Podcast #031: Nussey and Easterby – Innovation in the power industry is harder than you think, but that is about to change

podcast about innovation in the power and energy industry

Hosts Bill Nussey and Sam Easterby explore the role innovation plays in the world of energy and electricity today, what holds it back and where innovation is truly making a difference. Choice is expanding the marketplace beyond utilities and including new entrepreneurs, new technologies, and new investors for the first time in a century.

What is the future of grid-scale innovations like Small Nuclear Reactors (SMRs), clean coal, and fusion energy? Bill shares his research and data behind these aspiring game-changers.

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Nussey and Easterby: Innovation in the power industry is harder than you think, but that is about to change.

Hosts Bill Nussey and Sam Easterby explore the role innovation plays in the world of energy and electricity today, what holds it back and where innovation is truly making a difference.  Choice is expanding the marketplace beyond utilities and including new entrepreneurs, new technologies, and new investors for the first time in a century.

Transcript

Announcer:
Innovation in the power industry is harder than you think, but that is about to change. Listen in and learn why. Host Bill Nussey and Sam Easterby explore the role innovation plays in the world of energy and electricity today and what’s holding it back and where innovation is truly making a difference. Choice is expanding the marketplace beyond utilities and including new entrepreneurs, new technologies and new investors for the first time in a century. This is the Freeing Energy podcast and these are the personal stories from local energy champions and leaders in the world of renewable energy that are shaping our future.

Sam:
Hello, Freeing Energy podcast listeners. I am here today with my cohost Bill Nussey and I’m Sam Easterby and we have a topic that has intrigued us both about the business of electricity, the electricity industry, the power industry, and that is around innovation and innovation within that electricity industry and for the most part it has been very, very slow over the last 100 or so years. We really wanted to delve into that a little bit today. Bill, tell us what you are thinking about innovation within the electricity industry.

Bill:
That’s a fantastic question and I’m excited to spend some time talking about it today because I think when you look at the electricity industry, it’s pretty hard to find solid examples of innovation. It’s a 120-year old industry that has changed relatively little since it started. In some ways the business model is very similar, a lot of the core technology is very similar. But people in all large industries, including in particularly the power industry talk about innovation and what they typically mean is some kind of step change improvement. Something that takes existing parts and pieces, wires them together in some different way and creates more value than was there before. Specifically, I think people are looking for innovations and how do we get more clean energy into our lives faster? How do we manage the grid more reliably, especially when you think about what’s going on in California with the outages in Puerto Rico with the grid issues.

Bill:
Innovation is really about an improved product, but just as important it’s often associated with lower prices. This is what’s really crazy about the electricity industry. I don’t know if I’d seen this before, but I was curious to take a look at innovation cycles and other industries and compare it to electricity. I’ve got my calculator out and looked at some baseline data and found that not surprisingly, that over the last a couple of decades, the cost of computing has gone down about 250 times or 26,000%.

Bill:
Even automobiles, which are a complex physical device, the price of a mile per gallon went down 33%. Airlines, a gigantic infrastructure business has a lot of similarities to electricity companies. It went down 28%. Appliances, your dishwasher, your refrigerator in your house, they have gone down about 19%. If you look at electricity over the same period of time, it’s actually gone up 6%. Now a lot of these things like computing and appliances rely on electricity and they’ve gone down, but electricity itself has actually gone up and that’s I think one of the best points to make that innovation and electricity have not yet become good friends.

Sam:
Bill, I mean that sounds like the electricity business and by that I suspect we are referring mostly to the large utilities, but there are a lot of other companies that are involved around the business of electricity, but are they not spending research and development dollars?

Bill:
Bill Gates has quite famously pointed out correctly that the electricity industry, the power industry has one of the lowest R&D investments of any industry. Depending upon what measurements you look at and which part of the country, their R&D budgets are somewhere between zero and one half a percent of their actual annual spend, which makes it among the top two or three lowest industries of any in the United States.

Sam:
What are some of the drivers behind that? Why in a industry that is so impacted by everything from weather to emerging technologies sort of encroaching on their bailiwick? Why is the R&D so low?

Bill:
Well, I think the irony is that the utilities and the regulators that we elect or are appointed to oversee them are doing exactly what we’ve asked them to do. So while they get bad mouthed and painted as the villains in this, truly we have asked them to do something very straightforward. Basically, when Sam Insull launched the modern business model of regulated monopoly utilities, they’ve been doing a very good job of delivering on what Sam and his colleagues back then asked for, which is affordable, reliable, and universal service. Over the course of a hundred years, it’s been really good, for the most part, in most places in the United States and across Europe as well. Electricity is affordable. It’s relatively reliable and everybody can have access to it.

Sam:
The electricity industry is driven primarily or it has been over the past 100 years by fossil fuels. It’s mostly been coal, up until recently it was an awful lot of natural gas. Now there’s been a lot of innovation around trying to find more natural gas, trying to find more coal. How is it that the utilities themselves have not spent or focused any time on some of the core elements?

