One Million Electric Vehicles by 2015? Well, It’s a Start.

In the State of the Union address President Obama announced a goal of 1 million electric vehicles on the road in the United States by 2015.  Part of that plan involves continuation of some existing incentives such as the $7500 credit on a purchase, but some new incentives and actions as well—incentives to communities for vehicle fleet conversions, HOV access and other steps. In addition the GSA will purchase 40,000 alternative fueled and fuel-efficient vehicles as replacements for aging vehicles in its fleets. 1 million sounds like a nice number, and we have to start somewhere, but let’s hope the number is significantly larger.

There are over 240 million vehicles on the road in the US now, and a replacement of 5-7% of those vehicles a year. Those vehicles average about 20+ miles per gallon.  Replacing 0.4% of the fleet with vehicles averaging, let’s say, 100 miles per gallon equivalent, under the most optimistic assumptions reduces our oil-equivalent consumption by about 12 million barrels a year and CO2 consumption by about 4 million tons.  Unfortunately, we import 9 million barrels of oil a day.  However, it’s a start! It also has the effect of stimulating activity in electric vehicles and associated and competitive technologies.  Importantly, it will stimulate activity on increased fuel efficiency of all types.  In my view, this is where we need to focus—set very aggressive targets on average fuel efficiency for each manufacturer selling in the US with a goal to getting the whole fleet—all 240 million vehicles–up to 60 miles per gallon or better in 25 years. That does start making a big dent in CO2 emissions and our dependence on foreign oil. I have written about this in earlier posts, (see TRADE DEFICITS, ENERGY INDEPENDENCE AND, OH YES, CO2 EMISSIONS—November, 2009).  In other words, provide incentives for fuel efficiency in general.  With electric having the potential for the highest efficiency, the credits and other specific incentives there will drive the rest of the industry, but lets get more explicit on very aggressive fuel efficiency targets.  The competitive juices and the resulting innovation will get us there.  President Obama talked about out-competing and out-innovating the rest of the world. That has to start with competition and innovation at home.  More to come.

 

China and the Economy, China and Innovation, China and Climate Change

The extra emphasis on China in the media culminates this week with the US visit by President Hu Jintao. Much has been written about the visit and much posturing has taken place to set a “proper” tone. It’s hard not to comment on some of what has been said before hitting on the important topics of Innovation and Climate Change.

Economy. Let’s start with the currency. I don’t quite get all the noise about China needing to increase the value of the Yuan relative to the dollar. Secretary Geithner says it will help them control their inflation and will be “fairer,” whatever that means. The prices of Chinese goods are already going up which is a result of wages rising and productivity, particularly in low value goods, not offsetting labor costs. A rise in the value of the Yuan would increase prices more and would also increase the buying power of the poorer segments of the Chinese population while doing just the opposite for that segment in the developed world.  It would have the effect of creating jobs outside of China—not in the US, but in Mexico, Vietnam and other countries that will have a labor cost advantage relative to China. The rate of inflation would likely fall in China, but, of course, it would rise in the developed world. The short-term effect on the relative trade balance would be negative for the US, as it would take time for US corporations to shift purchasing to other countries. Plus, commodity prices, particularly oil, would likely rise in dollar terms, increasing our trade deficit in energy. Anyone who really expects that such an action would create jobs or a significant enough cost advantage to stimulate US exports or US buying of US goods vs. creating exports for other low cost countries isn’t looking at what China exports and imports vs. what the US makes. Odds are the media and our wonderful congress will spend more time on the currency issues than anything else. I think President Hu is here to go shopping. By that I mean putting China in a position to buy US assets that will be of value to its growth plans, primarily access to technologies that can allow it to meet its objectives of being a leader in innovation over the next several decades. The tradeoff will likely be further access to Chinese companies and markets by the US.  I reach this conclusion from a thorough read of China’s Patent Policy put forth this past fall.

