Venture Capitalist Vinod Khosla On Renewable Energy, 2009

Renewable Energy: Maintech, not Cleantech

Vinod Khosla Khosla Ventures April 2009

“all progress depends on the unreasonable man” George Bernard Shaw

“A crisis is a terrible thing to waste.” Paul Romer

g n i

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“The ‘telephone’ has too many shortcomings to be seriously considered a means of communication” -Western Union Internal Memo, 1876

g n i s is ns M io : e at s c i u l c p x E Ap

“There is no reason for any individuals to have a computer in their home” -Ken Olsen, President, Chairman and Founder of DEC, 1977

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t s r s e d ic n U hys : P

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“Heavier-than-air flying machines are impossible” -Lord Kelvin, President, Royal Society 1895

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n u T : n em isio l b V o r

“Airplanes are interesting toys but of no military value” -Marshall Ferdinand Foch, Professor of Strategy, Ecole Superiure de Guerre

Forecasting

8

“It is the mark of an educated person to look for precision only as far as the nature of the subject allows.” Aristotle

9

oil price forecasts (1985-2005) 50

Forecast

Actual

Actual

Forecast

45

5-yr Forecast Error

40 35

Forecast

30

Actual Forecast

25 Forecast

20

10-yr Forecast Error

Forecast Actual

Forecast

Actual Actual

Actual

15 85 19

90 19

95 19

Data/Source: World Oil Prices (current $ / Barrel)- EIA Office of Integration Analysis and Forecasting

00 20

10

gas price forecasts (1985-2005) 8 Actual

Actual

7 Forecast 5-yr Forecast Error

6 Forecast

5 Forecast

4 Forecast

Actual

Forecast

3 2

Actual

Actual Actual

10-yr Forecast Error

Forecast

Forecast

95 19

00 20

Actual

1 85 19

90 19

Data/Source: Natural Gas Wellhead Prices (current $ /1000cf) - EIA Office of Integration Analysis and Forecasting

11

coal price forecasts (1985-2005)

3

Forecast Forecast

5-yr Forecast Error

2.5 Forecast Forecast

2

Forecast

10-yr Forecast Error

Forecast

1.5

Actual Actual Actual

Actual Actual Actual

Actual

Forecast

1 85 19

90 19

95 19

Data/Source: Coal Prices to Elec. Generating Plants (current $ /million btu) - EIA Office of Integration Analysis and Forecasting

00 20

12

the US market for mobile subscribers

Forecast McKinsey for AT&T › 0.9M (1980 => 2000)

Actual › 109M

13 Source: American Heritage Magazine - http://www.americanheritage.com/articles/magazine/it/2007/3/2007_3_8.shtml

yesterday’s technology, tomorrow’s forecast › 1980’s phone

› The actual market

14

quantitative modeling flaws › Models with given inputs are precise but inaccurate › low “standard deviation”, but with high “standard error” › input the measurable, ignore the immeasurable Black Swan’s › obscured embedded assumptions

› Food price controversy › World Bank study 75% of price rise due to biofuels › USDA notes only 3% of total price change 15

“extrapolation of the past” vs. “inventing the future” 16

Redefining swans…

“black swan” solutions ?

Technology shocks are classic “Black Swans”! “rarity, extreme impact, and retrospective (though not prospective) predictability”

Strategy: More “at bats”; “shots on goal” Source: Nassim Nicholas Taleb, author of “The Black Swan”

“what if…”

Calera › Cement that sequesters CO2, instead of emitting it!

“more coal plants meant cleaner air” “cement was carbon negative & free”

20

Kior: “biocrude” replaces crude

Crude oil

Refinery

“more driving meant less carbon” Millions of Years

“a million year crude production cycle reduced to hours?” Biocrude

21

Transonic

“2X efficient engines cutting world oil consumption in half”

22

Battery Black Swan? …probably the only battery worth working on … for both cars & wind/solar storage … along with other Black Swan’s

…”relevant scale” solutions for … oil … coal … materials … (efficiency of oil & coal use) 24

But how do we evaluate solutions…?

…”relevant cost” …”relevant scale” …”relevant adoption”

…the chindia test

only scalable if competitive unsubsidized

1990: Chindia ≈ 13% of CO2 emissions 2005: Chindia ≈ 23% of CO2 emissions 2030: Chindia ≈ 34% of CO2 emissions

EIA

“China and India together account for 79 percent of the projected increase in world coal consumption from 2005 to 2030” EIA

Unsubsidized market competitiveness?

