Alternative Energy Investing Thesis

7/29/2019 Alternative Energy Investing Thesis

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Energy3.0

onthecusp

or

on

the

brink


2/44

7InvestmentThesesforInvestinginEnergy

3.0

Energy

=

Life

Energy=Commodity

EnergyisPolitical

MatureMarkets

Sustainability

Energy=Information

EnergyEfficiency


3/44

Weare

at

the

cusp

of

the

3rd Era

of

Energy

Dawn ofModernManPreHistory ~1759

Energy1.0

ModernEra1760 1944Energy2.0

ContemporaryEra1944 Present ?

Energy3.0

EnergySources Wood,

Fire Hydrocarbons Renewables (?)

Work Man,Livestock Motors&Engines Gasturbines,Diesel,ElectricMotors

Global Economy Agricultural Trade Globalization

Population ? ~800M 800M 2,400M 2,400M 7,000M Planetary

capacity

Transportation Foot,Horse,Sail Auto,Rail,Boats + Planes

Building Mud,Wood,Stone Skyscrapers Sustainable

Technology Manual Mechanical Informationalization

Governance Tribal Monarchy Democracy

CommunismFree Market

&

State

Capitalism

Media Written Printing Press Proliferation

Manufacturing Craftsman MassManufacturing Customization

Global EconomicOutput


4/44

CapitalInvestmentneededtoMeet2035

Projected

Energy

Needs

Coal$1,100

BioFuels$300

NaturalGas$9,500

Oil$10,000

Power$16,900

$

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

$20,000

2010USDBillion


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CapitalInvestmentneededtoMeet2035

Projected

Energy

Needs

$9,802

$8,700

$6,745

$5,239

$2,185$1,859

$1,034 $1,000$570

$300 $66

26%

49%

67%

81%

86%91% 94%

97% 98% 99% 99%

0%

20%

40%

60%

80%

100%

120%

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

Source:World

Energy

Outlook

2011

USD

Billions


6/44


3.0

Energy=Life

Energy=Commodity

EnergyisPolitical

MatureMarkets

Sustainability

Energy=Information

EnergyEfficiency


7/44

CommoditiesSupplytheOverwhelmingVolumeof

Energy


8/44

TheThrillofContango andtheAgony

ofHeteroskedasticity

$2.12$1.92

$1.69

$2.76 $2.50

$2.09$2.27

$4.31

$3.96

$3.37

$5.49

$5.90

$8.81

$6.74$6.98

$8.86

$3.95

$4.39

$4.00

$3.53

$4.14

$16.13$15.54$17.14

$20.62$18.49

$12.07

$17.27

$27.72

$21.99$23.71

$27.73

$35.89

$48.89

$59.05

$67.19

$92.57

$59.04

$75.87

$102.29$103.81

$105.74

$0

$20

$40

$60

$80

$100

$120

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

$9.00

$10.00

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Henry Hub

natural gas

Prices

Imported

Crude Oil

Prices


9/44


3.0

Energy=Life

Energy=Commodity

EnergyisPolitical

MatureMarkets

Sustainability

Energy=Information

EnergyEfficiency


10/44

TheOldGuardisInvestingIndustry

Lobbying

Spend

1998

2010

Source:www.opensecrets.org


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TheOld

Guard

is

Good

1. Withoutfurtherreform,spendingonfossilfuelconsumptionsubsidiesissettoreach$660billionin2020,or0.7%ofglobalGDP

2. 2010levels:

$409

billion

for

fossil

fuels

verses

$66

billion

for

renewables


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Morethen1/3oftheWorldsLiquidFuels

are

Produced

Here

Latebreakingnews!(insertupheavalwordhere) Eruptedin(nameoneofthecountriesabove) todaywhen(country/faction/religiousgroup)enacteda(nameofviolentactorthreat) againstitsbitterrival,(country/faction/religiousgroup) .Tensionshavebeensimmeringforsometimeduetoretaliationfor(insertmostrecentviolentactiontaken). TheU.S.Statedepartmentissuedastatementcallingforcalmonbothsidesandrenewedsanctionsagainst(country/faction/religiousgroup). Russia/Chinaimmediatelyissuedastatementthatsayingtheywouldvetosuchanaction.


13/44


3.0

Energy=Life

Energy=Commodity

EnergyisPolitical

MatureMarkets

Sustainability

Energy=Information

EnergyEfficiency


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InvestmentinNewDoesntHappen

Here

3.30%

1.10%

0.40%

13.80%

3.20%

8.50%

2.50%

1.10%

0%

2%

4%

6%

8%

10%

12%

14%

16%

ConsumerDiscretionary (17)

Consumer Staples(25)

Energy (9) Health Care (36) Industrials (35) Technology (64) Materials (23) Telecom Services(1)

R&DSpendingasa%ofSale LastFY

This IS your great-

grandfather's

energy industry


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WhenWorldsCollide:

Energyvs.

