg, geothermal or solar) so we are not limited to engines.

AL: So is it practical to use the Exergyn Drive?

AH: Oh yes. We want our units to be as quick and simple to install as possible. They can easily be retrofitted. Installation can be a simple plumbing job – simply connecting the radiator pipes to our engine, and wiring it into the electrical supply. Then, it just sits there – running whenever heat is available. You don’t have to think about it at all. We’ll check it each year, and carry out maintenance every few years.

AL: Can you really get enough cycles out of the wire to make it reliable and cost-effective?

AH: Wire life is the key factor for our development. We have got world-class teams, in Dublin and Prague, who are dedicated to improving this. We reached the original target for number of cycles before the end of last year. This is ahead of our original plans – so our confidence is increasing rapidly. Our partners now agree, and think we will exceed our original target by quite some margin.

AL: That’s interesting. Do people want to use their waste heat?

AH: All the easy energy efficiency measures have already been implemented. It is getting harder and harder to improve efficiency, and reduce carbon emissions. Waste heat is one of the few untapped resources left. Nearly everyone we talk to wants to use their waste heat – some are desperate, and under significant pressure from their customers.

AL: So is Exergyn’s engine cheaper than other forms of power generation?

AH: If the source of waste heat is free, then the cost of electricity is very attractive, potentially at around 3p/kWh. Compare this to another generator which can run 24 hours a day, such as Hinkley Point. Hinkley is expected to cost around 12p/kWh – so Exergyn’s solution looks very attractive in this light. The Exergyn Drive will also generate on a continuous basis. It will be more cost-effective than a similar system, with solar PV and batteries. Any fossil fuel plant is sensitive to the fuel price. There was little investment in the oil and gas industry whilst the oil price was low. It is expected that oil will be back at $100/barrel within three to four years. At this point it can be very attractive to use the waste heat from engines, fuelled using oil derivatives.

AL: How do you ensure reliability?

AH: We need a robust product. To achieve our low maintenance costs, we have to deliver on the number of cycles. One of the key challenges is proving the wire quality meets our needs. We have had to develop accelerated testing methods to enable us to get this right. We expect to manufacture in high volumes – so we are using expertise and practices from the automotive sector to get this right. Reliability and quality are fundamental when launching a new technology. We have seen other new products suffer major reputational damage from the failure of one component. Samsung’s exploding phones are a great example! It is really important to us to avoid this – as we’re launching a completely new technology.

AL: What’s your business model?

AH: This is an interesting question, Exergyn is highly customer-centric in its approach. Some customers want to buy outright, to maximise their benefit. Others want to minimise their outlay. Some firms want their existing engine supplier to install and maintain the equipment. So, we’ll offer multiple packages to meet all our customer requirements. Flexibility is the key for us here.

AL: Do you think that we will routinely deploy waste heat recovery in future?

AH: The market is changing rapidly. People know they have a problem – and we are seeing huge interest from all over the world. Once the technology is commercially proven and accepted, we expect it to be deployed wherever the returns are attractive. We think it has the potential to increase in popularity very rapidly. Watch this space…

AL: Can you tell me about the firm itself – your future plans, fundraising, that sort of thing?

AH: Of course. Exergyn was formed in 2012, and since that time, we have built the business up to 21 people. We are about two years from commercial sales – with plans to run industrial trials on several sites before then. To date we have raised over €3.5m in equity and won a Horizon2020 SME grant worth €2.5m. We will need more equity funding to commercialise.

AL: Have you got a lot of competitors?

AH: No real direct competitors that concern us. We keep an eye on new technologies – but they typically have characteristics which will favour certain niche applications. We haven’t seen one that significantly impacts our plans. We’ve got a lot of half-competitors who are solving problems in related markets in different ways to us. For example: there are several products which can recover high-grade waste heat from steam. Others are suited to very large or very small applications. These aren’t necessarily direct competitors – but they are an alternative way of solving somewhat similar problems. There are also technologies under development which propose to utilise hot water, and these could become competitors.

Competition is natural, we expect it. But ultimately we expect to be the best commercial solution to low-grade waste heat. A bigger threat to us is being copied. To counter this, we have developed a strong portfolio of IP, covering all the key aspects of the engine’s design.

AL: I see. So is what you’re doing pretty unique?

AH: We believe this is a unique approach – but we’re certainly not the only way to recover energy from heat. And we’re quite glad of that – because there is an enormous market here. We are talking to many of our “competitors”. We want to work together to break down the barriers and get the issue on the political agenda. Most competitors have a good niche which doesn’t really overlap with us, and our own niche is huge. We will potentially partner with them. None of these firms are targeting the hot water resource – so this approach could be good for all of us.

AL: What drew you to working on this project?

AH: I had written a children’s book set in 2096 that featured climate change. This is the world that our grandchildren, or great-grandchildren, will inherit from us. It is set in a world where sea levels have risen to the extent that everyone lives in floating cities. With our hero, “Tommy Storm”, set to save the world, the book is great fun.

It set me thinking – and I decided I wanted to make an impact. I didn’t want to tell my daughter or my grandkids in the future that I had done nothing to help prevent catastrophic climate change. I met up with some similarly-minded colleagues. They had other parts of the jigsaw (such as PhDs in thermodynamics, and in the material we are using), and we put the pieces together. I had set up and run businesses in the past – so I brought my business acumen to the table. I saw that this had real commercial potential. It’s so rewarding to feel that you have the potential to make a significant impact on a global scale.

It’s not the complete solution – but it will contribute to the overall result that should mean we don’t have to rely on Tommy Storm to sort it out! How could you fail to be excited by that?

AL: Moving on from your own firm specifically, you’re working in the clean energy sector. What do you think the future holds for this?

AH: I daren’t predict the future for the energy sector, it’s in such a state of change.

Look at the big six utilities here, some were valued in the hundreds of billions of pounds a decade ago. They crashed to a few tens of billions – because they are not adapting to change. Now renewables are attracting two-thirds of all energy investment – and most investors are demanding rapid paybacks with decent returns. Costs of wind turbines, solar panels, and batteries are coming down. Nobody predicted this rapid change – so forecasting the future will be similarly difficult.

We can see that developed countries are moving towards distributed energy, and away from centralised power. Opec is trying to push oil prices up – but the US shale market is not helping their case. Coal is on the way out. Finland and France have made recent announcements to cut coal from their power mix, and even China is scaling down production. The Paris Agreement has come into force – but Trump is president, so will he have an impact? Tesla wants us all driving electric cars, but Toyota says the all-electric is not the way to go. I would love for the planet to put a real inescapable price on carbon. Predicting the future is impossible, but I do predict that we will continue to move in the right direction – and that the speed of change will only increase. Exergyn will be ready to adapt to any opportunity the future offers.

AL: How do you think your service might develop, over time?

AH: For the first two years we will sit the Exergyn Drive modules on land-based engines. After that we will explore other applications. Energy markets are changing so quickly that we plan to remain flexible about the future. The shipping industry has legislation driving change. Being able to generate small-scale power from 90°C water could change the geothermal industry. Longer term, we can look at developing much larger drives, with megawatt-scale outputs. We can also think about energy storage systems, or renewable energy systems without the need for batteries. The opportunity is so huge, it is more about getting the other aspects right – such as simplifying installation, and offering the types of solutions our customers require.

 

Best,

Andrew Lockley
Exponential Investor

 

-Read more at exponentialinvestor.com-

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