Summit Wrap-Up

Energy is a fundamentally interdisciplinary field, yet I’ve found that business people have trouble talking to scientists, who in turn have trouble talking to politicians.  This past week, the third annual ARPA-E Energy Innovation Summit in Washington, DC facilitated just this conversation between policymakers, entrepreneurs, investors, government officials, researchers, university students and even major corporations such as FedEx, Walmart and Xerox.

From this multi-faceted conversation, a few themes emerged:

Stop Comparing Internet to Energy (Moore’s Curse)

The unprecedented rapid growth of the IT sector in the past decade has distorted the perception of the true pace of energy innovation. Those in the IT sector often reference Moore’s Law, the trend that the number of transistors that can be placed on an integrated circuit doubles every two years. Though it is tempting to think this will be the case for energy technology, a transition from fossil fuels will take decades, if not more. Thus, the idea of “Moore’s curse” was conceived of by author Vaclav Smil, who is arguably Bill Gates’ favorite energy author. The former Microsoft chairman mentioned Smil four times in Tuesday’s fireside chat with Secretary of Energy Steven Chu.

Venture capitalists that have traditionally invested in IT need to understand the long time frame for technological breakthroughs in the lab and taking a product to a market that dislikes change. Unlike technology, in which people crave the newest gadget, energy is a much more fundamental part of our lives, and it is often a part we’d rather not change.

We can always expect venture capitalists to be driven by profit, but there needs to be a shift away from the “quick flip” strategy that is so alluring for investors in Internet startups. In energy, VC’s play a role in teaching a scientist how to grow a business: how to scale, how to hire, and how to commercialize. The ultimate upside in energy is orders of magnitudes greater than what they could ever do with IT, because energy is something people need on an everyday basis. Instead of searching for the next Facebook, venture capitalists need to search for the next gasoline replacement, the smallest battery with the greatest storage, the smartest grid integrator, or something that can otherwise revolutionize the way we currently consume energy.

Perhaps we all need to be “cheap” like Steven Chu in order to support energy efficiency projects, which is how Chu claims he became interested in energy efficiency decades ago. Bill Clinton suggests starting with the low-hanging fruit first: retrofitting buildings and getting rid of landfills by harvesting the methane in it for transportation fuel.

More funding in energy technologies is needed…in the public sector

ARPA-E is funding energy technologies that have game-changing potential and need help “crossing the chasm” from the lab into scalable businesses. But as Matt Trevithick, Partner of Venture Capital firm Venrock said, “Technology makes the world bigger, policy cuts it up.” Some innovative startups that Director of ARPA-E, Arun Majumdar, highlighted in his keynotes and discussions include:

  • Envia Systems, “world-record” energy density 400 Wh/kg in lithium-ion rechargeable batteries
  • Polyplus, lithium-air, lithium-water, lithium-sulfur batteries
  • Codexis, transforming waste biomass into clean fuel
  • 24M, lithium-based flow battery at half the price and faster recharge than conventional batteries
  • Cree, single transistor made of silicon carbide that can handle a megawatt of electric power, so transformers can fit in your suitcase
  • Sheetak, thermoelectric solid-state cooling system to replace air-conditioning that uses less energy, less materials to make, and no polluting refrigerants
  • Tobacco plants that produce fuel, at Lawrence Berkeley National Lab. “If they’re successful, you would have big oil and big tobacco saving the world,” said Arun Majumdar.

According to Arun, these startups will “compete, and if they don’t succeed, they’ll come back and find another solution.”

More funding in energy technologies is needed…in the private sector

Private financing in energy technologies isn’t a disaster; you just have to look for it in the right places. The panelists discussing “Financing the Future Electric System” agreed that the potential for renewable energy project finance is in pension funds, institutional investors, and large corporations serving as tax equity providers. Fueled by policy uncertainty, technology risk, and the limits of tax equity, the uncertainty in cleantech is what raises the cost of capital and scares off private investors. Stuart Bernstein, Global Head of Clean Technology and Renewables at Goldman Sachs, said on the panel discussion that he believes the venture capital winners will be counter-cyclical, investing in a time where many are too cautious about the risks and uncertainty of going against the grain.

Energy Clubs bring together business and engineers; Start with the campus

On Monday, the ARPA-E Student Program gathered the energy club leaders from universities across the United States for exclusive talks and discussion about the role of students in energy innovation (A big thanks to Shannon Yee for organizing!).

“Energy clubs provide a low-cost way to increase US energy competitiveness by engaging students, fostering new companies, educating a new workforce and catalyzing energy innovation,” said Asher Burns-Burg, an ex-president of BERC.

In the spirit of “ask for forgiveness, not permission,” the Student Program shared their dreams and best practices of running their campus energy clubs. The most common frustration was the issue of collaboration between departments and among universities; that is, how much potential there was for amazing innovation if only the different energy disciplines could better communicate with each other. Getting the Engineering PhDs to be interested in the same events as the MBAs was one hurdle. Some solutions include MIT’s Energy 101 lecture series, in which technical students taught basic clean energy concepts to business students in an attempt to level the playing field. The Berkeley-Stanford Cleantech Conference is an example of how two universities can create a bigger and better conference together – BSCC brought Steve Chu in 2011. In a student roundtable session with Arun Majumdar, he suggested starting with retrofitting the university campus to be the best it can be.

