Podcast transcript: How data and technology can drive clean energy

Chris Hagler

Welcome to Sustainability Matters, a podcast series of Ernst & Young, EY. My name is Chris Hagler. I’m one of the leaders of our Climate Change and Sustainability Services practice and host for this series. We designed this podcast series to provide leading trends and practical advice around the environmental, social and governance, or ESG, issues and opportunities facing businesses today.

This is part two of a fascinating conversation as it relates to climate change, technology and the speed at which companies are galvanizing for action. I’m joined again by Jules Kortenhorst, the CEO of Rocky Mountain Institute, and Klair White, Senior Vice President of EY’s Infrastructure Advisory Group. When we talked last, we were not able to get to one of my favorite parts of the podcast, and that is what’s next and what the future looks like.

I’ve noticed recently that the future seems to be created more and more by the next generation. And Jules, I think you were recently at COP25, where a young lady named Greta was driving some of the action. So, maybe you could start and help paint a vision for the future, starting with young Greta.

Jules Kortenhorst

Yeah, I think it holds true for many of us in leadership roles that we are being challenged by a younger generation to think about the sustainability of our planet. And whether it is here at Rocky Mountain Institute or at EY, our young colleagues are pushing us to think what needs to happen to safeguard this planet for their future. And Greta was, indeed, a wonderful example of that in Madrid.

There was quite a bit of tension between government negotiators that follow a very deliberate — some might even argue way too slow a pace — in negotiating positions around the Paris Agreement, and young activists and leaders like Greta, but also business leaders and representatives of other non-state actors, cities and states, who said, “No, we need more ambition, we need to move faster. We can do this. Technology is becoming available and solutions are ready. And even if they aren’t, we have to move because the future of our planet is at stake.”

Hagler

Excellent. When we talk about the future, it’s clear that technology is going to be a part of how do we decarbonize society. It has to be. How much of that technology is already there, and what technology needs to shift as we move forward?

Klair White

We’ve already had wind and solar, in particular, being very disruptive in a good way to the energy markets, and they are now relatively well proven, moderate risk technologies that are no longer niche — they’re very mainstream. And they have disrupted the market and the market is adjusting, but those technologies, increasingly coupled with storage, which is also a technology that is ready but is going through a transition to be more cost effective at different scales and applications.

So, I think a lot of the technology is already there and it’s just incorporating it into legacy infrastructure. The US and other markets already have fairly centralized markets, and these technologies are allowing from a decentralized approach. And so, we’re going through a period of transition where the technologies really are already there and are just being deployed at varying scales — both the utility scale, but also by corporates behind the meter.

Kortenhorst

Klair, let me build on that because I agree with you. Renewables are now on their way to being mature technologies. We’ve recently done an analysis that shows that portfolios of renewable solutions — solar, wind, battery storage and demand response — actually outcompete 90% of new gas power generation projects here in the United States.

Hagler

Amazing.

Kortenhorst

So, of the gas projects in the pipeline, 90% are less attractive than investing in renewables. But it’s not just renewables. Right? Because it’s also electric vehicles, and it’s also energy efficiency. Five, six years ago we were still all concerned about LED lights being of a different color and strange technologies (Laughter), and now it’s the normal go-to thing that you buy at the hardware store because that’s the most cost-effective product. And we’re seeing that with many of the energy efficiency solutions. They’re in the money, and they’re attractive — electric vehicles, a little bit earlier stage still.

But here is a forward-looking indicator: more and more automotive companies are indicating that they’re switching their product development from internal combustion engine platforms to electric vehicle platforms. And when Volkswagen and Daimler and General Motors are saying the cars of the future are going to be electric, it’s no longer just Elon Musk saying this. I think we can start to take that to the bank.

Hagler

And when we look at time frame for something like that, Klair is talking about changing the grids and working with the utility companies, and I can just, like, feel the weight and the slowness on my shoulders as we think about that type of shift. Or the big auto companies are completely shifting their portfolio of products. Is this a 50-year thing? Is it 75? What do you think, Jules?

Kortenhorst

I actually think this transition is going to happen much faster than people realize. As with many industrial transformations, they follow the pattern of an S curve. First progress is slow, but then we get to the steep part of the curve and things accelerate very dramatically. And I think that’s right where we are.

