Podcast: The Future of Climate Tech Through the U.S. Electric System, With Peter Fox-Penner

The world is facing a climate crisis. But venture-backed clean energy technologies can help avert the worst outcome. Rob and Jackie sat down with Peter Fox-Penner, senior fellow and founding director of Boston University’s Institute for Sustainable Energy and chief impact officer of Energy Impact Partners, to discuss the promise of climate-tech innovation in the U.S. electrical system and venture capital’s role in slowing climate change.

Related

• Hoyu Chong, “Mission Critical: The Global Energy Innovation System Is Not Thriving” (ITIF, January 2022).
• “How 5G Can Spur Climate Tech Innovation” (ITIF Event, June 2022).
• Linh Nguyen, “Refreshing the Global Agenda for Climate Innovation” (ITIF, May 2021).

Transcript

Rob Atkinson: Welcome to Innovation Files. I’m Rob Atkinson, Founder, and President of the Information Technology and Innovation Foundation. And we’re a DC based think tank that works on technology policy.

Jackie Whisman: And I’m Jackie Whisman. I had development at ITIF, which I’m proud to say is the world’s top ranked think tank for science and technology policy.

Rob Atkinson: And this podcast is about the kinds of issues we cover at ITIF, from the broad economics of innovation to specific policy and regulatory questions about new technologies. Today, we’re going to talk about innovation in the US electrical system, or electricity system, and how climate tech venture capital is playing a critical role in clean energy innovation.

Jackie Whisman: Our guest is Peter Fox-Penner, who is a senior fellow and Founding Director of the Boston University Institute for Sustainable Energy. He’s also a partner and Chief Impact Officer of Energy Impact Partners. One of the largest dedicated clean energy private equity fund groups in the world. Welcome Peter, thanks for coming.

Peter Fox-Penner: Thank you, thanks for having me out in the program.

Rob Atkinson: We’re really pleased you can join us, Peter. We’ve known each other for a while, and I’ve really long been impressed with your work. And unlike a lot of people in this space who are, I don’t know, shall we say, based upon more ideology than anything else about clean energy, your work is really grounded in pretty specific data, companies, technology, what’s going on. One of the things we want to talk about today, and it’s an issue that I think a lot of people don’t really think about too much, but with the $1.1 trillion stimulus package, it’s a pretty important one. And that’s the electricity system. In a lot of ways, we have a good electricity system, but it isn’t set up so that we can electrify everything. And so if we’re going to solve climate change, we’re going to have to change at least how we consume electricity. And then also, with cars, if cars go electric, that’s going to have huge issues with the electrical system. So we need to make it more sustainable, larger, more resilient, more dynamic. What’s that all about? Why is that so important?

Peter Fox-Penner: Well, electricity is one of the main keys to decarbonizing the whole global economy. Now, we need to pay attention to another pillar of decarbonization, which is energy efficiency, but as we pursue both paths, we are going to need an enormous increase in clean electricity, carbon-free electricity, probably about double the amount of electricity we’re using now. We are using about 12.5 million quads of BTUs, quadrillion BTU today, in electricity form, out of about 70 million. Or about 4,100 TWh. And that’s going to need to double to something like 8,000 TWh or so by 2050.

Rob Atkinson: Now, is that because of just growth in the economy, or growth in things that are going to be consuming electricity, like cars?

Peter Fox-Penner: It will be due to both, but primarily due to the shift of electric usage, upward from things like cars, as you’ve mentioned, which today run predominantly on gasoline too. I think overwhelmingly running on electricity by 2050 and many other end uses or applications, that now use fuels in buildings and industry, that will switch to electricity, that’s what we mean by electrification.

Rob Atkinson: Now, just a simple example. I mean, I’ve been using an electric lawnmower for years. You got to assume that’s going to be more and more common, and just that one little thing, I got to charge the battery every time I mow the lawn and that uses electricity.

Peter Fox-Penner: Absolutely. And there’s many, many things that we’re doing that burn fossil fuels now that can be changed to electrify or changed to electricity. And when you do that, you often get an enormous increase in efficiency, so you actually use less energy to accomplish the same thing. Electric cars are three times the efficiency on average and sometimes better than fossil fuel vehicles. And it goes on the line through building technologies that are electrified and industrial technologies. So you gain efficiency benefits, and of course, much cleaner air globally, with less carbon dioxide pollution, but also locally, with less sulfur dioxides and nitrogen oxide since smog. So it’s really a win-win situation, a win-win-win.

Rob Atkinson: So, Peter, what do you see as the most important innovations in technologies, for enabling and really driving grid modernization in the future?

