Stephen Lacey: Hell hath no fury like a solar company scorned. We said at the end of last year that 2017 would be rough for some residential solar companies. 2016 wasn't easy after all, and we were not lying. Already this year, the fifth largest solar installer, Sungevity, has declared bankruptcy and NRG, once the fourth biggest residential installer, for just a little bit anyway, has divested fully from the sector.
Meanwhile, everyone's trying to figure out SolarCity's role inside Tesla, and Sunrun appears to be the only big player on firm financial footing. Does this tell us anything new about the feasibility of the national installer model? Then Trump's executive order on climate change is finally here, but it's not changing the minds of any utilities.
We'll talk about what's in it and discuss the difference between political optics and reality. Jigar will also share his disdain for the America versus China narrative that often frames this topic. That Jigar is the one and only Jigar Shah, our co-host and President of Generate Capital coming to us from New York. Hello, Jigar.
Jigar Shah: Hey. I missed you guys last week.
Stephen Lacey: We missed you, too. We know how much you love coal, so...
Jigar Shah: Mm-hmm. I get it every Christmas.
Stephen Lacey: From the swamp of Washington, D.C., it's Katherine Hamilton, a partner with 38 North Solutions. How is the swamp doing these days?
Katherine Hamilton: It's swampier than ever. It doesn't seem to be draining very well, but Jigar, I loved being able to ask Mary Ann last week about the bus ticket out of West Virginia. She was super happy to address that issue.
Jigar Shah: I mean, all of us feel protective of our heritage. I'm just saying, I'm from one of those towns that blew up. None of my high school friends really have a great job.
Stephen Lacey: Well, I know someone who's got a pretty good job and that is our in-house expert, our Senior Analyst for Solar at GTM Research, Nicole Litvak. We're going to tap her for some in-house expertise. She tracks residential solar activity among some other things and we've asked her here to provide some thoughts on the good, the bad, and the ugly in the business. Hello, Nicole.
Nicole Litvak: Hey, Stephen. Thanks for having me.
Stephen Lacey: I guess there's really no other place to start but the ugly here. This month, Sungevity finally threw in the towel after a pretty rocky year that ended with this failed reverse merger, a dramatic reversal in the business model, a sales price that was a fraction of what they raised in venture capital and project financing. I remember the first time that I heard of Sungevity back in 2007, so 10 years ago.
This woman popped up on the screen and said, "Welcome. We're going to guide you through the solar sales process and we're going to take a look at your roof." It was this really cutting-edge piece of web-based software that gave customers an idea of what kind of solar system they could house on the roof and aggregated customer acquisition for local installers.
Eventually, Sungevity evolved. They raised a lot more project financing, they became a more capital-intensive business and rose up the ranks as the fifth biggest installer in the country. What kind of company did they become and what kind of volumes were they doing, Nicole?
Nicole Litvak: Sure. Starting with their relative position in the market, as you mentioned, they ended the year at number five for 2016 with just under a 2 percent market share in residential. At their peak, they were the number three installer in 2014. That was with about a 2.5 percent market share. Let's go back to the beginning around 2007, as you mentioned. There were really two unique things about Sungevity. The first is that they weren't actually an installer. They were doing everything but the physical installation.
They did the sales, the procurement, the financing and everything else and then they just used local subcontractors to actually install the systems. The second thing that you also alluded to was that all of their sales were done remotely. They did everything over the phone or online and sometimes in stores, but they never sent salespeople out into people's houses like all the other installers were doing.
Over the years, that gradually changed and they actually started outsourcing some pieces of the business. They used to raise their own project financing, eventually they started using companies like Sunrun and Mosaic for some of their project finance. They also started using more and more sales channel, channel partners for sales rather than doing all of the sales in-house. That is perhaps where things started to go wrong.
Jigar Shah: Yes, I think I'd like to start from a slightly different place. The problem with the residential guys writ large is that they really thought that growth was good across the board, right? That they didn't really bother, I guess it's Silicon Valley style, with trying to figure out how to make profits. When you look at Sunrun, who I think is the best of the bunch, Sunrun has always been very clear that what they are is a conduit to capital markets.
Everything else is really outsourced to the local provider and they're not going to compete directly with the local provider. They did buy REC's solar division, but that was sort of just because they thought they had to go public. In general, they've been very true to their knitting. SolarCity tried to vertically integrate and thought that they were going to be good at everything, including making racking and panels.
Sungevity really thought for a hot second that you could close a $20,000 purchase over the internet, which I thought was the dumbest thing I've ever heard, but Sungevity never found its place in the world. What they should have been was the most advanced, smartest lead gen company in the country. That is what they were funded on originally. They never actually realized that that is exactly what they needed to perfect and so they were all over the map.