Of course, there are infrastructure components that take longer. But, in fact, one of the interesting parts of the solutions is that they are decentralized and that there is, therefore, less centralized infrastructure that needs to be deployed. More of the decision-making is in the hands of consumers, who can decide to put solar panels on their roofs today and have things moving in a couple of weeks, as opposed to a centralized power generation plant, which takes years to consider and build.

But also, we’re seeing a leapfrog in developing markets and emerging economies where the need to invest in the infrastructure of the past is no longer there and where countries can decide to jump straightaway to the solutions of the future, just like they’ve done in telephony.

White

Yeah, I would just jump on that point because I think a few things that you’ve mentioned really point to digitalization and technology that really increases the data. Because we can’t improve what can’t be controlled, and we can’t control what can’t be measured.

Last year, EY produced a report that looked at energy being more than just an operating expense, and why strategic energy management is becoming integral to manufacturing, in industrial success in particular. And I was staggered at the statistic that we unearthed that around 50% of total primary energy input is lost on average throughout the generation of the manufacturing process. So, many industrial organizations are quite literally hemorrhaging energy and money, still paying for all of that energy, but it not being used productively. So, not only is that lost money, but it’s greenhouse gas emissions.

And I think strategic metering, digital technologies, automation and controls, data analytics — people are making more informed decisions armed with that knowledge about where energy and cost is being wasted or is inefficient. And I think data is going to be critical to meeting that time frame that Jules mentioned.

Hagler

And I understand there’s a lot of data available today and it’s just how do we use that, and what do we do with all of that information?

Kortenhorst

In fact, if you think about our energy system, it is so pervasive throughout our economy, throughout our industries, but also through our houses. Imagine all of those devices, whether it is your laptop computer, or the lighting in your building, or your air-conditioning unit, all elements of an “Internet of Things” that can be digitally connected and digitally controlled.

So, at Rocky Mountain Institute we have been part of creating the Energy Rep Foundation, a spin-out where we’ve brought together over 100 affiliates that are working on leveraging an open source blockchain platform as a tool to bring that Internet of Things together with the use and the supply of energy. And we can very much imagine that, based on leveraging data, we can make the energy system both more efficient but also allow people to have much more control over their own use of energy and their own supply of energy.

Hagler

Agreed. I talked to somebody once who put it very simply on how we can transition to a lower-carbon society. He said, “We basically need to clean up the grid and electrify everything.” And I thought that put it pretty simply in terms of there’s so much to that, I realize cleaning up the grid is a whole lot more than just cleaning it up (Laughs), just a quick answer, but I think that it summarizes nicely the things that need to be done. And what I hear you saying, it’s not going to take forever to do that.

Kortenhorst

I think that’s absolutely true, Chris, but I would add two other pieces to the puzzle.

Hagler

Okay.

Kortenhorst

We definitely need to clean up the grid and then we need to electrify everything, but in order to make the problem as simple as possible, we should also be much more efficient in the way that we use energy. Because if we were more efficient then the magnitude of the transition we have to go through is smaller. And then there is always still a part of our economy, which we at RMI refer to as the hard-to-abate sector. Those parts of the economy where decarbonization is more complicated — petrochemicals, and steal and cement, shipping and aviation.

At this point, still hard to imagine an ocean liner crossing the ocean on batteries (Laughter) or a long-haul plane doing so. So those parts of our economy will have to come up with new innovative solutions that are based, again, on very efficient use of energy, some electrification, but also some alternative solutions that may not be fully crystalized yet.

Hagler

So, part of the solution is technology that already exists. Part of the solution is creating new technologies for the hard-to-abate sectors. And Klair, I think part of the solution is figuring out how to make it easy for companies to buy and to acquire some of these technologies. Can you tell us a little bit about some unique things that are out there that might help accelerate this?

White

Absolutely. I think there are now multiple ways for corporates, and cities and universities, to participate in renewable energy purchasing. Obviously, onsite installations, PPAs with project developers.

Hagler

PPAs?

White

Power purchase agreements, sorry. Power purchase agreements basically involve a company guaranteeing to purchase wind power or solar power at a guaranteed price, which effectively makes a project bankable, it makes it financeable, through a direct or a sleeved PPA that is connected to the same grid as where the corporate has its operations. And so, it will be getting the electrons through the grid. And there’s usually a sleeving arrangement with a utility to make sure the corporate is getting all the power that it needs when it needs it. But often the corporate can attribute that renewable energy that it’s purchasing as additional renewables that might not otherwise have been brought on.