By the Numbers

The third Annual ARPA-E Innovation Summit:

  • 2,440 attendees from 49 states and 26 countries
  • 107 speakers
  • Technology Showcase: 240 breakthrough energy technologies

ARPA-E funds

  • Over 180 projects to date
  • $521.7 million over 12 program areas

Party’s Over

Photo Credit: © Cathy Hennessy

(Now it’s time to go out and walk the talk. Submit a project to ARPA-E’s $150M Open Funding Opportunity announced today)

I’ll be posting a synthesis of the three-day energy innovation party soon! In the meantime, enjoy these live-blogged highlights:

And soundbyte videos (more to come):

[ARPA-E Soundbytes] Karim Farhat of Stanford Energy Club

I’m collecting soundbytes from around the Summit as another way to capture the amazing discussions happening here!

This one features Karim Farhat of the Stanford Energy Club answering, “What is the role of university energy clubs in today’s energy innovation landscape?”

If you would like to contribute a soundbyte, ping me at ingachen.berkeley@gmail.com.

Student Roundtable with Arun Majumdar

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This is the growth trajectory of energy clubs. Pretty sure it’s the first of its kind!

From discussions with the leaders of energy clubs here at the Summit, the biggest bottlenecks seem to be getting the MBA’s to communicate with the engineers, and getting seed/VC funding to campus to encourage student energy innovation.

Some things we talked about with Arun:

  • Natural gas is disruptive, natural gas feedstock intensive technologies is a good opportunity to ramp up domestic manufacturing
  • Cost of solar and wind could be cost competitive in the next decade, but the challenge is storage and grid integration, hardware and software.
  • There are no routers for the electrical grid, but then you need to worry about congestion. Real-time grid management is key.
  • Rafael Torres of Yale’s Energy Club suggests students help out on ARPA-E projects. Arun suggests cleantech case competitions and creating renewable energy and energy efficiency  projects on campus.

Financing the Future Electric System

Panelists:

Michel Di Capua, Bloomberg New Energy Finance, Head of US Analysis

Stuart Bernstein, Goldman Sachs Head of Cleantech and Renewables

Bob Hemphill, AES Solar, JV between AES Corp and Riverstone Holdings

Jacob Susman, OwnEnergy

The one word you hear from investors is “consistency.” But there isn’t consistency in US policy for energy. Vinod Khosla wrote, “Policies do matter because they can encourage or discourage experimentation.” Take out risk or reduce cost so innovators can afford to take risk.

The overall uncertainty in cleantech raises the cost of capital. (Unlike most, Goldman Sachs funds cleantech companies from the GS balance sheet.)

The panel believes that the potential for renewable energy project finance is in pension funds, institutional investors, and large corporations serving as tax equity providers (such as 90% tax equity). But are temporary tax breaks enough to help cleantech companies get over the bump towards scalability? Michel di Capua, Head of US Analysis at Bloomberg New Energy Finance, believes the economics of tax equity works, but limits the people that can participate. If there isn’t more than $25m in the deal, it’s not worth it.

The problem is not that there is no debt financing, rather, there’s not enough high-quality projects. Besides the Goldman Proprietary Fund, there is financing in growth equity, private equity and commercial banks as well, and the market is $250 billion. More unregulated subsidiaries of utilities have joined top of league tables in wind and solar investments, renewable procurement.  Private equity firms are putting capital into independent transmission companies.

Bernstein believes VC winners now will be counter-cyclical – now is the time to invest when others aren’t so optimistic. If you take out the bad press, rates of return have gone up in solar and wind, so it is an attractive time to invest.

Financing obstacles:

  • policy uncertainty
  • technology risk
  • tax equity works, but limits people that can participate

Bill Gates and Steve Chu chat about energy

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When asked why he’s doing here at the ARPA-E Summit, Bill Gates replied, “If you want to improve livelihoods of poorest 1 billion people, can they afford transportation, lighting, etc?…Cheaper energy is certainly on the list of 3 or 4 things you most want for the poorest in the world.”

“It’s crazy how little we’re funding this energy stuff,” said Gates, referring to ARPA-E and other energy funding. He’s bullish on a wide variety of clean technologies, including nuclear, and says that it is up to public sector funding to drive energy innovation. “Venture capitalists will follow what they think is profitable.”

“If you need humans to do something, that’s not a good design.” Gates said nuclear isn’t dead. Next-gen nuclear plants will no doubt have safety procedures that don’t need people figuring out which switch to flip to stop a meltdown.

On batteries and energy storage, “You need thousands of companies trying these things that will increase the chance of the magic solution for batteries.” Sounds like there’s a common theme: see pg 37 of Vinod Khosla‘s paper.

Why isn’t cleantech as booming as the Internet and high-tech sector? For one, energy is highly regulated. (In a speaker panel later today, Stefan Heck, McKinsey’s Global Cleantech Head, gave an anecdote on how escalators in Europe slow down when there isn’t anyone on it. Those escalators don’t exist in the US because companies would risk getting sued if someone got hurt on a slowing escalator.)

Just as difficult, the IT revolution has “warped people’s minds” so they underestimate the difficulty of breakthroughs and how long they take. You can’t create a clean fuel for your car overnight, but you can create a tech startup in six months and sell it to Google for a handsome sum.

Cool: Bill Gates’ favorite energy writer seems to be Vaclav Smil. In this brief fireside chat, Gates mentioned him four times.

Live Twitter “Idea Wall” discussion

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Current question is, “What is the role for companies like FedEx, Microsoft, Walmart, Xerox in advancing energy technology?”

Some answers:

  • Manufacturing efficiency innovation
  • Large corporations like Walmart have the square footage to make a meaningful impact by reducing their energy consumption
  • DoD and FedEx have large vehicle fleets, so they can lead innovation in electrification.