Most of us usually don’t use wealth and climate change in the same sentence. Jigar Shah and the Carbon War Room’s Ann Davlin were at SXSWECO yesterday to convince us things are changing. Their session,”Creating Climate Wealth,” showcased how individuals and businesses can capitalize on the climate chaos.
Davlin, who worked with Al Gore and at The Pentagon, started the discussion by reminding the audience that our society, even business, has had climate opportunities teed up before.
“This really isn’t all uncharted territory,” said Davlin. “A lot of today’s climate wealth environment was established by the success of the Carter administration.”
Most of us can associate the administration with solar panels on the White House, but Davlin highlighted the other policy and infrastructure decisions which helped set up many of the standards still used today.
“Everything from energy efficiency and vehicle emissions to power purchase agreements (PPAs) and the adoption of the Renewable Portfolio Standard (RPS), has some connectivity to the efforts of lawmakers decades ago,” said Davlin.
“All the pieces are coming together, and we’re at a point where we can move forward. Carter won bi-partisan support for favorable policies and it lead to job creation and clean energy momentum.”
Davlin cited the residential PACE market, aimed at funding energy improvements, as another engine of growth and carbon reduction. She urged the group to think about the balance between an economic and ecologic argument.
“The capital is there, it’s more about how do we go in and approach a particular investor segment,” said Davlin. “We need to think about describing the impact in either financial terms or climate terms,” she added.
Shah opened up with a dig at our obsession with technology, questioning the value of the next new app.
“We have this weird fascination about technology,” said Shah. “The reality is that new technology is not fascinating in our industry.”
Instead, it’s about “infrastructure.” Shah noted that even with a seemingly unending technology cycle, energy costs for the average American family have increased about $4000 per year per family.
“Nobody tells they’re mom that I work in infrastructure,” he joked. But it’s easier to understand the notion of infrastructure when he describes it in the context of how the solar industry built out its own processes and practices. He mentioned how early power purchase agreements (PPAs) drove demand and led to more stable and innovative financing models that have continued to spur along the solar industry.
The conversation also addressed the opportunities in the electric vehicle (EV) industry and more broadly, the transportation industry.
“So what’s the climate wealth strategy for getting people in EVs,” asked Shah.
He mentioned recent data from Triple AAA that shows U.S car owners spend about $900 per month to own a vehicle. Besides more predictable maintenance costs for EVs, Shah thinks transportation companies and manufacturers will continue to move towards a cost per mile model.
“What you’ll see is an increase in “cost-per-mile” entrepreneurs as more time transfers to that model,” he said. “Then the question is what do you do with all the wasted space, like unused parking spots and emptier garages.”
The parking spot problem is in the industry’s headlights, sometimes referred to as one of the last mile problems in transportation. He was asked about what cities can do address it and some of the other planning challenges.
“Basically, 1000 entrepreneurs need to be knocking on doors and getting contracts, and then those need to get financed” he said.
Once autonomous vehicles are factored in, things get more interesting. Both panelists said the insurance industry is already adapting to that, preparing for the increasing loads of data from vehicle-based systems. They imagined a scenario that’s not so different from what healthcare providers might glean from health trackers to adjust our premiums.
Davlin also mentioned how microgrids, small-scale stations that can operate independently, are getting pushback from municipalities. Drawing from her pitches to Wall Street and private equity firms, Davlin reinforced how assumptions can’t be made that stakeholders understand the bigger picture. She described some scenarios where energy efficiency funding had to be reframed around a more resilient and risk-based approach.
Shah was then asked about the value proposition for solar, and how it plays into more climate opportunities.
“Solar is now an $80 billion a year industry with rooftop systems being added about every three to four minutes,” said Shah. “The industry needs to take responsibility for creating the next model for utilities.”
The panelists were also asked what city officials could do to spark more business-driven climate strategies.
Shah singled out transportation and waste management as two of the biggest pieces looming for cities. To magnify the cost reduction opportunity, he said the the average U.S. city transports its waste roughly 350 miles for disposal.
He also used the recent food waste ban in Massachusetts to show how waste reduction can create growth. Because of that policy, says Shah, 1200 anaerobic digesters will be built over the next five years, which will create jobs and reduce transportation costs..