Innovation. China’s National Patent Development Strategy (2011-2020) is a scary read. China sets very high targets for patent filings over the next 5 years, dwarfing filings by the US and Japan (which already exceeds the US in patents in force). It establishes a budget for Patent services that could reach US$16 Billion annually at current exchange rates. It proposes to have ten model cities focused on utilizing the patent system and the incentives to create a vigorous intellectual property market. It will seek to acquire intellectual property from others. A couple of direct quotes from the Strategy are worth noting: “A large number of core patents will be acquired in some key fields of emerging industries and some key technological fields in traditional industries. …Encourage enterprises to acquire patent rights through innovation on the basis of digesting and absorbing imported patented technology. …Support and foster exports of patented technologies and increase the proportion of exported patent-intensive commodities and strengthen guidance on patent policies for enterprises in the process of overseas mergers and acquisitions.”  Implied in the budgets for patent services is a vigorous enforcement of patent rights. Once China has intellectual property rights (IPR) to defend, it will likely be one of the more aggressive enforcers of those rights. The number of patents in force today with their origin in the US and Japan are each almost 20 times those of China. When those numbers get closer to parity it may very well be the US that finds itself on the defensive for not respecting IPR.  This was last the case in the early days of the Industrial Revolution when the US was the upstart and more intellectual property resided in Europe, primarily the UK.

Climate Change.  China’s plans for Patent Development raise significant issues about where intellectual capital will ultimately reside. When it comes to capitalizing on two significant areas of expected (or should we say required) technological innovation and value over the next decades, China is explicit as to their importance:  “…Balance the relationship between the patent policies and some major public policies such as public health and climate change.” (My emphasis)  Others can hold forth on the health front. In the patent document and others, China continues to highlight Climate Change as a focus of its policies and its technological efforts. It is clear that China sees the requirement to respond to this threat as political as well as societal. We will ultimately be a buyer of what China and others produce unless we also look at what policies we can put in place to be competitive.  At the moment we have the intellectual leadership existing in a variety of our institutions. Shame on us if we let that leadership slip away.

Fuel Cells: Maybe they aren’t 10 years away…….

Up until a couple of years ago I have been in the camp that “fuel cells are 10 years away,” which is where they have been for the last 30 years. However, as I commented in a recent tweet that is no longer the case. After that tweet commenting on Katie Fehrenbacher’s post on GigaOm.com  re test driving the Mercedes Fuel Cell vehicle I got a reply from Ron Glantz. Ron, who for many years was the number one ranked auto analyst on Wall Street and a successful money manager, has forgotten more about the auto industry than most people actually know.  While he claims he truly has forgotten almost everything and has not kept up on the industry, his email to me belies that point and raises some interesting questions. I have copied it below:

“While automakers are still working on fuel cells, apparently they have given up on generating hydrogen in cars by processing gasoline. (I had previously sent you a note saying that the problem was the cost of the platinum used in the catalyst.) Instead, they are counting on hydrogen refueling stations:

• The Nikkei says that the Japanese government is supporting an initiative to draw hydrogen from oil refining. Oil refining uses hydrogen to remove sulfur from oil. The hydrogen used in this process doesn’t have to be high quality, 90 percent pure suffices. Fuel cells expect 99.9 percent pure hydrogen. The sponsored project aims to produce high purity hydrogen, based on “industrial” hydrogen technology”. The Japanese government will bear half the cost of a cheap project. It is estimated to cost 500 million yen ($ 6.15 million) over a three-year period.  It wants to be ready before 2015. Why 2015? Japan’s Ministry of Economy, Trade and Industry (METI) expects a “wide adoption of fuel cell vehicles by fiscal 2015” and “seeks to secure a steady supply of high-purity hydrogen.” Again: Why 2015? It just so happens that Toyota is dead set on selling its first mass-produced fuel cell car by 2015.

