I wrote a mildly antagonistic profile of star investor Vinod Khosla last week as part of our "Green Kingpins" series. Mr. Khosla responded with a well-thought-out and reasonable rebuttal, which we print here in its entirety.
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To review the issues you raised:
Mr. Khosla is somewhat of a contrarian and can always be counted on to say something that doesn't agree with the conventional wisdom. Actually sometimes he says things that don't agree with things he's said.
Absolutely -- especially the latter line. I've always maintained that all forecasts are wrong -- including mine, as I stated at the ARPA-E conference last week. The ability to learn from mistakes is an important one. That being said, I think the examples you cite do not meet the threshold of disagreeing with myself.
Last year Khosla said, "I do not believe carbon sequestration can work economically." This year he said "...clean coal will become economic."
I've repeatedly stated that traditional CCS is not a viable option (as currently imagined) due to problems with scaling and geology and I stand by that statement. (Lynn Orr, a petroleum engineer who directs the Global Climate and Energy Project at Stanford University, estimates that to store a billion tons of carbon underground every year, the total inflow of CO2 [into the ground] would be roughly equal to the total outflow of oil and gas today.) However, Calera is not traditional CCS; rather, it converts CO2 into useful byproducts (such as cement). In fact, coal production coupled with the Calera process will produce less carbon emissions (on a life-cycle basis) than solar PV. So I am not inconsistent with myself.
For example, last week at the Wall St. Journal's ECO:nomics event, Khosla said, "Solar and wind are not viable without storage." Yet that hasn't stopped him from investing in wind company, Nordic Windpower and solar company Stion...
So while he's investing in solar he has said that photovoltaics are "not scalable and not sustainable without subsidies." and "rich San Franciscans and Germans putting PV on their roofs only delays the problem and diverts money from where it's needed." Solar PV, wind and biofuels are "little markets," according to Mr. Khosla's audacious worldview.
While making investments in wind, he has said that there's little upside for innovation in wind, the Betz limit is being approached, and the available good sites are declining. And without storage, they don't provide spinning reserve.
Differentiating between climate change solutions and good investments is key, and I'd like to commend you for noting the difference; there are many, many solutions in the "green" space that will make a good return, but will not move the needle on carbon emissions. We don't reject the idea that a market exists for niche ideas -- but they are not "climate change solutions" (though they may be good investments). I believe that both PV and wind can both scale to meet 5-10% of the world's energy needs; given the trillions of dollars likely to be invested in power capex over the next 30 years, this is a very substantial market, but in the scale of the power system, these are niches. However, without a significant decline in the cost of storage (and we have investments working on this!), the intermittency and unreliability of wind and PV prevents them from meeting the needs of base-load power generation. We view this "problem" as one of the larger "opportunities" in renewable power. And a solution will make solar and wind more pragmatic.
Prius hybrids driven by Bay Area liberal socialists? Not a solution to the climate or energy problem, according to Khosla. Better to take that money and paint your roof white to improve the earth's albedo. And they certainly don't meet the Chindia test. To meet the Chindia test they have to compete with the $2,500 Tata Nano. "Hybrids are an inefficient carbon solution."
McKinsey conducted a study (Reducing Greenhouse Gas Emissions: How Much at What Cost) on the cost of carbon reduction of a multitude of approaches; they determined that car hybridization was among the most expensive approaches to carbon abatement.
T. Boone Pickens' plan for LNG and wind? "A dead-end street."
I said natural gas, not wind in cars, is a "dead-end street." Since then T. Boone has changed to gas in fleet vehicles and trucks. That, I think, can work -- and is already working in New Delhi.
New battery technology for EVs? It's unlikely that Li-ion or Ni mH chemistries will yield significant breakthroughs according to The Vinod. That has not stopped him from investing in battery firms Sakti2 and Seeo.
Today's parallel hybrids are not a cost-effective solution towards climate change -- that is a fairly indisputable point. There will be 700M to 1B cars sold over the next 15 years worldwide. Is the average Chinese or Indian consumer really going to pay $25K for a Prius instead of $2,500 for a Tata Nano? With regards to battery storage, I think I've noted the limitations in traditional battery chemistries and manufacturing processes; our investments are either utilizing new higher-risk, higher reward approaches with both chemistries (Seeo) and manufacturing process/design (Sakti3). Storage is a key enabling technology for renewable power and grid regulation / stabilization in general, and ignoring it would be nonsensical. I do not think that traditional bulk, flammable lithium-ion batteries will be economic. That's the problem Seeo and Sakti 3 are trying to solve. We're still out there looking for "Six Sigma" batteries with a 90% probability of failure.
Certainly, energy efficiency is a good thing? Sorry. According to Vinod "The Buzzkill" Khosla, "Too many people in the environmental movement think that efficiency is the answer. Efficiency is valuable but not sufficient."
