Bill Gates recently announced a $1 billion increase in his investments to address climate change. He intends to focus on long-shot solutions—i.e., safer nuclear reactors and carbon-capture technologies—he believes can dramatically reduce greenhouse gas emissions. In doing so, Gates joins a number of billionaires investing in new technologies to save the planet.
As longtime clean energy investors and strategists, we welcome involvement and capital from leading entrepreneurs, institutional investors, family offices, and governments seeking to build a sustainable global economy.
But the focus of many of these investors is off the mark—ironically so in Gates’s case as we shall see. While some investment in high-risk technology is needed, where we really need billions to be spent is on the scaling up of applications and business-model innovations that build upon currently available clean energy technologies.
Like the revolution in personal computing a generation ago, we’re at the dawn of the era of distributed intelligence in clean energy. Much of the hardware progress has been achieved. Now we must make it broadly available and easy to use; we need to connect and automate it and make it as ubiquitous and intuitive as the web and the smart phone.
This new world of distributed power will bring changes: more solar on rooftops and parking spaces, more windmills dotting the country-side. But the important changes we need to make to our electrical grid will be as invisible to us as what makes the Internet function. Will we need new power lines and other infrastructure to move all those electrons around? Yes, but as places around the world that have high penetrations of wind and solar (like Germany or Hawaii) have shown us, most of these changes will gradually be rolled out by utilities over time and will be largely invisible to us.
Gates should understand this business model. He made his fortune in software that depended upon others first having completed the more time-consuming and difficult task of building the hardware and infrastructure necessary to support his software. Microsoft (MSFT) wouldn’t exist without the PC and other engineering milestones before it; and the success of any Internet billionaire would have been impossible without an ecosystem of hardware and network connectivity that took decades to achieve.
Energy is undergoing the same kind of transition that Microsoft led in the IT realm. It is moving from a centralized system to a distributed, networked set of consumer products and services—a transition critical to making these technologies globally affordable and impactful.
It took a quarter of a century for microprocessors, disk drives, flash memory, Ethernet, and the Internet to become available to most of us. It then took another 20-plus years to build the applications and software that make it all run.
Wind and solar energy today are where the personal computer was in the early 1990’s – more powerful and affordable than a decade earlier. The cost of PV solar has dropped by a factor of almost 10 over the past decade and U.S. wind power is down to a level where new wind generation is as cheap or cheaper than natural gas and far cheaper than clean coal. In addition, each of the wind and solar industries, separately, now provide more jobs in the U.S. than coal mining does.
Gates notes that solar panels leave something to be desired at night and under rainy skies. So did a PC unconnected to the rest of the computing world. Wind, solar and storage are ready for their version of the Internet, big data, and cloud management.
Some of the areas that need investment include:
Further modernizing our electric grid
Our transmission and distribution grid was built for one-direction flows from large centralized power plants. A smart digital grid will maximize the value of wind and solar and other onsite power generation, and will use software to match energy demand and supply much more efficiently. In parts of the world that don’t already have a centralized grid, this change will occur even more quickly – as was the case with cell phones in places that didn’t have landlines.
Adding a high-speed backbone
As with the Internet, a modern grid benefits from a backbone that can rapidly transport electrons over distance, such as high-voltage direct current (HVDC) transmission lines. HVDC enables us to rapidly move vast quantities of electrons across time zones, from areas lit by the sun to areas still in darkness and from areas of wind to areas of calm. China is implementing a massive $250 billion grid upgrade plan to link its regional grids via 20 HVDC power corridors by 2020. These upgrades aren’t free, but they can happen more quickly and be more cost effective and less carbon intensive than the kind of unproven technologies Gates is betting on. The Internet backbone wasn’t free either, but look what it has done for our global economy.
Like the microprocessor before it, the success of renewable energy creates the need for new storage technologies—an area where Gates has already invested extensively. But electricity storage is more than just batteries. Storage exists in water dams, in the heating and cooling of water and of buildings, in electric vehicles, and most importantly in the ability to accelerate or delay when electrons are made and used, so that we match supply with demand. Unlike bits and bytes, electrons are fungible – when I give you an electron, you can give me back any electron – so we comparatively need less storage in our electricity networks than we did in our information networks.
New financing and business models
In the past few years we have developed an amazingly broad range of new solar and wind financing tools. We now have both Green bonds and YieldCo’s (income generating pools of ownership in wind farms and larger solar installations), Community Solar (the ability to buy or rent solar, and not even need to have those panels on your roof). At the same time we have developed what is now referred to as “the sharing economy” in which more users can share a house, a car or almost anything else. Companies like Airbnb, Uber, and Lyft are still perfecting their business models, but they have already changed how we think about lodging and taxis, just as much as Tesla has changed our views about what an electric car can be. Autonomous driving, smart parking and traffic management are increasing safety, reducing emissions, and improving transportation efficiency.
Gates is not alone in underestimating how large an impact a networked version of distributed wind, solar and storage can have on our energy landscape. In so doing, he is repeating the error he made in the early 1990’s in underestimating the impact of the Internet. Hopefully, he will make the same course correction he made with regard to the Internet and join with other tech-savvy investors and focus on the continued growth of a distributed, networked and more intelligent low-carbon energy system.
Stephan Dolezalek, Stefan Heck, and Andrew Shapiro, long-time clean energy investors and advisors, are the founders of Resourcient, a new initiative to promote scalable investment in resource efficient businesses.