To Connect or Not to Connect? Shifting Energy Industry Forges Unlikely Partnerships
By Hans Schulz, IDB VP for Private Sector, a.i.
On the big island in Hawaii, the sun shines 168 days of the year. In Honolulu, it jumps to 271 days of sunshine. That’s the perfect market to launch a new partnership between solar panel supplier SolarCity and electric carmaker Tesla Motors.
The pair announced plans earlier this month to sell off-grid solar packages using Tesla’s new Powerwall battery. This would give Hawaiians the choice to disconnect from the grid completely and rely instead on the growing number of rooftop solar panels dotting the Pacific islands.
And it’s not just in sunny Hawaii.
Honduras is beginning to harness solar energy. Take the example of Corinsa, a large beverage company based in the city of San Pedro de Sula. Last year, the Inter-American Development Bank provided investment-grade energy appraisals and concessional financing with the Nordic Development Fund for Corinsa to invest in what is now the largest solar rooftop system in Latin America.
The growing demand for self-supply renewable energy is prompting some to disconnect from the grid, while others are forging new connections.
This is the case of D.C.-based startup Opower. Founded by two Harvard alumni in 2007, the software company is using behavioral economics to break down key barriers to energy efficiency, for instance lack of consumer awareness and inertia (namely, the tendency to do nothing). Progressive regulation allows utility companies to purchase the Opower software and billing solutions, which can be a powerful and low cost tool to achieve energy efficiency gains.
The impact here is important. According to Opower, the startup saved close to three terawatt hours in 2014. To give some perspective, the Hoover Dam produces 3.9 terawatt hours each year and it’s one of the largest hydroelectric sources in the U.S.
Partnerships between startups like Opower and large utility companies are key to tackling the changing business model for energy. Rather than resist distributed generation (power generated on-site), progressive utility companies are embracing the shifting landscape by partnering with other industry players. For instance, PG&E in California and SolarCity pledged $60 million in tax equity financing for SolarCity to install more than 1,000 solar systems for homes and businesses in the United States.
In Latin America alone, we could save over 78 million mega-watt hours by reducing the transmission and distribution losses to the level common in OECD countries, which would avoid millions of tons in greenhouse gas emissions released to the atmosphere. That’s the equivalent of the electricity produced by 20,000 wind turbines, more than double the total number installed in Latin America.
The same potential is true for green buildings.
Zero emissions buildings using distributed generation to provide our energy needs, is critical to avoiding the most severe impacts of climate change. In fact, the buildings sector represents 32 percent of global emissions. To transform buildings we need many innovative companies –including startups– working on new and existing building energy efficiency. New buildings may last 50-100 years or more, and it’s essential that we build in energy efficiency and sustainability to the design.
This is where the low hanging fruit are lowest.
But there are many barriers and early engagement is critical. Changing business as usual requires early engagement with developers and complex green engineering skills.
The IDB has engineering firms on retainer throughout Latin America that can provide our clients with green building design expertise on short notice. For example, we supported the First LEED Certified University Campus in Peru, University of San Ignacio de Loyola, to build a green campus with advanced air conditioning and materials, green roofs and energy efficient lighting. This was possible through a lower cost loan from the Canadian Climate Fund, a fund we manage to incentivize companies to make climate-friendly investments.
As the rate of construction of new buildings is low in many industrialized countries, new business models to deliver deep retrofits of the existing building stock are crucial. The IDB is working with ESCOs, or energy service companies in Latin America, many of which are start-ups, to offer outside finance to implement energy efficiency and rooftop solar PV and guarantee savings to building owners. We have several innovative programs to provide this high risk finance and if successful we plan to issue bonds to further expand markets and lower the cost of capital for these companies.
Connecting startups and large companies are also essential in the green building space.
Take the case of Saint-Gobain, a multinational company in construction and building materials ranked among Thomson Reuters’ 100 Most Innovative Companies. Its innovation arm develops partnerships between Saint-Gobain and startups worldwide. One startup, Brochier Technologies, was first identified by Saint-Gobain’s innovation team in 2008, and now the two companies have released an innovative lighting fabric combining fiberglass technology and interweaving optical fibers that are connected to a LED source.
Yet more connections are needed among startups, large companies and investors.
As the energy industry landscape continues to shift, we must rethink old partnerships and forge new ones. Certainly initiatives like the 1776 Challenge Festival provide a forum for unlikely pairs to leapfrog from ideation to implementation.
Let’s see what connections spark this week.
This is a featured article on the 1776 Thought Leadership Platform. The IDB is a sponsor of this year’s 1776 Challenge Festival hosted in Washington, D.C. May 9-16. 1776 is a global incubator and seed fund helping startups transform industries that impact millions of lives every day—education, energy & sustainability, health, transportation and cities.