Part of a series of insights from leading smart-grid, clean-energy, and utility experts speaking at gridCONNEXT. Questions asked by Clean Edge managing director and gridCONNEXT co-chair Ron Pernick.
Pernick: People often equate clean-tech investing with venture capital. But for the last half decade I’d say the real action has been on the project and deployment side of the equation. Does this synch up with your experience assisting the White House, and others, in building out new energy and water infrastructure?
David Yeh: Clean tech and broader climate solutions growth has been in assets. It is the deployment of utility scale solar and wind power projects that is largely powering the clean-energy revolution (although technology has supported it). Last year, according to Bloomberg, more than $333 billion was invested in clean energy (with just $4.1 billion of that coming from venture capital). Green bonds alone secured $160 billion last year. Moreover, clean energy is just the tip of a larger sustainable real-asset market. The market opportunity is considerably larger when including investments in forestry, agriculture, and water.
Pernick: Clean energy and impact investing are no longer niche to institutional investors. BlackRock, Fortune 500s, and many others are increasing their investments in renewables, energy storage, and more – as Trump champions fossil fuels. What’s going on?
Yeh: It is ironic that the economics of Trump, “the businessman,” is driven by politics. Trump’s championing of coal (as well as tariffs and trade wars) is simply politics, appealing to his base. In contrast, the world’s leading asset managers and companies are embracing sustainability to strengthen their bottom line. Sustainability leadership is increasingly seen as a competitive advantage to grow profits, better manage risks, and meet customer demand. In other words, corporate strategies have gone above and beyond just complying with ESG regulations. It is now about being a first mover and seizing leadership in the world’s largest economic opportunities – many of which are now sustainability based. Global businesses recognize that the revolution in electric-based mobility, meeting the needs of the next 1 billion+ entering the global middle class, and smarter and healthier cities represent the future.
Pernick: What do you think the sustainable economy of the future will look like?
Yeh: In spite of the hundreds of billions of dollars being invested in the sustainable economy, I believe it is just the tip of the iceberg. Think trillions. The utility sector is modernizing their operations and testing new business models. Transportation is taking the leap to become a service, with fleets that will increasingly be electric and intelligent/autonomously driven. With the Internet of Things and 3-D printing, manufacturing is poised to become smarter, connected, and less wasteful. Food is being reimagined to be more ethical, local, and organic. This global transformation will be the root of the largest wealth generating opportunities of our lifetime. There will be other Nests (sold for $2bn+ to Google), Teslas, and Hampton Creeks (plant-based food unicorn) - startups that revolutionize their industries and mint the next class of change agents and billionaires.
However, capital is not flowing equally to all sectors and stages to seize these opportunities. In venture capital, growth companies branded with buzzwords of AI, big data, or even blockchain secure the majority of attention and hence, dollars. Other companies that make things such as specialty materials or new power-generation technologies have trouble getting meetings, especially if they are early stage, outside Silicon Valley, or sell to large organizations like the government or utilities with long sales cycles. Thus, opportunities in many of our nation’s most critical and largest industries, are being overlooked. But this financing gap is a massive opportunity for independent thinking investors to identify and potentially back the next Tesla.
Pernick: As you note, some sectors have received greater attention than others. How can the market begin to address the financing gap for promising, but perhaps less popular, climate solutions?
Yeh: Solving climate change, to borrow a military phrase, will require an all-out “war.” This means using all the tools available including philanthropy, policy, and finance, and leveraging all of the resources that global institutions like sovereign wealth funds and Fortune 500s have. There is no single magic bullet. On their own, in silos, solutions like increasing financing, passing laws, or seeding startups will not solve the climate crisis. For example, even successful startups take 5-10 years, at a minimum, to commercialize their solutions at scale. Mainstream finance pursues largely de-risked investments that often do not need help. Passage of significant new laws is measured in decades (think healthcare, gun control, or tax reform) and often require private sector partnership for execution.
Pernick: When we started Clean Edge back in 2000 we regularly talked about the three-legged stool of Technology, Policy, and Capital. From your vantage point, how can we get these various modalities working together successfully?
Yeh: It is only by connecting the dots between government, finance, innovation, and global institutions that our greatest social and environmental issues can be addressed at a scale, and in a time horizon, that will make a meaningful difference. In the Obama White House, I helped develop system-level solutions with Wall Street, Silicon Valley, and global asset managers to encourage collaborative efforts to build energy, water, and other major infrastructure projects. It required developing a strategic “plan of attack” where the most effective tools in policy, finance, and innovation are identified, integrated into a coherent plan with specific roles, and executed. In practice, this means getting lawmakers to enact enabling policies that set ground rules for a market, using philanthropy to support early innovation, leveraging venture capital to commercialize those early innovations and startups, and then recruiting traditional finance and global institutions for mass deployment.
System solutions are a “team sport.” Moving forward, we need to continue to build strong and effective collaboration between diverse players, and train professionals that are fluent in all three spheres of policy, finance, and market innovation.
David Yeh’s career spans Wall Street, global venture capital, and the White House. He was a senior advisor in the Obama White House 2014-2016, where he advised on investment and innovation in our nation’s energy, water, telecommunications, and transportation infrastructure. He is currently managing director of his own consultancy, Capitol Hill, working with game-changing startups, family offices, and global asset managers on impact investing and system solutions for global sustainability challenges. He can be found on Linkedin.
He was a speaker at gridCONNEXT 2017 in Washington, D.C. For more information, visit www.gridconnext.com .