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Mike's Musings |
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November 14, 2007: A Journey into the Future of Energy, 2004-2007 Origins: Thinking about energy In 2004, when analysts were explaining why the spike in oil to $35 a barrel (from $12 a few years earlier) was a temporary, speculative phenomenon, I took an interest in learning about America’s energy consumption. It was stunning to realize that America uses a 21 million barrels of oil every single day, a quarter of the world’s demand, importing about 60% of that, mostly from state-controlled entities in a market in which the swing producers -- those that dictate the global price of the commodity -- are counties such as Iran and Saudi Arabia. Our transportation system is 97% dependent on oil. Simply put: no oil – no travel. It was not difficult to conclude that oil dependence was a critical national security issue. Public Policy: “Securing America’s Future Energy” After a few weeks of mulling this over with my good friend, Robbie Diamond, Robbie had the courage and initiative to really try to do something about it. He founded a new Washington-based organization, “Securing America’s Future Energy” ( http://www.secureenergy.org ). SAFE produced compelling public simulations to vividly demonstrated the dangers of our dependence, it recruited the most influential business and military leaders, and ultimately put forth recommendations that found their way into the 2007 State of the Union address of the President of the United States. Less than three years after SAFE’s founding, historic legislation it largely proposed passed both houses of Congress with White House support. Just last week, SAFE put on a new version of its executive simulation (or war game), Oil Shockwave, again vividly demonstrating real dangers we face from even modest disruptions in oil supply (it was extensively covered, including this NY Times article: http://www.nytimes.com/2007/11 My involvement in SAFE taught me that the problem of oil, and of non-renewable energy generally, was much more acute than the conventional wisdom held. Demand for oil continued to climb, steepened with the explosive growth of China and India. And yet, supply seemed to barely grow at all. What’s more, rising prices were putting cash directly in the pockets of regimes such as Iran, and the terrorists they support. What’s still more, the reality of climate change was becoming increasingly alarming – and gas-guzzling cars were a big part of that problem. All of this convinced me to devote my professional efforts to the industry which was just beginning to be called “clean technology” or “cleantech.” Business and investment: The new paradigm of “cleantech” My favorite formulation for the foundation of the new cleantech industry is as follows: Over the last several centuries, beginning with the industrial revolution, society innovated at an incredible clip, using all the resources at its disposal, no matter how scarce, how dirty, how expensive. The overarching motif of the current century will be making the standard of living that has come with all of that innovation sustainable by transitioning industries to materials, techniques and business models that are more efficient and more renewable — doing more with less. If successful, this will have the added benefit of making exposure to higher living standards more ubiquitous and equitable across the planet. The Israel angle: Israel Cleantech Ventures After making a few modest investments in US companies during 2005, I began to think about what Israel might contribute to innovation in cleantech. Luckily, some of my most talented friends were also beginning to think about the possibility that Israel would have a lot to offer. Together, in 2006, we were able to get off the ground the first venture capital fund in Israel devoted exclusively to the sector: Israel Cleantech Ventures ( http://www.israelcleantech.com ). Israel Cleantech is roughly half-way to raising its goal of $75 million to deploy across startup companies in Israel. It has already made several very promising investments, most recently in Project Better Place. Cracking oil dependence: Project Better Place Because there is such elasticity of demand in oil for transportation — that is, we depend so much on our mobility that we will pay almost any price to be able to drive our cars — and because there are no immediately available alternatives, moving surface vehicles to a different form of energy has been the singular objective that has interested me most. Over time, I came to the conclusion that the much-hyped “hydrogen economy” was illusory. I also concluded that biofuels, like ethanol, were similarly over-hyped — they are resource-intensive, difficult to scale and don’t solve the emissions problem. Meanwhile, with the advent of hybrid cars, which add a small electric motor to assist the conventional engine and moderately increase fuel efficiency, I definitively concluded that a gradual shift to greater electrification was the future of the auto industry. In late 2006 I began actively and aggressively searching for the missing link – the idea that would begin to move the auto industry toward greater use of electricity. In early 2007, while in Israel, I read about Shimon Peres, now President, speaking of electric cars for Israel. After speaking with Peres, I learned that the source of his vision was an idea of an Israeli entrepreneur living in Silicon Valley, Shai Agassi. Shai was the President of product development of SAP, one of the world’s largest software companies, based in Germany, but he had spent time thinking about this oil problem too, and came to the same conclusion I had, that the answer was electricity. He had met with Peres and proposed a state-led solution based on building an infrastructure to support electric cars. Peres told Shai that he was on the right path, but only a private initiative would have a chance to succeed — and that if he really believed that our future depended on it, he should do it himself. And so in March, Shai stunned the technology world by announcing his resignation from SAP, despite public reports that he was likely to be its next CEO, and poured himself into developing the plan that has become Project Better Place. The theory behind Project Better Place is that battery technology, with a safe, reliable 100-mile per-charge range, has already matured to a point that electric vehicles make sense, as a practical matter, here and now. The economics are much more compelling than traditional vehicles. And the political and environmental consequences of continued oil use make rapid transition to electricity an imperative. Shai saw two missing ingredients the addition of which will instantly create an enormous market for electric vehicles. One is infrastructure. That means essentially bringing electric charge to parking spots — the distance is never too far, so think of it as a smart extension cord. Your probably used to your cell phone being plugged in when you are sleeping, or when you’re at work. In the future, your car will be charging wherever it is parked, you’ll start off every trip with a fresh 100-mile range. For the occasional long trip, Better Place is developing “battery swap stations” which will automatically replace your depleted battery with a fully-charged one in less time than it takes to fill up with gas. The other missing ingredient is a business model that unlocks the much cheaper operating cost of an EV for the consumer. That requires not thinking of the battery as a $10,000 component to your car, but thinking of it as you do the SIM card in your phone. You don’t own that SIM card – AT&T does (or Verizon, or Sprint). And you subscribe to their service, at which point they activate your phone and allow it unlimited use of their network. Likewise, Better Place will own the battery in your car, and you will subscribe to Better Place for electrical charge, which will be ubiquitously available. And yes, just as a long-term cell phone contract might earn you a free phone from AT&T, a long-term charge contract may indeed earn you a free car from Better Place! Indeed, it is a brilliant idea whose time has arrived. I like to call it the “anti-catch 22” -- everything you think is going to be a “catch,” is instead another advantage. If it succeeds, what will the world look like?
I feel privileged to be part of each of these political and business initiatives. Please don’t hesitate to write with thoughts and ideas. Meaningfully addressing the economic, environmental and political problems caused by the current global energy profile is something that will require not just great new companies, and wise public policy, but the participation of every good citizen of the planet! | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||