Going Green and Lean

Photo by Gustavo Quepón on Unsplash

Mark Tomasovic (MBA ’20) shares his insight into the exciting progress of the renewable energy industry

Mark Tomasovic (MBA ’20)

Change happens slowly, and then all at once. At least when it comes to renewable energy.

For the last century, power plants have been built and operated the same way. A coal-fired or gas-fired plant would generate electricity in one central location and then that electricity would be transmitted to consumers nearby. And while the population has grown in the US, over the last 20 years, improvements in energy efficiency have offset population growth, keeping electricity demand flat.

With the onset of renewables, the energy landscape is changing. Energy sources are moving from centralized power plants to decentralized wind turbines and solar panels all across the country. The electrification of vehicles and household equipment is creating an increase in electricity demand for the first time in two decades. Customers and large corporations are now demanding clean, zero carbon power. Today, utilities are fundamentally rethinking how to operate the grid in the face of variable and on-site renewable energy generation. But what’s driving these fundamental changes in our energy landscape, and how do we deploy renewable energy assets at scale?

First, economics is the main driver. In the past decade, solar has decreased in cost by 90%, wind by 70%, and batteries by 95%. Decreases in hardware costs, improvements in operating efficiencies, and favorable tax incentives have now made wind and solar the lowest cost power plants available. Today, 90% of new power plants constructed are wind or solar plants.

Next, massive corporations like Microsoft, Google, Amazon want renewable energy. Corporations are making net zero pledges and looking for ways to offset their carbon footprint by procuring zero carbon electricity. In fact, states and local utilities are now viewing renewable energy generation as a way to attract big business.

Finally, renewables are attracting significant investment from large financial institutions. Pension funds, endowments, and investment firms investing in the energy transition have helped decrease the cost of capital for renewable energy projects. Today, it is significantly easier for renewable energy developers to raise funding and build projects than it was a decade ago.

But, even with all of the funding and corporate interest, constructing and operating millions of renewable energy assets all across the country is no easy task. The increase in decentralization increases the complexity of our energy supply and presents a few risks we’ll need to overcome to deploy these renewable assets at scale.

First, construction labor shortages are a real concern. Most solar and wind resources are in geographically remote areas of the country and building solar panels and wind turbines requires skilled labor resources. Renewable energy developers are rushing to find new and creative ways to hire specialist employees and subcontractors that can efficiently build projects at the resource location.

Second, procuring an enormous new volume of materials will be a massive challenge for the energy transition. For example, renewable energy assets require more rare earth minerals than hydrocarbon-based generators. An onshore wind plant requires 9x the minerals compared to a gas-fired power plant. An electric vehicle requires 6x the minerals compared to a combustion vehicle. Minerals and manufacturing capacity for renewable energy assets is heavily concentrated in China, so any supply chain dislocations cause a significant effect on US renewable deployment.

Third, over-buildout of assets in a particular location can create an issue for the renewables industry. As companies become well capitalized and begin to chase wind and solar acreage around the country, some may begin taking riskier bets. Over-building a particular location before demand or transmission lines are available can create an over-supply of renewable energy, creating negative power prices and affecting the economics of these assets.

Finally, renewable energy assets like solar panels have enabled many customers to produce electricity themselves and store that electricity on-site. In fact, some customers may even share power with their neighbors. We no longer live in a time when power only flows one way (from generator to consumer). This two-way power flow creates incredible complexity for how operators and regulators manage electricity supply and demand. Operators will need to adopt new technologies to safely dispatch and control the way electricity travels to and from consumers.

Over the last few years, the tailwinds of the renewable energy industry have been unparalleled. The installed base of renewable energy assets is doubling every 10-15 years and the appetite for zero carbon power has never been stronger. However, we are still in the first inning of the energy transition. Today, still 90% of energy consumed in the US comes from hydrocarbon production. At Energize Ventures, we’re bullish on the continued deployment of renewable energy and we invest in digital technologies to help solve some of the challenges associated with deployment and operation of these new energy assets. If you’re an entrepreneur building a digital solution for the energy industry, please reach out. We’d love to meet you.

Mark Tomasovic (MBA ’20) is an investor at Energize Ventures where he leads investments in digital technologies for energy and industry. Mark began his career as a chemical engineer at ExxonMobil, where he held various engineering and supervisory roles across the company’s US Production and Chemical divisions. While in business school, Mark founded an upstream consultancy practice and worked at Bernhard Capital Partners, focusing on infrastructure and industrial services investments. Mark holds an MBA from Harvard Business School and a B.S. with Honors in Chemical Engineering from the University of Texas at Austin.