This blog is an Innovation Insights video podcast transcript. In this episode Emerald’s Partner Charles Vaslet discusses ‘The year in review’ with Michael Liebreich, CEO and Chairman of Liebreich Associates. Click here to watch or listen.
Technology Transition towards a Better World – The year in review
Charles Vaslet: Hey, it’s my pleasure to welcome Michael Liebreich to this episode of Innovation Insights. Michael’s been a regular opening speaker for the European Venture Fair since founding Bloomberg New Energy Finance, and is an avid supporter of emerging energy venturing. I’m Charles Vaslet from Emerald Technology Ventures. And I’d like to start, Michael, by asking you or discussing topics around the Cleantech 2.0. What’s different, do you think, this time for venture?
Charles Vaslet: Hey, it’s my pleasure to welcome Michael Liebreich to this episode of Innovation Insights. Michael’s been a regular opening speaker for the European Venture Fair since founding Bloomberg New Energy Finance, and is an avid supporter of emerging energy venturing. I’m Charles Vaslet from Emerald Technology Ventures. And I’d like to start, Michael, by asking you or discussing topics around the Cleantech 2.0. What’s different, do you think, this time for venture?
Michael Liebreich: Hi, Charles. Well, it’s great to be with you today. And of course, the starting point here is that both of us well remember Cleantech 1.0.
Charles: Exactly.
Michael: And so, if you go back to … We’re talking 2005, 2006, 2007 … There was an enormous amount of essentially naivete, and there was a lot of venture investment from people who understood software, they maybe understood biotech, but when you talk energy and transportation, then you’re talking about heavy industry, you’re talking about structured finance, you’re talking about construction risk, just a whole bunch of things that, frankly, most of those investors were just not qualified to deal with. You scroll forwards to now, first of all, I think there’s a lot more hubris … A lot less hubris, rather, a lot more realism, that really the venture model fits a certain subset of tech investments. It’s gotta be very heavy IP, it’s got to be relatively close to markets that you can really start to get sales and momentum fairly quickly. And so that’s one change, is the venturing investors themselves. The other change though … I’m gonna list two more. One is that the whole clean energy, clean transportation, clean industry, water, whatever, those industries are so much more advanced now and so much larger. If you have an innovation that integrates with the wind sector, it’s really, really helpful if there is a wind sector. So the fact is that there are gigawatts of generation and thousands and thousands of turbines. So if you’re, for instance, providing optimization for that asset, it helps if that asset exists, which it does now. And then the second one, if you like … I think it’s the third one, the first one was the venture community, the second was the extent of clean energy, etcetera, in place to optimize and to work with. The third though is just the arrival of a whole bunch of new platforms, machine learning, and so on, which are now pretty much plug and play. Even the cloud. I mean, go back to 2005, 2006, 2007, there wasn’t even a cloud. So now you’ve got loads more platform technologies you can build on. So you can build applications, you don’t have to do deep tech in order to create a set of solutions that are venture fundable, so a different world is the summary.
Charles: So talking about a different world, of course, the reason why we’re not able to meet in person is ’cause of the global pandemic. In your view, what lasting impact will this have on our industry or energy usage? Is it accelerating? What would have happened in five years time?
Michael: So the first thing to say is, we’re in the middle of the pandemic, and we don’t know how it’s gonna play out, and it’s a huge human tragedy. And so it’s important to sort of very much remain grounded there, because otherwise you start celebrating the fact that, yes, it is accelerating a whole bunch of trends, even the technology that we’re using. I love all these kind of remote working, remote teleconferencing technologies, but they are incredibly clunky still, and so you’ve got to fast forwards, there’ll be enormous improvements, home medicine, all sorts of things, that are going to change our patterns of living and working. We don’t even know the impact on real estate. There’s no way we’re going back to the same patterns of uses of offices, and it’s all gonna feel … I think, looking back in two or three years, transportation and office use and so on before COVID is gonna feel very analog, not very digital at all, and I think there’s gonna be enormous changes that are sticky as a result of COVID.
Charles: Hey, talking about something else which has really accelerated is the commitments to ESG funds. If you look, it’s really like a hockey stick curve. What impact do you think that will have on the adoption by managers who are clearly relying on ESG finance or funding from people who are monitoring towards that? What impact you think that will have on adoption of energy or water-saving technologies?
