December 11, 2015 - From the December, 2015 issue

Steve Westly More Bullish Than Ever On Cleantech & Internet Of Things

Steve Westly, former California State Controller and Chief Financial Officer, gave remarks at the Los Angeles Cleantech Incubator's GloSho'15 conference with a focus on the remarkable progress of renewable energy and innovation. Here TPR presents an edited transcript of his address. Westly comments on the dropping costs of renewables, the surge in Internet of Things technology, and his predictions for the cleantech market's future.


"We’re at a point where, today, over 60 percent of the new power coming online is renewable. The curve is going up, because the cost of renewables continues to go down. We’re looking at a world that is going to be driven by renewable energy." -Steve Westly

Steve Westly: I am absolutely delighted to be here.

The overarching message is: Whatever industry you’re in, your industry is about to be disintermediated. If you don’t do it, someone’s going to do it to you.

Ponder this: Just 14 years ago, 81 percent of all the fuel we used for electric-generated capacities throughout the planet was carbon-based and nuclear. Renewables were just 19 percent and most of that was hydro. Fast-forward just 14 years: a dramatic shift to renewables that no one, frankly, saw coming. We’re at a point where, today, over 60 percent of the new power coming online is renewable. The curve is going up, because the cost of renewables continues to go down. We’re looking at a world that is going to be driven by renewable energy.

If you live in a household like mine, where you’re driving an electric vehicle and you have solar on your roof, you’ll get to a point where you will never pay a penny again for gas or electricity. It’s happening now and most of it is happening right here in California.

I used to work in the Department of Energy, in the office of conservation and solar. $101 a watt—kind of hard to stomach. Today, we’ve seen costs dropping below $2 a watt. It’s falling rapidly, heading toward $1.

I served on Secretary of Energy Chu’s Advisory Board. He will tell you that we are at cost parity now for renewables. Natural gas and oil prices fluctuate unpredictably. Nobody really knows where the prices are going. Solar and wind only go one direction, and that’s cheaper. That’s why we’re entering a revolution in renewables.

It’s the same thing with battery storage. We’ve watched the prices come down from $1,500 a kilowatt to $1,200 to $1,000 to $800. People ask me about the Tesla wall storage unit. It’s about $500. The magic number we need is about $250, and that is just around the corner. When that happens, you’ll see these everywhere.

What is causing this shift to happen so quickly? The combination of the free market bringing costs down and the strong signals from global leaders like Chancellor Merkle, Prime Minister Modi, and President Obama. I was just with Prime Minister Modi in San Jose, who said he will quintuple India’s solar-generating capacity over the next five to seven years.

Combine that with spontaneous movements, like what’s happening in New York City. I was there in September 2014 when 400,000 people walked down Madison Avenue to bring attention to the issue of climate change.

The Tesla gigafactory is 20 miles west of Reno—one of the largest buildings in North America, over a mile long, 10 million square feet. That is bigger than 100 Costcos! This one plant, which will be completed over the next 12 months and will come online in 2017, will more than double all of the lithium-ion battery capacity on the planet today.

What’s the impact of that? Driving the prices down. You will see electric cars on the street, probably within two years, with a range of 200 miles at $35,000 and below. That is just the beginning.

It’s fascinating to me that it’s not just better technologies and lower prices—it’s the combination of new technology and completely new business models. We’ve moved far beyond wind and solar, which are capital-intensive—good business, but lower margins—to new models. Things like what we call “cleanweb”—the intersection of the Internet, software, and big data—enable people to reduce their carbon footprints with companies that have very efficient business models that create the opportunity for huge returns. This is the future of the global economy, and we’re living in the middle of it now.

What’s driving all this? You! I’m standing here in front of a sea full of millennials. I represent the tail end of the Baby Boomer generation. The entire ethos that drove the global economy and government for 50 years was: You had to buy the biggest TV you could afford, and then you’d get the biggest car, and then the biggest house. After three or four years, you’d get rid of it and buy an even bigger one. Thankfully, that mentality is going away.

The new ethos of millennials is: reduce your carbon footprint; greater convenience; more data; health; sustainability. Millennials are about to become, by 2017, the largest buying cohort on the planet. You will be driving the global economy. Everybody that has a company or produces a product has to pay attention, because you will become the driving force in the economy of the future. 

