Posts

Danish Green Investment Fund – Green Business Summit 2016 – Copenhagen

 

Green Business summit 2016

September 13-14th, 2016,Copenhagen, Denmark

Green Business Summit 2016: Den grønne disruption rammer os nu

 

Clean Disruption Korea Book Cover

Clean Disruption published in Korea

I’m happy to say that the Korean version of my book “Clean Disruption of Energy and Transportation” has been published by Kyobo Book Centre, Korea’s largest bookseller.

Here’s the link to the book on Kyobo’s website:

Clean Disruption Korea Book Cover

Clean Disruption Korea Book Cover Published by Kyobo Book Centre

 

I mentioned in a previous post that there has been incredible interest in the Clean Disruption of Energy and Transportation in South Korea.

Clean Disruption can also be bought online at Yes24.com here.

I’m looking forward to the positive impact of Clean Disruption in Korea!

 

Letter from Shanghai: the Solar Disruption is Accelerating!

Huawei SolarThe solar disruption is accelerating. I spent last week in Shanghai, where I attended the SNEC PV Power Expo 2015 and had the opportunity to meet with a number of global solar executives in China. Here are a few highlights and thoughts from the show.

1- Solar PV costs going down fast.

Solar PV production costs are about 45 ¢/W, according to Arturo Herrero, Chief Strategy Officer at JinkoSolar, a tier 1 Chinese PV manufacturer. Market prices are as low as 55 ¢/W for larger projects (80+MW) in markets without significant tariffs or anti-dumping measures (like the US), according to Mr. Herrero.

Tier-2 manufacturers generally compete on price so they have to sell for even less. I heard from several sources that tier-2 manufacturers are shipping product for less than 50 ¢/W.

 

2- Information Technology merging with Solar.

One of the premises of my book “Clean Disruption of Energy and Transportation” is that solar is a technology and, as such, it’s governed by information economics and the increasing returns that characterize information products.

Huawei, the $46 billion (2014 revenues) telecommunications company has entered the solar market in a big way. At the SNEC PV show Huawei showed its “Smart PV Plant Management System”, a power plant monitoring solution that combines string inverters, smart loggers, wireless communication equipment, and a grid management center to monitor the power plants.

The marketing manager I spoke with at the show told me that Huawei had shipped 4 GW of smart PV plant product in 2014 and expected to ship 10 GW in 2015, which I found hard to believe. The company’s product collateral did say that the company had 5.5 GW in orders and 4GW in shipments for 2014.

Whatever the numbers are, Internet companies are finding out that the distributed technology nature of solar is very much in tune with the distributed nature of information technology.

 

3- China has achieved critical mass in solar PV manufacturing.

The SNEC solar expo was far larger than any solar expo I have been to. More than 150,000 attendees came to Shanghai to visit 1,500 companies covering 180,000 square meters of exhibition space. By comparison, Intersolar Europe 2014 had 42,300 attendees who came to visit 1,100 companies covering 88,000 m2 of exhibition space.

Most of the companies at the show were Chinese and they represented nearly every aspect of the solar PV manufacturing supply chain. China has probably achieved a critical mass in solar PV – which feeds the virtuous cycle of further gains in scale and innovation that lead to even lower production costs.

 

4- China is already the world’s largest PV market.

China installed more than 5 GW of new solar capacity the first quarter of this year. ([i]) This is just under the 5.6 GW that France has installed in its whole history. ([ii]) China is planning to install a total of 17.8 GW in 2015 which is just under the 18.3 GW that the United States had installed in history as of the end of 2014. ([iii])

By becoming both the world’s largest manufacturer and the world’s largest market, China can further increase innovation advantages that accrue when co-locating R&D, manufacturing and markets. This can push the PV learning curve even further – which leads to even lower cost of solar.

As PV costs keep going down, the solar disruption around the globe will accelerate even more.

SNEC Solar Expo 2015

SNEC Solar Expo 2015

 

 

 

5- Clean Disruption, Internet Disruption and Solar Disruption

Solar energy is pushing energy production, storage, and management to the edges (customer sites) from the center (centralized power plants). These distributed solar sites are getting smaller, smarter, more modular and connected.

The solar disruption has many of the same characteristics of the information technology disruption. Just like the Internet turned our information publishing world from centralized to distributed, we’re headed toward a distributed architecture of energy made possible not just by solar and storage, but also by software, sensors, artificial intelligence, mobile internet, big data, satellites, nanotechnology, artificial intelligence, and other exponentially improving technology.

Extraction-based economics (based on scarcity and increasing marginal costs) have no chance against solar and information-based economics (based on abundance and decreasing marginal costs.)

The solar disruption is accelerating!

