Renowned energy author, academic, and entrepreneur Peter Fox-Penner shares insights from his new book, Power After Carbon. To decarbonize the energy sector is the largest investment opportunity of all time but, as Fox-Penner notes, the moral and social imperatives are just as large. Join host Bill Nussey as they delve into the changes that must occur to shift our electric power system to a zero-carbon world.
To pre-order Peter’s new book, go to Amazon and reserve your copy.
Learn more about Peter and his background:
- In his role as the Director of Boston University’s Institute for Sustainable Energy: https://www.bu.edu/ise/profile/peter-fox-penner/
- In his role as the Chief Strategy Officer of Energy Impact Partners: https://www.energyimpactpartners.com/team/
Also, thanks to Autumn Proudlove of the NC Clean Energy Technology Center for her contributions to this podcast. To learn more about the research and analysis done by Autumn and NCCETC, check out their site: https://www.dsireinsight.com/publications
http://freeingenergy.libsyn.com/dr-peter-fox-penner-what-must-change-to-move-our-electric-power-system-beyond-carbon
Listen to this podcast and others in our series on these platforms:
Note from Bill
I am particularly excited about this interview Peter, not to mention his forthcoming book, Power After Carbon. Peter is one of the clearest and most prescient thinkers in the industry. His earlier book, Smart Power, was one of the early inspirations for my move into the energy business. I had the opportunity to visit him while he was finishing up this latest book and got a selfie with him and the extensive notes that went into creating the book (thanks again, Peter).
Transcription
Bill Nussey:
Well, hello, Freeing Energy podcast listeners. We have a huge treat, one of my personal points of inspiration in this industry and one of the smartest people really who’s helping guide the world towards what the clean energy world could look like. I read Peter’s book early on, it was an inspiration for me, I’ve had the privilege of getting to know him. He is actually got one of the coolest resumes in the industry. So on one half of his day, he is the Director of Boston University’s Institute for Sustainable Energy. The other half of his day, he’s the Chief Strategy Officer of Energy Impact Partners, which is the largest venture capital from the energy technology, and their most recent fund is $600 million, which dwarfs a lot of the other funds out there. But it was his 2010 book, which is one of the very first ones I read when I thought, “Gosh, should I get into this space?”
And it actually made a ton of sense. It wasn’t sort of this high level wonky stuff or this policy central, you have to get the government to fix everything, it was an actual book about how the energy industry worked and it was something that gave me some confidence to jump into it. And 10 years later, he has worked on another book which is coming out this year, and I am really pumped to have him on our podcast today to talk about Power after Carbon. Dr.Fox Penner peter, welcome to today’s podcast.
Peter Fox Penner:
Thank you very much, Bill. It’s a pleasure to be here and thank you for those very kind words and please call me Peter.
Bill Nussey:
Okay, good. So we’re going to talk all about the energy industry today, but you have… Even a more interesting part of your background is that you are an R&B and jazz drummer, which is just a crazy, interesting place to start. So maybe before we jump into the whole world of energy and how we’re going to make the world a better place in the next few decades, talk to us a little bit about your interest in sound and music and how that got you started.
Peter Fox Penner:
I’m an aspiring jazz and R&B drummer, still learning. I grew up in the ’60s in a very socially active household in Chicago and I was fascinated by three things, music, politics itself, which is runs in my family and runs in my blood, and technology, which I thought was really important. And one reason in which those three things combined was in music recording. And at that particular point, recording had reached a new point where artists could make complete albums by themselves using multi-track recording and the ability of an artist to realize 100% of their own musical vision by themselves, playing all the instruments, singing all the tracks. Those just really changed my life.
Peter Fox Penner:
Thinking about how they used technology and music to make political statements. Well, I didn’t have [anywhere] near that talent, but another way that you can combine technology and politics is in energy. And as I was an acoustics, an engineering major at the University of Illinois, I started to understand that energy was profoundly important to society, profoundly important to the environment. Recording and playing drums has been a hobby and I love, but really what I’ve done is technology and politics in the form of consulting and government service and we’re working at EIP here in Boston University.
