Friday, February 26, 2010

Differentiation vs Importance

Upon re-reading my last post, I realized that I was fairly unclear about a few important points and that it could easily be misinterpreted as saying I was against renewable energy.

To clarify:
  • There is differentiation between traditional grid sources and renewables 
    • There is clearly differentiation here beyond price: CO2 generation, fuel security at the very least.
    • That differentiation becomes more important as regulatory structures (carbon tax or cap & trade), popular opinion, regional politics or peak oil make it so.
  • There is differentiation between various renewable sources (E.g. solar thermal vs solar PV vs wind vs biofuels vs tidal)
    • Each technology has characteristics that differentiate it from other technologies: where it can be located, is it distributable, is it carbon free or carbon neutral, social justice concerns (e.g. does it raise food costs, impacting the poor?), impact on wild life and local ecosystems, etc.
    • Different vendors of a particular renewable source, though, are largely, I think, competing on price / kW. I'm sure there are exceptions.
  • Saving the world as a niche - It is big enough
    • Taking 2009 total power usage as 3297 TWh, 90% of which is from non-renewable sources.
    • A 30% reduction in demand (989 TWh) from conservation, assuming all existing renewable generation stays in place, still leaves 1978 TWh of non-renewable energy that could be replaced by renewables. 
    • Put in terms of solar PV installations, that's $5780 Billion... That's a huge market.
My original point was:
  • I decided I wanted to focus on conservation not because renewables are unimportant or non-viable, but because conservation is a higher leverage route to sustainability.
  • Differentiation between solar PV generation companies seemed, in the long run, to be a commodity situation where price ruled.

Thursday, February 25, 2010

Can renewable energy be differentiated?

When the solar market was hot I, like probably half the people in the Bay Area, was thinking about a career in solar. I thought about this a bit and concluded that this would be the wrong place for me because I could not figure out how it could be differentiated enough to yield an interesting marketing job.

Can renewables be differentiated?
Renewables, at the end of the day, are just another source of power. Power is a commodity.
Can a commodity be differentiated?
Or is it solely about $ / unit?

If you put it against grid connected power, then it is about $/kWh. It's a race to the bottom.
It's about being the cheapest because all the power is interchangeable.

If you put it against something else, then you have a niche and can be differentiated some other way.
For example: off grid development.
Are you the most rugged? Portable? Reliable? Efficient (kW/m2)? Flexible? Available in all weather conditions? Backup-solution-ready? Affordable (if you're off grid b/c no one can afford to build a grid)? Difficult to steal? Easy to install and maintain?

Or the "save the planet" green niche.
It's really important, but still a niche today.

Are these niches big enough to support a business in the US?
I think many people are counting on it getting really big... though there is a question of how realistic that is because of the scale of the problem...

If you don't want the niches, can you create differentiation where it doesn't exist with renewables and ride that to financial success?
Ok. Maybe this is more interesting than I originally gave credit for.

Tuesday, February 23, 2010

Two and a half kinds of differentiation

There are two and a half ways to approach a product which you want people to buy:

1) Be differentiated
Create a product that meets some need in a way that no one else does. You have to be:
  • Smart
  • Lucky
  • Persistent
  • Some combination of all of the above 
oh... and the bar keeps moving because once you find that need, more people will follow...

2) Be cheap
Be the least expensive option on the market.
This is a kind of differentiation but one that is difficult to maintain because:
  • Lots of people know how to do it
  • It saps the resources you need to run your business
Do it to the logical extreme and eventually you are nothing but "cheap" (which is not always good enough to buy).

2.5) Create differentiation where it doesn't really exist
Be loud!
This includes things like:
  • Fancy packages
  • Clever names
  • Massive ad campaigns (ala Cola Wars).
  • Rent seeking behaviors

This seems to be a popular option but, when exposed for what it is, I think most people think it smells funny.

Each has it's place and clearly can be successful. I prefer seeking to be differentiated.
Understanding what people really need by looking for the patterns underneath what they say they want is quite interesting sometimes.

Thursday, February 18, 2010

The ah-hah moment on Smart Grid Tech Business Models

A quick survey of a handful of smart grid tech companies who are creating devices for consumer use shows that they are mostly targeting the utilities rather than the consumers (home owners). Why?

Looking at the numbers I've come up with, it's clear that this is a game of very large numbers. Small percentages of large numbers are still large numbers. So you need a customer who can leverage those very large numbers.
The consumers cannot.
The utilities can.

