Last week the Cleantech Open Northeast hosted a fantastic kick-off event at the new Urban Future Lab. Read my recap of the event here.
Last night Solar One and GTM Research hosted a terrific panel on “The Expansion of Distributed PV in the Age of the Grid Edge.” My quick recap is below:
- US solar boom poised to grow: GTM Research’s latest numbers show that the US installed 4,751 MW of solar PV in 2013. Over the past year twenty-nine percent of all new electric generating capacity added in the US has come from solar. 2013 additions are up 41% over 2012 and nearly 15X over 2008. Moreover, GTM projects a continued ramp-up – from new distributed solar PV installation every four minutes in 2013 to one every 83 seconds by 2016.
- Creating technical challenges for the grid: Since Edison made history at Pearl Street more than a century ago, the electric grid has been designed to handle one-way power flows (i.e. from generation to load). Solar panels generating power on rooftop are now introducing an increasing volume of two-way flows – creating exciting opportunities but challenges for the grid. Naimish Patel (of Gridco Systems) noted that the challenges arise because (1) output from solar PV panels varies throughout the day/year (often on the order of seconds), with peak ouput usually coming several hours before the peak load on the distribution system (which, in NYC, occurs on summer nights when folks return home and crank up the AC); and (2) fluctuations in output can lead to sudden changes in voltage on the distribution system.
- For which technical solutions exist…: Solutions to these challenges exist, ranging from the simple (installing thicker wires or larger transformers) to the more involved (requiring PV panels to be able to curtail output when necessary, as Germany has done) to the new and exciting (Gridco’s hardware/software, or SolarCity’s new energy storage systems). Most of these solutions, however, require some up-front investment by the utility.
- … and raise the question of who pays for the grid (i.e. the “Aunt Millie effect”): Increasing deployment of solar PV reduces the amount of electricity that users consume from the grid. The cost of the grid, however, is largely not in the electrons but in the physical network of wires, transformers, etc. In the US we generally bundle those costs of investing in/maintaining the grid into the overall electricity rate. Solar adopters who offset 100% of their electricity use therefore often pay none of these costs. In the aggregate, deployment of PV can shift the fixed costs of the grid onto a shrinking pool of consumers – even though what we demand of the grid remains the same (and, for the reasons noted above, arguably increases). Critics of solar sometimes accuse solar adopters of “using the grid like a big battery for which they are not paying the costs of operations and maintenance.” This view simplifies and overstates the problem by, for example, not accounting for the benefits that distributed PV can bring to the grid (i.e. deferring the need for distribution upgrades in certain areas). There is, however, indeed a question of how to allocate these fixed grid-related costs – what NYSERDA’s Richard Kaufmann has dubbed the “Aunt Millie effect.” As solar penetration rises in the US (from what remains a very low base) more states are likely to consider passing along grid-related costs to users via fixed charges rather than as charges bundled into the electric rate. How this will affect the economics of distributed PV in different markets remains to be seen.
- Though current “grid payment” regimes hardly always benefit solar: The “Aunt Millie” effect notwithstanding, our current policies for allocating grid-related costs sometimes penalize (rather than subsidize) solar adopters. SolarCity’s Shaun Chapman noted that when a solar installation requires the utility to perform some distribution upgrade (i.e. install a larger transformer), the first/last project to trigger that upgrade is often stuck with 100 percent of the bill (even though future/previous projects as well as other consumers will also benefit from the upgrade). A more rational or pro-rata approach to allocating such costs would make the economics of solar better, rather than worse.
- Remember the name Gridco: Of the four excellent companies represented on the panel, Gridco Systems stands out as particularly exciting. Gridco’s team is leveraging its top-flight experience in the IT space to solve a pressing and lucrative problem in energy – how to help utilities integrate more renewables. What we need more of in the cleantech space!
Overall an exciting start to the 2014 Clean Energy Connections series. Looking forward to the next event.
At the United Nations last week a panel of financial experts discussed the keys to quadrupling annual global investment in clean energy by 2030. The panel included my colleague Mark Fulton, who served as Editor of the new Ceres report – “Investing in the Clean Trillion: Closing the Clean Energy Investment Gap” – on which I had the privilege to serve as Lead Analyst. A full list of panelists is below; check out their thoughtful and provocative ideas on how to link capital markets to clean energy.
Watch the panel at the link below (to get to the start of the panel, fast-forward this video to 1:55, or an hour and fifty-five minutes in):
– Mark Fulton, Senior Fellow, Ceres; Founding Partner, Energy Transition Advisors
– Jack Ehnes, CEO, California State Teachers’ Retirement System (CalSTRS) (moderator)
– Lisa Carnoy, Head of Global Capital Markets, Bank of America Merrill Lynch
– Michael Liebreich, CEO, Bloomberg New Energy Finance
What do Bob Rubin, Tom Steyer, Christiana Figueres, Richard Trumpka, and the NYS/NYC Comptrollers have in common? They and 500 other global financial leaders were all at the United Nations last week for the release of a new Ceres report – Investing in the Clean Trillion: Closing The Clean Energy Investment Gap – on which I had the privilege to serve as Lead Analyst (with my former Deutsche Bank colleague Mark Fulton as Lead Editor).