Bill:
I think that’s the killer question, Sam, and you really nailed it with that because listen to mining companies, the extraction companies, the natural gas companies, the coal companies, they’re not regulated monopolies. They actually have competition. For example, coal, the cost of coal has gone down and with it, the number of coal jobs has dropped dramatically. One of the key graphs I have on the site and an article is that the number of workers it takes to extract a ton of coal has dropped by about 75% and that’s entirely because of automation and entirely because of strip-mining. Strip-mining is way cheaper than going down into coal mines, so that’s a form of innovation.

Bill:
Another more interesting innovation is fracking, which basically has dramatically lowered the cost of extracting natural gas. Because these are competitive markets, you’ve got companies going after each other tooth and nail to get the business to sell to the utilities in most cases. They get really innovative. They take risks.

Sam:
So then does it feel somewhat like the utilities themselves may have … How would you put it? Sort of forgotten their roots in terms of innovation at the very beginning with what Edison and what Tesla did.

Bill:
It’s hard to overstate the degree of innovation and excitement that was going on in the late 1800s and early 1900s around electricity is. Gas lighting candles were slowly giving way to electric bulbs and electric motors. Horses giving way to electric motors and steam engines giving way to electric motors. That age of innovation, I think, has been entirely forgotten. And, again, I don’t want to lay it just at the feet of the utilities. They’re doing what we’re asking them to do. The regulators control of very large portion of their decisions and I think a lot like say the US Post Office, very apt comparison. The government has a very strict leash on that industry, on the post office and in the electricity industry and as a result, they don’t take many risks. They really struggle to adopt a new technology.

Bill:
And the post office is a good example, maybe one that’s a bit of a canary in the cave about what’s going to happen in electricity because the post office is losing four, $5 billion a year. It’s struggling to make itself relevant and is getting only frankly the least interesting parts of the industry drags left over after a FedEx and electronic mail and everybody else takes the best parts. I do think that the electricity industry needs to rethink itself in a more innovative way. And I think there’s some ways that’s going to happen, which I think we can talk about today.

Sam:
I want to touch on that, but there’s something I wanted to ask about. It seems like a portion of my monthly utility bills is being used for something. When you mentioned regulators that suggest to me politics, and that suggests to me lobbying and so I wonder how does the utility business, how does the electricity industry compare to other industries when you look at what they spend on lobbying?

Bill:
Now, here’s the irony of this industry. While it may be near the bottom of the R&D, it is near the very top of US industries in terms of lobbying. There’s a great site that every citizen should go to called OpenSecrets and it lists the lobbying at the federal level of basically all the industries and companies and things like that. Utilities have spent two and a half billion dollars, over 20 years, lobbying at a federal level because at a federal level you need to disclose that lobbying. But for those of us that live in a world of electricity, we know that utilities are largely regulated at the state level and state lobbying investments are not typically required to be disclosed. My guess is that two and a half billion dollars as a way less than half of a much larger lobbying bill across the United States when you look at where utilities are spending money on to help politicians see their point of view and hopefully make their lives a bit easier as a utility.

Sam:
But there have to be some examples. I mean, so you look at smart meters, I mean that’s certainly an innovation. Are there other examples of where the power industry has attempted to fold in some new technologies and some new innovation?

Bill:
Smart meters are a good example of the utility industry taking a step into the future. As I understand it, it was a largely incented by the Obama administration’s heavy invested in energy and so there were some huge grants available across the country for utilities that adopted it. And I think in many cases it’s been helpful, although there’s a lot of criticism that utilities as a group are not taking nearly the advantage of the smart meters that they might have and was envisioned when the original money came available for them to do it.

Bill:
One of the main areas that utilities have been trying to improve on, and I think with some success, is it seems like the storms are getting worse and more frequent around the United States. Even not including the stuff going on in Puerto Rico and Florida is a good example where they had just invested in a lot of creative solutions to make sure that when the hurricanes hit again, that the poles don’t get knocked over, the substations don’t get flooded. And I think that kind of innovation is a little less dramatic, little less exciting in some ways, but it actually helps people because power is either restored more quickly or it doesn’t go out at all. And I think that is the kind of thing that regulators are supportive of because you’re not taking a whole lot of technical risk to say switch out your wooden poles to put in cement poles or bury your power lines underground. Those are low risk innovations that the utilities and public utility commissioners typically can agree on.

Sam:
The bottom line is we’re looking at a regulated monopoly with the core of the electricity business, but that means there’s no competition and there’s really then no incentive to evolve or improve beyond some of these, and they’re not necessarily small measures, but they really aren’t the big sweeping changes that would make massive differences. They’re really not incentivized to offer better products because customers can’t leave them if they’re a monopoly.

Bill:
You hit that on the head. That’s exactly what it is. If the customer says, “Listen, I want to buy more clean energy,” or “I think it should be cheaper,” or “Your customer support isn’t helpful,” or “Took you too long to fix my issue,” the answer from utilities is, “We’re trying, but really that’s … We only can do what the regulators will let us do and spend money on and if you don’t like it, there’s really nothing you can do.”

Sam:
But Bill, set aside the regulated monopoly, there’s an awful lot of innovation happening in other parts of energy these days and in particular around solar and wind and batteries and electric vehicles and power electronics. But the power industry is really adopting them, at what would you call it, a snail’s pace?

