hydrophobic coatings for condenser systems: complete technology strategy

:

Hydrophobic Coatings

For Condenser Systems

COMPLETE TECHNOLOGY STRATEGY

Ben Gallatin

Derek Phillips

Nigel Walker

April 30th, 2015

Vanderbilt University

ENGM-221-02, Dr. John Bers

Technology Strategy for Hydrophobic Coatings

Gallatin, Phillips, & Walker

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Executive Summary

With global CO2 emissions on the rise and increasing restrictions from coolant

effluent regulations, thermal power plants are under tremendous pressure to increase the

efficiency of their operations and decrease emissions. One partial solution is

implementing a hydrophobic coating for condenser units. In the power generation cycle,

this coating increases the efficiency of the condensation process. It creates a larger

pressure differential between the inlet and outlet of the preceding turbine, driving it

harder and creating more power for the same amount of fuel used. In effect, not only does

the coating yield a positive effect on our environment, but it saves power generation

companies millions of dollars per year.

Founded out of a collaboration between two research laboratories at MIT,

DropWise Technologies Corporation produces a coating that is based on a patented

initiated chemical vapor deposition technique. Utilizing this technique, a portable

dispenser system applies the superhydrophobic coating to virtually any configuration of

condenser - new and old.

This report chronicles a complete strategy for bringing the coating technology to

market. It involves DropWise partnering with multi-billion dollar Exelon Corporation,

the nation’s leading competitive energy provider. Exelon strives to adopt “smart”

technologies and in particular, improve energy efficiency of the company’s pre-existing

facilities. With Exelon’s capabilities, DropWise will be able to first apply the coating to

each of Exelon’s plants before moving on to other energy providers. This will allow the

collaborative to take data from representative plants and condenser units that can then be

extrapolated to find a fitting cost and matching return on investment. Armed with the

resulting data, the collaborative can expand outward, applying the coating to power plants

around the globe. Due to the coating’s limited lifetime, the consumers will re-enter the

market every five years, providing a continuous flow of revenue for the company. Due to

the strong support from our financial projections as well as the maturity of the coating as

it exists today, DropWise and Exelon can collaborate to commercialize this

superhydrophobic coating by the end of this year.



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Table of Contents

Introduction ......................................................................................................................... 5

1 Macroeconomic/Social Environment.......................................................................... 8

2 Company Assessment ............................................................................................... 11

3 Market/Demand Environment .................................................................................. 18

4 Technological Environment ...................................................................................... 25

5 Competitive Environment ......................................................................................... 32

6 Technology/Business Intelligence ............................................................................ 37

7 Product Strategy ........................................................................................................ 46

8 Operational Strategy ................................................................................................. 52

9 Technology/Collaboration Strategy .......................................................................... 57

10 Intellectual Property Strategy ................................................................................... 59

11 Project Valuation & Financing – DCF Modeling ..................................................... 60

12 Project Valuation & Financing – DCF Modeling ..................................................... 67

13 Implementation Plan ................................................................................................. 72

14 References ................................................................................................................. 76

15 Appendices ................................................................................................................ 81



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List of Figures Figure 1. Example of Technology in Action ...................................................................... 5 Figure 2. Photo of Water Condensation with and without the Coating .............................. 7 Figure 3. Diagram of Implementation Process ................................................................... 7 Figure 4. Photo of a Power Plant Dumping Effluent .......................................................... 9 Figure 5. Company Capabilities ....................................................................................... 12

Figure 6. Awards (Exelon Corporation, About Us) .......................................................... 15 Figure 7. Center of Gravity for Exelon Corporation......................................................... 17 Figure 8. DropWise's Ratings for Triggers and Barriers for Adopting this Technology .. 23 Figure 9. Hydrophobic Technology Timeline .................................................................. 25 Figure 10. The Lotus Effect .............................................................................................. 25

Figure 11. Chemical Vapor Deposition Equipment .......................................................... 26 Figure 12. Diagram of a Steam Condenser ....................................................................... 27

Figure 13. Steam Generation Process ............................................................................... 28 Figure 14. ISF Map of DropWise Coating vs. Advanced Polymer Coating Process vs. No

Coating Present (Incumbent) ............................................................................................ 29 Figure 15. Competitive Landscape of Exelon vs. Key Competitors................................. 33

Figure 16. Market Sizes vs. Total Unit Sales.................................................................... 35 Figure 17. Market Share Projections of Key Competitors ................................................ 36

Figure 18. Complete Analysis of ISFs - Relative Advantage vs. Relative Importance .... 40 Figure 19. Penetrating the Market: Bowling Pin Model ................................................... 51 Figure 20. High-Level SIPOC Diagram for Hydrophobic Coating Application to Power

Plants ................................................................................................................................. 52 Figure 21. SIPOC Diagram for Key Process #1 ............................................................... 53

Figure 22. SIPOC Diagram for Key Process #2 ............................................................... 54

Figure 23. SIPOC Diagram for Key Process #3 ............................................................... 55

Figure 24. Total Projected Unit Sales Analysis ................................................................ 64 Figure 25. Net and Discounted Net Cash Flows ............................................................... 65

Figure 26. Summary of Decision Tree Models ................................................................. 70 Figure 27. Option Space Map for DropWise Hydrophobic Coating ................................ 71 Figure 28. Technology Roadmap: DropWise to this Point ............................................... 73

Figure 29. Technology Roadmap: Next Immediate Steps ................................................ 74 Figure 30. Technology Roadmap: Potential Future Expansion ........................................ 75



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Introduction

An important concern for the future is how society will adapt current energy

generation processes to deal with potential scarcity in resources. One such technology

that addresses this issue is water-repellent coatings that would be applied to pipes in

steam power plants. The coating increases the efficiency of the condensation and runoff

of water on the pipes, an essential step in operating the turbine. DropWise Technologies

Corp. will be a leading company in bringing this technology to market. MIT professors

Karen Gleason and Kripa Varanasi invented this hydrophobic coating alongside PhD

researchers Adam Paxson and David Borrelli. They teamed up with Colin Gounden to

start the company DropWise.

Previous attempts at this technology have either yielded coatings that are too thin

and deteriorate quickly or coatings that are too thick and actually hinder the condensation

process. DropWise has developed both a coating and application process that ensures the

correct balance of both thickness and efficiency (see Figure 1 below). This coating will in

turn reduce the amount of water and other natural resources required to produce

equivalent amounts of energy.

Figure 1. Example of Technology in Action

Technology Description

Power plants use cold water running through pipes to condense the water vapor

around the pipe creating a vacuum. The turbines connected to these pipes use this

vacuum to turn their blades and produce energy. The water repellent coating technology

will allow this process to become much more efficient.

The hydrophobic coating improves efficiency by saving both water, fuel, and

time. As the cold water rushes through the pipes, the steam around the pipes cools as

condensation around the pipe. Without a coating, the water sticks to pipe and prevents

more water from cooling. Previous coatings prevented the water from sticking, but

another issue arose: the coating was too thick, which also inhibited water from

condensing. Some thinner coatings have been developed, but they disintegrate in

minutes. DropWise has produced a product that can survive years of steam exposure,

while conserving resources such as water, fuel, and time. They accomplished this feat in



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efficiency using a technique called initiated chemical vapor deposition. This technique

enables the coating to be 2,000 times thinner than a sheet of paper and grafts the coating

to the surface of the cold water pipes using strong chemical bonds. This coating has been

created and survived all tests with no signs of damage.

Application(s)

The researchers at DropWise Technologies Corps. have developed a hydrophobic

coating, which can be installed in power plants across the globe. Steam power produces

85% of the world’s power. This technology can be installed into existing power plant to

reduce the amount of energy and resources that are wasted producing the power that fuels

the world. DropWise has the ability to install the technology in existing nuclear, coal and

other power plants. These plants will use this technology to cover the pipes in their water

vapor condensers.

In the near future, the planet's capacity to produce power will double. New plants

will rapidly surface to supply society with the power to turn on light bulbs and fuel

batteries. This coating will have drastically improved the efficiency of existing plants

and become the standard for having an ideal power plant. As new plants enter the power-

producing arena, this coating will be pre-installed into their water vapor condensers to

begin saving water and fossil fuels from day one.

Significance

At the moment, the pipes that power plants run cold water through become

enveloped in a layer of moisture. This layer drastically hinders the condensation process.

The water repellent coating speeds up the condensation process, making the entire

process more efficient. Since power plants use thousands of cool-water pipes, this small

change compounds to much grander savings on resources.

These plants create steam by burning coal or other resources. With this coating,

the rate at which steam powered plants use water to create power would dramatically fall.

Also the rate at which these plants burn fuel would be cut down from their usual

consumption of fossil fuels. This makes it possible for power plants to reduce their

carbon dioxide emissions and water use.

Nuclear power plants, natural gas, coal, solar thermal, and geothermal processes

all use this steam process to generate energy. This coating immensely reduces the energy

wasted by power companies, saving millions of dollars each year. Not only will

companies benefit, but society will benefit as a whole because the coating will reduce the

carbon dioxide emissions, equal (for each plant that adopts the technology) to taking

thousands of cars off the road.

Team Members

Derek Phillips, Ben Gallatin, Nigel Walker



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Innovation Success Factors

WITHOUT THE REPELLENT WITH THE REPELLENT

Figure 2. Photo of Water Condensation with and without the Coating

1. Efficiency

a. This steam process to generate energy is inefficient without a coating. A

simple water-repellent coating cuts down on the resources power

companies use to generate energy (see Figure 2 above).

2. Resistance to Wear

a. Early forms of this technology became too thick. The coatings would

inhibit the condensation of water vapor on the pipes. Now new thinner

coatings exist, which can be applied to the water pipes.

b. Some coatings became too thin and would wear out because of the heavy

steam exposure. This technology optimizes the thinness and durability

requirements necessary for the steam process.

3. Ease of Implementation

a. This technology has the ability to be implemented on existing power

plants.

Figure 3. Diagram of Implementation Process



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b. Rather than the standard process of a spray coating, this technology is

applied by passing two gases over heated filaments and allowing them to

react, creating a polymer coating that is resistant to wear (see Figure 3

above).

1 Macroeconomic/Social Environment

1.1 Crisis identification

Steam electric power plants diminish the quality of drinkable water sources

throughout the country. Every year these plants emit 79,000,000 lbs. of arsenic, 64,400

lbs. of lead, and 35 other pollutants. (US EPA, 2012) These toxins have been associated

with cancer, neurological damage, and ecological damage. The crisis exists today and

continues to beg for a solution. The DropWise technology makes the steam electric

power process much more efficient by increasing the rate at which steam is condensed.

This reduces the combustion of fossil fuels that produce that produce the harmful

pollutants created by power plants. Not only are less pollutants released into the

environment, but less non-renewable resources are burned to fuel these plants.

These steam power plants produce most of the energy the world uses. However,

these plants also consume vast amounts of fossil fuels, which are irreplaceable. Fossil

fuel plants accounted for 32% of U.S. total greenhouse gas emissions in 2012. (US EPA,

2012) This pollution and depletion crisis is driving innovation forward for the coating

DropWise has produced.

Even if the future shows a turn toward nuclear or geothermal power, the method

of power generation involving steam turbines is still the same, and the coating technology

will still provide huge efficiency gains in the system. (Mission, DropWise Technology

Corps.) Therefore, the overarching crisis is more a matter of guaranteeing a clean earth

and sustainable, efficient power generation for future generations.

1.2 Identification of innovation enablers or inhibitors

Enablers

Steam power plants make up 85% of the world’s power. Steam-powered

generators are used in nuclear, natural gas, coal, solar thermal, geothermal, and biomass

systems. However, the production process is immensely inefficient. These plants heat

and cool water using coal, but without a water repellant coating on the pipes, the plant

works harder than necessary costing millions of dollars each year. The DropWise

technology offers an immediate solution to the issue of inefficiency. The coating that

DropWise invented needs to save these power plants the money they waste each year.

The long term financial benefits enable the macroeconomic environment to be conducive

to the DropWise technology.

Another enabler helping to drive this innovation forward is the environmental

movement, which focuses on humanity as a participant in ecosystems rather than an

enemy. By making the product known to the masses and garnering support from key

environmental agencies, DropWise can overcome any opposing social or institutional



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opposition that would otherwise hinder the implementation of its product. In order for the

product to be materialized, it must be accepted and advocated for by this community.

Power plants using steam as a resource release liquid waste, called effluent, into

natural bodies of water, shown in Figure 4 below. The United States Environmental

Protection Agency (EPA) put regulations in place to limit the effect of steam electric

power generators on the environment. If a power plant could reduce the effluent it

produces without sacrificing power, then the rate at which a plant produces power would

increase. DropWise technology allows these plants to accomplish this goal of producing

more power without compromising EPA regulations. Following these regulations

enables the social environment to be conducive to the DropWise technology.

Figure 4. Photo of a Power Plant Dumping Effluent

Inhibitors

Adopting this coating technology means that power generation companies have to

open their doors to an installation company (DropWise), who updates the preexisting

condensers with the new coating. The coating is applied via a vapor deposition process.

DropWise temporarily integrates the deposition process into the existing heat exchanger

in order to apply the coating. Companies may have an issue with letting someone else

come in, whether for classification or privacy issues. Companies might also hesitate to

upgrade because of the sheer fact that their technology is working and they’re profitable.

To convince these companies to upgrade, it takes some careful discussion of the benefits

of a hydrophobic coating and an advanced economical explanation of the upfront cost

versus the savings provided. In order to gain the trust of power generation companies,

the implementation consultant must discuss upkeep, conditions of product failure,

warranty/protection in the case of failure, etc. These hurdles inhibit DropWise from

implementing their product today.

1.3 Timing

With the Earth containing only a finite amount of natural resources, it is

increasingly important to begin to explore alternative processes and sources for obtaining

the energy that is so vital to society today.



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Methods of harnessing the energy of renewable resources have not been

developed and implemented on a wide enough scale at this point. While these

innovations continue to progress, it becomes increasingly important to make methods of

using nonrenewable resources as efficient as possible. A time may come when energy is

easily and cheaply obtained on a large scale strictly from renewable resources, but it is

unclear when exactly that time will be. Until it arrives, society must plan is if it will

never come, thereby increasing the importance of how people use the resource supplies

that will one day run out. Without a radical change to how humanity produces energy, the

best possibility is to increase efficiency in pre-existing structures. This kind of

engineering will set an example, or new standard, of how steam generators function.

DropWise is in a perfect position to begin increasing this use efficiency as soon as

possible. The coating can be applied to already existing power plants, allowing it to

immediately have an impact on both reducing emissions and lowering resource use.

Furthermore, DropWise’s coating can be applied to power plants that use all different

types of initial energy source, so not only will it provide an immediate benefit, but it also

will have an impact down the line.

The coating can be applied to plants that obtain steam-generating energy from

solar, nuclear, biomass, and geothermal sources as they become more favorable, while

already having increased the efficiency of those that use natural gas and coal.

Power plants should also consider the amount of pollutants they introduce into the

environment. For example, by reducing the amount of coal needed to be burned in the

more efficient process, the DropWise coating will also reduce the amount of consequent

pollution generated per unit of energy produced. This in turn will slow the decay in the

ozone, reduce pollution in the waterways from the effluent runoff, and decrease the

amount of pollutant absorption that could occur in the surrounding soil. It is important to

begin tackling the issue of society’s impact on the environment as soon as possible.

Continued decay will lead to loss of important resources and ecosystems both for us as

humans and for other organisms. Now more than ever, these issues of becoming a more

environmentally friendly society have gained momentum. Companies of all industries are

now facing questions of how they are working to reduce their environmental impacts.

Green organizations will especially interested in the commercialization of the

hydrophobic coating.

No significant issues exist preventing the DropWise coating from beginning to be

marketed to power plants in which it could potentially be implemented. Conversely, the

sooner it is implemented, the larger and more significant impact it will have on the global

issues of declining resources and environmental pollution.

1.4 Strategic implications

First, DropWise needs to focus on current steam power plants in order to gather

data to show the effects of the product on the plant. That data will allow us to generate

complex economic predictions to demonstrate the financial turnaround and long term

benefits.

Showing the results of the implementations of the technology will get more

companies on board for upgrading their process. At that point, DropWise can focus on



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new developments of future steam power plants. As new plants integrate the coating into

their production process, the bar will be raised for energy efficiency standards.

The goal for DropWise’s product implementation should be making these

condenser coatings the standard for all new developments. Once most plants leading the

industry in power production demonstrate the effectiveness of the DropWise coating, a

transition can occur from revamping existing infrastructure to a supply network that will

focus on incorporating water-resistant coatings into the manufacturing process. This

technology, ideally, will be looked at less as an upgrade, and more as an essential part of

the steam-powered generation process. This will shift the company’s focus from

upgrading existing plants to consulting new steam-powered developments across the

globe.

2 Company Assessment

2.1 Capabilities required

1. Environmentally Conscious: the company must have a commitment to increasing

the supply of clean energy and decreasing emissions.

2. Application of Technology: The company must have the means to apply the

initiated chemical vapor deposition technology to existing power plants.

3. Development of Technology: The company must be able to develop the

technology and stay a leader in the industry.

4. Access to Power Generation: The company must have access to pre-existing

generation sites or a location to implement the technology.

5. Worldwide Application: In the future, the company must have the means to apply

the technology on a global scale.

6. Knowledge of the Industry: The company must have up-to-date knowledge on

competitors and leading generation technologies. They must assume and maintain

a strategic presence in key competitive markets.



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2.2 Candidate host companies

❖ Exelon

❖ Advanced Polymer Coatings

❖ GVD Corporation

Figure 5 below summarizes how well each of the candidate host companies fulfill each of

the necessary capabilities that were previously discussed.

Companies

Advanced Polymer

Coatings GVD Corporation Exelon Corporation

Acceptance Criteria

Environmentally Conscious 1 6 10

Application of Technology 5 7 4

Development of Technology 7 10 4

Access to Power Generation 5 2 10

Worldwide Application 10 2 7

Knowledge of the Industry 6 2 8

TOTALS 34 26 43

Figure 5. Company Capabilities

Exelon

Exelon has become a leader in power-generation in the U.S. Their commitment

to excellence has earned a net income of 1.729 billion, which opens many doors for

future investments in innovative technology.

According to the criteria for the best company to host the DropWise technology,

Exelon rates high among other potential companies. As far as a commitment to clean

energy, Exelon ranks high for establishing their program called Exelon 2020. Exelon

2020 intends to remove 17.5 million metric tons of greenhouse gases annually by the year

2020. In 2013, this company removed 18 million metric tons of greenhouse gases

beating their goal by 7 years.

In addition to being environmentally conscious, Exelon has vast knowledge of the

power generation industry, as well as access to delivering their power internationally.

They rank high in these categories because of their experience with multiple facets of

energy generation, including nuclear, natural gas, and clean energy. Exelon has crossed

borders with their product, making them the only one of the three companies to go

international. Although, Exelon has only reached Canada outside of the U.S., they have



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immense potential to extend their reach and transform energy generation around the

world.

Despite their leadership in the power-generation industry, Exelon falls short in the

application of technology and development of technology capabilities. They have yet to

demonstrate that they have the capacity to innovate towards efficiency. There has been

little invested in the research and development of new technology. Even though Exelon

has faults in these areas, it excels in access to power generation, evident from its top

ranking on the Fortune 500 power company. The company also owns 35,137 megawatts

of power in the U.S. alone. Exelon makes up for their shortcomings with their eclectic

and extensive resources.

Advanced Polymer Coatings

Advanced Polymer Coatings produces coatings for power-generating companies

around the world. This company provides protection from corrosion which occurs in the

infrastructure of power companies. Their accomplishments with durable coatings makes

Advanced Polymer Coatings a great candidate for the efficient DropWise technology.

When comparing Advanced Polymer Coatings to the criteria for a good candidate

for the DropWise Technology, this company ranked above average for the development

of coating technology as well as the knowledge of the industry. Their website describes

an excellent history of providing coatings for power companies, but no specific mention

of hydrophobic coatings, only corrosion prevention. This company also received average

5 out of 10 scores for their access to power generation and application of technology.

Despite supplying companies with their coatings, they have no presence in actual energy

production. In addition to their poor access to power, this company has zero focus on

being environmentally conscious. They supplement this fault with their world wide

application capability. Advanced Polymer Coatings has branched out to over two dozen

countries, making it the widest reaching of the three companies. The reach of Advanced

Polymer Coatings stands out, but the rest of their capabilities do not outrank those of the

Exelon.

GVD Corporation

GVD Corporation specializes in commercializing vapor deposited polymer

coatings for multiple applications, while growing and developing to meet new needs.

When comparing GVD Corporation to other potential companies that could implement

the DropWise Technology, this company was not deemed a good candidate to support the

technology on a large scale. However, GVD Corporation ranked above average in

Environmental Consciousness and Application of Technology because their coatings

have a reduced environmental impact compared to conventional coating technologies,

and they have refined the method in which the coatings are applied. Typically, a solvent

must be present which is not always compatible with the material being coated as well as

providing environmental concerns (GVD). The GVD-developed process is dry, meaning

a potentially harmful solvent is not necessary. Furthermore, significantly less raw

material is used as compared to conventional methods, resulting in less waste.