Bill Nussey:
I love the way that you weave those together and it really makes a lot of sense. So let’s talk a little bit about these jobs that I’ve mentioned and you’ve mentioned, because it’s unusual set, I got to say, I think it’s super cool, the range of things that you work on, the range of areas you work on. And I think that’s frankly people’s ability to navigate the technology and the politics and the business side simultaneously is how we’re going to get to this future better world of energy the fastest way. So you’re someone who’s doing all of it. So tell us a little bit about which you… What Energy Impact Partners does and then maybe also a little bit about the Boston University’s Institute for Sustainable Energy.
Peter Fox Penner:
Energy Impact Partners is I think now the world’s largest fund group, making exclusively clean energy investments to advance the Clean Energy Transformation. So it is quite a specialized fund that does largely growth stage private equity investments, and is now branching out into other investment categories. The thesis of the fund of course, quite simply is that there is a massive need for transforming the energy system into a zero-carbon environmentally sustainable energy system. At the same time, there is a tremendous growth opportunity for new technologies and a tremendous investment opportunity for investors to decarbonize the power systems of the world by 2050.
We need to spend something on the order of a trillion dollars a year between now and then. And that is one of the largest investment opportunities in history to date. And it’s very urgent. So it’s an enormous investment opportunity, but it also is a social imperative, a moral imperative. And EIP recognizes and it did something quite unique and that really attracted me to join with it. And that is that it recognized that a coalition of strategic investors, utilities and other energy companies and people who really understand the business and will actually implement the investment solutions, could pool their capital and be a unique collection of strategic investors creating a fund. Not just a homogeneous group of financial investors and other investors, not that there’s anything wrong with that, but this is a unique coalition and the strategic insights that the investors bring to our investment process is very unique. So that’s the essence of EIP. We have about 30 companies that we’ve invested in, and they’re all up on our website and they’re doing wonderful things to advance the Clean Energy Transformation.
Bill Nussey:
Well, you cited some numbers there, which I think a lot of people are unaware of and even when they hear them, they don’t put them in context. So I just was reading some memos from Bloomberg yesterday and they’re looking at through 2050 about $25 trillion in investments for EVs and the grid and clean energy et cetera. So I did some math, it’s in this book I’ve been working on up and through the last couple of years, all venture capital investments in total for last 25 or so years, reaches about a trillion dollars. Now the returns are great and have created a lot more value, but the initial investments were about a trillion dollars in total.
I also went back and asked people, “What do you think the largest investment in the United States history was in terms of infrastructure?” And most people think it’s the Highway System and if you put that into adjusted 2018 dollars when I did the math, it’s about $450 billion. So when you talk about trillions of dollars, to put this in perspective, it just like you said, this is the largest infrastructure investment in the history of probably the world.
Peter Fox Penner:
I think that the price of clean energy is coming down so quickly that on an inflation adjusted basis, I don’t think the real price of electricity is going to change much over the entire arc of this transformation in developed countries. The cost of the energy is just coming down so quickly that the lines are crossing and I think we’re going to keep prices in the same ballpark as they are today.
Bill Nussey:
I love that vision and everything I’ve seen tells me that I’m on board with it. Tell us also a little bit about what the Boston University’s Sustainable Energy Institute is about.
Peter Fox Penner:
The Boston university’s Institute for Sustainable Energy is a multidisciplinary university wide think-and-do tank that does research on policy issues and other issues in the sustainable energy transition that really call for research that’s objective and lends itself to multidisciplinary university work. I’ll also mention briefly earlier that I’m still an academic advisor and longtime friend of the Brattle Group where I did private sector consulting as you know for 25 years. Brattle is a very sophisticated economic and financial consulting firm, and there are some sustainable energy issues that combine economics and earth science and political science and business in different combinations. And most of the real challenges are crossing those disciplines, crossing the verticals in society where politicians are here and technologists are here and the bankers are here. And so I really wanted to form it and I’ve been very fortunate in finding great colleagues to form a university-wide multidisciplinary institute to attack those kind of cross sectorial problems.
