An Analysis of Two Space Business Opportunities

An Analysis of Two Space Business Opportunities

Vladimir Atanasov (College of William and Mary, USA) and Gianluigi Baldesi (European Space Agency (ESA), The Netherlands)
DOI: 10.4018/978-1-60960-105-8.ch009

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1. Introduction

There are many industries where space technologies can be applied commercially. As discussed in Chapter 5 Emerging Markets and Applications range from treating and diagnosing osteoporosis. In this chapter we choose two commercial applications and develop the business case for each of them.

The first application we analyze is the mitigation and removal of space debris. This application is immediately economically viable and feasible to implement with current technology or relatively minor technological advances. Space debris is defined as any man-made object in earth orbit that is not deployed by any working systems. The large number of space debris creates significant hazards for existing satellites and would generate even bigger risks for any future expansion of human presence in earth orbit. The market for space debris mitigation and removal is large. The profit opportunities are relatively easily defined, yet only a handful of private companies currently provide products and services to this market. We use one of these companies – Tethers Unlimited, Inc. (TUI) – as a focal point of our business case for space debris mitigation and removal.

The second application we evaluate is Space Solar Power (SSP). SSP involves the conversion of solar energy into electromagnetic waves by satellites in orbit, beaming these waves to rectifying antennas (rectennas) on the ground and converting them into electricity. Space Solar Power is considered currently unviable either for technological or economic reasons. Nevertheless, with certain technological advances and/or the engagement of high-value clients it could offer tremendous opportunities for profit. Space solar power is a source of energy that does not generate greenhouse gases, has a much smaller heat rate than any conventional power generation method, and can provide enough energy to meet the needs of the entire Earth’s population for a practically unlimited time horizon. Consequently, successful implementation of large scale SSP systems could in the long run solve at least two existential problems facing humanity – energy generation and climate control. We develop our business case around two hypothetical SSP systems: 1) a 1 megawatt system intended to provide electrical energy in remote areas of interest to the military, which is based on designs developed by Heliosat, Inc.; and 2) a 1 gigawatt system, based on designs developed by Space Energy, Inc., that could, if replicated multiple times, provide base-load capacity for civilian electric power generation.

After analyzing the technological challenges and developing the business cases, we turn to the major issues of financing any commercial ventures that wish to operate in each of our two chosen space industries. Space debris mitigation and removal and especially Space Solar Power have several features that make them unattractive for private capital providers. First, there is a significant upfront investment in research, development and testing before any product becomes operational. Due to the uncertain outcomes and long payback periods, investments in R&D in general attract only a small number of specialized private investors like venture capitalists or large companies operating in oligopolistic industries. Investments in SSP-related R&D are expected to be extraordinarily risky with paybacks exceeding 25 years.

Second, the forecasting of revenues and costs in financial models necessary to determine the rate of return of investments is a lot more difficult in a space-related industry than in, say, a conventional electric utility. Higher modeling uncertainty forces investors to either require an exorbitant rate of return on capital, or just walk away from the deal. Last, commercial enterprise in space has to navigate an exceptionally complicated legal and political landscape. There are various security and property rights concerns that add even more uncertainty to an already highly risky enterprise.

Notwithstanding the risks associated with investments in space debris mitigation or SSP, we argue that these industries could offer attractive returns to venture capital funds, other private equity investors, or large corporations with a combination of dwindling investment opportunities significant free cash flows (e.g. power utilities and oil and natural gas companies). After the technological risks have been resolved, the scaling of each industry can be achieved with funding from public capital markets, which in addition can provide an exit channel for the venture capitalists and other private equity investors.

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