• In Korea, Byung Ki Ahn, general manager of Hyundai-Kia’s Fuel Cell Group, said recently: “There are already agreements between car makers such as ourselves and legislators in Europe, North America and Japan to build up to the mass production of fuel cell cars by 2015.” Indeed, if you go through the many files produced in Brussels, you find that in Europe “car manufacturers are getting ready for the commercial production of hydrogen vehicles by 2015.”

So, now you have a “chicken and egg” problem — how can you sell cars before there are refueling stations; how can you justify building stations before there are cars?”  -Ron Glantz, 01/01/11.

Of course this is not a problem for a country that is building into a growth market, e.g., China, India. If one has to build service stations for a growing population of vehicles, anyway, they can just as easily be hydrogen, or natural gas, and, maybe as an interim step, battery recharging or replacement stations.  This is an oversimplification, but it highlights the problem facing the developed world when it comes to a new paradigm. Most innovations applied in the developed world are as replacements, not necessarily meeting new demand. A different economic equation which the developed world has to accept or be left behind.

California Climate, Iben Browning and the Business of Weather

Southern California lashed once more by rain, slides

The tail end of a storm that dumped rain on Southern California for nearly a week gave the region one final lashing on Wednesday, burying houses and cars in mud, washing hillsides onto highways, flooding urban streets, threatening dozens of canyon homes and spreading filthy water that prompted the closure of 12 miles of beaches. – Los Angeles Times, December 2010.

“The weather in California has been ‘abnormal’ for most of this century. It will begin returning to the ‘normal’ weather of the 19^th century. You can expect colder and wetter winters and hotter and dryer summers.” — Iben Browning, c. 1975.

In the early days of my analytical career in the ‘70’s, I was fortunate to be a part of Mitchell Hutchins, a research boutique that ultimately was merged into PaineWebber.  Among the many assets of Mitchell Hutchins was its consulting program with the likes of Otto Eckstein, Bill Moyers, Henry Kissinger, David Broder and others spending time internally with us and with our clients.  One of those “others” was Iben Browning, who originally was hired by our food analyst, Roger Spencer, to do short term and seasonal weather forecasting, in order to help us predict soft commodity prices. While Iben’s work turned out to be quite useful on the short-term weather front, he was a man of many talents. His PhD was in zoology. He wrote several books, had over 60 patents, was a test pilot, spent some time with the DOD on geopolitical strategy related to weather patterns and the ability to influence same, and developed a keen interest in long term weather forecasting and climate change. He was an engaging speaker and quickly became a regular with our investing clients as much in demand as some of those with significantly higher profiles.  He ultimately developed some fame as a forecaster of earthquakes and volcanic activity based on changing gravitational pulls on the earth from the alignment of other celestial bodies.  Unfortunately, a rather precise but unfulfilled prediction of a quake in the Mississippi Valley in late 1990, which generated enormous media attention, turned fame to infamy.  He died of a heart attack 7 months later in his home in Tijera, New Mexico; a home rumored to be a house trailer (safer than a real house,  in his view, when an earthquake hits) on rather barren land that he ultimately expected to become arable and fertile as weather patterns shifted over the next century. As with many involved in forecasting, one is only as good as one’s last prediction. Iben does not get much credit for a long history of fairly accurate forecasts done with flair and more data than “An Inconvenient Truth.”  He is remembered for the “New Madrid” quake prediction which even became a country and western song. You can view several renditions on You Tube, if you choose: http://www.youtube.com/watch?v=C5QCeSS03RE&feature=related.