…the scaling model

brute force or exponential, distributed…

key criteria › Trajectory: “What is” or “What Can Be” › Cost Trajectory › Scalability Trajectory

› Adoption Risk › Capital Formation › Optionality › Carbon Reduction Capacity

…cost and carbon trajectory

Cost trajectory:

Undesirable (hydrogen fuel cell?)

Cost

Fossil + Carbon Cost Fossil Fuel Cost Subsidy/Support Needed

Time

cost: driving down the cost curve

Source: “The Carbon Productivity Challenge”, McKinsey – Original from UC Berkely Energy Resource Group, Navigant Consulting

Cost (Normalized)

cost: not all technology curves are the same

Cheapest now Wind does not mean Coal cheapest later!

2010

Solar PV Trajectory Matters!

2015

2020

2025

2030

2035

declining technology cost… Generations of Solar Photovoltaics…

Crystalline Silicon

Amorphous Silicon

Thin-Film Thin-Film Multi-Junction

37

but tech cost decline isn’t enough…

Cost (Normalized)

Total Cost

Total cost decline is based on relative proportion of cost “types”… Construction Cost Inputs (Feedstock/Land) Technology Cost

2010

2015

2020

2025

2030

2035

2040

Carbon Emissions Trajectory

Carbon trajectory:

Undesirable (natural gas?)

Desired Goal (80% below fossil?)

Time

Scalability…

Scalability:Land is not (remotely) a constraint 3000 km

world electricity demand (18,000 TWh/y) can be produced from 300 x 300 km² =0.23% of all deserts distributed over “10 000” sites

41 Source: Gerhard Knies, CSP 2008

area requirements to power the USA (150 km)2 of Nevada covered with 15% efficient solar cells could provide the USA with electricity

½ as much land with 30% efficient turbines

Source: J.A. Turner, Science 285 1999, p. 687.

…the adoption risk

financial, consumer acceptance, market entry

adoption risk - $2,500 nano

Internal combustion engine or Hydrogen / electric?

adoption risk: U.S. mill closures

…optionality

optionality: biofuels feedstocks & pathways … Natural Oils

Glycerin BioDiesel (FAME or FAEE)

Transesterification Methanol/Ethanol

Ethanol, Butanol, Renewable Petroleum FermDiesel

Fermentation ETG via catalysis

Sugars/ Starch

Dimethylfuran

Catalytic Conversion Catalysis and Aqueous phase Reforming

Algae

+ Sunlight – CO2

Cellulose/ Hemicellulose

Biomass

Acid or Enzyme Hydrolysis

Cell Mass

Hydrocracking

Saccharification

Fermentation

Mixalco Process

BioDiesel (FAME or FAEE)

Ethanol Butanol Diesel

Biocrude

Microbial cultures

Waste

Gasoline, Diesel, Hydrocarbons

Mixed Higher Alcohol

Pyrolisis

Gasification

Biogasoline

Fermentation Syngas

Catalytic Conversion Fischer-Tropspch catalysis

Methane Ethanol/Butanol Ethanol BTL Diesel

optionality: hybrids or biofuels? 100%

Fast (relative) battery tech development

Slow battery tech development

% of power from electric sources

% of power from liquid fuel

0%

0%

100% Time

…capital formation

capital formation › Short Innovation Cycles (3-5 years)

› Short investor return cycles

Private money will flow to ventures that return investment in › Mitigate technical & market risk cheaply 3-5 year cycles! › Unsubsidized market competition

…carbon reduction capacity

carbon reduction capacity: 10X increase in carbon productivity!

10

8 7 Index (2008=1)

Carbon Productivity = GDP / WorldEmissions GDP Growth

9

6 5

Carbon Productivity Growth Required = 5.6%/yr

Less reduction now, but greater capacity to respond in the future?

4

World GDP Growth = 3.1%/yr

3 2

Emission decrease to 20GT CO2e by 2050 = -2.4%/yr

1 0 2005

2010

2015

2020

2025

2030

2035

Source: “The Carbon Productivity Challenge”, McKinsey – Original GDP projection from Global Insight through 2037

2040

2045

2050

carbon reduction capacity is key 1.9

Growth Offers the Greatest Carbon Reduction Opportunity!

