Innovation – the Path to Energy Security

The Department of Energy (DOE) recently announced America’s Next Top Energy Innovator Challenge to accelerate technology innovation in energy fields and build energy security for the USA.  The DOE’s seventeen National Labs, like Lawrence Berkeley, Sandia, Brookhaven, and the Pacific Northwest hold approximately fifteen thousand patents or patent applications that could turn into commercially viable products with an energy focus.  However, the costs in terms of time and funding have discouraged entrepreneurs from negotiating for technology licenses – until this program, which reduces the costs and paperwork involved with obtaining up to three licenses to a mere $1000 instead of ten to fifty thousand under the old system.  This is a great initiative, but as noted at a recent forum held at Stanford University with Aneesh Chopra, Federal Chief Technology Officer and Arun Majumdar, Director of the Advanced Research Projects Agency – Energy (ARPA-E), if we are to encourage and support entrepreneurs, innovation must occur not only in science and technology, but must include finance and markets; policy; and education and society. 

This is an important point, because we shouldn’t focus all attention on technology as the salvation to our energy security.  Innovation also comes in the form of new services and business models, which can produce dramatic disruptions to existing organizations or add new value where none existed before.  The Property Assessed Clean Energy (PACE) program is a financing structure that lets local governments raise money through bonds to fund energy efficiency and renewable energy projects with local property owners.  It allows property owners to commit to big expenditures like rooftop solar systems or new wall and roof insulation without a large up-front cash payment. The property owners voluntarily choose to attach the cost of their energy improvements to their property tax bill. The financing is secured with a lien on the property and in the event of foreclosure, the energy financier is paid before other claims against the property.  But policy needs to catch up with this financial service innovation – Fannie Mae and Freddie Mac don’t like being second in line for compensation in foreclosure situations.  Apparently the only financial services innovation that is acceptable to these two institutions is their September 2008 taxpayer-funded bailout of $150 billion.  PACE programs stimulate local economies through jobs creation, reduce our dependence on fossil fuel sources of electricity, and enhance grid reliability, but all that is moot to these institutions. 

The Smart Grid will foster changes for every participant in the electricity value chain.  While utilities have been adopting innovative technologies to improve operations and integrate renewables into their electricity supplies, they need to become much more innovative in their services and business models, and that will require support on the part of the regulatory agencies that oversee their operations, which must also embrace a “think differently” mindset.   Even if an entrepreneur has a truly great services innovation to offer to a utility, there may be extra cycles of time to convince regulators that the innovation is worthy of their approval.  This extension of a typical purchase or pilot approval cycle is very costly to innovators.  It could create another “valley of death”, that period of time starting at the point of funding from angels and venture capital firms to the point of revenue generation.  The valley of death has caused many start-up fatalities, and it’s especially critical for our energy security that we eliminate these obstacles to Smart Grid innovations in technologies, services, and business models. 

There’s one technology incubator in Silicon Valley that is committed to help promising Smart Grid start-ups.  The Plug and Play Tech Center is holding its first Smart Grid@Plug and Play event  on April 14 to explore some of the challenges and opportunities for start-ups in this vital business sector.  The incubator will also announce the launch of a new initiative – their Smart Grid Center of Excellence to accelerate startups through convenient access to capital; focused entrepreneurship coaching and mentoring; bridging valleys of death between winning business plan competitions to successful commercialization; and promoting collaborations between large organizations like utilities and startups.  Join me there for an interesting exchange of information, ideas, and preview of innovative startups.