2nd green revolution

New Business Models toAccelerate Adoption of Clean

Technologies

A 2nd Green Revolution

Nalin Kulatilaka

© Martha Amram and Nalin Kulatilaka

PrimarySources

Solar

Wind

Geo thermal

Tidal

Fission

Fusion

Hydro

Fossil Fuel

Bio

Energy ConversionEnergy Transport Energy Storage

Fuel Cells

HydrogenWater

Heat

Light

Motion

Human Uses

Processing

Electricity

Photovoltaics

Windows / Housing design

solar hot water, heating

MarketsIntermediariesOrganizations

© Martha Amram and Nalin Kulatilaka

Adopting Complementary SystemsTakes Time

© Martha Amram and Nalin Kulatilaka

The Ignored Opportunity

Source: U.S. Energy Information Administration statisticsGraphic Published first in Metropolis Magazine, October 2003 Issue.

The Familiar Cut

© Martha Amram and Nalin Kulatilaka

The Ignored Opportunity

An Unfamiliar Cut

© Martha Amram and Nalin Kulatilaka

Efficiency Investment Risk and Return

0%

5%

10%

15%

20%

25%

30%

0% 5% 10% 15% 20% 25% 30% 35%

Energy Efficiency

U.S. T-Bills

Long-Term Corp. Bonds

Common Stock

Small Company Stocks

© Martha Amram and Nalin Kulatilaka

• 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

The Economics of Conservation in theBuilt Environment

Who can capture the value?

• Utilities can’t do it. In 48 states regulations preventutilities from profiting from energy efficiency investments

• Consumers don’t act by themselves. High upfrontcosts, information fragmentation, and small dollar impacton the energy bill have prevented consumers from actingon their own

© Martha Amram and Nalin Kulatilaka

Brown Building -- Energy Bill

Appliances

WeatherOil Price

Behavior

?Features

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Green Building -- Energy Bill

© Martha Amram and Nalin Kulatilaka

First Step: Energy ServiceCompanies

• Analogous to IT services

• Can bridge expertise/knowledge gaps, overcome customer inertiaand change the marketplace.

ESCOs exist, but we need them to flourish.

© Martha Amram and Nalin Kulatilaka

Needs an Ecosystem

Design, install, and operate

Monitor andvalidate

energy use

Interface withutilities and

contract withcustomers

Evaluate risksand provide

financingE-Inter

Opportunity

© Martha Amram and Nalin Kulatilaka

Business Model

E-Inter

Lender

Customer 1

Performance Risk

Credit Risk

Utility

Rate Risk

Securitize annuities

Customer 2 …………… ………….. Customer N

Monitoring & Verification

© Martha Amram and Nalin Kulatilaka

Up-Side Potential:Peak Shifting Programs

PJM is AcceptingReserve Servicesfrom Load Since July2006. Experience sofar indicates loads aremore reliable.

ISO-NE is conductingpilot to Investigateload participation inreserve services.

Source: Courtesy of EnThes Inc., March 2007

Example of Generator providing Super Fast Reserves:Frequency control and ± 60MW of Secondary Reserves on AGC

Frequency Control

Secondary Reserves320MW±60MW

© Martha Amram and Nalin Kulatilaka

Business Model

E-Inter

Lender

Customer 1

Performance Risk

Credit Risk

System Operator

Rate Risk

Customer 2 ………….. ……………. Customer N

Monitoring & Verification

• Load control• FCM• RECs• etc. Utility

© Martha Amram and Nalin Kulatilaka

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-waymetering.

© Martha Amram and Nalin Kulatilaka

Conclusions

• Built environment ready for immediate adoption of demandreduction and distributed generation

• Opportunities for service and financing model innovations

• Vital need for measurement, monitoring, and verificationservices.

• Up-side opportunities through pooling and controlling load --need a cyber infrastructure