interviews

This is the seventh and final installment of a series.

EXCLUSIVE: Mindshift needed - Energy efficiency, not the ability to waste it, should be point of pride

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As should already obvious from the first installment of REM's exclusive interview with Michael Liebreich, CEO of Bloomberg New Energy Finance, he is an energetic man -- and no less energetic talker -- who you'd believe lives in two world's at once.
EXCLUSIVE: Mindshift needed - Energy efficiency, not the ability to waste it, should be point of pride

Speak to Liebreich for an extended period, and you sense that his is a kind of quantum existence in which he straddles the down-to-Earth -- overseeing a staff of 200 while they research and report investment-grade information about the world's energy industry -- and the pursuit of dreams: of energy efficiency, of a world where everyone has access to energy, and one where that energy is largely rendered from renewable sources.

He also proves to be a decidedly practical and modest individual. For instance, witness this passage from the introductory blog he wrote while attending this year's World Economic Forum:

"For those who don’t know me or what I do, I founded New Energy Finance in 2004 to provide information to decision-makers in clean energy," he wrote. "I’m not a huge enviro. I just spotted that the world’s energy system was on the cusp of a revolution that will deliver all sorts of benefits–energy security, jobs, equity, energy access in the developing world, cool technology, a healthier geopolitical balance and so on–in addition to climate and other environmental plusses."

When not in the office, Liebreich is often on the move, heading to one meeting or another of the numerous energy focused industry groups that he's a member of, including the World Economic Forum's Global Agenda Council on the New Energy Architecture, Accenture's Global Energy Board and the UN Secretary General's High Level Advisory Group on Energy and Climate Change.

Liebreich is a former member of the advisory board of the Clinton Global Initiative's Energy and Climate Change working group, and of the selection panel for the Zayed Future Energy Prize.

He is also a visiting professor at London's Imperial College Energy Futures Lab, and last year, even tried his hand at movie-making, serving as executive producer on a video short illustrating the world's ultimate shift away from fossil fuels, entitled "First They Ignore You."

Our interview picks up with Liebreich talking about the United States and the current state of energy discourse there.

On another note, I've noticed from articles about you that have appeared in the Financial Times and elsewhere that you seem to be talking a great deal about natural gas lately…

I am speaking about that increasingly, and you know, the president in his State of the Union in January said a very interesting thing. He said the US can have 100 years of access to gas because of the new shale gas fracking technologies. And I think that’s a statement that requires a lot of careful interpretation.

I think there’s a real risk, a real short-term risk, to clean energy and renewables and energy efficiency in the US in the collective hypnosis or hysteria about the allure of natural gas.

Of course, It is incredibly exciting what’s happening in gas. It’s fantastic news and it is a wonderful thing that there’s more and cheaper gas than we thought. But here’s the problem: If you delve into the numbers, what you find is that 100 years he's talking about is the estimate for how much gas there is -- not the proven reserves. It’s how much gas is believed to be in the ground, in total, divided by the current rate of gas usage.

There’s a few problems with that. Number one, you can’t get the full 100 year's worth out of the ground. Number two, you certainly can’t get it out at $8 per MMBTU or less, which is sort of the rule of thumb I’m using for cheap gas.

Right now the cost in the US is very low, at $2 per MMBTU, but what you have to realize is that the people that are doing it for $2 today are not doing it because they are making money, they are doing it because otherwise they would lose their leases or they doing it because they are getting gas liquids which are essentially oil substitutes, which are very valuable.

They are not doing it because $2 per MMBTU alone is in any way an advantageous price for them. So the price is going to go up and we at BNEF think it is going to do so reasonably quickly in the next two or three years. Soon we’ll be up $5 or $6 per MMBTU. But in any event, the amount of gas one could reasonably expect to get out of the ground for the $8 per MMBTU I cited before will probably last us only another 40 years or so... and perhaps closer to 50 if we factor in the natural gas from Canada as well.

