Team:Macquarie Australia/Practices/Implementation/RiskAnalysis
Identifying and managing risks
As with all commercial ventures it is imperative to understand the potential underlying risks that would impinge on the overall success of the business so that they can be effectively managed and potentially mitigated entirely. Typically risk falls under a few specific categories; financial, legal, market, technical and systematic. Ultimately the appraisal of risk forms the basis for venture capital and private equity funding where investors seek opportunities to diversify their portfolios based on their unique risk profile.
Financial Risks
One of the greatest challenges for any potential business is raising sufficient capital necessary for a business to gain the momentum that ultimately yields income. A fundamental aspect of this process involves ascertaining costs associated with production, labour and ultimately optimisation. What makes our case challenging is that, unlike conventional ventures, optimisation of production through adequate research and development is the foremost sunk cost. After the reward of this sunk cost is realised, labour costs will be significantly minimized, the principal financial risk herein is realising a return for this initial outlay. In light of this there is growing interest globally in socially responsible investment opportunities (see Table 1) which represent ethical investments that neither contribute negatively socially or environmentally and represented $21.4 Trillion at the end of 2014 rising $13.3 trillion over the last two years1. This provides a significant opportunity for future technology ventures which are traditionally high risk, high outlay and difficult to finance. Furthermore it proves a path for future product development and global market expansion in the future particularly where SIR is more prevalent (see Figure 1).
Legal Risks
As explored in competitive advantage based on our conversations with two independant patent lawyers we have a fair case for IP provided that our product is novel (which to the best of our ability it is) but is also innovative solving a problem in a unique way. A key risk could be the failure to crystalise adequate intellectual protection in time to reap the rewards of exclusive rights under the presence of aggressive competitors.
Market Risks
Within the timeframes involved in bringing our product to market it is important to consider both the variability of global energy prices and sustained decline of renewable energy costs. At the time of writing brent oil prices are quite low making direct competition with fossil fuels challenging, while falling costs of photovoltaic cells pose even stronger competition.
Technical Risks
By far the most challenging risk involved with our project are technical and can be better understood as the relationship between efficiency and yield. Ultimately, synthetic biology creates real world solutions from naturally occurring processes .As such, this is both the biggest source of risk but also the largest source of opportunity. In nature, H2 is produced at low rates, due to the complex reaction system necessary to overcome high amounts of free energy, the water splitting reaction producing ΔG = 237 kj. However, within the literature2 hydrogenases can achieve yields of 0.1% representing 2.5-13 mls H2 l-1 h-1 being consistent with our mathematical modelling projects of 10.7mls H2 l-1 h-1. There is a risk in falling short of the efficiencies required in using the hydrogenase enzyme which in and of itself has its own advantages and disadvantages.
As a contingency plan for inadequate yields and efficiency resulting from proton/oxygen separation, development of an oxygen resistant hydrogenase enzyme could significantly improve hydrogen production, and may be explored in the future. Furthermore other possible hydrogenase enzymes could be explored relative to the literature, as is seen in table 3. Ultimately the versatility of our design and synthetic biology in general means that the future optimisation of the hydrogenases could improve yields and efficiencies even further in the future.
Table 3: Other possible sources og Hydrogenase enzyme and experimental yields3.
Systemic Risk
Systemic risks are defined as those which are structural and therefore beyond the control of a typical enterprise which in our case applies to the security of water supplies as large amounts of water are required sustainable long term. For the water splitting process to replace oil and coal as a fuel source, in Germany, the estimated amount of water required per person, per day is 30 L. This is based on their total primary energy consumption, and assumes equivalent relative power conversion efficiencies for oil and H2). It’s been calculated that ~1ml H2O (0.05 mol) per second is used when exposed to 10 h of useable sunlight per day. If a turnover frequency of 1000 s-1 is to be achieved, 50micromol of catalyst is needed per person3. A global water security survey by the independent consulting firm maple craft has placed Australia in the medium risk category being similar to the US and other western countries that have the regulatory security to support large populations and industries see figure 24. As such we feel the systemic risk from inadequate water supply is low, and can be further managed by focusing on sustainable water supplies.
Strength/Weakness/Opportunities/Threats - SWOT analysis
An effective way to systematically describe and appraise risk is SWOT analysis. It leaves us with the main salient risks for loss while offsetting them with the potential rewards to counter balance them
References
1) KPMG. (2015). European Responsible Investing Fund Survey 2015. Luxembourg.
2) Hallenbeck, P. C., Abo-Hashesh, M., & Ghosh, D. (2012). Strategies for improving biological hydrogen production. Bioresource technology, 110, 1-9.
3) Lubitz, W., Reijerse, E. J., & Messinger, J. (2008). Solar water-splitting into H 2 and O 2: design principles of photosystem II and hydrogenases. Energy & Environmental Science, 1(1), 15-31.
4) Maplecroft. (2010) Water Security Risk Index 2010 Bath, UK, from http://ehsjournal.org/http:/ehsjournal.org/michael-bittner/water-shortages-threaten-global-security-maplecroft/2010/