Iben used to start every presentation with a standard punch line: “The next Ice Age will occur in about 10,000 years.  Those people who say it begins in 2000 years are just trying to scare you.”  His other perennial statement was the one that started this post and to me of most interest. At the time I did not totally understand his logic. It consisted of looking at historical weather patterns as reflected in tree rings and other data points, an expected reversal of the pattern of emissions–particularly in Southern California, sunspots and a warming of the east-west currents in the Pacific. In retrospect, the changing weather patterns in California may reflect a combination of increased CO2 emissions globally, producing generally more extreme weather patterns, combined with a more localized moderation in emissions which has eliminated some of the heat trap effects as California has benefited from national improvements in emission controls combined with even more stringent efforts within the state. In other words, the combination of the effect of global emissions on weather patterns with relative improvements locally may be returning California weather to its 19^th century patterns with more seasonal extremes from today’s changes in climate: colder and wetter winters and hotter and dryer summers. At the moment, Browning’s predictions seem to be on point.  It’s all relative, though. I am not suggesting that coastal Californians need to move—yet. Nor should they reverse their efforts to slow emissions.  It may just be another interesting phenomenon of the Climate Change we are experiencing, or another Iben Browning prediction that will ultimately prove to be wrong. I would bet on the former.

This also brings us somewhat full circle to the value of understanding weather as a part of one’s investment decisions. As we have become a more global economy where supply  of soft commodities, or lack thereof, in one part of the world affects worldwide prices, the ability to predict positive or negative weather patterns can be quite important to investment and business decisions. I think this is being magnified by the more extreme variations in weather patterns that can come out of these early stages of Climate Change. I would only expect these patterns to become even more extreme as temperatures continue to rise.  Corporations involved in the agricultural industries have always paid attention to the weather. Investors, as evidenced by Iben Browning’s popularity, have as well. Today, those making the most use of weather forecasting would appear to be a number of hedge funds with the ability to place bets using a wide variety of instruments, where value is affected by a change in the monsoon season in India or extended drought in the Sacramento Valley. As these extreme weather events become more frequent the Iben Brownings of today’s world may become more prominent features in both the investment community and the media. Climate Change will continue to produce a new class of celebrities some of whom will stay with us for a long while.

What to Expect for the Economy and the Climate in 2011

2011 is shaping up to be an interesting year for the global and the US economies, and it could be an interesting year on the climate change front as well. In mid-December, 2010, it is the normal time for prognostications on the next calendar year by those who actually do the work and may know what they are talking about and those of us who read the work and make our less data-driven forecasts.  Indulge me while I put some of my thoughts about next year in print.  I think this is an important exercise for anyone to do.  It establishes a base line from which to look for and measure deviations from expectations. And it puts in place a discipline that I always suggested to analysts who worked with me: once one has developed a point of view, spend the time looking for disconfirming information. At the same time, one needs to step away from the data and do a little speculation, particularly when in the early stages of a change in direction and a possible change in the second derivative of an established trend. So here we go:

The Economy. I think next year could be surprisingly good in the US with the likelihood of us printing a 5% GDP quarter at some time during the year. The truth is the economy has been clicking along reasonably well in most areas excluding the construction industry. That industry, which at its peak can employ 10 million people, has always produced the amplitude on the downside and upside to our statistics on employment and overall GDP.  Without much lift there we are still starting to see employment numbers improve. The trade numbers, aided by a weaker dollar over the last year working its way into purchase decisions, will also add to GDP, even if the dollar does better than many expect over the next year. At the same time, we have just passed a very stimulative tax package, which puts money in wage earners’ pockets as well as corporate America, while quantitative easing continues. QE2 and the tax package probably represent the last of the stimulus efforts, which almost always are lagging indicators of economy. We do have some issues around several state budgets, but the responses by the new crop of governors could be surprising, maybe because they have to be.  One can almost sense a palpable shift now toward addressing the federal deficit with the Budget Commission’s recommendations producing some fundamental change. It may not all happen next year, but I suspect that before we are done, we will see some major changes in the tax law. I am looking forward to a 28% top rate on income and I will accept the other changes that get us there. Lots of details to observe along the way including what’s happening in the rest of the world, but if the US surprises, that may be enough.