Peter Fox-Penner: Well, there are lots of new innovations that are going to be needed to create a multi-directional, customer-friendly, reliable distribution system or small grid. I’m going to give you a couple of examples. At EIP, we’ve invested in Powin, which is an energy storage creator and management system. We’re going to need lots and lots of storage, locally inside our homes, but also on the electric distribution system, we’ll need storage there to manage the fluctuations in our demand, and the very large increases in demand from things like electric vehicle and electrified homes. We’re also going to need better control technologies that have the real-time ability to switch wires, and reroute power locally, in order to deal with outages that suddenly crop up all over our distribution systems. But also to deal with changes in solar generation patterns and electric vehicle charging patterns.

And we have company called Opus One that we’ve invested in. And finally, down at the customer’s home, we need much more visibility and intelligence and control, so that our homes can contribute to grid stabilization, and we can shift our demand to times when decarbonized energy is much more available, like when the sun is out at noontime. And there’s a tremendous amount of load flexibility, or shiftability that we can take advantage of. And we’ve invested in companies like Sense that help do that.

Rob Atkinson: So how does the grid have to change? One of the issues clearly is if we’re going to move to more wind or solar, there’s certain places to get a lot of wind and they’re farther away from where people live. So some of that’s just, we need more transmission lines. But other people talk about, for example, a smarter grid where maybe you’re going to use a battery, and at night you charge it, but in the daytime, if you’re not using it, maybe you send it back up into the grid to deal with peak loads. How does that all play out, expansion, smartness, flexibility?

Peter Fox-Penner: Well, there’s really two grids to think about in the United States, or in any electric system. There’s what I call the big grid in my books, which is the large-scale, often called the transmission system, runs on very high voltages, delivers the power from large utility scale power plants, to our cities and industries that use the power. That’s the bulk delivery system. And that system is going to need to expand dramatically, probably also roughly double in size. And we can talk about lots of issues associated with that, lots of concerns. The second part of the grid I call the small grid, or it is technically known as the distribution system, and those are the small wires that lead from the city gates, the edges of cities, or substations, to every single house and factory and office building in the city.

And that small grid, or distribution system, really needs to change quite dramatically because now it is designed only to deliver power, from the large-scale grid, one way, to homes and offices, and with millions of automobiles and millions and millions of homes that generate energy, the electricity is going to be running in both directions.

And that means you need to resize wire in the control circuit trees and transformers and so on, and also redesign the whole control paradigm of that system from, it’s like a one-way road system to a free-flowing road system. And that requires very different, much more sophisticated control technology, as well as planning techniques and investment in that portion of the grid.

Jackie Whisman: In your view, what policies are most important to bring this to fruition, including the grid modernization, and get them into the field?

Peter Fox-Penner: Well, there are many important technologies that are modernizing the transmission system, and we have a technology at Energy Impact Partners that uses AI and drone imagery to improve the maintenance and reliability of the large-scale grid, but much of what people refer to in grid modernization applies to the distribution system or the small grid. And there, we need lots of better planning and investment, grid by grid, city by city, system by system, to put in new control systems, to invest in advance of the electrification of automobiles. So we’re ready to have the delivery capabilities, automobiles use significant power, and so will electrified industrial processes. So we need to replan the grid, rewire it for this control, and install lots of new circuit technology that improves deliverability and reliability.

Rob Atkinson: One of the issues there is obviously the infrastructure package. So Congress put $1.1 trillion, although I think, what, about $500 billion that was new monies. And you know this better than I do, Peter, but I don’t know, what, $100 billion, or a lot of money towards grid modernization. And one of the issues there is interesting, we have a report coming out on this. If you look at where we actually get the technologies and it’s hard to narrow it down exactly. But for example, things like smart meters, we import most of the smart meters, we have very little smart meter production in the US. And that’s true for many, many other electronic components. How do you think we’re going to do on that? Do we have the technology here to do this all at once? Will we be importing some of the technologies? Can we reshore some of it? What’s going on there?

Peter Fox-Penner: Well, we have a lot of technological capability, manufacturing capability, for grid technologies in the US, but not nearly all of it, and so I think we will need to import some of it. I don’t know the exact figures, but we do have a number of companies that are manufacturing technologies. We’ve invested in a number that manufacture here in the US or assemble in the US. And so I have not heard a lot of concerns about manufacturability and accessibility to smart grid manufacturing. We do have lots of concerns about supply chain in the whole electric power sector, right down to the component level, and then all the way up to the supply of copper. So those concerns are very, very significant, Rob, and we need to pay top-tier attention to those.

Rob Atkinson: If you had to place the US on a continuum of grid modernization relative to other countries, where do you think we are? I read a study a few years ago, it was talking about Malta being in the lead. Now, obviously it’s a little country, it’s an island country, but still, have other countries really made a bigger push on this than we have, or are we all at the same level pretty much?