Technology

Energy Technology

PrimeDirective StatusQuo ChangetheWorld

MarketStructure RegulatedMonopoly Rangefromperfectcompetitiontooligopolistic

Inputs Commodities homogenous IntellectualProperty pursuitoftheunique

CompetitiveAdvantage Cost RegulatoryProtection Innovation

CorporateCulture Compliance Creative,innovative,experimental

Product

Life

Cycles Generational Months

GeographicSpanofinfluence Provincial Global

SpeedtoMarket Decades Months

CoreCompetencies Regulatory "Maintainrulesoverallelse."

Entrepreneurial "Breaktheoldrules,andmakenew

ones."

Management Conservative Risktaking

CompetitiveEnvironment Nonexistent Hypercompetitive

SalesCycle Years Weeks

PricingPower Low consumeriscostsensitive High Innovationisrewardedwithoutsizedprofits

ConsumerBehavior LowEngagement HighEngagement

EconomicMargin Zero Highmovingtolower

CapitalEquipmentLifecycle Decades Years


16/44


3.0

Energy=Life

Energy=Commodity

EnergyisPolitical

MatureMarkets

Sustainability

Energy=Information

EnergyEfficiency


17/44

AtSome

Point

there

is a

Limit


18/44

TsunamiAlert!

Consumers

Ahead

BRIC Population peaks in 2045 at 3.3B

88 Countries of Frontier Markets Population in 2100 at

4.1B


19/44

Venture

Capitals

Goal:(relatedtoenergyinvesting) PrimeDirective:ReturntoPartners

1. Identify,fund

and

bring

to

market

companies

that

aredevelopingnewfuelsourcesthataremoreeconomicalthatcurrentsources(coal,oilandnaturalgas)ornuclear

2. Identify,fund

and

bring

to

market

companies

that

aredeployingnewtechnologiesthatpermitcostsavingsinenergybillswhilemaintaining(or

enhancing)

customer

experience3. Savetheworldbyaccomplishing1and2(sincenooneelseisdoingit.)


20/44

InvestmentPhilosophy

for

Energy

3.0

Incrementalism or"BlackSwan"approach?

Thelooming

twin

challenges

of

climate

change

and

energy

productionaretoobigtobetackledbyknownsolutionsandtimehonoredtraditions.Incrementalremediesarefineforincrementalproblems,buttheyareinsufficientformonumental,potentiallylifealteringthreats,whichneedtobeapproached

with

a

disruptive

mindset.

There

are

5

billion

peoplecovetingtheenergyrichlifestylescurrentlyenjoyedby500millionpeople,mostlyinthedevelopedworld.Incrementaltechnologyprogresswillnotsatisfythiscraving.Weneednon

linear

jumps

in

technologies

Technological

Black

Swans!

We

caninventthesefuturetechnologies.

Source:BlackSwansThesisofEnergyTransformationbyVinod Khosla


21/44

2EndsoftheSpectrumof

InvestmentPhilosophy

for

Energy

3.0

Edison Incrementalist Tesla BlackSwan

Phonograph IncandescentLighting StockTicker MotionPictures

StorageBatteries

(EVs)

ACGenerator ACMotor ACPolyphase Distribution

System ETC

Moneydoesnotrepresentsuchavalueasmenhaveplaceduponit.AllmymoneyhasbeeninvestedintoexperimentswithwhichIhavemadenewdiscoveriesenablingmankind

tohave

a

little

easier

life.

Geniusisonepercentinspiration,ninetyninepercentperspiration.


22/44

Edisons&TeslasPortfolios(If

they

were

VCs

today)

Low BigdataMeetsEnergy(EMS,etc) EfficientEnergyGenerationEnergyMgtSystems EnergyStorageBuildingMaterials BloomBoxes MoreEfficientElectricMotoLEDLightingthatREALLYworks LightweightAutoBodies

MoreEfficientCombustionEngines

Lighting

Networking Alternative

Vehicles

(PEHV,

etc)HighlyEfficientTransistorsOrderofMagnitudeEfficientHVAC

MassiveBuildingRetrofit

RobustCyberSecurity(Incl.ICS)

DistributedPV

CarbonCapture

UtilityScalePV BioFuelsUtilityScaleWind UtilityScaleTidalPower

ZeroNetEnergyBuildingsSmartGridTechnology Thorium

High RegulatoryBodyEnergyEfficiencyPrograms Fusion+

Low High +Conservative&Incremental "BlackSwan" FundamentallyAltersIndustryEconomics

RiskinessofInvestment(asmeasuredbyprobabilityoffailure)

Policyand

Re

gulatoryInfluence

Q1 Q2

Q3 Q4


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7InvestmentThesesforInvestingin

