Local Power

"…..all experience hath shewn that mankind are more disposed to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed." The Declaration of Independence

What motivates people to change their habits? It is easy to forget that people don't adopt new technologies because they should. Change is painful. Even when you know it is good for you. Nobody experienced the pain of change more than our founding fathers who personally risked "our Lives, our Fortunes and our sacred Honor" for the Big Idea. The fear of change and the danger of inertia were so central to their experience that the idea made it into the Declaration of Independence.

I am on a quest for Acorn's next big idea. My search has been helped by two great books: Nassim Taleb's The Black Swan, The Impact of the Highly Improbable and Pip Coburn’s The Change Function: Why Some Technologies Take Off and Others Crash and Burn. The thesis of the Black Swan is that venture investors should be looking for opportunities with three characteristics: (1) totally unexpected (2) massive impact and (3) understandable in retrospect. Google was a Black Swan because nobody thought a search engine was a good business until its founders, Sergei Brin and Larry Page, linked searchers to advertising. Coburn's book helps shed light on why often just having the better technology doesn't matter. These two books offer good insights to how we at Acorn are going to "see around the corner" to the next Big Idea.

I think the next Big Idea might be linking electricity market deregulation to renewable energy and climate change to massively deploy energy efficiency and renewable energy systems under a system called Community Choice Aggregation.

Wall Street loves following the cow path. Lately, it has been rewarding developers of new energy technologies. If one solar energy cell company is well received by investors then Wall Street brings twenty five more. Coburn argues that investors are forgetting that technology, no matter how great and obvious, only gets adopted when the pain of a crisis exceeds the pain of adopting the technology. The Comverge load switch has been around for twenty five years. The recent breakthrough was the Virtual Peaking Capacity (VPC) contract that made it easy and compelling for the utilities to buy capacity not capital equipment from Comverge. Every commodity is a service waiting to happen. I think the really compelling "what's next" for energy is the implementers, more than the developers of new technology.

Really big crises like global warming, energy and water shortages can only be solved when public policy and consumer choice align to create a demand for technology. Wall Street is right that we need to reward the developers of great new technologies, but for the technologies to be deployed on a large enough scale to make an impact, the right public policy needs to be in place. I believe we have discovered a Black Swan at Acorn in our most recent investment, Local Power a pioneer in the deregulation of the $325 Billion US electricity market.

There is no more poignant example of necessary technologies needing support from public policy than the relatively recent adoption of the toilet and municipal sewer system. It is almost unthinkable to us today that until the 1850's it was common practice in cities like New York to dump bed pans off the balcony onto the street below. Finally the city fathers had to take action when persistent cholera epidemics were linked directly to the rise in population density and level of human waste in the streets. Toilets and indoor plumbing had been around since the time of King Minos of Crete but had not been adopted outside the palaces. Only a cholera epidemic in New York City forced the city council to mandate the installation of toilets and create the model for the modern sewer system which has been adopted around the world. It is important to note that this change came at the local, rather than the federal level. Cities lead and the Feds follow. The German city of Aachen pioneered the customer payback system that turned Germany into a solar powerhouse. The German federal government copied and helped spread Aachen’s success to other German cities.

Mankind is facing a perfect storm of unprecedented size. Global warming, massive underinvestment in our energy and water infrastructure, coupled with rapidly rising standards of living around the world are on a collision course. Just as a small group of influencers created the American Revolution, and mandated the first sewer system, we can expect a small group of visionaries will lay the foundation for the coming Global Energy Revolution. Whatever you think of his politics, Al Gore and a small group of savvy filmmakers deserve recognition for arousing the American conscience to the climate portion of the storm with their An Inconvenient Truth.

Another less well known but no less important revolutionary is Paul Fenn, the creator of Community Choice Aggregation (CCA) and founder of Local Power. There is a terrific video on CCA on Google made by an independent environmental action group, EON. CCA is a law that has been adopted by five US states and over one million industrial, commercial and residential consumers. CCA is a new model for energy markets that puts cities in charge of their energy future. San Francisco adopted CCA on June 29th in their bid to build the largest renewable portfolio of any city in the world. San Francisco's adoption of CCA is no empty unfunded mandate. As part of adopting CCA, they have authorized a $1.2 Billion H Bond authority to fund a public private partnership to support the achievement of a 51% Renewable Portfolio Standard (RPS) by 2017 that was authored by Local Power.

Community Choice is spreading to other cities across California like Fresno. A public private partnership between Cleantech Inc. and the city of Fresno have agreed to build a solar farm seven times the size of the world's biggest plant and double the largest planned farm. In a interview with CNN, Bill Barnes, CEO of Cleantech, said the scale of the Kings River Conservation District Community Choice Solar Farm will change renewable energy and make California the global leader for huge solar projects and replace Germany as the solar energy hub of the world. "We're pretty confident that solar farms on this scale are going to have an industry-changing impact," Barnes said. "We think it's the wave of the future. This scale of project, I think, creates a tipping point for renewable energy. We think the impact for it will be similar to the impact of the computer chip," which gained computing power once made on a large scale, Barnes said. "So too will economies of scale like the Community Choice farm drive down the cost of solar," Barnes said.

The single most important problem we face is the lack of institutions and incentives to change. We have the technologies today to improve the efficiency of our energy and water systems and to reduce our environmental footprint. Wall Street continues to pay huge multiples for better alternative energy technologies but they are failing to ask what is going to cause their adoption on a massive scale. Solar technology represents much less than 1% of total US electricity supply and relies on federal subsidies that have only been legislated for the next two years. Technologies like solar, biofuels and smartgrid solutions are disruptive and we know that entrenched monopolies never adopt disruptive technologies. The incentive for utilities has been to sell more electricity. To date they have no motivation to push technologies that make their networks smarter or help consumers consume less electricity. They don’t want to adopt renewable technologies because they don’t have any experience with these new assets. The regulators believe their job is to keep a lid on electricity prices, therefore they fight utilities putting in more capacity that will swell the rate base. The unintended consequence is that the average age of the equipment of our electric grid is over 40 years. We need to add new, competitive institutions and incentives like CCA to avert the worst effects of the inevitable perfect storm.

Paul Fenn and his partner John Cutler have convinced me that the solution to the perfect storm exists locally. Local Power's goal is to establish a new institution, an Energy Service Bureau, to help cities adopt CCA and implement intelligent systems that result in the implementation of energy efficiency technologies and foster renewable resources. A lot of smart people are calling for an Apollo program for energy technology by the Federal government. This is a really bad idea because energy is a local issue. The Midwest has coal and corn therefore they want clean coal and ethanol. The west has solar and geothermal. Why should Santa Fe or Tucson subsidize a broad ranging ethanol policy they won’t benefit from? Each locality should be free to make the decisions that match its local interests and assets.

This is an exciting time. Bill Galvin, former CEO of Motorola recently said "Electricity today is where telecom was thirty years ago. This is where the Motorola’s of tomorrow will come from."