Bill:
Generously. Yes. And I think kicking and screaming, would be the other way to look at it. As I got into this industry early on, I wanted to understand a little more deeply than just sort of utilities they don’t care. They don’t try. I’ve met too many people at utilities that are great people that are devoted to their mission and believe in the future and seeing some of the same kind of future that you and I talk about, but they feel like their hands are tied and they don’t know how to deal with all this change in the utility industry.

Bill:
The biggest thing that changed over the years was to say the price of natural gas. They had entire departments that would look at fuel forecasting to see whether it was going to go up or down and they could decide to buy or sell natural gas plants and things like that. All of a sudden this whole tsunami of change starts coming through where all these renewable technologies, clean energy, like the ones you mentioned a moment ago, solar, wind and batteries, electric vehicles and power electronics. They just have no precedent, no experience dealing with that kind of technical change in that pace.

Bill:
When I was at IBM, there was a famous executive whose quote I heard and really stuck with me and became a bit of a metaphor for the power industry for me as well. He described the IBM as an elephant in a cage and his little metaphorical story was the mice in the elephant cage. The mice were these startups, small projects that would scurry in and out of the bars easily and the elephant would get terrified and jump around and often kill the mice, even if accidentally. And I think the utility history is much the same way. This cage is the regulators and the elephant is the utilities and the cage is there for a good reason because the elephant is left on its own. It might get lost, it’ll wander off, all metaphorically, but I think it’s apt.

Bill:
The problem with innovation and improving the electricity industry is that most of the conversations tend to come through the policy lens. What are the rules we can make for the utilities that will cause them to do the things we want? And to me this is like redesigning the elephant cage. Challenge is if you try to redesign the cage while the elephants in it, it’s got to be done really carefully. Any sudden changes could harm the elephant or throw it into a tizzy. And as citizens of the world in modern society, we do not want, again, metaphorically an injured elephant. We do not want the utilities struggling to survive and to provide us the basic electricity we require. And in fact, a lot of utility executives will painfully recall the experience of California when the state government decided to modify the cage and create some new rules, so the elephants would do more of the things, the utilities would do more so the things that the government and the citizens of California wanted.

Bill:
Along came this little company called Enron, that came into the system and ended up wrecking the state’s electricity. There were blackouts. Prices went through the roof. It actually went from a profitable state to one that was nearly bankrupt because of designing the elephant cage the wrong way. If you’re a utility executive and you’re thinking about changes that might incent you to do … become more of what your citizens and regulators want, boy you think about California and say, “I don’t want any changes. I’m going to get those lobbyists out here to stop things from happening because I do not want to be California. I do not want to be one of these utilities out there causing all this mayhem.”

Sam:
That’s a great example Bill, about California but innovation is more than just within the technology piece. I mean you look at something like PACE financing, which is financing that allows homeowners to put solar on their roof and tie it into regular monthly payments and tie it to the value of their home. There’s more innovation that’s happening other than just around the technology area and it seems to me things like states adopting renewable portfolio standards, those are efforts by the regulators if you will, to bring forward some opportunities around renewable energy.

Bill:
I’m glad you mentioned RPSs, renewable portfolio standards, because that is a form of tweaking the elephant cage and it works. It’s gives the elephant a lot of utility, a lot of flexibility in how to achieve the goal set by the state. It reeks a certain degree of havoc and particularly early RPSs when electricity from the sun and wind were more expensive, it actually drove up electricity prices a little bit. But now that solar and wind are cheaper, I think those RPSs will actually have the net effect of keeping prices the same or even driving them down. But financing is different because you talked about PACE. We’ve talked to John Berger at Sunnova about some of the things they’re doing. None of that applies to utilities and here’s what’s so exciting about that side of the electricity industry. Historically, the only way you could provide electricity cost effectively, the only way was to be an elephant, to have a gigantic scale and have a huge power plant, a huge transmission lines, huge distribution infrastructure, hundreds of millions, billions of dollars, billions of dollars, but all of a sudden there’s this new game in town.

Bill:
It’s local energy. It’s the small scale systems. It’s rooftop solar with financing like PACE and many others, companies like Sunnova and Sunrun providing solutions. Back to my IBM metaphor, these are the mice. These tiny projects can run in and out of the elephant cage and are really not restricted by any of these giant scale regulations or the public utility commissions or any of those groups. They’re pretty much free to do what they want to do. It was never possible historically to provide electricity cost effectively without an elephant. But now these small systems, they can do it too and all of a sudden the mice are running a muck.

Bill:
I think we just crossed two million solar rooftops installed in the United States a couple months ago. It’s expected to double the four million in a year and a half or two years. It’s taking off and like the IBM elephant, the utilities are very, very nervous about it and they’re starting to jump around and not sure how to react to this. And that’s going to be very interesting to see how the utilities react, how they embrace it or fight it and how the utility commissioners, the public oversight regulatory bodies, how they handle this because they have as much to say or more than utilities themselves.

Sam:
Like you said earlier, the utilities are doing what we’ve asked them to do and they’ve really held pretty closely to those core requirements around reliability, safety and cost effectiveness. But Bill, what about these mice running around? Do they cling to those standards as well?