 

Sources:

[i] http://www.pv-tech.org/news/china_officially_installed_5.04gw_of_new_solar_capacity_in_q1

[ii] http://en.wikipedia.org/wiki/Solar_power_in_France

[iii] http://en.wikipedia.org/wiki/Solar_power_in_the_United_States

“It’s a one-two Punch” PV Magazine 4-page interview with Tony Seba

 

PV Magazine Cover, January 2015 issue.

The solar industry is starting to believe. Solar is a disruptive technology and, when combined with other disruptive technologies such as electric vehicles and self-driving cars it will disrupt the energy infrastructure.

PV Magazine interviewed me about the Clean Disruption, the future of energy and the role that solar PV is playing in that disruption.

Here’s one of the questions that Edgar Meza asked me. The magazine has kindly allowed me to share the entire interview in PDF form here.

What characteristics of PV make it disruptive?

Here are several characteristics of PV that make it disruptive

1-  PV dematerializes energy. To understand this concept, think of how digital photography disrupted film photography. With digital imaging, photography went from atoms (film) to bits (digital), from something material that you had to manufacture for every single picture to something immaterial that is essentially free. Today energy is like film photography was in the 20th century. Every time you flip a switch you burn fossil fuels or uranium. Every time you hit the car pedal you burn petroleum. Solar PV dematerializes energy by turning the sunshine photons directly into electrons and bits. You don’t burn anything to charge your computer. The same thing happens if you charge your electric vehicle with solar energy.

2-  PV demonetizes energy. Again, think of digital cameras disrupting film photography. Each time you took a picture you burned film so Kodak made money. Then if you actually wanted to look at the picture you had to pay more money to Kodak for the paper and the chemicals that went into processing the film. With digital photography the cost of taking each additional picture, storing it, sharing it, and watching it is essentially zero. This is exactly what solar PV does to energy. Once you install a PV power plant the marginal cost of energy is essentially zero. Just like Kodak could not compete with a marginal cost of zero, there is no way on earth that energy companies can compete with solar marginal cost of zero.

3-  PV has increasing returns. PV is a technology whose costs have gone down by roughly 22% every two years for decades. Essentially the more PV is adopted the more everyone benefits from everyone else’s adoption of PV.

4-  PV is scale-free. The same technology works to power a 1W light bulb, a 1kW house, a 1MW business, a 10MW factory, a 100 MW town, a 1 GW city and a 100 GW country. This is much like information technology is scale free: our mobile phones, laptop computer and the most massive data centers work with similar modular technology building blocks.

5-  It flips the architecture of energy. PV essentially flips the architecture of energy the way that the web flipped the architecture of publishing. In the old days publishing used to be done by a few companies who owned large centralized printers. They decided what would be published and pushed it down to the users. Now everyone with a Facebook, Twitter or LinkedIn account is a publisher. The same dynamics work for PV: everyone can generate energy as well as information.

When you combine these disruptive characteristics of PV with the complementary disruptive characteristics of electric vehicles, it’s a one-two punch that conventional energy companies will not be able to survive.

Please read the whole interview with PV Magazine Interview with Tony Seba Jan 2014.

Toyota vs. Tesla – Can Hydrogen Fuel-Cell Vehicles Compete with Electric Vehicles?

The world has been abuzz about the recent Toyota (NYSE: TM) announcement that the company opened up licensing of its 5,680 HFCV patents (although only until 2020.) By taking a page from the Tesla playbook, Toyota  is hoping to encourage an ecosystem of fuel cell suppliers and hydrogen fueling stations.

Tesla Factory - Freemont California

Is this the last hurrah of a dead-end technology? Or will it re-invigorate the HFCV market which has gone nowhere for decades? Does the Hydrogen Fuel-Cell Vehicle (HFCV) Matter anymore?

Elon Musk, CEO of Tesla (NASDAQ: TSLA) has called the HFCV ‘bullshit’. “Hydrogen is suitable for rockets but not for cars,” said Mr Musk. (Video, starting min 29:20.)

But Jim Lentz, CEO of Toyota North America says that his company is betting big on hydrogen fuel cell cars. Does the Hydrogen Fuel-Cell Vehicle (HFCV) have a chance against the Electric Vehicle (EV)?

I don’t even mention Hydrogen Fuel Cell Vehicles in my book “Clean Disruption of Energy and Transportation”! There are multiple reasons for that. Let’s look at the facts, starting with the basics.

1) Hydrogen is not an energy source.

Many industry insiders talk about hydrogen as if it were an energy source. For instance, they might compare it with, say, petroleum products like gasoline and diesel, and say that H2 produces no emissions. Hydrogen is not an energy source. It’s an energy carrier. It’s a form of storage. You need primary energy sources like the sun, coal, natural gas, or uranium to generate the power needed to extract Hydrogen from a source material like natural gas or water.

2) Electric Vehicles are at least three times more energy efficient than Hydrogen fuel cell vehicles.