Waste water management is also a part of the portfolio, especially with many treatment facilities across the U.S. nearing capacity. Things like pre-treatment, desalination, and other filtering applications are spurring the water management sector.
“A lot of these solutions have two year payback periods,” said Shah. “At that point, you’re basically forcing people to save money.”
As the session closed, a Nike representative in the audience asked the panelists to share specifics on the top things corporations could do to impact these climate wealth strategies. Davlin cited what Nike itself was doing as a member of the Sustainable Leather Working Group.
“Nike is actually dictating how the life of an animal is managed, everything from how it is fed, to how it is slaughtered,” said Davlin.
“What that means is more job creation, and a more visible and sustainable supply chain, ” she added,
Shah jumped in on the supply chain piece, saying the “greening of supply chains” is the toughest challenge for multinational corporations.
“You have to change the contracts and configure them to reward your best suppliers,” he said. Part of the challenge is that adjustments to supplier agreements can impact short-term profits. But Shah urged companies to look past contracts and get more creative to drive growth, saying a company’s strategic partners can be rewarded in many ways.
“There’s still constraints to being driven through the Chief Sustainability Officer (CSO). But you have to make some financial commitments before any long-term strategy can really materialize,”said Shah
Bringing Big Data down to earth isn’t just a figure of speech for Geostellar, a Washington, D.C.-based startup using social media to drive solar adoption. A big part of the $16 million it’s raised is being spent on crunching data and getting it into the hands of homeowners who want to generate their own clean energy.
“We’re all about the home owner,” CEO David Levine said in an interview at SXSW. “The energy industry hasn’t done them any favors. What people need is an advocate, something that works for them.” What works is a transparent ROI, some marketplace effects and a sliver of competition, which Geostellar describes as the “Glory” piece in its marketing campaign. For the past three years, Levine’s team has been building out its 3-D models, based on data that’s gathered by the same planes that Google, Apple and Microsoft use to snap pictures of the earth.
By combining its satellite imagery with the latest utility and energy rates, Geostellar uses your ZIP code to render three different snapshots of your home’s energy potential. Playing to different motivations, it displays the results under the categories, “Money,” ”Power” and “Glory,” which show electricity savings, electricity output and CO2 emissions, respectively.
Guessing that most of us aren’t experts in the last two — kilowatt-hours and carbon-dioxide tonnage — it breaks those benefits into something more digestible, like how many flights or loads of laundry you avoided. That’s where the social media part kicks in. They’re betting peer pressure will drive much of the adoption as neighbors try to one-up each other. Recent developments from companies like Opower — which uses social media to encourage energy efficiency in the home and works with with more than 70 utilities — show the approach is catching on. By liberating customer data around energy usage, behaviors and costs are amplified. In Geostellar’s case, current users can share their information within the application or externally on Facebook and Twitter.
Driving down costs
When homeowners are interested enough to get bids, it collects estimates from a large pool of installers and provides a detailed comparison of the proposals. According to Levine, part of the difficulty in assessing a homeowner’s options is the lack of standardized vendor processes and the variance around Solar Renewable Energy Credits.
Some vendors, for example, could have a pricing advantage because its models are based on a different set of assumptions than its competitor: The lower-priced proposal might assume utility rates would rise an average of 7 percent over the 25-year life of the panel, while the other vendor, with worse savings, only assumed a 4 percent rate increase.
By functioning as the broker, Geostellar meshes all the rates and best practices from vendors and delivers an “apple-to-apples” comparison, as Levine describes it.
That helps both parties. Confusion is removed from the bidding process and installers can focus on scaling installation, instead of spending on soft costs associated with things like marketing and customer churn.
In a March research brief, financial services firm Raymond James Financial cited data from the Rocky Mountain Institute that estimated soft costs represent more than 60 percent of total U.S. system costs, and are roughly four times higher than in Germany, despite higher labor prices. That’s a key metric because Geostellar charges installers a transaction fee, one it says is less than a solar installer’s cost to acquire a customer.
“With solar, now that the technology is proven, the industry’s biggest challenge is driving down costs,” Raj Prabhu, managing partner at Mercom Capital Group in Austin, Texas, said in a recent Bloomberg article. “The new money is going downstream to help build markets. The industry is now mainstream.”