California Needs Texas for Cleantech Success

By Joel Serface – May 28, 2009

When I moved from Silicon Valley to Austin in 2006, many of my VC friends were left scratching their heads… Why would someone who has been leading the cleantech charge in California want to move to Texas?  After all, there was conventional thinking in California that there was no hope for Texas and that only the California-way would lead to cleantech success.

I had many motivations including helping Texas become a renewable energy state.  The rationale was this…. If you want the greatest leverage in mitigating carbon emissions, start with the most carbon-polluting state in the most carbon-polluting country in the world (this was before China surpassed the US in carbon emissions).  If you make progress in Texas, then other states and countries would understand they could make the transition as well.  If you don’t show up, engage, and get the state (more importantly its people, investors, and industry) to buy in, then you cannot expedite progress or bridge the necessary gaps to accelerate the cleantech industry in Texas. 

The fact was that Texas has always been a leader in energy including renewables.  Much of the early work in solar happened in Texas at Texas Instruments under the leadership of Jack Kilby in the 1960’s and 1970’s (remember those early solar calculators?).  Like California, Texas had its share of early “successes”, but many of those disappeared in the 1980’s as federal support for renewables waned.  It wasn’t until many leaders in Texas got together to push wind energy in the late 1990’s that renewables appeared as a scalable and reasonable technology.  While California had invested into several generations of wind technologies covering its valuable lands with poorly performing wind turbines, Texas didn’t develop a policy until around the same time 1.5 MW wind turbines became commercially viable.  With the combination of a good wind policy (first-come, first serve REC availability), competitive asset pricing, and low land lease rates, the wind industry in Texas took hold. 

Since then, Texas has developed around 8 GW of wind energy with more than 15 GW planned.  To support this, Texas became a leader in transmission policy developing Competitive Renewable Energy Zones (CREZ), which are now being copied in Western states and other parts of the country.  It has also led in transmission development to renewables with 18.5 GW of new capacity approved to be developed to strong wind and solar areas of the state.  Texas will also go live in its own transmission grid, the Electric Reliability Council of Texas (ERCOT), with the most advanced “nodal” market allowing more entry points for renewables, storage, and ancillary services.  In short, Texas has had its own renewable successes even though they are not as sexy or as publicized as what has been done in California.

California’s strengths are well-known and publicized.  There is no better-experienced region in the world in taking ideas from laboratories and technology entrepreneurs and turning them into products.  California has also been an energy policy innovator historically in clean air and energy efficiency, and more recently in policies for carbon (AB 32), transportation (AB 1493), fuels, and cleantech investment (Greenwave Initiative).  The scope of the technology and policy innovation in the state has allowed it to be a thought leader while seeing some of the early returns from its efforts.  California’s strengths come from its researchers, entrepreneurs, and investors that all think they can change the world.  In short, there are no limits to what Californians think they can accomplish and therefore no limits in its scope of innovation.

Texas’ strength in energy runs deep in the veins of its people.  It starts with a “can-do” or “wildcatting” nature of its people, extends to land development, project development, industrial scalability, and energy trading.  Texans have always taken energy risks and developed core competencies in scaling and optimizing massive processes for chemical and petroleum production.  They have also developed critical technologies for extracting and transporting energy from its origin across vast areas to deliver it where it is needed.  Most of this experience is in extracting, refining, and converting hydrocarbons, but it can also be applied to all aspects of cleantech.  In short, Texas knows how to scale energy technologies and once it is given a price or incentive will become the leader in delivering new forms of energy.

If California represents scope and Texas represents scale, then we need both to transition cleantech ideas from lab to market at an ever-increasing pace.  So what needs to happen to achieve the scope of California and the scale of Texas? 

First, new interfaces need to be built.  If they are, we can accelerate the early and the late to more broadly deploy renewables.  Both Texas and California need to dismiss their pre-conceived notions that their respective approach is best.  The nation needs policy and technology innovators as well as deployment and market innovators.  In the middle is the need for a new dialog and new interfaces especially around how to tie ideas from California into projects in Texas.  There also has to be acknowledgement that California isn’t the only place ideas come from or can be built into companies.  It might actually be better to develop these technologies closer to the points of adoption or at least understand customer and integration needs from the outset.

Second, Texas needs to learn from California and develop policies that support more renewables and energy efficiency.  In the Texas wind case, the state waited to develop a policy just ahead of the time when asset performance of wind turbines was about to achieve price parity with traditional electrical generation.  We are on the precipice of this with solar and other technologies.  If Texas doesn’t adopt policies in this legislative session, it will be left on the “solar sidelines” while other states and countries continue to develop their solar industries, achieve economies of scale, and geographic advantage.  This would lead Texas down the path of possibly importing solar panels as opposed to developing its own domestic solar industry.  If Texas indeed learns from other states and adopts policies more aggressively, then the scaled industries will take hold in Texas and grow faster.

Third, California needs to recognize the potential in developing projects in Texas.  Texas has created a favorable environment for the energy business and has been ahead of the curve in market transformation in order to do so.  This coupled with their demonstrated success in delivering large energy projects gives them a tremendous lead in deploying new energy technologies at a massive scale.  In fact, many of the incentive approaches for wind, transmission, and transmission grid management for renewables should be examined at a national level.