The report provides 10 recommendations for investors, companies and policymakers to increase annual global investment in clean energy to at least $1 trillion by 2030 – a roughly four-fold jump from 2012-13 levels. Such an increase is the bare minimum necessary to limit future global temperature to two degrees Celsius (2 °C) above pre-industrial levels and avert the worst impacts of climate change.
A list of the report’s recommendations are below, and you can read the full report (or much shorter executive summary) here.
Mobilize Investor Action to Scale Up Clean Energy Investment
1. Develop capacity to boost clean energy investments and consider a goal such as 5% portfolio-wide clean energy investments
2. Elevate scrutiny of fossil fuel companies’ potential carbon asset risk exposure
3. Engage portfolio companies on the business case for energy efficiency and renewable energy sourcing, as well as on financing vehicles to support such efforts
4. Support efforts to standardize and quantify clean energy investment data and products to improve market transparency
Promote Green Banking and Debt Capital Markets
5. Encourage “green banking” to maximize private capital flows into clean energy
6. Support issuances of asset-backed securities to expand debt financing for clean energy projects
7. Support development bank finance and technical assistance for emerging economies
Reform Climate, Energy and Financial Policies
8. Support regulatory reforms to electric utility business models to accelerate deployment of clean energy sources and technologies
9. Support government policies that result in a strong price on carbon pollution from fossil fuels and phase out fossil fuel subsidies
10. Support policies to de-risk deployment of clean energy sources and technologies
The Cleantech Open Northeast blog this week featured a post of mine about its recent panel on strategic partnerships in clean energy. Check it out here.
- Don’t “hire the resume”: Panelists uniformly discouraged early stage companies from “hiring the resume” – hiring a candidate based chiefly on her track record/industry expertise, without regard to whether the candidate will thrive in a start-up. Recognizing that “a start-up is not a smaller version of large company,” executive recruiter Kevin Brown (Hobbes and Towne Inc.) emphasized the need the consider whether a person can transition to the informal and fast-changing environment of an early stage company.
- Smart, smart, smart – but not an ass!@#*: In response to a question about the qualities she valued in a team member, entrepreneur Pat Sapinsley (Watt Not and Build Efficiently) replied that the ideal team member would be “smart, smart, smart – but not an ass!@#*.” More generally, panelists tossed about various phrases – people sense, team smarts, EQ – to underscore the importance of “fit” in a start-up environment. As to how one best assesses a candidate’s potential “fit”, recruiter Kevin Brown recommended spending ample time with the person; Brown’s hiring process at Hobbes and Towne evidently included five long dinners with one of the firm’s co-founders. Such conversations can illustrate how a person relates to others far more effectively than a formal interview.
- Consult references not supplied by the candidate: In a 2011 NYT “Corner Office” column, Bing Gordon of Kleiner Perkins allowed that – when hiring – he likes “in person meetings for chemistry and references for truth.” Following on this thread, Pat Sapinsley further emphasized the importance of going beyond references supplied by the candidate. She advised informing candidates upfront that part of the interview process will involve seeking input from a candidate’s previous colleagues.
- Formula for team success?: Investor Oliver Guiness (Clearpoint Ventures) described how – in evaluating potential deals – much of his focus will be on understanding whether or not a team can work effectively together. At a minimum, Guiness endorsed the conclusions of a study by Josh Rogers and Matthew Nordan on “what makes a great cleantech team“; after surveying 37 cleantech businesses (both successes and failures) and 122 executives within these businesses, Rogers and Nordan concluded that “winning cleantech start-up teams are complete at founding, have strong pre-existing relationships, and include the inventor of the core technology.”
- Have the talk (the dilution talk, that is): As a fellow at Harvard’s Wyss Institute for Biologically Inspired Engineering, Pat Sapinsley helps scientists to bring technologies from the lab to the marketplace. A critical step in this process is explaining to scientific founders the inevitable dilution that accompanies becoming part of a venture-backed company. To make the conversation less personal, Sapinsley apparently directs founders to resources such as Hutchinson Law Group’s “University Spinout Founders Handbook.” Even for companies formed outside the realm of Harvard labs, early and frank conversations about future dilution of founder’s equity are useful to remove a source of potential bitterness. In addition to the resource above, I would also recommend this helpful note from Marty Zwilling and Matt Nordan’s “cap table template.”
- Lose the pyschometrics: An executive recruiter in the audience questioned the panelists about the role of pyschometric evaluations (e.g. the Myers-Briggs Type Indicator) in the hiring process; many large corporations (including GE and Bridgewater) favor such testing for its alleged helpfulness in predicting “fit” and reducing employee turnover. Panelists were generally cool toward the idea of submitting candidates to psychometric tests, preferring the more informal “five dinner” method describe above. In addition to questioning the predictive ability of such tests, panelists worried that (1) forcing a candidate to complete a battery of tests will potentially sour her view of the firm; and (2) asking only some, but not all, candidates to complete such tests may expose a firm to liability for discriminatory hiring practices. While investor Oliver Guinness did acknowledge a role for pyschometrics in helping to clarify personality types within an existing team, this panel did not advocate that start-ups begin making Myers-Briggs a mandatory part of the hiring process.
