I love it when online journalism proves that it deserves that title.
]]>While I personally tend towards extremism, I’m becoming more comfortable with some of the market interventions that we’re beginning to see in renewables. I’m all for renewable portfolio standards—the government should regulate emissions—but the stimulus package went far beyond simple regulation. The stimulus package asks all levels of government to deploy capital and to play an increasing role in business (never one of government’s strengths).
It’s hard to skim through renewable energy news without running into this topic. I was recently skimming VentureBeat and saw an article on a new solar farm that San Fransisco is developing. Or, to be more precise, San Fransisco has committed to a multi-year PPA with Recurrent Energy which will own and operate the plant. The PPA rate will be $.235/kwh rate and will be used to power government buildings.
It seems a little odd to me that San Fransisco would enter into a PPA rather than purchase electricity directly from the utility. California has a (comparitively) very progressive set of utilities and aggressive renewable portfolio standard. It seems to me that utility and power generation regulation are appropriate ways for a state to shape energy policy. Making independent, risky, and complicated power purchase arrangements is not.
I also wonder whether the price being paid is reasonable. I don’t know what PPA rates typically are in CA (although I did try looking it up). I was able to find a very interesting report on the state’s renewable portfolio standard and energy price projections called MPRs that they use to evaluate potential projects. In short, the $.235/kwh price is about double the comparable baseload MPR. There are two legitimate reasons why this price discrepancy could exist. First, solar is not a baseload resource and so some element of the premium is due to the fact that on-peak power is more valuable. Second, the city may be able to sell renewable energy credits for the power it generates.
There is another possibility, however: San Fransisco may be purchasing power at a non-economically-optimal price. At first glance this would seem to be completely fair—if the voters of San Fransisco want to have their own supply of solar electricity then more power to them, right? I disagree. Government, as business, has limited resources and needs to deploy them in the most economically efficient ways possible. Solar is a very legitimate public policy goal but needs to be pursued using the most appropriate tools.
]]>We shall see where this goes, but it’s definitely encouraging.
]]>I don’t know the first thing about conducting a war or military supply chain. What’s great about this figure is that I don’t have to. If oil is currently about $1 per gallon then the logistics and support required to get it to the front lines are fully 417 times that amount. And certainly some large portion of that amount goes towards energy, since all of that support infrastructure requires oil to operate. All in all, military operations are a huge hydrocarbon sink.
This made me stop and think about the real lack of critical thought that is given to sustainability by the general public. Two of the “hottest” media topics in the past couple of years have been sustainability and war. Clearly, there is a rather profound relationship between these two topics. The media constantly focuses on small-potatoes sustainability topics such as making sure I turn off the lights when I leave a room. What we should all be discussing, instead, is the impacts that the decisions we make as a society have on sustainability.
Who among us considered the carbon impact of going to war in Iraq when that discussion was happening? Should we have? Is sustainability really only something that matters when we aren’t making any real sacrifices—turning the lights off—or does it define the way that both individuals and societies should think about every decision they make?
The US military used 144 million barrels of oil in 2004. This is roughly on par with the entirity of Greece. 40 million of that was directly related to military operations (as opposed to the maintenance of a standing army). The US DoD is the largest single consumer of oil in the entire world. Do these facts affect your views on war and peace? They affect mine.
Surprisingly or not, there appears to have been very little work done on the sustainability impacts of war. A rather primitive series of case studies begins to explore the linkage between environment and war. Another article presents an overview of the topic but basically admits that no detailed work exists to provide hard data.
Here are my brief thoughts on the topic.
I’ve intentionally left out the social bottom line in this discussion as public discourse does often focus—if narrowly—on this issue. What I think is particularly under-appreciated are war’s environmental impacts.
]]>I dug into that assumption a little bit this week with the help of Jeff Cavros, the CFO of a startup solar installation company called Solar Universe. As it turns out, residential solar installation may be a rare bright spot in what is otherwise a terrible market for PV deployment. Let’s start out with the basics.
Financing is the primary choice that homeowners have to make when installing a system. Choice of panel supplier, mount type, and other technical details really don’t matter once the panels are on the roof; all that matters is cash in and cash out. There are three primary options that consumers have.
Having gone over the basics of how these projects are financed, let’s delve a little deeper. Each of these three financing options is currently affected pretty dramatically by some things that are going on in the market right now.
In addition to these macro-trends affecting solar, there are several specific policy and economic trends that are having just as significant of an impact.
One major source of capital for solar lease or PPA programs in the past has been tax equity. Tax equity comes from the federal solar investment tax credit (ITC), which (as of the stimulus package passed this year) allows a 30% write-off of the investment in any new solar power facility (except pool water heaters).
This write-off can be traded from one entity to another and claimed with by the entity that gets the most value from it. In the past several years most tax equity investors were major financial institutions, but in 2008/2009, with most financial institutions posting losses, tax write-offs have no value. Therefore, tax equity investors are very difficult to find and it is harder to find capital for residential projects.
