Energy Intermediary talk by Nalin Kulatilaka, BUILDE meeting, May 10, 2007

1. A 2nd Green Revolution
New Business Models to
Accelerate Adoption of Clean
Technologies
Nalin Kulatilaka

2. Energy Conversion
Primary Human
Sources Uses
Energy Transport
Energy Storage
Solar
solar hot
water, he
Wind ating
Win
Ph dow
Heat
ot s/
ov
Hou
ol
ta
Tidal sin
ics g des
i gn
Hydro Electricity
Light
Bio
Fuel Cells
Motion
Fossil Fuel
Hydrogen
Water
Geo
thermal
Processing
Markets
Fission
Intermediaries
Organizations
Fusion
© Martha Amram and Nalin Kulatilaka

3. Adopting Complementary Systems
Takes Time
© Martha Amram and Nalin Kulatilaka

4. The Ignored Opportunity
The Familiar Cut
Source: U.S. Energy Information Administration statistics
Graphic Published first in Metropolis Magazine, October 2003 Issue.
© Martha Amram and Nalin Kulatilaka

5. The Ignored Opportunity
An Unfamiliar Cut
© Martha Amram and Nalin Kulatilaka

6. Efficiency Investment Risk and Return
30%
25%
Energy Efficiency
Small Company Stocks
20%
15%
Common Stock
10%
Long-Term Corp. Bonds
5%
U.S. T-Bills
0%
0% 5% 10% 15% 20% 25% 30% 35%
© Martha Amram and Nalin Kulatilaka

7. The Economics of Conservation in the
Built Environment
• Profit Opportunity:
Avoided cost of energy 13¢ /kwh

RPS premium 2¢/kwh

Carbon credit 2.5¢/kwh

Less energy efficiency cost of 2¢/kwh

Equals 15 - 16¢/kwh

Who can capture the value?
Utilities can’t do it. In 48 states regulations prevent
•
utilities from profiting from energy efficiency investments
Consumers don’t act by themselves. High upfront
•
costs, information fragmentation, and small dollar impact
on the energy bill have prevented consumers from acting
on their own
© Martha Amram and Nalin Kulatilaka

8. Brown Building -- Energy Bill
Appliances
?
Features
Behavior
Weather
Oil Price
© Martha Amram and Nalin Kulatilaka

9. Green Building -- Energy Bill
© Martha Amram and Nalin Kulatilaka

10. First Step: Energy Service
Companies
• Analogous to IT services
• Can bridge expertise/knowledge gaps, overcome customer inertia
and change the marketplace.
ESCOs exist, but we need them to flourish.
© Martha Amram and Nalin Kulatilaka

11. Needs an Ecosystem
Design, install, and operate
Evaluate risks Monitor and
E-Inter
and provide validate
Opportunity
financing energy use
Interface with
utilities and
contract with
customers
© Martha Amram and Nalin Kulatilaka

12. Business Model
Customer 1 Customer 2 …………… ………….. Customer N
Monitoring &
Verification
Credit Risk
Rate Risk
E-Inter
Performance Risk
Lender
Utility Securitize
annuities
© Martha Amram and Nalin Kulatilaka

13. Up-Side Potential:
Peak Shifting Programs
 PJM is Accepting Example of Generator providing Super Fast Reserves:
Frequency control and ± 60MW of Secondary Reserves on AGC
Reserve Services
from Load Since July
2006. Experience so
far indicates loads are
more reliable.
 ISO-NE is conducting
pilot to Investigate
load participation in
reserve services.
Secondary Reserves
320MW±60MW
Frequency Control
Source: Courtesy of EnThes Inc., March 2007
© Martha Amram and Nalin Kulatilaka

14. Business Model
Customer 1 Customer 2 ………….. ……………. Customer N
Monitoring &
Verification
Credit Risk
Rate Risk
E-Inter
Performance Risk
Lender
• Load control
• FCM
Utility
• RECs
• etc.
System Operator
© Martha Amram and Nalin Kulatilaka

15. The Cyber Infrastructure
• Real-time metering at individual “edge user”
• Communications infrastructure to convey price signals
– Users and smart appliances
• Control systems to adjust load
– Central pool
• If distributed generation (wind, solar), then 2-way
metering.
© Martha Amram and Nalin Kulatilaka

16. Conclusions
• Built environment ready for immediate adoption of demand
reduction and distributed generation
• Opportunities for service and financing model innovations
• Vital need for measurement, monitoring, and verification
services.
• Up-side opportunities through pooling and controlling load --
need a cyber infrastructure
© Martha Amram and Nalin Kulatilaka