Bill Gross spearheaded the creation of Idealab, one of the most influential business incubators in the commercial Net with early ventures into e-commerce (Toys.com), local directories (CitySearch) and paid search (Goto.com). Now, Idealab has taken a new, perhaps more serious direction, building businesses that tap the market opportunities in addressing the big global challenges of our time. As Idealab has reinvented itself, Energy Innovations (EI) has emerged as perhaps the most dynamic and noteworthy member of its stable of startups. With Bill Gross as its CEO and former dot com executive Andrew Beebe at the helm as president, EI seems to pushing the envelope to make affordable solar a reality – today for thousands of Googlers and soon a much wider audience.
WC: Idealab has been on leading edge of innovation for more than decade. Tell us about its history and where Idealab is today.
BG: Idealab started in 1996 – we just celebrated our 10 year anniversary – and was started primarily to create companies in parallel. I had been a serial entrepreneur, and wanted to organize the infrastructure to work at more than one company at time.
Initially, we raised $3.5 million with $1 million reserved for operating costs and $2.5 million set aside to start 10 Internet companies at less than $250,000 each. We did that, some were successful, and we raised more money. When the first of our companies went public, we reinvested those funds into Idealab and were able to grow. Between 1996 and 2000 we started about 50 companies, and about half of those were successful.
After the dot com crash, we found ourselves in a situation where we had a very good cash situation but took a step back. We realized that Internet companies were going to be difficult to finance, and that we had expertise beyond just online services. So, we wanted to tackle new challenges, to explore fields where we could create a huge impact and identified telecom, renewables, and robotics. Our first company was Energy Innovations which we started in 2001.
For some time, we also were trying to make company a month and did so from 1996-1997. Now, at most, we will create just one company a year, but they will have the biggest impact possible. The more world-changing, the more excited we are about it.
WC: How did each of you get interested in energy and renewables?
BG: In 1973, I was attending high school in southern California when the oil crisis hit. There were gas lines around block and you had to buy gas on odd- or even-numbered days. I read Popular Science magazine and read about all the dreams of people who wanted to go to solar. Based on what I was learning in school, I started to tinker with solar technology, even making small parabolic dishes and Stirling engines in metal shop. I wanted to take world away from fossil fuels.
I started to take out small mail order ads in back of Popular Science to sell these solar devices that I was building and it became a business that I ran it for three years. I think it helped me to get accepted to Caltech. . After I graduated from Caltech, OPEC had flooded the world with cheap oil and dried up all the investment interest in solar.
Then, in 1981, the personal computer was launched and I fell in love with it. I started creating software companies. When the inkling of electricity shortages in California appeared in early 2000, I wanted to see what else had happened in solar in the last 20 years. I found that not much had changed for many reasons. It was exciting because I had been passionate about this issue since I was a teenager but now I had business experience and company formation skills to do some thing about it.
AB: When I first met Bill, I could not believe the length of his commitment. In one of our first meetings, he brought in the issue from Popular Science with the ad of him selling parabolic dishes! [laughing]
For me, when I sold Bigstep, my first company, I wanted to find something big that would have impact on planet. I did full market scan for something huge and immediately impactful. The real "a-ha" moment for me on solar came when I was reading a Moore's Law. If you want to make solar cost effective, one of the ideal ways is to concentrate sunlight. People have dreamed about that for a long time, but microprocessors were too expensive. Now that Moore's Law has been on a march for 40 years, a full fledged microprocessor that can track the sun costs only twenty cents. That is down from $2000 just two decades ago. This already has affected personal electronics as we see in computers and cell phones but until recently had not been brought to energy.
WC: National governments in Europe have taken an active role to promote renewables with tariff structures that serve as policy mechanisms. Why has that not happened in US?
AB: Stay tuned. There have been interesting pockets at national level here in the US. Not too long ago, tax deductions for solar were introduced in the US Senate by Senator Lamar Alexander (R-TN) and President Bush signed the legislation. As governor, George Bush was supportive of wind power in Texas. I believe there is bipartisan interest and we will start to see real momentum take place now, especially because I think there is final consensus around the threat of global warming.
