The Business of Energy: Changing How Much Energy We Use
Energy consumption and capitalism are evolving, leading to unpredictable demands and risky innovations. This presentation explores the transition to a post-carbon world, challenges in legislative and regulatory policies, unintended energy consumption, weak price signals, consumer behavior towards embedded energy efficiency, and the success factors in solar energy products. It also delves into two styles of venture investing in the energy sector.
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Presentation Transcript
The Business of Energy OR The Business of Changing How Much Energy We Use Martha Amram, Ph.D CEO, Ennovationz Senior Fellow, The Milken Institute December 3, 2010
Overview More than Energy is Changing Capitalism -- The Invisible Green Hand We Consume But Demand is Unpredictable We Innovate But Its Risky We Miss Our Robust Capital Markets! We Arrive -- The Post-Carbon World 2
More than Energy. 50% $800B 2.8B 25% 3
Who You Gonna Call? Legislative policy Clear winners and losers; Small scale; EX: Cash for Clunkers Regulatory policy Captive regulators; Reactive; EX: Off-shore drilling moratorium Non-profits/NGOs Loss of funding; Lack of persistence; EX: Community development Capitalism: Foresight, persistence, scalable The Invisible Green Hand No master plan 4
Unintended Consumption Avg size of fridge (cubic feet) kWh per cubic foot http://oee.nrcan.gc.ca/corporate/statistics/neud/dpa/data_e/CAMA03/chapter1.cfm?attr=0 5
Weak Price Signals TOO COMPLEX TOO CHEAP PG&E Northern California 42 Seattle City Light Price of Electricity Price of Electricity 35 (cents per kWh) (cents per kWh) 25 13 12 8 4 Daily electricity use (kWh) Daily electricity use (kWh) DECLINING WITH USE TOO FLAT Cedar Falls, IA Price of Electricity Price of Electricity DTE (Detroit) (cents per kWh) (cents per kWh) 8 8 7 5 Daily electricity use (kWh) Daily electricity use (kWh) 6
Consumers Buy Embedded Energy Efficiency Or Not 6% of electricity in CA At 25 20% penetration 1 TV = 1 Fridge Quiet sells CA: No more subsidies 7
Successful Solar is a Combo Product Source: Solar City: California Solar Initiative Program Database 8
Two Styles of Venture Investing DEVELOP TECHNOLOGY LAUNCH PRODUCT DRIVE TO SCALE IDEA Chindia Price It s the Biz Model $1.3B $1.3B $ $2.4B 2.4B Technology Risk Only Technology Risk Only Market Risk Only Market Risk Only 9
Disruptive & Cool Seldom Succeeds C C- -Crete Technologies Crete Technologies GreenFuel GreenFuel Technologies Technologies 10
Capital Market Disconnects Stock Market No New Entrants/IPOs High Cost of Transparency Debt Origination No Credit Risk Who goes first? VentureCapital Capital Flight Huge Funds/Big Deals Debt Securitization Frozen No Interest In Innovation 11
Frozen Secondary Markets 1000.0 New MBS New MBS New New ABS ABS US $ 800.0 600.0 400.0 YTD 200.0 0.0 Source: Securities Industry and Financial Market Association, SIFMA. Pct of Homes Under Water % negative 70.0% US average: 23% 50.0% 30.0% 10.0% -10.0% Note: The data only includes properties with a mortgage. 12
We Arrive: The Post-Carbon World Enormously changed facts on the ground Energy issues imbedded in falling quality of life issues Carbon policy remains a low priority Save energy/lower carbon because of higher prices and pressure on the family budget No quick adoption of disruptive technologies A world of individual actors moves more slowly than we want, and change is more chaotic than we plan for 13
The Business of Energy OR The Business of Changing How Much Energy We Use Martha Amram, Ph.D CEO, Ennovationz Senior Fellow, The Milken Institute December 3, 2010 14
1) The frontlines of climate change: water, fish and the trade balance Point: lack of water, lack of protein will lead to mobile, angry and unsettled populations with huge humanitarian needs. Also US trade imbalance will make goods significantly more costly at WalMart (eg Chinese exports will be 40% more expensive) and our standard of living will plummet. We will feel poor. 2) Political unrest and stalemate. Our current political institutions are not designed to be "deciders" when faced with this world-wide humanitarian crisis and with the balance of intertia/action when it comes to the diffuse and long-term benefits of climate change. 3) In this context, the energy transition is swept along the political tides. Huge disruptions in supplies. Rapidly changing and large cost swings create new relative prices. Turmoil in energy markets. 4) From a business perspective -- U.S. only -- , there are three factors I am watching for and engaging in. -- capital markets. We are starved for risk-taking capital (even low levels of risk!) and this has stalled the energy transition. Solutions? Federal action. Local programs don't scale. -- consumer engagement. Ultimately consumers affect all decisions (homes, cars, commercial buildings, supply chains, civic operations) and will vote with their feet. Winners will know how to engage and will leverage. that. Next steps? As a company, prove you can do it. THis probably means a value proposition that is not just energy based, but draws in value from adjacent industries. -- disruptive technologies. Haven't seen them yet, but keep watching. Meanwhile, recognize that major problems -- such as cancer -- have been making progress for hundreds of years based on incremental innovation. So, we have the Khosla investment strategy vs. the Foundation investment strategy vs. the rest of the VCs. (eg shoot for the moon, innovative business models and standard technology, or incremental technology improvements). Watch closely. 5) Post carbon world -- * Reshaped political institutions * Enormously changed facts on the ground * Hard to see energy industry issues leading the way, more likely they get swept along ---- 16
