The why.

An unintended list of clean economy predictions from my virtual walkabout

I’m nearly 50, and I’m having a moment — call it a mid-life vocational reconciliation. And it feels like a similar moment for cleantech itself.

The last 20 years in our industry have been deeply rewarding on a host of levels, driven so much by the community of leaders. And as I considered “what’s next” for clean tech, I engaged that community — 130 1:1 conversations — to sketch it out with me. And that they did, informed by a wide array of perspectives from across private, public, and social sectors: capital allocators of all stripes (traditional GP/LP structured funds, family offices, Angel groups, and foundation & public grant makers), state and federal policymakers, commercial buyers of decarbonizing technologies, and (of course) global clean economy CEOs.

What we’ve got from this meeting mosaic: opportunities for builders, funders, and buyers to generate outsized benefit to society by decarbonizing across industries while creating great jobs.

#1: Value Demand Flexibility:

Unified democratized multi-stakeholder Demand Flexibility monetization platform: ok, say that 5 times fast or you can say “valuing negawatts and DERs (distributed energy resources)” or “load flexibility”. As the great Art Rosenfeld (the late California Energy Commission, Commissioner — a personal clean economy superhero) always espoused, the cleanest energy to consume is the one we don’t use. Energy networks are made up of supply and demand. For historical and structural reasons, only the supply side has received political, financial and corporate support. With the increasing number of grid failures, these days are over as supply side only thinking will not solve the challenges of today’s network. Demand side thinking and solutions are now required; valuing the demand side enables investment and deployment of demand flexibility solutions.

In my mind, the #ElectrifyEverything drive is massively accelerated by Demand Flexibility due to the improved Return On Investment (ROI) in behind-the-meter asset investment like weatherization (insulation, windows, etc.), HVAC (heat, ventilation and air conditioning), solar electricity generation, energy storage, smart appliances (water heater, refrigerators, etc.) and your electric vehicle. Moving the demand curve around and controlling decentralized energy resources behind-the-meter to match hyper localized and transparent grid pricing signals is coming faster than many think but needs policy support. If the desired non-supply side outcomes are capacity, energy and ancillary services delivered through energy efficiency, energy storage, demand response and distributed generation w/ reliability, safety, low cost, resilience, clean, independence, we must have Federal and State policy to force this change. What’s not to love (and there are many many that love this coming new world — see link)? There are however traditional supply side folks that fear and are actively fighting against this inevitable outcome — regardless of the net positive and massive societal benefits. Who, you ask? Traditional incumbent Transmission Owners, Generators and Distribution Owners are not happy with this plan at all, as it totally goes against their regulated fixed rate return (13%) CapEx infrastructure business model, all being paid for by “ratepayers” (yeah, you and I).

In addition to the blackouts, another major factor moving this conversation in favor of demand side solutions is that real estate owners, owner/operators and built environment occupants (which is all of us) are waking up to the fact that behind-the-meter energy resources and/or energy load in the built environment can be a profit center or at least a lower cost center, rather than the historic all cost center. It is funny to say, but this new world has the potential to make energy efficiency sexy. This exciting new fully democratic, transparent, interactive electricity grid (function and economics) world doesn’t happen in a vacuum and needs regulation support (ex: FERC 745, FERC 841, FERC 2222, rate structures, etc.) and industry standards for asset registration and communications. Supply Side planning is self-serving, antiquated and needs to be balanced with Demand Side innovation. Since the late 1800s, here in the US, we have Federally managed and fully interconnected railways, highways, communications, natural parks, waterways, aviation, banking and more…but not energy systems. The energy system is due for an update.

Sub-Note: “#ElectrifyEverything” (a buzzy tagline being tossed around) What exactly does ‘’ElectrifyEverything’’ mean? It means replace the natural gas/diesel/oil boiler with air-source heat pumps or geothermal exchange (HVAC: Electrum link, Dandelion link, EMH link, Nativus link), replace the natural gas water heater with all electric (Rheem or RUUD, for example), update or improve insulation (foam core, spray in, fiberglass batts), replace windows with state-of-the-art thermally rated ones, use LED lights, replace the ICE vehicle with EV — with programmable and remote charging controls, and buy programmable or remote controlled appliances (ex: refrigerator, stovetops, ovens: LG gets props here), use of smart thermostats (Nest, Ecobee, 75F, etc.). This demand side #ElectrifyEverything movement is vastly accelerated by a functioning Demand Flexibility marketplace, as the ROI in behind-the-meter capital expenditures is significantly improved and will encourage huge additional capital investment.