Bill:
Well, here’s the great part and the reason I love this, as an entrepreneur, they aren’t beholden to specific prices and they’re not beholden to certain service levels or responsiveness in their call centers. They’re beholden to competitive markets because if I want to buy a solar installation from Sunrun or Vivint, and I don’t like it because they charge too much or not … These are all great companies. I’m sure they all do a great job. But if one of them I don’t like, well I can just go buy it from Sunnova or somebody else and that competition, which is absent in the utility industry because the utility industry is a monopoly, that competition creates the pressure for these companies to get the right pricing, to get the right levels of customer service to provide the products that people want to buy.

Sam:
Okay, but it sounds like we have a log jam then. If we’ve got regulators in giant utilities on one side and if we have a bunch of mice running around, how do you bring innovation to the industry at a faster pace? How do you break that log jam?

Bill:
Depending on what side of the question you’re on, it’s happening anyway. The mice, these small solar systems are not regulated beyond safety and local ordinances and things like that, but they’re not regulated to the monopoly protections that have otherwise protected the utilities for a century and so they can do whatever they like and what they represent is an existential threat to the utilities. In other words, and you hear this a lot from people thinking hard about the industry is what if these rooftop solar and subsequently battery systems take off to such degree that the utilities’ revenue actually declines and they become financially unstable and all of a sudden we have another California situation where the grid we depend upon is now financially unstable and it becomes a challenge to keep it running properly. The governor has to step in. Nobody wants that. So that’s why I think some active regulations, some cage modification so to speak so that elephants are being incented and directed in the right way.

Bill:
A great example of what happens, I think Hawaii and a few other states do this, is traditional regulated monopoly utilities are managed on a return on their assets invested. The more coal plants, nuclear plants and solar plants they build, the more profits they make. But the new approach is based on performance. If the customers are using more energy efficiency or the customer satisfaction is higher or they’re increasing the percentage of renewable energy per the dictates of the state, then the utilities actually become more profitable on those measures and the regulators actually switched the incentive from build more stuff that’s centralized to become a better company. That’s a not an easy change. I don’t think we’ll see every utility adopted immediately, but ultimately that’s a great change and it results in utilities providing the service that we need and we need in the future.

Bill:
There’s a great case study with AT&T. They were a monopoly just like the utilities are today and they fought change tremendously. But over the years, decades, their utility rights were stripped away by the government. And I don’t think anybody could argue that it was the removal of the monopoly protection on AT&T, which AT&T protested saying that it would cause the system to come unstable. It would cause a low-income families to pay unfairly large amounts.

Bill:
But when we got past all that and the competition was stripped away, what came out of that? Well the internet, smartphones. If you study the history of this highly regulated telephone industry, it’s very clear that none of these things that have changed our world today would have ever come into existence had we left AT&T as a regulated monopoly like the utilities are today.

Announcer:
If you are an energy entrepreneur or thinking about dipping your toes into the world of renewable energy, listen up. John Berger, Founder and CEO of solar plus battery leader, Sunnova Energy shares insights on what it’s like being an energy entrepreneur today.

Bill:
I’ve had the great privilege in my career meeting many successful entrepreneurs, but there’s very few that have done what you have done what you have done, which is conceptualize a company, found it, grow it, scale it, and then take it public. I mean that’s kind of the gold medal, the 10 out of 10 on the Olympic measurement of success as an entrepreneur. Now I know you have a long way to go. You’ve got a company that can be 10, 100 times larger and I’m excited to watch you do it. But what have you learned about that process that you could share with the many listeners of the Freeing Energy podcast who are entrepreneurs. What stories or advice would you share with them?

John Berger:
Well, what I would share with them is first and foremost, you’ve got to go all in 110%. You’re going to have some sleepless nights, you’ll work a lot of hours. You will not be your own boss, I’ll tell you that. Everybody has a boss, so don’t fool yourself and it’s going to be hard. The second is, what I would say is make sure that you are very focused. You will be presented with a lot of different opinions about what to do and you need to make sure that you can bring it all back down and say, “Look, I’ve got to execute. I’ve got to stay focused on this. I’ve got to say no to some really good ideas and maybe even good folks that have want to come on board and do some different things.”

John Berger:
The last one I would say is you need to be about recruiting the best people and putting herself really further and further away from what you started out to do, whatever those tasks may be, and you’re really have to be a jack of all trades, but as you grow the business you have to let go. You have to change and that’s really difficult for people to do in terms of change. No matter where you are in life and you have to. If you’re not willing to change, then at some point you need to hang the reigns off to somebody else and then go back and do it over again, which you do see quite a bit. But that change is really what I think at the end of the day. I see a lot of companies that can’t break out. It’s because they have founders that are unwilling to change.

Announcer:
Sage advice. Now back to Bill and Sam.

Sam:
Generating electricity is just one part of an enormous and very, very complex industry and if you look at some of the emerging opportunities and dare I say both elephant sized and mouse sized, where will some of the largest impacts come from?