Michael: Well, I think changes in the finance sector have been as profound as the changes in … Certainly, we talked about at the beginning on technology trends. If you go back to 2012, 2013, I was writing about how the finance sector was institutionally fossilist. So it was actually against new solutions, not because it wanted to be, but because there were rules around liquidity, there was Basel II, there were fiduciary duties, there were all sorts of reasons why an investor would say, “”I kind of like your stuff, but I’m not gonna invest because there’s all these other reasons that will catch me out.”” Now, I think you’re very much into the realms of a level playing field, and potentially, it’s even being biased away from the traditional, or the dirty, or whatever you want to call them, solutions and towards searching and finding new solutions. So we’re in a different world. It is spurring different behaviors. It is changing costs of capital. You see it certainly in the energy sector, but I think you’re also starting to see it in things like real estate, where the value of non-optimized, non-energy optimized, non-digitally optimized real estate is simply, it’s going to be trading increasingly at a discount to the really modern, advanced, high-performing resources. So absolutely, we’re in a different world. And by the way, we’re not finished yet because there’s a vast amount of confusion. I’ve counted something like 60 or 70 different … whether they are methodologies or groups that different investors can join in order to work on cleaning up their portfolios, to whether it’s TCFD or PRI, those are the big ones, but there are so, so many.
And a lot of the methodologies, frankly, are … they’re not well thought through, they’re not functional. So we’ve got a lot of work to do, but it is happening. And by the way, this is not just a developed market or even just a European thing. We’re starting to see that sort of trend towards ESG picking up steam in Asia. And again, not just in Japan, but even in places like China, where the assumption up till now is, “”””Well, we’ll do that in Europe, but forget Asia, that’s gonna … maybe in 20 years.”””” But we’re really starting to see those curves picking up. Lots more to do, a long way to go, but we are seeing the impact on costs of capital, for sure.
Charles: So you mentioned this ability now to scale up in wind and solar, and I guess there are other areas which haven’t yet kind of developed. So what should policymakers do in these areas? Maybe energy efficiency would be a good example. How can they really help technology adoption?
Michael: Yeah, to put the wind and solar in context, you kept on hearing this stuff about, “”Oh, it’s 0.1%, 0.2% of electricity,”””” or of primary energy, which is a stupid metric anyway. But we’re now at the point where non-hydro renewables are 11% of electricity. Now, 11% is not 30% or 50% or 70%, but still, when you’re coming from 0.2 or from 2%, a decade. .. no, it was 0.2 two decades ago, it was two a decade ago, and now we’re at 11. So really, the first thing that’s gonna happen is we’re gonna see that continue. Because even though it’s 11%, that’s a combination of 30% in some very advanced markets, and almost nothing in some others. So there’s a long way to go just with what we’ve got. There’s also a long way to go with other technologies that enable more variable renewables. So all of the demand, response, aggregation, batteries, high voltage DC inter-connections, integration of thermal storage into the electrical system, we’ve barely scratched the surface of that.
And then, of course, you’ve got throughout transportation, clearly the preferred solution for anything short distance is electric. It’s not just cars, two-wheelers, buses, light delivery trucks. I’m looking at all of these companies, Ocado in the UK, but also Amazon and all of the home delivery companies have had a fantastic pandemic. They’ve made tons of money, their share prices are up two and a half times. Well, guess what? Mayors are gonna be turning around to them and saying, “”Right, we want zero pollution, zero emissions deliveries within five or seven years because you’ve gotta pay back to society here.”” And then of course, as you electrify, then you’ve got longer distance transportation, industry, and all the technologies needed to digitize and knit that stuff together and integrate it. It’s not gonna be, “”Oh, well, along comes hydrogen, solves all problems.”” It’s gonna be thousands of innovations needed in order to integrate, to …Essentially, think about what’s happened to telecoms between 1980 and 2010, let’s say, in terms of digitizing everything, and all sorts of new products and services to fill gaps. Cyber protection, billing systems, roaming. All of those little detailed things, but then put that on steroids, ’cause we’re talking about transport, we’re talking about energy, we’re talking about industry, we’re talking about agriculture, we’re talking about water, we’re talking about all infrastructure. And so you could almost say, well, if telecoms took 30 years from 1980, then smart infrastructure is gonna take 30 or even 40, 50 years from … choose your starting point … I’ll say 2010, ’cause I think we were in a bit early.
Charles: Hey, Michael, that’s great. Thanks very much. I realize these are quite short podcasts. If you wanna hear more from Michael, I really recommend that you listen into his own podcast ‘Cleaning Up’, together with all of his articles and blogs which are available online. Michael, thanks very much for joining us again.
Michael: Charles, it’s a pleasure.
Charles: Likewise. Thank you.