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GVD Corporation ranked highest in Development of Technology, scoring a

perfect ten out of ten. The founder of the company, Karen Gleason, is also one of the

principal scientists working on the development of the DropWise coating. With this

connection directly to the innovation team, GVD Corporation is in an ideal position for

developing the technology even further. They would not have to research and develop

their own version of the coating, but would rather be able to directly implement the

coating their founder helped develop.

However, it is in the other categories that GVD Corporation was revealed to be a

poor candidate to host the technology, as it scored a two on each of Access to Power

Generation, Worldwide Application, and Knowledge of the Industry. A vital criteria for

a company to host the DropWise technology is its access to the power generation

business, allowing for ease in applying the coating. GVD is a relatively small company

with no direct connection to the power generation business. Because of this lack of

association with power generation companies, GVD also has limited knowledge of the

industry. This is preventative in allowing a complete understanding of how to maximize

the efficiency and effectiveness of the coating in the power plants.

The small size of the company also hinders its ability to score highly in the

Worldwide Application category. GVD only has a few locations, and all are located in

the eastern United States (GVD). This drastically inhibits the company from having a

large global impact on the industry of power generation, an effect that is crucial to

meeting the goals of the technology.

2.3 Company’s business, key customers or markets.

Exelon Corporation is a utilities service holding company and a leading

competitor in the energy generation field. Primarily led by its subsidiary, Exelon

Generation Company, Exelon seeks to expand its holding in the energy generation

business, while also establishing themselves as leaders in both marketing and distributing

energy. Exelon operates through both its owned and contracted electric generation

plants, as well as investments in other generation ventures. As stated in the company’s

2013 SEC 10-K filings (United States Securities and Exchange Commission), Exelon strives

to take a customer-facing approach to energy generation and supply by marketing

wholesale energy operations and offering services in both natural gas and renewable

energy products.



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While limited by various risk factors, a primary concern is the regulatory and

legislative risks associated with energy production business. However, this concern is

lessened thanks to Exelon’s superior commitment to reducing its impact on the

environment and providing clean energy. As stated on their website, Exelon strives to

not only achieve the regulatory levels for emissions, but to exceed expectations in order

to better serve customers and the global community as a whole. This dedication to

environmentally conscious energy production coincides with the primary mission of the

DropWise coating of increasing the efficiency of the energy production process. Figure

6, below, shows some of the qualities of Exelon that make them a suitable choice for the

DropWise technology.

Exelon, although not reliant or leading in research and development areas, has the

capital and proper business values to host the technology. Furthermore, the coating does

not need strong research and development support, but rather needs access to pre-existing

power plants and the ability to be implemented on a large scale. The prominence of

Exelon Corporation in the energy production business makes it a perfect host candidate.

2.4 Analysts’ views of company's strengths, weaknesses, and future prospects.

In April 2014 Exelon secured regulatory approval from the NRC to operate three

nuclear energy plants, five reactors total, and in July 2013 integrated three commercial

power plants to their nuclear generation fleet in New York and Maryland. These business

initiatives streamline revenue margins and strengthen their foothold in the market

(GlobalData Analyst Report, Published 2015) and the DropWise coating technology

works well with nuclear power generation.

A future prospect of Exelon that supports the technology is a company plan called

Exelon 2020, which aims to reduce greenhouse gas emissions. While this is traditionally

accomplished through a transition to renewable energy and nuclear power, Exelon 2020

plans to adopt “smart” technologies and in particular, improve energy efficiency of the

company’s pre-existing facilities (GlobalData, page 12). This is exactly what DropWise

should be looking for in a company - its product is perfect for their vision.

“...Exelon 2020 plans to adopt “smart” technologies and

in particular, improve energy efficiency of the company’s

pre-existing facilities...”

Figure 6. Awards (Exelon Corporation, About Us)



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One weakness of Exelon is their high debt to equity (0.88%) and debt to capital

(0.28%) ratio. This debt was assumed in order to meet its capital expenditure needs

(GlobalData Analyst Report). This points to a scarcity in capital resources within the

company, and this could hinder the implementation of the new technology. This could

also limit the expansion of the company, especially overseas. The limited growth can,

however, make a case for DropWise’s technology in the company: if they do not have the

capital to expand the sheer amount of power generation stations, they can instead focus

on reworking the efficiency of their already existing assets. Also the savings as a result

of implementing the coating could gain profits to fund expansion.

A further cause of concern is the long term outlook of power prices. Recently,

gas prices have plummeted, which is now causing a resultant dive in power prices. For a

power generation company such as Exelon, this is alarming as its profits are based

primarily on the sale and distribution of energy. If prices continue to stay low due to an

oversupply of natural resources needed to produce the power, energy prices will remain

low, hurting future profits.

However, there are opportunities for growth and increased profitability for

Exelon. They have recently announced a merger with Pepco Holdings, another energy

delivery company that is based in the Mid-Atlantic region. This merger expands the

market that Exelon now reaches by an estimated 2 million customers (Pepco). The

increased amount of customers, and therefore, sources of revenue will add an estimated

$0.10 per share in earnings in 2016, if the merger is approved by all necessary parties

(RBC Capital p.1). This added capital will give Exelon the freedom and encouragement

to consider extending their reach into increasing the efficiency of their power generation

system.

2.5 Company’s technical strengths

Exelon possesses invaluable core competencies, especially with regard to

operational leadership. Their company soars above competitors with their focus on using

cutting-edge technology to remain the industry leader in environmental awareness.

Exelon ranked second in Newsweek’s 2014 Green Rankings demonstrating their lack of

impact on the environment. This ranking can only be made possible by their operation

leadership in the power-generating field.



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Figure 7. Center of Gravity for Exelon Corporation

Exelon Center of Gravity Scores:

Product Leadership 2

Operational Leadership 8

Customer Intimacy 5.5

As can be seen in Figure 7 above, Exelon earned high scores for being an

operational leader and for customer intimacy, but a low score for product leadership.

This company established itself as an operational leader by using multiple facets of

energy to produce power. This includes power sources from nuclear to clean energy.

Exelon ranked relatively high on customer intimacy. This company is unique because

they actively help their customers attempt to conserve energy by distributing Smart

Meters. This gives customers access to energy consumption information in order to

enable them to make more environmentally friendly choices with their energy use.

They also promote energy efficiency in competitive markets through their

“Efficiency Made Easy” program which bundles together energy efficient upgrades like

building automation and HVAC upgrades to the consumer alongside their electric supply

purchases. Exelon also appeals to customers through their Exelon 2020 plan, where they

have shown a commitment to the green movement and increasing efficiency by reducing

the amount of pollutants and effluent used.

DropWise has developed a hydrophobic coating to improve efficiency in power-

generating plants. Exelon has acquired plants throughout the U.S. and Canada to produce

nuclear, wind, solar, hydropower and natural gas. Exelon has yet to venture into



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developing a coating like the one DropWise has invented. In fact, it has refrained from

becoming a product leader and actively seeking out new innovation. Instead it

implements the innovations of others to expand its market and network, focusing instead

on the operational aspects. Data shows that Exelon is a multi-billion dollar company

with the power to invest in technology to make their plants more efficient. Despite the

conclusion being that Exelon can develop a coating and become more efficient, the

assumption remains unclear whether they will. Their history of efficiency and

environmentally-minded focus implies that this company will do whatever it takes to seal

the cracks in any energy wasting methods they have.


The success of the DropWise coating as implemented by Exelon Corporation will

be driven by Exelon’s ability to remain profitable and in the top tier of the energy

generation business. Exelon has the resources and increasing annual revenue to

effectively implement the technology. Furthermore, Exelon has a large holding already

in the power generation landscape. This will enable the coating to be put in to use on a

large scale and in various locations, maximizing its impact on both resource use and

emission reduction. However, if slipping power prices and the presence of already

accrued debt prevent Exelon from maintaining its profitable structure, the technology

may be in danger as the company scales back its scope. On the other hand, a slight dip in

revenue may convince the company to move forward with the technology quickly in

order to increase efficiency, reduce costs, and return to, if not exceed, the levels of

revenue that it currently is experiencing.

3 Market/Demand Environment

3.1 Ideal market for your technology

The ideal market for the DropWise coating technology is one that the host

company, Exelon, has immediate access to. Since Exelon has direct access to power

plants, the most obvious choice is to go after the energy industry. After implementation

the data generated can be used to provide an extended look at the return on investment

due to the use of hydrophobic coatings.

In the current age, companies are under increasing pressure to increase their

“green” technologies and comply with strict governmental regulations. The ideal market

will hopefully take advantage of this need, allowing consumers to reduce effluent and

pollution from fossil fuel waste. Energy, and clean energy production, is more important

than ever - so the timing is right for this product’s application.

3.2 Candidate markets

Power Generation

The total market the DropWise hydrophobic coating would address is the steam

condenser market. Most of the world’s power originates from steam power, and the



4/30/15 19

plants that produce it use a process much less efficient than necessary. In this power

generation industry, DropWise would market toward the large number of water vapor

condensers these power companies own.

The market DropWise targets will start small in the existing power companies.

Specifically, DropWise will work with “Green” organizations hoping to cut down on

their effect on the environment. Power plants owned by companies like Exelon aim to

create clean energy. This market would develop the results, which reflect the benefits of

the hydrophobic coating. These results will show the reduction of harmful substances

like arsenic and lead, not to mention the financial gain of producing more energy in less

time. Ideally, the market will continue to grow as other companies witness the benefits

of using initiated chemical vapor deposition to install the coating.

Power generation is the market DropWise should pursue because of the clean

energy crisis and environmental crisis. The demand for cleaner energy production grows

as “green” organization spread awareness about society’s impact on the environment.

Also by focusing on the power generation industry, DropWise would have an immense

environmental and financial impact, which would eventually influence the standard for a

cleaner energy production process.

Desalination

The DropWise coating has more applications than just power generation. The

market would also eventually reach desalination processes. Nearly half of the water

produced by the desalination process uses a steam condenser. The desalination process

involves a large system of condensers to produce drinkable water, and the hydrophobic

coating shrinks the surface area necessary to produce the water by 30%. (Applications,

DropWise Technologies Corps.)

This market is an excellent candidate from DropWise, but the timing is better for

power generation companies to begin producing cleaner energy. Power generation is a

more pressing issue currently in the scope of decreasing the environmental impact society

has on the world. While the DropWise technology can at some point branch in to this

market, the largest benefit and immediate impact will be felt from its application to the

power generation industry.

HVAC/R

In addition to desalination, heating ventilation air-conditioning and refrigeration,

or HVAC/R, uses water vapor condensers to remove heat from air. This requires a

hydrophobic coating to improve the efficiency of the cooling process 2% for every 1ºF

decrease in condenser temperature. (Applications, DropWise Technologies Corps.)

According to a market research report, 87,501 HVAC contractors operated in 2002. (U.S.

Census Bureau) This large market could use the coating, however a bigger

environmental and financial impact could be made if DropWise pursued power

generation first.

As with the desalination market, DropWise could easily transition to this market,

as well. It is simply a matter of determining where the technology will have the greatest

effect, both in terms of reducing the industry's environmental impact and in terms of

providing economic savings to potential investors and consumers. After becoming

established in the power generation industry and initiating the transition of making the



4/30/15 20

coating the norm, DropWise will be in a stronger position to delve into other industries

and expand its reach into other markets.

3.3 Market size

According to The U.S. Energy Information Administration (US EIA) and their

Electric Power Annual report, there were 3,115 power plants in operation specifically

designated as members of the electric utilities sector at the end of 2012 in the United

States (US EIA). Of these 3,115 plants, 1,961 of them were operating using coal,

petroleum, natural gas, or nuclear power as their primary energy source, providing an

opportunity for DropWise’s coating to be implemented and representing the served

market. It should be noted, however, that each plant potentially, and in most case does,

possess more than one generator system within it. This report collectively counts the

plant as a single unit if every generator present is fueled by the same energy source.

Therefore, the number of generators on which the technology could be implemented is in

fact larger than just the 1,961 units reported. In order to be conservative in the estimate,

the reported number of 1,961 will be used as the market size.

A 2014 report from MarketLine on the United States Power Generation, indicates

that 87.2% of the power generated in the U.S. in terms of total TWh comes from energy

sources that are compatible with the hydrophobic coating system (MarketLine). Coupled

with the report’s projected compound annual growth rate of 0.7% over the course of

2013-2018, it is clear that DropWise Technologies will have an available and viable

market for the foreseeable future, both in existing power plants, and any potential new

developments that may come.

3.4 Technology's key benefits for this market

Current condenser coatings, if used at all, are mostly to resist the corrosion and to

protect the system against a harsh environment, leading to maintained performance and

increased unit longevity. (ACHR News) The issue with these coatings is that often times

there is a negative effect on the performance of the condensing unit when compared to a

unit with uncoated coils. This leads some companies to forgo the coating process and use

uncoated coils with (what they believe is) “high efficiency”. The DropWise coating

boosts this efficiency to a new level, setting a bar for what it means to have a high

efficiency condenser; a high efficiency condenser is a DropWise-coated condenser.

Currently there isn't any quantitative data showing either specific raw number or

percentages of how much money the product will save a consumer or exactly what the

increase in efficiency will be. There are only estimates. That being said these estimates

provide a strong basis to support the technology's implementation. According to

DropWise Technologies, if the coating were to be present on every power plant's

condensers, CO2 emissions would decrease by 0.58 gigatons, which is more than the

current savings of either the global solar or wind power industries (Intro Video).

Furthermore, most of the current coatings with the same designed purpose are destroyed

in the harsh environment of the condenser within a matter of minutes. The DropWise

coating has successfully survived lab testing in a recreated steam condenser environment

for over 48 hours without any signs of deterioration.



4/30/15 21

In order to show exact quantitative data on how this technology will help the

customer, rather than just the initial estimates currently available, it needs actual

application on a steam condenser system. This is why the plan for the technology’s

implementation should be to initially focus on existing plants – the hope is that after

application, data will exist that shows an actual, numerical increase in efficiency rather

than the estimates currently available. Taking this increase in efficiency, quantitative data

will be able to show the world that DropWise coatings are not just helpful - they are

essential in the future of clean power generation. The goal should be to make DropWise

coatings the industry standard, and guarantee that every new development will be built

with a hydrophobic condenser coating.

3.5 Pricing – customer willingness to pay

Pricing for this technology is very difficult to gauge. As is the case with all

current competitors and incumbent technologies, the price will vary greatly depending on

the many factors. The type of material being coated, the surface area of the material, and

the type of condenser being coated are just a few of the considerations that need to be

made in order to determine how much the customer will be charged for both the product

and the service of applying the coating. It was discovered on the websites of both

Advanced Polymer Coatings and GVD Corporation as well as other companies involved

in the coatings industry that pricing was strictly based off quotes. The company required

information involving the previously stated concerns in order to accurately determine the

cost the customer could expect.

Pricing was further complicated due to the relatively new use of initiated chemical

vapor deposition in the coating industry. The equipment necessary for the process also

needs to be customized to account for the large scale of the surfaces that will be coated in

the power plants, with costs estimated to run well into the thousands. The materials

themselves involved in the coating will be the cheapest component of the customer’s total

cost. The chemicals necessary can be purchased for relatively low prices from chemical

manufacturers and distributors such as Sigma Aldrich. The thinness of the DropWise

coating is a cost benefit, as less starting materials are necessary to cover the same area as

previous coatings. That being said, the scale of the project as well as the specific

chemicals required will cause the total price of the materials to vary on a case-to-case

basis. Overall, a price estimate of $10,000 was set as an initial basis. Again, this price

could increase significantly for a larger power plant, or potentially decrease for one on a

smaller scale. A deep investigation into all possible surfaces to be coated as well as the

various surface areas of the piping in the 1,961 units of the served market could

potentially provide us with enough quotes. However, because the technology is so new

and each data point could be vastly different from each other, that process is not

viable. Part of this price will be for yearly maintenance and up-keep provided by

DropWise. This will ensure the coating is serving its designated purpose and maintaining

a high level of performance. The portion of the price allocated to these purposes will go

towards the cost of bringing in experts to analyze the efficiency of the system, providing

any necessary repairs, and affirming the success of the coating.

It is estimated that the service life of the coating will be about 5

years. DropWise’s coating has not yet been tested on a large-scale equivalent to a



4/30/15 22

modern power plant. To this point, tests have still only been conducted in controlled labs

on small scale, power plant replicas. Furthermore, the trials have not been carried out

over a long enough time period to definitively determine the coating’s life. That being

said, the coating showed no signs of deterioration or loss of efficiency during the tests

carried out. After speaking to DropWise CEO, Adam Paxson, an estimate of 5 years was

given as the goal for the technology’s life span. The idea is that this duration will allow

the power plant to remake its initial investment in the form of cost savings and energy

efficiency within the first 2-3 years. The remaining 2-3 years would then provide further

profit to the power plant. The lifespan also ensures that DropWise will be able to sustain

business in the form of future reapplications.

3.6 Triggers and barriers to adopting this technology

The DropWise hydrophobic coating has many triggers enabling the adoption of

the technology as well as a few limitations (see Figure 8). The coatings that predate

DropWise do not offer the durability and thinness that this new coating makes possible.

This company has developed a technology compatible with the power generation market.

The power plant companies in this market understand the process of steam power

generation and the regulations the United States Environmental Agency (US EPA) has

put on plants. The DropWise coating easily adapts these complexities in small scale

trials and as power companies apply the technology across many factories. Once power

plant companies understand the benefits of the technology, they have the ability to install

their condensers with a coating that can be customized to fit all services and condensing

vapor types.

As a new technology coming to the market, this hydrophobic coating has what the

market needs to succeed. As far as competing with the current coatings on the market,

DropWise has more benefits. Current coatings in use are too thick to feasibly conserve

resources used in the vapor condensation process. Otherwise, coatings are too thin to last

a reasonable length of time before wearing out. The coating needs to have a thickness

around 100 times thinner than a piece of paper; DropWise’s coating reaches way beyond

that benchmark. This new coating not only is 2,000 times thinner than a sheet of paper,

but also withstands the corrosive environment of a condenser. Furthermore, the use of

initiated chemical vapor deposition to apply the coating provides more effective results

than the typical spraying method. All of these implications combine to give the

DropWise a large relative advantage over incumbent technologies. The only prevention

keeping DropWise from maintaining a complete advantage is that GVD Corporation is

working on a similar technology.

This thin and durable coating easily applies to vapor condensers through a vapor-

based process, making it compatible with market needs. Also for environmentally

conscious companies, like Exelon, this product appeals to the “green” habits, which

reduce emissions and conserve water and fuel. All American power plants fall under the

US EPA regulations that limit the rate at which the condensers produce power (US EPA).

This coating reduces the ratio of toxic emissions to power production to meet these US

EPA regulations. No process or aspect of the industry will have to change to adopt this

technology. However, power plants will have to temporarily cease operation during the



4/30/15 23

technology's initial application, leading to a slight decrease in score in the compatibility

category.

Once a company decides to partner with DropWise, the company has the ability to

adopt the technology on a limited basis. The steam condensers have the ability to quickly

produce results, which demonstrate the effectiveness of the coating. However, there are

barriers for the technology’s trialability because no results exist the effect of the

hydrophobic coating on a large-scale factory, or over a prolonged period of time. Despite

the uncertainty, the first plant to take a trial-run can quickly produce the data showing the

financial and environmental gains of DropWise’s coating. The inability to be certain of

the effect of the trial on a power plant decreases the score in the trialability category, but

this is not a very important category in the long run.

In the end, power plants can buy this hydrophobic coating and install it on a water

vapor condenser of any kind. The coating has the ability to be grafted to all metal

surfaces and the polymer film of the coating can be customized to fit the condensing

vapor environment. The potential barrier still exists of how service and support will be

approached over long term implementation. As previously discussed, the technology has

not been tested on a scale equivalent to an operational power plant, or for a time period

long enough to provide a lifespan that justifies its implementation. Initially, the results of

the coating will have to be closely monitored, but as any potential complications are

worked out, the amount of service necessary will decrease. Therefore, the technology still

scores relatively high in service intensity, with a decrease in score resulting from the

initial uptick in required support. However, the technology’s ability to work on a small

scale will give DropWise the opportunity to learn how to solve issues that arise.

Figure 8. DropWise's Ratings for Triggers and Barriers for Adopting this Technology



4/30/15 24


The hydrophobic coating DropWise has developed has a high relative

performance and cost advantage. Power generation plants that use condensers emit tons

of metric carbon through their condensers burning fuel. These plants also waste money

because they have a poor “heart rate”, measure of efficiency. (Applications, DropWise

Corps.) This coating has the potential to reduce the carbon emissions of a power plant

equal to that of taking thousands of cars off the road, saving the plant millions in fuel and

coolant costs. This capability makes the coating a high relative performance and cost

advantageous product.