Peter Fox-Penner: Well, some countries done better at grid modernization, which is, as I said, I’m using the term to apply primarily to the distribution system. So I would say we are somewhere in the middle of the pack on modernizing the grid. Certainly not in the lead, but also not lagging. Where we are lagging though, is in expansion of the large-scale transmission system, which isn’t so much an adoption of new technology question, it is an expansion of the capacity replanning and reinvesting, in the large-scale grid, to enable electrification and the expansion of the system. And there, sadly, we are laggards, compared to almost all developed countries.

Rob Atkinson: Now, is that because other countries don’t have the same federal system we have, and the national government is able to overcome nimbyism and all these other barriers that are put in place here, or is there something else?

Peter Fox-Penner: Well, I think it’s a combination of factors. I think that’s part of it. Along with that, federalism, we’ve created a system of state authority and state regulation of the grid, which actually has served us well for a century, but now needs to adjust itself to reimagine the jurisdictional boundaries and the planning processes. And that’s quite difficult for us. We also [inaudible 00:14:44] have almost no tradition of industry planning in conjunction with the government, you know this better than anyone else. So we just have very weak planning processes, wholly apart from our federalized system. So there’s a couple of factors.

Jackie Whisman: Maybe we’ll shift gears a little bit and talk about your work at Energy Impact Partners. I’m curious what kinds of potential deals come your way, and how do you select which ones to invest in?

Peter Fox-Penner: We invest across the entire landscape of clean electricity, all the way from new generation technologies, like a fusion and carbon capture and sequestration, and multi-day storage, all the way to smart grid technologies like Sense, which is a sensing package that automatically senses and analyzes electricity use in your structure, and everything along the way between them. Because we look at the value chain comprehensively, we get inbound interest from really a very, very broad range of clean energy technologies, and also supportive technologies, such as cybersecurity, which is essential for a reliable grid and an expanded grid. So we invest quite broadly across this space. To do that, we need a lot of expertise and we need the participation of our partners. And we do have a very, very involved partner network, with very substantial expertise across that whole value chain.

Jackie Whisman: We don’t really think of the utility industry as the most innovative industry around, but I think you’re changing that, it seems. How has the utility industry approached innovation? And do you think that you and your partners represent a shift in the industry’s thinking here?

Peter Fox-Penner: Well, I think Energy Impact Partners represent a leap, a jump in the industry’s innovation, based on our unique investment model. And let me just explain that. We are a venture capital and private equity fund, investing in new technologies, new innovations, but our investors are predominantly electric and gas utilities, and also forward-leaning industrial companies, such as Microsoft, Enterprise Rent-A-Car and others. And they’re not merely passive investors when they join our fund. They invest, but they also participate very actively in evaluating these new technologies that we invest in, in piloting them inside the footprint of their very large organizations and networks, and helping to de-risk and scale those technologies. So it’s a strategic investment consortium and collaboration. And it’s quite large, our members have over 100 million customers, so that’s almost a third of the United States. And they operate two over 2 million miles of transmission and distribution lines, and have capital budgets of $65 billion a year.

So when we evaluate technologies, there’s a lot of expertise around the table as to whether those things are scalable in their system. And they actually often pilot our technologies in their system. And as they pilot them, if they pan out, they can be expanded quite significantly. And indeed, $600 million worth of our technologies have been adopted already inside our consortium. And we don’t keep track of it, but many, many millions in the broader industry, which is ultimately our goal. So we are sort of a unique form of accelerator that helps the industry. Now, the industry also has other good R&D efforts underway, EPRI is a very well-regarded research and development unit of the industry. And I think it’s a myth that utilities have not been innovators over the history of the industry, but that’s a subject for another podcast.

Jackie Whisman: Yes, I meant popular opinion, not our opinion, of course.

Rob Atkinson: Peter, I just wanted to quickly follow up on that. I am certainly not an expert on the industry, I did read something maybe five, six years ago that talked about how, with the increase of competitive forces and competition, and redeg in the utility industry, that R&D had gone down somewhat. And so I was just curious whether you think that’s true, and then also what your relationship with EPRI is, Electric Power Research Institute, because, from my understanding, they’re trying to do some of this as well? It’s basically a consortium of electric utilities to share projects and efforts, and the like. So maybe you can just touch on that.

Peter Fox-Penner: Well, on your first question, Rob, I think R&D did decline a little after what I would call the first wave of deregulation in the 1990s, when companies were just trying to cut costs because they believed that it would be a race to the bottom, and only the absolute lowest cost producers would survive. But I think that has turned around quite substantially as the industry has recognized that it is the core of a climate solution, and that to grow into its necessary role as that central pillar of decarbonization, it’s going to need a tremendous number of new technologies all across the value chain. And that’s really changed the mindset. And frankly, it’s changed the opportunity set. Now there is a huge growth in the new market and that growth will go to the winners who are able to decarbonize quickly and reliably and cheaply, so there is now a real shift in mindset towards the industry seeking these new technologies and adopting these new technologies and investing in them.