Stephen Lacey: That's a point that you brought up this morning, Nicole. You've commented in subsequent media pieces after the bankruptcy. You said that if they had stuck to their focus in the very beginning, they might be in a much better position if they had just stuck to maybe just the lead generation piece.
Nicole Litvak: Exactly. I think it's hard to compare Sungevity to some of the other installers, especially when you're talking about that argument about whether it's possible to scale nationally. Sungevity actually was able to scale nationally. They grew pretty steadily just like Sunrun, which was a good thing, but the problem was more so this model, especially in the later years where they were doing less and less.
The way I think of it is they were kind of the equivalent of a commercial solar developer who doesn't do the origination or the financing. The problem is in residential solar, you don't actually need that extra middleman. Yeah, I totally agree with Jigar that you could have gone back in time and just stuck with what they were good at, which was lead gen and maybe even the sales piece over the phone and online sales piece, that could have been more successful.
Jigar Shah: The other problem I find though is that there is this tendency for media outlets like Greentech Media but also others to really want to root for somebody to become big and then go public and wherever else. What you find in the solar space at least is that the most profitable companies consistently all day long are the mom and pop shops, right? The folks who have $10 million to $50 million of revenue a year.
They're mostly getting referrals from their existing customers that grow at 10 to 20 percent a year. People don't want to cover them because they're not taking venture capital money, they're not going public, they're not doing all the stuff. What you found in the last two years is they have won back a tremendous amount of market share.
Stephen Lacey: They certainly have and we've been tracking that change in market share. A few different things probably to dissect there, the first one being whether or not the national solar sales and installation model actually works. We've discussed that a few different times on the podcast.
My take on that is basically that so far aside from Sunrun, we don't really have any evidence that that sales model works. I don't necessarily think that's because the sales model is the wrong model or the national model is the wrong model, it's because they're scaling way too fast. Sunrun has the national model, but they're doing OK now.
Jigar Shah: Right, but why wouldn't you come to that conclusion? There is not a single one of Sunrun's customers that has ever heard of Sunrun. Sunrun's brand is not ubiquitous. They haven't spent any money on their brand. When you look at the rest of the home services sectors, they're the same. When you look at roofing companies, there are no national successful residential roofing companies or HVAC companies or others. Sometimes the manufacturers do marketing like Carrier or Lennox or whatever, but all the marketing is done by local companies.
Stephen Lacey: This is the big question right, Nicole?
Nicole Litvak: Yes. I think there are two real reasons why Sunrun has been more successful with this model. One is that they never really had the huge boom that SolarCity and Vivint went through around 2013 through 2015 where they were growing at all costs, spending a ton of money on marketing and growth and then suddenly crashed or went flat in 2016. Sunrun has just always been very stable in their growth going back 10 or so years.
The second reason is because they've been able to use the local installers that they partner with to learn those local markets. I've noticed a lot of times when they enter new markets, it seems like that might be where they're using local sales partners and not immediately setting up shop themselves.
Stephen Lacey: There are a few different things that I wanted to get to that Jigar talked about regarding the national sales model, but I think it's helpful to draw a distinction between Sungevity and Sunrun because they do have very similar models. Why was Sungevity burning a bunch of cash and Sunrun wasn't when they're both partnering with outside local installers?
Nicole Litvak: Sure. Sunrun actually has two different models within the company. For a lot of their installations and in fact more than half at this point, they are vertically integrated. They're doing the sales and installations themselves and they've been able to lower costs on that side of things.
Going through their partners, that's where they're able to use local expertise where they need it even though it might be a slightly higher cost there versus Sungevity that is doing a lot of different things and kind of nothing at the same time. Sometimes using channel partners, sometimes not, not doing the installation, different things for financing. There just seems to be a lot of added costs the way that the company was managed. We did hear that they had higher costs compared to other installers.
Stephen Lacey: One more question about Sungevity, Jigar, to you. They basically sold their software platform now for $20 million dollars to a private equity firm. Could this story still play out positively?
Jigar Shah: Well, it depends on your perspective. Certainly for the existing investors in Sungevity, their entire stake has basically been wiped out and folks have moved on. I don't think that it's going to end up positively there. Frankly, I think that the platform, the software that they put together, is something that is claimed at least by Spruce Finance and Sunova Capital and lots of other folks who believe that their platform is also very robust and interesting.
I don't know how valuable that is. You saw OneRoof in big trouble and they were a platform play, so in the end, I think that whether it's the solar space or whether it's energy efficiency space where Next Step Living was there, you find that it's really all about customer acquisition cost. The only sustainable model for customer acquisition cost has been a small amount of marketing and a whole lot of referral business.