This coating easily customizes to the needs of a plant using any type of metal in

their condenser as well as different types of vapor processes. Before launching a full

scale commercialization product, DropWise needs to partner with a “green” organization

like Exelon. Exelon 2020 is a project started by Exelon to reduce the production of

greenhouse gases by 17.5 million metric tons annually. (“Linking Environmental

Stewardship to Our Business Strategy”) Exelon stands for environmental friendliness,

which makes it perfect for trials with the coating to verify the compatibility with nuclear

power, steam power, fossil fuel power and other applications to vapor condensers. With

a partnership with a powerful company, this coating rates high with compatibility.

The DropWise hydrophobic coating should be adopted by a power plant in a low-

level trial in order to demonstrate the financial and environmental gain. This minimizes

the risk of the product because DropWise will be able to focus on improvements. As

DropWise documents this trial, a power company, like Exelon, will gradually extend the

use of the coating to plants all over the nation and beyond. This method of

implementation will validate DropWise as a fiscally responsible and environmentally

friendly product. This hydrophobic coating rates high when it comes to its trialability.

Several advantages exist for DropWise, but every technology has barriers in

addition to triggers involved in the innovative success factors of its adoption. These

barriers arise for the service intensity of the hydrophobic coating, giving the product a

low service intensity. This affects the strategic implications by requiring DropWise to

pay close attention to which approach best solves the complications the coating might

have. A power plant has yet to install the technology on a whole factory, which may

make the market hesitate to adopt the product. Without the results of a trial, the low

service intensity for DropWise’s coating stands as a potential initial barrier to adoption.

However, once the process is carried out and observed, it can be fine-tuned and improved

to reduce the amount of necessary service and support. As with any new technology, the

coating will want to be monitored in depth at first to ensure it is functioning correctly. A

company willing to look past this initial question of service and test the coating will learn

that this coating has the flexibility to graft to any metallic surface as well as choose a

polymer which best suits the vapor condenser in which it performs.



4/30/15 25

Figure 10. The Lotus Effect

4 Technological Environment

4.1 History of the technology

Figure 9. Hydrophobic Technology Timeline

Humanity has used several methods to generate energy throughout time.

However, steam power generation has surfaced relatively recently. Before steam power

companies introduced hydrophobic coatings to their energy generation method, the

process was very inefficient.

Steam powered generation uses a steam condenser, which contains a system of

pipes with cold water running through them. Steam enters the condenser, surrounds the

pipes, and condenses on the metal surface of the pipes. The absence of steam creates a

vacuum in the condenser, which results in a powerful suction force that turns the blades

in a generator creating electricity. (DropWise - Intro Video)

Without a hydrophobic coating, this process executed inefficiently. The

condensation on the pipes would form a layer of water hindering more steam from

condensing, which slowed the generation of electricity.

While looking for a solution, Scientists turned to nature

to observe the “lotus effect” – the phenomenon of lotus

flower leaves having superhydrophobic characteristics,

as shown to the right in Figure 10, allowing water to roll

off without sticking to the leaf. (Lesson

Superhydrophobicity) If the lotus effect could be

applied to steam condenser pipes, the coating would

save millions in resources and improve power output of

generators. Thus, the first hydrophobic coating was

The First Lotus Flower

•The Lotus Effect

Typical Spray Coating

•Advanced Polymer Coatings

•1993

Vapor Deopsition Coating

•GVD Corporation

•2001

DropWise Coating

•DropWise Technologies, Inc.

•2015



4/30/15 26

Figure 11. Chemical Vapor Deposition Equipment

used on a flower rather than a power plant.

Once companies began to apply a hydrophobic coating to the pipes in their steam

condensers, the water would condense, slide off, and allow the energy generation process

to become much more efficient. As steam condensers grew to become responsible for

much of the world’s power, hydrophobic coating companies developed products to install

in steam condensers. Companies like GVD Ultrathin Polymer Coating and Advanced

Polymer coatings developed their own coatings to sell to the power generation market

(see Figure 9 above). However, incumbent technology has been too thick. These

coatings prevent a layer of water from sticking to the pipes; however, the coatings

themselves still slow the condensation process.

The market has a demand for a thinner coating. The coating GVD offers is

possibly the thinnest on the market: 50 nanometers to 10 microns thick (About GVD

Corporation). This is largely thanks to the development of the vapor deposition process

by company founder and MIT professor, Karen Gleason. The equipment involved can be

seen in Figure 11 to the left. The

DropWise coating, comparatively, uses

the same type of technology to apply to

surfaces, but offers higher levels of

performance. It is 30 nanometers thick,

making it 2000 times thinner than a

piece of paper (DropWise - Intro Video).

Other hydrophobic coating prototypes

manufactured to be thinner have been

tested in the harsh environment of a

steam condenser and worn in a matter of

minutes, but DropWise withstands the

environment. DropWise offers the market the thinnest coating as well as a long-lasting

one, and once partnered with a host company, like Exelon, the product can be launched

swiftly in no more than a couple years' time.

4.2 Physical architecture

A power plant works by turning water into steam using heat, and then using the

steam to drive turbine generators. Depending on the method of generation, the source of

the heat is different. A coal-fired station will be used for this demonstration. The coal is

first pulverized into a powder, then mixed with hot air and fed into a boiler firebox. Here

the powder burns and heats up the pipes inside the boiler. The pipes inside the boiler

contain highly purified water that is turned into steam by the heat from the coal. The

steam reaches to temperatures of up to 1,000 degrees Fahrenheit and pressures up to 3500

psi (Duke Energy). This high-pressure, high-temperature combination guarantees the

maximum amount of kinetic energy and enthalpy that the water can take on. The steam is

then piped into a turbine, where the pressure of the steam against the blades turns the

central turbine shaft. This transforms thermal energy from the fluid into mechanical

energy. The blades of the turbine are a series of airfoils, where the flow induces a low

pressure on the bottom surface of each blade and a high pressure on the top surface. This

creates a pressure upwards which compounds on each blade of the turbine. The turbine



4/30/15 27

shaft connects to the shaft of a generator, where magnets spin against wire coils to create

electricity.

The technology comes into play after the turbine, in the region known as the

condenser. The condenser remains an extremely important part of steam turbine

generation and plays a large role in driving the turbines as well. When the steam exits the

turbine, it must be cooled and depressurized into usable water that can be used again in

the process. The steam is cooled by a series of metal tubes carrying millions of gallons of

cold water from an outside source like a river or lake. The hot steam condenses into water

on the cold surface of the tube. The extraction of heat by these effluent tubes causes the

volume of the steam in the surrounding air to go to essentially zero. This pressure

differential between the high pressure steam before it enters the turbine and the extremely

low pressure after condensing creates a powerful vacuum force that drives the turbines

even harder, creating more energy. This condensing process is shown in Figure 12 below.

After being condensed the water will be cooled further and sent back to the steam boiler.

This condenser is the point of application of this technology. In particular, focus

will be on the tubes that carry effluent and the condensation process from steam to water.

As mentioned above, this condensation process is the driving force behind the vacuum

force used to generate electricity. Typically, when steam condenses on the tubes it forms

a barrier of water (because the water is actually prone to sticking on the metal tubes of

the condenser). The

hydrophobic coating allows

the condensed water to bead

up and roll off the tubes,

allowing more surface area for

condensation and greater

efficiency in heat transfer.

The application of the

thin, high-strength

hydrophobic coating relies on

a process based on initiated

chemical vapor deposition,

developed by the Gleason Lab

at MIT. The process uses a

very small amount of polymer

precursors and chemically

grafts an ultra-thin film to the

surface of the tubes using strong covalent bonds. The left-behind coating is both strong

enough to persist on the tubes through the strenuous working conditions as well as thin

enough to still allow steam to condense with great efficiency.

The process of coating the tubes with the polymer has been specifically designed

to work on the tight spaces of heat exchangers and condensers. The entire process is

vapor-based, sending a gas across the condenser tubes that will leave behind the coating.

The excess gas is brought out and recovered after passing through the condenser. This

makes the technology useful for coating pre-existing condensers - coating support

equipment will be brought in and attached to the condenser unit, creating a closed system.

Figure 12. Diagram of a Steam Condenser



4/30/15 28

On the small scale, this may not seem like that much of a change. The real effect

of the product is seen, however, in the application of the product to the tens of thousands

of condenser tubes that a power plant will use. When compounded to a larger scale, this

small increase in efficiency per pipe leads to huge savings in effluent and fuel. The plant

will produce more electricity per unit fuel, in less time, with less emissions. Below is a

chart (Figure 13) outlining the generation process described above.

Figure 13. Steam Generation Process



4/30/15 29

4.3 Comparison with alternative technological approaches

Figure 14. ISF Map of DropWise Coating vs. Advanced Polymer Coating Process vs. No Coating Present (Incumbent)

Figure 14 above is the ISF map of the DropWise Coating vs. the Advanced

Polymer Coating (APC) process vs. No Coating Present as the incumbent technology. It

compares the newly developed DropWise coating with the APC alternative technology in

relation to their relative advantages over the incumbent technology (on the y-axis) as well

as the relative importance of the factor to the technology's success (on the x-axis).

The DropWise hydrophobic coating has already proven its superiority over

similar developments intended to serve the same purpose. Current coatings in use have

proven to be too thick, forming an insulating layer on the condenser and hindering the

condensation process. Coatings that have been specifically designed to be thin enough to

be efficient are not durable and deteriorate quickly, often within minutes. The DropWise

coating on the other hand combines both the necessary thinness with strength and

durability, resulting in high levels of performance that previously haven't been achieved.

Advanced Polymer Coatings, according to the OneSource business profile, only earns

$736,000 in sales annually. This indicates a relatively low popularity as a coating

supplier as other companies far exceed those sales. Although Advanced Polymer

Coatings has been on the market for over 20 years, their experience in the field has not

boosted the momentum of their product. This is indicative of a lower level of

performance compared to other alternatives.

Both DropWise and Advanced Polymer Coatings offer a multitude of applications

for their technologies. The ChemLine coatings from Advanced Polymer Coatings are

installed on road and rail transportation, tank (ISO) containers, power generation, and



4/30/15 30

many others. (ChemLine Coatings for Industry) Furthermore, the technology can be

adapted to apply coatings beyond just hydrophobic ones, giving a wider range of

extensibility. DropWise has not yet brought their product to market, so their known

reach and extensibility is harder to determine. It has been shown that the initiated

chemical vapor deposition process employed can be adapted to function with many

different coatings being applied to various types of surfaces. While there is no

demonstrated extent of DropWise's product yet, there is promise of the ability to expand

in the future.

Finally, scalability is a must for a hydrophobic coating because the power

generation industry involves starting off on one steam condenser and expanding to large

scale factories as the coating becomes more popular. DropWise's implementation of the

initiated chemical vapor deposition process allows them to adapt their scale to meet all

requirements. The coating can be applied to preexisting condenser units, and even just a

portion of the unit. Furthermore, the process can be adopted to a large scale to cover all

condenser units in a power plant. While DropWise scores well in scalability, Advanced

Polymer Coatings lacks small scale experience, reducing their advantage. ChemLine

coatings does not seem to have options for small scale implementation. (ChemLine

Coatings for Industry) This hinders the company's ability to succeed in the market by

limiting the options available to their clients.

4.4 Pipeline (follow-on) technologies

Hydrophobic coatings such as the one developed by DropWise Technologies

present the ability for improvements in any system that requires a condensing unit to

operate. Specifically, this product will have enormous implications on the energy

generation industry, changing the outlook of both the country's and potentially the

globe’s view of the sustainability and associated timeline of its resources. There are not

necessarily any new technologies to follow in succession and replace this product, but as

it becomes more widely used and its success is acknowledged, improvements will be

made.

One area to consider is the chemical make-up the coating itself. If other

compounds both are able to be applied in the same initiated chemical vapor deposition

process while providing even greater performance ability, larger jumps will be made in

the energy generation industry. Research into the ideal chemical makeup of the

compound will be at the forefront of development in this area moving forward. This

equates to the important ISF factor identified above, technology development. By further

searching for the most efficient makeup of the coating, improvements will continue to be

made as the technology develops.

Along similar lines, it will be important to consider the proper makeup of a

coating that can be used for condensing other vapors besides steam. Not all condensing

units in all processes are operated with a steam vapor. The technology has bountiful

potential to be applied to all condenser systems, but it must be ensured that the coating

used is compatible with the chemical makeup of the vapor used in the process. If various

coatings can be developed for different vapor condensation processes, even more

resources can be saved and the efficiency of a variety of industries will increase. This

aligns with the ISF factor of extensibility discussed previously. The technology should



4/30/15 31

be able to expand its influence beyond just a single industry, and this is a foreseeable

advancement with future developments.

Finally, the technology will need to be refined to allow for implementation of the

coating into the production process of the condenser. Currently, the obvious use of the

technology is to place the coating on units that are already in place in power plants with

the goal of increasing efficiency in established systems. In the future, the technology

should be expanded to allow for the coating to be directly applied to the hardware that

will be used in new condenser units. This addresses the important ISF factor of

scalability. Not only will the coating be applied to single units that are already a part of

working processes on an individual basis, but it should be able to be implemented in large

scale production.

All of these developments will work to improve the technology as its

shortcomings are identified after initial implementation. Furthermore, they will all serve

to increase the efficiency of the energy generation process by requiring fewer resources

to be used to produce the same amount of energy. This will open up the industry to

further developments in other areas of the process. Specifically, the issues will arise of

where to store and how to transport all the additional energy that is able to be produced.

A ripple effect will be felt in both the battery and electric cable industries as new

developments will be needed to meet the additional demands.

4.5 Implications for your technology strategy

At this point in time, almost no challenge arises that would need to be addressed

prior to the launch of the minimum viable product. The coating has been developed and

tested with results proving it both increases efficiency while remaining durable in the

harsh steam environments. Potentially further long-term testing may be required to

simply convince investors of the coatings durability. Without long-term running data,

companies may be hesitant to adopt the technology with the worry that a short lifespan

will make it financially impractical. That being said, the product itself is ready for

implementation currently.

Looking to the future, all issues and improvements to the technology can be

addressed in future releases. The coating will initially be implemented on a small scale

basis, as it is currently in a perfect position to do, with large scale production becoming

available as the initiated chemical vapor deposition process is refined and expanded.

Furthermore, the coating is proven to have significant effects as it is designed now. This

will allow researchers to continue to fine tune the composition while the current version

still provides both environmental and financial benefits across the board. Research in

coatings that can be similarly be applied that are compatible with other vapors can also be

delayed initially. The energy production industry is clearly the area in which the greatest

benefit will be felt by the technology initially. It is the application that poses an answer

to the most pressing issue presented by condenser systems, and therefore should be the

initial focus.



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5 Competitive Environment

5.1 Top competitors and basis of competition

Baosteel Group Corp. - Supporting

Baosteel Group Corp. became incorporated on January 1, 1992 in Shanghai

China. (Baosteel Group Corp.) As the world’s third largest producer of steel, Baosteel

Group competes in a variety of industries. Some of these industries include:

petrochemical, nuclear power, metal products, energy and transportation, and machinery

manufacture. Although Baosteel Group does not manufacture their own hydrophobic

coating, as a metal production leader, they serve as a supporting technology provider.

Not only is Baosteel the third largest producer in the world, but they are also the metal

industry leader in sales by raking in an annual revenue of over $300 billion. The next

highest in sales only earned $80 billion. (Baosteel Group Corp.) Other companies look to

Baosteel Group as a model of success. Given that 57% of the geographic segmentation

for the primary metal industry is located in China, Baosteel influences a major portion of

the metal that power plants purchase to place in their steam condensers. If the DropWise

coating manages to have Baosteel support the implementation of the coating on their steel

for steam condensers, then DropWise will capture a large portion of their potential

market.

GVD - Potential Entrant

Dr. Pryce Lewis founded GVD Corporation in 2001 in Cambridge,

Massachusetts. GVD only accumulates $15 million annually in revenue, which cannot

begin to compare to Baosteel Group. (GVD Corp.) However, what makes GVD a threat

as a competitor is not their monetary resources, it is their role as a potential entrant

technology. Like DropWise, GVD uses an initiated chemical vapor deposition process to

produce an ultrathin hydrophobic coating. The Paint & Coatings Industry released an

article explaining how GVD has used their coating to tap several different markets, like

tire production, septic tanks, and several others. (Commercializing a New Generation of

Polymer Coatings) GVD stands as a strong competitor because in addition to their

market reach, their product improves the efficacy of power production. The coating



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specializes in adhesion to complex surfaces, dry, solvent-free coating process, and ultra-

thin (50nm - 10 microns). (About GVD) These features can push GVD ahead in the

power production industry, if plants begin to coat steam condensers with their product.

However, the hydrophobic polymer coating DropWise has developed is 30 nanometers

thick, making it 2000 times thinner than a piece of paper (DropWise - Intro Video).

Other hydrophobic coatings manufactured to be thinner have been tested in the harsh

environment of a steam condenser and worn out in minutes, but DropWise withstands the

environment. DropWise offers the market the thinnest coating as well as a long-lasting

one; not to mention DropWise has been tested in steam condenser conditions, whereas

GVD has not, which gives it the edge on the market to beat out GVD.

5.2 Competitive Landscape

Figure 15. Competitive Landscape of Exelon vs. Key Competitors

Differentiation in the market comes most broadly in two variables: where the

technology is physically applied in the lifetime of the condenser, and to what type of

business it is applied. Exelon will focus in the beginning on applying the technology to

their pre-existing condenser units. This will establish them as a market leader in this field,

and power generation companies will trust them to refit their condensers with the new

technology. This is an overwhelming portion of the market - as companies are less

focused on building new systems when they can improve the efficiency of their old

systems for less.



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Another market Exelon can specialize in is condenser manufacturing: developing

a process to apply the coating to the condenser before it leaves the assembly plants. This

strategy would allow Exelon to capitalize on both new and old developments, and extend

its own power generation systems with new, ready-made high efficiency systems. This

would, however, require that the DropWise-Exelon collaborative pair with a condenser

manufacturing company like Graham Corporation or Alstom. The coating technology,

then, could be licensed to these manufacturers. The product is also contingent on

DropWise becoming the market leader in hydrophobic condenser coatings, as well as a

general acceptance throughout the condenser market that hydrophobic condenser coatings

should be essential in all new developments.

Baosteel would be most effective in applying coatings to the steel before it leaves

their plants because of their large manufacturing presence. Many condensers use steel

produced by Baosteel and it’s possible that Baosteel could take precedence over the

coating process by applying coatings directly during manufacturing. This would make

them leaders in the metal-manufacturing with hydrophobic coating industry, and with

their large supplier base, it is possible that they could apply the coating before Exelon

even gets their hands on the product. The main barrier is a lack of knowledge of the

process - Exelon would have a much better product initially and be able to establish

themselves as a market leader. Baosteel could also be effective in the replacement of

condenser units to existing generation companies, so that when companies need repair

they can also upgrade to higher efficiency. Here the biggest block is price - when

companies need a repair they are likely to seek the cheapest option that will put the plant

at operational conditions again. This will change as hydrophobic coatings become more

widely accepted as an industry standard, and companies see the benefits of paying more

to upgrade their systems.

GVD Corp would be most effective in applying the technology to new power-

generation plants before they start operating, as they would lack the skill set to apply it to

systems that have already begun operation. They pose a threat to Exelon because they

could possibly undercut the price for new developments (less research and development

needed). GVD Corp does not have a product tested for the implementation at the high

pressure and temperature required of the product, however, and would not be seen as the

main name in the industry - DropWise and Exelon would. They also lack the depth as a

company to expand overseas or trap markets that Exelon could not reach.

5.3 Customer Value Proposition

For power generation companies who want to lead their industry in power

production, the DropWise hydrophobic coating is an initiated chemical vapor deposition

polymer that improves the efficiency and rate at which steam condensers generate power.

Unlike GVD, DropWise specializes in creating a coating tested at the high temperature,

high pressure conditions that steam condensers require - to outperform and outlast all

other condenser coatings that came before. (Intro Video)



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5.4 Projected market share

Figure 16. Market Sizes vs. Total Unit Sales

As can be seen in Figure 16 above, it is estimated that DropWise’s coating as

hosted by Exelon will initially be slow to penetrate the market, entering at only 1%.

Power plant owning companies may be slow to implement the technology at first, as

coatings have not had widespread success in this application before. They will want to

see how much more efficient the coating makes the process as compared to the

incumbent technology before committing to pursuing the DropWise technology.

However, with strong potential for success and demonstrated ecological and financial

benefits, DropWise’s coating will soon grow to take control of a much larger portion of

the served market.

With the implementation of DropWise’s coating by Exelon, competitors, like the

previously discussed GVD Corporation and Baosteel Group Corp., will pursue the

technology as well. As all previous attempts at implementing this type of technology

have been relatively unsuccessful, there is not much of an incumbent to compete with.