Energy3.0

Energy=Life

Energy=Commodity

EnergyisPolitical

MatureMarkets

Sustainability

Energy=Information

EnergyEfficiency


24/44

CustomerEnergyIntelligence

HighValueSoftware

Applications

Data/ITSystems

Communications

CustomerEnergyPlant

CustomerEngagementfromROI

CustomerDriven(lowregulatory)

DirectChannel

IntuitivetoUnderstand


25/44


MicroGridDistributedGeneration

ControlSystems

Sensors Transformers Meters Storage

Servers Database Internet Transactions ModelingControlSystems

ERP

EnergyPlant

Communications

ApplicationLayer

BuildingEnergyManagement

EnergyMonitoring

EnergyReporting

ContinuousCommissioning

Diagnostics

AssetManageme

nt

BuildingEnergyAutomation

ControlSystem

Interface

Demand

Respon

se

Loadlimiting

FaultPrediction

OutageManagem

ent

Micro

grid

BuildingEnergyPerformance

InterfacetoAcco

untingSystem

PredictiveAnalytics&Modeling

OptimizationAlg

orithms

CarbonReporting

Compliance&As

surance

PowerQualityM

anagement

FaultDetectiona

ndAlerting

CyberSecurity

LocalAreaNetwork RFMesh HomeAreaNetwork(HAN)

BroadbandWWAN 3G/4GCellularOtherProtocoltobeNamed

SystemsLayer


26/44


MicroGridDistributedGeneration

ControlSystems

Sensors Transformers Meters Storage

Servers Database Internet Transactions ModelingControlSystems

ERP

EnergyPlant

Communications

ApplicationLayer

BuildingEnergyManagement

EnergyMonitoring

EnergyReporting

ContinuousCom

missioning

Diagnostics

AssetManagement

BuildingEnergyAutomation

ControlSystem

Interface

Demand

Respon

se

Loadlimiting

FaultPrediction

OutageManagem

ent

Micro

grid

BuildingEnergyPerformance

InterfacetoAcco

untingSystem

PredictiveAnalytics&Modeling

OptimizationAlg

orithms

CarbonReporting

Compliance&As

surance

PowerQualityM

anagement

FaultDetectiona

ndAlerting

CyberSecurity

LocalAreaNetwork RFMesh HomeAreaNetwork(HAN)

BroadbandWWAN 3G/4GCellularOtherProtocoltobeNamed

SystemsLayer


27/44


Energy3.0

Energy=Life

Energy=Commodity

EnergyisPolitical

MatureMarkets

Sustainability

Energy=Information

EnergyEfficiency


28/44

Follow

the

Energy

Flows


29/44

Follow

the

Energy

Flows

(keepingitsimple)

Resource

Extraction

Resource

Transformation

EnergyUsage

Delivery Delivery

Newandbetter

resource

for

energy Cheapermethodof

extractionofold

resources

Abilitytoextend

currentresources

Moreefficientways

toidentifyandlocate

resources

Moreefficient

ways

to

transport

resourcesto

transformation

location

Eliminatethe

needfor

intermediate

transformation

ofresource

Moreefficientways

to

transform

resource

intoenergy

Newresourcesthat

eliminatetheneed

fordeliveryofenergy

Energyresourcesthat

aresustainableor

lesscarbonemissive

Moreefficientenergy

markets(adjustthe

businessmodel)

Moreefficientways

to

deliver

energy

to

users

Newresourcesthat

eliminatetheneed

fordeliveryof

energy

SmartGrid

Moreefficient

energymarkets(real

timepricing)

Moreefficientwaystouse

energy Catalogueenergyusesand

reviewfornew,betterwaysto

accomplishthesamegoals

Newresourcesthateliminate

theneedfordeliveryofenergy

SmartGrid

Moreefficientenergymarkets

(realtimepricing)

IntersectionofITandEnergy

industry


30/44

Demand

Side

Energy

Investing

Deliveryof

Power

PricingofPower UsageofPower


31/44

EnergyEfficiencyGWh ProjectedSavings

20102030

(Western

Region

US)

Lighting1,748

Lighting17,772

Lighting27,089

HVAC

7,868

HVAC16,685

ConsumerElectronics

8,324

ConsumerElectronics

16,222

Pump/Motors6,237

Pump/Motors10,070

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

2010 2020 2030

Other

WaterHeating

BuildingShell

AppliancesRefrigeration

Pump/Motors

ConsumerElectronics

HVAC

Lighting

GWh

2,470GWh

45,152GWh

79,936GWh

Source:EPRI,

Assessment

of

Achievable

Potential

from

Energy

Efficiency

and

Demand

Response

Programs

in

the

U.S.