Nicole Litvak: Yes, I think it might just be too late for Sungevity to come back as just a software platform now that there are so many other ones, as you said. Everyone has their own software. That was probably something they should have done from the beginning.
Stephen Lacey: Yeah. In 2007, they were really the only game in town. I think the only platform was Find Solar, which was basically like a database where you typed in your ZIP code and you could find a local installer. There were really no platforms before 2007 that I really recall. Back to the national solar sales model, I guess my argument is that I believe that many of these companies have failed because of their desire to scale too quickly.
I shared the same sense of skepticism about the national installation and sales model and clearly as many have pointed out, there's just no similar model in other home improvement and contractor businesses. There is this other element that Nicole and I were discussing with MJ Shiao, who is our Head of Americas Research this morning.
He said that the benefit to the national sales model is that these companies, these national companies, actually subsidize certain activity for the smaller installer. They do a lot of the marketing that ultimately helps the smaller installers. They do a lot of the heavy lifting in policy, which ultimately helps the local installers, so there are ways that this national model has really helped everybody in the solar industry.
Jigar Shah: Well, that's obvious. Yeah, the national players have allowed smaller installers to free-ride off of them. That's not something that investors want to hear when they decide to make future investments into a company.
Nicole Litvak: Right, and since those original companies, no one else has really been able to scale nationally. Verengo was a huge California installer. They were once in the top five nationally just based on how much they were doing in California. They tried to go to the Northeast, they couldn't, and then on the flip side, companies like NRG Home Solar, Direct Energy Solar back when it was Astrum, they both tried to go to California, and same thing. They couldn't make it work there. I think a combination of different cost models, different policy in those different states. Same thing has been happening with a lot of door-to-door sales companies that have tried to scale nationally and haven't been able to.
Stephen Lacey: The door-to-door sales model is really interesting, it's kind of the exact opposite of the software platform-based approach. You've tracked a ton of new door-to-door sales companies. Vivint was the original one when they started in Utah and they came out of nowhere. Since then, a bunch of new door-to-door companies have popped up. Who are they?
Nicole Litvak: This is actually really fascinating. A lot of companies spun out of Vivint. People left Vivint and decided to start their own door-to-door sales company. Some of them were just doing the origination and then selling those systems to other companies. There's a company called Legacy Power that originates for Sunrun. Some of the other companies were actually doing the installs themselves, like Suncrest Solar.
Those all pretty much scaled into a lot of states, very quickly invested a ton of money in their salespeople, and a lot of those went out of business just as quickly as they popped up. Then what happened and what we're starting to hear about now is a lot of even smaller door-to-door, I wouldn't even call them companies. It's just individual people starting up their own companies doing just door-to-door origination and selling to local installers who are struggling with customer acquisition.
Jigar Shah: Yes, look, in the end I think this is going to have to use tried-and-true methods, right? Sort of old is new, like Avon or Amway or whatever. There's a group called Power and they basically have everyone being on commission-only. I think they're up to 5,000 commission-only salespeople across the country. In this business, I don't think much has changed since people were selling encyclopedias door-to-door or vacuum cleaners or anything else. I think the Internet is great for data, but otherwise, this is really about just old is new business models.
Stephen Lacey: Jigar, you mentioned Next Step Living earlier. This is a Massachusetts-based company that was founded off of the back of Massachusetts major green energy legislation that offered rebates for efficiency and for solar. They just exploded across the state and started off in weatherization and home improvement and then moved into solar, very quickly scaled up their solar business, but couldn't make it work and later shed that business last year.
Eventually, the entire firm collapsed. I know that like with many of these other companies, there are plenty of folks from that company that are trying to rise from the ashes and start new similar companies. What happened, in your opinion, with Next Step Living? Is this materially different than a Sungevity collapse?
Jigar Shah: No, not really. It's sort of the same thing. You find that everybody wants something to be true, but oftentimes, it's not. Basically, I think we've known for a long time that solar and electric vehicles capture the imagination, energy efficiency does not, but it's such a good. Everybody wants it, there's lots of free money out there, etc. They really thought that through scale and data and internet and all these sort of newfangled words, that they would actually get to a self-sustaining customer acquisition model and they just never got there.
Braemar Energy Ventures and VantagePoint Capital and other folks just kept pouring money into them and the reason that they failed was one day, VantagePoint woke up and said, "This is never going to work." They were ready to close on a new round. VantagePoint called the last minute, said, "We're pulling our check." Everyone else pulled their check and they promptly had to shut their doors the next day because they didn't have the money to make payroll. I think it's the same story as Sungevity and lots of other companies.
Nicole Litvak: It seems that if you have margins as small as you do in an industry like that, 110 inches of snow in Massachusetts that year certainly did not help.
Stephen Lacey: Right. That impacted project development and deal flow for them.
