As the world’s population expands and strives for middle class lifestyles, it puts ever-increasing demands on resources and commodities – particularly energy, water, food and other important products and materials that form the building blocks of modern society. These increasing resource demands cause important side effects, such as a changing climate, pollution and water shortages, which further exacerbate the resource and commodities challenges.
Most of the enormous financial gains technology and venture firms have produced over the last 30 years relate back to the invention of the personal computer, the ability to cheaply store increasing amounts of knowledge and data, and the ability to share knowledge across worldwide data networks. Together, those technological advancements and the ability of each of us, as individuals, to benefit from all three, have driven several decades of economic expansion and wealth creation.
Solving our energy, water and materials issues requires a similar set of technological improvements: (i) cost-effective production at scale, (ii) effective storage, (iii) the use of networks to economically optimize and manage these resources, and (iv) the means to make them affordably available to all.
Despite enormous global efforts to address a broad range of these energy, water, and commodities issues, only two areas – distributed solar and large-scale wind power – have progressed to a price/performance level that resembles the status of computing when it provided the foundation to launch the information and communications technology boom. Distributed solar, in particular, also benefits from increasingly more affordable storage and the use of “smarter” grid-connected networks to affordably manage the production, storage, distribution and use of electrons. The result of this technological progress is that we now see:
the rapid consumer and corporate deployment of distributed solar resources, that, along with the growing deployment of wind power, is fundamentally changing the business model of the traditional utility;
the growing impact of cheaper batteries, electric vehicles and grid intelligence in creating a “network effect,” thereby changing the way that electricity is produced, sold and consumed;
the accelerative effect of new financing, distribution and resource-sharing models in energy and transport; and
the advent of software-enabled business models that increase efficiencies in the provision and use of transportation, real estate, and other resources.
Continued inventive progress on other fundamental technologies will, over time, provide similar opportunities in other areas that address these global resource challenges. However, the distinction between those "applications and solutions” that are economically deployable today (e.g. investment-ready) and those that are not is critical to determine success. Capturing this success requires a meaningfully different approach to avoid the mistakes of the past. Specifically, we believe that taking fundamental technology risk has been and will continue to be insufficiently rewarded, and that scale and staying power remain important assets given ongoing significant capital formation risk. Too many dollars have pursued challenging fundamental inventions in wind, solar, electric vehicles, biofuels and biochemicals, waste, clean water, batteries and other technologies mired in industrial businesses selling to utility and other larger slower-moving commercial customers. As important as these fundamental technologies are, they have not, as was the case with many of the fundamental technological underpinnings of the information technology age, represented attractive investment opportunities. By contrast, similar to the distinction between computer hardware and software and applications, our approach focuses on those applications and solutions that are directly advantaged and leveraged by those technologies, such as solar, that have successfully survived the challenging and highly competitive inventive and scale-up processes, largely address consumer markets and will be further enabled by increasingly lower-cost batteries and a more modern grid.
We project that over the next decade a select but growing list of these companies and technologies will represent extraordinary long-term opportunities. We fundamentally believe an ongoing and growing exposure to these companies and technologies should be a meaningful portion of any diversified investment strategy, providing corporations with a path for sustainable growth and asset managers a compelling tool in their arsenal to manage portfolio returns through this transition. Not only do these technologies represent a significant threat to business as usual in the fossil energy world, they also represent a paradigm shift in the delivery of energy from a business-to-business model to a consumer-centric distributed energy model.
Historically, energy was controlled by a relatively small group of large coal, oil and gas companies, and in the electric sector, utilities and their regulators. The explosive growth of low cost solar power, the early growth patterns of electric vehicles and the decreasing cost of power storage mean that individual municipalities, corporations and consumers can increasingly control their own energy destiny in an unprecedented manner. This disintermediation is analogous to the transitions from the railroad to the automobile, the mainframe to the personal computer and the landline phone system to the modern smart phone.