(20102030),

Chris

Montao


32/44

Fundamental

Technologies

for

Demand

Side

Lighting71%

Lighting

39% Lighting34%

HVAC9%

HVAC17% HVAC21%

ConsumerElectronics6%

ConsumerElectronics

18%

ConsumerElectronics

20%

Pump/Motors14%

Pump/Motors14%

Pump/Motors

13%

Refrigeration3% Refrigeration4%

Appliances4% Appliances4%

BuildingShell2% BuildingShell3%WaterHeating2% WaterHeating2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2020 2030

Source:EPRI,AssessmentofAchievablePotentialfromEnergyEfficiencyandDemandResponseProgramsintheU.S.(20102030),ChrisMontao


33/44

Lighting

HVAC

ConsumerElectronics

Pump/Motors

Refrigeration Appliances

BuildingShell

WaterHeating

0%

20%

40%

60%

80%

100%

120%

PredictedCAGR2010

2020

RealisticEnergySave

d(KWh)

DemandSideTechnology

InvestableOpportunity

EnergyEfficiencyGWh CAGR

20102020

(Western

Region

US)

Source:EPRI,AssessmentofAchievablePotentialfromEnergyEfficiencyandDemandResponseProgramsintheU.S.(20102030),ChrisMontao


34/44

Working

more

Efficiently,

not

Harder

8 Applicationsofenergyefficiencydeliver43%ofestimated$3.7Trillioninresource

savingsby

2030

Source:McKinsey&Co.,MobilizingforaResourceRevolution


35/44


Energy3.0

Energy=Life

Energy=Commodity

EnergyisPolitical

MatureMarkets

Sustainability

Energy=Information

EnergyEfficiency


36/44

FreeMarketsAbhoranEconomicVacuum:

UnaddressedOpportunities

Sector BigProblemSolvedMarket

OpportunityEntrants?

CyberSecurity CyberSecurity forPowersystemsand

controlsis

very different

than

IT.

As

the

SmartGrid connectsIT/ComminfrastructuretotheGrid,therewillbesignificantgapsinthecybersecurity oftheinfrastructureanditscontrols.Thereareanumberofcomplexitiesthatmakesthisaparticularlydifficultmarkettoattack.

ElectricGrid,EMS,

OilRefineries,

ChemicalIndustry,Waterutilities

EMC/RSA

AlionWizNucleusInvensysBentleyDevonWayAlertEnterprise

BigDatameets Energy Currentlythegridgeneratesmoredatathangeneratorsknowwhattodowith.Thisrepresents anuntappedsourceofvalue.

Unclearhowthiswilldovetailintothebusiness.

GameChanging HVAC Oneofthelargestapplications ofenergyusageintheworld.As

urbanizationcontinues

this

will

only

increase.Therearescantoriginalapproachesthathavebeenvalidatedby3rd partytesting.

Allbuildingsacrosstheglobe.

unknown

Fusion LLNLhasaFusioneffortunderwaythattheyclaimisdesignedtodeliver$0.05/KWhby2030.This couldchange

everything.

None.


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Appendices&AdditionalSlides


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Energy

Efficiency

Realities

Source:EPRI,AssessmentofAchievablePotentialfromEnergyEfficiencyandDemandResponseProgramsintheU.S.(20102030)

RAPistheconservativemarket

sizing

factoring

inallcosts


39/44


40/44

Megatrend:Urbanization


41/44

GlobalBuildingStock2010 2020

Source:PikeResearch

l b l ld k


42/44

GlobalBuildingStock2010 2020(by

Region)

Source:PikeResearch


43/44


Energy3.0

Energy=Life

Energysourcesareessentiallycommoditybased

New

sources

must

be

energetically

and

economically

more

efficient

than

old

energy

sources

thereby

enablingeconomic

growth

Commoditybasedmarketsdefinetheenergylandscape Clearatlowestpossiblemarketrate Costbasedcompetition innovationisnotacompetitiveadvantage Commoditieshaveperfectsubstitutability

Regulatoryengagementisnotanoption

Awareness Deepunderstanding Influencer

Maturemarkets alleconomicprofitwassqueezedoutlongago.Regulatedmarketsensurecheap,persistentpowertoallsociety

Sustainabilityis

currently

an

ideal

but

will

eventually

become

a

survival

envelope

Informationcontentofenergyisincreasing moredata,moreintelligenceandmoredecisionsavailable

EnergyEfficiency Untilnewenergysourcesemerge,themosteconomicenergystrategiesareenergyefficiency


44/44

Sources

Websites(for

Reports,

etc)

http://www.financialsense.com/contributors/michaelshedlock/2012/01/10/whatlevelofhumanpopulationissustainable

WorldPopulationReportUnitedNationshttp://esa.un.org/unpd/wpp/

EnergyInformationAgency www.eia.gov

ThoughtLeadersRobertAyers http://50.insead.edu/community/robertuayres

VaclavSmil http://www.vaclavsmil.com/

Resources

&

References

Documents

Alternative Energy Investing Thesis