Billionaire investor Warren Buffett’s annual letter to shareholders recently gained a lot of attention when he pointed out one very important point about the future of America: don’t bet against U.S. innovation.
“For 240 years it’s been a terrible mistake to bet against America, and now is no time to start. America’s golden goose of commerce and innovation will continue to lay more and larger eggs,” Buffet commented.
Needless to say, Buffett is referring to several industries, but a few that I think deserves special attention include America’s modern energy infrastructure. It can be a model for the world; the problem is the smartest minds are missing this innovation wave.
Monumental shifts in technology and industry sometimes start with a bang. Other changes start with a ripple before growing into a wave. Even those who are closest to the surface sometimes don’t feel their boat rocking.
In the 1980’s, McKinsey & Company consultants predicted that there would be fewer than 1 million cell phones sold by 2000, stating they were too expensive and the batteries were too heavy for mainstream adoption. This kept AT&T from investing in this industry. Sound familiar?
We’ve recently seen three major ripples signaling the future of how America will power its homes and businesses.
First, in America’s innovation heartland and its largest solar market, California discarded its cap (i.e. removed the “net metering cap”) on how many households and businesses can plug into the electric grid with rooftop solar. This eliminated the last bottleneck to explosive solar growth in California. It also affirmed that net metering is a key component of a modern infrastructure through its ability to moderate a two-way flow of energy. Today, 41 other states, such as New York, Colorado and South Carolina, use net metering to modernize energy infrastructure.
Second, Congress extended the solar investment tax credit to enable solar to spread nationwide. Today, rooftop solar electricity costs the same or less than grid power in 20 states. In five years’ time, this will be true in nearly all states. Solar costs continue to come down rapidly despite competing on an unleveled playing field. Fossil fuels and nuclear power have received eight times more government subsidies than wind and solar over the past six decades.
Third, governments worldwide forged an historic climate agreement in Paris that will drive the global phase-out of fossil fuel generation over decades — and increase the demand for the technologies that can replace it.
The rise of solar shouldn’t be a surprise. Innovative business models that put power in the hands of consumers have upended huge industries—just look at mobile phones and taxis.
On-demand ride-sharing apps have rocked the established taxi industry worldwide by bringing new technology to consumers that are eager for accessible, affordable alternatives. Cell phone adoption grew exponentially as carriers innovated ways to bring costs down for consumers — at a rate much faster than even McKinsey could predict.
Purchasing decisions tell us which innovative products will succeed. Consumers’ rapid switch to ride-sharing platforms cemented the inevitability of the industry. In 2013, Uber averaged around 1 million rides per week; today, it averages 2 million rides per day. This shift took place amid staunch resistance from taxi incumbents in certain geographies. Similarly, cell phone ownership rates skyrocketed with intense consumer demand. Today, there 103 cell subscriptions for every 100 Americans — a rate far eclipsing the use of landlines, even at its height. With rooftop solar, the U.S. will cross one million homes in the first half of 2016.
So think twice before ignoring a new technology that’s poised to shake a powerful, established industry—American innovation that’s consumer-centric will win the day.
Lynn Jurich is CEO and co-founder of Sunrun.
