The World Around Us
(This article was adapted from a keynote presentation at the 2019 Energy Impact Partners annual meeting)
A little over a year ago, I introduced you to Bug.
Bug was the nickname my colleague Andy and his wife gave to their then-unborn daughter while she was in the womb. At the time, we speculated about Bug’s future and made bets about how her life might play out.
So on popular demand, we start with an update on Bug. Here she is happy, healthy and now 10 months old:
She still doesn’t have a drivers license, so I’m feeling pretty good about my side of those bets so far.
But today I don’t want to talk about Bug, at least not directly. Instead, I want to focus on the collective project in which we at Energy Impact Partners, along with our friends and colleagues in our ecosystem, are engaged. We’re a diverse group, but I think we do have a shared purpose: we seek to leverage technology to ensure that Bug’s world is Getting Better All the Time.
In particular, we focus on using technology to improve the underlying physical infrastructure that shapes and powers our society.
So what might success actually look like? What would the world look like if we win? Let’s explore that question through the eyes of a number of Bug’s, shall we say, fellow neighborhood critters.
Starting with Paul.
Paul is, of course, a utility pole. There are roughly 180 million like him in the United States alone. But as he himself would surely tell you, he is unique. He’s been subjected to a set of circumstances unlike any of his brethren. Air quality, weather, construction, animal life….all distinct from the poles that surround him.
Let’s say you want to understand Paul’s condition. Maybe you’re concerned he is at risk of failure. Until recently, your solution would have been straightforward: roll a truck and have a couple of highly trained people give Paul a thorough visual, or perhaps even physical, inspection.
This solution would be great if Paul had a small, tight-knit family. But in reality, there are just too many in his clan, needing to be inspected too often, for this to be practical or cost-effective. PG&E, for example, estimates that it may have 100 million trees that are already encroaching upon, or could soon encroach upon, its lines, wires and poles. This is a core challenge in California’s wildfire imbroglio, and part of why physical inspections just aren’t sufficient.
Fortunately, we’re in the midst of a geospatial revolution, in which an array of new sources of information about our physical environment are becoming available to us with increasing frequency and value. And it’s allowing us to do things we’ve never done before.
Let’s start with satellites. Satellites are not new, of course. But there are at least two things changing right now that are making their value far greater than it has been in the past.
The first is just the sheer number of them. We’ll have over 1,100 commercial earth observation satellites in orbit (not even including government satellites or those used for communications) by 2025 based purely on already-announced launches.
And what that enables is greater frequency . This has always been a big limiting factor for the value of satellite imagery. I’m sure we’ve all at some point searched our own home on Google image and found satellite imagery from a different season.
But now, companies like Planet Labs already have satellites in orbit that can effectively image the entire earth daily. Blacksky Global, hopes to launch a satellite constellation focused on key urban areas that could see them up to five times a day.
Second, the resolution of this imagery is becoming really impressive. Most of these satellites are providing resolution down to a couple of meters. But the target they’re aiming toward is the FCC’s 25 centimeter maximum allowable resolution, or roughly the length of my shoe.
Of course, satellites are no panacea. And Paul is a perfect example to explain why. He’s vertical, for starters, which makes satellite imagery a less-than-perfect fit for his physical exam. In addition, his risk points may be even smaller than this new breed of satellites can pick up.
Fortunately, we have drones. Drones are, in some ways, the perfect complement to satellites. Their imagery is inherently three dimensional, highly granular, and on-demand. So if you want to image a pole, or another piece of electrical equipment, drones may be your best friend. Our portfolio company eSmart, for example, performs computer vision on drone imagery to automate the challenging tasks of identifying threats and maintenance needs on the grid.
But even drones won’t suffice on their own. There are some things that we need to monitor continuously, and others that are hard to reach, even by drone. For these challenges, we have sensors.
The sensorization of our environment, particularly our urban environment, may be the most revolutionary trend of all. For example, our portfolio company CIMCON turns a connected streetlight into a smart city node, upon which a city can place an array of sensors doing everything from monitoring air quality to gunshot detection. The data can be delivered, and acted upon, in real-time and with unrivaled precision.
Taken together, I think the effect of all these new sources of geospatial information is that we’re essentially re-mapping the world.
Where our old maps were static, now they’ll be dynamic. Where they were two dimensional, now they’ll be three-dimensional. And where they were relatively basic, now they’ll be rich with additional data and information.
And that’s great, but we can go further. Because while it is valuable to know our surroundings, what we really want is to improve them.
So we need to transition from perception (what is the state of the world around us?) to prediction (what might happen next as a result?), and ultimately to prescription (what should we do about it?).
Fortunately, the geospatial revolution just happens to coincide with another revolution, this one in data science. Our increased ability to ingest large data sets, synthesize them, and turn them into insight allows us to use our new maps to drive improvements across a variety of sectors.
As an example, take the 16,000 of Paul’s cousins that reside on Prince Edward Island in Newfoundland. These are utility poles owned by EIP partner Fortis, which operates the Maritime Electric utility on the island. These poles are Eastern Cedar, which can over time become subject to failure in conditions such as high winds. And that’s exactly what they’ve been experiencing on the island.