Which is why it was a big win for Jeff and Solar Universe when they recently found a tax equity investor for a new pool of lease money they are raising. Tax equity represents $4m out of a total $10m of the proposed total fund, an amount that Jeff estimates will finance 300 residential installations/leases.
Prior to $700B TARP act passed in November of 2008, the solar investment tax credit had a $2,000 ceiling placed on it for residential installations. One of the major reasons why it made sense for homeowners to finance their purchases through leases or PPAs prior to this point was that the financier could take advantage of the entire ITC and was not limited to the $2,000 ceiling. The ability to take advantage of the entire ITC changes the economics of the installation dramatically, and therefore there was a strong incentive towards financing.
However, with the changes introduced in November, residential installations can now take advantage of the entire ITC—the ceiling has been removed. This means that leasing is no longer as advantageous as it was previously, and in fact direct ownership now has the largest positive net present value to homeowners.
I like this change, and Jeff agreed with me. Customers now have two distinct options between leasing and buying. The choice between the two is straightforward and not clouded by strange effects of federal policy. Customers who prefer to pay up front have a larger benefit over the long run. Customers who cannot or do not want to put forth the capital up front can lease their system and still take advantage of lower electricity rates immediately.
I asked Jeff about the overall installer industry and the dynamics therein. From my perspective, the deck seemed to be stacked against installers for a number of reasons:
Jeff made me realize something that I didn’t have a good feel for previously: demand for rooftop solar is real and isn’t going away, even in the current economy. Particularly in certain hot areas such as California and New Jersey, there simply aren’t enough qualified installers to satisfy demand. So, whether or not a five-forces analysis of the industry looks positive, the industry is here to stay. The question then shifts from “Is being a solar installer profitable?” to “How can I structure my solar installation business to compete most effectively?”
Solar Universe’s answer to that is scale through franchising. By franchising, Solar Universe can handle marketing, sales, and IT; it can have enough buying power to negotiate better terms with technology providers; it can have enough administrative capacity to re-tool as regulations change.
Jeff is hoping to see Solar Universe grow to 150 franchises within by 2013. I look forward to following him as he proves out his business model.
]]>Web 1.0: Open standards emerged on top of existing network technologies to allow for broad dissemination of information electronically. Web 1.0 was the first massive incarnation of Tim Berners-Lee’s hypertext.
Web 2.0: Content creation tools (blogs, recommendation sites, social networks) allowed average users to contribute to content online rather than simply consume it. Thus, the web changed from a repository of documents to a repository of general knowledge and conventional wisdom. The total available information on the Web has exploded since 2004, when Web 2.0 is largely accepted to have taken off, and shows no signs of slowing down.
Web 3.0: It is yet to be determined how the Web will move forward, but broad consensus seems to indicate that data mining and application of intelligence algorithms will play an ever-more-dominant role. This makes sense: our ability to put data online has far outstripped our ability to understand that information. For a good overview of where the Web may go, take a look at this excellent presentation at the 2007 TED. A recent NY Times article talks about data mining initiatives taking place at Google and elsewhere.
One of the primary tensions within modern science is that between public domain scientific knowledge and patented innovations used for private enrichment. Historically the scientific process has been extremely open; scholarship was done by academics funded by institutions through a tenure-based system and peer-review was their path to financial success and professional fulfillment. This can be traced far back into our scientific heritage, including the likes of Newton and Keppler.
Modern science still relies on public scholarship and peer review, but an additional layer of private research and productization has been added on top. Companies like Merck and Pfizer employ armies of researchers most of whose research is not formally written up and peer reviewed. Knowledge gained through this private process is used to create products (in this case, drugs) that are eventually sold to the public.
This process is protected through intellectual property rights granted by the government. The public benefit of drugs developed through this privatized process is thought to outweigh the cost of keeping knowledge out of the public domain. While there are some that argue over this calculus, it seems fairly sound to me. The results speak for themselves: compare the pharma industry today with the pharma industry of 100 years ago. Most of that innovation was driven by private resources and the corresponding financial incentives.
The Web, as always, is a disruptive force. What has worked for 100 years can be improved upon using technologies and production models of the online world. This is exactly what Sage is trying to do. Sage is an online biotech research database. From a recent article:
Sage is built on the premise that vast networks of genes get perturbed, or thrown off-kilter, in complex diseases like cancer, diabetes, and obesity. Scientists can’t just pick one faulty gene or protein and make a magic bullet to shut it down. But what if researchers around the world capturing genomic profiles on patients could get all of their data to talk to each other through a free, open database? A researcher in Seattle looking at how all 35,000 genes in breast cancer patients are dialed on or off at a certain stage of illness might be able to make critical comparisons by stacking results up against a deeper and broader data pool that integrates clinical, genetic, and other molecular data from peers in, say, San Francisco, New Haven, CT, or anywhere else.