By the way, wind is competitive at $6 today. Right now. With today's technology, wind generation is competitive with natural gas generation if natural gas is $6 per MMBTU. Which means, if we’re right, and natural gas prices come back up in the next few years, wind will be competitive. But here’s the problem even with an assumption of a 40 or 50 year supply in the ground – that timeframe is based on the current use of gas.

If we shut down the coal, if we switch transport to gas use, if we start exporting to Japan, where the price is $15 and $18 and even $20 per MMBTU, well, guess what? That 40 to 50 years suddenly comes down to 25 years. That’s around the asset lifetime of the things that we are investing in to pull it out of the ground.

All that said, I’m very happy for us to exploit gas and for it to become a key plank in the energy mix, and to even grow its share in the energy mix, but let’s not kid ourselves that we’ve got 100 years of gas in the continental US, at $2 per MMBTU, and even if we triple our dependence on gas from 25 to 75 percent. It will not happen.

I think it’s very dangerous to spend the next three, five or seven years believing that we can do that, I think we’ll come up short at the end of that saying, "What were we thinking?" "Why didn’t we read the MIT studies and actually really get to the bottom of it?" "What have we done?" And meanwhile, Japan, Korea, Germany, Britain, and Brazil are going to own the technology of the future if the US doesn’t.

So it's another one of these scenarios where people start to talk about the decline of the US and the rise of the rest...

Don’t write America off. I think that’s a dangerous thing. Everyone who has ever bet against America has lost. America is in an amazingly strong position.

The funniest thing at the moment is in the solar industry, where you have these solar manufacturers in a trade dispute with China. Well, guess what, the US never had a solar manufacturing industry other than First Solar. It was always in Japan and Taiwan, and then it went to China, and a little bit of it went to Europe for some years when Germany went mad with its tariffs; but America has never had a large solar manufacturing industry.

But what you do have is the high technology. More of the really innovative stuff for thin film photovoltaics, organic solar, the innovative next generation solar, has come out of the US than out of China or anybody else, with the possible exception of Germany.

Now consider battery technology. The US has got more and more interesting grid connected battery players than anyplace else in the world. Look at next generation bio-fuels -- most of the companies in that space with the intellectual property, are in the US. Then there's venture capital, the people that finance this stuff. Even if you have a breakthrough at a university in Germany, the UK, France or China or Japan, most likely you are going to go and talk to [the venture firm] Kleiner Perkins [Caufield & Byers]; Why? Because they know how to scale stuff and they know how to move faster than anybody else. So, you see, you do have these unbelievably powerful advantages at the moment.

Even shale gas fracking was developed with the support of DOE programs in the 1970s and 1980s; horizontal drilling, fracking horizontal visualization of reservoirs all of these have been government supported R&D programs at one time or another. So the US is incredibly power at new technologies, but you can’t do it without a home market. You have got to have a home market in order to push the technology , to learn what technology works, and to learn the process improvements. In short, you have to use these technologies in the field

So I don’t talk about American decline. My thinking is more in line with that famous quote attributed to Winston Churchill, "America always does the right thing -- after trying all the wrong things first."

What I think is true is that the US is not moving as fast as it could be; it’s still a power house. It’s still going to be a leader. The question is, does it fully act on its promise or does it spend the next three to five years in some kind of introverted eddy or whirlpool, and just keep going round and round. Does it keep chewing the argument about Solyndra, which is complete nonsense, or does it move forward to deliver the killer blow in some of these industries? I mean, look at smart grid. How many of the leading smart grid companies are in the US? Now, are you going to do a smart grid or are you going listen to a bunch of Tea Partiers who are worried about whether the communists will know when they are using their electric toothbrushes.

You’ve got to move beyond this sort of knee jerk reaction against the new, and the kind of manipulation we see occurring in the political sphere in America. Now, don't get me wrong, I think the Tea Party has some worthy instincts around security, around individual responsibility, and individual decision making, but there’s a yin and a yang, because the US has always pushed forward with an attitude of selfless communal action – take, for instance, the civil rights struggle of the 1960s.