In addition to the challenge of reducing the ROI on these ElectrifyEverything capital equipment investments, by moving all fossil heat and work to electric, the demand curves shift based on regional climate needs. For example, in New England during the winter, if all residences are fully electric (air heating/cooling, water heating, EV charging, microwave, stovetop, lights, etc.), will create a massive new demand spike from 6am — 8am, as families wake up, shower, cook food, and complete charging for the commute to school and work. How does the supply side on a grid network in that region support this spike when generated capacity from wind and solar (even with batteries) in the winter in this region are higher in the afternoon but low in the morning? Does this mean the only solutions are more fossil/biomass combustion or firm hydro (supply side solutions)? NO. How about a mix of demand response on the load, increased efficiency through improved weatherization (insulation) of the built environment envelope, pre-heating during earlier hours, use of energy storage, remote controls of appliances (smart and connected thermostat, hot water, refrigerator, etc.) based on hyper local pricing signals?

#2 Solar Optimization, Innovation and Consolidation: important momentum and trends

Residential: 1) increase in homeowner ownership of the solar energy system, through solar loans and cash purchases, and away from third party ownership (power purchase agreements: PPAs). This owner change will increase the demand for solar service plans for operations & maintenance of these systems. Homeowners don’t have the skills nor desire to fix a non-functioning or sub-optimally performing solar array, which will drive this trend harder — they own it, don’t know how to fix it and need service (Stable Solar, Omnidian, Helio Power). 2) As clearly seen by market leader, SunRun, in their NEISO capacity contract, Demand Flexibility will be a critical next step in the evolution of ganging smaller systems to achieve highest value and becoming an important factor on the grid. (see ElectrifyEverything and valuing demand side observations)

Commercial: not sure when this dam will break, but the commercial sector has always been the laggard to residential and utility sectors because of the perceived or real small and medium sized enterprise (SME) counter-party risk. Financing solutions (CapEx, OpEx, insurance, construction, etc.) need to figure out (IE: business/financial/credit evaluation innovation) the “storied history” risk of SMEs to break open this market and third party ownership. That said, cash systems are happening in this commercial sector, just slowly with SME balance sheets being emptied by COVID and lenders shying away from these types of organizations. Related: Energetic Insurance link, Wunder Capital link, ORKA Financial link

Utility-Scale: generation from the sun and wind will continue to boom with the extension of the Investor Tax Credit and the continued improvements/technology innovation in plant construction, component selection and operations which will drive MWh pricing down and further increase demand. With this boom in clean generation supply, energy storage will become (might already be) “mandatory”, as grid congestion/local node pricing will dictate smooth and timed output from this supply to achieve the maximum benefits to capital providers and avoid curtailment. A Demand Flexibility marketplace will put more spring in these benefits and increase capital volume into higher value and quality clean generation (generation with short-, medium- and long-term storage). We should continue to see major “universal” investors take interest in these assets and developers (M&A), as it is a fixed income like investment. (P4P Energy, Sunfolding, OjjO)

#3 Electrification of Mobility:

Total Cost of Ownership (TCO) of electric vehicles for fleet operators is already lower when compared to internal combustion engine (ICE) alternatives. President Biden and his team are clearly looking at the maths and agreeing by making the public commitment of transitioning all ~650,000 Federal vehicles to electric in the coming years. Yes, it’s a great procurement policy for solving the climate crisis, but also smart economics for investing our hard earned tax payer dollars and Made-In-America provisions will allow American EV manufacturers to hire many new workers based on fixed demand.

In the private sector the signals are equally clear, with Amazon’s Rivian order for 100,000 all electric delivery vehicles. I trust that the team at Amazon understands the TCO metrics, based on their absurdly accurate Prime targeting. At this point, who is going to say and not be fired: “I want to double down on the more expensive, polluting, harder to maintain, less reliable and much less fun to drive mobility option for our fleet vehicles.”?

Then there is the individual, who, in certain demographics and at swiftly increasing frequency, are making the choice to drive electric. Sadly, to date, there are few options for low- and medium-income people to make this same high quality and value choice. We must increase innovation, financial support and effort to level this playing field. I applaud Flux Auto (chicken) and ChargeNet (egg) for their efforts and success in bringing the benefits of electric vehicle use to the people who can value them most.

With the fleet owners, municipal agencies, private citizens all moving swiftly to capture these TCO EV benefits for themselves, the charging infrastructure needs to keep up to reduce range anxiety and improve the user experience. Many companies are working hard to grab land in strategic locations (highway access, near logistics centers, close to energy grid interconnect, etc.), arrange agreements with the power providers (DR, DERs, on-grid rates, capacity, interconnect), select charging hardware with a software package that gives the operator maximum value (including Demand Flexibility) and best fit for the use case at the site and capture/attract/inform customers that they exist and are a good option for charging. The smartest developers are looking to maximize decarbonizing benefits of real estate, energy, transportation and food for multiple stakeholders. Yeah, this is a hard one…but necessary and with huge rewards for the successful.