Bill Nussey:
It’s really impressive, very cool range of things that you are doing, you have done and I think that the answers to get to this future more quickly will come from the ability to straddle those. And for those of us trying to do so in a smaller way, it’s an inspiration to see what you’re doing and excited to see how you formed that up in your new book, Power after Carbon. So give us a high level overview and what’s it about? When’s it coming out? How can we buy a copy?
Peter Fox Penner:
Power after Carbon is a pretty comprehensive look at the changes that have to occur to transition the electric power systems in the developed world to a zero-carbon posture. What’s unique about the book is that it really looks at all the dimensions of the electric power system, not just the technologies that will need to change the system, but also what will need to change institutionally and politically, how the regulatory systems will have to change, how utility management strategies will have to change the role of artificial intelligence and many other important social forces all of which are going to influence how we create a zero-carbon grid and an industry, a solvent, functional, reliable, resilient, sustainable industry that goes along with it. It’s Harvard University Press, if you can preorder it on Amazon and it will ship in April.
Bill Nussey:
Excellent. Well, I’ve got my order ready and I look forward to reading it. For folks listening to Peter’s overview, it sounds a little scary if you’re not from the industry and maybe a little scrutable in terms of, “Does it really make sense?” And well, this book is certainly something that a lot of the industry folks will digest, my experience with his first book was that it was very readable for someone who was not an expert. I’ve come a long way since I’ve read it. Still not an expert, but I think if you’re interested in these broad topics, don’t be scared away by Peter’s resume or his description, it’s actually… I’m betting that it’s going to be a very readable book by a very wide audience.
Peter Fox Penner:
It is a little longer and more detailed than Smart Power, my first book. For people who want a easier read, I still continue to recommend and assign in my classes, Smart Power, which is an 2015 Island Press book, it’s still in print and very inexpensive. But I did feel the need after 10 years to take a more comprehensive look. Enough had changed since Smart Power that I needed to update the records, so to speak.
Bill Nussey:
Let’s talk about your first book, which I guess came out originally in 2010 and it was updated in 2015, is that right?
Peter Fox Penner:
Yes, that’s correct.
Bill Nussey:
What changed that motivated you? Because I know writing books is hard. I’ve talked about several times in the last couple of years. You’re working on this book, it’s really hard work. What motivated you to climb back on that horse and bring another one to market?
Peter Fox Penner:
The biggest change was that climate change has become the dominant issue driving the electric power sector, indeed all of the energy sectors of the world. Climate change was one of the drivers that I talked about in 2010, in a very minor update in 2015 but by no means the main driver. So I thought it was very important to go deeper into the impacts of decarbonization on the sector. And really that’s the theme that permeates the book alongside all the other changes that need to be continued. Another major change that really goes hand in hand with climate change is the tremendous concern over the various forms of resilience or the threats to resilience, which include cybersecurity, where we have now seen some very serious electric system hacks and acts of terror all over the world that have us quite worried. And so you have that threat along with greatly increased climatological threats. So resilience in many forms has become a much bigger issue.
On the positive side, we’ve seen tremendous drops in the costs of solar, wind, storage, microgrids and electric vehicles. That has really changed the landscape. The onset of cheaper renewable energy is profoundly important and is really enabling clean energy solutions. Well, I dreamed of them in 2010, but I thought they would be 10 years further into the future. I foresee of significant uptick in electricity demand, which means we have to think about expanding the power grids in the developed world significantly when we really haven’t been doing that much in the last 20 years. So there is an era of electrification and era of expansion in the power grid and that raises very important questions about how we’re going to do it, are we going to build more transmission lines? Are we going to rely entirely on rooftop solar or car batteries to back us up? And all sorts of things that people have in their heads but haven’t really thoroughly been thought through.
Bill Nussey:
As we were preparing for this conversation today, one of the things that you talk about in your book that I think speaks exactly to the point you’re mentioning here is the concepts that you introduced of the big grid and the small grid. As much as we all in the Freeing Energy world love the concept of local energy, there’s no real expectation that that’s somehow replaces the need for the big grid as we understand it, but I think you’ve thought about how these compliment each other and how they occasionally oppose each other. I would love to get your perspective on how these two emerging, both very dynamic parts of the grid play together.
