Debate 3: Where Should Innovation be Focused?
Myth: We need new technology, period
Reality: We need innovation in technology, policy, business models, and financing
There have been countless calls for new technology in energy and sustainability. From Venture Capitalists to the US Government, billions of dollars have gone into various so-called “disruptive” technologies. But the best technology does not always win in any industry, and especially so in energy. I argue that a fixation on innovation in technology without corresponding innovation in policy, business models and financing is a losing recipe. Government and investors should be aware, as it is clear that the lessons will be very expensive for those that have gotten it wrong.
Policy creates incentives, which drive behavior in energy. “Decoupling” is a good example of innovative policy aligning incentives for the common good. Any business typically wants its customers to use more of its product. More use means more profits. Unfortunately, in the utility business that means that there is an incentive to have customers use energy inefficiently and thus they will need to buy more energy. Decoupling can be complicated in its implementation but in effect separates usage from profits. So utilities can be incented to have efficient users of energy as their profits will remain stable, or even increase if so.
Business model innovation is also needed. The concept of “negawatts” is a good example of one such innovation. Instead of building capacity, or megawatts, to align supply and demand, some businesses have formed around curtailing demand to accomplish the same goal. The businesses that formed around this concept, such as EnerNoc, were really innovating the model of doing business versus having a business based on technology.
Finally, innovations in financing of energy projects are needed. Whether it is innovative ways of matching the right tenor, risk profile, return requirements to specific projects, or more creative forms of securitization of cash flows from projects, the impact of innovative financing could be immense. Innovations in this area have the potential to be just as critical – perhaps even the most critical – to the ultimate uptake of alternative energy.