The Climate. In spite of the cold December in populous areas of the Northern Hemisphere, 2010 may end up being the second or third warmest year globally since measurements began in 1880.  There are some indications that the changing weather patterns are themselves a product of long term anthropomorphic-driven climate change. Based on what took place in Copenhagen at the end of last year and what was just concluded in Cancun, there will be no concerted world-wide effort to do anything other than recognize that there is a problem requiring some movement away from a carbon-based global economy or simply adaptation to a warmer world. On the other hand I continue to be amazed at the innovation that is taking place globally to produce non-carbon or low carbon solutions to energy needs either through greater efficiency or truly new economic approaches. These include the transportation sector in most countries where mileage standards are much higher than in the US. These changes are driven by a desire for energy independence, economic innovation, or a response to the will of the people, even in China.  It is sad to see the limited response by the US which will ultimately result in much of the new technology being owned and controlled elsewhere. We should not be buying 9 million barrels of oil a day from other countries for many reasons well beyond the effect on the atmosphere.  And we don’t need to take on the cost and risk of additional carbon production domestically as a way to eliminate our trade imbalance, although natural gas is an interim step in the right direction. We do need to support the technology and innovation that can occur domestically to move us away from carbon and affect our trade balances as we export these solutions to others.

More to Come. There is much more to talk about on both the economy and the climate. Stay tuned.

 

“Cool It” Redux

It is worth seeing the commercial version of “Cool It.”  Hurry, though, since I don’t think 4 people in an audience at each showing will be commercially viable.  Ondi Timoner must have gotten more control over the final product than I thought she would.  The commercial version is quite balanced.  There are some fairly sharp digs at Al Gore and “An Inconvenient Truth,” but a recognition that Gore brought the topic of Global Warming to the forefront. Let me get some of the critiques out of the way:  There’s a little too much of “We’ve only seen a one foot rise in sea levels in the last century,” “… life is good with standards of living having risen substantially,” etc. In other words,  “We’ve jumped off the 50-story building and as we pass the 25^th floor things actually look okay.”  Bjorn Lomborg points out that there is a bell curve of potential global warming outcomes and the alarmists only use the low odds extreme possibilities to make their case for immediate action and large expenditures.  However, he turns around and uses the least possible impact of the current actions on temperature change and sea level rise to make his case for diverting resources away from climate change toward other pressing needs.  He is right regarding the need to address other issues, poverty, health, housing, etc., but, as Ned Babbitt points out in a comment below, Lomborg doesn’t provide a lot of documentation for the expenditure levels he calls for.  Those may exist in his book of the same name.  I could go on, but these are all just nits. Go see the movie!

Lomborg goes out of his way to affirm that he is a true believer in global warming, that man is the big contributor to the path we are on, and that we need to do something about it. However, he believes that the solutions being implemented, cap and trade, electric vehicles, windmills, solar PV are just not adequate today to deal with the problem and much of the dollars being invested could be put to better use. I have to agree except in the case of the transportation industry, where I believe the solutions are there—they just haven’t been implemented. Elsewhere, the technologies we are using today are just not adequate to solve the problems in an economic fashion without an explicit price on carbon. The documentary spends a fair amount of time on geo-engineering, which Lomborg thinks may be necessary as stop gaps because we won’t have developed the economic solutions that can move us away from a carbon-based energy system in the right time frame.  His call is for spending more of the money on new technologies and innovation and less on today’s implementation, and in the process freeing up capital to deal with the other needs of the global society. The documentary supports the case by taking us on a whirlwind tour of some of the new technologies in the developed world that could get us to the right solutions. Whether it is Nathan Myhrvold’s work on 4^th generation nuclear technologies, Stephen Salter’s work on wave energy or cloud whitening, or Hashem Akbari’s work on mitigating the urban heat effect, the journey through the new technologies is exciting and encouraging.  The solutions are there, in the lab, in prototypes or in a scientist’s head.

Unfortunately, most of the solutions don’t fit today’s venture capital model of low investment and quick return, which is still available in various aspects of the internet space.  The work that is being done is occurring in university labs based on government grants and other non-profit funding with the exception of the Myhrvolds of the world who are recycling the capital from earlier software/internet ventures into this new and exciting field. The other small exception is in those few cases where adaptation, primarily to rising water levels is already a requirement. The Dutch cannot really afford to take the chance that the low end of the distribution curve of climate change will be the end result. I don’t think the rest of the world can either.