However, with many potential players possessing either the resources, technological

knowledge, or established position in the market, competition will most likely be

widespread at first. Regardless, it is foreseeable that Exelon will maintain control of a

large portion of the market over time. A “Rule of Three” market will most likely develop

as the technology progresses, as shown in Figure 17 below, favoring a few large

companies, such as Exelon and Baosteel. They will have greater resources and capital

available to more widely distribute the technology, as well as a potential partnership with

the originators of the technology. For this reason, GVD Corporation may find it difficult



4/30/15 36

to gain a large enough hold of the market, leaving them just outside of the “Big Three”

companies and opening the door for a third large company to become the third part of the

market triarchy. Most likely, the third arm of the proposed "Big Three" will be occupied

by a large chemical production company, such as DuPont. A company such as this is

vastly experienced in the production process that is necessary to create the chemical

components involved in the coating. Furthermore, they will have an established presence

and reputation for producing high functioning materials of all functions and distributing

them to necessary clients. Until the identity of this lead company is established, the third

arm will be split by many smaller companies or larger companies not fully invested in the

pursuit of the market. From this group, one will begin to emerge as the dominant force as

the client base is extended and the commitment level increases.

Figure 17. Market Share Projections of Key Competitors

Finally, slight growth in the served market is predicted in the future, as can be

seen in Figure 16. According to a report by the International Atomic Energy Agency

(IAEA), the percentage of energy generated by nuclear power is projected to increase in

the United States moving forward. The report forecasts out to 2050, which is beyond the

scope of this analysis. It should be noted that the report does predict a slight increase in

nuclear power in electricity generation through 2020, but the more significant growth will

occur towards 2030 and beyond (IAEA). For this reason, only a 2% increase in served

market is estimated through 2022.



4/30/15 37

6 Technology/Business Intelligence

6.1 Priority issues for intelligence collection

1. Price the market is willing to pay: We have yet to identify the profit margin of the

coating.

What is the cost of similar coatings currently on the market?

What is the approximate cost to manufacture the chemical components

involved in the coating?

How valuable to power generation companies view efficiency savings?

This information will enable us as analysts to better gauge whether the

DropWise coating is financially feasible both to make and to purchase.

2. Market share: We have struggled to identify what portion of the market is open

and available for a new technology or company to infiltrate and what portion is

closed.

What percent of the steam condensing units in power plants utilize

hydrophobic coatings or similar technologies?

Would power generation companies be interested in adopting this type of

technology if they do not have a coating in place currently?

Would power generation companies be interested in switching to the

DropWise coating in place of the technology currently in place on their

condensers?

Answering these questions will provide a greater understanding at how large

of a potential there is for the DropWise coating, as well as how easily it can be

infiltrated

3. Complimentary hardware system: We would like to learn more about the external

technologies and equipment required to apply the coating, and if there are any of

these systems on the market today.

What types of dispenser systems are required to apply the coating?

Do similar dispenser systems currently exist?

Will the systems be designed and manufactured specifically for the use of the

DropWise coating, or can similar systems be implemented?

What will the cost be to manufacture the supporting equipment?

Gathering this information will lead to better insight into the operation of the

technology, as well as the logistics involved with its application.

4. Turnover time: It is important to determine how quickly the condenser can be shut

down, the support system attached, the coating applied, and the machine returned

to proper function.

What type of preparatory work is involved before applying the coating?

How long does the polymer bonding process take after dispensing the

chemical components?

Does the coating have to be reapplied at regular intervals?

These details will provide more information about how invasive the coating

process will be, as it is important to not hinder or delay the power generation

companies' operation.



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5. Efficiency Gains: We would like to gauge the quantifiable increases to efficiency

expected from the technologies application to a condenser system.

How much more efficiently will energy be produced in a power generation

system implementing the coating?

What will be the resource savings (coal, water, etc.) associated with the

coating's use?

What kind of financial savings/return can be expected by the customer after

applying the coating?

All of this information will help promote the technology to future customers

by providing hard numbers to the savings that are promised with the coating.

6.2 Interview questions

1. What is your most popular package offered to customers as a product? (GVD)

2. What share of the market do you control? (GVD)

3. Where do you see the hydrophobic coating's place in the market? (DropWise,

GVD, Professor Jennings)

4. What supporting technologies does the coating require? (DropWise)

5. When installing this popular package, how long does is the turnover time for

installation? (GVD, DropWise)

6. What costs come out of your revenue for installing your coating? (GVD,

DropWise)

7. How long does it typically take a customer's return to match their investment?

(GVD, DropWise)

8. Is a hydrophobic coating or similar technology used on steam condenser units in

your power plants currently? (Exelon)

9. How large of efficiency gains/fiscal savings would you need to see to be

interested in the technology? (Exelon)

10. To what extent can hydrophobic coatings increase efficiency in a typical steam

powered turbine? (Professor Jennings)

11. In your research, is this type of technology advanced enough to make it close to

reaching market and being implemented? (Professor Jennings)

12. Who do you recommend we contact to find out more information on the logistics

of commercializing a hydrophobic coating? (All)

6.3 Interview sources

Neal Miller, Exelon Corp., Senior Manager

Exelon is our main consideration for a host company, and they own a large

portion of the energy production market in the U.S., qualifying them as a reliable

source. Neal will ideally provide us with the perspective of the power generation

companies concerning this DropWise coating technology, as well as providing

details about current technologies that are implemented.

Email: [email protected]

Phone: N/A



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Austin Nowak, GVD Corporation, Sales Engineer

Contact with Austin will provide information about both incumbent technologies

as well as the perspective of a potential competitor. GVD is an established

member of the coating industry, specializing in initiated chemical vapor

deposition, leading to many similarities to DropWise.


Phone: 617-661-0060

Kane Jennings, Vanderbilt University, Professor of Chemical and Biomolecular

Engineering

Professor Jennings researches thing films and coatings for implementation on

surfaces. He will have a vast knowledge of the quantitative energy efficiency and

heat transfer gains associated with similar coatings, as well as providing insight

into the efficacy of the product in the market.


Phone: 615-322-2707

Adam Paxson, DropWise Technologies Corp., President & CEO

Adam Paxson is the lead behind the DropWise coating technology. He was at the

forefront of its development and has more information than anyone else

concerning this specific coating. He will provide many of the missing details we

have pertaining to this coating in particular.


Phone: 509-637-4936

Mark Petty, Vanderbilt University Plant Ops, Director

Mark Petty is responsible for overseeing the operation and utility production on

campus. He ensures utility infrastructure, buildings, and grounds are in order, as

well as focusing on energy conservation and operating the building control

systems. He will provide us with a perspective of a power generation entity,

particularly in relation to interest in the technology.


Phone: N/A

6.4 Interview summaries

Notes and information gathered from interview sources can be found in Appendices

section 15.2.

6.5 Contact log

Contact log detailing correspondence with interview sources can be found in Appendices

section 15.1.



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6.6 Summary of Strengths, Weaknesses Opportunities, and Threats

This section presents ten of the most critical innovation success factors

surrounding the introduction of the DropWise hydrophobic coating technology to market.

A wide-ranging list of innovation success factors was developed, and subsequently

ranked on both:

-Relative Performance: how does the technology compare with competing

technologies?

And -Relative Importance: what importance does the market place on the factor?

These rankings were taken and used to create the matrix shown below (Figure

18), which plots the relative importance along the horizontal axis and the relative

advantage along the vertical axis. The following sections will be a discussion of the ten

most critical of these factors, and their impending strategic implications.

Figure 18. Complete Analysis of ISFs - Relative Advantage vs. Relative Importance

6.6.1 Readiness of Society for the Innovation Importance Rank: 5

Performance Rank: 4

In the current age, companies are under increasing pressure to increase their

“green” technologies and comply with strict governmental regulations such as pollutant

and effluent levels. Energy, and clean energy production, is more important than ever - so

the timing is right for this product’s application. This factor scores high in quadrant 1,

with a 5 on importance and a 4 on performance. The high importance comes from the

green movement and society’s focus and burgeoning obsession with clean energy.

DropWise ranks highly on performance because they can neatly accompany this push



4/30/15 41

with a product that is both economically viable (increasing power generation) but also

extremely beneficial to the environment (decreased effluent and pollutant levels).

Another reason for DropWise's high performance is the wide-reaching applications of its

technology in the energy production industry: nuclear, natural gas, coal, solar thermal,

geothermal, and biomass can all benefit from the coating. The demand for cleaner energy

production continues to grow as “green” organizations spread awareness about society’s

impact on the environment. Now more than ever, these issues of becoming a more

environmentally friendly society have gained momentum. Companies of all industries are

now facing questions of how they are working to reduce their environmental impacts.

The main strategic implication moving forward is simple: to make hydrophobic

coatings the standard in the power generation industry. Without a radical change to how

humanity produces energy, the best option is to increase efficiency in pre-existing

structures. The DropWise technology can capitalize on the green movement, and because

of the large societal push for technologies like this one, it can play off this association by

making the public and market perception such that a hydrophobic coating on every

condenser in every power plant is not only feasible, but essential. After trialing the

technology, a movement must be launched that will increase public awareness of the

technology and its benefits – and this movement will serve as the catalyst for full-scale

adoption of the product.

6.6.2 Design Dominance Importance Rank: 5

Performance Rank: 5

In order to fulfill the “market takeover” strategy proposed, the new technology

must have a large amount of dominance over pre-existing and competitor coatings.

Therefore, it is important to the market that the new technology is state-of-the-art, and the

best iteration of its type existing on the market. The DropWise coating performs very

well within this metric. The coating is highly technical: a product of a long line of

research from an MIT lab. The application of the thin, high-strength hydrophobic coating

relies on a process based on initiated chemical vapor deposition, developed by the

Gleason Lab at MIT. The process uses a very small amount of polymer precursors and

chemically grafts an ultra-thin film to the surface of the tubes using strong covalent

bonds. The left-behind coating is both strong enough to persist on the tubes through the

strenuous working conditions as well as thin enough to still allow steam to condense with

great efficiency. These are unique requirements that current coatings struggle to produce.

Current coatings in use are too thick to feasibly conserve resources used in the vapor

condensation process. Otherwise, coatings are too thin to last a reasonable length of time

in the high-temperature, high-pressure conditions before wearing out. The coating needs

to have a thickness around 100 times thinner than a piece of paper. The new coating is

not 2,000 times thinner than a sheet of paper, but also withstands the corrosive

environment of a condenser. Furthermore, the use of initiated chemical vapor deposition

to apply the coating provides more effective results than the typical spraying method. All

of these implications combine to give the technology’s design a large relative advantage

over incumbent and competitor technologies.



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The strategic implications are that the collaborative should work to keep

information proprietary. While the technology is significantly advanced, it is possible that

analogues to the company could appear. Therefore, keeping the trial data/lessons learned

internal to a degree is essential in keeping dominance in the industry. When the

technology is finished trialing, it will have the benefit of being the most advanced, well

tested product of its kind available. This will allow the company to gain an early lead in

the condenser coating market. This position is essential in the company's strategy, as it

provides them with the means to establish themselves as the market leader. Another

implication is that the company must stay ahead of the technology, monitoring any

methods that could displace its own. This can be a function of DropWise at MIT, who

can advise on any up-and-coming changes to the field.

6.6.3 Trialability Importance Rank: 2

Performance Rank: 5

One of the keys to the success of hydrophobic coatings in the power generation

industry is the trialability of the technology, and this is because of the nature of the

design: it strives to increase efficiency of an already existing process. Therefore, in order

to succeed, the new technology must show an improvement over the old technology that

is both quantifiable by hard data and better for the environment. The factor scores a 5 on

performance, placing it high at the top of the vertical axis, but low on importance –

placing it in quadrant four of the graph. This performance placement is because of

Exelon’s close partnership with DropWise, who has the ability to design and monitor

scientific trials such as these. With the proper funding, the collaborative would be able to

carry out specific trials on condenser units, showing the numerical efficiency gains on a

large scale. The relatively low ranking on performance is because the market currently

has a low perception on trialability – mostly because of a lack of awareness about the

technology. Power companies are very happy producing profit with their current systems

and can be resistant to change. This is why it is important to have factual data backing up

the benefits of this technology.

The strategic implications are such that the collaborative should focus on small-

scale, non-critical application on existing Exelon power plants. From here the technology

can be evaluated economically with new data that shows the return on investment, and

the effect of applying the technology on different scales. The trial’s goal should be to

provide exact numerical increases in efficiency and savings, and a reliable projection of

return on investment. Dropwise’s history as the product of an MIT lab will give

legitimacy to the results and allow the trials to be carried out in a very ordered and

scientific fashion. In order to make a hydrophobic coating the industry standard, the

collaborative must focus on providing concrete data that the trade off – a small

investment for greater operating efficiency – is both profitable in the long term and will

provide savings on effluent and pollutant levels.

After proving the technology numerically and exploiting the performance metric

of the couple, a focus on public relations and visibility must be established, increasing the

importance of the technology to society. The coating developed will become the industry

leader because it has been scientifically proven, with hard data. Focusing on improving



4/30/15 43

the market’s opinion and the importance of the technology will make it so that companies

require a coating that can give them exact results in the time frame that they expect. This

will make it hard for alternative technologies and direct competitors to compete, as they

will not have the same kind of confirmation backing up their claims of increased

efficiency – cornering the market.

6.6.4 Maturity Importance Rank: 5

Performance Rank: 5

Before a full outlook and analysis of a perspective technology can occur, it must

first be determined whether the technology has developed far enough to soon be

implemented and breach the market. If the technology is still in the works and has not

reached proper maturity, it will be impossible to determine what the practical applications

will be, not to mention that appropriate projections will be impossible. Therefore this ISF

is highly important in analyzing the development of a technology. The DropWise coating

appears to have quickly reached the necessary level of maturity to become a factor in the

market quickly. Its performance and reliability have both been proven to exceed current

technologies as well as any competitors. The cost is hard to determine for the technology

as it is based primarily off quotes from unique systems, each with different

specifications. That being said, it is reasonable to assume that the costs will not too

vastly exceed those of common spray coating technologies to prevent the technology

from entering the market soon. Because of the success of the coating as well as the

estimated costs, the technology scored very highly on the ISF of maturity, indicating it is

ready for implementation.

The strategic implications of this ISF will therefore propel the technology closer

to reaching market. While it was previously discussed that further development and

research should continue, this development does not prevent the technology from

proceeding to the next steps in its journey to implementation. Rather, DropWise should

begin looking for a host company and an initial consumer. This initial consumer will

allow for the necessary quantitative measurements of efficiency and fuel savings to be

collected. From there, the rest of the process will follow quickly. Furthermore, the

successful development of this technology opens up the opportunity for DropWise to

pursue next generation technologies or other applications of this technology as time and

resources will no longer needed to be allocated here. The technology has successfully

left the development stage as it has demonstrated the necessary minimums, and can

therefore proceed towards implementation.

6.6.5 Scope Importance Rank: 4

Performance Rank: 5

Currently, a technology strategy is being explored for the DropWise coating in

pursuit of application in the power generation industry. However, it must also be

considered whether the technology can be adapted to fit other industries and economies

as well. This will ensure that once growth in the primary industry is maximized, the



4/30/15 44

technology will still be able to be profitable as it expands to other industries. In order to

ensure the long-term success of the technology, the ISF of scope must be considered and

judged as highly important. When examining the DropWise technology, both the coating

and the application process of initiated chemical vapor deposition, it is seen that it will

not be limited to just the power generation industry. The technology serves to increase

the efficiency of the condensing unit which in turn leads to efficiency increases in power

generation. Because the technology focus on the condenser specifically, it can therefore

be applied to any system that implements a condensing process, such as desalination and

HVAC/R processes. For this reason, the technology scored highly on the ISF of scope.

While this factor is very important to the technology's long-term success, there are

not many implications to the technology strategy as the coating already has a large

potential scope. Initiated chemical vapor deposition can be adapted to produce coatings

that are repellent to many different coolants, so not much needs to be done in terms of

further development. As long as the proper chemical reactions for the various chemicals

are known, the DropWise technology should be successful in all condensing

systems. Rather, it will just be a matter of determining when DropWise or a host

company possesses a large enough portion of market in power generation and can then

expand into the other industries.

6.6.6 Efficiency Importance Rank: 4

Performance Rank: 5

In the power production industry, the most important statistics include the

efficiency of your power production process. This is an important innovation success

factor because the increase in the production of power in less time by the hydrophobic

coating determines the acceptance of the technology by the market. This coating

revolutionizes the market by placing first in this category and possibly becoming the

standard feature for steam condensers in power plants.

Efficiency applies specifically to the DropWise hydrophobic coating because it

leads the coating industry in thinness complemented with durability. Thinness equates to

efficiency. A thin coating reduces the amount of condensation on the pipes in the steam

condensers of power plants around the world. Condensation in a condenser hinders the

process of power generation. Other coatings exist (produced by GVD and Advanced

Polymer Coating); however, our research has failed to uncover a single coating that

surpasses DropWise in thinness without deteriorating in a matter of minutes. As a leader

in a line of products with little modularity, DropWise offers itself as a great competitor.

6.6.7 Competitive Intensity Relative Importance: 4

Relative Performance: 2

When a new technology is attempting to infiltrate an industry and obtain a portion

of the market, it is always important to consider incumbent technologies as well as

parallel developments that could serve as competition in the future. Furthermore,

competition will serve to drive the technology forward towards its best possible version



4/30/15 45

in order to appeal more to consumers and gain a larger share of the market. Therefore, a

high score was given to the industry for the relative importance of the ISF of competitive

intensity. In this case, DropWise should consider any current hydrophobic coating that is

currently designed for similar industrial applications. When examining this industry, it is

seen that not much competition currently exists in the applications that DropWise will be

pursuing. As discussed before, previous coatings proved to be relatively ineffective, and

have therefore not seized the opportunity to establish themselves in what is now an open

market. For this reason, a low score was given to the relative performance of the ISF of

competitive intensity.

While there may not be much competitive intensity currently for the DropWise

coating to worry about, the high importance of the ISF indicates that the technology

should be prepared for competition in the future. Undoubtedly, other companies will

pick up similar technologies as DropWise demonstrates its effectiveness to try to compete

in the open market. The strategic implication then is that the DropWise coating must

ensure it continues to develop in order to broaden the gap it already has over any similar

technology. Also, strong relationships must be quickly established with consumers once

the technology goes to market to ensure clients will not be lost to competitors when they

arrive to the market. A partnership with a leader in the power generation industry, such

as Exelon, will ensure growth in this aspect.

6.6.8 Presence of Innovation Enablers Importance Rank: 5

Performance Rank: 4

Energy production is highly dependent on the boiler-turbine-condenser system,

converting heat to electricity. Nuclear, natural gas, coal, solar thermal, geothermal, and

biomass all use condenser units, and these technology are deeply rooted in society today

– they are not going away anytime soon. This is the reason for the high importance rank –

currently technology doesn’t have to change to make room for the coating, it is only an

addition to the system to help the overall process. It is important that this coating does

not aim to change the enablers – it only serves to reinforce this technology from the

ground up. DropWise scores highly on performance because of this fact.

The takeaway as far as strategy goes is to ensure that the market knows that

DropWise is not trying to upset their technologies, only reinforce them. Through trial

efforts, increases in efficiency will be shown. They can then market on the fact that this

technology will make more money for plants as well as free up their pollutant and

effluent production limits. The presence of innovation enablers imposes a large focus on

both industry and public perception of the technology – it must be good for both parties,

and it can show these benefits through the trials. Presenting the technology as a win-win

breakthrough for developments both new and old will assist it to become widely accepted

across the board.



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6.6.9 Scalability Importance Rank: 5

Performance Rank: 4

The coating technology must be able to be applied to condensers of all size and

shape. The market requires this because in order to be effective, it will have to be applied

to pre-existing units first, which vary in age, design, and efficiency. Because the end goal

is acceptance as a standard, the technology has to be able to scale to all models – and it

can. DropWise ranks highly on performance because of the system used to apply the

coating: it is a spray that moves through the condenser unit, filling whatever size and

shape of chamber it comes in contact with. It can be attached to pre-existing systems and

use the same path as steam to coat the tubing, but it also has the potential to be

implemented in the condenser manufacturing process.

Because the coating can be applied during the manufacturing process, it is

important that the company works to capture this market and not be preceded by the

condenser manufacturing companies. After focusing on trialing the product, the

technology will establish itself as a market leader, therefore the company has a

competitive advantage over incumbent and alternative technologies. It is believed that the

technology can become essential in the production of all new condenser units, and hope

to change public perception to this degree. This implies an original focus on pre-existing

plants, and a plan to introduce the coating to new developments. DropWise's place as a

product leader would make it a valuable source of information for condenser

manufacturing companies, who wish to become involved in the coating movement – and

a partnership could provide a near-complete market control.