Assuming that at some point fuel-cells will be cheap and Hydrogen production will reach critical mass, it will still be at least three times more expensive to power an HFCV car than an EV. This figure from fuel cell expert Ulf Bossel explains how wasteful an HFCV is compared to electric vehicles. (Source: http://phys.org/news85074285.html)

 

Hydrogen Fuel Cell Vehicle vs Electric Vehicle - Energy Efficiency

Hydrogen Fuel Cell Vehicle vs Electric Vehicle – Energy Efficiency

But not all hydrogen vehicles are made alike. You can use compressed or liquefied hydrogen. You can also use either internal combustion engine of fuel cells to power the car. The following chart shows that whatever choice of type of hydrogen and engine results in the electric vehicle going three to six times more miles for the same energy when compared to hydrogen-powered cars. (Source: BetterPlace)

Hydrogen Cars vs Electric Vehicles - Better Place

Hydrogen Cars vs Electric Vehicles – Better Place

 

3) You need to build a multi-trillion dollar hydrogen delivery infrastructure.

To build a so-called “Hydrogen Economy” you need to build a multi-trillion dollar infrastructure with large factories/refineries, pipelines, trucks, storage facilities, compressors, hydrogen gas stations, and so on. If you haven’t noticed, this mirrors the existing oil & gas infrastructure. (Source: http://energy.gov/eere/fuelcells/hydrogen-delivery)

Department of Energy - Hydrogen Delivery Infrastructure

Department of Energy – Hydrogen Delivery Infrastructure

Electric vehicles, on the other hand, have a ready infrastructure: the power grid. Everyone who lives and works in advanced economies has access to electricity. Yes, our grid is aging and we need to upgrade it, but it works today. Some readers may remember that the Internet started with the plain old telephone system. It wasn’t fast but it worked. Then we upgraded it to get the fast pipes that we have today. We also built a brand new wireless infrastructure that required no pipes at all.

Distributed Solar PV and EV Charging Station. Copyright @2014 by Tony Seba

Distributed Solar PV and EV Charging Station. Copyright @2014 by Tony Seba

The electric vehicle equivalent of the wireless power infrastructure is distributed solar.

The multi-trillion dollar hydrogen infrastructure would have to be built from scratch.

 

4) Hydrogen is Not Clean.

About 95% of hydrogen in the US is made from natural gas in large central plants, according to the Department of Energy. It’s a method called natural gas reforming.

Hydrogen Methane Steam Reforming Process - Source HYFleet:CUTE - Global-Hydrogen-Bus-Platform

Hydrogen Methane Steam Reforming Process – Source HYFleet:CUTE – Global-Hydrogen-Bus-Platform

 

As I wrote in Clean Disruption of Energy and Transportation:
Methane (the main component of natural gas) is 72 times worse than CO2 as a greenhouse gas (when measured over twenty years). Natural gas leaks throughout the supply chain. It leaks when it is lifted from the ground, when it is stored, and when it is transported in hundreds of thousands of miles of pipelines. According to the U.S. Environmental Protection Agency, three trillion cubic feet of methane leak annually. That figure represents about 3.2 percent of global production. This methane leakage is the global warming equivalent of half the coal plants in the United States.

Today, hydrogen is basically a repackaged fossil fuel – a fossil product line extension, if you will. If you like natural gas and fracking you should love hydrogen.

 

5) Hydrogen is not ‘Renewable’!

Hydrogen is classified as ‘renewable’ when it’s extracted from water by means of hydrolysis. This method involves applying high voltage electricity to split water into Oxygen and Hydrogen. When you apply conventional electricity to do the hydrolysis you still have to burn coal, natural gas, nuclear, petroleum, and so on, so you still have dirty hydrogen.

We need to pause to consider the water-energy-food nexus. Conventional energy is thirsty. In my books Clean Disruption and Solar Trillions I write at length about the obscene amounts of freshwater that coal, natural gas and biofuels consume. By adding Hydrogen to that list we would have yet another way for energy to dry up our planet.

A well-to-wheels analysis by University of Texas Professors Carey W. King and Michael E. Weber found that a HFCV would need to withdraw 13 gallons of water per mile driven. The same study concludes that a gasoline car would need withdrawals of needs 0.63 gal H2O/mile and a diesel car would need 0.46 gal H2O/mile. That is, gasoline petroleum-based transportation is 20 to 28 times more water efficient than hydrogen.

If we use solar or wind power as the source of the electricity for hydrolysis then you could have ‘clean’ and technically ‘renewable’ Hydrogen. I say ‘technically’ because the world is already pumping water at non-sustainable, non-renewable rates and the massive amounts of water you’d need for hydrogen would just contribute to the world’s water crisis. A 2015 World Economic Forum report ranks water crises as top global risk, up from number three the previous year.

Powering EVs using solar and wind would use no water, according to Prof King and Weber. Plus EVs are at least three times more energy efficient than Hydrogen Fuel Cell Vehicles.

 

6) Hydrogen Fuel Cell Vehicles can’t compete with Electric Vehicles.