This could be the beginnings of a paradigm shift for pharma in much the same way that open source has been a paradigm shift for software. Open source software (OSS) has, over the space of the past 30 years, built itself into a serious competitor for even the largest and most sophisticated software firms. Is it possible that open source drug development could do the same? Things to consider:
Obviously there are a ton of problems. What makes this concept so compelling is the confluence of technologies: huge increases in our medical knowledge and corresponding increases in our ability to publish and analyze information. Just imagine all of the medical research in the world being available in one database that could be programmatically analyzed to create datasets that simply didn’t exist in one place before. Science has always been about standing on the shoulders of those who came before; every effort to make scientific knowledge more broadly accessible is a step forward for our civilization.
]]>The other potential idea was biomass pelletization. North Carolina has significant biomass resources and pelletization allows a wide variety of biomass sources, from wood waste to switchgrass, to be dried and transformed into a shape that enables easy transportation and consumption. Pellets are primarily used in heating applications as a fuel for pellet stoves. Unfortunately, pellet stoves are not popular in the southeast; they are present in the northeast and more common in Europe, and the costs to transport the pellets would turn the business opportunity into a volume game. This would again squeeze out the opportunity for a startup.
Enter a process called torrefaction. Torrefaction was new to me and to the team, so we had quite a bit of research to do. What we found was really very interesting. To summarize, torrefaction:
The implications of the last bullet point are fairly significant from a carbon perspective. The US has over 600 coal-burning power plants, none of which currently utilize this technology. These power plants emit 2,142 million metric tons of CO2 annually. If torrefaction and biomass co-firing were done at every power plant in the US, that would work out to a reduction of 214 million metric tons of CO2 annually, assuming that the biomass feedstocks were grown as part of a closed loop carbon cycle.
Torrefaction is obviously a very cool new technology and could have a significant impact. It initially bothered me that it promises only a short-term patch for the world’s energy problems. However, I recently participated in two different events that changed my mind. First, I helped review a set of 20 early-stage cleantech business plans as part of a local business plan competition. Second, I became part of UNC’s Business Accelerator for Sustainable Entrepreneurship, an incubator with membership of more than 20 North Carolina entrepreneurs launching sustainable businesses, several of them in renewables.
After overdosing on local cleantech entrepreneurship I was less bothered about spending time on intermediate solutions. My real worry has always been that focusing on short-term solutions will cause a loss of focus on long term, more critical solutions. But as I learned, entrepreneurial energy is not a limiting resource at the moment—the US currently has enough capable entrepreneurs to attack the energy crisis from every side.
]]>I do have one exciting thing to share. Napoleon and I are now the co-chairs of the Sustainable Venture Capital Investment Competition (SVCIC). SVCIC was founded by Kenan-Flagler students in 2006 as a sustainable sister competition to the UNC-founded VCIC. It focuses on both sustainable entrepreneurs and sustainability-oriented valuation methods.
I’m excited about the position for many reasons but primarily because I’m going to try to truly take the event national next year, moving from a total of 8 schools competing to 40+. There is significant interest from schools around the country; I need to figure out how to capture and direct that interest. It will be a heck of a challenge and I look forward to it wholeheartedly.
SVCIC 2009 is coming up at the end of March. Expect posts to be few and far between until after I get the competition behind me. I’ve already lined up most of our venture capitalist judges; the team is now working on finalizing the entrepreneurs.
]]>Then, I read this article. I was fairly surprised that global climate change ranked so low on a list of public concerns—honestly, behind even “moral decline”? After a moment’s reflection, however, I realized that I should’ve expected this. I’ve never been a big believer in environmentalism’s ability to change the opinions and actions of an entire population, especially not one so hardwired against it as the US tends to be. Ultimately, I agree with a recent NY Times article: “…environmental concerns are often the first to fall off the table when any more immediate threat surfaces.”
I think that any long-term, sustained action plan that relies on support from a large population of citizens needs to have more justification than environmentalism. This is simply realism, not a value judgment of any kind.
So, if I could make my presentation again without relying on the environmentalist’s scare-graphic tactic…why solar? Or, since the the broader question is just as applicable, why cleantech?
I realized, upon revisiting the question, that every single aspect of cleantech can be justified simply on the basis of making better products. Renewable energy will eventually be far cheaper than fossil generation and solve many of our energy security issues. Electric vehicles will actually be far superior machines, requiring less maintenance, costing less, requiring less fuel, and offering better performance. Green building justifies itself simply on the benefits it bestows upon the inhabitants of a structure. Et cetera.
The combination of dramatic product improvements and huge addressable markets are what attracted $13B in venture capital to the space in 2008. To care about cleantech one need not care for the environment. If you do, so much the better.
This entire thought exercise happened on Monday. Today I was at a conference called Making Energy Work and listening to a panel on renewable energy financing. The conversation moved to carbon pricing, and the panelists were prognosticating on the speed at which a regulatory regime would be put into place (consensus: 2014). Jigar Shah broke up the party. “Forgive me if I’m saying something politically incorrect in this environment, but screw carbon regulation. I don’t need a price on carbon to make solar work. I can show you numbers that prove that solar is less expensive than coal today.”
While I personally support carbon regulation, I do applaud Shah’s sentiment. Solar kicks ass on its own.
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