6.6.10 Relative Performance/Cost Advantage Importance Rank: 4

Performance Rank: 5

The relative ratio of performance to cost advantage determines the price and

acceptance of the new technology. This is one of the most important innovation success

factor because of the price and financial gain. Understanding the performance to cost

advantage will sculpt the idea of the profitability of this DropWise coating.

The implication specifically for DropWise is that this coating has potentially a

high relative performance compared to competitors as well as a low cost for the market’s

willingness to pay. In order to determine the profitability of the product, it must first be

found out how much better the DropWise coating allows power plants to produce

energy. This advantage is the biggest innovation success factor for dictating the uptake

in the coating throughout the energy production market.

7 Product Strategy

7.1 Product-market scope

The recommended product-market scope for Exelon to pursue is product

development for the hydrophobic coating applied through initiated chemical vapor



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deposition. Hydrophobic coatings are a relatively new technology, and are thus

especially new to Exelon. The company does not have any previous experience in

developing coatings, requiring horizontal integration to pursue this product-market

scope. However, the same market that Exelon serves with its power plants and electrical

power generation would also be the initial market for this product. For these reasons,

product development becomes the clear choice for the product-market scope.

An advantage of this scope for Exelon is that the company will not have to

establish relationships with a new customer base. Specifically, Exelon will be able to

internally apply the product to the condensers within its own power plants. They

recognize and have a strong understanding of the needs and requirements of future

customers. In this way, the Exelon Generation branch of the company will act as a

reliable and established customer. Furthermore, relationships with other generation

companies could be developed due to Exelon’s strong position and credibility in the

industry. This highlights Exelon’s strongest aspects of the center of gravity, its

operational leadership and customer intimacy, allowing them to align their strengths

towards the benefit of the product.

The challenge Exelon will face with pursuing this product-market scope will be

the development of the product itself. As previously discussed, Exelon does not have

experience in the coating industry. They also do not put a strong emphasis on research

and development of new products that would expand the scope of the company, resulting

in weak product leadership on the center of gravity. Because of this, it will be important

for Exelon to partner with DropWise themselves to advance the technology to a

marketable product. A partnership will allow the company to cover their weakness,

strengthening the recommended plan for a product development scope.

The lack of previous experience could open the door for coating manufacturing

companies to compete, but Exelon’s strong holding and relationship with the target

market should enable it to succeed once they possess a marketable product. This will

allow Exelon to serve the energy generation market in all facets, and will limit the need

for the customers in the market to go to multiple companies for each service or product

necessary for the entire system.

7.2 Product family

Core Technology: DropWise Coating for Installed Condensers

DropWise Coatings for Desalination, HVAC, and Chemical Refining

The Exelon/DropWise collaborative can also market the coating to different types

of plants. First are desalination plants, which are essentially a series of condensers. The

cost of heat exchangers exceeds ⅓ the capital cost of these plants and the coatings will

allow the condensing surfaces to be shrunk by more than 30% (DropWise

Applications). The application process should be similar to power plant condensers, so

no additional partnerships would be required. In regards to HVAC, the coating can be

applied to systems using natural refrigerants including ammonia and pentane. To harness

this market, it may be advisable that the collaborative partner with an HVAC

manufacturing company, as the application process differs from the typical industrial

condenser application above. There is also an extremely large market concerning HVAC,



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so partnering with an industry leader who knows the market and competition would be

ideal. Lastly, chemical refineries rely on several types of condensers whose processes can

be improved by the coating. Since this process is more similar to the desalination and

power plant applications, it can be accomplished without a partnership to maintain the

maximum possible profitability for the collaborative.

DropWise™ Coated Condensers (Applied During Condenser Manufacturing)

A secondary product that the Exelon/DropWise collaborative can release is a

condenser that is sold with the DropWise coating already installed. This would require

that the collaborative pair with a condenser manufacturing company like Graham

Corporation or Alstom. This product is contingent on DropWise becoming the market

leader in hydrophobic condenser coatings as well as the market understanding that the

coating is near-essential in new developments. It relies on the market trusting the

DropWise™ name and willing to spend more to acquire the technology. Imagine an ice

cream that is sold with M&M’s® brand candy - it is a name that people know and will

pay a premium for. The same concept applies to the condenser unit - because it is sold

with the DropWise™ name, people know it is the best, most well-performing product of

its kind on the market. The condenser should be sold with a chart that outlines when the

coating should be reapplied based on the operating conditions.

7.3 Product specifications

1. The coating should take more than 5 years and less than 10 years to decay. (coating

can be reapplied for a surcharge, yielding more profit) (Interview with Adam Paxson,

CEO of DropWise)

This ensures that the customer experiences prolonged years of efficiency

gains and increased profitability. At the same time, Exelon is provided

with a continuous source of income after degradation.

2. The coating shall provide increased efficiency gains that offset the install cost within

two years.

This will allow the efficiency gains and reduction in necessary resources

to strictly contribute to profit for more than half of the life of the

technology.

3. The coating shall be able to be applied to pre-existing condenser systems (vapor

deposition across condenser tubes).

Power plants are not built regularly, nor is there any indication of an

increase in construction in the near future. Thus, the technology must be

able to serve preexisting systems to be profitable.

4. The coating shall be able to work on condenser systems that are powered by nuclear,

natural gas, coal, solar thermal, geothermal, and biomass.

This will expand the served market to include as many customers as

possible. Furthermore, a transition to different energy sources is

occurring, so this specification will allow the technology to serve both the

new customers as well as those on the decline.

5. The coating shall enable the power plant to generate the same amount of electricity

with less coolant water and less emissions.



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This is critical as it is the essence of what makes the product appealing to

customers. Without this specification, the coating would be useless as no

real fiscal or resource savings would occur.

6. The coating should be able to be applied and the condenser reassembled within 3 days

(planned outages during spring and fall).

This prevents the power plant from having to shut down operation at an

atypical time in order to accommodate the product. If the application can

fit within the preexisting shut down periods, inconvenience to the

customer is limited, and appeal of the product is increased.

7.4 Potential lead users and minimum viable product

It is clear that the ideal lead user for DropWise’s hydrophobic coating technology

would be an established member of the power generation industry. The technology will

have the largest and most immediate impact in this market, both for the customer as well

as the impact on resource consumption. The lead user should be an established member

of the industry with large enough holdings to implement the technology on a full-scale

power plant without worrying about risking a significant portion of its assets. For these

reasons, Exelon itself actually serves as a strong candidate to be a lead user. As

previously discussed, Exelon owns over 35,000 megawatts of the electrical power

generation in the United States. With this vast amount of production, Exelon can afford

to implement the minimum viable product on individual power plants without risking

much of its business or profit. Furthermore, by both developing and testing the product

in house as both the host company and the lead user, Exelon will be able to gain all

necessary information for its product line without risking relationships of future

consumers in the market.

The minimum viable product will meet all the “shall” requirements stated

previously. Exelon should look to first provide a coating that can be applied to any pre-

existing condenser system while providing efficiency gains that offset install costs and

reducing both the amount of required coolant and produced emissions. The key pieces of

information that would be captured from the implementation of the minimum viable

product will include:

The quantitative efficiency gains from scaling the technology to industrial size

The savings in both coolant needed by the system as well as the amount of

harmful emissions produced

The financial savings related to the efficiency gains and resource savings

The time frame required to install the product and return the system to operational

state

The time frame required for the customer’s return on investment to surpass the

initial cost

Capturing this information becomes infinitely easier for Exelon as a host

company if they act as the lead user as well. They will have access to their own power

plants at all times and can monitor and adjust the system as necessary. This will also

allow the information to be obtained first-hand rather than relying on the data from



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another company’s operations to serve as a second-hand source. It will also ensure that

Exelon experiences the efficiency gains and financial gains before competitors, allowing

them to redistribute the capitol previously allocated to the extra resources to further

development of the product.

7.5 Product-market penetration path

In order to penetrate the market, as outlined below in Figure 18, DropWise will

create a 100% solution to the issues of the vapor condensers in power generators. By

targeting a specific segment of the market with a specific solution, DropWise connects

with a single company and hurdles the “chasm” between the early market and the early

majority to reach the beach head of the power generation market. Now that a pragmatic

company has adopted the hydrophobic coating for their specific need, DropWise would

target the next segment and application. DropWise will continue to focus on current

vapor condensers in power generators. However, now the coating will be installed while

pipes are being manufactured. This progresses the penetration path of the product-market

from product development to market development.

DropWise will first offer the aforementioned “shall” featured in 7.3 with

convenience and market intimacy for the pragmatists in the market. The market looks for

features that provide tangible change and qualitative results. After two years, the tangible

change will be evident in the increased efficiency gains which have offset the cost of

installation. Other features include the durability of the product. Adam Paxson, CEO of

DropWise, and Dr. Kane Jennings, Chemical Engineer at Vanderbilt University, assured

our analysts of the durability of the coating. (Paxson, Adam) (Jennings, Kane) The

DropWise coating offers pragmatists qualitative durability in the 5 years the coating will

last before needing to be reapplied. As you can see in Figure 19, these many features

appeal to the specific market of the power generation segment at the beach head of the

mass market.



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As DropWise moves on to the conservatives in the market, the brand name of the

DropWise coating will have established a reputation. Their reputation will not only entail

how the coating improves energy gains, but how this technology is an indispensable asset

to remaining competitive in this industry. As you can see below in Figure 19, the brand

name will allow DropWise to target a new segment by partnering with manufacturing

companies to offer pipes for vapor condensers with coatings already in place. The terms

and conditions of the coating will guarantee the qualitative assurances the pragmatic

market received earlier. At this point, the hydrophobic coating has escalated from early

adopters, through early majority to now late majority.

Figure 19. Penetrating the Market: Bowling Pin Model



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8 Operational Strategy

8.1 Operational Architecture of the Business

Demonstrated below in the SIPOC diagram (Figure 20) are the high-level

activities and items required in the operational architecture of the business necessary to

implement hydrophobic coatings on steam condensers in power plants. The key inputs

for the overall system are specifically the chemical components of the coating, the

dispensing systems necessary to apply the coating, and the condensers the coating will be

applied to. The outputs then are a coated condenser with increased efficiency as well as

the required maintenance and future reapplication. In order to progress from these inputs

to the desired outputs, a few broad steps are necessary. These proceed through the

necessary process steps from the initial point of contact with an energy generation

company to the physical application of the coating, and conclude with required follow-up

reports and maintenance. Further detail concerning this overall process and the

requirements associated with it can be seen in the SIPOC diagram.

Figure 20. High-Level SIPOC Diagram for Hydrophobic Coating Application to Power Plants

8.2 Key Processes

Of the six overarching processes involved in the successful operation of this type

of company, three in particular stand out as especially critical. In order of occurrence in

the overall company operation, these key processes include:

Discuss efficiency gains, return on investment, and reapplication schedule

Agree on price and schedule and sign paperwork

Complete the coating application process



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Each of these steps is critical in the successful application of the technology to

industrial power generation, as well as in increasing the efficiency of the condensing unit

both fiscally and resourcefully.

Discussing the potential efficiency gains, return on investment, and reapplication

schedule is ensures that the consumer will experience measurable advantages from the

use of this technology. This process shown in Figure 21 will provide energy generation

companies with the understanding of how exactly the technology will benefit them over

their current operations. This step is especially critical as this technology will be tailored

specifically to the specifications of each condenser unit it was applied to. As these

specifications aren't necessarily standard, this discussion before implementation is a

must.

Figure 21. SIPOC Diagram for Key Process #1



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The next key process of the high-level SIPOC diagram to consider is that of

agreeing on price and schedule as well as signing the necessary contractual paperwork.

This is crucial as it determines both the profit margin of the company applying the

coating, as well as the investment required from the consumer. It is also important to

establish a schedule for regular maintenance and reapplication that coincides with the

power plants regular shut down periods. This ensures the coating remains in a condition

conducive to effective use while also avoiding halting the power plants operation, and

limiting production, outside of already scheduled periods. The details of this process can

be found below in Figure 22.




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The third key process to consider in this operation, shown in Figure 23, and the

true crux of the business itself, is completing the coating application process. It is in this

step of the operational process that the product is actually introduced to the consumer.

This part is critical as it establishes the newly modified condenser and must be carried out

in a strict time frame. As previously discussed, the power plants regularly shut down

once a year for a varying length of time for routine maintenance and upkeep. In order to

avoid further shut down, this process must be carried out in this time period. It also must

be done uninvasively, so no true change in the condensing unit is sensed. This will help

ensure quick return to operational status, and thus a faster return on investment for the

consumer.


All of these processes can be further broken down to outline every step involved

in the business model. However, these SIPOC diagrams outline the most critical

processes involved in the operation, and must receive special consideration.

8.3 Sourcing

DropWise coatings require outsourcing for some processes, but the multiple

processes and assets will be carried out and built internally. These internal processes

include:

Contact energy generation company

Understand the client needs

Price & schedule & paperwork

Complete the coating application process

Maintenance



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These steps are sustainable within the host due to their distinctive competence and

core value to the hydrophobic coating and the host company, Exelon, would have it in

their best interest to hold on to these processes. Holding on to these processes and

investing in them will reinforce the leadership of DropWise in the energy generation

field. Exelon and DropWise already carry out these processes therefore they should stay

in-house.

Contacting energy generation companies already has an infrastructure because the

DropWise coating will begin in Exelon, the host company. While Exelon invests in

developing the product, they market the coating to their own power plants around the

world. Internal communication already exists, therefore our analysts agreed contacting

energy generation companies should be kept internal to the company.

The process of understanding the client needs is similar to contacting energy

generation companies because Exelon also has an excellent understanding of their own

strengths and weaknesses. Exelon possesses the capabilities to collect the information,

which will detail the respective needs of individual vapor condensers. This makes

outsourcing less attractive. We recommend that DropWise and Exelon reinforce their

position on understanding client needs in order to keep this process in house.

Exelon has experience determining the price, the schedule of the installation, and

completing the necessary documents to carry out a project. Adam Paxson, CEO of

DropWise, informed us the efficiency gains from applying the coating to a condenser

should take no more than 2 years to cover the cost of installation. (Paxson,

Adam) DropWise understands the cost of implementing the coating in a vapor

condenser, and Exelon understands the schedule restraints of shutting down a plant for

maintenance. Together, they should draft the paperwork to move forward with the

installation process.

Installing the hydrophobic coating requires a process called initiated chemical

vapor deposition (iCVD). DropWise has the ability to carry out this process, but more

importantly, this process is distinctive and core to its novelty as a leader in energy

generation efficiency. This process needs to be kept in house because DropWise needs to

maintain leverage over this part of its core competencies.

Exelon and DropWise also possess the capabilities to perform maintenance on

these vapor condensers. Adam Paxson assured our analysts during our phone interview

that DropWise intends to reinstall the coating every five to ten years. (Paxson,

Adam) Exelon has periodic downtime for maintenance, and this schedule will help

DropWise determine when the re-installation will take place. We recommend keeping

this process internal as well.

As analysts, we have determined that the above process should be internal to the

company, and the below processes should be considered for outsourcing. These

processes include:

Discuss energy efficiency gains and follow-up

o Hiring energy efficiency gains analysts

Chemical Production

Dispenser manufacturer



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In Section 9, the tactics for outsourcing and other forms of collaborating with

established experts in these areas are explored. Efficiency gains and follow-up, chemical

production, and dispenser manufacture have not been established as processes the

company is capable of housing.

9 Technology/Collaboration Strategy

9.1 Capabilities sought

DropWise and Exelon, the host company, have established infrastructure for multiple

processes, but the capabilities they need to seek through collaborative arrangements are

as follows:

Discuss energy efficiency gains and follow-up

o Hiring energy efficiency gains analysts

Chemical component production

Manufacture of dispenser systems

Producing the chemicals to create the coating is not core to DropWise. Also,

Exelon has yet to create the infrastructure necessary to track energy efficiency gains and

follow-up for their vapor condensers. These processes are necessary for the operational

architecture of the business. Our analysts agree that arranging a collaborative agreement

with a third party would be optimal for success.

9.2 Prospective collaborators

One potential collaborator for the implementation of the coating product would be

Emerson Process Management (EPM), a business platform of Emerson Electric. EPM

works with power generation businesses to control, regulate, operate, manage, measure,

analyze, and through this, gain more efficiency from existing operations. [EPM Products

& Services] EPM would provide the capability to measure distinct performance

increases as a result of coating application, and also be able to let the Exelon-DropWise

collaborative know when the coating should be serviced or reapplied.

A potential chemical supplier for the collaborative is Dow Chemical, an American

multinational chemical corporation, which is the second largest chemical-manufacturing

company in the world by revenue. [Dow Chemical Related Industry Information]

Although a close relationship with the chemical supplier is not particularly essential,

Dow’s reputation is important because of their high quality, reliability, integrity, and

operational efficiency. They have the resources, infrastructure, and worldwide presence

to supply the collaborative with the materials necessary to apply the technology across

the globe. This is why the DropWise-Exelon collaborative should seek them as

collaborative partners, in addition to EPM.



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9.3 Collaboration assessment

Emerson Process Management:

Emerson Process Management provides a key capability that is necessary for the

success of the technology, and this capability is one Exelon does not possess. For the

coating to succeed in the market and become the standard, as is the goal, tangible analysis

of efficiency gains are needed to help persuade the entirety of the market to adapt the

coating. Furthermore, analysis must be conducted on the coating during operation to

determine the life expectancy before reapplication is necessary. That being said, Exelon

has a very high dependence on Emerson Process Management to provide these services

that are outside of the Exelon’s scope.

The DropWise coating technology would interest EPM as it would open up a new

revenue stream in a market that they already have a presence in. Instead of just analyzing

the current power generation systems, they would now expand to specifically analyze the

effects of the coating. Prices for a full process system analysis could be raised, thus

providing more profit to the company. Thus, EPM will have a highly positive posture

towards the development and marketing of the DropWise coating technology, leading to

a strong potential collaboration.

Dow Chemical:

Dow Chemical also provides a key capability that is beyond the scope of Exelon,

but is essential for the technology. As the technology is a chemical polymer applied

through initiated chemical vapor deposition, chemical components are needed in order to

produce the polymer and bind it to the surface.

Dow Chemical is a leading company in chemical substance production, and thus

strongly fulfills the capability that Exelon is lacking. Therefore, Exelon is highly

dependent on Dow Chemical to provide the materials necessary to form the polymer

coating. Furthermore, the DropWise coating technology would interest Dow Chemical

by providing a new customer to purchase their products. If a relationship is established

that makes Dow Chemical the sole supplier of the necessary chemical components, a

large revenue stream would open. Therefore, Dow Chemical will have a positive posture

towards the innovation of the DropWise coating, again, providing a strong potential

collaboration.

9.4 Collaboration form

In pursuing collaboration with these two identified potential companies, it is vital

to consider the structure of the collaboration and the form in which it will occur. Upon

evaluation, the process that makes the most sense to achieve the goals of Exelon and the

DropWise coating is to employ a subcontracting and original equipment manufacturer

(OEM) partnership. As previously discussed, it will be vital for the efficiency changes of

the condenser to be analyzed after application of the coating. As Exelon itself does not

provide this type of service it is advisable to subcontract out this service to Emerson

Process Management. In this way, Exelon will be able to provide the necessary service

to its customers without worrying about training a whole new branch or department

internally. EPM specializes in analysis of power generation companies, so they will be



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able to easily identify the needs of the condenser both prior to and after the coating is

applied. By pursuing this type of collaboration, a buyer-seller relationship of sorts is set

up. Exelon buys the services of EPM as a necessary part of the technologies success, and

EPM is provided with a new market and source of revenue as this type of coating has not

previously been employed successfully.

A similar collaboration relationship should be established in working with Dow

Chemical. The coating could not exist or be marketed without the supply of the chemical

components that comprise the final applied polymer. As Exelon has absolutely no

experience manufacturing and distributing chemicals. A strong relationship needs to be

formed with a reputable company that specializes in these products. By establishing an

OEM relationship with Dow Chemical, Exelon will receive the necessary components to

be implemented in their product. Dow Chemical should not have to develop any new

components in order to meet Exelon’s needs, so they can treat the relationship as

essentially another customer to their business. The distinction occurs in that Dow

Chemical would become the sole supplier of all the chemical materials need for the

DropWise coating to be applied to the condensers.

10 Intellectual Property Strategy

10.1 Patent strategy

The DropWise hydrophobic coating should be patented. Exelon has been granted

four patents in the last five years, including one granted March 10th, 2015. [Exelon

Patent Collection, USPTO] This suggests they have a considerable legal and proprietary

position which could benefit DropWise in the patenting of the coating and dispense

system.

While previous patents exist for hydrophobic condenser coatings (see

US20100129645 A1), this technology can be considered an improvement because it

requires initiated chemical vapor deposition. This process has not been put to public use

for the purpose of coating steam condensers, and it differs from the prior art of its

constituent elements because it is thinner and more robust than anything the market has

ever seen. Therefore, it meets the novelty requirement through its use of this method. The

product also fulfills the “nonobvious” criteria for a utility patent because it is taking this

state-of-the-art coating and dispersion method, and applying it to steam condensers to not

only coat new steam condensers, but also pre-existing ones. The usefulness of this

product can be justified through its efficiency-increasing properties, allowing power

plants to reduce pollution and effluent while saving on generation costs and again, its

ability to be applied to pre-existing infrastructure unlike the prior art.

