The Energy Crisis

I started writing this article 11 months ago as the long-term nature of the COVID-19 pandemic started to become clear. It’s now even clearer that the pandemic was a monumental behavior-change moment for the whole world. There is much talk now of “return to normalcy,” but we all know any new normal will have more hand sanitizer, personal space, and general awareness of sanitation and sickness than the before-times.

So, what kind of crisis will it take to wake us up about energy? How much change would it take us to deal with the carbon we’re already emitting? Why does one power grid go down when the system it’s connected to stays up? One tree die in a burn zone when it’s neighbor is untouched? I obviously can’t answer all of these questions, but I’d really love to be having this conversation more often as I find it basically non-existent in the hardware startup ecosystem.

Reading How to Avoid a Climate Disaster by Bill Gates re-invigorated me to finish this post. I highly recommend it as it is a very accessible read with lots of cited data (yay graphs!). The most stunning statistic to me was about the global behavior experiment we just went through. Even with everything that’s changed and all of the forced and passive reductions made last year, 2020 only had ~5% reduction in carbon emissions (other estimates are a bit higher ~6.4%).

Let that sink in… to me that’s the most compelling statistic I’ve ever seen that behavior change isn’t going to fix our energy problems.

To be clear, this does not mean that to neutralize our ongoing carbon output we would need to spend 20 years in lockdowns… it means we would need to stay in lockdown and then take additional drastic measures on top of that every year for the next 19 years. And that’s just to get to net-zero carbon, not even beginning to address the 150 years of carbon we’ve already dumped into the atmosphere since the industrial revolution began.

More economic success leads to more energy consumption (source)

Another way of thinking of behavior change in energy is looking at the link between increased energy consumption and GDP. As economies grow and bring more people out of poverty, energy use naturally increases. Air conditioning, meat consumption, and other energy intensive processes will be a part of economic growth.

Unfortunately, this leads me to believe that we will not address our energy problems until there’s an acute global energy crisis. We’ve had energy crises many times before, however, even though they can be caused by global economic or environmental conditions, the pain is often localized to specific communities which makes it easier to ignore as temporary or see the victims as “others”:

• The oil energy crisis of 1979 when Iranian oil output dipped as a result of the Iranian Revolution. Despite global oil supply only dipping ~4%, oil prices doubled and panic rippled through markets leading to lines around the block at any gas stations that actually had gas.
• The nuclear meltdown of 3 mile island near Middletown, PA in 1979 caused the worst nuclear accident in US history at a class 5 nuclear event and heightened energy concerns. While this is the most prominent US accident that turned the tide of regulation, it’s worth noting that nuclear power disasters for all of global history have killed less people than air pollution from coal kills in 1 year.
• This is nothing compared to the massive devastation of the Fukushima Daiichi meltdown in Japan with 3 reactors going to class 7 nuclear events. Beyond the devastation on the area in nuclear fallout, the practical implication of having a major power center brought down right after the Tohoku earthquake and tsunami had killed tens of thousands of people highlighted the issues with having 2 major power grids in Japan — one operating in the north of the country at 50 hz, and the southern grid at 60 hz, and prompted expediting power transformers between the systems.
• China’s meteoric economic rise has been built on the back of coal plants. This has lead to the constant smog problems prevalent in big cities and created other acute crises causing cities to temporarily shut factories and turn heating and lights off at the worst possible times. Coal has created political tension with Australia, smog in China unlike America has seen for decades, and a general dependence on limited resources.
• The Camp fire from 2018 that destroyed Paradise, CA and covered the San Francisco bay area in smoke for days was caused by faulty power equipment and caused PG&E to go into bankruptcy. Even after learning from that incident and starting to proactively shut off power grids during high-wind risk times, the fire seasons have only gotten worse.
• The California brownouts of 2000–01 that caused price spikes of up to 20X while grid capacity was still almost 2X demand were caused partially by de-regulation and direct manipulation of energy markets (thanks, Enron!), costing Californians between $40–45 Billion, bankrupting PG&E, and causing the recall of Governor Gray Davis.

None of these were enough to significantly change user behavior, governmental regulation, or the tide of global emissions. So, this all begs the question — what form might the impending crisis take take?

• Infrastructure brown-outs. The existing AC grid, and the fast DC-grid slowly being built up, are simply not as sexy to invest in as more visible infrastructure like roads and airports. It’s a bit eerie to look back at this bullet point I wrote last year after what Texas went through recently, however it’s the perfect example — massive infrastructure failure, huge human and financial impact, and still… no consensus on what caused it or how we can prevent it from happening in the future. It dominated the news for a week, and now I don’t honestly expect to see a significant “Texas Passes Bill XYZ to Address Energy Grid” headline anytime soon.