There have always been people saying, "Well we’re not going to just be ruthless individualists working within an established system." People are going to get together and initiate changes that ultimately will create a better environment. Look at the internet. Look at the space program. There’s a role for government intervention in these sectors and that’s got to be traded off; and I think some people are being a little bit manipulated [about that] in the current political environment. I’d hate to see the US take a five year time out to examine its navel.

What about creating that market? How do you get the average Joe to buy into renewables?

There’s no single answer to that. If you look at what utilities are buying, their purchasing process is very different from that of the average Joe who is or isn’t going to buy a Chevy Volt.

One of the problems with the supporters of clean energy is that they love one size fits all. For example, they'll say, "Because the feed-in tariff it works in Germany, we must push for it to be implemented in the US." That’s insane. That goes against the Anglo-Saxon hatred of state planning of prices. The feed-in tariff is nothing other than central planning. It’s price control. We fought under Reagan and Thatcher to remove price control, so that you can have the price of goods and services set by the market. And that’s very near and dear to our hearts in the Anglo-sphere. In the US, a tax rebate is a much more acceptable way of doing things, because it doesn’t feel like a subsidy, it feels like the removal of interference and therefore goes more with the grain.

So when you talk about creating a market, you have to do it market by market, and country by country. I’m sure there’s more that can be under public procurement, given that government is such a big purchaser of energy, and I love some of the stuff that’s being done around making federal and state municipal property more energy efficient.

If we want to have smart grid technologies that are ripe for export, what better way than to say, "Right, okay, how many million servicemen's homes are there in the US? How much social housing is there in the US? You see there's plenty of market one could create just in those two area, if you think about it. And these are no regrets investments. If you go in and use direct solar air conditioning in servicemen's homes in the Southeast, where you have some of the big military installations, you are going to save money. So it makes sense, and it will generate technologies that will go around the world for anybody with a similar challenge.

So there’s more one can do around procurement on that level. Then consider the potential of cities and of the municipal fleets that operate for creating a market for electric vehicles. You know, giving money to Americans to buy Chevy Volts... I’m not sure that’s the way I would do it. What about outfitting the US Postal Service in electric vehicles? What about community services? It’s a perfect use of these vehicles.

I also think that there’s some lateral thinking required. Right now, if you walk into Wal-Mart and look at a t-shirt and it says, "Made in Myanmar," you may well think, "Well they I've heard they are going through a process of liberalization and democratization, so okay, yeah, I’ll buy this t-shirt."

But on your way home you stop at a gas station and you don't know where that gasoline came from; why not? Why can’t you know that it comes from Venezuela, which is a strategic irritant to the US? Oil companies should be forced to disclose the mix of the origin of gasoline they sell at the point of the pump. That would change behaviors and that would create a market. There are people who would say, "I don’t want to visit that petrol station. Why should I support the enemy?" I think there are a lot of things that can be done right across the business system, and it becomes easier if this stuff is economically competitive.

To come back to my point on messaging, for two-thirds or three-quarters of Americans, frankly and honestly, it is a point of pride to waste energy. They wouldn’t say it in those terms, but if you asked them, they would say, "We are proud that we come from such a productive economy, such a powerful nation, and that we can drive a V-12 and give our kid a car the moment they go off to college." An American will say things like, "I'm going to give him a car and fill it with gas because I work hard and I've been successful, and that’s what I am going to do."

There’s a mentality shift that has to occur. Imagine an parallel universe where Americans were proud – not to do with little -- but to be proud that their cars are the most efficient in the world and that their houses use the least amount of energy or least resources of all sort.

I'm not saying to have a conversation like, "Well, where did you go on vacation?" "Oh, I'm proud to have stayed at home." No, no, no, no. What I'm saying is to be proud that you've got this economy with the most extraordinary footprint that's delivered an unbelievable lifestyle to so many -- hundreds of millions of people -- while consuming as little as possible of the resources at your disposal. Be proud of the fact that you are leaving as much as possible in the ground for future generations.

That would be a complete mentality shift, frankly because the American mentality has always been that there’s always “more”... we’ll move west, there will always be another field or another forest. And I don’t know how to a change that mindset because the guilt/eco-consciousness trip has not worked.