Pulling data from the DOE site on total generation in CA, number of customers in CA and cost of generation. Then including the power mix for PG&E and taking that as an average for CA, you get a non-surprising result.

Assuming a 10% consumption reduction via electric usage dashboards:
  • The average consumer would see a $80/yr savings.
  • The combined generators of power in CA would see a $461M/yr savings.
It's hard to get a home owner excited about $80/yr.
It's probably a little easier to get a utility interested in a few hundred million $ per year
... and this doesn't include planning for Cap & Trade...

Wednesday, February 17, 2010

Changing behavior is big leverage: electric bill example.

Expanding on the story from Treehugger.

Buried in the bottom of this TED speech is an example of behavioral economics at work and how you can use an inexpensive approach to leverage large changes in consumption.

The bit of interest is at 10:32 - 11:20

According to this, real world testing has shown results of about 2-3% reduction in energy usage.
Using the numbers from USGBC and DOE (per earlier post):
  • a 3% savings in electricity is ~2.1% reduction in total electricity usage which is ~69TWh/yr.
  • Assuming the same 2.5kW per installation, 8hrs/day of peak generation & $21.4k/installation
  • That's $201B to replace with solar PV.
... and changing the information printed on you bill would cost a few hundred $k to a few $M in software, training, admin, development, rollout, etc...
Say $2M.
So an ROI of  > 100,000?

Monday, February 15, 2010

Putting that number in perspective

Saving 10% of energy used in buildings = ~$676B if you tried to replace it with solar PV.

According to the White House Budget Summary for 2010:
  • The US Military Budget is ~$707B. That's about 20% of the entire US budget [or about 41% of entire world spending on military].
  • Corporate income tax revenues are projected to be ~$179B. Only ~26% of what you'd need.
  • The only other two income line items of equivalent magnitude are:
    • Personal income taxes (~$1051B)
    • Social Security payroll taxes (~$683B) 
Looked at another way: If you spent the ENTIRE GDP of the US (~$14Trillion) at trying to replace the entire energy usage of the US (3297TWh) with solar PV, it would take ~7.9 months of spending (65% of GDP).
To put this number in perspective, the US Military Budget is 4.8% of GDP. That's ~17 days of spending.

Not that it's realistic or even correct, but can you imagine the entire US economic output focused on nothing but solar for almost 2/3 of a year?

Friday, February 12, 2010

How many solar panels would that be?

If I wanted to generate all of that electricity using solar PV panels instead of by saving it through conservation, what would that look like?

If you assume 2.5 kW is the average installation size and you can get 8 hours/day of power at that peak level. To generate 231 TWh of energy would take ~31.6 million buildings.

According to the US Census and Dept of Energy, there are about 124 million residential + commercial buildings in the US. That means you'd need an average installation of solar panels on ~26% of all buildings in the US.
That's 1 in 4.
That's a lot.

If you estimate the average install cost at ~$21.4k (assuming Jan 2010 prices and 50% of total installed cost is the module), then that is ~$676 billion.
That's a lot too.

Thursday, February 11, 2010

Saving the planet with leverage

According to the United States Green Building Council (USGBC):
In the United States alone, buildings account for:
•    72% of electricity consumption,
•    39% of energy use,
•    38% of all carbon dioxide (CO2) emissions,
•    40% of raw materials use,
•    30% of waste output (136 million tons annually), and
•    14% of potable water consumption.
 And according to the US Dept of Energy:
  • For 2009, total electrical generation was ~3297 TWh. Of which:
    • 2960 TWh (90%) was from non-renewable sources
    • 337 TWh (10%) was from Hydroelectric and other renewables.
 And if you believe this research result is typical:
The norm is for savings from direct feedback (immediate, from the meter or an associated display monitor) to range from 5-15%.
Then 10% savings of 72% of electricity consumption is 7.2% of 3297 TWh = 231 TWh.
That's 69% of the total renewable energy generated in 2009.

So if you wanted to make the carbon from 231 TWh of electricity disappear, would it be cheaper to spend your money on:
  1. increasing the renewables capacity by 69% 
  2. putting a smart meter and feedback display / system in every home and business?
And which one could be done more quickly?

That's part of why energy efficiency and control systems is my focus instead of energy generation. They'll both get you there but one seems much more cost effective and possible in the short run than the other.