The Business of Changing How Much Energy We Use Martha Amram PhD CEO Ennovationz Senior Fellow The Milken Institute December 3 2010 Overview More than Energy is Changing Capitalism The Invisible Green Hand ID: 1029917
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1. The Business of EnergyOR The Business of Changing How Much Energy We UseMartha Amram, Ph.DCEO, EnnovationzSenior Fellow, The Milken InstituteDecember 3, 2010
2. OverviewMore than Energy is ChangingCapitalism -- The Invisible Green HandWe Consume – But Demand is UnpredictableWe Innovate – But Its RiskyWe Miss Our Robust Capital Markets!We Arrive -- The Post-Carbon World2
3. More than Energy….50%$800B25% 2.8B3
4. Who You Gonna Call?Legislative policy Clear winners and losers; Small scale; EX: Cash for ClunkersRegulatory policyCaptive regulators; Reactive; EX: Off-shore drilling moratoriumNon-profits/NGOsLoss of funding; Lack of persistence; EX: Community developmentCapitalism: Foresight, persistence, scalable The Invisible Green Hand – No master plan4
5. Unintended Consumptionhttp://oee.nrcan.gc.ca/corporate/statistics/neud/dpa/data_e/CAMA03/chapter1.cfm?attr=05Avg size of fridge (cubic feet)kWh per cubic foot
6. Weak Price SignalsDaily electricity use (kWh)Price of Electricity (cents per kWh)42¢12¢35¢25¢13¢PG&E – Northern CaliforniaDaily electricity use (kWh)Price of Electricity (cents per kWh)4¢8¢Seattle City LightTOO COMPLEXTOO CHEAPDaily electricity use (kWh)Price of Electricity (cents per kWh)7¢8¢DTE (Detroit)TOO FLATDaily electricity use (kWh)Price of Electricity (cents per kWh)8¢5¢Cedar Falls, IADECLINING WITH USE6
7. Consumers Buy Embedded Energy Efficiency… Or Not76% of electricity in CAQuiet sellsAt 25¢ 20% penetrationCA: No more subsidies1 TV = 1 Fridge
8. Successful Solar is a Combo Product8Source: Solar City: California Solar Initiative Program Database
9. Two Styles of Venture Investing9$1.3BTechnology Risk Only $2.4BMarket Risk Only IDEADEVELOPTECHNOLOGYLAUNCHPRODUCTDRIVE TO SCALE“Chindia Price”“It’s the Biz Model”
10. Disruptive & Cool Seldom SucceedsC-Crete Technologies10GreenFuel Technologies
11. Capital Market Disconnects11 Stock Market No New Entrants/IPOs High Cost of TransparencyVenture Capital Capital FlightHuge Funds/Big DealsDebt – OriginationNo Credit RiskWho goes first?Debt – Securitization Frozen No Interest In Innovation
12. Frozen Secondary Markets12New ABS
13. We Arrive: The Post-Carbon WorldEnormously changed facts on the groundEnergy issues imbedded in falling quality of life issues Carbon policy remains a low prioritySave energy/lower carbon because of higher prices and pressure on the family budget No quick adoption of disruptive technologiesA world of individual actors moves more slowly than we want, and change is more chaotic than we plan for13
14. The Business of EnergyOR The Business of Changing How Much Energy We UseMartha Amram, Ph.DCEO, EnnovationzSenior Fellow, The Milken InstituteDecember 3, 201014
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16. 1) The frontlines of climate change: water, fish and the trade balancePoint: 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