I mean, it has worked for the 15 percent or 20 percent of Americans who feel deeply troubled by America's resource consumption, but my suspicion is to make any further headway, what's needed is a pride trip, not a guilt trip.

If you could give Americans a pride trip and say, "Boy, your smart grid technology rocks because you produce the most extraordinary breakthroughs, and your housing is the most efficient in the world," then I think you'd get a bigger buy-in for all these things.

It shouldn't be that you are trying to tell people, "Don't live in a McMansion." No, live in a McMansion, but live in a McMansion that has no impact and is doable from a energy-efficient and resource-preserving perspective. Use super insulation, triple glazed glass, a home energy management system, thermal concrete, and solar power.

These should be matters of pride, not an oddity; not matter of singling you out as a kind of communist, European freak.

Do you think there’s a way for people to as excited about renewable technology as they are about their iPads?

I think it's very hard. Of course, the optimist in me says, Yeah, we should compete to have the lowest electricity bill possible. But you know, there is a company out there doing it, O-Power… I don’t know if you've come across them. O-power provides software allows people to compare their electricity bill, on an anonymized basis, with equivalent bills in their neighborhood or area. Basically, it'll tell you something like, "Did you know that your electricity bill is 16 percent higher than a similar home in your community that also has four occupants and two cars?" The implied message being, "Isn't that embarrassing?"

But do you know what the impact of having that information is? People say that O-power customers, on average, subsequently save two percent on their energy bills. Everybody is so excited about this, but I think it’s pitiful. I don’t think that’s good enough.

I know that if you do profound energy management and deploy smart electronics and home energy management systems that automate when your heating goes on and shuts it down if you open the window, you’re talking about a savings of 23 percent to 40 percent.

So I think just being optimistic and saying, "Yeah, we can raise the profile and that will be great," isn't an effective approach. Yes, there is a sector of the population that will embrace that. There will be people who find it cool. But there were people that found it cool to drive the Prius, and despite the obvious merit of hybrid technology, hybrid cars are still just three percent or four percent of the cars that are sold in the US. Not 70 percent, three percent.

So what do you do?

I hate to say it, but I think we need to engage the best minds of our generation -- at least the best arts graduates best social anthropologists of our generation. And they should be engaged in answering the question, "How do you get people to change some of these behaviors?"

At the same time, you have to be realistic and understand that in any society there are different kinds of decisions being made at different levels. Your utility deciding whether to build a solar thermal or a coal-fired power system -- or, for that matter, whether it should 15 years trying to get a nuclear power station -- is far different from a Wall Street trader deciding whether they are going to buy at Tesla or a Ferrari or the average person buying a Chevy Volt versus not buying one.

Or even from a couple renovating their home and considering whether to do double or triple glazing for their windows, where the top end of Maslow's hierarchy of needs may come into play.

[Note: Maslow's hierarchy of needs is a theory in psychology, proposed by Abraham Maslow in his 1943 paper A Theory of Human Motivation. Essentially it states that human motivation is based on people seeking fulfillment and change through personal growth.]

At that level in the hierarchy, you can say, "You are a better person if you triple glaze" and some people will say, "Yes, yes. I will spend the extra $4,000 and do that." And conversely, some people will just say, "Screw you."

Then, in some areas, you just need regulation. We should simply say that by 2016 it is illegal to sell a household appliance that requires more than 1 watt standby. Now, everybody will squeak and say that’s impossible and this is going to add $4 billion to the cost of appliances in the US, and on and on. But you know what? Within a few months they’ll have the design, they’ll start manufacturing in a year or two, and it will simply requirement the inclusion of this piddling little chip that will add 30 cents to the cost of the appliance while massively reducing its lifetime ownership cost.

The politicians, of course, will say, "How dare you increase the price my constituents will have to pay for this TV set top box." What they don’t say is the same people, their core constituents, will be saving a couple dollars a year with that set top box forever, while spending 30 cents extra, one time, for that little chip.