Last Thursday the Cleantech Open Northeast organized a doubleheader of industry panels on “Go-to-Market/Sales & Marketing” and “Building Your Team.” The panelists – a group of eight entrepreneurs, investors, and service providers – shared useful insights about how to grow a cleantech business. Below is a summary of the key takeaways from the “Go-to-Market/Sales & Marketing” panel; tomorrow I’ll post takeaways from the “Building Your Team” panel.
- Start with Why: Drawing on the work of Simon Sinek, David Droz of Urban Green Energy urged companies to “start with why” – to begin dialogues with potential customers by emphasizing why the company’s product is relevant to the customer’s needs. Only after establishing the initial “why” does it make sense to proceed to the how (how the customer’s needs can be met) and what (role of the company’s product in meeting those needs). H.G. Chissell (Viridity Energy) effectively illustrated this approach by noting the burden of escalating peak power prices – “too many people using electricity at the same time and, increasingly, in the same place” – for large electricity consumers; consumers can minimize this burden reducing their exposure to peak power prices, and this is what Viridity’s price forecasting and demand-response software enables consumers to do.
- Sell pragmatism, not idealism: Bob Mitchell (Quench USA) advised start-ups to think carefully about which aspects of their value proposition will resonate with customers. Quench USA sells office water coolers that filter tap water (essentially giant Brita filters), thereby relieving customers of the need to continually purchase 5 gallons jugs of Poland Spring. As described by Mitchell, Quench’s initial value proposition to customers was “saves money, more convenient, better for the environment.” It soon realized, however, that office purchasing managers – who are evaluated on their ability to reduce company expenses – cared far more about saving money that they did about improving the environment. More generally, Mitchell urged any B2B cleantech start-up to recognize that commercial customers generally base buying decisions on pragmatic considerations e.g. money and time saved) rather than idealistic ones.
- Marketing differs for B2B, B2C (“nobody buys water coolers on Facebook”): Panelists were somewhat divided on the usefulness of building up a strong social media brand. H.G. Chissell (Viridity Energy) shared various tactics to build up a social media presence – such as the use of HootSuite to synchronize postings to Twitter, LinkedIn, and a company website with one click. Chissell noted how, in its early days, Viridity had used such tactics to “make a four-person firm look like a forty-person firm.” Bob Mitchell of Quench USA shared a more cautionary tale – recalling how Quench had invested to nurture its social media cred only to realize that “offices don’t buy water coolers on Facebook.” Hence, Quench has subsequently transferred its social media budget for use on Google AdWords and various search engine optimization techniques.
- The customer is always right… except when they’re not: In one of the evening’s more interesting exchanges, H.G. Chissell (Viridity Energy) and David Droz (Urban Green Energy) discussed the wisdom of always listening to one’s customers. Chissell encouraged responsiveness to customer input as absolutely essential for a company to attract and retain customers. Droz, however, warned that customer demands can sometimes lead start-ups down a rat-hole. To wit, he revisited Urban Green Energy’s origin as a manufacturer of small wind turbines (the company now sells distributed energy solutions to telecom customers), and recalled how – tantalized by the prospect of major orders from European turbine producers – the firm toiled for years on what was (in retrospect) an unworkable business model. Stephen Filler (Joule Assets) agreed that – amid all the pressure for young, revenue-starved companies to satisfy customer demands – entrepreneurs must carefully assess whether a given customer aligns with a viable long-term business model.
- Bring in a good CFO early on: Whether via a misguided marketing budget or solicitousness toward an overly demanding customer, what sinks most start-ups is simple: running out of money. Stephen Filler (Joule Assets) thus argued that the most important investment a young company can make is to recruit a good CFO as early as possible. Among other things, a “good” CFO must be someone the founders respect enough to have question every decision involving use of company money. Though usually the most expensive hire for a start-up, a CFO can also be the most valuable hire.
- Make it rain: Noting that “if you don’t make it rain, there won’t be any crops,” H.G. Chissell (Viridity Energy) stressed “a sense of urgency” about attracting customers as the essential ingredient for start-up success. Each day, employees of start-ups can invest their time and effort in a range of projects – all of which can seem critical, yet only some of which will actually help to get “ink on paper” with customers. Citing Samuel Johnson’s famous quip (“When a man knows he is to be hanged in a fortnight, it concentrates the mind wonderfully”), Chisselladvised focusing on the entrepreneur’s equivalent of hanging (i.e. losing out on customers) and prioritizing projects around their potential to help avoid this fate. Grim imagery aside, Viridity’s success with customers and investors ($40 million in financing over the past few years) suggests this is advice worth heeding.