Can Las Vegas Become the Houston of Solar?

“Is Nevada the Saudi Arabia of solar?” asked University of Nevada, Las Vegas (UNLV) law Professor Bret Birdsong, in a rhetorical reprisal of Bill Clinton. “But more importantly, can Las Vegas become the Houston of solar”—referring to both a business capital and a hub for supporting industries?

Birdsong’s questions marked the opening of the latest installment of UNLV’s Renewable Roundtable earlier this month. At the roundtable, experts from the Nevada State Office of Energy (NSOE), the nonprofit Clean Energy Project (CEP) and from private law practice framed policy—primarily solar.

NSOE Engineer Pete Konesky credited President Obama’s Recovery Act with financing the state’s initial drive to harness its peerless renewable resources, through both energy efficiency and new generation. But Konesky still sees the Feds—owners of 86 percent of Nevada’s land—as hindrance as well as help. Military bases sometimes nix solar projects and endangered species can slow projects.  

CEP Executive Director Lydia Ball outlined an export strategy pointed toward California. Exporting 3000 GW of renewable power by 2025 would, if successful, boost jobs and state economic growth—and reduce household utility bills—even after paying for over 400 miles of new transmission lines needed to reach the California market.

Despite solar’s phenomenal growth, Birdsong asked, why has the industry disappointed both advocates and investors over the past three years?

Lawyer Marti Ashcraft primarily blamed NV Energy. “[The Solar Generations program] sadly, has not fulfilled its potential”—undersubscribed and vulnerable to abuse, such as squatting on rebates without building anything. Ashcraft advocated for further separation of renewable generation from the utility to speed rooftop installations. “If NV Energy could make renewable energy go away,” Ashcraft claimed, “it would in a heartbeat.” (NOTE: NV Energy has underwritten UNLV’s new interdisciplinary renewable energy program with donations totaling $1 million, among its other renewable initiatives).

Birdsong then asked about another endangered species—federal renewable subsidies. “Did Solyndra fail because it was subsidized?” Ashcraft responded. “Or, not subsidized enough?”

Or was this, I wondered, another global trade race to the bottom? Solyndra failed because its business model simply could not compete with the plunging price of PV panels, abetted by Chinese subsidies some 20 times as large.

“The renewable people I know,” Ball countered, “would rather get rid of all subsidies [for all energy industries].” In other words: if we all somehow paid the full price for energy—including externalities like air and water pollution, greenhouse gases, radioactive waste storage, meltdown insurance and geopolitics—solar would already be approaching grid parity here, in the Mojave.

I left wondering: might incentives based more on simplicity and transparency in pricing—rather than myriad tax subsidies, rebates and loan guarantees—better level the playing field for renewables and entrepreneurship over the long term?

JIM ROSSI studies renewable energy in both UNLV’s urban sustainability initiative program and its history graduate program. Previously from San Francisco, Jim has written for the Los Angeles Times, Bike and many other publications.

A New Approach to Innovation

When commercializing a clean energy technology, the received wisdom is to start by finding the largest viable market segment, with both the need for your product and the ability to pay for it. This tried and true method has been followed by the biofuels, solar and electric vehicle industries in recent years. Listed biofuel manufacturer Solazyme partially attributes its success to the strategy of targeting high-margin niche beauty and nutrition markets while it works on algae-based process for commodity fuels markets. Similarly, electric vehicles may be hitting the mainstream with the introduction of the Nissan Leaf, but the $35,200 sticker price is above that of an entry level BMW 3 series[1].  Eventually—the argument goes—the cost of production falls to the price at which the mass market can afford the product; it’s a strategy that’s worked a little too well for solar panel manufacturers as panel prices are forecast to be half of their 2009 levels by 2013[2].

Despite the myriad buzzwords accompanying clean energy development, rarely is there talk of ‘base of the pyramid’ markets. This term was popularized by academics C.K. Prahalad and Stuart Hart in the late ‘90s to describe the four million impoverished around the world.  At a time when many were frustrated by the failure of international aid to significantly raise living standards in the poorest countries, Prahalad and Hart proposed that the world’s poor should instead be viewed as potential consumers of products designed specifically to meet their needs. The base of the pyramid is typically underserved, and must pay substantial premiums for products that are all too often inferior or inadequate to their requirements; there was consequently a large potential to meet their needs. The concept was so successful that an entire industry grew up around it. Suddenly, every smart entrepreneur with a new water pump, generator or mobile phone idea was making a beeline for Africa. 

More than a decade later, Hart addressed an audience of investors and entrepreneurs at the annual Cleantech Summit this month. He lamented the bifurcated world that he now sees in entrepreneurialism; developed world entrepreneurs attack the clean energy challenge by focusing on top of the pyramid markets first, while their emerging market brethren focus on cheap, over sustainable products. At the same time, clean energy entrepreneurs are struggling to introduce disruptive technologies in the face of incumbent markets.  He argued that “green giant” strategies work well for incumbents working on grid scale projects, such as solar and wind farms, who are able to assemble the policy changes, public investments and large-scale deployment strategies required to erect such large-scale projects.  On the other end of the scale, “green sprout” companies have a tougher challenge as these startups have disruptive technologies but must face much larger competitors from their first day in business. In other words, clean energy technologies and base of the pyramid businesses have developed independent of one another.

Hart’s solution is that clean energy entrepreneurs instead partner with base of the pyramid communities to develop and road test their products.  The communities receive products designed specifically for them, and the entrepreneur develops a sustainable business out of sight of incumbent competitors and can always add incremental features to accommodate more affluent markets, if need be.  It’s always easier to scale up a cheap solution with incremental features than it is to scale down an expensive one.  He calls this approach “green leap,” and suggests that we prioritize numerous small market experiments (“fail small, learn big”) in underserved populations over incremental technology development. In this regard, Hart is right in line with the current commercialization trend of testing the market early and often.

Hart’s focus is mostly on emerging markets, but his approach is relevant to the base of the pyramid in the U.S., as well; the U.S. poverty rate is just under 14 percent in urban areas, 11 percent in rural[3] and this is a market that is rarely targeted for new products.  America’s post-industrial cities are dotted with vacant brownfield sites, many of which would be ideal sites for pilot and manufacturing plants. As Hart concludes in his new book: “we have to learn a new approach to innovation: an approach based on humility and partnership.”

Nicola Kerslake, CFA, CAIA is Lead Entrepreneur-In-Residence with NIREC and is a real assets investor with experience across the capital structure, from ETFs and hedge funds to private equity / venture capital structures, and domain expertise in energy and agriculture

[1] 2012 Nissan Leaf SV before tax rebates, BMW 328i MSRP
[2] Ernst & Young figures
[3] http://www.rupri.org/Forms/Poverty and Definition of Rural.pdf

 

$200,000 in Prizes! With graduate and undergraduate categories, this business plan competition will award prizes of $25,000, $15,000 and $10,000 for both college levels. An additional prize of $10,000 is awarded for the business plan that best employs clean, reneable or efficient energy technologies and services. Statement of Intent Due February 22 Learn more

About Us | Services | Portfolio | Resources | Partnerships | News & Events

Site Map|Contact Us

999 Tahoe Blvd. | Incline Village, NV 89451