It makes sense for the fossil fuel industry to lobby for the hydrogen car because hydrogen is essentially a product line extension for them. In other words, the “Hydrogen Economy” is the “Fossil Fuel Economy” with a green sheen.

The HFCV is a substitute technology. If successful, hydrogen would just substitute the fossil fuel infrastructure with a mirror hydrogen infrastructure.

Former DOE Secretary Steven Chu said: “We asked ourselves, ‘Is it likely in the next 10, 15, or 20 years that we will convert to a hydrogen car economy?’ The answer was no,”

It’s obvious why I don’t even mention HFCV in my book “Clean Disruption of Energy and Transportation”! Hydrogen Fuel Cell Vehicles are neither clean nor disruptive. At best, a hydrogen economy would still be a massively wasteful economy that would at best use three to six times more energy than an electric vehicle and solar/wind infrastructure and many times more water than even gasoline uses. There are many good reasons why hydrogen fuel-cell vehicles are stuck in reverse while electric vehicles are on hyper-drive.

By 2030, 100% of cars will be electric and they will be 100% powered by solar and wind. (Watch my AltCars keynote here)

 

It’s time to move on from hydrogen fuel cell vehicles.

Clean Disruption to be Published in Korea by Kyobo Book Centre

I’m happy to say that the Korean translation of my book “Clean Disruption of Energy and Transportation” will be published by Kyobo Book Centre, Korea’s largest bookseller.

Seoul Korea Gwanghwamun

There has been incredible interest in the Clean Disruption in South Korea.

I’m looking forward to the publication of Clean Disruption in Korean!

 

Tony Seba author of Clean Disruption of Energy and Transportation

How to Lose $40 Trillion

IEA: Invest in Conventional Energy

The International Energy Agency recently released a report calling for $40 trillion in new investments to meet the world’s energy needs until 2035 [1].

There are three main components in the IEA investment scenario:

  • Oil would get  $13.7 trillion
  • Gas would get $8.8 trillion, and
  • The Power Sector would get $16 trillion.

In other words, according to the IEA, the future of energy is basically like the past.

Their alternative “New Policies Scenario” offers a few minor adjustments for nuclear, carbon capture and storage (CCS), and ‘renewables’.  Even in this worst-case scenario, neither solar nor wind is large enough to get its own line item.  They’re both lumped together as just ‘renewables’.

Losing $40 trillion

But the future of energy will not be like the past.  Not even close.

If the IEA had made a 20-year projection of the phone market starting in 1995, they would have said that landline phones would dominate the market by 2015.  In this investment report, the mobile phone market would not have been large enough to deserve its own line item. Voice over IP would not even be mentioned.  Mobile and VOIP telephony would have been lumped together in the ‘other’ category. Disruption? What is that?

Overwhelming  evidence points in one clear direction:  the industrial age of energy and transportation will be over by 2030. Maybe before.  Exponentially improving technologies such as solar, electric vehicles, and autonomous (self-driving) cars will disrupt and sweep away the energy and transportation industries as we know it. This disruption is inevitable and it will be swift. This is the Clean Disruption of Energy and Transportation.

The same Silicon Valley ecosystem that has created bit-based technologies that have dematerialized and disrupted many atom-based industries (like book publishing and film photography) is now creating bit- and electron-based technologies that will dematerialize and disrupt atom-based energy industries (like oil, gas, coal, and nuclear).

Exponential growth usually goes undetected and disrespected by the mainstream market (and media) until it’s too late for incumbents to react.

The global market for solar panels has been growing at a compound rate of 43% since the year 2000. [2] Should solar continue on that growth path and it will essentially provide all of the world’s energy by 2030.  Solar costs keep going down while conventional energy costs keep going up. The cost of solar PV has dropped by a factor of 154 since 1970. At the same time every single form of energy has gone up in costs.  Solar costs have dropped by more than 5,300 times relative to oil and 1,500 times relative to nuclear since 1970. Even ‘cheap’ natural gas costs in the US have gone up by more than 2,200 times relative to solar.

Solar PV exponential cost improvement

Solar PV Cost Improvement vs Conventional Energy since 1970

From “Grid Parity” to “God Parity”

Unsubsidized solar is already cheaper than subsidized conventional energy in hundreds of markets around the world.  And solar PV will drop by another two thirds by 2020. “Grid Parity” is a done deal. You might even consider it old news.

I’m now looking forward to ‘God Parity’. By 2020, rooftop solar in sunny areas like the US Southwest will generate electricity onsite at less than the cost of transmission and distribution.  This bears repeating, a house, a business, or a Big Box store in Los Angeles, CA, or Phoenix, AZ, will generate solar for less than what their centralized generation utilities charge the ratepayer for transmission and distribution costs. This means that it won’t matter how much these conventional generation facilities cost.  The cost of generation plus the network (transmission and distribution) will be more expensive than onsite solar generation. How many utility executives are losing sleep over Walmart generating its own solar electricity, let alone getting into the electricity retail business?

