2nd Green Revolution

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Energy Intermediary talk by Nalin Kulatilaka, BUILDE meeting, May 10, 2007

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2nd Green Revolution

  1. 1. A 2nd Green Revolution New Business Models to Accelerate Adoption of Clean Technologies Nalin Kulatilaka
  2. 2. Energy Conversion Primary Human Sources Uses Energy Transport Energy Storage Solar solar hot water, he Wind ating Win Ph dow Heat ot s/ ov Hou ol ta Tidal sin ics g des i gn Hydro Electricity Light Bio Fuel Cells Motion Fossil Fuel Hydrogen Water Geo thermal Processing Markets Fission Intermediaries Organizations Fusion © Martha Amram and Nalin Kulatilaka
  3. 3. Adopting Complementary Systems Takes Time © Martha Amram and Nalin Kulatilaka
  4. 4. The Ignored Opportunity The Familiar Cut Source: U.S. Energy Information Administration statistics Graphic Published first in Metropolis Magazine, October 2003 Issue. © Martha Amram and Nalin Kulatilaka
  5. 5. The Ignored Opportunity An Unfamiliar Cut © Martha Amram and Nalin Kulatilaka
  6. 6. Efficiency Investment Risk and Return 30% 25% Energy Efficiency Small Company Stocks 20% 15% Common Stock 10% Long-Term Corp. Bonds 5% U.S. T-Bills 0% 0% 5% 10% 15% 20% 25% 30% 35% © Martha Amram and Nalin Kulatilaka
  7. 7. The Economics of Conservation in the Built Environment • Profit Opportunity: Avoided cost of energy 13¢ /kwh  RPS premium 2¢/kwh  Carbon credit 2.5¢/kwh  Less energy efficiency cost of 2¢/kwh  Equals 15 - 16¢/kwh  Who can capture the value? Utilities can’t do it. In 48 states regulations prevent • utilities from profiting from energy efficiency investments Consumers don’t act by themselves. High upfront • costs, information fragmentation, and small dollar impact on the energy bill have prevented consumers from acting on their own © Martha Amram and Nalin Kulatilaka
  8. 8. Brown Building -- Energy Bill Appliances ? Features Behavior Weather Oil Price © Martha Amram and Nalin Kulatilaka
  9. 9. Green Building -- Energy Bill © Martha Amram and Nalin Kulatilaka
  10. 10. First Step: Energy Service Companies • Analogous to IT services • Can bridge expertise/knowledge gaps, overcome customer inertia and change the marketplace. ESCOs exist, but we need them to flourish. © Martha Amram and Nalin Kulatilaka
  11. 11. Needs an Ecosystem Design, install, and operate Evaluate risks Monitor and E-Inter and provide validate Opportunity financing energy use Interface with utilities and contract with customers © Martha Amram and Nalin Kulatilaka
  12. 12. Business Model Customer 1 Customer 2 …………… ………….. Customer N Monitoring & Verification Credit Risk Rate Risk E-Inter Performance Risk Lender Utility Securitize annuities © Martha Amram and Nalin Kulatilaka
  13. 13. Up-Side Potential: Peak Shifting Programs  PJM is Accepting Example of Generator providing Super Fast Reserves: Frequency control and ± 60MW of Secondary Reserves on AGC Reserve Services from Load Since July 2006. Experience so far indicates loads are more reliable.  ISO-NE is conducting pilot to Investigate load participation in reserve services. Secondary Reserves 320MW±60MW Frequency Control Source: Courtesy of EnThes Inc., March 2007 © Martha Amram and Nalin Kulatilaka
  14. 14. Business Model Customer 1 Customer 2 ………….. ……………. Customer N Monitoring & Verification Credit Risk Rate Risk E-Inter Performance Risk Lender • Load control • FCM Utility • RECs • etc. System Operator © Martha Amram and Nalin Kulatilaka
  15. 15. The Cyber Infrastructure • Real-time metering at individual “edge user” • Communications infrastructure to convey price signals – Users and smart appliances • Control systems to adjust load – Central pool • If distributed generation (wind, solar), then 2-way metering. © Martha Amram and Nalin Kulatilaka
  16. 16. Conclusions • Built environment ready for immediate adoption of demand reduction and distributed generation • Opportunities for service and financing model innovations • Vital need for measurement, monitoring, and verification services. • Up-side opportunities through pooling and controlling load -- need a cyber infrastructure © Martha Amram and Nalin Kulatilaka

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