A sleeper in this play is thinking 5–10 years forward and including electric vertical take-off and landing (“eVTOL”) vehicle functionality and hosting to these terrestrial charging locations. With a second story landing pad, terrestrial charging stations can double for flying car, air taxi, regional aero-cargo logistics, putting more revenue in the site owners pockets and increasing the value of eVTOLs. Site owners should plan ahead, as eVTOLs are coming faster than many think (at scale in ~2027).

Coming soon: Joby, Uber Elevate, Lilium, Archer and others.

Cheers to ChargeNet — enabling retail real estate owners and fast food chains to increase value in their parking lots and increase dwell times. I’ll also mention Veloce here, as there are some very tricky bottlenecks (utility interconnect and local substation support) to this “land grab” which is causing serious heartburn for EV charging prospectors.

#4: Energy Storage: the mandatory “mandala” to decarbonization

Energy storage will not be a winner take all (re: lithium ion only) market, as applications vary widely and, even in the most optimistic supply chain forecasting, limits on affordably mined lithium will enable ~60% renewable generation, which requires energy storage to go deeper and wider on supply chain and solutions.

• Alt-Lithium: Lead acid energy storage is a >$32B annual business and is projected to grow at ~5% CAGRs for the next 4–5 years. What? Yeah. Sadly, lead acid is a leading cause of pediatric toxicity in developing markets due to poor disposal and the performance of the offering is less than dazzling (increasing disposal). There is >40GW of lead acid energy storage in data centers globally today and this capacity is 100% replaced every 2–3 years. This is a large and easy target for medium performance, low cost, non-toxic and non-flammable solutions — which, today, is not lithium ion. Reference: EnZinc, ZincFive, ZAF, Natron.
• Long-Duration/Grid-Scale…the “Holy Grail” of grid applications, continues to capture the imagination of many industrial, commercial and residential users…but (I think) actual solutions, at scale, are at least 24 to 36 months away. On the grid integration side, utilities’ integrated resource planning (IRP) focuses on 2–4 hours of energy storage requirement. With the problem framed in that way, solutions for 2–4 hours of energy storage are the market. The utilities and PUC overseers have been short-sighted by not thinking 2 or 3 steps ahead to understand how beneficial 6, 12 and 24 hours energy storage could be for their goals of safe, resilient and low-cost energy. The good news is that modeling tools are now coming to the market which support PUCs, developers and utilities to accurately model these benefits, which should reframe the problem statement and hopefully change the integrated resource plans. (credit to Chris Clack on the modeling) Pilots are in planning. Mentions: Form Energy, of course, NOON Energy, Renewell, Quidnet
• Supply Chain: Lithium harvesting, component materials and supply chain: improvements in raw materials, coatings, separators, second life analysis are all getting investor and commercial interest. The “Golden Rule” of sales in energy storage is don’t get in front of the customer without a massive brand, channel and balance sheet. LG has been and continues to be the world’s lithium ion cell manufacturing leader with an open and cooperative innovation ecosystem building mentality (fantastic!), with CATL, BYD and the Panasonic/Tesla alliance nipping at their heels. Commercials of interest: 3M, BASF, Coreshell, Element Energy, ReJoule, Lilac Solutions.
• Residential/microgrid: Notable Runner Ups to watch: holding heat over an extended period of time is a clever yet challenging way to shift energy. There are a couple of companies who are trying it at home-scale and showing promise. Harvest Thermal Link, Sensible Link

#5: Creative blended capital for Deployment:

It’s not sustainable, unless it’s profitable. Otherwise, it’s philanthropy.

When it comes to capital formation, the value creation starts with the CEO and their executive team. She/he must have the highest of ethics to make the tough decisions, even if it’s the hardest. Of course, the leaders need to be experts in their field with a highly differentiated value (technical or business) which is defensible. The community of the organization must set and strive for the Vision, Mission and Values at all levels, decisions and outcomes.

Over the last decade and a half, the clean economy has vastly improved the first “Bactrian Challenge” (double humped camel) faced by clean economy entrepreneurs. The first brutal ascent is pre-product market fit / pre-revenue companies, where historically there have been scant resources to give it a go. Thankfully, governments and foundations have begun to do high velocity, low friction grant making and convertible note investing. This is just getting started and I hope these efforts expand rapidly, as the success and job creation are obvious (thank you, New Energy Nexus).

The second ascent of the clean economy entrepreneur is the Deployment one. In this stage of growth, CEOs are asked to use expensive venture dollars to build out a commercial deployment pipeline. This is the wrong use of capital. As a clean economy CEO achieves the first or second commercially valid deployment and the performance meets expectations with customer validation, a new type of capital should be available for deployments #2–#200. At #200, marketplace driven financial products and services will be available at low costs from many providers.

What does this blended capital stack look like to go from #2 — #200?, Who is involved? and How/when is it deployed? These are all unanswered questions but critical to grapple with and find answers.