So some of it has to be done through regulation. It simply requires that politicians have broad enough shoulders to do the right thing. Look at CAFE standards. Do you know there’s an extraordinary and wonderful and fabulous and lovely statistic: the US’s average fleet efficiency of cars sold between 2007 and 2011 has improved by 20 percent. Because of CAFE standards and high costs of energy.

I, of course, love this statistic -- I tweeted it two weeks ago -- because the fans of the Kyoto Protocol are all outraged – how dare the America improve its energy efficiency without their permission!

One question that’s intrigued me for some time now how revolves around the parallels – or lack thereof – between the clean energy community and the tech community that’s largely based in Silicon Valley. It seems to me like there should be similarities – and even synergies between the two –but are there?

That’s a great question. Particularly for someone who has spent 8 years building a service which in some ways is also a community. I mean, when you go to our summit – this was our fifth year – you have people who have been there every year, and some of the attendees have been clients of mine 7 or 8 years.

But we don't just do that summit, we manage three dimensions of community. One is the big summit. The other is the leadership forums we host for the solar, wind, smart grid, water and power markets, which is about trying to create some spirit of leadership among senior executives, sector by sector.

The other dimension is city by city. Since 2005 or 2006, we’ve done a series of events called Food for Thought in London, Paris, New York, Sao Paulo, Shanghai, Beijing, Delhi, Sydney and so on. We do 25 or 30 cities every year, and I think those are very vibrant city-level communities.

Now, on your question, I think the renewables community is two diffuse to get the sort of fish bowl effect that you get on the Sand Hill Road [the hotbed of America's venture capital community, in Menlo Park, California]. And just an aside on the role of venture capital. There is a role for venture in green energy, but it is kind of circumscribed because there is only so much technology. There is every year, depending on how you define pure venture versus equity and so on, there’s only about $ 4 billion to $6 billion of real venture, intellectual property based, series a, series b, series c, "then we’ll try to go for an IPO," type of approach; rather than the "Oh, we have got to go start building factories and doing project finance" approach. There really is a relatively small amount of pure venture capital that's available for clean energy' we're talking about perhaps only $6 billion of $7 billion compared to the total pool of $263 billion that's out there.

The venture capital community found it very difficult to get involved with clean energy when it really started to take off in 2005. The venture capital community lost its bearing and it started to invest in things it didn’t understand, things that required knowledge of commodities and energy regulation and balance sheet structured finance and the oil industry and agriculture. They thought that it was like software or biotech and it's really not; it’s really, really different.

And of course, one of the key features of the venture capital community in the US is it doesn’t know what it doesn’t know. It has this sort of irrational faith in its own abilities, which, of course, is a gambler's faith because it’s a gambler’s industry. That’s one of their strengths, but when they ventured into energy, boy, it really, really burned them. But that’s an aside.

Your question was really premised on whether there is a cohesive community in this space; the answer is there are many, many different communities… of financiers, project finance, there’s a whole community around mezzanine finance, there’s a whole community around second generation bio-fuels… and that’s part of the weakness and part of the messaging problem.

By comparison, look at the oil industry, where you can get 50 people into a smoke-filled room to have a good laugh and dinner at Davos, and out of it – and I’m not saying that it is a cartel – but out of it you’ll get very coherent messaging intended for governments and ministries and so on.

Right now those people are out there saying “Gas is the solution” It’s a very simple message. I can’t tell you how many people I’ve met from Shell who have a very simple message to policy makers when they met them: Gas is the solution. They don’t talk about tar sands and so on.

On the other hand, in the clean energy arena, we have people saying, "Batteries are really important," others saying, "No, the answer is second generation bio-fuels." "Oh no, wind is competitive with coal." "No, hold ion a second, you need a smart grid." In a way it’s a strength of the industry, but it's also the weakness. The strength is that everybody can benefit. It doesn’t matter whether you are in upstate New York or in Gabon. It doesn’t matter whether you are a manufacturer or a university, whether you’re a project financier or a utility, you can play this and win, but the weakness is there is no coherent messaging.

For additional information:

Bloomberg New Energy Finance

Liebreich on Clean Energy, Industry Trends

Part 1 of this interview

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