BizBuzz: Plastic Bags into Oil
Here’s a new feature I’m trying out: analyzing the business models of clean/green startups and inventors.
Trash to treasure
A trip to the grocery store probably sends you home with more than just your weekly menu. In fact, the average household tosses about 10 pounds of plastic every week, amounting to a whopping 30 million tons of plastic waste per year in the US.
source: EPA, 2009
Not only are plastics a significant portion of the waste stream, but we only recapture a tiny fraction of what we throw away, meaning the great majority is going to languish in landfills across the country.
That’s why the recent invention of a home-scale plastic-to-oil conversion machine got the blogosphere buzzing. The premise is pretty simple:
Plastic bags are, of course, made from petroleum to begin with, but it is not the same kind of petroleum that is used in fuel. In order to turn home waste into home power the machine heats up the waste plastic and traps the vapors created in a system of pipes and water chambers. Finally, the machine condenses the vapors into crude oil, that can be used for heating on the home level.
With a price tag of $10,000, it’s unlikely that the average homeowner can afford the device, but the inventor hopes that costs will fall as demand increases.
Interesting IP, wrong market
On the surface, this technology looks great. We know there’s a huge supply of material (30 million tons of plastic domestically) and the customers have a real and painful problem (the cost of fuel oil). Seems like a slam dunk, right?
Well…. not exactly.
As a nation we have a huge supply of the raw material, but individually, the numbers just don’t work out. What I didn’t tell you about this machine is that it takes about 2 pounds of plastic to make one quart of oil. Let’s look at that in context.
If (and it’s a big if) we could recover all of the plastic that currently goes to the landfill, these devices could supply 7,472 million gallons of oil per year. In the US, 5,251 million gallons are used annually for home heating. Sounds good.
Unfortunately, we currently only recover about 7% of the plastic nationwide. That’s the first problem, but it’s not even the worst problem.
For this invention to work on a household level, we’ve got to understand how many homes use fuel oil for heating, how much it costs them to do this, and how much oil each one could potentially produce.
According to the Energy Information Administration’s 2005 data, about 8 million households heat with fuel oil (out of 111 million total households). On average, they consume 663 gallons of fuel per year, at a cost of about $1,300. That $10,000 price tag is already looking a little steep…
The real trouble comes when you break out the plastic generation by household. Remember, each household produces about 538 pounds of plastic waste per year, and at 2 pounds/quart of oil, each household will only produce about 67 gallons of fuel per year.
Soooo, for only $10,000, you can save ~$140 a year by diligently rescuing every scrap of plastic from your garbage can/ recycle bin. And just so you realize the volume of plastic you’ll need: for each gallon of fuel oil, you’d have to collect 441 plastic bags or 152 20oz. bottles for every gallon of fuel oil you want to make. If you wanted to replace your entire fuel oil needs with recycled plastic, you’d be saving 300,000 bags or 100,000 bottles each year.
Needless to say, I don’t think this business model will work on the home-scale, but may have some interesting applications at the regional level. In fact, a company called Envion recently opened a community-based plastic to oil plant near Washington DC. At $5 million dollars, the plant is expected to convert 6,000 tons of plastic into almost 1 million barrels gallons (update: apparently the original article mixed up its units) of oil per year, at a cost of about $10 per barrel.
credit: Envion
This is why it’s so important to understand your customers AND your business model. Cool technology does not a company make.
Data Sources:
EPA 2009 Municipal Solid Waste Data