We have to create the financing models that allow these innovations to progress to the next levels. Whoever does will own these technologies and the fruits of their implementation for their own geographies and certainly for the benefit of their own economies.  Lomborg’s whirlwind tour doesn’t get outside the developed world, but the innovation and implementation are occurring in the developing world at a startling pace as well. Go get excited by the view of what can happen as presented in “Cool It,”  and put some thought as to what needs to be done to move these innovations and others toward practical reality.

Cool It

At the Hamptons International Film Festival, I saw “Cool It,” the new documentary directed by Sundance two-time Grand Jury Prize winner, Ondi Timoner (“Dig!,” “We Live in Public”).  It features Bjorn Lomborg, author of “The Skeptical Environmentalist,” and a pariah in many climate change and environmental circles. I thought it would be good to “know one’s enemy,” and went armed with facts and data to refute what I expected to be hyperbole and assertions in the documentary. This was the first US showing of the film. It was very poorly attended as one might expect, given the environmental views of many of the Hamptons’ weekend residents. A mistake.

The documentary actually presents a quite balanced view of climate change.  Balanced in the sense of putting Climate Change into perspective along with all the other global problems we face today. Lomborg is actually a strong believer in the likelihood of climate change.  He also believes that the polarization on the topic brought about by some of the hyperbole coming from the climate change zealots has been a detriment to progress on solving the problems. I think he does understate the risks in an attempt to present a “balanced” view, using some of the same techniques that he accuses the zealots of using.  However, his conclusions are valid—the primary one being that more of the dollars that are going toward today’s solutions would be better spent on research and development at this stage, to come up with true economic innovations that would speed the shift away from carbon based energy. This version of the film doesn’t talk about the need for a higher price on carbon, although it is my understanding that earlier cuts did.

I suspect that by the time this film hits the commercial theaters the final producers’ cut will be more of a polemic against Al Gore and others who have been a big part of raising awareness on this issue. I hope to see it when it becomes commercial, and I would urge others to do the same. I also hope that an earlier cut makes it to the Internet so one can compare the director’s apparent intent with the final product. Timoner’s responses to questions after the screening portrayed an intelligence and understanding that is already not showing up in each cut as it makes its way from the film festivals to the multi-cinemas for mass consumption. Lomborg will likely continue to be viewed as a pariah in certain circles, when his thoughts should be broadly incorporated into our efforts to deal with this and other serious global problems.  Read the book. See the movie. And get your hands on a director’s cut, if you can.

Where’s the Money–Will the Real Financiers Please Stand Up?

We have entered into a different cycle of entrepreneurship and opportunity.  That doesn’t mean the last cycle is ending.  The internet, the delivery of content at faster speeds and lower cost, the parsing of that content for greater benefit will present enormous opportunities for our health care systems, our energy systems and almost every other system of importance to humanity.  At the same time the world has embarked on a path of carbon reduction engendering new technologies, new challenges and new opportunities.  While the elements of previous cycles will be incorporated, as always, into the new cycle, this one has the added requirements of the intense application of the physical sciences, brute force engineering and re-engineering and real capital.

Over the last several years I have visited many alternative energy and clean-tech start-ups and reviewed many business plans of potential ventures in this area. At the same time I have continued my paticipation in some personal investments and others’ investments in ventures from the last cycle. There is a difference. Business models involving the movement of bits and bytes lend themselves more easily to continuous adjustment, typically have a lower capital requirement and have historically had shorter periods to failure or liquidity events, although that is changing as the industry matures. I take nothing away from the ingenuity or management talent required to succeed in these ventures, but it certainly seems different from some historical venture cycles and the carbon-reduction cycle we are now in.