Peter Fox Penner:
We can generate a significant amount of our electric power locally now and we can effectively share it. We can’t actually send it to each other, but we can share it in the sense that the distribution system is like a pool that we all contribute to and draw from. That creates important opportunities, but we have to balance the amount of power we’re going to get from the small grid with the amount of power we need to electrify our vehicles, some of our heat, some of our buildings, that’s going to require in most cities and most locations substantially more power than we can get from the small grid. So it raises this balance question, how much do we get from the big grid? How much do we get from this small grid? What can public policy considerations and economic considerations dictate that balance? And how do we make sure that people…?
Peter Fox Penner:
United States and in Europe government largely doesn’t build the power system. And even when it does, it tries to do it in a commercially viable way. So all of this has to be done in a commercially feasible, financially viable way. And that’s a lot harder than it looks on paper
INTERSTITIAL BEGIN
Sam Easterby:
To get to a clean local energy future faster, things have to change. But just how fast are the rules and regulations governing the electric power industry changing? For an answer to this question, the Freeing Energy project turned to the North Carolina Clean Energy Technology Center for some insights. Here’s the Center Senior Director of Policy Research, Autumn Proudlove, and she’s going to give us an overview of the changes taking place from their new 50 States Reports.
Autumn Proudlove
Our team just released the 2019 annual review editions of the 50 States of Solar, The 50 States of Grid Modernization and 50 States of Electric Vehicles. we publish these reports on a quarterly basis, but the annual review editions are particularly interesting where you can really look at some of the bigger trends taking place. So overall, we found that solar policy activity remained at about the same level as last year with 46 States in DC considering solar policy in rate design changes. The greatest amount of activity was related to net metering policies and that metering success or tariffs in particular with community solar activity continuing to increase as well. One of the biggest trends in solar policy we observed was a majority of the big decisions made during the year being pretty favorable to solar development. Some of the other solar trends we identified include utilities proposing fewer and smaller residential fixed charge increases as well as continuing efforts to encourage low income customer participation in community solar programs.
On the grid modernization and energy storage fund, we saw a significant increase in activity with 46 states in DC taking a total of 612 actions related to different elements of grid modernization. So this is a 33% increase over 2018 and a 113% increase over 2017. Some of the major grid modernization trends of 2019 where states enabling greater access to customer energy usage data, utilities pursuing advanced rate design pilots, utilities including energy storage and integrated resource plans, regulators establishing guidelines for distribution system plans as well as growing consideration of performance incentive mechanisms. A lot of the solar and grid modernization activity took place in New England, the Upper Midwest and the Southwest along with the Carolinas in the Mid-Atlantic for a grid modernization specifically. We haven’t seen a lot happening in the Great Plains States and some of the Southeastern States have also been pretty quiet, but we’re seeing more and more states address these issues so this is likely to change in the future. If you’d like to learn more, you can find our executive summaries or purchase full copies of our reports at www.dsireinsight.com/publications.
Sam Easterby:
Thank you Autumn and our friends at the North Carolina Clean Energy Technology Center for that overview. The pace is picking up. Now back to Bill and Peter.
INTERSTITIAL BEGIN
Bill Nussey:
With a name like Freeing Energy, I get a lot of people whose interest is disconnecting from the grid for philosophical reasons and they’re often disappointed when I tell them that, “You really probably don’t want to disconnect from the grid as much as it’s a romantic idea for many.” One of the most popular articles I have out there is how to go off grid and when you read the article, you quickly realize I’m convincing you, you probably don’t want to go off grid. There is a combination of what you call the small grid and the big grid and also the locally generated rooftop and even the micro small grid. It’s the symphony between all of these which is going to create the least expensive, most reliable and cleanest energy solution including transportation as you say, and industrial heating. And what I’m excited about your book is it’s going to be a… I’m sure help a lot of people understand that this is not either or, this is a symphony, this is how all this stuff works together.