Maritime Electric partnered up with our portfolio company Urbint, which specializes in utilizing AI to predict and mitigate risk. Urbint took geospatial and asset monitoring data from the utility, combined it with a variety of external data ranging from wind speeds to soil composition and drainage, and built a predictive model to prioritize inspection.
The result: when Maritime Electric focused first on inspecting the poles identified by the AI model, they had a 7x higher incidence of identification of high-risk assets than they’d seen previously.
Geospatial + AI for the win.
Ultimately, what I think this means for Paul is that he will, over time, be better known, understood and optimized than ever before.
And our ability to understand and plan around our infrastructure couldn’t come at a better time, because the sad reality is that the built environment is under greater threat every year.
Speaking of which, let’s talk about another neighborhood friend, John.
John is the house Bug will grow up in. And the odds are good that John has been getting increasingly battered over the years. Natural disasters in the U.S. have been increasing both in frequency and in magnitude. Notably, almost nowhere is entirely safe, meaning that John is likely to have been subjected to some form of severe weather-driven pain no matter where he is.
And of course, with increased disaster activity comes increased cost. Insured losses from natural disasters have grown more than 400% over the past 30 years on a 10-year moving average basis. We’re starting to see the impacts of this kind of thing now, when insurers are dramatically raising prices or even dropping coverage on homes in areas that are newly subjected to things like wildfire risk.
Most relevant to those of us in the energy industry is the way this volatility affects the reliability of our power system. Lawrence Berkeley National Lab estimates that sustained power outages cost around $44 billion annually.
So here’s my bet: I think we’re on the cusp of a cultural transformation, one in which the idea of investing in resilience gains mainstream status for anyone who owns something worth protecting.
You can see glimmers of this already today. Here’s Google search data for the term “backup power” in Texas:
There are two meaningful spikes — the first when Tesla launched the Powerwall (if you want to screw with Google search data, get Elon Musk to do basically anything), and the second, much larger spike during Hurricane Harvey.
What’s more, during those moments of heightened attention to resilience, those who have had the foresight to invest in it gain great acclaim. Take the example of H.E.B. grocery in Houston, which thanks to our portfolio company Enchanted Rock was one of the only places with power after Harvey and became a gathering point for everything from community members to the National Guard.
We’re also seeing a real push for resilience thinking in areas with particular risk. I live in Northern California, where PG&E has just started proactively shutting off the power during periods of high wildfire risk, and here are some of the ads I’ve personally been served recently.
And this marketing push appeared to be working even before the proactive power shutoffs that arrived this Fall. Generac, the leading provider of home backup, recently announced that their in-home consultations in California increased 400% over the last year, and Sunrun is practically bubbling with excitement over the opportunity for home solar+storage.
And while it’s too early to know for sure what the impacts of these recent power shutoffs will be on the market, I think we can make an educated guess:
I think the resilience mindset will start to take hold beyond just the power sector. Here’s a data point to which I keep returning:
In 2008, the state of California instituted a new building code for urban-wildland interface areas, which includes much of Paradise, CA, where the deadliest wildfire in history hit last year. All buildings built after 2008 adhere to this code, and most buildings built before it do not.
In those fires, 18% of homes built before 2008 survived. But 51% of those built since 2008 survived. The building code made a huge difference.
And here’s the thing: resilience is almost always a good investment. In the world of buildings, retrofitting to harden our homes against disasters offers anywhere from a 4x to a 7x payback, according to the National Institute of Building Sciences. This applies to the grid as well — McKinsey estimates that a Southeastern utility might be able to save ratepayers close to a billion dollars by midcentury if they invest in infrastructure hardening today to mitigate storm damages tomorrow.
So it’s a good investment, but has historically been a tough sell. It’s been a challenge forcing us all to think long-term. But my bet is that every year that we break records for new threats, we’ll inch toward this resilience mindset.
There’s a generational element at play as well. It’s clear that younger generations feel more attuned to the threat of disaster than older generations, and as they increasingly become the decision-makers in their homes, businesses and communities, they’ll bring along this awareness.
If I’m right, then John will be the beneficiary, and will be hardened and resilient by the time Bug grows up.
Now let’s talk about George, the road beneath Bug’s feet.
Back when George was first paved, he was likely quite a dynamic place. Here’s a look of a ride down Market St. here in San Francisco a century ago. Cars coexisted with pedestrians, horses and buggies, bikes and more.
But since then, our roads have become more and more uniform, ultimately serving largely a single master: the passenger vehicle. As cars have come to dominate our streets, our traffic engineering has followed suit, ultimately being designed to optimize for a single mode of transit.
It hasn’t always served us, and we now collectively spend nearly 9 billion hours per year in traffic delays.
But things are changing again, as is evidenced in this video taken by our portfolio company Remix, which helps cities engineer a better transportation future:
On today’s roads, especially in urban environments, you might suddenly have ebikes, scooters, and weird single-wheeled vehicles, plus lots of package delivery vans and maybe even some autonomous vehicles. The dynamism is returning.