We are investing in companies that are green and sustainable and so on, but what we’re really investing in is the companies of the future that millennials want to buy products and services from. We’re moving into the sharing economy, Internet of Things, and big data.

The sharing economy is stunning. We get the question all the time: How many sharing economy companies are there—100? 200? How many could there possibly be? Time Magazine said six months ago that there are over 100,000, and doubling every 90 days. 

When I was growing up as a kid in California, if your parents were kind of doing okay, as a big treat, you might go on vacation and get to stay in a Hilton Hotel. It was sort of a big deal. 700,000 Hilton Hotel rooms are available every night in 2,300 cities around the world. Not bad—the biggest hotel chain on the planet. But AirBnB, after six years, has one million rooms available tonight in 23,000 cities, and doubling every other year. This is the power of the new sharing economy.

The Internet of Things seems remarkable. There are a billion smartphones on the planet and we’re moving quickly toward two billion. Cisco predicts 50 billion units with Internet capacity in them.

Where will you see it first? For a lot of us, it will be in the home. This has dramatic effects. One industry has had a closer relationship to the consumer than almost anybody: the utility industry, which actually comes home with you. They know your data.

Google, Apple, Amazon, and Samsung are in a relentless push to own the millennial market, and they’re coming in between the utilities and the user in your home with you, with full suites of products that will make your life better, cleaner, and more efficient. 

Keep an eye on these companies. We’ve hardly seen the great firms of the last half-century—IBM and HP. Google, Apple, Amazon, and Samsung are turning up everywhere and they’re aggressively buying companies that sight to create a whole new energy-efficient world for millennials buyers.

Big data is revolutionizing virtually every industry. Who ever thought Google would be challenging BMW, or PayPal would be challenging Visa? Ten years ago, it would have been laughable. Now, who wants to bet on the incumbents?

My favorite example is how big data is revolutionizing the auto industry. Google and Apple are moving faster than they ever dreamed just three or four years ago. I live in Silicon Valley, where you can see self-driving cars on the road today.

Apple, which will not confirm that it is even working on a new car company, has increased the staff dedicated to Apple’s new car division from 1,600 to 1,800 people. They’re not just making components for Detroit; they’re making the whole car! They are not fiddling around. Internal word is that they will have an Apple car on the road within 48 months. Google will be ahead of them.

I’m lucky enough to drive a Tesla. Tesla just sent the software out to me, saying that if you have one of the newer cars, you can drive a Tesla where the steering wheel moves itself for 70 percent of what you need. You will see self-driving cars all over within two to five years. If I’d told you this two years ago, you would’ve said, “Steve, that’s science fiction. You’re nuts.”

It’s just the beginning of the new resource revolution we’re lucky enough to be living through.

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In 15th century Spain, on all the coins, it said: Ne plus ultra. “There is no more beyond.” Spain was on the edge of the known world. Then all of a sudden: Vasco de Gama. Magellan. Columbus. These people sail off and come back with extraordinary stories. There is an entire world out there. They said, “Everything we’ve been told our whole lives turned out not to be true.”

They literally changed what they printed on all of the coins to say: Plus ultra. There’s a whole new world out there.

My entire life, at university, we were taught as fact that economic growth went hand-in-hand with the amount of oil we burned. That’s not true at all. I’m here to tell you there is a whole new world. We’re calling on the new explorers, inventors, and entrepreneurs who want to create that new future to start that new company, disintermediate the old, and not only become (we hope) fabulously wealthy, but also change the world. Do it. There’s never been a better time to be an entrepreneur. 

Question: There are a lot of people here from other countries and other parts of our country. What separates California from the rest of the world and other parts of the country? A lot of the companies that you referenced are based here in California. Why are they here?

Steve Westly: I was born in the Los Angeles area, in Arcadia. When I was a kid, we moved to this little town nobody had ever heard of, in 1957, called Menlo Park. There was nothing there except for Stanford University, Hewlett Packard, and a ton of fruit trees. We built the center of the world’s innovation economy from that little place, in part because of great research universities like Stanford and Berkeley. There’s risk capital—with 40 percent of the nation’s venture firms in Northern California  

We’ve created this ethos that it’s okay to fail. Think big. Take a risk. Change the world. When I came out of business school, the kids in the top of the class would go to Goldman Sachs or McKinsey. (Nothing against those two firms.) Now, everybody wants to go start a company. Our heroes are people like Steve Jobs and Mark Zuckerberg. 