I hardly think that calling efficiency "valuable" is the same as equating it to being a bad thing, as you suggest. Efficiency is absolutely a factor in combating climate change, but it is not a singular solution. Given a 3.1% world GDP growth rate, McKinsey has estimated that the carbon efficiency of the world GDP needs to grow at about 5.6% per year to meet their recommended set of global carbon reduction targets; essentially a 10X improvement in carbon productivity would be needed. Efficiency will contribute to this (and we've backed this belief with investments in the area), but it will not do so singlehandedly. The world, despite large efficiency improvements, will consume many times more energy by 2050.
According to Khosla, we need "relevant scale" solutions attacking oil, coal, cement and steel. "500 million people on earth enjoy a lifestyle that 9 billion people will want in 2050."
Khosla is looking for "black swan solutions" that cause "technology shock."
According to him, the new green is "Maintech" not "Cleantech" and we need to go after huge markets like engines, lighting, appliances, cement, water, glass and buildings and not fritter away our time and effort on PV and wind
A few years ago during the "nanotech bubble" Mr. Khosla sounded the (sensible) alarm that nanotech wasn't a market and that the nanotech boom was an illusion. His concern in greentech is that "too many [non Khosla-backed?] companies have filed and we will get a nanotech moment." He's "much more concerned about premature IPOs" and gives an example: Codexis recently filed their S-1 form in preparation for an IPO but according to Khosla, the company is "pretending to be a biofuels company when it is a biotech R&D firm."
One of our biofuel companies rejected the deal Shell offered before they went to Codexis; it was a bad deal.
The areas that Khosla sees as promising are internal combustion engines, bioplastics and agriculture while he believes that LED lighting, biofuels and clean coal will soon become economic.
Fortunately for Khosla and his Limited Partners, he can afford to be wrong nine times out of ten -- as long as he's very right occasionally and finds that black swan.
I don't believe PV and wind are a waste of time; as explained earlier, I'm confident they will make good investments and have a part to play in combating climate change and building successful companies. Even with the successful solar and wind companies, the scale will not be a large enough dent in power generation carbon emissions to be material. At a high level, what I do believe is well summarized in this quote (from Gordon Haff): "It's not that incremental changes aren't desirable. They are. Indeed, a lot of power efficiency work in a sort of whack-a-mole game of accumulating small wins. However, from a macro and policy perspective, big wins don't come from the niches. They come from making substantial impacts on substantial use cases." I believe they come from Black Swans. Hence, my thesis around Black Swan solutions to the carbon problem. We're in a crisis, and there is an opportunity to reinvent our energy infrastructure; it would be a folly to waste it.
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Vinod Khosla
Founder, Khosla Ventures
An entrepreneur, investor, and tech visionary, Vinod Khosla is a pioneer of the venture capital industry and founder of Khosla Ventures. Mr Khosla was a co-founder of Daisy Systems and founding Chief Executive Officer of Sun Microsystems where he pioneered open systems and commercial RISC processors. During his tenure at Sun Microsystems, Vinod Khosla worked closely with board member John Doerr, of Kleiner Perkins Caufield & Byers (KPCB). After several years of closely working with the team, he switched sides and joined KPCB, where he continues to be a general partner of KPCB funds through KP X.
While at KPCB, he and other partners at the firm took over on the Intel's monopoly with Nexgen/AMD (the only microprocessor to have significant success against Intel, sold to AMD for 28% of AMD). Thereafter, Mr. Khosla helped incubate the idea and business plan for Juniper to successfully take on Cisco's dominance of the router market. In addition, while at KPCB, he was also involved in the formulation of the the very early advertising-based search strategy for Excite, and from there also helped to transform the moribund telecommunications business and its archaic SONET implementations with Cerent (sold to Cisco for $7B), and many other ventures. During his years at KPCB, Mr. Khosla was a key team member in creating value, having fun, succeeding, and driving impact in partnerships with entrepreneurs and the partners at the firm.
In 2004, driven by the need for flexibility and a desire to be more experimental, to fund sometimes imprudent "science experiments", and to take on both "for-profit" and "for social impact" ventures, he formed Khosla Ventures. Khosla Ventures focuses on both traditional venture capital technology investments and clean technology ventures.
Aside from spearheading Khosla Ventures, one of Mr. Khosla's greatest passions is being a mentor to entrepreneurs, assisting entrepreneurs and helping them build technology based businesses. In addition, Mr. Khosla is a charter member of TiE, a not-for-profit global network of entrepreneurs and professionals founded in 1992 that now has more than forty chapters in nine countries. He is also a Founding Board member of the Indian School of Business. His current passion is Social Entrepreneurship with a special emphasis on Microfinance as a poverty alleviation tool. He is a supporter of many microfinance organizations in India and Africa. Mr. Khosla is also passionate about alternative energy, petroleum independence, and a pragmatic approach the environment.
Vinod holds a Bachelor of Technology in Electrical Engineering from the Indian Institute of Technology in New Delhi, a Master's in Biomedical Engineering from Carnegie Mellon University and an MBA from the Stanford Graduate School of Business. He can be reached at vk@khoslaventures.com.