Even if the utilities miraculously invented a new technology that used the ‘God Particle’ to generate electricity at a cost of zero  (remember the nuclear promises of ‘too cheap to meter’?) they will not be able to compete with solar self-generation. When the cost of the network (transmission and distribution) is higher than the cost of rooftop solar generation the market will hit “God Parity”. This will start happening around 2020. Watch this video for the logic behind these numbers. [2] Centralized generation utilities will not have a business model at that point. Most utility generation assets will be stranded. Coal power plants? Stranded assets. Nuclear power plants? Stranded assets. Bankruptcies and conventional energy assets will go hand in hand.

The only way utilities might even stay alive after that is to work through the regulatory system to maximize short-term cash flow at the expense of ratepayers.  Utilities may not like distributed solar, but they will sure try to make money from this exponentially growing market without investing a single dime. Solar taxes, anyone?

The Electric Vehicle and Autonomous (Self-Driving) Car Disruptions

The 185-page IEA report on the future of energy investments mentions the electric vehicle once: the EV gets a small slice of the ‘low-carbon technologies and energy efficiency’ scenario (plus a whole footnote!) The autonomous (self-driving) car is not mentioned at all. Not once. Do you want a comparison? If the IEA had been hired in 1995 to develop a 20-year projection of the future of information technology, it would have mentioned the Internet just once (with a footnote). The IEA report would not have mentioned the Web at all. Not once. The future would have been just like the past. The IEA also would have wanted you to invest in Kodak, Borders, and Ma Bell.

Electric Vehicle Charging Stations at SAP HQ in Palo Alto, CA.

Electric Vehicle Charging Stations at SAP HQ in Palo Alto, CA.

In Clean Disruption I write about the reasons why the electric vehicle and the autonomous car are disruptive and when the disruption will take place. It’s all based on exponentially improving technology cost trends. My conclusion based on that data is that by 2030 essentially all mass-market vehicles will be electric. Furthermore, all cars will be autonomous or semi-autonomous.

Internal combustion engine (ICE) car companies will get their Kodak moment sooner than they think.  Gasoline will be obsolete. Trillions of dollars in fossil fuel investments will be stranded.

The trillion-dollar Canadian Oil Sands? Stranded assets. The Keystone pipeline? Stranded assets.

Energy and the Stone Age

The Stone Age did not end because we ran out of rocks. It ended because a disruptive technology ushered in the Bronze Age.

The era of centralized, command-and-control, extraction-resource-based energy sources (oil, gas, coal and nuclear) will not end because we run out of petroleum, natural gas, coal, or uranium. It will end because these energy sources, the business models they employ, and the products that sustain them will be disrupted by superior technologies, new product architectures, and business models.

This is a technology-based disruption reminiscent of how the cell phone, Internet, and personal computer swept away industries such as landline telephony, publishing, and film photography. Just like those technology disruptions flipped the architecture of information and brought abundant, cheap and participatory information, the clean disruption will flip the architecture of energy and bring abundant, cheap and participatory energy. Just like those previous technology disruptions, the clean disruption is inevitable and it will be swift. It will be over by 2030. Maybe before.

Don’t believe in the Clean Disruption? The IEA wants you to invest $40 trillion in conventional energy (nuclear, oil, gas, coal) and conventional utilities.  It’s their Kodak moment. It’s your money.

 

Sources:

[1] “World Energy Investment Outlook”, International Energy Agency, You can find the report here: http://www.iea.org/publications/freepublications/publication/WEIO2014.pdf

[2] Tony Seba, “Clean Disruption of Energy and Transportation: How Silicon Valley Will Make Oil, Nuclear, Natural Gas, Coal, Electric Utilities and Conventional Cars Obsolete by 2030″, June 2014, http://www.amazon.com/gp/product/0692210539

Disrupting Energy & Transportation – Why Business Model Innovation Matters

In 1918 one in thirteen American families owned a car. Eleven years later 80% of American families owned one. The main reason the US auto market went from early adopters to nearly full penetration in just over a decade was an innovation launched by General Motors. It was not a new engine, transmission, or even a technology innovation.

In 1919 GM partnered with DuPont to form the General Motors Acceptance Corporation (GMAC) to offer a new financial innovation: consumers car loans. (1)

Seven years later 75% of all car buyers bought cars on credit. It was a business model that made cars affordable to the American mainstream buyer. In other words, it was a business model innovation that disrupted the transportation industry in the early 20th century.

 

From Car Loans to Solar Loans

Fast forward to the 21st century. In 2008 a company called SunEdison introduced the concept of solar-as-as-service. Residential and commercial solar power buyers would no longer need to invest capital in purchasing solar panels.