Bill:
I love the question Sam, because that is the heart of why I got into this industry and I think a lot of people are excited about it because as we can find ways to innovate in the electricity industry, we can not only get to clean energy faster and all the positive things that come from that, but as business people, as entrepreneurs, there’s opportunities to create exciting new companies that are part of that transition. And so I look at these opportunities as an entrepreneur and I think there’s really five areas that I weigh any particular opportunity against in order to decide how excited I am about it. Now this is not to say this is a filter that should be used by utility trying to decide on a new kind of solar to put on a giant solar farm, but for people looking to innovate quickly, these are the five things I look at.

Bill:
First, can it be a billion dollar market? And some interesting things are already billion dollar markets. Second, does it work everywhere or is it limited to specific geographies? For example, wind, which is great, but wind only makes economic sense in certain places in the US where the wind is incredibly strong. Whereas solar as an example, or natural gas can work anywhere you put it in the United States. Maybe it works better in some places, but generally it works everywhere. The third is small unit size and this is a subtle one because it doesn’t line up with the way that we think about utilities. But the more of something I can make in a factory, the smaller it is, the faster I can make it, the more of them I can make and the more I can make, the more I can learn. It’s a very positive cycle that results in better products faster.

Bill:
For example, if I want a gigawatt of electricity, I’m going to build one nuclear power plant. I get one chance to get that right. But if I want a gigawatt of electricity from solar, I’m going to build 200 million solar cells. Along the way, the number of things I can learn with each one of the solar cells, is it can tweak and improve, so the result is that solar has improved its cost effectiveness 300 times since they became commercial about four years ago. The fourth thing I look at is lots of customers. If I invent a new kind of natural gas plant, there might be a couple thousand customers, utilities, very large businesses in the government I could sell it to. But if I invent a new residential battery or a new solar racking system, there’s literally millions and millions, if not hundreds of millions of people I can sell that to. That larger market attracts other competitors. The market gets dynamic and innovation takes off.

Bill:
The last and fifth is flexible pricing. This is something again, that people really misunderstand, but the ability to create flexible pricing is as much an area of innovation as the technology. You think about how would you buy a car? You can lease it, you can rent it, you can hire someone to drive you, you can own the car. There’s all kinds of options and people use all of them, so that gives a huge amount of opportunities for people to end up becoming car owners. Similar to solar and batteries and some of these emerging local energy technologies, there’s an equal number of ways to own it and that creates all kinds of opportunities for innovation that gets us priced to market in people’s hands faster.

Bill:
Taking all these five together, it points to two very simple things. We want speed and we want large markets and when you have those two things together, opportunities take off. Investors come running in. Regulators get excited because they see things that are working and they see dynamics that they can actually feel good about. I think these five things drive us towards a rapid acceleration in the adoption of clean energy.

Sam:
That sounds like it also points away from selling into utilities. Those really have been the only people buying a lot of energy technology is that true?

Bill:
Utilities are very hard to sell to, perhaps even worse than the US government. They take a very long time to make decisions because they operate in two to three year highly regulated planning cycles and they are incented not to take risks. But up until very recently the utilities are the only ones, like you said, spending money and that was the only market you’d go after. That is changing dramatically in an accelerating pace. That’s why I got into the industry now and that’s the message I really want us to get across in the Freeing Energy project is this is a new game in town and the opportunities for innovators are absolutely taking off.

Sam:
There’s so many areas of innovation being talked about in the energy business. A lot of them in the news and one of the more common ideas I hear about is around clean coal for example. The idea is to capture CO2 coming out of the furnace, sequestered into the ground somewhere or even sell it into something like soft drink markets. Can clean coal revive the coal business?

Bill:
Wow. This is a big one because it’s come up a lot recently. The US government has invested a great deal of money trying to make clean coal work because coal’s legacy cornerstone the electric grid. But the fact is that clean coal is a bit of a myth. It’s a kind of a mythical creature. It doesn’t actually exist in the real life. Now the problem is that coal is dirty in two distinct ways. The term clean coal really recently only applies to one, which is the removal of carbon dioxide. We all know that coal is the largest producer of carbon dioxide of all the ways we produce electricity. The idea is that you somehow capture that CO2 as the coal is being burned and you do something with it, like stick it in the ground. The sequestration is the very cutting edge of technology. In fact, there’s two plants operating in the world. One in the US called Petra Nova. It costs about a billion dollars to make, including $190 million grant from the government. And in fact it captures about 90% of the CO2.

Bill:
Now what’s interesting to me is it captures it and sends it down an 80-mile pipeline and it uses the high pressure CO2 to pump more oil out of the ground at a nearby oil well. But be as it may, it’s showing that you can capture it and do something with the CO2. But that success is overshadowed by a much larger failure. There’s a clean coal plant, it was called Kemper. Construction began in 2010 two and a half billion dollar budget, but after it was $5 billion over budget, seven and half billion dollars and running three years behind, it was canceled in 2017. That’s an example of being a bit too aggressive with this technology. Because you can’t iterate and you can’t do 100 million versions of this like you can with solar cells, it’s just really hard to learn from those mistakes.