Rob Atkinson: That’s really good news. I mean, that’s really glad to hear that, because it gives me hope that if we get the policy framework right, we can really move this along.

Peter Fox-Penner: I think that’s exactly right, Rob. I think much of the barriers are, are institutional now. I think the industry, it sees this as a giant opportunity to help one of the most existential, important challenges facing humankind. But also, as a tremendous investment opportunity, with $3 trillion of investment needed between now and 2050, which will pay off enormously in value to their customers, and to the economy as a whole. So you have a real new era in the industry.

Rob Atkinson: Yeah. So maybe there just one last question for me, I know maybe Jackie has another one. But we both know our colleague Dorothy Robyn, and I know you’ve worked with Dorothy, and Dorothy’s done some really great work for us, for ITIF, about how the defense department, and including installations and bases and all, could really move forward with essentially smart installations. And when you look at the federal government, they’re the biggest property owner and the biggest building owner in the world. How do you see them playing a role in being a demand driver, saying that the microgrids that they might be able to have, that they might really push forward on smart buildings, to interact with a lot of the innovations the utilities are doing? Is that important? And if so, how does the federal government do it?

Peter Fox-Penner: Well, Dorothy’s really the right person to answer that, you’re absolutely right. And she’s a wonderful colleague and friend for many, many decades. My impression is that the federal government is certainly getting more ambitious under the current administration. They were, I think, lagging a little bit and now have picked up the pace. But in general, under Dorothy’s leadership, and other leaders in the military, there have been pockets of tremendous innovation and forward movement in the military, really over the last 20 years, in many cases enabling the benefits that we are now taking advantage of in the private sector. But I’ll also say, Rob, that demand for clean energy has now moved beyond the government leadership. And it is coming out of leading corporations, it’s coming from customers like you and I, who want cleaner alternatives, and so that’s really important.

Now, the defense department also has a very large R&D portfolio, as you know, Rob. And that is quite valuable in decarbonization. They’re looking at the decarbonization of fuels, extremely important, the decarbonization of chemicals and biosynthesis, and many, many techniques that I think will aid decarbonization technologies on the end use side, more so than on the generation side. And I think that’s really important, and very valuable, and somewhat unique to the defense department’s leadership.

Jackie Whisman: Maybe to close, we should talk about anything policymakers should be doing more of to better facilitate climate tech entrepreneurship in the US.

Peter Fox-Penner: I think there’s a lot policymakers can do. And I think it goes beyond climate entrepreneurship, which I think is important and really growing in the United States, which is really wonderful to see. We certainly need strong and consistent federal climate policies, they would help enormously to create country national support for decarbonization, large and small, and put us in a better competitive position, long run, against many of our rivals, who are moving out on decarbonization. And as I mentioned regarding Energy Impact Partners, policies that help scale and speed deployment are especially important. Historically, there has been too little funding of demonstration and deployment out of our federal government, particularly compared to our rival nations. It is really good to see that in the infrastructure package there’s 16 demonstration and 32 deployment programs.

And so on post-infrastructure package, we may see a really significant improvement there that’s badly needed. I think we need new policies towards the building sector because that’s a particularly difficult sector to decarbonize, and all real estate markets are local, we all know that. So we need policies that can work with the localities and states to decarbonize the building stock. And also, industry by industry, we need specific targeted assistance and planning. And then finally, as I mentioned, our infrastructure transmission, and also, we’re going to need decarbonized fuel infrastructure. We need better policies that enable planning and investment and permitting of that infrastructure. And when you do all that, I think climate entrepreneurship will be there to provide the technologies. At Energy Impact Partners, we see just a fantastic ecosystem out there, at least 62 accelerators around the end, innovation incubators around the country. And many, many partners and exciting new entrepreneurs that we meet every day. But we need macro support and the right policy environment for the wholly decarbonization effort to succeed.

Rob Atkinson: Yeah. Peter, first of all, thank you. This was great. I’d love to go on, but we’re out of time, I just would give a shout out to David Hart and his team at ITIF because they were instrumental in really ramping up the whole demonstration effort. And I think there’s a demonstration office now at DOE that they really helped launch. And so we’re looking forward to seeing the results there. So again, thank you so much.

Peter Fox-Penner: Oh, thank you for having me.

Jackie Whisman: That’s it for this week. If you liked it, please be sure to rate us and subscribe, feel free to email show ideas or questions to [email protected]. You can find the show notes and sign up for our weekly email newsletter on our website, itif.org. And follow us on Twitter, Facebook and LinkedIn @itifdc.

Rob Atkinson: We have more episodes with great guests lined up. New episodes will drop every other Monday, so we’ll hope you continue to tune in.