Another patent that can be made in conjunction with the actual coating is the

dispense system, which is proprietary and designed specifically for the purpose by

DropWise. [Interview with Adam Paxson, DropWise CEO] While the dispenser may be

manufactured by an outside source, patenting the design of the bolt-on dispenser could

definitely help to give the company an advantage over other competitors entering the

same market, establishing the company as a market leader.



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10.2 Other strategies for building your proprietary position

Legal methods of protecting the innovation seem most effective as a result of the

causal ambiguity of the product - even though it has been produced carefully in a lab, it

has been iterated and improved over years, leading to a product that has no equally

effective substitute. The product is not easily imitated or reverse engineered, and requires

specific knowledge of a proprietary process developed in Dr. Karen Gleason’s MIT

laboratory. Besides these legal methods, a few things can be done to help build the

proprietary position of the Exelon-DropWise collaborative.

One of the most obvious strategies is implementing incremental innovation, as the

company will hopefully have a full twenty years of market experience before other

companies become involved with the technology. By this point, the DropWise coating

will be well-established as a market leader. The company can learn from its experiences

in the industry, make improvements to the operational processes of the product, and

focusing on delivering a defined, well rounded product that makes money for both the

company and the adopter of the technology.

Another technique to implement is an attempt to capture the dominant position in

an increasing returns market. As power generation companies become aware of the

benefits of a long-lasting, high-efficiency hydrophobic condenser coating, the value of

the product will increase to them (as they want to stay ahead of their competition). By

becoming the market leader and owning the patent to the technology, the collaborative

will establish an unassailable position as the main supplier of hydrophobic coatings for

condensers, and make it harder for imitating technologies to compete.

11 Project Valuation & Financing – DCF Modeling

11.1 Profit Model

The DropWise and Exelon partnership should use the traditional profit model to

assure the company captures the full economic value from the hydrophobic coating. In

this profit model, the company considers the price, volume, cost structure, margin, and

resource velocity in order to extract the most gain from this new technology. After a

proper examination of the technology, the power plants purchasing this coating would

value the product enough to pay the price that the company has set.

This model is supported by the fact that DropWise's product can’t be derived by

other means - it is novel, cutting-edge, and patentable. There will be no direct

competitors at the time of launch that can provide the same quality coating and set the

price ceiling below that of DropWise. The company has the advantage of possessing a

proprietary technology based on specialized knowledge, and the traditional profit model

takes advantage of this by enforcing copyrights, patents, and royalties. Although a

subscription model could be envisioned (as the coating requires reapplication), the

increased capital investment required by companies could discourage them from

investing.



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11.2 Pro forma financial statement

Year of Launch

DropWise has developed the technology to the point of commercialization

resulting in an estimated year of launch in winter 2015. The coating, which has been

developed over the last few years at MIT, was producing exceptional results in the spring

of 2014 (DropWise Intro Video), well above the levels of the incumbent technology.

While research should still continue after the implementation of the technology, it is

sufficiently ready to be mass produced on a large scale, as a result of its benefit over

current technology.

Total and Served Market

The total and served markets were listed as 3,115 units and 1,961 units

respectively. An explanation of the reasoning behind these estimates can be found in

Section 3.3, Market Size. As previously discussed these are conservative estimates of the

overall number of power plants and the number of compatible units in the United States.

Industry Share

A detailed explanation of the projected industry shares is given in Section 5.4,

Projected Market Shares. From our analysis, it was determined that a “Big Three”

market will emerge. The collaborative will focus its efforts first on Exelon’s existing

plants, in order to effectively predict efficiency gains and cost reduction. Then, focus

will shift to larger power generation companies across America, establishing dominance

as the market leader in hydrophobic condenser coatings.

Price

As previously discussed in Section 3.5, Pricing - Customer Willingness to Pay,

the cost of purchasing the chemicals, producing the DropWise coating, and

manufacturing the dispenser pushes the price to an estimate of $15,000 for an application

of a coating to a vapor condensing system. The price will vary greatly depending on the

type of material being coated, the surface area of the material, and the type of condenser

being coated, so pricing is strictly based off individual quotes. Furthermore, the relatively

new use of initiated chemical vapor deposition in the coating industry combined with the

necessary customization of the equipment needed for the process caused price analysis to

be conservative.

Capital Investment

The first year of capital investment for the collaborative is $1.5 million. Between

the completion of the initial research and development (now) to the introduction of the

product to market (December 2015), this large investment is required to set up the

infrastructure to produce and distribute the coating to Exelon’s facilities (this includes a

coating production facility and center for administration). After the first year, this capital

investment drops off $1 million, to cover expansion of the facility and supply centers

across part of the US. This capital, in conjunction with the capital over the next few

years, allows the collaborative to provide companies outside Exelon with the

hydrophobic coating. The capital investment slowly drops from $200,000 as time



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progresses, because less capital investment is required after the initial expansion of the

collaborative.

Initial Cost/Unit

The cost per application consists of the purchased inputs (physical) and the value-

added input (the resources used in enhancing the value of the product). The actual

purchased inputs needed by DropWise to produce the coating, at $500 per application,

make up ¼ of the total cost. This is a conservative estimate because the actual chemicals

required to make the coating do not amount to much, and the dispenser system can be

reused for other customers with similar a size and type of condenser system. The

majority of the cost comes in the value-added aspects. These include the labor associated

with producing the dispenser system and applying the coating, the regular maintenance

and upkeep of the applied coating, and some research and development costs that will

help ensure the coating remains the highest performing product on the market.

Experience Curve Factor

For the experience curve factor, a relatively conservative mark of 10% was

chosen. Whereas DropWise has developed a leading technology, Exelon does not have

experience in this type of industry. Furthermore, as has been previously discussed,

neither company in the collaborative has much experience in large scale manufacturing of

a tangible product. For this reason, a relatively conservative factor was chosen. The

reason the value was not even more conservative is because of both the size of Exelon

and the technology innovation leadership of DropWise. These factors should combine to

allow the collaborative to more easily adapt to the new industry area than would typically

be expected of corporations with limited experience in a field.

Research & Development

Initially, the research and development for the coating is not highly important, as

it has been reworked and iterated over the last few years in Karen Gleason’s laboratory at

MIT. $60,000 per year will be provided initially to continue research on the actual

dispensing and application process, as this is the part of the technology that is most likely

to change and develop. After 5 years (in 2020), this research and development allocation

will be increased to $100,000, and the coating itself will be revisited. This is to ensure

that as the collaborative takes over the market, and they still remain the industry leader in

coating technology and application. It is possible that scientific developments over the

next five years could change the type of coating that is best suited for the role, and

DropWise must stay at the cutting-edge of these developments. This timeline corresponds

with projected entrance into a broader market outside Exelon’s plants and assures that the

company remains flexible to changes in the industry.

Other Operating Expenses

These expenses include sales/marketing and administrative expenses like

executive/staff salaries, utilities, insurance, and costs outside actual unit production. It

was estimated that these costs will be $850,000 for the year before sales and $2 million

for the first year, growing slowly upwards as time goes on. While these numbers may

seem high for operating expenses, they are justified mainly by the salaries paid to staff



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and the operating expenses of the polymer production facility. Within the $2 million

annual expense, it is estimated that $1.7 million comes from staff and $300,000 comes

from the operation and distribution of the plant. This $1.7 million covers additional staff

that the host company, Exelon, will need to bring on in order to produce and distribute

the coating. The rest of the staff can be sourced from the pre-existing staff at Exelon. Of

the $1.7 million, one can expect 1 chief executive at $160,440; 2 general operations

managers at $107,970; 1 general purpose manager at $118,160; 1 financial manager at

$110,640; 3 engineering managers at a median annual cost of $120,580; 10 chemical

equipment operators and tenders at $45,580; 2 truck drivers at $38,720; 4 Industrial

Machinery Mechanics at $45,280; and 2 operations specialists at $64,990. These salaries

were sourced from the Bureau of Labor Statistics’ National Occupational Employment

and Wage Estimates, 2014.

Service Life Assumption

Our analyst team completed a phone interview with DropWise Technology Corp.

CEO and President, Adam Paxson who explained the expected service life

assumption. The coating will be specifically designed to degrade after about 5 years.

This gives enough time for the power generation company to make a profit as a result of

efficiency gains. Paxson stated he wanted the generation companies to make their

investment back within 2-3 years of the application of the coating, and the next two to

four years after that will be profitable for the generation company before requiring a re-

application from the company. This service life allows the generation company to re-

enter the market after five years.

Discount Rate (“Cost of Capital”)

The rate of 7.22% was used for the weighted average cost of capital. This

correlates with the rate provided for the Chemical (Specialty) industry by Damodaran in

“Cost of Capital by Sector (US)” (Damodaran). It was decided that, as the technology

relies heavily on chemical components that are combined and utilized in such a way that

provides a specific purpose, this was the most appropriate industry for the technology of

the ones for which statistics were provided.

Risk-Free Rate of Return

The yield percentage of a 10-year US Treasury bond is listed as 1.843% at close

on April 5, 2015 (Wall Street Journal). This rate is used to analyze the additional return

the company would experience beyond what would occur if the cash used for investment

were instead placed in a risk-free bond.



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11.3 Results

Figure 24. Total Projected Unit Sales Analysis

Looking at the results of the Pro Forma analysis, it can be seen that the DropWise

coating will function primarily through new unit sales, as shown in Figure 24

above. With an estimated lifespan of 5 years, it will not be necessary to repeatedly

replace the sales that were recently made. Sales will instead focus on implementation in

condenser units that currently do not have the coating installed. That being said, it can be

expected that a large proportion of customers will return once a replacement sale is

required due to the high performance of the coating.



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An important area to consider is the gross margin experienced from the projected

sales. As the cost per unit is far less than the price to be charged, the gross margin is

pleasingly high, averaging at 88.5% from 2015 to 2022. This is especially important in

relation to the capital investment required for this projection, as the initial values are

quite high. The high gross margins are a necessity in allowing DropWise to quickly

regain the money invested and begin to experience positive net cash flows; in this case it

is projected to be in 2017. In turn, the cumulative discounted net cash flow will become

positive in 2020, allowing the company to become self-sustaining in 6 years, earlier than

would be possible with smaller gross margins, as can be seen in Figure 25 below.

Figure 25. Net and Discounted Net Cash Flows

The net present value (NPV) of the technology should also be considered,

especially by potential investors, in order to determine the risk of the investment and the

projected success of the company. In this case, the DropWise coating strategy has an

NPV of just over $4.3 million. This is an important factor in convincing potential

investors to buy in to the technology. By demonstrating that the technology will generate

millions more in cash than investment in a risk-free bond over the same period of time,

DropWise will be able to garner the confidence of investors. This will provide them with

the funds to continue to expand and acquire more customers.

At this point, the DropWise coating appears to be in a strong position to begin

implementation and penetrate the market. No significant changes really must be made in

order to move forward and improve the overall performance of the technology



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economically. However, minor changes can always be made to develop larger revenues

and cash flows. In this case, reducing the amount of initial investment required would be

the most effective means. If DropWise can set up a manufacturing center for the coating

dispense systems at a cheaper rate than currently projected, it would take less time for the

investments to be reacquired and thus, less time for the company to become profitable.

11.4 Capital Requirements and Sources of Capital

The business will require $3,600,000 over the first six years in initial capital

investments until the company becomes self-sustaining after those first six years. The

DropWise and Exelon partnership will begin on the vapor condensers of the power plants

owned by Exelon. This initial $3.6 million will be spread out over the introductory

period in order to initialize the processes of the company. This capital investment will

fund the construction of the manufacturing facility which will primarily be used to

produce the coating dispense systems. Over this introductory period, the capital

investment will also fund the expansion of the coating production to other power

generation plants.

The technology is well advanced in the mature stages of a prototype. Adam

Paxson, CEO & President of DropWise, has manufactured the hydrophobic coating and

tested the durability of the polymer in a vapor condenser. April 4, 2014 Adam Paxson

stated, “After I graduate in June, I will be on a mission to manufacture this coating and

install it in every power plant possible.” (DropWise - Intro Video) Not only has the

coating been tested and surpassed all other competitors, but DropWise has further

developed the product over the past year, and Adam should be ready to bring the

technology in the form of a minimum viable product to the market by the end of 2015.

Evident from the lab work Adam Paxson has completed, he has found funding to

support his plan to manufacture and implement the coating. Partnering with Exelon

should accelerate the research and development process for DropWise. The partnership

should place the business in a favorable financial condition because Exelon earned a net

income of $1.729 billion last year alone. Exelon would be the first source to pursue to

finance its development, as the required capital investment would amount to just 0.208%

of their previous income. Therefore, Exelon can afford to risk a capital investment on

this technology, with strong promise for relatively quick returns.

This business will be self-sustaining after 6 years. This coincides with the

timeline for the reapplication process of the coating, which Adam Paxson assured our

analysts via a phone interview in March would occur after the coating had been in effect

for five to ten years. (Paxson, Adam) This is the perfect timing for power plants to

reenter the market seeking reapplication as original customers. However, this time the

company would not need the large initial capital investment and would be self-

sustaining. At this point, the investment from Exelon to develop and improve the

efficiency of their vapor condensers will have made the rest of the market more receptive

to investing in and purchase from DropWise.



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12 Project Valuation & Financing – DCF Modeling

12.1 Innovation Roadmap

In the following section, our analysts describe the combination of projects that

could be linked to the DropWise Exelon collaboration for the hydrophobic

coating. These projects will link to form a logical path to full commercialization by

achieving milestones in the business strategy for the new technology.

Projects

1. Trialability And Marked Efficiency Gains

This technology relies on increasing the efficiency of the power generation

process for consumers. However, before they invest, these companies will want

accurate estimates on what kind of results they can expect. Therefore, the first project

undertaken by the collaborative must be a series of trials on different-size power

plants.

In a report published by the Electric Power Research Institute, linked to us by

Adam Paxson (CEO of DropWise), an efficiency gain of 0.1% is cited for the

application of a hydrophobic coating. This 0.1% efficiency increase cited in the EPRI

article is based on a coating that is similar to the one produced by DropWise, but not

the same coating DropWise will be using. The coating produced in the MIT lab is

expected to have a higher performance index, but it be determined how this efficiency

gain scales with the size of the condenser and the area of application. Therefore, the

milestone that must be reached is an increase in efficiency that is equal to or greater

than 0.1%.

Prices for electric power differ from state to state and region to region in the

United States. In New England, the average retail price for electricity in all sectors is

17.34 cents/kWh, while in Tennessee, the price is 9.18 cents/kWh. This data is

sourced from the U.S. Energy Information Administration for 2015 (Average Retail

Price of Electricity). In a case study performed on Vanderbilt University’s power

plant that can be found in Appendix 15.3.1, It was found that at an increase in

efficiency of 0.1% and a cost of electricity of 9.18 cents/kWh, the return on

investment for the one condenser in the plant was 4.70 years and the profitability

$635 after five years. These numbers are too small to attract a significant amount of

consumers. However, if this plant was in the northeast, where the cost of electricity is

17.34 cents/kWh, ROI is reached in only 2.49 years with a profitability of $10,088

after five years.

The takeaway here is that the collaborative must start sales in areas of the

country where the electricity cost is high and an increase in efficiency will make a

larger difference. In order to break into the market elsewhere in the country, where

the electricity cost is lower, either an increase in efficiency above 0.1% must be

reached through R&D, or, the cost of the product must be brought down to provide a

return on investment within two to three years. Ideally, the technology will be able to

reach a higher efficiency gain.



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In summary, performing trials on different sized condensers and power plants

will give us an accurate idea of how the coating will perform in similar applications

for other companies, and this can help us determine the price and expected return on

investment for the consumer. The minimum requirements to break into the market in

the northeast is an efficiency gain that matches or exceeds that cited in the EPRI

article. If however, the predicted and necessary efficiency gains were not achieved

when scaled to a full-sized power plant, DropWise would have to increase R&D in

order to achieve the sufficient level of increased efficiency. This provides the basis

for the first project in pursuit of efficiency levels beyond what are currently expected.

2. Increased Marketing to Obtain More Contracts

In order to enter full commercialization, this collaboration between DropWise

and Exelon must increase marketing to obtain more contracts with customers. After

increasing research and development, improving marketing links to that project as a

way to communicate the progress to potential customers. This includes marketing to

power plants exposed to antiquated coatings as well as power plants yet to install

efficiency coatings. Increasing marketing to engage more plants with contracts is a

key project to complete for the business to reach full commercialization.

As analysts, we contacted Mark Petty, Assistant Vice-Chancellor of Plant

Operations, responsible for utility production, utilities infrastructure, building and

grounds, energy conservation, and building control systems for Vanderbilt

University. We approached him inquiring as to the value of the kilowatt-hour of

power the plant produces as well as the amount of downtime the Vanderbilt plant

schedules during the year. During our conversation, Mr. Petty mentioned that the

vapor condensers Vanderbilt has used never utilized hydrophobic coatings to increase

efficiency. He said, “The turbines we’ve used never had coatings.” (Petty,

Mark) This brought to our attention the vast market of universities across the United

States who have yet to install a hydrophobic coating to improve their efficiency.

DropWise must increase their marketing in order to draft more contracts in the

market. 70 campus coal power plants exist today in the United States. (Category:

Existing Campus Coal Plants) Exelon has 14 facilities across the nation, and in

comparison, universities offer a much larger opportunity to obtain more contracts.

(Diverse Mix of Power Plants) Increased marketing after initial implementation on

Exelon power plants would thus provide more customers to DropWise, increasing the

profitability and societal impact of the coating.

12.2 Option value calculation

Our decision tree models display the two projects that logically must be carried

out to completion if full-fledged commercialization is to be realized. However, between

the two paths, one project stands out as the obvious candidate for focus, while the other

project is the worst case for the business plan. The first project proposed by our analysts

is investing in research and development to improve the efficiency of the product, but we

foresee an issue arising where customers will not purchase the product while the coating

operates at such a low efficiency benefit to the generation of power. The second project



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proposed investigates marketing. Investing in marketing appears to be the best case for

business model because expanding the market that is aware of the benefits of the

hydrophobic coating is the most viable option for the success of the business.

In the first project, Exelon must increase R&D investment in order to increase the

performance of the coating. 0.1% increases in efficiency could viably prevent the

technology from being adapted on a wide scale. Customers may simply not be intrigued

by such a product, reducing the share of the served market afforded to both Exelon and

the other competitors. For this reason we have determined that Exelon’s portion will

grow much slower than previously discussed, capping at 8% in 2022. Furthermore, R&D

investment was increased to $1 million annually to account for the increased attempts to

improve the coatings performance closer to 1% efficiency gains. These alterations were

used in a Pro Forma Analysis to determine the net present value of the business after

implementing the project, as well as cash flows.

The second project of investing in an initiative to expand the market appears to be

a more viable and lucrative course of action to take after using Pro Forma analysis. A

slightly larger amount of capital investment and increased operating costs are indicated

for this project in order to advance to commercialization. Specifically, operating costs

were increased by $68,700 to account for the hiring of a marketing specialist (Bureau of

Labor Statistics). Due to the full time presence of a marketing specialist and a focused

effort to expand Exelon’s market share, our analysts forecasted increased market shares

each year after implementation over the previously discussed case, peaking at 34% in

2022. This projection still follows the “Big Three” market outlined previously, but allots

a larger share to Exelon.

After Pro Forma analysis of each project and comparison to the base case outlined

in Section 11, it was determined that project 1 was the worst case and project 2

represented the best case for the outcome of the company. The reason for this

determination is based off each’s net present value (NPV). Expanding the market yields

an NPV of just over $10 million because the cost of financing a marketing person or team

would not outweigh the benefits of bringing in new customers to purchase the DropWise

product. Increasing R&D initiatives in order to meet market specifications garners a

NPV of -$12.5 million. Three different Decision Tree Models were then used to

determine the expected net present value (ENPV) and coefficient of variation (CV) of the

combination of cases. First a scenario in which a project couldn’t be abandoned was

analyzed. Then, it was assumed that the worst case scenario could be abandoned in

2016. Finally, a Decision Tree Model with multiple decision points was created. In this

scenario, an initial small investment of $100,000 was used in trials on various sized

power plants to determine whether to continue the development of the product. If the

product was deemed viable at this first stage, another small investment of $500,000 was

used to increase marketing capabilities to full operational levels. The Decision Tree

models for each of these scenarios are provided in Appendix 15.3.2.