Jigar Shah: I don't think that that's margin, I think that that's burn rate. There are all these companies where they're like, "Well, we're losing $5 million a month, but we're going to make up for it. One day, it's all going to come together." You're right. The winter and 110 inches of snow didn't help them, but it's the same mistake the venture capitalists make over and over and over again. These businesses are really made to grow through retained earnings at 20 percent a year. They're not made to grow at 100 percent a year.
Nicole Litvak: When you think about companies like Next Step Living or local companies in California, I think the residential industry has really gone through this big fundamental change in the last year where the market used to be growing 50 percent, 60 percent, 70 percent every year and everyone was growing. Now suddenly, that just came to a halt and you have to know how to grow with low costs and be smart about your customer acquisition and your marketing and your spend on all those things. It's just not possible for all local installers to succeed.
Stephen Lacey: Well, and of course this year we're going to see a much smaller growth rate partly caused by problems in the Southwest and a slowdown in California. Jigar, you'd say that's probably more sustainable, right?
Jigar Shah: I don't think it's a bad thing. We're putting to work something on the order of $15-$20 billion a year on rooftop solar. I don't think that's a small number. If that number grows at a more sustainable 10 percent a year or 20 percent a year, I think that's great. On top of that, when you look at the amount of coal plants and natural gas plants that were retired last year, their retirements exceeded the number of new coal and natural gas plants that were built last year.
Last year, we actually lost a net of 2,650 megawatts of fossil fuel plants. You can safely say that 100 percent of all new capacity additions on a net basis came from clean energy. I think we've sort of hit our milestone and if we grow at 10 to 20 percent from that level, I'm good with that.
Nicole Litvak: Yeah, I totally agree, especially if it does force companies to be smarter about their costs. That's just going to be good for everyone in the end.
Stephen Lacey: Changing subjects now. It's official. The US government no longer recognizes climate change as a threat. With the flick of his wrist and a nod to the coal miners around him, Donald Trump signed an executive order to end the Clean Power Plan this week. "Come on, fellas. You know what this is? You know what this says? You're going back to work," declared Trump to the miners. The end of the EPA's Climate Plan, or the attempt to end it I guess I should say, has been getting most of the headlines and airtime on this show.
Less appreciated but arguably more important are some of the other changes, particularly this downward revision of the social cost of carbon, the number that the government uses to evaluate the climate impacts of its policies and its regulations. The order also instructs the government not to plan for direct climate impacts to its own infrastructure. Meanwhile, there's this new survey of North American utilities from Utility Dive and as expected, it directly counters the President's narrative that he has woven this week about energy and climate. First to the order. Katherine, how would you describe it and what else is in there?
Katherine Hamilton: Yes, I think that it is very cynical. It definitely does couch everything that we do in federal leadership as being much more fossil fuel-based. In particular, the language says, "We're going to roll back any agency actions that potentially burden the development or use of domestically-produced energy resources with particular attention to oil, natural gas, coal, and nuclear energy resources."
This is the reverse of the, what they call "the war on coal", which is the war on clean solutions. I want to couch this into what it can't do and what it can do. What Trump can't do is it can't change the 2007 Supreme Court decision and the 2009 finding by EPA that carbon and other greenhouse gases propose a health risk and have to, by law, be regulated by EPA under the Clean Air Act. Can't change that.
Stephen Lacey: That is called the endangerment finding.
Katherine Hamilton: Right, the endangerment finding.
Stephen Lacey: You'll hear that term thrown around a lot. It's actually a point of contention within the White House, reportedly. There are some folks within the EPA and within the White House that are telling the President and Scott Pruitt to revisit the endangerment finding and Scott Pruitt has actually argued against that, saying that it's just way too tricky legally.
Katherine Hamilton: They're going to be sued every single step of the way. They also can't change the economics. They can't change basic economics of solar and wind versus coal and even natural gas. They can't change the fact that most states are going to meet and nationally will meet the Clean Power Plan goals. A lot of them, a lot of the goals have already been met in many states.
They were not very extreme goals, so he can't change that. He actually won't bring back the coal jobs and he can't change the facts of climate change. It is happening whether or not they say it's happening. What this can do is it can increase cost to consumers, it can continue to damage coal communities because it will extend potentially the life of some of the mines and some of the coal plants a bit longer.
It can reduce economic competitiveness in some ways even if you can't change the basic economics, but the biggest thing for me is that it changes the way we're seen globally as leaders. It changes the optics. We have a bully pulpit as a leader globally and this really changes the way we're viewed by countries all over the world. One thing it did not do was address Paris, but certainly based on what this is, we won't meet our Paris commitments based on what Trump has laid out here with his plan.