1.7

Index (2008=1)

1.5 1.3 1.1 0.9 0.7 0.5 0.3 2008

Growth stock Replacement of old stock Improvement of current stock 2013

2018

2023

2028

goal: cost, carbon reduction capacity, carbon & scaling trajectory, capital formation, low adoption risk, & optionality

But be wary of irrational ideas….

irrational ideas: toilet paper

I propose a limitation be put on how many sqares [sic] of toilet paper can be used in any one sitting. Now, I don't want to rob any law-abiding American of his or her God-given rights, but I think we are an industrious enough people that we can make it work with only one square per restroom visit, except, of course, on those pesky occasions where 2 to 3 could be required. - Sheryl Crow

•

Source - http://blogs.usatoday.com/ondeadline/2007/04/singer_turned_a.html

irrational ideas: “green bikinis”

•

Source - http://www.alternativeconsumer.com/2008/07/29/eco-bikini-from-niksters/

irrational ideas: eat kangaroos, not cows!

Farming kangaroos instead of sheep and cattle could cut greenhouse gases produced by grazing livestock…

Source – http://www.reuters.com/article/environmentNews/idUSSYD8867720080808

irrational ideas: “no flags, no footprint”

But a few days into the Euro 2008 football championships fans are being advised not to fly their flags - because they could damage the environment… - The Guardian

•

Source - http://www.guardian.co.uk/world/2008/jun/10/germany.euro2008

irrational ideas: Shell’s “sustainable” tar sands

• UK advertising authority: Shell mislead public by claiming tar sands as “sustainable” source! Source – http://www.guardian.co.uk/environment/2008/aug/13/corporatesocialresponsibility.fossilfuels

irrational ideas: “how to green” books

•

Source - http://www.amazon.com/Lazy-Environmentalist-Guide-Stylish-Living/dp/1584796022

irrational ideas: zero-emission buses?

3-year Oakland pilot : zero-emission hydrogen fuel cell buses

solutions must make economic sense! diesel @ $1.61/mile vs. hydrogen @ $51.66/mile!

62 Source: ABC News - http://abclocal.go.com/kgo/story?section=news/local&id=5984013

San Francisco Photovoltaics?

Or

Mojave?

Irrational ideas: scalable wind Good: › Wind turbine shows declining costs over time

Storage is the key for wind power … but › Technical: Betz limit (59.6%) › Scalability: good sites declining › Adoption Risk: Systems for distributed sources

irrational ideas: Zero Emission Buildings

... the new fashion?

irrational ideas: palm-oil based biodiesel

“The European Union was recently shocked to learn that some of its imported biodiesel, derived from palm trees planted on rain-forest lands, was more than twice as bad for climate warming as petroleum diesel” - David Tilman and Jason Hill

•

Source - http://www.deseretnews.com/article/1,5143,660207597,00.html?pg=3

…”lets face the facts” … Prius: vs. painting 1000 sq-ft of roof white

… Electric cars?

Electric Cars?

and renewable electricity? …stacking one risky transformation on another?

Shower or Not? › Showering/Drinking (in North America): 100-250L

› Growing 1 KG of Wheat: 1,000L

If you really want to save water, become a vegetarian! › Growing 1 KG of Beef: 15,000L! Source: The Economist

TOOrational ideas: the “Exxon view”?

• Discipline, Patience, Vision ≠ Green! Source – NY Times

“no change bigotry” vs. “environmental everything” vs. pragmentalists

72

TOOrational ideas: the “Exxon view”?

• Discipline, Patience, Vision ≠ Green! Source – NY Times

…technology expands the “Art of the Possible”

…today’s “unimaginable” or tomorrow’s “conventional wisdom”

and remember….

New Technology Has A History ...

Connections in London

7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0

90

93

95

99

Source: When Old Technologies Were New

“In 1885, Yale students who were getting ‘more light than they relished’ chopped down an electric pole erected at the corner of the campus…”

Dotcom bubble but … net “traffic” growth continued

Internet Traffic Morgan Stanley High Technology Index

1400

1050

1200

950

Terabytes

750 800 650 600

550 450

400

350 200

250

0

1996

150

1997

1998

1999

Source: Andrew Odlyzko (University of Minnesota – Digital Technology Center) Morgan Stanley Technology Index from Yahoo Finance

2000

2001

2002

2003

2004

2005

2006

Morgan Stanley High Technology Index

850

1000

200yrs of Technology Speculation

“Triumph of the Optimists: 101 Years of Global Investment returns”