Twenty years ago, Tom Doerflinger and I published a book, “Risk and Reward-Venture Capital & the Making of America’s Great Industries.”  The book detailed the start-up history of several industries–Steel, Railroads, Telephones, Autos, Computers and Biotechnology—in an effort to draw out some lessons about success or failure as it related to the role of venture capitalists/financiers.  While there were many lessons a primary one related success or failure to the relative patience of the financiers–the more patient and unintrusive the financiers the higher the rate of success.  For the most part, these were industries that required commitments of significant capital, time and technological and engineering innovation. In its early days the Auto industry may have come the closest to the characteristics of internet-related investing—small amounts of capital, quick evidence of success or failure, high gross margins and growth. After early years of high and rising prices for the products, it also experienced the pattern of declining prices and improved performance. There were many start-ups pursuing different technological paths (including electric) and distribution models.  We think of the industry today as made up of a small number of behemoths. In the early days there were many companies. A study at the time said that between 1900 and 1908, 485 car companies were started with over half failing during that period and many more in years to come. Sound familiar?

What some of the carbon reduction entrepreneurs are doing is truly amazing.  Those ventures that are moving ahead include first class engineers and scientists as well as experienced businesspeople. Watching how they deal with the typical (and some atypical) engineering problems that such operations confront daily in start-up and production modes is a real testament to these individuals and the academic and real-world training they bring to bear. It is inspiring and gives one great hope that there are solutions that will be funded, produce substantial returns and make a difference.

For the most part—and I admit this is an overstatement—the generation of venture capitalists that got their experiences only in the last cycle, don’t quite get the time and capital equipment and the technologies that have to be applied in this cycle.  Or, maybe they do, and this is just not where and how they want to invest.  Some companies are getting funded, but many promising ventures are struggling and some will disappear or at best go into hibernation. If we are counting on the classic venture capital industry as the source of funds for carbon reduction technologies and companies, the pace of innovation and implementation in the United States in particular, may be too slow for the country to be a leader in this space. Is there a new model that must emerge or will it simply be the case that the smaller number of companies that do get funded in the next few years will produce some of the best vintage year returns that we will see in this decade? That, likely, will not make us the leader, but at least we will be a participant.

600 Million Points of Light—Thinking Outside the Grid

I just returned from two weeks in India, one week with a start-up company providing a low-cost lighting solution for the 600 million individuals with homes and shops that are off-grid. The other week involved a variety of meetings, mostly concerning NGOs in India, a visit to the Salt Pans in Gujarat and three interesting days in the Bandhavgarh National Park looking for tigers and learning more about the role the Parks play in India’s future. While we were in India, the last votes were being cast for members of Parliament, which in turn would determine the nature of leadership in a very critical period for India and the world.  For the first time in many years the voters, 400 million of them, kept the incumbent party, the Congress party, in power with a larger mandate than it had before. The Indian stock market had the biggest percentage gain, ever, of any major stock market in the world the first day of trading after the results were announced.

Many observations came out of this trip, some of which relate directly to the supposed focus of this blog and others less so.

Let’s start with one that does relate, Distributed World Power (DWP), the start-up company. Full disclosure: I am on the board of DWP, which is a portfolio company of Idealab. We recently relocated the headquarters from Pasadena to Ahmedabad where the first product is being manufactured.  It is a solar-charged power pack, with three LED lights and a cell phone charger. It sells for around $100 (~5000 Rupees).  It is currently being sold through a variety of distribution systems and financing schemes to a mixture of demographics in various parts of rural India. In India, the immaturity of distribution, financing and marketing to low-income rural customers presents a problem and an opportunity.  The problem is there is no standard model in which to slot a product.  The opportunity is if one can figure out the right model(s) for the right demographics—whatever they may be—the market is huge. The need is certainly huge: 600 million off-grid with the rest on unreliable grid. This was brought home traveling through different villages, on-grid and off, in Uttar Pradesh, one of the most densely populated and least developed states of India.