SunEdison offered to finance, install, own and maintain the solar panels on the rooftop of its customers. Homeowners did not have to take any technology, financial, or maintenance risks. At the end of the (20-year) contract, the customer had a choice of purchasing the equipment at deep discounts or having them taken off the roof.

Soon after SunEdison, another Silicon Valley solar installer SolarCity [NASDAQ: SCTY] created the SolarLease and the solar market exploded. The concept caught on and other Silicon Valley companies such as Sungevity and SunRun joined SunEdison and SolarCity in offering ‘Solar Leases’ or ‘Solar PPAs’.

Partly as a result of these financial innovations, the solar market in America quadrupled over the following four years. About 80% of residential and commercial installations are now financed by third party-companies. In Colorado the number is closer to 90%.[2]

Technology innovation is clearly important. Making the right Strategic Choices (whole product, positioning, product/market fit, etc) is clearly important. But Business Model innovation may be the key that unlocks a new market or disrupts an existing market.

Sources:
[1] “Cars in the 1920’s”, Kim Kenney, Suite 101, http://suite101.com/article/cars-in-the-1920s-a90169
[2] “Sunrun Closes $630M in Rooftop Solar Funds From JPMorgan, US Bank“, GreentechMedia, June 26, 2013: http://www.greentechmedia.com/articles/read/Sunrun-Closes-630-Million-in-Rooftop-Solar-Funding-from-JPMorgan-US-Bank

Solar PV is cheaper than gas; solar is below grid parity

Five Reasons Why California Cities Will Build One Million Solar Roofs and 12 Distributed GW by 2020

At the end of 2011 there were approximately 100,000 installations and 1GW of solar PV in California (1). The state has dual goals of one million solar roofs by 2018 and 12 GW of distributed generation by 2020. Can California cities scale their clean energy infrastructure by an order of magnitude over the next six to eight years while attracting investments and generating local jobs?

The math says yes and the answer to the future of clean distributed energy in California may be found in Sonoma County.

Sonoma County and the Future of Energy

Here’s the math: the city of Sonoma had 507 solar watts per resident and 4.5 solar installation per 100 residents at the end of 2011, according to Environment California’s “California Solar Cities 2012”. (1) This does not sound like much. However, if you extrapolate these numbers

Solar PV San Francisco - Copyright Tony Seba

Solar PV panels in San Francisco, CA

to California’s 38 million residents, the state would have 19 GW and 1.7 million installations of solar. This would mean that the Golden State would surpass its 2020 distributed generation goal by 45% and the number of solar installations by 70%.

Sonoma achieved these numbers in less than three years, in the midst of a national financial crisis, and despite opposition from Federal Housing Finance Agency.

Is it a stretch to think that California cities and counties can achieve over the next eight years under friendlier economic conditions and ever-decreasing solar costs what Sonoma has done in less than three years?

What is the Sonoma County Energy Independence Program?

The centerpiece of Sonoma’s clean energy program is the Sonoma County Energy Independence Program. SCEIP is a PACE (Property Assessed Clean Energy) program established March 2009 with the goal of “improving performance in 80% of Sonoma County homes and commercial spaces to highest cost-effective efficiency levels.”

PACE is a local municipality finance program that enables municipal governments to tap private capital markets to finance energy efficiency and clean energy projects for homes and commercial properties through an assessment on their property taxes.

Sonoma County’s PACE program for instance has the following characteristics:
• The financing takes the form of an assessment, not a loan. Unlike a loan, an assessment is attached to the property rather than the individual.
• The assessment takes the form of a lien, so the payback responsibility automatically transfers to subsequent owners if the property is sold before the assessment is fully paid off.
• Financing must be 10 or 20 years and is paid through an assessment on the owner’s annual property taxes.
• Improvements must be permanently fixed to the property.
• Project size must be less than 10 percent of the value of the property.

PACE financing was originally designed to get around the fact that energy efficiency and clean energy investments have longer-term payoffs while the capital costs generally need to be borne up front. The concept of PACE was created in 2005 in California and soon spread to 23 states around the nation. (2) and (3)

Boulder County, Colorado, for instance, quickly became an early adopter of PACE Financing with its Climate Smart Loan Program (CSLP).

Boulder County’s CSLP was a $9.8 million PACE program that financed 598 projects and was completed in 2009. According to a study carried out by the Department of Energy’s National Renewable Energy Labs, spending in Boulder County alone contributed to $14 million in economic activity, $5 million in earnings and 85 short-term jobs within the county as well as $6 million in additional economic activity, $2 million in additional earnings and 45 jobs outside of Boulder County. (4)

Sonoma County’s Energy Independence Program was created with $60 million in funding: $45 million from the County Treasury and $15 million from the County’s Water Agency. SCEIP has funded $58.5 million worth of projects that have resulted in 2,855 residential and 87 commercial energy retrofit projects. They estimate that 79% of the 682 jobs generated by this program have been local jobs.

