The Business of EnergyOR

The Business of Changing How Much Energy We Use

Martha Amram, Ph.D

CEO, EnnovationzSenior Fellow, The Milken Institute

December 3, 2010

Overview

• More than Energy is Changing• Capitalism -- The Invisible Green Hand• We Consume – But Demand is Unpredictable• We Innovate – But Its Risky• We Miss Our Robust Capital Markets!• We Arrive -- The Post-Carbon World

2

More than Energy….

50% $800B

25% 2.8B

3

Who You Gonna Call?• Legislative policy

Clear winners and losers; Small scale; EX: Cash for Clunkers

• Regulatory policyCaptive regulators; Reactive; EX: Off-shore drilling moratorium

• Non-profits/NGOsLoss of funding; Lack of persistence; EX: Community development

• Capitalism: Foresight, persistence, scalable

The Invisible Green Hand – No master plan

4

Unintended Consumption

http://oee.nrcan.gc.ca/corporate/statistics/neud/dpa/data_e/CAMA03/chapter1.cfm?attr=0

5

Avg size of fridge (cubic feet)

kWh per cubic foot

Weak Price Signals

Daily electricity use (kWh)

Price of Electricity

(cents per kWh)

42¢

12¢

35¢

25¢

13¢

PG&E – Northern California

Daily electricity use (kWh)

Price of Electricity

(cents per kWh)

4¢ 8¢

Seattle City Light

TOO COMPLEX TOO CHEAP

Daily electricity use (kWh)

Price of Electricity

(cents per kWh)

7¢ 8¢

DTE (Detroit)

TOO FLAT

Daily electricity use (kWh)

Price of Electricity

(cents per kWh)

8¢5¢

Cedar Falls, IA

DECLINING WITH USE

6

Consumers Buy Embedded Energy Efficiency… Or Not

7

6% of electricity in CA

Quiet sells

At 25¢ 20% penetration

CA: No more subsidies

1 TV = 1 Fridge

Successful Solar is a Combo Product

8

Source: Solar City: California Solar Initiative Program Database

Two Styles of Venture Investing

9

$1.3B

Technology Risk Only

$2.4B

Market Risk Only

IDEA DEVELOPTECHNOLOGY

LAUNCHPRODUCT

DRIVE TO SCALE

“Chindia Price” “It’s the Biz Model”

Disruptive & Cool Seldom Succeeds

C-Crete Technologies

10

GreenFuel Technologies

Capital Market Disconnects

11

Stock Market• No New Entrants/IPOs• High Cost of Transparency

Venture Capital • Capital Flight• Huge Funds/Big Deals

Debt – Origination•No Credit Risk•Who goes first?

Debt – Securitization• Frozen• No Interest In Innovation

Frozen Secondary Markets

12

0.0200.0400.0600.0800.0

1000.0 New MBSUS $ Bil-lions

YTD '10: 6.8

Source: Securities Industry and Financial Market Association, SIFMA.

-10.0%0.0%

10.0%20.0%30.0%40.0%50.0%60.0%70.0%

Pct of Homes Under Water% negative eq-uity

US average: 23%

Note: The data only includes properties with a mortgage.Source: CoreLogic

New ABS

We Arrive: The Post-Carbon World

• Enormously changed facts on the ground• Energy issues imbedded in falling quality of life issues • Carbon policy remains a low priority• Save energy/lower carbon because of higher prices

and pressure on the family budget • No quick adoption of disruptive technologies• A world of individual actors moves more slowly than

we want, and change is more chaotic than we plan for

13

14

The Business of EnergyOR

The Business of Changing How Much Energy We Use

Martha Amram, Ph.DCEO, Ennovationz

Senior Fellow, The Milken Institute

December 3, 2010

15

16

•1) The frontlines of climate change: water, fish and the trade balancePoint: lack of water, lack of protein will lead to mobile, angry and unsettled populations with huge humanitarian needs. Also US trade imbalance will make goods significantly more costly at WalMart (eg Chinese exports will be 40% more expensive) and our standard of living will plummet. We will feel poor.

2) Political unrest and stalemate. Our current political institutions are not designed to be "deciders" when faced with this world-wide humanitarian crisis and with the balance of intertia/action when it comes to the diffuse and long-term benefits of climate change.

3) In this context, the energy transition is swept along the political tides. Huge disruptions in supplies. Rapidly changing and large cost swings create new relative prices. Turmoil in energy markets.

4) From a business perspective -- U.S. only -- , there are three factors I am watching for and engaging in.

-- capital markets. We are starved for risk-taking capital (even low levels of risk!) and this has stalled the energy transition. Solutions? Federal action. Local programs don't scale.

-- consumer engagement. Ultimately consumers affect all decisions (homes, cars, commercial buildings, supply chains, civic operations) and will vote with their feet. Winners will know how to engage and will leverage. that. Next steps? As a company, prove you can do it. THis probably means a value proposition that is not just energy based, but draws in value from adjacent industries.

-- disruptive technologies. Haven't seen them yet, but keep watching. Meanwhile, recognize that major problems -- such as cancer -- have been making progress for hundreds of years based on incremental innovation. So, we have the Khosla investment strategy vs. the Foundation investment strategy vs. the rest of the VCs. (eg shoot for the moon, innovative business models and standard technology, or incremental technology improvements). Watch closely.

5) Post carbon world -- * Reshaped political institutions* Enormously changed facts on the ground* Hard to see energy industry issues leading the way, more likely they get swept along

----