The Interview: Vijay Vaitheeswaran

The energy sector isn’t known for radical change. Over the last 60 years, we’ve gone to the moon, designed weapons strong enough to blow up the planet many times over and turned computers from sluggish, room-sized machines into hand-held libraries with more content than the Library of Alexandria. But the ways we generate our electricity, move our cars and heat our buildings are still fundamentally the same as they were six decades ago.

But Vijay Vaitheeswaran (Vay-thee-SWAR-an), a 17-year veteran correspondent with the Economist, believes that change is truly upon us. In his latest book, ZOOM: The Global Race to Fuel the Car of the Future, he and co-author Iain Carson argue that a new age of innovation is dawning for the electricity, automobile and fuel industries: Automakers are rolling out new flex-fuel and electric vehicles, utilities are building the infrastructure for charging those cars and oil companies are finally investing in new fuels like algae and cellulosic ethanol.

Vaitheeswaran says there are three “pillars of instability” contributing to these changes: Climate change, geopolitics and energy poverty. In our ultra-connected world, we are able to understand the link between energy use and the environment; we can see the violent and complicated problems that come with relying on politically unstable countries for our energy; and energy impoverished people now see what life can be like with access to abundant energy.

These pillars are changing societal expectations and finally forcing change upon companies in the energy business.

“You take these together and we are building a new paradigm for clean energy,” says Vaitheeswaran. “This confluence is creating trouble for the incumbents, the dinosaurs of dirty energy. But that also creates opportunities for the entrepreneurs, the nimble upstarts, those that invest in clean technologies.”

If you’ve been to more than one clean energy conference in the last year, chances are good you’ve seen Vaitheeswaran moderating a keynote panel. He’s an in-demand speaker who speaks eloquently and pragmatically about the business opportunities that clean energy offers. He addresses the issues in matter-of-fact-terms: The business environment for energy companies is changing–those that embrace change will win, those that don’t will lose.

“So some of the existing energy companies will be nimble enough and far sighted enough to make the change. Many others are going to bite the dust,” he says.

The evolution in renewable energy is often compared to the evolution in personal computing. It’s a fitting analogy, one that is current and easy to understand. Because many of the early computer giants ignored the power of the personal computer, they eventually became obsolete but didn’t realize it until it was far too late. Vaitheeswaran points to companies like IBM, Wang Laboratories and Digital, that were similar to the automakers, oil companies and utilities of today.

“They all poo-pooed the personal computer, as fossil fuel companies often poo-poo renewables and clean tech companies today. But we all know what happened, they were wrong,” says Vaitheeswaran. “A paradigm took off that was much more decentralized, that gave power to the people in a very tangible way, much as I argue we can do in energy.”

Although many companies fell because of the revolutionary changes in computing, IBM was the “dinosaur that learned how to dance,” says Vaitheeswaran. The company built a personal computer and eventually sold the business off to Lenovo. Now IBM is a powerhouse in the infrastructure service industry, moving to a space that catered to the company’s core strengths and enabling it to maintain dominance in the space.

There are many forward-thinking traditional energy companies that will likely follow the same route. But there are just as many companies stalling progress: The energy industry puts less than 1 percent of revenue back into research and development. Most other industries invest 4 or 5 percent of revenue back into development of new technologies.

“I would argue that energy has been the least innovative big business on earth. This era of lack of innovation has left us in a very troubled situation,” says Vaitheeswaran. “But let’s recall that energy used to be an innovative business.”

This summer marked the 150th anniversary of the modern oil industry. Back in the 1850’s, new technologies and innovative business models came together to create the era of cheap, abundant oil. Soon after, electricity generating stations were built and developed countries all over the world engineered massive, sophisticated grid systems that brought power to millions of people. At the same time, automobile inventors were experimenting with steam engines, internal combustion engines, electric motors and even fuel cells, working to make cars efficient, inexpensive and easy to manufacture.

All of the modern conveniences we take for granted today are the result of a long period of innovation and experimentation a century ago. But these industries have been the victims of their own success, says Vaitheeswaran.

“After a while, we got very complacent. We have not fundamentally changed how cars work, the electricity paradigm is decades old and we have not done much to get beyond the limited resource of oil,” he says.

So will we ever re-create the period of innovation that took place a century and a half ago?

Vaitheeswaran sees it happening already: Solar companies are becoming international energy service providers; biofuel companies are bringing once cost-prohibitive algae and cellulosic fuels closer to commercialization; and small start-up companies are sneaking up on the struggling behemoth automakers, forcing them to rethink the way they manufacture and market personal transportation. It seems that every week a new company is formed to take advantage of the shifting energy landscape. Many of these companies will fail, but many others will become the ExxonMobil or GM of tomorrow.

Vaitheeswaran strongly believes that today’s energy companies must play a leading role in the new energy paradigm. Dramatic changes will not happen fast enough unless the know-how and sophistication of the energy incumbents is directed toward our environmental and social challenges.

“If it is something that is made up exclusively of people who are outside the energy system, then it will be much harder than it needs to be,” he says. “We need everyone on board. There is no time for infighting or pointing fingers–let’s roll up our sleeves, do what works and what works best.”

Energy companies are not evil, says Vaitheeswaran. They provide valuable products and services that make society move. Now that our expectations of those products and services have changed, those companies need to find new ways to deliver them. They can do that by taking the environment out of their business.

Vaitheeswaran points to automobiles as an example. He’s positive about the future of the auto industry because of what its product offers: Personal mobility. That is something that will always be in demand, especially among the growing middle classes in less-developed countries.

“The idea that [personal mobility] needs to be provided by burning a nasty, environmentally-polluting, geo-politically complicated fuel like gasoline, to me seems a relic of history. If auto companies are able to see their business models as meeting the consumer needs and aspirations for sustainable mobility, rather than selling hunks of steel that are burning an unfriendly fuel–then I think they have every chance of seeing success,” he says.

With every executive who sees the value in creating cleaner, more efficient forms of energy and transport, there is another who believes that they will only make a small a difference. The seemingly glacial pace of change within some companies is evidence that renewables and next-generation transportation are sometimes seen as a science project rather than a business driver.

“I would say those executives lack imagination,” says Vaitheeswaran. “When you talk about a sustainable future–one that can meet the needs of six, seven, eight billion people on earth in a fashion that is consistent with a planet worthy of our grandchildren–it seems to me there is absolutely no future for burning fossil fuels in the dirty and inefficient way that we do today.”

The pillars of instability that Vaitheeswaran points to–climate change, geopolitics and energy poverty–are so big, companies can no longer avoid them. These pillars will be the foundation of company growth and wealth creation in the new energy economy, he says.

Overturning the capital stock of the most capital intensive industries in the world is a very daunting task. But as we look to the future, we can learn from the past. Like the entrepreneurs and corporations that experimented with new technologies and business models more than a century ago, today’s energy companies can succeed by taking chances and embracing the unknown.

“I like to think of my view as one taking the long sweep of history,” says Vaitheeswaran. “We got to where we are by taking risks and embracing change. That is something we are in need of today.”

Vijay Vaitheeswaran moderated a plenary session at PennWell’s POWER-GEN Europe conference in Cologne, Germany last June.

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