While I only highlight solar, SCEIP has funded more than a thousand non-solar projects, including more than 500 windows and door, 200 HVAC, and 200 sealing and insulation projects.

Since SCEIP originally raised $60 million and has already funded $58.5 million worth of projects, I wondered whether they planned to raise another round of funding. I talked on the phone with Diane Lesko, the Sonoma County Energy Independence Program Program Manager, who told me that $11 million has already been paid back so they may have another year of runway before they need to go back and issue new bonds.

Is Solar a Better Risk than Mortgages?

The one major hiccup in Sonoma County’s path to energy independence happened in July 2010 when the Federal Housing Finance Agency released a “Statement on Certain Energy Retrofit Loan Programs”.(5) The FHFA, which oversees Fannie Mae, Freddie Mac, and Federal Home Loan Banks, argued that “first liens established by PACE loans … pose unusual and difficult risk management challenges for lenders, servicers and mortgage securities investors.” This basically brought the quick adoption of PACE programs around the nation to an abrupt halt.

I asked Ms Lesko about the FHFA assertion that PACE-funded energy retrofits might be high risk investments. She said that the default rate on the Sonoma County PACE program is 1.1% whereas the mortgage default rate is around 10%.

This begs the question of whether it’s the Federal Housing Finance Agency who should be learning about risk management from Sonoma County rather than the other way around!

The FHFA ruling brought uncertainty into the PACE world and SCEIP was temporarily halted – but only for one week, according to Ms Lesko. The Sonoma County leadership decided to reopen it with increased vigor. Leadership is clearly one of the key ingredients in making a clean energy economy happen. This reminded me of John F. Kennedy’s Rice University speech: “we choose to go to the moon not because it’s easy but because it’s hard.”

Sonoma County’s Energy Independence Program has shown what can be done when local governments take charge of their own energy destinies. What about California’s hundreds of cities and dozens of counties? Can they match Sonoma’s success?

There are five reasons why cities and towns across California can match and surpass Sonoma’s solar buildout:
1) They have a working template and the benefit of Sonoma County’s learning experience.
2) The cost of solar is far lower today than when Sonoma County started this program three years ago. Photovoltaic panels dropped by 50% in 2011 alone and have dropped further this year.
3) We have a better economy than we had when Sonoma County started its program in early 2009.
4) Cities have eight years to do what Sonoma did in just three.
5) Municipalities now know that PACE can work without the support of the FHFA. Still, the FHFA may yet see the light and make rules based on the evidence from Sonoma County and other PACE programs that the right PACE energy retrofit program can bring lower default rates than Fannie or Freddie mortgages.

So there you have it: five reasons why California’s dual goals of one million solar roofs and 12 GW distributed clean energy generation are more than achievable by 2020 – just by using PACE financing.

We can add yet another reason: PACE is but one of several mechanisms that cities and counties have at their disposal to create a thriving clean energy economy. I’ll be discussing some of them in future posts.

What if the whole country emulated Sonoma County?

I mentioned that PACE had enabling legislation in 23 states and was being considered in 20 more states around the nation.(3)

Sonoma and Boulder County’s success in attracting investments, creating jobs, and building a clean energy economy has spurred other municipalities around the country to adopt PACE programs. Miami-Dade County, FL, for instance, has announced a $550 million commercial PACE program led by Ygrene Energy, a Santa Rosa (Sonoma County)-based financial services company.(7) Ygrene is also targeting a $100 million PACE fund for Sacramento, CA. These two PACE programs together will generate 17,000 jobs and $2.3 billion in economic activity, while using private capital only, according to the PACE Commercial Consortium.(8)

If the whole US achieved Sonoma’s 507 solar watts per resident and 4.5 solar installation per 100 residents by 2020 we would have 159 GW of solar and 14 million solar installations. This wattage would be six times larger than what Germany, the world’s solar market leader, has achieved so far and it would represent about 15% of America’s peak power needs. Sonoma did its part in just three years.

I asked Sonoma County Energy Indepence Program’s Diane Lesko what were the most important ingredient in building it into a winning program. “Political will,” she said without missing a beat. “You need leadership coming together to achieve our common goals.”

Sources:
(1) “California Solar Cities 2012”, Environment California Research & Policy Center , January 24, 2012 http://www.environmentcalifornia.org/reports/cae/californias-solar-cities-2012
(2) PACE Financing, Wikipedia, the Free Encyclopedia, http://en.wikipedia.org/wiki/PACE_Financing
(3) “What is PACE?”, http://pacenow.org/blog/about-pace/
(4) “Economic Impacts from the Boulder County, Colorado, ClimateSmart Loan Program: Using Property-Assessed Clean Energy (PACE) Financing”, National Renewable Energy Labs, July 2011
(5) Federal Housing Finance Agency, “FHFA Statement on Certain Energy Retrofit Loan Programs”, ase.org/sites/default/files/nodes/2200/FHFA_PACE.pdf
(6) “FHFA, The comments have been submitted, but what happens next?”, http://pacenow.org/blog/talking-points-for-fhfa-rulemaking-anpr/
(7) North Bay Business Journal, “Santa Rosa-based Ygrene leads $650 million green-retrofit effort”, Sept 23, 2011, http://www.northbaybusinessjournal.com/40821/santa-rosa-based-ygrene-leads-650-million-green-retrofit-effort/
(8) “PACE Commercial Consortium” Briefing, http://www.energi.com/docs/mobilize/PACE-Commercial-Consortium-Briefing-Prepared.pdf

Are You Ready For Free Energy?