Jigar Shah: I want to disagree with the Paris piece, though. I still think we're going to meet and probably exceed our Paris commitments. Trump I don't think has any influence whatsoever on changing the trajectory of our missions.
Stephen Lacey: There was one study from the Rhodium Group that showed under Trump's executive order, that emissions will be about 14 percent below 2005 levels by 2025 versus the 21 percent below.
Jigar Shah: No, the caveat matters there. What they said was that if Trump was successful in executing on what his executive order says, then it would reduce the progress on the emissions reductions.
Stephen Lacey: Jigar, this president closes deals.
Jigar Shah: He does it all day long and twice on Sunday while he's on the golf course. Look, I don't think it's going to happen. As Katherine said, he's going to get sued six ways to Sunday, the environmental groups are nothing if not experts at lawsuits. When you look at the way EPA works and the legal precedent, once an endangerment finding is found or once a regulation is established, the government actually is forced to make the argument exactly the same way.
They can't actually say, "We now believe that climate change is not real." The Supreme Court has actually already said that a change of administration can't make an opposite argument. What they can say is, "We've reevaluated the data and the data leads us to a slightly different policy conclusion." They're not allowed to actually just reverse their opinion once a final rule's in place.
Katherine Hamilton: Yes, and remember there's a process in place for rule-making. When the Clean Power Plan was done, that process was very long and very iterative and there was a great deal of stakeholder input. The draft rule came out in June of 2014 and then there was over a year of accepting comments and significant changes being made based on input from stakeholders and input from all the states that preceded the August 2015 final rule being issued.
It is a long process and I don't think that based on what they want to do with the staff at EPA, the cuts that they want to make, that they're going to have very many bodies to actually go through this plan. It takes a lot of work to get these things done.
Jigar Shah: Well, that was the other most ridiculous thing about this whole thing. Why would you put the press conference in front of EPA, where people have literally spent their lives protecting Americans? Why would you do that? You literally took all the people there, whether you like them or not, whether you want them laid off or not, they are going to thwart your agenda in every micro way possible because he literally spat in their face.
Katherine Hamilton: Yes, the invitation email subject line said, "Our Big Day."
Stephen Lacey: Presumably meaning the coal miners, right?
Katherine Hamilton: The worst thing is that he has conned these people into believing their jobs are going to come back and they're not going to come back. I think the industry knows that. The industry has admitted they're not coming back. That, to me, is the cruelest thing. If he wanted to really be a hero, he could say, "Look, we're going to give you guys what you need to transition to a clean economy" and still have all the guys up there, but then take a completely different position and be a hero, but he's not. He's catering to the fossil fuel industry.
Jigar Shah: Well, so I have a really good friend of mine from college who is a large, large Trump supporter. We fight on this stuff on Facebook on a fairly regular basis and he keeps making the same arguments from the Trump side. I keep saying it's just not how it works. It's like that commercial for Facebook. It's like, "It's not how it works." That's not how any of this works, right? Trump has lost on the immigration piece because federal judges said, "Your intent was basically to ban Muslims", which is not possible.
He really does have free reign on immigration, he just doesn't know how to keep his Twitter mouth shut. The same thing's true with the healthcare bill. The same thing's true with all this stuff. He literally doesn't actually want to understand how the government works and none of his people want to understand how the government works, which is why I don't bother with all of his BS. It is so easy to thwart him because he doesn't actually understand or care to understand how the government works.
Katherine Hamilton: Well, there's a group called the Environmental Protection Network that's former EPA and other agency employees who are putting together a whole host of talking points. They do know how things work on what can work and what won't work and what he can really get done, so that's interesting.
Jigar Shah: Brad Plumer did a whole piece on this in Vox about how this is literally going to be a two year effort if it gets done at all. It's entirely possible that they don't get it done. I honestly just, I think that Trump knows how to make a spectacle of himself and own the news cycle, which is unfortunate, because so many other stories are not getting into the news cycle these days. I just am not worried about this at all.
Stephen Lacey: I want to issue a line of defense because we've heard from a couple of listeners recently, which probably means there are plenty more people out there thinking this, that we're covering Trump a lot and that there are a lot of good stories to tell in the industry. I hear you, but we are undergoing such a dramatic reversal in this country in terms of policy that I think it's helpful to talk about the big pieces of news and to give people some perspective on these very large steps in the opposite direction.
I agree that there are a lot of stories even in our industry that we're probably not covering because this is taking over the news cycle, but I would argue that this is extraordinarily important. It's really changing the framework for the way people think about long-term planning.
Jigar Shah: I'm on the record saying it's not important and it hasn't been important. I was in San Diego with all of the most important finance leaders in the United States at the Infocast conference. Not a single one of them said that their investment plan is going to change because of Trump. Not one. All of their law firms have said that this is all complete and utter BS.