And because it’s been so baked for so long because of the way that it was designed by Sam Insull and Thomas Edison years ago, it’s not easily changed. And it needs to be changed delicately.
Peter Fox Penner:
I like your characterization of this as a symphony that blends small grid or local power with large grid power. And I understand the sentiment to go off the grid and the feeling of being independent is wonderful. It’s part of human DNA if you asked me, but there’s a second dimension of the grid that people, I think undervalue and underappreciate. The grid is a resource we all share with each other and help each other pay for and that really brings down the cost of electric service on average to everybody and makes electricity affordable. And one of the things that I worry most about is just to put it bluntly, wealthy people who can afford to go off grid or at least threaten to go off grid and therefore demand that they pay less, shifting costs on to people who have lesser means, who’s electricity costs go up.
One of the conclusions of the book is that the local grid needs a new business model so that we don’t pay for it, per kilowatt hour that we consume from the grid because that’s not really an accurate measure of the service that we get from the grid or its value.
Bill Nussey:
I love it.
Peter Fox Penner:
That’s a very complex and important change the industry has to go through.
Bill Nussey:
Oh, boy, I hope you cover that deeply in your book because that’s one of the policy-wise complicated to make the distribution side of the grid its own entity. But I think that’s once… As people start to try to inevitably municipality states will try it. I’m excited to see what’s possible. Hopefully we can avoid the whole, “Hey, let’s do an experiment on markets and do Enron.” So lots of opportunities, but a bit of caution is in order I think. Well, I think one of the biggest reasons we’re hitting this big inflection point in the electricity business and really energy more broadly is this stunning cost declines of solar and wind energy and right behind them batteries.
Bill Nussey:
I think one of the reasons that we’re even having the discussion about distributed energy and what can be done on the distribution on small grid is because solar specifically and batteries all actually make some sense at a small scale. No one’s putting a coal plant or a nuclear plant in their backyard or on the roof because it doesn’t make sense to scale it down. But you can put solar panels on your roof and many places in many ways it makes sense economically for an individual, a company to do that. But as you said, this is a non-trivial challenge to the utilities because as this takes away the revenue, it’s in their business model is based on a price per kilowatt, this starts to potentially create economic challenges and risks. So what’s your take on how to navigate this perilous future? As we see some tension between those who want and will build local energy and the utilities that which we absolutely depend upon to keep the lights running 24/7 without any blinks.
Peter Fox Penner:
Our ability to have visibility into the electricity that we are using for every single use that we’re using in real time and the ability to control that and shape that, Bill, that is game changing. When Samuel Insull created the industry, he built it around something called the massing of consumption. And the reason there were economies of scale and the industry performed as tremendously effectively as it could is because the system was built to aggregate up consumption that no one could monitor or understand individually. You just turned your lights on, you turned your appliances on and they all aggregated themselves into this one load that the central grid, the big grid could follow most cheaply. And that’s still the way some systems operate. But the fact that you and I can see the uses that we’re using and control them from our telephones, that’s just a whole different paradigm. We’re not just blindly using electricity whenever we decide to use it without any ability to A, control it and B, know how much it’s costing.
That allows not only us as individual homeowners, but much more sophisticated energy users who manage commercial buildings and whole entire college campuses and shopping centers and skyscrapers to use very smart software and that soon artificial intelligence to shift their load and manage it to actually provide resources to the grid and lower their own costs, which means that smart grid, as we say, has become a multi-way set of energy producers and energy users that’s this dynamic organism. Well, technologically that’s fantastic, it creates opportunities to reduce the cost of energy services and reduce carbon, but managing that with software that makes sure that the lights stay on and everything’s reliable, no part of the system is overloaded, we’ve built enough large power plants so that they can back us up in times when the wind isn’t blowing or the sun isn’t shining, it’s kind of mind boggling.