Probably one of the most interesting developments in the PPA model is this concept of a virtual or synthetic PPA, which removes the need for corporate to be in the same location or the same grid area as the project. Interestingly, last year EY actually advised EY, the US firm, on entering into its own virtual power purchase agreements for two large-scale wind farms in Texas to offset 100% of the US firm’s carbon emissions, covering both office electricity and travel emissions. And so, we are in the unique position to understand the risks and rewards of renewable procurement from both an advisor perspective and as a client.

Hagler

And you’re also in a position to really understand the different parties that have to be part of decision-making as it relates to a virtual power purchase agreement.

White

Absolutely, I mean, that was one of the biggest takeaways from that project. And the projects that EY does with its clients — it’s the number of stakeholders, it’s procurement, it’s operations, it’s the CFO level, it’s sustainability, it’s treasury, it’s risk, it’s legal. Energy really does cut across so many functions in an organization.

Hagler

Now Jules, I think Rocky Mountain Institute also has an organization that helps with that, correct?

Kortenhorst

We spun out an association of corporate procurement efforts. It’s called REBA, the Renewable Energy Buyers Association. And here companies from across the United States come together and talk about these models that Klair was just explaining, teach each other the new methodologies, engage with suppliers and advisors to make these markets happen quite seamlessly. Because, whereas it used to be relatively straightforward, you just signed your electricity bill, now it is getting more complex, and companies are seeing that either they have to staff up their own capability in the area of energy procurement or they have to work with others and advisors to learn.

White

One of the other challenges, I think, the big corporations, the big data companies, the big tech companies made headlines with these big PPA renewable deals, but what about the next, what about the midsized or the small-sized corporates? We’re increasingly seeing opportunities for big projects that achieve economies of scale and good pricing for renewables being open to having multiple corporate off-takers. So, I think there’s an appreciation that not everyone is going to be able to be a sole source off-taker of a 200-megawatt wind farm, but actually you could have multiple off-takers, and I think that’s enabling kind of mid to small-sized corporates to also participate.

Hagler

Absolutely, and doesn’t REBA help with that as well?

Kortenhorst

Yes, REBA does. We’ve seen some of the first club deals, as we call them, come together in that area, and we’ll see much more of that. We also spoke about cities earlier. Cities are playing a role in this now as well. Cities would like to put renewable electricity on their agenda, but often they’re not big enough so they’ll round up a group of like-minded companies in their territory and say, “Why don’t we all buy together the output from a solar plant or a wind park?”

Hagler

(Overlap) Oh, nice.

Kortenhorst

So, we see local governments engaging in this subject at the same time as corporates are doing it.

Hagler

Nice. A new way of public-private partnerships for renewable energy.

Kortenhorst

Absolutely.

Hagler

Okay, so as we look to the future, which we’re saying is not 100 years, it could be 10 years out, hopefully 10 years out, we look to scale current technologies, build some new technologies, especially for the hard-to-abate industries. We’re talking about some creative models from the market. And my guess is, Klair, those will continue to evolve in the next 10 years.

The other piece feels like policy could play a part as we look forward. And Jules, I’d love to hear your perspective outside of the United States and also in the United States.

Kortenhorst

Policy and regulation definitely has a very important role to play. First of all, remember that electricity markets are virtual constructs, and we need regulation to shape these markets. And as more and more of power supply becomes wind and solar, where the marginal costs of producing the next electron is zero, the market will see a tendency for electrons to become zero at moments of abundant sun and wind supply. Organizing markets around those marginal cost and price considerations is an important regulatory task.

But more broadly, we are seeing that, whether it is at the state level in the United States — California, New York — or for a whole continent like Europe, the goals are being set and laid out quite clearly. Europe and the Green New Deal that was recently announced, California, and New York and other states in the US that have laid out their mandates are moving to eliminating emissions by the middle of the century.

And that will require policy. It will require policy to help to continue to shape evolving electricity markets. It will require policy to enable the penetration of electric mobility across our transport sector and making sure that there is enough charging infrastructure. It will, of course, require a price on carbon. And, it seems so obvious in the minds of free-market thinkers, that the best way to help reduce greenhouse gasses and to eliminate the threat to our planet is to put a price on that externality — to let the polluter pay. So, put a price on carbon.