At night, in an off-grid neighborhood of 70 homes, it is dark, with 4 points of light visible as one looks over the setting. Three are compact fluorescents  (cfl) hooked to small automobile batteries.  At each cfl house the light is hanging in a sheltered dirt floor area, outside the home, which one could call a “patio.” There are 9 to 11 women seated around a table doing embroidery to be sold in the local markets. The houses themselves are dark. An occasional kerosene lamp provides a small glow in an alcove inside a home. Every two days someone must carry each of these batteries 4 kilometers to be charged by a diesel generator at a cost of 11 or 12 rupees. In some villages the walk is to a point connected to the grid for recharging, although there is no guarantee that the grid will be carrying electricity at the time one arrives. In either case there is the walk to, the wait while charging and the walk back with the battery.  The fourth point of light in this village is a  “Duron,” the brand name of the DWP system.  A LED light is mounted at the entrance, lighting up the patio. Another is mounted in the main room, and a third in a bedroom or, more accurately, a dormitory.  A six to eight hour solar charge provides 4 hours of bright illumination from the three lights or 8 hours of partial illumination, or some combination thereof. Bright illumination from these three LED lights is about 570 lumens, equivalent to a 50 watt bulb, but with greater lux or intensity.

As we traipsed around the village, asking questions of the various light owners, a crowd gathered, followed us and carried on a community discussion including questions to our distributor in that area. He closed another sale that night. The system was delivered and installed the next day. I suspect there will be other sales there until about 20% of the neighborhood has lights. If the right financing scheme can be found, maybe all the homes will have light. And then, maybe all the 30 neighborhoods in the village. And then, maybe all the 70,000 villages in Uttar Pradesh.

There are calculations that justify purchases, but little value is put on time, labor or periodic outlays. The shopkeepers can make an easy calculation: more light, more people, more hours open, more sales. For a homeowner, it is not yet easy. There is a value put on education. In another village we talked with the younger brother of the owner of a Duron about how his life had changed since the purchase. He said he now studied two to three times as long as before, three hours in the pre-dawn morning and three in the late evening under one of the LEDs. Previously, he had studied under a kerosene lamp until the wind blew it out or his eyes were burning—usually about two hours.  We know there was some truth to what he told us as he had called the distributor the morning before at 6 am saying he was having trouble charging his cell phone, something he did every few days while studying. It turns out he simply hadn’t pushed the plug in far enough this time. He said he was doing better in school and now liked school–an ambitious young man with a better chance to achieve his ambitions.

These stories and others as we traveled around were quite heartening.  The quality of life improvement, the educational element, the individual economic gains made one feel good about being in the business. Maybe, as importantly, the potential to build economic value at DWP, or other companies like it, was so apparent. Not an easy task, but very likely achievable.

There was also the reinforcement and exposition of an observation made by a young friend as we were walking around the streets of Mumbai, picking our way past torn-up pavement and demolished front yards. He said, “India must skip the classic infrastructure build expected of them. They have to find another way.  Otherwise they will never bring all the country up to developed world standards and achieve true participation in the 21^st century. They did it with cellular phones. Why not with other basic systems?” At the time, I felt it was a nice thought but one without an implementable set of solutions. In retrospect, having spent time in various parts of the country, I thought maybe it could be done—at least in power.  The capital and operating expenses of most alternative energy systems, ex nuclear, are approaching the point where scale is less necessary to achieve cost-of-power parity with fossil fuels. Why not skip the build-out of the grid and the behemoth power plants and install specific-point power facilities.  This can range from a Duron to a solar, wind or hydro facility, or some combination thereof, for a single home, a plant, a village or a town. Power storage is still an issue, but being solved.  Think about the emissions improvement from such an approach. Think about the shortened time frames if private enterprise provides the solutions into a local bureaucracy as opposed to a state or national one.

I haven’t spelled out a complete answer here.  That may best be left to the entrepreneurs.