First off, I'm very excited about a new conference Greentech Media and I are teaming up on. In Menlo Park in September, we're going to host a crowd of limited partners, family offices, entrepreneurs, venture capitalists and other industry participants for the first "NextWave Greentech Investing" event. It's an idea based upon this column I wrote a few months back, and cheers to my friends at GTM for following through on it. Already a bunch of LPs and family offices are registered to attend, which is great to see. Should be a fantastic day with a wide variety of interesting investment theses brought out into the open.
And yes, that means there will be some (constructive) disagreements among investors. We're all working to develop new approaches to this huge macro opportunity, and these approaches are increasingly looking very different from each other. And as I mentioned in my last column, that's okay! We don't yet know which new investment strategies will succeed, we just know we need some new investment strategies. It's a time to question assumptions and past patterns, not rely upon them.
Which brings me to the subject of this column... A few days back I was catching up with a fellow investor I admire, and he said something I've been mulling over since we spoke. He mentioned my thesis in "market reinvention" -- changing how we deploy, buy and consume increasingly cost-effective clean technologies. "But I've concluded," he continued, "that to do anything significant in this sector, we need to spend a lot of capital and take a long time."
My question back at him at the time was simply this: "Define 'significant'?"
But I see his point. We're a long way away from implementing solutions at the magnitude necessary to significantly change the trajectory of our global climate crisis, for instance. And ultimately, significant new technology advancements will be necessary to get there. We can't just "efficiency" our way to zero carbon emissions, for instance.
Let's take solar, for instance. Solar is definitely a feel-good story right now. Installed solar capacity in the US nearly doubled last year, adding 3.3GW to total 7.7GW of capacity by year end. By my back of the envelope calculations, that probably results in around 10TWh of solar-based generation potential, accounting for capacity factors and such. And rooftop solar not only has been growing by around 60% per year, the success of SolarCity and other solar financing players has just further accelerated adoption. It's a big, attractive market for investors.
And yet at the same time, it's just a drop in the bucket.
Let's put this in real world terms. As of March 2013 there are 52GW of coal-fired capacity in the US announced for retirement. 45GW of that is scheduled to go offline over the next three years. At an average utilization of 49%, that implies those 45GW produce around 193TWh per year. So all that solar capacity we've successfully put in to date only adds up to around 1/20th of the capacity of coal-fired plants being retired over the next three years. Much less, the full 322GW US coal-fired power plant fleet.
Even looking more broadly to include the much greater wind and geothermal capacity in place (which, note, has only minorly been the result of venture capital investments) in addition to this solar capacity, in the US the total production out of these renewables tallies up to only around 1/20th of the production from combustible fuels.
So yeah, compared to those kinds of benchmarks we've got a lot of work to do in clean powergen to achieve anything "significant".
But that's an incomplete picture. Let me throw a few other data points at you.
- If solar installation levels in the US grow 40% per year (remember, they've been growing significantly faster than that) over the next three years, that 10TWh of solar-based generation would grow to 40TWh during the period in which those coal-fired plants would be retiring. Solving 20% or more of that gap seems significant. And at this point it doesn't require massive amounts of venture capital in long-term breakthrough technology development efforts to get there. It needs VCs moderately funding efforts like financing solutions, customer lead generation tools, cheap inverters, and other installation cost reduction efforts, which then serve as leverage to unlock a significant amount of non-VC dollars to fund the actual implementations.
- So far in this column we've ignored energy efficiency. We shouldn't. In fact, building energy efficiency has already been so effective and widely adopted that building energy usage is in steep decline and isn't expected to dramatically rise anytime soon -- in fact it might keep dropping significantly. A reasonable set of assumptions about continued efficiency gains nets out to 62GW worth of reduced necessary powergen capacity, according to one study. That replaces the retiring coal-fired fleet by itself, and there's potential for much more reduction. And again, while this has been triggered by venture capital investments in some ways, it hasn't required massive amounts of venture capital dollars either to fund long-development breakthrough technology, or to fund the actual implementations. Consumers have been funding their own implementations.
- Similarly, VCs have partially funded the development of advanced lighting technology that's now poised to save up to 122TWh of lighting-specific electricity consumption per year by 2020. That by itself would cover around half of the current announced coal-fired plant retirements. And again, this is already set in motion and will be largely funded by consumers themselves, not VCs.
Yes, these are not full solutions, I'm not trying to in any way suggest that deeper breakthrough tech innovation isn't needed or potentially lucrative. Nor am I trying to play the role of pollyanna, saying everything's fine and taken care of already -- the above growth does still mean figuring out business model innovations and market solutions to overcome non-economic barriers to customer adoption, as we've discussed here before.
But I think we can all agree that these existing solutions offer potential impact that is indeed "significant". Solar plus energy efficiency plus wind power is already on a path to making a big dent in the problem, without it taking a long time and lots of venture dollars to come to fruition. It does require a lot of dollars in implementation from project funders and customers themselves, but not an unrealistic amount of venture capitalists' dollars and patience.
In short, VCs investing in nearer term business model innovations and "tech-enabled" product/service solutions that change and accelerate how people buy, sell, and implement existing clean technologies are indeed "doing something significant", just as the more hardware-centric deep innovation investors are. Both types of efforts are needed, and both can generate returns. And from available early evidence, right now we "market reinvention" investors are making returns in a timely fashion with our approach. That, to me, is also significant.
In September, we'll be hearing from investors now tackling a lot of different "significant" solutions via a variety of investment models. I'm really looking forward to it.