Bill:
Once you’ve had a Kemper coal plant, it’s that much more difficult to get someone to try to fund another one. In terms of clean coal, the Congressional Research Service, one of my absolute go to places for good data on the US government and energy. The federal government’s invested about $5 billion in carbon capture since 2000, the majority of which went to clean coal. Since 2010, the government has written off about $500 million of that, which is an ironic number because that’s the same amount of money the government wrote off for Solyndra, which is often held up as an example of the government’s failure in clean energy. The government’s lost money in all kinds of energy. It is an equal opportunity money loser, whether it’s renewables like Solyndra or clean coal. The government’s role is to try to fund things and see if they work. And that money help go towards creating a little technology called fracking, which as we all know, fundamentally changed the energy landscape and the geopolitical world order all in one.

Bill:
Sometimes Solyndra and clean coal aside, these government investments really work. They have the intended effect. But in the end, removing carbon dioxide is simply too expensive. [Lazard 00:32:42] puts the cost of a coal plant that removes carbon dioxide about 14 cents per kilowatt hour. That’s actually a higher than the retail rate of electricity in the United States, the average price but let’s say we’ve got all that right. Let’s say that we nailed the cost, we get the technology working, we’ve got plans across the country. They’re capturing the CO2 and doing something like sequestering it or using it to drill oil or make soda pop. But none of the technology and clean coal addresses the biggest and oldest problem and the one that’s so overlooked and overshadowed because of the CO2 issue, which is burning coal creates coal ash, which is the second largest waste stream in the US with over 100 million tons a year.

Bill:
This stuff is a witch’s brew of toxic chemicals, arsenic, mercury, lead. You would not want to eat this stuff and you would not want to have it sitting next to your extra house. Now, if you just walk by it, you’re not going to get sick. But if you live there and it gets in your water table, gets in your streams, gets in your farmland, then you’re going to get a concentrated amount and you’re in trouble. And so what’s happening is for the last 100 years, utilities have been dumping this in unlined ponds right behind the power plant, and it’s been fine. But recent studies and environmental activism has raised the awareness and people started testing the land and the EPA lost the lawsuit and had to go and test years ago all the nearby water sources. They found that the very same chemicals that are in coal ash are now in the water surrounding the coal ash ponds for miles. This created a slew of lawsuits and so for example, in the Southeast to Duke Energy and Georgia Power and recently committed I think four or $5 billion to take the coal ash out of these online ponds, clean them up and move them to aligned ponds.

Bill:
There’s 1400 coal ash ponds across the United States, so it’s going to probably cost over a hundred billion dollars to really clean this up. This is the other reason that even if we can get the CO2 out of coal, there is no future for coal. There’s no technology that anyone’s thought of yet, nor do I think they will. They try to make whole economical and environmentally acceptable.

Sam:
Okay, so maybe not coal, but what about nuclear? With so many people becoming concerned about CO2 emissions nuclear seems to be back on the table as the only proven scalable solution.

Bill:
Last year I was moderating a table dinner at the Ted conference and it was actually kind of boring because everyone was agreeing with everybody else and so it wasn’t a very good conversation, so I pulled the nuclear option. I said, “Okay, what do you guys think about nuclear?” Bam, right down the middle of the table, the people on one side are like, “It’s the worst thing ever. It’s waste, it’s expensive.” The other side is like, “Nuclear is the best thing ever. It’s only way to make enough power without carbon dioxide.” And so then we had an interesting conversation for the rest of the night. Nuclear is among the most divisive issues across the environmental spectrum. But nuclear is the biggest elephant of all. Not only does it have this sort of regulatory cage so that it stays affordable and reliable, but it’s got this much more stringent cage to keep it safe. What’s happened is the cost to maintain these, let’s call them two cages, has made nuclear incredibly expensive.

Bill:
A lot of people talk about fusion. I grew up in love with the idea of fusion. Instead of taking a very large atom like uranium and splitting it into, we take two small items like hydrogen, we stick them together. Both of those release incomprehensible amounts of energy. The government has been spending tens of billions of dollars and the international community’s been spending the same to try to create a future reactor that’s sustainable. You put a certain amount of energy to start that hydrogen fusion and then it chain reacts slow enough to not become a bomb, but fast enough that you can generate electricity.

Bill:
One of the biggest efforts is called I-T-E-R, ITER. It’s an international consortium, the smartest scientists in the world. People spend their careers looking at this. I happened to have a chance to interview one of the lead scientists at ITER and what he told me … He was very excited, he said, “Listen, this is going to work. We’re going to get this thing working. It’s going to be able to generate electricity. It’s going to produce very little radiation. It’s going to basically use water as fuel. It’s going to change the world.” I said, “So when do you think we’re going to have a power plant?” He said, “Oh, as soon as 25 years.”

Bill:
And I took a pause and said, “Okay, well, do you think it’s possible in that 25 years, that sort of the fact that solar and batteries have dropped 20, 30, 40, 100 times, that there’ll be even cheaper. And what’s the chance that when fusion power plants are ready to go that they will be as cost effective as even natural gases today or solar and wind and batteries are becoming. He says, “There’s almost no way it’ll be cheaper. If the world wants fusion, we’ll have it, but it’s not going to win on a cost basis.” And that was disheartening to say the least.

Bill:
As much as I would love to see fusion work and I suspect we’ll continue to invest in it because it’s got so much potential, I don’t see it becoming a massive part of the grid simply because we have cheaper, better options coming down the pike in the window of time that fusion will work.

