Why Warren Buffet Is Right About U.S. Innovation

Here are three signs

Earlier this week, billionaire investor Warren Buffett’s annual letter to shareholders received a lot of attention when he pointed out one very important point about the future of America: Don’t bet against U.S. innovation.

“For 240 years it’s been a terrible mistake to bet against America, and now is no time to start. America’s golden goose of commerce and innovation will continue to lay more and larger eggs,” Buffet commented.

Needless to say, Buffett is referring to several industries, but one that I think deserves special attention is America’s modern energy infrastructure. It can be a model for the world; the problem is the smartest minds are missing this innovation wave.

Monumental shifts in technology and industry sometimes start with a bang. Other changes start with a ripple before growing into a wave. Even those who are closest to the surface sometimes don’t feel their boat rocking.

In the 1980’s, McKinsey & Company consultants predicted that there would be fewer than 1 million cell phones sold by 2000, stating they were too expensive and the batteries were too heavy for mainstream adoption. This kept AT&T from investing in this industry. Sound familiar?

We’ve recently seen three major ripples signaling the future of how America will power its homes and businesses.

First, in America’s innovation heartland and its largest solar market, California discarded its cap (i.e. removed the “net metering cap”) on how many households and businesses can plug into the electric grid with rooftop solar. This eliminated the last bottleneck to explosive solar growth in California. It also affirmed that net metering is a key component of modern infrastructure through its ability to moderate a two-way flow of energy. Today, 41 other states, such as New York, Colorado and South Carolina, use net metering to modernize energy infrastructure.

Second, Congress extended the solar investment tax credit to enable solar to spread nationwide. Today, rooftop solar electricity costs the same or less than grid power in 20 states. In five years’ time, this will be true in nearly all states. Solar costs continue to come down rapidly despite competing on an unleveled playing field. Fossil fuels and nuclear power have received eight times more government subsidies than wind and solar over the past six decades.

Third, governments worldwide forged an historic climate agreement in Paris that will drive the global phase-out of fossil fuel generation over decades — and increase the demand for the technologies that can replace it.

The next ripple will come in the first half of 2016 when the U.S. crosses one million homes with rooftop solar.

About one in ten of solar households have gone solar with our company, Sunrun. They’ve done so for many reasons. Foremost, solar delivers power that is less expensive. The “solar-as-a-service” business model we pioneered allows homeowners to benefit from cutting-edge technology and a more personalized customer experience than they’ve probably ever gotten from their utility, without high upfront costs. New business models that put technology in the hands of consumers have upended huge industries — just look at mobile phones and taxis. On-demand ride-sharing apps have rocked the established taxi industry worldwide by bringing new technology to consumers that are eager for accessible, affordable alternatives. Cell phone adoption grew exponentially as carriers innovated ways to bring costs down for consumers — at a rate much faster than even McKinsey could predict.

Consumer demand for a better product will win the day with solar and we’re just in the first inning — those million homes going solar represent only about 1 percent of the market.

Just as taxi incumbents have resisted innovation from ride-sharing companies in certain geographies, powerful incumbents of the old energy regime may prevail in protecting the status quo for a period of time. Today a few of the 3,200 utilities in this country are engaging in regulatory skirmishes over how change will unfold. For example, in Nevada the public utilities commission voted to punish Nevada families that adopted solar with extra fees and worse rates for the unused power their solar panels export back to the grid. This effectively guaranteed exclusivity and defeated consumer choice — a setback for efficient, clean and truly modern infrastructure that benefits all Americans.

But should you bet on other public utility commissions to go against consumer sentiment and this tide of innovation? Give America some credit. We will not indefinitely prop up energy infrastructure that doesn’t innovate, compete, or listen to its customers. Innovation and consumer-choice will ensure a new model triumphs.

Forward-looking utilities are working hard to develop partnerships with innovative companies to figure out the business models of the future. New technology, like solar, energy storage, electric vehicles and smart sensors, will be tapped to balance our power supply and demand directly in homes and neighborhoods across the country, at a lower cost for all.

On the global stage, the U.S. will be the innovation hotbed for figuring out the business model for the modern energy infrastructure of the future. This means that rather than contend with aging infrastructure or in many cases, a lack of infrastructure, you could see emerging economies shift directly to local distributed solar just as they skipped landline phones. U.S. companies can and will lead on this hugely valuable and important change.

So next time you pass a solar home, thank your neighbor — because no matter what the threatened incumbents say, they’re fueling the wave of change and will help usher in the clean, reliable modern infrastructure of the future.

A shorter version of this post appeared in Fortune.