Bill Nussey:
Danny Kennedy, who I’m sure you know described this challenge to me as the choreographing electrons at a national scale. And I love that because it is incredibly sophisticated interplay and having come from 30 years in the software world, I do find the appeal of adding software value to this. Well, Peter, we’ve talked a little bit about the technology and price declines of solar and batteries and wind and things like that, but part of your unique value is that you are an experts expert on the policy side of this. So much of the policy and we have in place today is change is very slowly and Sam Insull might recognize some of it. So talk a little bit about what is happening at the federal and state level in terms of the policy and if you could have all the regulators in a room at once, what would you tell them?
Peter Fox Penner:
State regulatory changes are very important. One of the things that I’m really pleased with is that the state regulatory community has come a long way in the last 10 years and is really understanding that the business model needs to evolve and is gradually in many states evolving it. I do feel, especially in the United States, our federal electricity policies have a giant gaping hole and that is we need serious regional planning and permitting for decarbonized grids. We have relatively weak and balkanized regional planning processes that are far below what they need to be to get us to a low cost decarbonized grid by 2050. I’m confident we can get to a decarbonized grid by 2050, I’m confidence, in fact Bill, that we will, but it will be more expensive and have more financial failures and less reliable and less resilient if we don’t plan than if we do.
Bill Nussey:
Thank you for that. That’s a great overview of what’s needed and I like the dimension of thinking about it regionally. Not all of our listeners know that large parts of the US grid are actually separate from each other and managed at a regional level, and sometimes those work really well and sometimes they don’t, but it’s… Somebody once told me that grid itself is a 50-state experiment aggregated into a few big chunks, and so everyone’s trying something and if we’re all paying attention, we can apply the lessons learned then the good planning you’re talking about will take place. Well, listen, Peter, this has been a blast. I think a lot of folks are going to go on Amazon and order a free copy of this book.
Peter Fox Penner:
Power after Carbon.
Bill Nussey:
Yes, Peter Fox Penner. As we wrap this up, we like to ask all of our esteemed guests for very quick questions and the answers are always enlightening and sometimes a little bit fun. Share something that you think non-industry folks would find most surprising about the work that you’re doing and this new world of energy that’s emerging.
Peter Fox Penner:
The fact that we need more storage to create a decarbonized grid, then we will be able to get from electric vehicles and households. We’re going to need to build large scale storage in one form or another.
Bill Nussey:
And if you could wave a magic wand and just change one thing as we move through this transition to clean energy, what would it be?
Peter Fox Penner:
Oh, in the United States, regional zero-carbon multi energy planning process.
Bill Nussey:
What do you think will be the single most important change in how we generate, store and distribute electricity in a very near term, in the next five years?
Peter Fox Penner:
I’m going to answer that by saying I think in the next five years all the trend lines will continue, but I guess I will say that about five years from now or sooner, there will be an inflection point in electric vehicles where they become functional equivalent of gasoline vehicles range-wise and cost-wise and that will create an inflection point in the adoption of electric vehicles.
Bill Nussey:
How would you answer the following question when someone asks you, what can I do to help make the shift clean energy happen faster?
Peter Fox Penner:
Oh, my goodness. There are many things you can do practically everywhere in the country. You can buy 100% clean energy, Arcadia or the EIP company sells it, just Google Arcadia. You can shift away from meat, it’s almost double the carbon intensity of a plant based diet, shift away from travel that you don’t need to do and shift to lower impact modes, trains and public transit. And there’re very good carbon footprint calculators, Lawrence Berkeley Labs has a wonderful carbon footprint calculator that’s very user friendly up on the website. I’ve been doing that actually, Bill, expect a blog post on the Institute for Sustainable Energy website with my footprint and what I’m going to do to reduce it along with the release of Power after Carbon.
Bill Nussey:
Well, that is definitely walking the talk and talking the walk. Well, again, Peter, this is a… It has been a privilege to have you here today. On behalf of everybody who listens and all of us in the Freeing Energy universe really applaud you for the work that you’re doing for the companies that are part of the EIP and the Boston University work, this is making a huge difference. Thank you for taking some time today to share this with us and I wish you tremendous success with the book and all the other endeavors on your tremendously busy plate.