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Figure 26. Summary of Decision Tree Models

ENPV and CV data is summarized in Figure 26 above. As can be seen, ENPV for

the commercialization strategy of the DropWise coating increased as more options were

added to the implementation plan, eventually more than doubling from the original, "No

abandonment", scenario to the final, "Multiple Decision Points", scenario. Furthermore,

the Standard Deviation was cut down to a third of the original value. Both of these trends

would be very enticing to a potential investor as they suggest that one can expect double

the return and a lower likelihood variance if the technology is pursued with the proper

decision model in place. This will help DropWise convince investors to back their

product as high returns are expected with little indication of variance.

12.3 Options space map

Using the ENPV and CV data provided from each of the three Decision Tree

Models, an Options Space Map can be created plotting CV vs ENPV to determine

whether the business model is a good one to invest in. Using the projects and approaches

outlined previously, the following Options Space Map in Figure 27 occurs.



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Figure 27. Option Space Map for DropWise Hydrophobic Coating

As can be seen, the initial base case that prevents abandonment is located in the

“Probably Later” sector of the plot. With a relatively high CV, the ENPV does not

outweigh the risk of potential losses associated with this model. The positive ENPV

indicates that the business model has potential to be profitable. There is promise of high

gains due to the high volatility, but it is best to wait and make sure the gains are indeed

realized before committing to the investment. This project would not have been selected

for investment using standard discounted cash flow (DCF) analysis, but shouldn’t be

written off immediately due to the potential for profitability.

Imparting the condition that the worst case can be abandoned in 2016 if the

business model begins to trend that direction severely increases both the ENPV and CV

of the combination of projects, pushing the business model into the “Maybe Now”

sector. With doubled ENPV values and the CV dropping to only a third of that of the

base model, this scenario seems very attractive for investors. In fact, standard DCF

analysis would support investment in this project. However, there is still some

uncertainty in the returns associated with it, as the standard deviation exceeds the

expected net present value. At this point, a decision will have to be made as to whether

investment should be made now or not. The worst that could happen with investment

now is a small loss of capital as the project would be abandoned if necessary. On the

other hand, waiting to invest could lead to losing out on potential profits.

Finally, it can be seen that the Decision Tree Model with multiple decision points

provides both the highest ENPV and the lowest CV. In fact, the CV has now dropped

below one, indicating that the standard deviation is less than the expected returns on the



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investment. This puts the combination of projects into the “Invest Now’ sector,

indicating that one should not wait to invest in the product. Standard DCF analysis

supports the investment as well, indicating that it is a clear-cut choice. With unlikely and

almost nonexistent losses associated with this model, investors should feel confident they

will experience profitability with this business model.

12.4 Improvement over traditional DCF analysis

In the previous section, the Discounted Cash Flow Model (DCF) established the

base case for the business model. According to the option space map, the combination of

the projects will not only reduce the volatility of the project’s cash flow but will also

increase the expected net present value. In the original decision tree model, the

expansion of market initiative pushed cash flow projections up, while the investment in

improving the efficiency failed to earn a positive projected cash flow.

Volatility captures the likelihood the environment of the business model can

change for better or for worse before the investment is made. This projection on the

decision tree model allows us to infer the level of long term risk an investment will

be. The volatility of this business model is measured by calculating the coefficient of

variation. The coefficient of variation is a calculation of the standard deviation divided

by the expected net present value. Therefore the higher the standard deviation the greater

increase of risk to the business. In the case of the investments to commercialize the

DropWise coating, the abandonment of the research and development investments

reduces the standard deviation and increases expected net present value; thus the

coefficient of variation decreases from 4.33 to 1.46.

13 Implementation Plan

13.1 Technology/Business Roadmap

Now that we as analysts have established an understanding of what is required to

take this coating to full commercialization, it is critical that an implementation plan be

outlined with important milestones and events included. In the following section, we

have suggested a plan that shows the development of the technology from its original

creation through planned implementation and progressing out to potential future

expansions.



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Figure 28. Technology Roadmap: DropWise to this Point

First, one should look at how DropWise got to their present location through

developing a functional hydrophobic coating, as diagramed above in Figure 28.

The first milestone was the actual development of the coating by Adam Paxson in

the lab during his time at MIT. After this, the next step would be to apply for a patent to

secure the intelligence behind the coating, ensuring DropWise has the advantage over

competitors once it reaches the market. This step is actually not yet complete. It was

decided to prioritize the acquisition of a patent closer to when the coating will reach the

market.

Next, one can note the launch of DropWise in early 2014 after Paxson graduated

from MIT. Lab trials were conducted on the coating on the miniature power plant, as you

saw in the video, to determine quantitatively what type of efficiency gains were to be

expected as well as to test the durability of the coating. As data is acquired, DropWise

should keep an eye on the target market to identify potential candidate power plants, as

well as potential competitors, in order to have a better understanding of their starting

position once they reach commercialization.

Finally, just before DropWise reaches full commercialization, they will need to

hire consultants, staff, and most importantly, a contract attorney, in order to prepare for

full operation and deal with the necessary contracts and agreements with Exelon as a

partner.



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Figure 29. Technology Roadmap: Next Immediate Steps

Next, DropWise must consider the immediate steps that will be necessary to

achieve full commercialization, as outlined above in Figure 29.

First, they must seek out a partnership with Exelon. This is critical in order to

gain the necessary capital and access to the market that will enable DropWise to expand

successfully. While this partnership is being finalized, trials must occur on representative

Exelon power plants of each of the various types of condenser systems. This is

considered our tipping point, and the point at which we must make a “Go/No Go”

decision. The idea of these trials is to scale the data acquired in lab trials to the level of

fully operational power plants. This is the most important step of the roadmap because if

the data acquired from these full scale tests does not demonstrate sufficient efficiency

gains, DropWise would have to either 1) increase R&D in order to achieve the necessary

efficiency levels, or 2) seek out other ventures.

Assuming the tests yield positive results, Drop Wise would then move to expand

to all Exelon power plants. This step is marked in yellow instead of green, marking a

lower level of commitment, because it is dependent on the successful completion of the

prior step. Finally, DropWise would establish a more fixed cost and price for the product

as they ready themselves to expand throughout the market to other customers.



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Figure 30. Technology Roadmap: Potential Future Expansion

Lastly, the DropWise/Exelon collaborative should look at potential areas of

expansion, as shown in Figure 30 above.

The collaborative will first look to expand into other power plants run by ulterior

companies, gaining a greater share of the market. When their position is more

established and a steadier source of positive cash flow exists, the collaborative can begin

targeting power plants at universities. Our research showed us that there are actually

more power plants at universities in the U.S. than power plants owned by Exelon. While

the plants owned by Exelon are bigger and provide a larger potential for both energy and

monetary savings, these university power plants serve to expand the market share while

simultaneously informing the collegiate community and future generations about the

benefits of a hydrophobic coating. This helps make the DropWise coating the well-

accepted industry standard.

Around a similar time, the collaborative can begin researching condenser

manufacturing in order to explore potential application to newly manufactured condenser

systems, rather than just pre-existing ones. This expands the market share beyond pre-

existing power plants to new infrastructure. Assuming this research yields promising

information, the collaborative will need to seek a partnership with a manufacturing entity,

and finally, license the technology to that company for use during production. These

steps are all marked in red because they are slightly beyond the initial scope and plan for

the technology. They are not commitments; instead, they are possible sources of

expansion for the collaborative.

Moving off the roadmap and into the distant future, we can keep in mind that the

market will continue to regenerate itself every five years - as the coating needs to be

reapplied.

By following the implementation plan outlined above, the DropWise/Exelon

collaborative will ensure successful entry into the market and continued growth over

time. Furthermore, this plan provides options for expansion beyond the initial scope into

other markets and industries, giving the technology even more promise. Our analysts

believe that the discussed implementation plan positions the technology as a strong

opportunity for investment, with undeniable potential for profitability.



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14 References

Cover and Section 0 Sources

Becker, Rachel. "Water-Repellent Coating Could Make Power Plants Greener."

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● Figure 1: "DropWise - Intro Video." YouTube. YouTube, 4 Apr. 2014. Web. 11 Jan.

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● Figure 3: "Applications." DropWise Technology Corp. N.p., n.d. Web. 11 Jan. 2015.

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● "Form 10-K." Securities and Exchange Commission. N.p., Feb. 2014. Web. 26 Jan.

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2015. <http://www.adv-polymer.com/Power_Plant_Protective_Coatings/index.asp>.

● "Sustainable Growth." & Figure 6: Exelon Corporation: About Us. N.p., n.d. Web.

26 Jan. 2015. <http://www.exeloncorp.com/aboutus.aspx>

http://www.gvdcorp.com/why-gvd

http://www.pepcoholdings.com/about-us/

http://www.adv-polymer.com/Power_Plant_Protective_Coatings/index.asp



4/30/15 77

● "Top Fortune 500 Gas and Electric Utilities, 2013." Business Rankings Annual. Ed.

Deborah J. Draper. 2015 ed. Farmington Hills, MI: Gale, 2015. Business Insights:

Essentials. Web. 26 Jan. 2015.

http://bi.galegroup.com/essentials/article/GALE%7CI2501293060/63afb070820a33af

bec82904c98a5c8b?u=tel_s_tsla

● Tucker, Shelby. Exelon Corporation: Catalyst-Driven 2015; Upgrading to

Outperform. Rep. RBC Capital Markets, 9 Jan. 2015. Web. 26 Jan. 2015.

<http://globalbb.onesource.com.proxy.library.vanderbilt.edu/Web/NewsAndReports/

FetchAR_TR.aspx?Process=CP&DocID=68911425&file=file.pdf>

Section 3 Sources ● "Applications." DropWise Technology Corp. N.p., n.d. Web. 19 Jan. 2015.


● "DropWise - Intro Video." YouTube. YouTube, 4 Apr. 2014. Web. 31 Jan. 2015.

<https://www.youtube.com/watch?v=_jK7C50DdpI>.

● "Linking Environmental Stewardship to Our Business Strategy." Exelon Corporation:

Climate Change. N.p., n.d. Web. 01 Feb. 2015.

<http://www.exeloncorp.com/environment/strategy/Pages/overview.aspx>.

● Power Generation in the United States. Rep. MarketLine, July 2014. Web. 31 Jan.

2015.

<http://globalbb.onesource.com.proxy.library.vanderbilt.edu/Web/Reports/ReportMai

nIndustry.aspx?SicCodeID=57&Report=ALLMARKETRESEARCHREPORTS&Pro

cess=IP&Type=GetReport&FileFormat=PDF&ReportID=60467&FileName=0072-

2702-2013.pdf&VendorName=Datamonitor>

● "Technology." DropWise Technology Corp. N.p., n.d. Web. 19 Jan. 2015.


● U.S. Census Bureau, comp. "Plumbing, Heating, and Air-Conditioning Contractors:

2002." Economic Census (2002): n. pag. Print.

● United States. Environmental Protection Agency. Water. Proposed Effluent

Guidelines for the Steam Electric Power Generating Category. N.p., n.d. Web. 19

Jan. 2015. http://water.epa.gov/scitech/wastetech/guide/steam-electric/proposed.cfm

Section 4 Sources ● "About GVD Corporation." About GVD Corporation. N.p., n.d. Web. 08 Feb. 2015.


● "Advanced Polymer Coatings Inc." OneSource Global Business Browser. N.p., n.d.

Web. 9 Feb. 2015.

<http%3A%2F%2Fglobalbb.onesource.com.proxy.library.vanderbilt.edu%2Fweb%2

FReports%2FReportMain.aspx%3FKeyID%3DL85578030%26Process%3DCP%26F

trID%3DUNIFIEDSUMMARY>.

● "ChemLine Coatings for Industry." ChemLine Coatings for Industry. N.p., n.d. Web.

09 Feb. 2015. <http://www.adv-

polymer.com/Chemline_Protective_Coatings/index.asp>.

● "DropWise - Intro Video." YouTube. YouTube, 4 Apr. 2014. Web. 31 Jan. 2015.


http://bi.galegroup.com/essentials/article/GALE%7CI2501293060/63afb070820a33afbec82904c98a5c8b?u=tel_s_tsla

http://bi.galegroup.com/essentials/article/GALE%7CI2501293060/63afb070820a33afbec82904c98a5c8b?u=tel_s_tsla

http://globalbb.onesource.com.proxy.library.vanderbilt.edu/Web/NewsAndReports/FetchAR_TR.aspx?Process=CP&DocID=68911425&file=file.pdf

http://globalbb.onesource.com.proxy.library.vanderbilt.edu/Web/NewsAndReports/FetchAR_TR.aspx?Process=CP&DocID=68911425&file=file.pdf



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● "GVD Corp." OneSource Global Business Browser. N.p., n.d. Web. 9 Feb. 2015.


FReports%2FReportMain.aspx%3FKeyID%3D81551322%26Process%3DCP%26Ftr

ID%3DUNIFIEDSUMMARY>.

● "How Do Coal-Fired Plants Work?" Duke Energy. N.p., n.d. Web. 06 Feb. 2015.

<http://www.duke-energy.com/about-energy/generating-electricity/coal-fired-

how.asp>

● "Lesson: Superhydrophobicity — The Lotus Effect." Teaching Engineering. N.p.,

n.d. Web. 8 Feb. 2015.

<https://www.teachengineering.org%2Fview_lesson.php%3Furl%3Dcollection%2Fd

uk_%2Flessons%2Fduk_surfacetensionunit_lessons%2Fduk_surfacetensionunit_less

4.xml>.

● "R&D Coating Equipment." R&D Coating Equipment. N.p., n.d. Web. 09 Feb. 2015.

<http://www.gvdcorp.com/services/equipment>.

● Turpin, Joanna R. "Coatings Can Help Condensers Live Longer." ACHR News. N.p.,

n.d. Web. <http%3A%2F%2Fwww.achrnews.com%2Farticles%2F87134-coatings-

can-help-condensers-live-longer>.

● Figure 10: "Lotus Effect." Percenta Nanotechnology. N.p., n.d. Web. 15 Mar. 2015.

<http://percenta-nanoproducts.com/lotus-effect/>

● Figure 11: "R&D Coating Equipment." GVD Corporation. N.p., n.d. Web. 15 Mar.

2015. <http://www.gvdcorp.com/services/equipment>

● Figure 12: Steam Condenser: By Mbeychok (Own work) [Public domain], via

Wikimedia Commons

<http://commons.wikimedia.org/wiki/File%3ASurface_Condenser.png>

Section 5 Sources

"About GVD Corporation." About GVD Corporation. N.p., n.d. Web. 15 Feb. 2015.


"Baosteel Group Corp." OneSource Global Business Browser. N.p., 31 Dec. 2010.

Web. 15 Feb. 2015.


FReports%2FReportMain.aspx%3FftrId%3DUNIFIEDOVERVIEW%26Process%3D

CP%26KeyID%3D42419952%26Expand%3DBusDesc%23BusDesc42419952>.

"Commercializing a New Generation of Polymer Coatings." Paintings and Coatings

Industry. N.p., 25 Jan. 2015. Web. 15 Feb. 2015.

<http://www.pcimag.com%2Farticles%2F100121-commercializing-a-new-

generation-of-polymer-coatings>.

"Count of Electric Power Industry Power Plants, by Sector, by Predominant Energy

Sources within Plant, 2002 through 2012." SAS Output. U.S. Energy Information

Administration, 12 Dec. 2013. Web. 30 Jan. 2015.

<http://www.eia.gov/electricity/annual/html/epa_04_01.html>.

"DropWise - Intro Video." YouTube. YouTube, 4 Apr. 2014. Web. 31 Jan. 2015.


Energy, Electricity and Nuclear Power Estimates for the Period up to 2050. 2011 ed.

Vienna, Austria: International Atomic Energy Agency, 2011. Reference Data Ser. No.



4/30/15 79

1. International Atomic Energy Agency. Web. 1 Feb. 2015. <http://www-

pub.iaea.org/MTCD/Publications/PDF/RDS1_31.pdf>.

"GVD Corp." OneSource Global Business Browser. N.p., n.d. Web. 15 Feb. 2015.


FReports%2FReportMain.aspx%3FKeyID%3D81551322%26Process%3DCP%26Ftr

ID%3DUNIFIEDSUMMARY>.

Section 7 Sources

DropWise Applications - Paxson, Adam. "Applications." RSS. DropWise

Technologies Corp, n.d. Web. 08 Mar. 2015. <http://www.drop-

wise.com/applications/>.

Jennings, Kane. "Hydrophobic Coating Interview." Personal interview. 27 Feb. 2015.

Paxson, Adam. "DropWise Coatings Interview." Telephone interview. 2 Mar. 2015.

Section 8 Sources


Section 9 Sources

"The Dow Chemical Co. Information and Related Industry Information from

Hoover's United Kingdom (UK)." Hoovers Company and Industry Information, n.d.

Web. 23 Mar. 2015. <http://www.hoovers.com/Dow%20Chemical/--ID__10471--

/freeuk-co-factsheet.xhtml>.

"Products and Services." Emerson Process Management. Emerson Electric, n.d. Web.

22 Mar. 2015. <http%3A%2F%2Fwww2.emersonprocess.com%2Fen-

us%2Fproducts-services%2Fpages%2Fproductsandservices.aspx>.

Section 10 Sources

Coating for Vapor Condensers. Rudolf Gensler, Arne Grassmann, Manfred Waidhas,

assignee. Patent US20100129645 A1. 27 May 2010. Print.

[Exelon Patent Collection] "Patent Database Search Results: AN/exelon in US Patent

Collection." US Patent and Trademark Organization, n.d. Web. 30 Mar. 2015.

<http://patft.uspto.gov/netacgi/nph-

Parser?Sect1=PTO2&Sect2=HITOFF&p=1&u=%2Fnetahtml%2FPTO%2Fsearch-

bool.html&r=0&f=S&l=50&TERM1=exelon&FIELD1=ASNM&co1=AND&TERM

2=&FIELD2=&d=PTXT>.


Section 11 Sources

"Bond Market Overview." Bonds. Wall Street Journal, 05 Apr. 2015. Web. 05 Apr.

2015. <http://www.wsj.com/public/page/news-fixed-income-bonds.html>.

Bureau of Labor Statistics’ National Occupational Employment and Wage Estimates,

May 2014.Web. 05 Apr. 2015. <http://www.bls.gov/oes/2014/may/oes_nat.htm#b11-

0000>



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Damodaran, Aswath. "Cost of Capital by Sector (US)." New York University, Jan.

2015. Web. 05 Apr. 2015.

<http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/wacc.htm>.

"DropWise - Intro Video." YouTube. YouTube, 4 Apr. 2014. Web. 31 Jan. 2015.



Section 12 Sources

"Average Retail Price of Electricity to Ultimate Customers." U.S. Energy Information

Administration - EIA - Independent Statistics and Analysis. US EIA, 27 Mar. 2015.

Web. 12 Apr. 2015.

<http://www.eia.gov/electricity/monthly/epm_table_grapher.cfm?t=epmt_5_6_a>

Bureau of Labor Statistics’ National Occupational Employment and Wage Estimates,

May 2014.Web. 05 Apr. 2015. <http://www.bls.gov/oes/2014/may/oes_nat.htm#b11-

0000>.

"Category: Existing Campus Coal Plants." - SourceWatch. N.p., n.d. Web. 12 Apr.

2015.

<http://www.sourcewatch.org/index.php/Category:Existing_campus_coal_plants>.

"Diverse Mix of Power Plants." Exelon Corporation: Generation. N.p., n.d. Web. 12

Apr. 2015. <http://www.exeloncorp.com/energy/generation/generation.aspx>.

Petty, Mark. "Mark Petty Interview." Personal interview. 8 Apr. 2015.

Product Abstract: Hydrophobic Condenser Tube Surface Treatment. Publication no.

1026719. EPRI: Electric Power Research Institute, 14 Dec. 2013. Web. 12 Apr. 2015.

<http://www.epri.com/abstracts/Pages/ProductAbstract.aspx?ProductId=0000000000

01026719>.

Section 13 Sources


Petty, Mark. "Mark Petty Interview." Personal interview. 8 Apr. 2015.

Product Abstract: Hydrophobic Condenser Tube Surface Treatment. Publication no.



01026719>.



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15 Appendices

15.1 Contact Log

15.2 Interview Summaries

DropWise

Notes from Phone Interview with Adam Paxson, 3/2/15 @ 11am

Call Duration: 29 minutes

Introduction of what Technology Strategy covers

Background

Talk to Kane Jennings about his work in hydrophobic coatings

The coating is a couple dozen nanometers thick

Pressure: 0.25% / 0.1” Hg

How does heat transfer affect the pressure?