We’re having a bit of trouble adapting, and sometimes imposing overly restrictive rules on these new modes. But that’s nothing new. You may be familiar with what was once known as Red Flag laws, which were enacted at the very beginning of the automobile era.
These laws required someone to walk in front of a combustion engine vehicle waving a red flag at no more than 4 mph in order to ensure road safety.
The most restrictive version of these laws, which passed unanimously in the PA legislature only to be barely vetoed by the Governor, would have required motorists driving “horseless carriages” upon coming across cattle or livestock to immediately stop, disassemble the automobile and conceal the components behind bushes until the animals were sufficiently pacified.
So we sometimes struggle to adapt to new modes. But when they’re better, things can change quickly.
I can’t tell you which modes and mechanisms will win out to allow us best use of George’s pathway. But I do think the right way to think about our roads in the future will be as a platform, upon which can be built a multimodal future using tools like our portfolio company Remix to ensure efficiency, safety and equitability for all travelers.
For those who care primarily about transportation electrification, there’s something in this for you as well because we’re electrifying buses much faster than we’re electrifying passenger vehicles. So if you want more electric vehicle miles traveled, support public transit.
And our street design can make a huge difference for public transit, with things like bus rapid transit lanes showing significant spikes in ridership.
Meanwhile, our portfolio company Viriciti, which provides monitoring solutions for electric bus operators, has found that driver behavior (and street makeup) can make an enormous difference in the range of the battery — and thus the economics of the electric vehicle.
So if we succeed, not only will our vehicles be electric, but George the road will be re-platformed and support a safe, multimodal, traffic-free mobility future.
Now onto our final neighborhood friend. And that is, of course, Ringo the Power Line.
And the question at hand is: what kind of electrons will Ringo carry as we head into the future?
With Ringo as representative of all power in the United States, here’s a breakdown of what he carries today:
Renewables make up 17% of our power generation. If you broaden the definition to “clean”, you’re up to 36%.
But we’re now in what I’ve been calling the “age of 100%”, where a variety of players are committing to reaching 100% renewable or clean energy by sometime in the next few decades.
Cities are doing it, though they only have so much power on their own:
Corporations are doing it — over 200 of them now, comprising over 200 TWh of potential load — roughly the electricity demand of the country of Vietnam:
Utilities themselves are doing it, by making voluntary commitments to reaching a low- or zero-carbon generation mix:
And now states are doing it, by extending, adapting or expanding their renewable portfolio standards out to a 100% future.
The states are perhaps the most important, because if you look at the history of renewable energy in the U.S., I would argue no single thing had a bigger impact than state renewable portfolio standards. And today’s wave of 100% standards looks surprisingly like the trajectory of those original bills we saw over a decade ago.
We now have RPS standards in over 30 states. Imagine if the same were to happen with these 100% targets.
Now admittedly, these timelines are long — most states and utilities are committing to reach 100% by 2045 or 2050. But what I think is interesting is how quickly the idea of 100% has become mainstream. In politics people talk about shifting the Overton window — the range of ideas tolerated by public discourse. Well, in the power sector, 100% is now squarely in the Overton window.
This is not, by the way, to say that 100% will be easy. These are lofty goals, and they become particularly difficult once you start to approach the endgame.
But if there’s one thing the 100% trend makes clear, it’s this: flexibility will be the coin of the realm in electricity for a long time to come.
We’ll need a lot of flexible resources, on different timescales, to manage all this new intermittent generation.
At the highest level, I think about three categories of flexible resources:
First, there’s flexible generation. This could either be dispatchable generation that can be operated flexibly, like some natural gas plants are today, or it can be non-dispatchable resources made to be flexible by the addition of energy storage.
Second, there’s flexible delivery. Expanding transmission networks, regionalizing markets and enabling wider trading zones all open the aperture to enable greater diversity of resource profiles and more flexible market operation.
Finally, there’s flexible demand. Thermostats, water heaters, electric vehicle chargers, good old fashioned demand response, and so on. This one is a particularly interesting category because it’s so tantalizing. We at EIP ran some very simple back-of-the-envelope math and found that by mid-next decade there might be enough potential flexibility on the demand side as to shift 30% of peak load in the entire country.
But of course there’s an enormous gulf between the potential of a device to provide grid flexibility and the actual act of doing so. And therein lies the core challenge — how do we leverage all these resources that customers are buying for completely independent reasons (thermostats provide comfort, batteries provide resilience, electric vehicles provide….travel) to serve a purpose in decarbonizing electricity?
That’s part of why we get so excited about portfolio companies such as ecobee, Autogrid, Opus One, Innowatts, and Arcadia Power. It’s a complex challenge with many potential solutions, but it’s one of the most important things we can tackle in this energy transition.
So Ringo will, I hope, be drumming up a clean and flexible system.
And there you have it — the future of Bug’s neighborhood. Let’s hope we look back on this as prescient, even conservative, when I’m 64.
Shayle Kann is Managing Director at Energy Impact Partners, a venture capital firm focused on the transformation of the global energy system.
