If there’s one thing you learn at Harvard Business School (HBS), it’s how to ask a good question. It’s a real skill, and one that does not come naturally. HBS is very good at using repetition and social pressure to teach it.
Tuesday night, I led a introductory discussion at HBS entitled “Cleantech 101” and got a lot of really good questions. Here are the 5 I liked the most, as well as my attempts to answer them:
1. What will be the impact of low natural gas prices on cleantech?
This question presupposes that natural gas prices are going to be low for a long time, so if you don’t believe that you should probably stop reading. I was asked this by a former Schlumberger engineer, so I assume he knows more about oil & gas than I do.
If gas prices do continue to hover in the $4-5/MMBTU range, the result will be a tough environment for renewable project development. Wind development, in particular, will be the hardest hit. In many markets, wind competes with natural gas combined cycle (NGCC) plants at the margin, but the cost structure of NGCC plants are about 2/3rds fuel and 1/3rd up-front capital. Hence, at low gas prices, these NGCC plants can be extremely competitive.
I think we’re seeing this situation play out in the PPA market today, which is seeing price weakness for wind. It’s complicated by the fact that most states, besides CA, are actually on target for their RPS requirements, so REC prices won’t be robust enough to make up for the slack in the PPA market.
Demand-side cleantech should also care about low gas prices, but less so. Peaking power will still be relatively expensive, so I anticipate demand-side management will be an attractive option for years to come. On balance, if you really believe gas prices will be low for a while, but you still are interested in cleantech, I’d propose heading over to the demand-side of the energy equation.
2. Do supply-side and demand-side cleantech need each other to be successful?
This question is getting at the intermittent nature of renewable sources of power. If we have 20% wind on the grid in some states, a grid operator will go from a world wherein he flips on a switch and knows he’ll get a MW, to a world where he might get a MW. That’s a big change, and it’s largely one we’re not set up to handle.
That being said, renewable supply is still a small part of the power mix in most parts of the world (excluding early adopters of wind like Denmark). It doesn’t really need active demand management just yet. Similarly, demand-side management is economically sound in many wholesale power markets that have few renewables feeding in. It profits solely from the dynamics of electricity markets, which have an undesirable peaking behavior.
Eventually, they will need each other and become synergistic, however. I don’t see how you get 20% wind on the grid without (1) better wind forecasting, (2) energy storage, or (3) extremely active demand-side management. We will probably need all 3.
3. If there are so many opportunities in smart grid for electricity, what do you think of the smart grid for water?
I have to confess: I currently spend very little time looking at water technologies. The reason is that, at least in the U.S., water is pretty cheap. Furthermore, the water grid, unlike the power grid, doesn’t experience peaking behavior during the day, so there’s no value in demand-side management. I view the smart water grid as a nice idea, but one where no one’s really shown me an economic business case.
I’m always open to having my mind changed, though.(Update: Check out Jeff LeBurn’s response to this below. Much better than mine!)
4. Looking at the McKinsey abatement curve, why don’t the NPV positive projects get done?
If you haven’t seen the famous McKinsey abatement curve, here it is:
What you see on the x-axis is the amount of CO2e abated by a particular technology, and what you see on the y-axis is the NPV cost per ton of CO2e abated with that technology. Everything below the x-axis is NPV+, while everything above is NPV-.
What I pointed out last night, as many others have, is that everything that’s NPV+ is “efficiency” or demand-side, using technology that already exists. So, why haven’t we done this stuff?
My argument is that, while the projects are NPV+, the NPV may not be positive for a private company taking on these projects. That’s because McKinsey fails to include the corporate overhead associated with, say, running a home insulation business.
The real business opportunity, in my opinion, is applying technology to create a scalable way of picking up all this low hanging fruit.
5. Where should we be looking for jobs in cleantech? ** most important! **
Now, that’s a tough question. It completely depends on the individual, of course. The one piece of general advice I’d give is that “I want a job in cleantech” isn’t good enough. A grid-scale storage company won’t hire you because you’re “interested in cleantech”; it will hire you because you’re “interested in grid-scale storage.”
Pick one or two sectors you think are interesting. Become an expert. Talk to the best companies in the space. Develop an opinion. Try to predict the future.
Being deep here is much better than being broad. So, get deep!
And, one more thing…
I promised to include a list of blogs that I find helpful to keep up on what’s going on in cleantech. Here’s a partial list:
And, of course, this blog isn’t a bad place to find info about cleantech. And while you’re at it, leave a comment below if you have better answers to these questions than I do. Seriously.