Sam:
But that’s fusion. Aren’t there new approaches to conventional efficient nuclear power plants, the small modular reactors. I understand companies like New Scale are getting permits now to bring those things into the market.

Bill:
This sounds exciting. I’ve been following this. I’ve talked to a lot of experts and so what’d you do instead of this gigantic one gigawatt scale plant, you build something that might be 50 megawatts or 100 megawatts and you build it an entirely new way. I think most of us are well aware of what happens when these big traditional nuclear power plants have problems. They have meltdowns, Chernobyl, Fukushima. It’s given the industry a really bad name. Companies like New Scale have invented a much safer way. If there is a problem, the power gets cut off or tsunami hits or something, it shuts itself down in a way that doesn’t cause a radioactive leak, doesn’t cause a meltdown. There’s a lot of … hundreds of millions, billions of dollars going towards this new small modular nuclear reactor. Instead of having just 10 or 20 built over a decade, these small ones can be built 100 or 200 at a time, starting to get to that smaller unit size. Not nearly as small as a solar cell, but still much smaller than a nuclear plant, so they can learn and iterate and get better.

Bill:
But they still have this second cage because it’s nuclear. You might put us a couple of these small nuclear reactors in a small town that’s very far from the electric grid or very far from natural gas pipelines, doesn’t have great solar or wind. You put one of these things out there, but you’ve got to convince the community that it’s okay to ship in nuclear fuel and to store locally or ship out nuclear waste and that’s going to take a while. There’s going to be a lot of litigation. You could look at a natural gas pipeline taking three or four, five, six years or transmission electricity line, taking 5, 10 years to get approved by the communities it’s involved with it.

Bill:
I don’t see nuclear going any faster. The problem is that even though New Scale, which is a very cool company, has got permits to go live with the first test plant in the late 2020s, mid 2020s I think to for it to scale, it’s going to face just a lot of resistance. The other problem is that even New Scale zone estimates put their costs much higher than natural gas and solar and wind just a bit below the traditional large fusion plant. It’s probably not going to win, in the near term, on cost either.

Bill:
It’s going to require a lot of government support, a lot of incentives, a lot of tax breaks, a lot of R&D support. This climate focused friend of mine told me these SMRs are really a longterm solution to a short term problem. It’d be a great addition to the grid if we can get past the radiation concerns and the costs, but it’s going to be tough going. It’s going to be tough.

Sam:
That does sound like a longterm solution to what a lot of people are considering to be a very real short term problem with energy and electricity. You’ve, just a few moments ago, gave us five boxes that we could check off as we look for innovation around energy. What do you see coming that you think checks more of those boxes?

Bill:
Well, we are out of town today, so we’re going to have to do this on another podcast, but there’s a couple of areas I’m very excited about and I’ll just give you a quick preview. One of the things that really changed is software industry. 15 years ago, there’s only two kinds of customers. There was the personal computer customer and the large enterprise customer. It looked like that for a couple of decades. But then along came something called a mid-market and things like software-as-a-service and all of a sudden this middle-market exploded in size and it changed the industry forever and it dwarfed both the desktop computing market and the enterprise computing market. There is a very interesting equivalent in clean energy, which is called a CNI, Commercial and Industrial. These are mid-scale systems. They’re not giant utility power plants and they’re not rooftop solar, so they get a lot of the same economy price benefits of these giant systems, but they can be sold outside of utilities.

Bill:
It could bought by businesses and neighborhoods and campuses, office parks. I think the CNI space and all the products can be sold to it. Solar systems and batteries and control systems and efficiency, all of that. I think is CNI is a really exciting area, the one that I’m really looking hard at. When we get to these smaller systems, CNI, the residential, there’s modularity. The Lego bricks, if you will, will be able to put together these different systems without having to custom design everything and those modular systems are starting to emerge.

Bill:
One of the best favorite examples is the Tesla power wall. It combines in all the software controls, the inverter and the batteries all within a single package and it’s competitive. In fact, it’s half the price of battery alone competitors. The amount of expertise required to install it is much lower and an electrician who you would trust to put wiring in your houses knows most of what he or she needs to know to put this power wall. They don’t have to be programming inverters and wiring up all kinds of special circuits. It’s just one more thing you put in your circuit breaker box.

Sam:
That sounds interesting and we will learn more about it down the road, but does that also scale?

Bill:
Yes, Tesla’s got their power walls. They’ve also gotten larger versions for CNI and utilities called power packs, which is the same idea, just taken to a larger scale. This idea, because it’s based on batteries and batteries are these little cells like you put in your flashlight and they scale just as well as solar cells, so yes scales wonderfully. A couple other areas … I think carbon capture could be interesting. At the moment it’s looked at in the same way that power plants are. Very large scale, very industrial financing kind of requirements. And at the moment, because no one’s paying for carbon dioxide, the market is very small and the technologies are very early and expensive.

