“In the aftermath of the financial crash of 2008, it was hard to believe that capital markets, or capitalism itself, could help make the world a better place. Yet in the years since then, a movement has been building, slowly at first but now gathering pace, founded on the conviction that it is not only possible for the capital markets to be harnessed to do good, but essential if the major challenges now facing the world are to be tackled successfully.”
—Matthew Bishop, US Business Editor and New York Bureau Chief of The Economist.
At the turn of the millennium, experts predicted that wind power would globally reach 30 GW in 2010. In that year, capacity reached 200 GW. Today it stands at 370 GW globally. Similarly, in 2002, it was predicted that solar power would add 1 GW per year by 2010—yet in 2010, 17 GW of solar capacity were added globally, and in 2014 48 GW.
We are in the early days of an incredible capacity build-up in the renewables industry. In the near future, people will speak of “Big Solar” and “Big Wind” in similar ways as we do today of “Big Oil” and “Big Pharma.” Disruption is the name of the game. The renewable energy space is not only important for our future, but also big business for venture capital and later stage investors. Market forces everywhere are engaged in building parts of the emerging renewable energy infrastructure. They often connect the Internet of Energy to brick and mortar businesses. Picking winners is difficult at this early stage of market development. Confusing policy signals add a layer of complexity.
To grasp the magnitude of what is happening, some historical context is useful. Compared to the end of the 18th century—when the previous renewable and “low” energy era ended—, the sheer amount of energy consumed has already increased by several orders of magnitude. At the time of the French Revolution in 1789, Europe was mainly powered by animals—14 million horses and 24 million cattle with a total power of 7.5 billion Watts, or equivalent to the power of about 100,000 mid-size cars today. 600,000 water mills and firewood complemented the largely renewable energy mix.
The subsequent fossil fuel revolution rendered economic development and modernity, as we know it, possible. Limits to Growth questioned this happy narrative in the early seventies. Intense and often emotional debate on what would happen, with doomsday scenarios and projections of bright futures put forward alike, became a stock of the public debate. Yet energy use went up, and up and up. Thus far, the world has powered on though, and become a much wealthier place than at any time in history.
Energy needs are bound to rise further as the global population grows, becomes much more urbanized, and fully connected to the world of digital. Take the Internet of Things—a motor to create USD 19 trillion in value by the mid-2020s, a powerful driver of much greater resource efficiency, but also an accelerator of progress in the twenty-first century enabling lifestyles that simply are more energy intensive.
Throughout history, access to energy has ranked at the same level of importance as basic human priorities such as food, housing, health, or education. Energy is foundational to the ability to provide all of the former. Access to energy will remain central to the definition of geopolitical fault lines, as haggling over pricing of natural gas exports from Russia or wars over oil fields in the Middle East remind us nearly every day.
The only long-term solution is a largely circular economy re-using resources, powered by cheap and clean energy. There is just one problem: a successful energy transition that occurs fast enough to reduce pressure on our environment is not a foregone conclusion.
In a perfect world, renewables would turn out electricity at a few cents a kilowatt-hour (kWh) and solar panels would capture energy at night (though the latter is more like a gimmick and alone will not solve the energy crisis). Storage solutions would compete with gasoline in terms of energy density and ability to release energy. By 2019, the Prime Minister of India, Narendra Modi, aims to bring solar power to the 400 million Indians currently lacking access, so that every home will have access to electricity. This is a laudable and highly ambitious goal. It also tallies well with a global community engaged in global climate negotiations, this time in Paris, potentially setting important parameters to limit carbon dioxide emissions. Yet if the energy transition is to succeed in India and elsewhere, renewable energy will have to become fully price competitive and substitutable with fossil fuels much faster. The way forward is to deploy subsidies to finance the supply side of innovation, and to reach critical mass only, rather than providing subsidies when solutions operate at scale.
Next to generation, storage remains a sticky point. The major challenges today’s batteries face are cost, lifespan, safety, as well as performance over a wide temperature range (-30 to 52oC). For example, the chemical energy stored in 1kg of coal is 24MJ/kg. Combusting this coal in a thermal power plant with an efficiency of 40 percent would correspond to a useful energy of 9.6MJ/kg of coal. By contrast, the energy density in the Tesla S model, perhaps the most advanced commercially, available Lithium-Ion technology corresponds to 233Wh/kg (0.84MJ/kg). Batteries currently used in hybrid and electric cars average only 150 Wh/kg, compared with gasoline’s 12,000Wh/kg (44MJ/kg).
“Building the Impact Economy” highlights what needs to happen to fast track the energy transition. This series provides a sneak preview. For entrepreneurs, it is important to disrupt, rather than be disrupted. Stay with us for the next post in the series, which focuses on identifying and investing in technologies that can compete without permanent subsidies.
Maximilian Martin is the Founder and CEO of Impact Economy. His investment and advisory work has helped define the trajectory of market-based solutions and the impact revolution in finance, business and philanthropy. Dr. Martin created Europe’s first global philanthropic services and impact investing department for UBS and the UBS Philanthropy Forum. In 2013, he wrote the primer on impact investing “Status of the Social Impact Investing Market” for the UK G8 policy makers’ conference. His new book “Building the Impact Economy” shows how to reconcile responsibility with opportunity and seize the multitrillion-dollar opportunity in the wings.