What if we can’t pump dark matter anymore?

• Availability (or performance) of technology changes. It reminds me of the Futurama movie where their primary fuel source, “dark matter,” is rendered useless. While I don’t see a binary change in physics anytime soon, there are slower changes (e.g. the regular flipping of the magnetic polarity of earth; the continually limited availability of fossil fuels, rare earth magnets, and other fixed resources) that could completely change the way we access, price, and use energy. Imagine if the magnetic pole flip were instantaneous (we don’t know how/when it will happen) and immediately all cars, cell phones, power plants and other technologies stopped in their tracks. The massive pile-up on every highway would leave people wandering the frontage roads beside the highway wondering how they survived before cell phones, how widespread the pandemonium they are experiencing is, and how many likes their latest selfie got before the internet went down.
• Crisis overlap. A pandemic, terrorist incident(s), international tariffs and saber-rattling, or an outright war could prevent access to energy sources or destroy the supply chains necessary for energy systems to evolve. Lithium for batteries is one of the most valuable resources that is very geography-limited. Let’s try not to have any wars in South America any time soon. Imagine if the pandemic stay-at-home orders had been because of an energy crisis preventing travel — no Zoom and no Tiger King streaming because we would be rationing power and buying full battery packs on the street corner.

• A hiccup in the blockchain. Bitcoin itself currently consumes more energy than the country of Argentina and shows no signs of slowing down until the value crashes. Imagine if there was an error in the blockchain that caused energy consumption to spike. This could lead to massive local brown-outs in areas intensive in bitcoin mining (poor Iceland!) and make people realize that the largest energy consumer in their area isn’t people, it’s servers running algorithms.
• Natural disasters. I won’t elaborate too much here since this is the most obvious cause for an energy crises given the feedback loop between carbon emissions and increasing climate events, but imagine if the dreaded tornado-quake that Leslie Knope foretold really happened and we were all stuck in a disaster movie indefinitely.

More important to me than doomsdaying what extremes may happen, I’d rather flip this and look instead at how we can act now:

• Energy startups. I remember starting my career in “cleantech” when a “hardware engineer” was an electrical engineer that made boards. The Solyndra debacle(if you’re not aware, that notorious government loan program did actually turn a profit… imagine a portfolio approach to risk!) combined with the consumer hardware boom in the mid 2010’s shifted this narrative and the focus of investors towards broader “hardware startups.” There has been more diversification in the recent years, but I find the community still fixated on IoT, wearables, and other buzz-words that move the focus of the atoms we are collecting into a product away from energy consumption and carbon impact considerations. Yes, there’s been an increase in hardware startup complexity (robotics, self-driving vehicles, satellites launched into space), but I still find the “hardware” and “cleantech”/“energy” communities to be very insular in silicon valley. It’s the perfect time for a renaissance of cleantech startups. This is starting to hit the mainstream in the electric vehicle sector and I’m hopeful other sectors will follow.
• Sustainability metrics. I have had many conversations with CEOs or decision makers in early startups where I ask what their most important metrics and KPIs (key performance indicators) are and I get ~3-5 answers that all tie back to economics. I then ask “is sustainability important to your company?” and get an enthusiastic “yes, yes yes!!”…. “then, what kind of KPIs are you developing for it?” To be clear, I believe strongly every startup should have different priorities and focus is the key to any good culture. “Sustainability” is one of the vaguest terms around, but you should align on common goals and make clear in your company values how things like air quality, water quality, carbon footprint, worker health, recyclability, reparability, and other sustainable issues are valued. You can’t say “we care about all of those” because that means you aren’t focusing on any of them. VCs are also responsible for pushing for these KPIs since your LPs will soon be asking you what sustainability metrics your fund keeps if you don’t ask your portfolio founders first.
• Behavior change. I know I dismissed it above (and How to Avoid a Climate Disaster addresses the reality of not changing human behaviors very thoroughly in data), but realistically this is an area where the US and Europe needs to lead the way. You don’t need to go plant-based in order to try a plant-based meal once a week or daily. You don’t need to own an electric car in order to own stock in electric-enablement companies or put your 401K into sustainability-focused funds. Change has to start somewhere.

I’d love to have this conversation more often with more people. This is just a start. Please reach out at ryan@vpd.io if you have any thoughts, comments, vehement disagreements, or great examples of success stories in these areas. Thank you for reading!