The healthcare battle was done so poorly, that they now believe that tax reform is impossible by this President and so they're no longer worried about tax reform, either. That's how incompetent this administration is that no one at Infocast was hesitant in the least at actually committing $500 million, a billion dollars of capital to new projects because they thought that nothing was going to change.
Stephen Lacey: I hate to sound repetitive, but I'll just make the point that I've been making since the election. That is, you have to think about climate policy and renewable energy policy differently. Many of the biggest investors and law firms and developers and utilities are not changing their plans and we can get into that utilities survey from Utility Dive where it's very clear that regardless of what the President does, utilities are not going to change their investment plans to embrace renewables and natural gas and efficiency.
However, when it comes to climate policy, the Interior Department is now getting rid of the restrictions and mining on federal lands. They are abandoning their efforts to reform the coal leasing process, which is a mess. They are absolving their responsibility to put a price on carbon and to think about climate impacts when developing new infrastructure and then ultimately, we're losing our prestige on the world stage, another argument that we can talk about in terms of the US versus the world or US versus China narrative. Climate policy is very worrisome. Renewable energy policy and business activity is still a different story. I just want to make sure that we're distinguishing between the two.
Katherine Hamilton: I wouldn't put this necessarily all in the lap of the President, either. Congress is also doing some pretty nutty things. The Science Committee, which used to actually discuss science in a real way, scientists were on that committee, the chair of that committee is Lamar Smith, a Republican from Texas. He was impugning Science Magazine as not legitimate. There's this whole ongoing battle with de-legitimizing facts and de-legitimizing science.
It's not just the administration that's doing that. What I worry about is that there's so much of this going on and the narrative is so strong about what's real and what's not real and "What do we really need to worry about?" while climate impacts are soaring and while the administration is trying to really cut, even pull back money from last year's funding back from the agencies to put into the Defense pot from non-Defense discretionary. $18 billion they want to cut back.
I really worry about our national brain trust, especially in places like the National Renewable Energy Lab. Those labs are really important for our industries to be able to collaborate in a way that is an appropriate role for government. I would hate to see those suffer because of this ongoing onslaught and it's all driven by the fossil fuel industry.
Jigar Shah: Yes, but they always lose. Why? Because those labs are placed strategically in districts that are run by powerful congressmen and senators who will protect those labs because they protect the jobs that are there. This is a game that we've played for 40 years. I didn't suggest that now that the Republicans are anti-science because they want to protect their fossil fuel brothers and sisters or because they're actually trying to help reduce taxes for fat cat donors, that something is going to change.
It's not like these things, decisions were made by stupid people. We have the entire system gamed, right? That's why we have Republican congressmen on the Alliance to Save Energy's board. That's why we have all these education things. That's why these folks talk about how important the jobs are to their districts. I don't think that this is a lost cause.
Katherine Hamilton: No, I'm not saying it's a lost cause, but I am saying we have to be really aware of it and fight back as hard as we can because we don't want things to slip through the cracks. Also, this was not happening during the Gingrich days even though he did have the contract on America. They believed in science. He and Nancy Pelosi sat together on a sofa and said, "We believe in climate change." Where has that gone? That left when Citizens United decision came down and everybody depends on the donors. The donors have come from the bigger industries.
Jigar Shah: Yes, but I'm just tired of the Trump narrative. When George Bush came in, remember they had Christine Todd Whitman that ran the EPA. As soon as she was trying to regulate carbon dioxide, they're like, "Oh, you're gone in a hard second." Then EPA was filled with crazy people to run it and every time there was a chemical that needed to be banned, magically the Bush Administration lost the report and said, "Oh, we don't think that that's actually something we're going to regulate." This has been happening for years. This is not a Trump thing.
Stephen Lacey: Right, but what's different now is that the climate impacts are materializing much faster than anyone thought. We are moving alarmingly slow on climate. It's just a hell of a lot worse under the Trump Administration.
Jigar Shah: I don't agree. I think if Hillary was President, she would have said a lot of great things, we would have had a lot of great policies, but I don't think climate emissions would have magically reduced by 30 percent the next day. This stuff is hard. This is all physical infrastructure and we're busting our ass every day to get the permits we need and the contracts we need and the investment we need to get stuff done. Our work, which is where climate and clean tech intersect, is just as hard today as it was last year. I don't think the Trump Administration is having any impact on it whatsoever.
Katherine Hamilton: Well, and tellingly, 62 percent of Trump voters believe in carbon tax or regulation and 75 percent of Trump voters believe in increased renewable energy. I think that while I worry constantly about Congress and try very hard to educate them, that some of them are coming around and some of them continue to believe that it's something that needs to be done. I think when they go home during their breaks, they hear from constituents on both sides of the aisle who support clean energy and I think that will continue.