So, whereas in much of the world that is now either happening or under discussion, it is still in an early stage in the US, but I would think that we’ll see pricing of carbon grow globally at a very rapid clip as well.

Hagler

And Klair, are you seeing that in your work as well?

White

Yes, I think policy can be an enabler. Policy can also be about the leveling the playing field and removing barriers. Something I’m particularly interested in seeing the impact is around storage. The benefits of storage are not yet fully understood because they’re multiple. And I know in the US, federal regulations are trying to push down to the different regional independent system operators, or ISOs, a need to build storage into the wholesale market participation framework. And I think that’s going to be very interesting, to see the impact that that has on mainstreaming storage.

Kortenhorst

Klair, can I build on that? That is absolutely a very important piece of the electricity regulation puzzle. What people often hear still is, “Yeah, but storage, we need a breakthrough in storage.” Well, the reality is we don’t really need a breakthrough anymore. We have storage technologies that are very functional, and the cost is dropping incredibly fast.

So, we don’t need a breakthrough. We have to just recognize that storage will become a more and more cost-effective mechanism on the grid and in many places is going to replace the capacity of the electricity grids to deal with the variability of solar and wind. So, instead of having to have gas turbine power plants as backup, we’ll be using storage. That is already happening in California. It’s already happening in New York, in Australia, some places in Europe. It will expand very rapidly.

Hagler

Klair, I think in part one you gave us the stat on how much the price of storage has come down. Can you remind us how quickly that price has changed?

White

Yeah, I mean there has been a rapid drop in the last few years, but in the first half of 2019 alone it dropped 35%.

Kortenhorst

And we’ve just published, at Rocky Mountain Institute, a report that looks into the future of storage technologies and, whereas with the wind and solar we’ve seen innovation happening for the last 10 to 15 years. In the case of storage, that innovation is just only sort of, like, happening. There’s lots of new technologies in the pipeline, and we can easily imagine battery storage cost coming down by another 70, 80% from where it is now. We also can imagine that solid state batteries that are far less risky in terms of flammability become the normal product. So, lots of exciting news in the battery sector.

White

Yeah, I think there’s a lot of new exciting technologies emerging. Some of them we’ve talked about, — fuel cells or blockchain, the dreaded blockchain word, energy as a service.

There’s lots of exciting things coming through, and I think, understandably, corporate off-takers, or cities, or universities, they want to understand what impact this is going to have, either the relevance for them, procuring some of these technologies, or even to the extent which it’s going to disrupt the market. Because anything that’s disrupting the market, disrupting the business as usual, is going to impact the decisions that the people that are looking at renewable energy are going to make. They don’t want to get locked into something that’s going to change tomorrow. So, that’s something we’re certainly helping to work through, is the impact of emerging technologies on those decisions.

Kortenhorst

If we are right, Klair, that technology is changing rapidly, that this is happening much faster, no business leader, no executive, no CEO can think about the future of their business without considering the impact of the decarbonization and the transitioning happening in our energy system. It is both challenging, but it is also going to be very exciting — creating a lot of new opportunities, and securing the planet for the future.

Hagler

I was going to ask you for a wrap-up comment, but I don’t think I need to, Jules, because I think that was just a perfect wrap-up for our session on what does the future look like for decarbonization. Thank you both so much for joining us. This has been a fascinating view into what the next 10 years could be. A very hopeful view for what the next 10 years can be as it relates to decarbonization.

Thank you all to our listeners. Please, please connect to RMI.org. It sounds like there’s an awful lot of great information out there, including two recent reports that you just talked about.

Kortenhorst:

One on batteries and the future of battery technology, and one on the progress that is being made by non-state actors under America’s pledge.

Hagler

Perfect. And Klair, you just talked about one as well from EY.

White

Yes, it’s Energy: More than just an operating expense, and it focuses on the important decisions for industrials and manufacturing as energy-intensive users.

Hagler

Fantastic. So, you can get that at EY.com. And please also follow @RockyMtnInst . You can follow me at @chrishagler. You can also follow EY Sustainability Hub @EY_Sustainable. And please subscribe to this podcast wherever you get your podcast.