BG: Japan and Europe in particular have been leaders in believing that we need to do something on renewable energy. They have put countrywide policies in place to encourage adoption and spur R&D. That has driven price down and that is feeding the goal of making it more and more cost effective so that you can get these sources and energy cost effective without subsidies. It's important to note all our energy and highway systems were built with subsidies. I believe that the purpose of government is to use subsidies to incentivize behavior and to make the world a better place over the long-term. Individuals only make decisions with a 3-5 year time frame, so they are short-term optimizers. Our highway infrastructure, for example took 30-40 years to build. But once they were completed, then everyone reaps huge long-term benefits. We need to have the same longer-term thinking applied to renewable energy.
Japan and Europe have put in place plans that have caused intense demand, intense adoption and the resulting volume production from that has led to decreasing prices. We have done some things in US but we have done it unevenly; for example, we have started a 30% tax credit but only for two years. You can't make long-term plans if something last for only two years. That was a big mistake but apart of political process. Hopefully that will be corrected soon.
WC: California appears to once again be leading the country in progressive policy with its recent Million Solar Roofs Initiative. Is this just another give-away, or are we on the cusp of something huge?
AB: While our country is playing catch up globally on solar, California is taking lead on our behalf. The program introduced here in California is extremely well-designed to do what we do best – design and implement world-changing technology. Specifically, the Million Solar Roofs Initiative is encouraging solar adoption in the commercial, residential and non-profit sector via $3 billion worth of subsidies and yet forcing cost reductions through decreasing financial support of solar over the ten year period of the program. As of January 1, when the program went into affect, for every Kilowatt hour generated, the local public utility will credit a certain amount off the bill back to user.
Each year, based on the volume of solar installations, the program ratchets down the amount of financial support provided by subsidies until the amount reaches zero. The intention is clear – if installation costs drop due to competition or the introduction of new product, more solar will be installed and government subsidies will decrease. In this way, the subsidies drive toward creating cost-effective solar, not a long-term dependency.
It's also smart because the span of a ten-year program shows industry a consistent plan that is very transparent. It's a serious commitment that companies can bet on. This also has happened in other countries like Germany who have taken a similar approach and allowed industry to thrive.
In contrast, the wind industry has set up federal tax credits but only on a two year horizon. They say that the only thing worse than short term policies are bad long-term policies. A two year production tax credit does not allow business to plan large scale wind development farms that require at least three years to build and put into place.
WC: Why do you think that California has taken the lead relative to the rest of the US and perhaps state governments across the world?
BG: Only speculation but I think because we have good sunshine and high demand for electricity, we previously have had lot of pollution though car laws have improved things, we have a lot of citizens who want to reduce coal use, and we have some enlightened leaders who are taking a concern for children and grandchildren. Results will be felt much more in 10-20 years than tomorrow, but we still need to act now. Typically politicians work for a short-term because they want to get reelected but we have politicians in our state who seem to care about our long term as well.
AB: At the macro level, I think that California always has been more focused on clear air and clean power than rest of country. There is an underlying awareness among people here in California that is a bit unique. Challenges like price spikes in the earlier part of the decade and less than perfect behavior on the part of energy traders also gave people a spike of awareness.
WC: Tell us about the strategy behind Energy Innovations
BG: There are three different strategies for reducing the price of solar electricity. First, make silicon cheaper. Lots of people are working on this idea by scaling production of silicon, robotizing more, make it thinner so there's less waste. None of these are working that well at present because prices are only coming down 3-4 percent a year.
Second, find alternatives to silicon that can be mass produced. There are many companies working on this, looking for a non-photovoltaic process to turn photons into electrons. The challenge is there is a lot of R&D to go and likely lower efficiency than purified silicon, but all very promising.
Third, use less silicon so rather than make it cheaper or don't use it; concentrate the sunlight and use 100 times or 500 times less of the expensive precious semiconductor material. This is our strategy, to use the high efficiency semiconductors and use very little of them by concentrating sunlight as much as possible. We are not first to try to concentrate sunlight but we uniquely are making systems to do it compactly, reliably, and inexpensively.
One other aspect that EI uniquely is doing to make it cost effective is our tracking concentrator that is low profile and thus roof mountable. All other track concentrators are large, need to be pole-mounted into the ground, and are expensive to construct at the site. Our low-profile, fully-assembled, manufactured in China unit is much lower cost and easy to mount as you can do it in just a few minutes.
AB: Another important piece of business, EI Solutions designs and builds large scale solar and PV installations for corporate customers. Our implementation shop will install anyone's products, so it's not just vertical integration around our proprietary solar technology.
WC: Can you explain your relationship with Google.