What may be needed is a single source (single family office, group of family offices or group of capital allocators) to fund grants, Program Related Investments or Concessionary tranches from Foundations join and augment government grant making for the early part of the Deployment ramp. As that early (perceived or real) risk is retired, high yield/high risk capital (debt and equity) and municipal/foundation loan guarantee capital can replace all or some of the earlier concessionary capital. Special Purpose Acquisition Companies (“SPACs”), reverse mergers to OTC, Reg A/A+ offerings are all recently popular and could be part of this blend as companies and project pipelines mature. This will give way or be blended with later stage capital resources as the later stage of the “D” Deployment pipeline is realized. In all cases where capital is being formed, there must be a real CEO with a plan and path to profitability. Credit: Cody Evens, Dan Carol, Arnab Pal, Matt Horton, Tom Soto, Jesse Pichel

#6: Renewable Natural Gas/Green Hydrogen:

Quality developers needed! Lots of money chasing a few good deals. More qualified renewable natural gas and green hydrogen projects are needed to replace fossil natural gas in industrial process heat. Regulators would do well to allow/enable this high quality, low carbon intensive natural gas or green hydrogen to drop into pipelines and interconnections throughout the US. The renewable natural gas and hydrogen ecosystems are a perfect, natural and relatively painless clean economy career transition for oil & gas professionals to move into landfill gas projects, cow, hog and chicken manure processing, food waste management, gas logistics from decentralized or centralized processing, RE -> H2 projects, etc. References: Marvel Power Group, Generate Capital, Duke University

#7: Carbon Negative:

Having been in the clean economy for over 18 years, ideas around carbon negative/radical adaptation have been around. In fact, I can remember back in ~2011 when a highly visible Think Tank went from practical solutions to geo-engineering and moonshot “survival scenarios” ( ideas potentially influenced by Middle Eastern Oil operatives….hmmm). Science and technology have come a long way and some of these ambient, diffuse carbon air capture solutions, point source, seaweed feed for cattle, adding rocks/minerals to soil, drone delivered biodiversity re-habitation may all be viable, but only with strong global policy, pricing and hereto-for elusive cooperation. If there is a Silver Lining to the COVID-19 Pandemic, it has been the real-time, real-world, full-scale demonstration of how amazing air quality can be if we clean it up.

Conclusion:

In conclusion, 2020 was a year of hardship, sickness, death, poor and divisive decision making, and massive freedom curtailment. Even so, the fundamentals of the clean economy moved forward based on economic yield potential, lowered risk perception of the asset class and the in-your-face climate crisis risks. My hope is that readers use this as a Canary or scout to a theme of decarbonization important for them. Whether the reader is diving in on valuing demand flexibility, #ElectrifyEverything, solar improvements and M&A, moving people or cargo through electric — not fossil — propulsion, energy storage across the diverse spectrum of use cases and supply chains, or innovation in capital formation strategies; all are mega-trends to the decarbonized, safe, equitable and profitable world we seek. I am a survivor of the 9/11 fossil fuel driven attacks, which personally illustrated the violence of the carbon economy. We stand 20 years later with the tools of decarbonization transition ready, top talent flowing into the sector and capital allocators searching for value — Charge Together!

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https://www.linkedin.com/in/jonbonanno/

CEOs with whom I have the pleasure and honor to serve as Advisor, Mentor or Coach. Please note, in some cases, I have vested interest.

• e-Mission Control: link (emission reduction enabler and marketplace)
• Stable Solar: link (direct solar/storage service plans for system owners)
• ChargeNet: link (fast charging network at retail locations — fast food, pharmacies, stadiums)
• NOON Energy: link (non-lithium, long duration energy storage)
• EnZinc: link (energy storage based on zinc: non-flammable, increased energy density and low cost)
• Flux Auto: link (EV financing platform focused on low- and medium-income people)
• Recurve: link (enabler and marketplace for Demand Flexibility)
• Stasis: link (HVAC plug-in which reduces energy demand charges and usage from air cooling by 70% and 25% respectively)
• SkyCool: link (refrigeration plug-in which reduces energy demand charges and usage from refrigeration load by 70% and 25% respectively)
• SierraCrete: link (low emissions cement alternative)
• BlocPower: link (energy retrofits for low-income built environment)
• Solar.com/PickMySolar.com/Electrum.co: link, link, link (solar acquisition marketplace)
• InPipe: link (in distribution network located micro hydro)
• TerViva: link (pongamia for animal feed and human non-meat alternatives)
• Dendra: link (biodiversity re-habitation)
• Buzz Solutions: link (ML/AI applied to improved T&D O&M)
• GreenTech Motors: link (Boeing originated “LAGER” Type 6 5HP or 10HP electric motor for industrial and commercial applications)
• LEAP: link (Demand Flexibility marketplace)