Jigar Shah: ExxonMobil just came out and said that they wanted the Paris agreement left in place.
Stephen Lacey: That's right.
Jigar Shah: I'm just tired of worrying about this. I sleep well at night.
Stephen Lacey: Okay, well, let's talk about another argument that you hate. Very quickly, I want to squeeze two things in here. The first is this China versus the US narrative. A number of people have come out when that executive order was announced and said, "Well, the United States has ceded its technological leadership to China. Now China's going to own the energy future. They're the clean energy future." Why do you hate that argument? Or at least disagree with it?
Jigar Shah: I hate it because it's basically a jingoistic argument. It's basically saying that like Jeff Sachs, Joe Romm and then Jeff Nesbit from Climate Nexus tweeted it out. Basically what they're trying to say, I think The New York Times actually had an article on it, they were saying like, "A good argument is to pit the US against China and because we hate China, then we're going to be more motivated to do the right thing" when the reality of the situation is the US's supply chains are mature.
We don't change that often. We get heavy oil from all these places, our refineries are made to run on heavy oil, we send our light crude oil other places. China's growing super fast. They need to get more oil, they need to get more coal, they need to get more gas. What they're realizing is actually it's so much easier just to be more efficient as an economy than to go negotiate a deal with some dictator in the middle of Africa to get those resources.
China is doing clean energy at breakneck speed not because of the planet, but because it's in their best interest. It's the easiest way for them to run their economy is to use our technologies, which they can control and manufacturer, as opposed to what the US did, which was cut deals with Saudi Arabia and cut deals with all these other people which are not easy for them to replicate.
That's why China is investing so much more than we are, because they're actually building those supply chains when we already have mature ones. Separately, you see that China needs technology and know-how really badly. All of it without exception comes from United States. It doesn't come from Germany, it doesn't come from Japan, it comes from the US. We are still the bastion of innovation.
Innovation is not occurring in China. They are certainly manufacturing a lot of solar panels and manufacturing a lot of wind turbines, but the Siemens and the Vestas of the world and the GE's of the world are where all of that innovation is coming from. They're the ones who are actually leading the charge on capacity factor increases, grid integration issues. All of that stuff is coming from the US, it's not coming from China.
Stephen Lacey: Okay, but the counter argument is that the President in his skinny budget proposed eliminating ARPA-E, which funds the coolest, most cutting-edge technologies in universities, in labs that then filter into American companies and impact the rest of the global energy marketplace. We're basically cutting that off if we follow the President's direction. Obviously it won't happen, but what you're saying to the world is that, "We just don't care." That's the argument.
Jigar Shah: Look, Reagan said the same thing after Carter. What that does is 20 years from now when they ARPA-E technologies will be ready to go, we will have a dip in the pipeline which is what happened under Reagan. It's not like China is going to find all these companies and suddenly fund them. China likes to buy the bankrupt companies in the US like A123 or other places after the fact. China doesn't do all this dynamic basic research to compete with ARPA-E.
Stephen Lacey: I guess companies like Huawei or Goldwind would disagree with you. They're doing a lot of R&D and spending billions and billions of dollars. I guess the government support isn't exactly the same as US government support. This is something that Thomas Friedman really talked about a lot in 2007, 2008 and I think he helped to push this narrative of the US versus China.
I've always been a little uncomfortable with it, but I will say it seems like it's pretty similar to your argument in your book, Jigar, that this is the greatest wealth opportunity on the planet and countries and companies need to figure out how to harness it. How is what you're arguing in that book and the philosophy of your career different from what these other intellectuals are arguing about the US versus the rest of the world or the US versus China?
Jigar Shah: There's a macro theme. In the 1960s, we had these economic hitmen around the world who basically pushed US technologies onto other countries and then tied it to aid. It was Westinghouse or Bechtel or whatever that was actually in charge of installing all these technologies around the world, but that's gone from macro perspective. Hyundai and Samsung and all these huge companies, Mitsui, Sumitomo, etc. are all doing infrastructure projects around the world.
We lost that battle a long time ago. What I'm saying is that the largest wealth creation opportunity is the deployment of this infrastructure with its electric buses or other things, but the fact that Sumitomo or other people are going to be deploying this technology and investing in it and owning it it doesn't hurt me. I think that that's how the world order has gone.
People want local companies from South Africa, from India, from South Korea, from Japan, to deploy infrastructure in their countries and in their regions. Our companies are actually selling hardware and technology and know-how like Applied Materials or GE or other people. That's how we make money now in the service economy. That's a big macro change. I don't think it was ever the case that GE was going to take 100 percent market share of the wind turbine manufacturing industry globally.
