mardi 27 septembre 2011

A different kind of disruption agent needed for energy

For lazy Sunday reading, I poured over Forbes fascinating article about Sean Parker, the ultimate of the web entrepreneur disruptors turned investor, of Napster, Facebook, Spotify and The Social Network fame (he was played by Justin Timberlake in the Aaron Sorkin movie). Last time I remember reading about Parker was late last year, when he told the New York Times: “It is not clear anyone will make money on their green-tech investing. It looks like it was a bubble.” Parker’s Forbes profile and his statement on greentech last year got me thinking: does the energy industry need more of these disruption-focused web-style innovators like Parker?
While the world needs more Parkers in general (for innovation and interestingness sake), I don’t think the energy industry will be disrupted as easily by these types of folks. Energy has fundamentally different parameters than web, and also often times needs to be built on top of the infrastructure already in place. The Forbes article points out how Parker excels at generating and propagating ideas that tend to dissolve the existing industries from which they emerge (think Napster and the music industry).
That’s one reason why Parker has so far been right in his statement last year that it’s not clear Silicon Valley will make any money from greentech investing. Here’s some of the reasons it’ll be a lot harder to disrupt energy:
Energy: Commoditization & science
Energy is a commodity: The same electricity emanates from your and your neighbor’s light bulbs regardless of if you are buying electricity from your utility, and your neighbor has shiny new solar panels on his roof. Electrons are electrons. Clean power will have to be commoditized to compete with fossil fuels, and solar panels themselves are quickly becoming a commodity product. You can see the coming solar commoditzation via the fall of Solyndra, which tried to innovate on solar panel design and manufacturing, as well as through the rapidly dropping price of solar cells in recent months.
Likewise liquid fuels are also mostly a commodity, too. Vehicle owners are looking for the cheapest price possible. Biofuels have so far failed to compete with the oil industry because of sheer cost and scale alone.
It’s very difficult to disrupt an industry that’s fundamentally built around a race to the bottom, and green companies are selling replacement products that are more expensive than their fossil fuel equivalents. Despite the IPOs of recent next-gen biofuel companies, none of these players are yet competing with oil companies in any way.
Green needs the help of the incumbents: In fact, it will be the traditional power companies and oil companies that could actually get the green products commercialized. Biofuel makers need the pipelines and economies of scale of the oil giants to reach low prices, and some have investments and support from BP, Chevron, Exxon, and refiner Valero. Even for clean power this is true — Total bought the majority of SunPower.
It’ll be about evolution, not revolution: Energy is too fundamental to society and economy to face such rapid change that happened for the Internet. Instead it will happen on the pace of decades, not months, and macroeconomic changes will be more disruptive than small startups. A spike in the price of oil and energy prices will do far more to promote green technologies than likely a Valley-backed startup.
Science needed: Major disruptions in cost will likely come from science breakthroughs, whether that’s for clean power, biofuels, or batteries that power electric cars or store energy for the power grid. A significant amount of this science R&D will come out of university labs, and government supported programs like ARPA-E. Not necessarily the stomping ground for web-hacker disruptors like Parker.
Exceptions: Cleanweb, Electric cars:
Yes, there are places were more hacker-style web disruption could be really useful — namely where the web meets energy. Longtime entrepreneur Sunil Paul calls this the CleanWeb — using mobile, social networks and web tools to deal with resource constraint. Because it actually is the web, the same web-rules about disruption and innovation apply. And that’s something Silicon Valley “gets” and can invest in.
Former web entrepreneurs like founder Gary Kremen (another Parker-style web serial founder) founded Clean Power Finance, which has found some success with its solar software and financing. Companies building analytics around big data and energy, like Opower, also seem to be doing well. Sean Parker actually has his own philanthropy-focused web project called Causes. VCs are increasingly focused on energy efficiency plays.
Another area that could provide more of an entrance for disruption could be electric cars. That’s because electric cars, if they catch on, aren’t necessarily commodity products (though, yes, their batteries are). Car buyers are willing to pay on a scale of prices for cars, depending on a variety of things like brand, style, size, and need. Former Internet entrepreneur Elon Musk has been tackling electric cars with Tesla, while former SAP exec Shai Agassi has been focused on a business around electric car infrastructure, Better Place.
Source: GigaOM

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