Want to lower your utility bills or even get energy for free? Companies like Dow Chemical are developing solar shingles and other innovative technologies to turn your home into a personal power plant. Energy will be essentially free.

Three decades ago information was expensive and scarce. Data processing was autocratic, monolithic, and centralized. There were big mainframe computers ‘out there’ and ‘dumb’ users here. The personal computer, the internet, and mobile telephones changed all that.

Today information is essentially free.

San Francisco Building - Power Plant of the Future (Image © Tony Seba)

San Francisco Building – Power Plant of the Future (© Tony Seba)

Scarce data turned into the Internet torrent and now data is so abundant that the first company who helped us intelligently filter this onslaught of information became the most successful company of the last decade: Google. Today information technology is distributed, grid-independent, and scaleable. Now billions of people with a mobile phone, personal computer, and internet connection can generate, store, process, and publish data. The basic architecture of information technology changed.

Energy is where data was three decades ago.

Today energy is expensive and scarce. Energy is autocratic, monolithic, and centralized. There are large power plants and refineries ‘out there’ and ‘dumb’ users here. We dig deeper into the ground, further out the oceans, or blast mountain tops altogether to get access to limited, increasingly expensive, and dirty sources of energy. But new energy generation, storage, transmission, and usage technologies are going to change this architecture of energy and turn it on its head. Energy will be abundant, clean, decentralized, and embedded.

Better yet, energy will be essentially free. Here’s an early example of a technology that will get us there.

A Personal Power Plant In Every Home

Recently the Dow Chemical Company (NYSE: DOW) announced that it was getting ready to go to market in 2011 with a new line of products: Solar Shingles . Solar shingles are basically shingles that are manufactured with embedded photovoltaic technology.

While many think of photovoltaics in terms of flat roof solar panels, there is a whole new market opportunity in a concept called “Building Integrated Photovoltaics” or BIPV. Dow Chemicals estimates this market will grow to $5 billion in just 5 years . As its name implies, solar photovoltaic technology is being designed to be part of the fabric of residential and commercial buildings. Companies like Suntech Power already have a number of BIPV products . Photovoltaic glass, for instance, replaces a conventional windowpane, or, in the form of clear glass tiles or bricks, supersedes conventional architectural glass in awnings, skylights, and clerestory panels.

Roof shingles and windows that generate electricity? It’s got to be expensive, right? Dow Chemicals estimates that roofs built with their shingles will cost twice as much as a standard asphalt roof. However, Tom Faust, CEO of Corte Madera, CA, BIPV startup Redwood Renewables may be a step ahead.

I asked Mr Faust to estimate the costs and benefits of solar tiles to a ‘typical’ Southern California home. He told me that Redwood can provide a non-subsidized fully installed 5kW system on a 2,000 square foot roof for a cost to the end user of $20,000 – $25,000. “Compared to an asphalt shingle roof without solar at around $15,000 – $20,000, Redwood¹s complete solar roofing system comes at a $6,000 premium to a non-solar roof. A homeowner using 8,000kWh annually over a 15-year span would incrementally pay under $0.09 ¢/kWh for the integrated solar system.”

This means that the effective (incremental) cost of electricity with solar shingles would be less than 1¢/kWh. Note that the “average” American pays about 10 ¢/kWh. Hawaii residents pay up to 52.17 ¢/kWh . In California the peak summer A6 rate is 46.77 ¢/kWh . Now visualize those summer power bills go down 90% from $300 to $30!

As BIPV follows the downward technology cost curve, solar tiles, solar bricks, and solar windows will approach (maybe beat) the cost of traditional tiles, bricks, and windows. BIPV homes will not just sit there: they will be personal power plants. The energy they generate will be essentially free.

Microsoft’s original mission circa 1980 aimed to “put a PC in every desk and in every home” which at the time looked naïve if not positively crazy. When IBM entered the PC market in 1981 they gave the industry credibility and helped energize the whole market. In the end it was ‘startup’ companies like Microsoft, Intel, and Apple who put a PC in everyone’s home. In doing so they helped liberate information and make it free.

Now Dow is doing an IBM in the BIPV world. Many established and startup companies are vying to build the personal power plants in everyone’s home. Eventually they will liberate energy and help set it free.

Portfolio Items