…our renewable portfolio

Not Your Niche Markets Anymore! The New Green: Maintech not Cleantech The Markets You Think Of › › › ›

Engines ($200B) › Corn Ethanol Lighting ($80B - US) › Biodiesel Appliances ($10’sB+) › Solar PV Batteries + Flow Cells ($50B+) › Wind › Geothermal

› Cement ($100B+) › Water ($500B+) › Glass ($40B) › Home Building (!!!) › BioPlastics ($10’sB+) Generation - $250B - US

› Gasoline ($500B+)

› Solar Thermal

› Diesel ($500B+)

› EGS

› Jet Fuel ($100B+)

› Clean Coal › New Nukes 80

Sequestration Tools EPC

W Wa aste ter W Des ater alin atio n

PVC Plasticizers Polyurethane Polyethylene Glass Cement

Dis t Uti ribut e lity Sca d Sola r le S ola r

Khosla Ventures Renewable Portfolio

Tools

Solar

Wind Geothermal

Water

al m r

e th e as o Ge rag al G d o r re St atu e d e in Win tic N g e En th n Sy

Natural Gas

Coal Materials Electrical Efficiency Building Efficiency Materials Mechanical Oil Corn/ Plastics

Sugar Fuels

Cellulosic

Efficiency

Lighting Batteries Motors

Future Fuels

s ock s t s k d ee stoc F d ar ee Sug rch F Sta

Homes Engines Appliances Pumps Cellulosic Ethanol

Butanol Cellul. Diesel Cellul. Gasoline Cellul. Jet Fuel

Khosla Ventures Renewable Portfolio

Stion Ausra Infinia PVT

Nanostellar Codon

y

g ck ner o R E ta int l A o tP a re

NanoH2O

Tools Water

Draths Segetis Soladigm Calera

Solar

Wind Geothermal Natural Gas

Coal Materials Electrical Efficiency Building Efficiency Materials Mechanical Oil Corn/ Plastics

Sugar Fuels

Cellulosic

Efficiency

Future Fuels

Cilion Mascoma Range Coskata Lanza

Amyris LS9 Gevo KiOR

G

Seeo Kaai Sakti3 Soraa Firefly Lumenz Ramu Topanga GIV Gridshift PAX Streamline EcoMotors Transonic Tula Hybradrive

Together, our products will improve the way all people live

83

Calera Corporation

Built on carbon negative cement

84

Living Homes

And prefabricated, environmentally friendly, cheaper, LEEDS homes

85

Soladigm

Using electrochromatic windows

86

Amyris LS9 Gevo Kior Mascoma Range Fuels Coskata LanzaTech

Fueled from renewable sources

87

Ramu EcoMotors Transonic Firefly Seeo Sakti3 Nanostellar Tula Technologies Hybradrive

With reduced fuel consumption and CO2 emissions

88

Topanga

Lit by high intensity, low power discharge lighting

89

Ausra Altarock Infinia Stion PVT Solar

Using renewable electricity

90

Great Point Energy

Cooking with natural gas from clean coal & biomass

91

Lumenz Group IV Soraa

Reading with LED lighting

92

Kaai

Watching HD laser TV

93

NanoH2O

Drinking desalinated water

94

Segetis

Safely using biobased plastics and chemicals

95

Draths

Biobased materials for your home

96

Pax Streamline

Staying comfortable with more efficient air conditioning

97

Change every aspect of daily living

98

to predict the future, invent it! Forecast 2015: New “cheaper than fossil” technologies proven

Forecast 2030 : How will oil compete?

“In my view for the United States, it is the greatest economic opportunity we've had since we mobilized for World War Two. If we do it right, it will produce job gains and income gains substantially greater than the 1990s.“

Bill Clinton on the “green economy”

100 Source: Speech at U.S Conference of Mayor’s Climate Protection Summit

Challenge conventional solutions…

The nine dots problem

Source: Amory Lovins, RMI

Standard nine dots solution

Source: Amory Lovins, RMI

Standard nine dots solution

Source: Amory Lovins, RMI

Better: use just three lines

But…how about just one line?

Source: Amory Lovins, RMI

Geographer’s Solution

Source: Amory Lovins, RMI

Mechanical Engineer’s Solution

Source: Amory Lovins, RMI

Origami Solution

Source: Amory Lovins, RMI

Wide Line Solution

Source: Amory Lovins, RMI

…or get to work

[email protected] khoslaventures.com/resources.html