Bill:
These are mostly pilot projects. There’s about 40 or 50 places around the world that are actually putting carbon pricing in place. Carbon taxes or cap and trade or whatever form it takes. And when that starts to happen, carbon capture, taking carbon out of the air and doing something useful with it, or just sticking it in the ground, that’s going to start to become a profitable business. We did similar things to solve the ozone problems, so we can … It’s not like we have to invent these kinds of rules and laws for carbon capture. But to date, the US has resisted it and several of the countries have tried it, but I don’t think anyone’s got it nailed just yet.

Bill:
A few other areas. The smart grid is a great idea, right? You have this dump grid and you want to make a smart grid, so it handles all these complicated things really well. There’s only one problem with the smart grid. There’s like, I don’t know, a billion things hanging off of the grid today and you’ve got to get every single one of them to agree or at least a lot of them and you’ve got to create standards and you’ve got to upgrade everyone in the same system. That’s notoriously hard to do.

Sam:
You mean there’s not an app in the store for that?

Bill:
No, but there is an app in the store for what I call smart loads and this is exactly what happened with the rise of the internet. All the early people thinking about interconnectivity of computers were building smart networks. IBM had the token ring network and they put all these brains, expensive control systems in the network and what the internet did, TCP/IP and all of its technical roots, they were dumb. They forced the systems on the edge, the computers and the smartphones. They had to be smart and therefore the network itself remained dumb and relatively it’s still smart, but relatively dumber than the original vision [inaudible 00:44:42] need to be.

Bill:
Similarly, we don’t need a smart grid, we need smart loads. We need some simple regulations that say, listen, I don’t want you to help a power in this way or take too much power in that way and to feel adhere to these rules so say the utility and regulators, then you can put a smart system on the grid and do whatever you like. If the loads are smart, it simplifies the grid and because that’s a giant market, lots of buyers, I think it’s going to be very exciting. Today, it looks like Nest Thermostat’s microgrids, but I think it’s going to be very big. You’ve got to control that, so that’s another area I’m really interested in.

Bill:
When the eclipse happened a couple of years ago, a Nest macro, the sun was absent over the course of the United States and it went to with permission to all the Nest Thermostat owners and they said, “Can we please turn off your air conditioning during the cycle?” And they were able to dramatically reduce the amount of energy that the grid was drawing during that time because people did not need air conditioning when the eclipse occurred. Solar was also getting curtailed because of the eclipse. They actually balanced out the power. It was a brilliant solution to a very real problem of the solar going dark for a few minutes.

Bill:
One of the biggest areas and perhaps the most scientifically challenging, but game changing is refrigeration. And people laugh when I say refrigeration, because they have refrigerators, they have air conditioners. Making cold air is easy, but it’s really inefficient. It’s so inefficient and so energy intensive that you see no … in poor parts of the world you see no refrigeration because the units are too expensive and they draw too much power. You can’t run a refrigerator, not well, off of a solar panel, a portable solar panel like you might see in a low-income rural part of say East Africa.

Bill:
But the science says there are ways to do this. And so I’m really excited to look at innovations around refrigeration, not only to dramatically reduce what’s the largest expense in the US grid today, which is changing the temperature of air, but also bringing the promise of cold air for refrigeration, for medical, for food, for comfort to the few billion people in the world that don’t have it. I love refrigeration and I’ve been interested in anything happening that way. That’s going to be a massive hundreds of billions of dollars market if someone could come up with the technology and the science breaking for that. Those are the ones I’m interested in. Let’s dive into more on another podcast if people are interested in hearing about it.

Sam:
Bill, those are some areas that I’d really like to hear from listeners on and tell us what you want to hear in some of these podcasts. As we wrap up, I got to say, I don’t think elephants are really afraid of mice.

Bill:
Well, actually I would love some feedback from our listeners as to whether that metaphor works. It’s one I personally like a lot and I’m planning to include it in the book heavily, but if we’ve beaten this poor elephant too hard during today’s podcast and he needs to be left alone and not drug kicking and screaming into the book writing, I’d like to know now. I think it just makes this whole inherent tension between giant regulated utilities and these small startups … It makes it viscerally clear. It’s not lost in the mumbo jumbo of bureaucracy and good guys and bad guys. It just says elephants and mice. They don’t get along.

Sam:
It’s an important discussion to look at the innovation that’s taking place around energy. It’s important to understand what holds it back and what’s driving it forward. I’m looking forward to hearing more about some of these other newer technologies.

Bill:
Well, we talked about a couple that are really popular and mentioned a lot and so the next time we get together we will talk a lot more about the ones that get a little less publicity, but I think have the chance to make the kind of change we’re all gunning for, which is to get to clean energy as soon as we possibly can. Thanks to everyone who listened in and send us some feedback.

Sam:
Thank you for joining us today. You have been listening to the Freeing Energy podcast, personal stories from the clean energy movement. Visit freeingenergy.com to learn more about clean local energy. I’m Sam Easterby. Bill Nussey is my cohost and the founder of the Freeing Energy project. The Freeing Energy podcast is made in partnership with frequency media. Peter Lowe Pinto is our associate producer. Subscribe to the Freeing Energy podcast on Apple podcasts, Spotify, Google podcasts, and anywhere podcasts are found. Make sure more people learn about clean local energy by rating and reviewing the show on Apple podcasts.

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