Fourth, Texas cannot sit on the sidelines on carbon pricing.  It is in Texas’ best interest to have a predictable carbon target and therefore price.  This will mobilize many of the traditional energy companies and utilities to get off the sidelines and begin investing into the future energy industry and building their future business models (new financial, trading, and integration models are likely where Texas will succeed). 

Finally, new investing models need to be attempted combining early and late stage investing.  A great deal of attention needs to be paid to the “valley of death” between development of new energy technologies and their delivery in large scale to integrated projects.  While Federal loan guarantees and Federal test and integration centers will be useful here, it will require experienced investors, developers, and corporations to step in, provide financing, and minimizing risk ultimately accelerating these implementations to market.  Texas could become the large-scale test-bed for these implementations.

To make this all work, Texas needs to step forward in this legislative session to begin embracing solar energy and other forms of renewables as well as energy efficiency.  The state’s leadership also needs to announce their support for renewable energy and endorse its associated economic opportunities for the state.  If a pragmatic and immediate approach is developed in working together with industry and California (and other states), the results will be a healthy, high-growth new energy economy, increased numbers of jobs, greater global competitiveness, and enhanced energy and economic security for the United States (and Texas and California). 

Joel Serface served as NREL’s first Entrepreneur in Residence with Kleiner Perkins Caufield & Byers.  As an investor and entrepreneur, Joel has planted cleantech seeds in Massachusetts, California, Texas, and now Colorado.  Since 2000, Joel has started or invested into more than 20 cleantech companies with 5 liquidity events so far and has catalyzed the formation of numerous supporting cleantech institutions and regional and national policy initiatives.


Whiskey’s for drinkin’, water’s for investing in

Last week I put out the idea that we were approaching a tipping point in water re-use. There were a few other headlines this week which support that. For one thing California’s second largest reservoir is now ‘at its lowest level in 30 years’. Last Monday the California Department of Water Resources Director, Lester Snow, stated that next year “could be the worst drought in California history”. Governor Arnold Schwarzenegger and U.S. Senator Dianne Feinstein have proposed a $9.3 billion plan to the Legislature to fund a number of measures aimed at improving California’s water system.
So that’s California, – which bear in mind would be the 7th largest economy in the world if it was a country and has been the number one food producer in the United States for more than 50 years. Now let’s take a look at what’s happening in the capital of the world’s second largest economy. In Beijing, in the run up to the 2008 Olympic Games, Siemens Water Technologies has started up a wastewater reuse system at the city’s Beixiaohe wastewater treatment plant. The goal is to process 90% of the wastewater with 50% of the treated wastewater being recycled and reused.

2008 may be remembered as the year in which China hosted the Olympic Games but is also an auspicious year for another reason. 2008 is the first year in which the population of the planet will be more urban than rural. (Apparently this change occurred May 23rd 2008!). That’s an important turning point and if we are to increasingly live in cities, this of course means that we need to have means of sustainably meeting demands on water use in these cities.

Al Gores’ challenge to the US to move towards 100% non fossil fuel energy by the end of the decade, may be a long shot, but at least in theory it is achievable. There are alternatives to fossil fuels. The same can’t be said of water. There is an elasticity in water use, – up to a point, but there comes a point where you can not reduce water use any further without seriously impacting our ability to live. Mark Twain put it well when he said ‘Whiskey’s for drinking and water’s for fighting over’. Whether or not we end up fighting over it, history has shown that times of crisis leads to accelerated technological innovation.

This technological innovation is likely to take place in small start-up companies. Commenting on this in his article Inventing Water’s Future, William Pentland, noted that in purchasing Zenon Membranes for $700M, GE is effectively outsourcing their innovation in clean technology to small start-ups.

Some venture capital firms, like Toronto’s XPV Capital have placed big bets on this and are choosing to invest in innovative water start ups on the assumption that they will be future targets for ‘Big Water’ industry giants like GE Veolia, Siemens etc as scarcity, climate change and energy prices increase the value of water. In fact overall the amount of money invested in water and wastewater technologies in the U.S. rose 436% between 2006 and 2007, according to the Cleantech Group,

A good general yard stick to track the water business is the ISE Water Index (HHO). This index tracks a bundle of 36 companies engaged in water distribution, water filtration, flow technology and other water solutions. The ISE Water Index has enjoyed an impressive rally this year, has tacked on nearly 5% since the start of 2008, which compares favorably with the S&P 500 Index’s (SPX) loss of 7.7% during the same time frame. In fact, the index has climbed steadily higher since it was created in January 2006, gaining more than 36% along the way. As was outlined in Jocelyn Drakes ‘Cross Currents In Water World’ article.

Finally to close, one technology I came across this week which I thought was really ingenious and also just a lovely idea is called Play Pumps. It’s basically a children’s merry-go-round that pumps clean, safe drinking water from a deep borehole every time the children start to spin. So the system utilizes the energy of children playing, to purify water. Genius. You can check out a video of it in use in Africa on You Tube.

Paul O’Callaghan is the founding CEO of the Clean Tech development consultancy O2 Environmental. Paul is the author of numerous papers environmental technologies and lectures on Environmental Protection technology at Kwantlen University College. He is chair of a technical committee on decentralized wastewater management in British Columbia, is a Director with Ionic Water Technologies and an industry expert reviewer for Sustainable Development Technology Canada.