There’s no place that has benefitted more on the planet from the influx of immigrants. California’s greatness is directly tied to the immigrant population in the state. Over half the companies that go public in California are taken public by immigrants. It’s these people who come from all over the planet wanting to make something bigger and better that has been the secret sauce for California’s success. 

What happened in Silicon Valley 50 years ago happened in San Diego with the life sciences revolution. It’s happening now in Silicon Beach. I was just at the University of Merced, and you can see incubators all over California were packing up from the Central Valley. We are becoming the world’s innovation leader.

Question: You said in your presentation that hydro is actually leading in renewables. Why is it that VCs are not inclined toward investing in hydro?

Steve Westly: Hydro was largely built in the ’30s, ’40s, and ’50s with dams and so on. All the growth now is in solar and wind. We will soon see a revolution in fuel cells because we’re getting to that next inflection point. 

Less than a decade ago, the California Legislature passed legislation saying California, the world’s eighth-largest economy, would produce 20 percent of its generating capacity from renewables. People said: impossible. 

Today, we’re well beyond 20 percent. We’ll be at 30 percent by the end of this decade. The Legislature has said: My God, see what we’ve done? We’ll be at 50 percent renewables by 2030.

Regardless of that legislation, we will exceed that number. Why? Because of the wheels of capitalism turning. The cost of solar and wind are going down. It’s just better for the planet.

Question: What’s something that isn’t quite obvious yet, that people are naysaying, that you think is going to grow and become a huge industry?

Steve Westly: What’s around the corner? Big data fascinates me. Every aspect of our life will be data-driven. It gives you great opportunities to make better choices and to save energy.

It’s extraordinary to me that we live in a carbon-based economy where we probably lose 7-8,000 Americans a year due to the effluent from coal-based power plants. The Harvard Health Project says that in China, over the next 25 years, 83 million people will die of lung-related diseases. In the past, we just didn’t connect two and two together. In the future, we will.

But the other big space that I’m fascinated with is water. If you were to parachute me into any part of this planet and say, “Steve, we’ve got to make energy here for the next generation. What do we do?” I’d give you an answer. It might be solar, it might be wind, or it might be something else, but there is an answer.

When you run out of water, you’re out of water. It’s hard to produce water in a large part of the Southwestern US. It is hard to produce water in large parts of China and Australia, and a growing part of the Third World. We need to get serious about water.

 Much as energy has dominated the discussion of global politics for the last 50 years, I think water will dominate the discussion for the next 50 years. 

Most people do not grasp that we have about 3 billion people living off the water from the Himalayas. Some of that supports India, some goes into Southeastern Asia, and some goes to China. That’s going to become a conflict zone. Same thing happens with the Andes. We’ll run into issues in the Middle East.

We’ve already invested in one water company. We’ve looked at over 300 others. We’ll hear a lot more about the combination of water and big data.

Question: How can all these wonderful innovations be deployed in emerging countries? I was in Ghana in August, and we had power three and a half days in a week in the big city, Accra. When I was born 15 years ago in Ghana, we had power just two days a week. What will it take to get innovations to solve the really tricky problems all over the globe?

Steve Westly: This is the part that I’m most excited about. When I was younger, if you saw a great company, you’d say, “Well, maybe someday, we can take it overseas to Western Europe, or maybe Japan.” But now, because of this millennial revolution, everybody is going online. In 1999, 400 million people in the world were online. Today over 3 billion people are online. People see things happening here and they go international like that—it’s literally months before they start turning up in Quito or Ankara. We’re living in a global world.

Africa has more potential than anywhere because you can leapfrog. We made terrible mistakes by only being dependent on the carbon-based economy. You can go right beyond the traditional power-generation grid that may have been right in the ’50s, ’60s, or ’70s. We’re going to have opportunities for distributed solar in the smaller towns and villages. There’s a chance to not only move faster in that part of the world, but to do it better.

We are lucky. We live in California. We are not only the biggest state, but we are also the world’s eighth-largest economy. We lead in innovation. Everybody looks to us for what’s coming next. We are the most diverse place on the planet. We have this capital. We have a culture that encourages diversity, risk, and most of all, thinking big.

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© 2021 The Planning Report | David Abel, Publisher, ABL, Inc.