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Custom design systems

The coating can go over the surface, but the condenser is pristine and oxides are rare and

the tubes are stainless

No pre-coating steps to prepare for monomer

We have started working with condenser manufacturing tube production company to

apply them first

5 years lasting coating to make the money back a couple times over

Every year: 2-3days

Every 5 years: for a week

Every 10 years: a couple weeks, more major overhaul

powermag.com

Goal lifespan: at least 5 years, possibly up to 10

Implement during the longer shut down periods

Enough duration to experience fiscal and efficiency savings beyond investment

Don’t want it to last too long or else recurring market will be too small

GVD Corp

Notes from Interview with Austin Nowak, 4/15/15

Call Duration: 15 minutes

Time for application and quantity dependent on coating chemistry

Very low quantity of components needed

10-100 nanometers thick

GVD doesn't pursue same type of application

Found niche in dry lubricity

Purchase components from suppliers

Commercially available

Often by-products of other processes

$170-250 thousand for lab scale dispenser system

Dispenser technology very scalable

Range from 6" wafer to 40" cauldron

Time generally between 30 minutes and a few hours

Depends on chemistry

Conservatively no more than a day

Mark Petty, Director of VU Plant Ops

Prepared Interview Questions and Notes, 4/8/15

1. Does this power plant only serve Vanderbilt or are you sending residual to

Nashville?

2. Why did Vanderbilt build a power plant?

3. What does your downtime schedule look like? Which parts do you shut down?

March-April and October-November rates for power prices are lowest, so

these are the windows for about 3 weeks of downtime for the plant.

4. How many condensers do you have? What type?



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0 vapor condensers, but in years past Vanderbilt has had condensers with

no coatings on them.

5. How much would a 1% increase in efficiency save you?

6. How much is the power worth for a kilowatt hour? How much power does this

plant put out?

7. Are there competitive companies for improving power generation efficiency?

No coatings are on the condensers.

8. What should the price be?

9. What is 1% of net profit?

$0.08/ kWh in the south east of the U.S. $0.24/ kWh in the north east of

the U.S. and $0.05/kWh in the Midwest.

10. Also provided us with data in a spreadsheet for steam and energy production of

old Vanderbilt coal-powered, steam turbine

Kane Jennings, Professor of Chemical and Biomolecular Engineering

Notes from Meeting with Kane Jennings, 2/27/15

1. Field - Surface Initiated work

a. polymer covers molecule by molecule

2. Karen:

a. Gas phase monomers - a liquid initiates the polymer reaction to “grow” the

coating around the condenser

b. Robust/Durable - not an issue; cornerstone of the technology

c. Heat transfer - #1 concern/critical issue

d. Find out about the conductivity of the coating itself

e. The copper life-time increases with a coating

3. Questions for Adam Paxson

a. How do you see heat transfer as a problem?

i. How thick it the coating? A couple nanometers thick

ii. What is the change in temperature between the outside of the coating

and the inside? Aim for 0 degrees

b. Complementary hardware systems?

c. Efficiency gains? 2 years to cover the cost of installation

d. Pre-coating steps to prepare for monomer?

e. How do you clean the condenser to remove oil? Condensers remain clean and

stainless.

f. How does the architecture of the surface affect the hydrophobicity?

i. How good is the contact angle change between the water and the

surface? angle > 150 degrees superhydrophobicity; 90 degrees-150

degree hydrophobicity

4. The diagram on the following page provides equations detailing heat loss across an

organic polymer on a condenser tube. Two example situations were calculated for

each a 3 nanometer and 1 millimeter thick coating. These resulted in a 0.1 ºC and

20 ºC change in temperature respectively.



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15.3 Other Appendices (extended data tables, clips, etc.)

15.3.1: Vanderbilt Power Plant Case Study

Case Study (Vanderbilt Power Plant)

After talking with Mark Petty (Assistant Vice Chancellor, Plant Operations,

Vanderbilt University), we secured data from 2008-2009 regarding one of Vanderbilt’s

steam turbine units that uses a single surface condenser on the back end. [1] The kWh

generated per month are shown in the table above. In a report published by the Electric

Power Research Institute, linked to us by Adam Paxson (CEO of DropWise), an

efficiency gain of 0.1% is cited for the application of a hydrophobic coating. [2] Taking

this number, we can extrapolate the additional power that the turbine system will

generate, a total of 23,171kWh per year.

Prices for electric power differ from state to state and region to region in the

United States. In New England, the average retail price for electricity in all sectors is

17.34 cents/kWh, while in Tennessee, the price is 9.18 cents/kWh. This data is sourced

from the U.S. Energy Information Administration for 2015 [3]. Over five years, this

presents a savings of $20,088 in New England and $10,635 in Tennessee. If the Exelon-

DropWise collaborative charged $10,000 for the application of the coating, this would

provide profitability of $10,088 after five years in New England and $635 after five years

in Tennessee.

The return on investment for consumers should be between two and three years,

allowing the generation companies to make profit for the remaining lifetime of the

coating. Using the data, it can be seen that return on investment in New England would

be 2.49 years while the return on investment in Tennessee would be 4.70 years. While the

ROI for New England falls directly within these goals, the Tennessee ROI is well above

it. It is believed that this is due to a few aberrations in the data provided to us by VU

Plant Ops, which are outlined below.

First off, these numbers are based on an aging condenser system that was phased

out in 2012. With a newer condenser-turbine system, the power generated would be much

higher and therefore the savings would be higher. Additionally, the price per coating



4/30/15 86

application varies based on the size of the condenser, and the unit that is cited is

relatively small. Thirdly, the system was not operating for 3 months out of the year. In a

more typical power plant that is not run by a university, these systems would be churning

out electric power year round, with maybe a few weeks max for standard maintenance.

This would greatly increase the profitability of the coating.

To prove this point, if it is assumed that instead of producing zero for three

months, it instead produces 2,574,517 kWh per month (mean value produced during

other months), the coating provides an additional $446 per month in New England or

$236 per month in Tennessee. Extrapolating these results over 5 years, the profitability of

the coating (value of the coating minus the price of application, $10k) will increase from

$10,088 to $16,785 in New England and from $635 to $4,180 in Tennessee. This brings

the ROI from 2.49 years to 1.87 years in New England and from 4.7 years to 3.53 years

in Tennessee.

Another interesting observation is that the 0.1% efficiency increase cited in the

EPRI article is based on a coating that is similar to the one produced by DropWise, but

not the same coating DropWise will be using. The coating produced in the MIT lab is

expected to have a higher performance index, which would provide an exceptional

increase to the profitability of the coating.

The main takeaway from this study is that the coating should first be applied to

power generation systems in the northeast, where the cost of electricity is higher and an

increase in efficiency will make a larger difference. Additionally, the collaborative

should focus on high-volume condensers that run year round, in order to maximize the

profitability of the coating.

[1] Petty, Mark. Summary of Vanderbilt Power Generation Plant Inputs and Outputs. 12

Apr. 2015. Raw data. Vanderbilt University Plant Ops, Nashville.

[2]Product Abstract: Hydrophobic Condenser Tube Surface Treatment. Publication no.



26719>.

[3]"Average Retail Price of Electricity to Ultimate Customers." U.S. Energy Information

Administration - EIA - Independent Statistics and Analysis. US EIA, 27 Mar. 2015. Web.

12 Apr. 2015.

<http://www.eia.gov/electricity/monthly/epm_table_grapher.cfm?t=epmt_5_6_a>.



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15.3.2 Decision Tree Models



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15.4 Final Presentation Handout

Hydrophobic Coatings for Condenser Systems

ENGM 221: TECHNOLOGY STRATEGY, FINAL REPORTBEN GALLATIN, DEREK PHILLIPS , & NIGEL WALKER

Over the duration of this project, we’ve been focusing on the commercialization

of the DropWise hydrophobic coating, specifically relating to condenser systems in steam

power plants. In this report, we will summarize our findings as well as our recommended

approach in implementing this technology. [Click]

This Technology Increases the Efficiency of the Condensation Process.

2

To help recap the technology, here is a general schematic of a typical turbine-

condenser power generation system. After steam moves through the turbine, the high-



4/30/15 89

pressure, high-temperature gas is cooled and condensed into liquid water through the use

of a condenser. The technology focuses on improving the efficiency of this process.

Allowing the water to condense faster creates a larger pressure differential between the

inlet and outlet of the turbine, driving it harder and producing more power. [Click]

Earlier this year, we spoke to Adam Paxson, CEO of DropWise. After our

conversation, he sent us a link to a report published by the Electric Power Research

Institute. This report studied SuperCN, a hydrophobic surface treatment developed by

NEI Corporation. This coating, similar to the one being produced by DropWise, produced

an efficiency gain of about 0.1% when applied to surface condenser tubes. While we

expect the DropWise Team to produce a coating with efficiency increases over 0.1%, we

took this number as a base case for the remainder of the study. [Click]

Here is a schematic of the DropWise deposition process. Here is the dispenser

system that would be brought in to the power plant to apply the coating. The condenser

unit is disconnected at each end and connected to this dispenser system. Then, a polymer

vapor is passed through the condenser, leaving behind the hydrophobic coating. The

excess coating is collected back into the dispenser. Paxson informed us that these

dispenser units will most likely be proprietary, as one of the focuses of the MIT lab is in

vacuum systems.

One of the big benefits of this technology is its ability to be applied to pre-

existing systems. Each year, a power plant will shut down each of its individual

generation systems for a period of about two to three weeks. DropWise can use this

maintenance window to apply the coating, which can be accomplished in less than a day.

The coating itself has been designed to last around five years before it needs to be

reapplied. At this point, the consumer enters the market again. [Click]

Business Opportunity

“...Exelon 2020 plans to adopt “smart”

technologies and in particular, improve energy

efficiency of the company’s pre-existing facilities...”

3

• Stronger push for environmentally friendly operations• 1,961 compatible Power Plants in the US alone• Most with multiple condenser systems• Provides benefit to all involved• Ideal Host Company: Exelon

Daily, as our society becomes more and more aware of the increasing harm

industry causes the environment and the depleting natural resources, a push is occurring



4/30/15 90

for technologies that support environmentally friendly operations. This technology fits

that niche perfectly. Furthermore, there are 1,961 compatible power plants just in the US

in which this technology could be applied. Within a majority of these power plants,

multiple condenser systems exist, providing even more potential for influence. The

industrial climate is perfect for this technology to be introduced and immediately provide

benefit to all parties and interest groups involved. Resources would be saved through

reduced effluent and fuel use due to the efficiency gains. Capital will be saved by

customers on that reduced intake of resources, and thus reduced costs. “Green Industry”

interests groups will also be more appeased due to the more efficient operation of the

power plants. There is almost no foreseeable pushback for this technology. In our

examination of potential sources for a host company, it was decided to look in an area

that is not necessarily the most intuitive. Rather than focus on a company that already

produces coatings or is currently researching hydrophobicity, it was instead decided to go

straight to the market and target an energy generation company with expendable capital.

We found Exelon, a billion dollar energy generation company focused on technologies,

which “improve energy efficiency of the company’s pre-existing facilities”. This host

company is environmentally conscious and offers DropWise direct access to power

generation plants, providing a perfect fit for the technology's needs. [Click]

Strengths, Weaknesses, Opportunities, and Threats of the Collaborative

4

Now we will examine the strengths and weaknesses of the Exelon-DropWise

collaborative. The main takeaways from this exercise were the importance and

advantage of the…

- [Readiness of Society for the Innovation]

The company should take advantage of the green movement and society’s

burgeoning obsession with clean energy. Energy, and clean energy production, is more

important than ever. The product is both economically viable (increasing power

generation) and extremely beneficial to the environment (decreased effluent and pollutant



4/30/15 91

levels). An effort should be made to make hydrophobic coatings the standard in the

power generation industry. A movement must be launched that will increase public

awareness of the technology and its benefits – and this movement will serve as the

catalyst for full-scale adoption of the product.

- [Design Dominance]

The collaborative should work to keep information proprietary. While the

technology is significantly advanced, it is possible that analogues to the company could

appear.

- [Trialability]

The collaborative should focus on small-scale, non-critical application on existing

Exelon power plants. From here the technology can be evaluated economically with new

data that shows the return on investment, and the effect of applying the technology on

different scales.

There are only a few key challenges that need to be noted in pursuing this

technology. First, and of primary concern is the scalability of the demonstrated

efficiency gains from an in-lab small scale power generation cycle to a fully operational

power plant. If necessary efficiency gains cannot be duplicated on a full scale power

plant, it will be very difficult to convince customers to purchase the product, as the

benefit just wouldn’t be there. However, it is believed that even with a baseline,

conservative estimate of a 0.1% efficiency gain, the product will demonstrate enough

benefit to be adopted by power plants. Furthermore, it should be considered how the

technology will be used to expand into other markets once the power generation market

has become saturated. Luckily this technology focuses strictly on the condenser system

of the process. Therefore, it can be applied to any type of process that employs a

condenser system. This includes HVAC/R and Desalination processes, so other markets

are present. It will just be a matter of reaching them. [Click]



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Key Technology Intelligence

Adam PaxsonDropWise Technologies Corp.President & CEO

Mark PettyVanderbilt Plant OperationsAssistant Vice Chancellor and Director of Plant

Operations

Dr. Kane JenningsVanderbilt UniversityProfessor of Chemical and Biomolecular Engineering

5

During our research, we began to run into some holes, so we sought out more

information from various experts familiar with the technology or key processes. These

included Adam Paxson, Mark Petty, and Dr. Kane Jennings. [Click]

Key Technology Intelligence

• Regular shut-down periods for power plants

• Designed to last ~5 years

• Customer remake investment in 2-3 years

• 0.1 % efficiency gain sufficient in certain regions

• Coating in necessary range for thickness and hydrophobicity

6

From Adam Paxson, we learned about the regular shut-down periods of power

plants and the plan to noninvasively apply the coating during them. He also discussed the

lifespan of the coating, targeting about 5 years. This will allow the customer to

experience a payback period of 2-3 years. This ensures that both parties will profit from



4/30/15 93

the coatings implementation, and the market will regenerate itself regularly when the

condensers need to be recoated.

In talking to Mark Petty we desired to learn just how valuable the energy

produced is to a power plant. Mark seemed very interested in the technology, even

stating that the presence of this type of coating on Vanderbilt’s old condenser systems

may have delayed the transition to natural gas power. More importantly Mark provided

us with production data and general sale prices of energy for the steam turbine that was

previously present in the Vanderbilt plant. From this data, we were able to extrapolate

monetary values of approximate savings that could be expected per condenser system that

implemented the coating. These values were not promising here in Tennessee, but in the

Northeast where prices of energy are higher and where DropWise is located, a 0.1%

efficiency gain equated to approximately $10000 profit for the power plant over a 5 year

period. This confirmed that the coating has potential when operating at the minimum

efficiency level.

Kane Jennings is a Professor of Chemical and Biomolecualr Engineering here at

Vanderbilt who has experience in hydrophobic coatings and heat transfers associated

with this type of technology. From him, we learned through the use of equations he

provided that the coating designed by DropWise meets the necessary requirements to

provide hydrophobicity without hindering heat transfer and the condensation process.

All of these contacts provided valuable information that helped confirm the efficacy of

this technology and its readiness for market. [Click]

7

Implementation• Past, Present, Future• Ready for Commercialization

Moving to how we most ideally see the implementation of this technology, the

process breaks down into the past, present, and future for the coating. In order to

understand how DropWise got to this point by developing a functional hydrophobic

coating, we’ll first examine past actions. As you can see, the first milestone is the actual

development of the coating by Adam Paxson in the lab during his time at MIT. Lab trials

conducted on the coating on the miniature power plant, as you saw in the video, to



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determine quantitatively what type of efficiency gains can be expected were the next

critical step of the process. From this data, Paxson was able to justify the success of the

product and its readiness for market.

Next, DropWise will have to begin the steps necessary to penetrate the market.

First, they must seek out a partnership with Exelon. This is critical in order to gain the

necessary capital and access to the market that will enable DropWise to expand

successfully. After this partnership is in the works and being finalized, trials must occur

on representative Exelon power plants of each of the various types of condenser systems.

This is considered the tipping point, and the point at which DropWise must make a

“Go/No Go” decision. The idea of these trials is to no scale the data acquired in lab trials

to the level of fully operational power plants. This is the single most important step of

the implementation strategy because if the data acquired from these full scale tests does

not demonstrate sufficient efficiency gains, DropWise would either have to increase

R&D in order to achieve the necessary efficiency levels or seek out other ventures.

Assuming the tests yield positive results, DropWise will be able to expand into both

Exelon plants and those owned by other companies. With continued success, they could

then begin to pursue the implementation of the product into the actual manufacture of

condenser units, establishing the technology as an industry standard for all condenser

systems. [Click]

Technology Strategy

• Internal Application before Expansion

• Proprietary Dispenser System

• External Efficiency Analysis

• Potential path into new condenser system manufacture application

• Expansion into New Markets (HVAC/R, Desalination)

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The recommended strategy for the DropWise coating is to internally apply the

technology to Exelon plants before expansion into other companies’ plants. This will

allow Exelon to retain the information regarding exact efficiency gains until the coating

has been fully tested on an operational power plant. Furthermore, assuming the results

are positive as predicted, Exelon will be able to experience the financial benefits of the

coating’s savings before their competitors. This will provide more capital for further

R&D or other pursuits, providing Exelon with the means to maintain a leg up on



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competitors. Similarly, the dispenser system used to apply the coating will be strictly

proprietary. Again, this will allow Exelon to secure key knowledge about the coating.

This can be relatively easily done as a low number of systems are required. Each system

can be reused, so constant manufacturing doesn’t have to occur. Analysis of the

efficiency gains themselves will be outsourced. Exelon has experience analyzing the

quantity of energy being produced, but it is also important to review the whole generation

process, including the quality of heat transfer in the condenser. Following these initial

strategic processes will open the opportunity for the coating to expand into other ventures

down the line. First, the DropWise coating could easily make the transition to the

condenser manufacturing realm, allowing the coating to be applied before the system is in

place and establishing it as an industry standard. With this reach into all newly made

condenser systems, DropWise could then focus to application of the coating on existing

condensers in other processes such as HVAC/R and desalination. Both of these

opportunities for expansion enable the coating to have potential beyond just the

immediate implementation to existing power plants. [Click]

Financials

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NPV $4,372,366

Startup Capital $3,780,000

NPV and Startup Capital

($4,000,000)

($2,000,000)

$0

$2,000,000

$4,000,000

$6,000,000

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Annual Net Discounted Cash Flow

Using the previously outlined implementation and technology strategy, our

analysts predict that the DropWise coating will reach a revenue that overcomes

foreseeable expenses in 2017, just two years after launch, as can be seen in the chart in

the bottom left. Low need for research and development in the mature product as well as

relatively low costs for both operation and production of goods sold will allow for a large

profit margin. As the technology quickly gains a foothold in the market, as can be seen

in the chart in the upper right, sales will quickly rise, and heavily offset expenses.

Because of the low R&D spending and operating cost requirements, 2017 is also the year

when DropWise can anticipate a positive net discounted cash flow. Relatively low

investment after the first two years allows for the increase in sales to quickly overtake

expenditures. Looking at projected market share in the top right, we predict a “Big



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Three” market to emerge quickly and nearly eliminate the incumbent technology. The

Exelon/Drop Wise collaborative will be able to secure the largest of the three portions

due to possession of the original coating, and their entering of the market earlier than

competitors. The three components of this “Big Three” market will most likely be made

up of Exelon on the power generation end, a large steel manufacturing company that

provides the material used to manufacture condensers, such as Baosteel, and a third

company specializing in the production of coatings. Finally, after complete financial

analysis was completed, an anticipated NPV of $4,372,366 for the project through the

year 2022. This coincides with a discounted period of 6 years in order to pay back the

necessary startup capital of $3,780,000. In context, this means the Drop Wise coating

should be fully self-sustaining in no more than 6 years if the previously discussed plan is

carried out. [Click]

DropWise Developed a Coating That Will Save Energy, Resources, And Money

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In conclusion, the DropWise hydrophobic coating is a strong candidate for

investment as it demonstrates strong product leadership, it provides benefit to all parties

and interest groups involved, and it serves a market that has yet to be cornered by similar

technologies.

The DropWise coating has demonstrated in lab trials the ability to outperform all

preexisting technologies. Whereas previous coatings were either too thick to be effective,

or deteriorated quickly under the harsh conditions of the working environment, the

DropWise coating has withstood the same conditions without signs of damage and no

hindrance of heat transfer. This product leadership has positioned the coating as near to

commercialization as possible, providing opportunity to enter the market quickly before

competitors.

Based on analysis of the fiscal savings associated with the coating, there would be

virtually no one opposed to the implementation of the coating. It saves resources,

appeasing the green energy advocates. It saves energy by enabling the plant to produce

more energy with the same amount of fuel as is currently used. And, it saves money in



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the reduced amount of resources that need to be purchased, as well as the increased profit

margin from the more efficient production. With benefits serving everyone, support from

this technology should come from all sides.

Finally, there is ample room in the market for the coating to infiltrate. Many of

the power plants that the coating would be applied to currently do not operate with any

sort of coating or similar technology in place. This previously untapped potential

combined with the regeneration of the market every five years due to reapplication needs

provides strong promise for the products culpability.

Overall, we see the DropWise coating as a very promising technology with an

excellent outlook for the future. With costs decreasing significantly after the first two

years to a maintained low level operating cost and the potential for cornering an untapped

market before competition, the coating is an excellent investment. [Click]

Questions?

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