Stephen Lacey: Clearly this is less of an economic argument and more of a messaging and political messaging exercise. Let's go to this utility survey before we wrap up the show. Katherine, Utility Dive released this survey. They talked to hundreds of professionals and utilities throughout North America to ask them what they're thinking about in terms of future investments.
Throughout the entire survey, you find that basically what they're preparing for is directly contradictory to what the President thinks will happen or wants to happen. 4 percent think coal use is going to increase moderately and a majority said, 52 percent said it would decrease significantly. These utilities are even saying, "Hey, coal's not coming back in spite of what you do." What else was interesting in this survey to you?
Katherine Hamilton: Of course who they're responding to are state regulators. It doesn't really matter so much what the President does, but they are really interested in distributed generation. A lot of them want performance-based regulation rather than cost of service regulation, which is really interesting. They want to compensate rooftop solar and other DG at avoided cost of generation rather than location-based. What it said to me is that they are really thinking about this and they know that the system is going to change. I don't think anything that's happening on the federal level really will make a difference to them.
Stephen Lacey: That's probably the best way to summarize the entire results. Utilities are thinking about all the transformative technologies that we discuss every week on this podcast. It's just really consistent with everything, every theme that we talk about in this show.
Jigar Shah: There's a great headline here: 'Utilities Finally Agree with Jigar Shah'.
Stephen Lacey: That's a first and maybe the only time. Jigar, what's your story this week for 'Tell Me Something I Don't Know'?
Jigar Shah: I've obviously been talking a lot about the nuclear sector. We had huge news this week with Westinghouse filing for chapter 11, which is such a big, big, big deal. Basically, they are responsible for or involved in 50 percent of all the nuclear plants that have been built around the world.
For them to go bankrupt is really throwing a wrench in the plans of Southern Company and South Carolina Gas and Electric and others who are building these nuclear plants. More importantly, there was an article in Forbes from our good friend Rod Adams who has a great podcast in nuclear. He's now saying that we have to wait 15 years for the new nuclear technologies to get approved by the Nuclear Regulatory Commission before we see a resurgence of nuclear, so big news in the nuclear sector this week.
Stephen Lacey: Yes, I almost thought that that 15 year window was a given.
Jigar Shah: Well, I certainly don't know that it was something that they were willing to admit. For Rod to admit it as publicly as he did in Forbes through an op-ed I think is as black and white as it comes.
Stephen Lacey: Katherine, tell us something we don't know.
Katherine Hamilton: Two quick things. One is the Solar Foundation just released their solar jobs report and they have something called a solar jobs map at solarstates.org. If you want to see where real jobs are, that's the place to go. It's really helpful, especially to someone who has to try to give the message to people in a lot of different states. The second thing I would mention is that last night I had the wonderful honor of being able to have dinner with an old friend of mine who works for Governor Gina Raimondo of Rhode Island.
She was telling me how effective this Governor's Wind and Solar Energy Coalition has been. Governor Raimondo and Governor Sam Brownback, a very right-wing Governor from Kansas who's always been a big supporter of renewable energy, especially wind, they are the co-chairs this year. They are very effective together. Raimondo has set a goal in Rhode Island of one gigawatt of renewables by 2020. That's only three years away. It's really great to see what states are doing and that it's very bipartisan and has nothing to do with politics from what I can tell.
Stephen Lacey: Since we're in the final days of the tripod campaign, I had one more podcast recommendation. It is a show that has swept the internet and has certainly consumed me. It is called S-Town. It is produced by the makers of Serial. If you subscribe to Serial, you probably already got the automatic downloads. I highly recommend you download this podcast. The reason why I mention it is because it does have a climate change theme in the first couple of episodes.
You will see what I'm talking about, particularly in the second episode. It is not a climate change-based podcast, but there is an undercurrent theme about climate change that one of the main characters talks about a lot. It's just such a well-reported show. It is the pinnacle of modern podcasting and audio journalism and I can't recommend it enough. It's called S-Town.
Jigar Shah: If we're going to be second to anyone, I'm happy to be second to S-Town.
Stephen Lacey: I just hope that people go out there and talk about our podcast like I just talked about S-Town. I'm afraid they're two different beasts, though. We are just thrilled to have your support and your listenership every week. We'd love to hear back from you, so just send us an email at [email protected]. Better yet, connect with us on Twitter. Ask us questions individually or send them to The Energy Gang Twitter handle. We'll make sure that those get passed around.
We like to hear show ideas, we like to hear comments on the show, any questions you have, and that's going to do it for us this week. Make sure to go to greentechmedia.com/events to check out those two big events, our Solar Summit and our Grid Edge World Forum, coming right up where we are doing live shows during the keynote sessions. A lot of great networking opportunities and you get a chance to say hello to us and chat with us a little bit and hear us argue on stage.