AB: Google certainly is a major milestone for our company and for the industry. We have the honor of working with them to install the largest commercial installation in US history and we are very excited about this accomplishment. Google is a visionary company with visionary leadership and their efforts fit perfectly in line with their notion of making the world a better place.
We are completing a 1.6 megawatt installation which constitutes three acres of a rooftop covered with solar panels. It consists of about 7500 solar panels, so approximately 50 percent larger than any other corporate campus install in the US. There are a number of one megawatt installs but nothing nearly this large on a corporate site.
It covers about 30 percent of the energy needs of the Mountain View campus and includes a lot of carports so it's mixed types of installations. Google wants to be a leader and not a follower in their adoption of renewables. Everything that they are doing with Energy Innovations reflects this desire.
WC: What are the broader implications of the Google deal?
BG: Google brings a few good things to the market – again, it's the largest commercial install in US industry and shows real leadership from a large corporation about the need to lessen fossil fuel use. We also showed that we could make the payback period very favorable from an economic stance, which was important for the company's shareholders.
It also gives our company a large scale installation so we can prove our installation capabilities to the marketplace which might be attractive to other large scale customers. While we're not ready to talk about the next deals we're building, it immediately led to a series of discussions with potential customers across California. Companies see that they can take advantage of solar in a cost effective way
WC: Why are you guys getting so much traction?
AB: I think Energy Innovations has been succeeding because people are excited about our innovations and the opportunity to reduce costs. New technology definitely is a large part of what will make our business successful. The second piece is that we have geared our entire business toward large-scale corporate installs and very few companies have taken this same approach. Some are focused on the entire market but we are focused solely on commercial, institutional, grid-tied solar installations. Customers seem to appreciate that they are the only thing that we care about.
WC: What is role for startups vs big incumbents in this space? How does that dynamic play out? What happens to Big Oil in 25 years?
BG: I do think that the 'Innovators Dilemma' rings as true in this industry as in any. Today, the entire solar business is only $4B. That is a lot in relative terms for the industry and the growth is very strong, but it is very small for an energy or oil company – it's almost a rounding error. As a result, the only ones who care about making highly profitable disruptive business are startups.
Think about in a large energy company how those people make their bonuses, take their vacations, get their promotions - in a company with 50,000 employees, nearly all are bonused on core revenue and profits on main line of business. In light of this situation, I don't think you can unlock the kind of innovation necessary to make a breakthrough in renewables. However, they do have the capability to scale innovations -- Take MySpace and News Corp. It's a good example because it's not clear if MySpace ever would have been created internally by News Corp, but News Corp is the perfect partner to reinvest, scale and catapult MySpace to next level.
AB: I think that there are many parallels between clean energy technology and the evolution of the Internet. In the beginning of the dot com period in early 90s, there were plenty of large technology companies but you have to ask why did they not transform themselves? We see the same situation today with the large energy companies.
Distributed energy is a new paradigm that does not lend itself to the strategic advantage of big companies. Big energy companies are good at harnessing competitive advantage through access management – they own the supply and access to large-scale fuel sources like oil, coal, and natural gas. However, with solar, they obviously cannot control the resource. This is a real shift of power.
They also are good at managing large-scale distribution systems like the grid itself. Just like those companies who had supercomputers or the few T-1 lines that were scattered across the US, these larger players soon will be disintermediated by smaller companies who can sell direct to customers and offer strong benefits at low costs for distributed power generation. That makes a good recipe for startups.
WC: Do you see this trend happening around the world?
BG: The conditions absolutely changed in energy in the last five years and there are powerful disruptive forces at work around the world. Today, the richest person in China is a solar entrepreneur. You have a number of public companies in foreign markets, startup solar companies that are profitable or close to profitable, but valuable for shareholders. Many move into the industry for these reasons, let alone the feel good reasons because it's so impactful. This is why I originally got into the space. The IPO prospects weren't on the horizon. But now the opportunity to make an impact and make a profit is powerful.
WC: What will the competitive landscape around renewables look like in 25 years?
AB: Again, I would say that it's going to look a lot like the transition in the technology industry. Today there are large companies who thrived in an earlier time and yet have not succeeded at same rate. At the same time, there are some big companies like IBM and Microsoft who innovated and still compete.
Today we also have some massive new companies and industry leaders like Amazon, , Google, and Yahoo! , none of whom even existed 25 years ago. Looking ahead, it would not surprise me if many of large oil companies were still intact but, like BP already is trying to do, evolve into broader energy companies that own a piece of renewables.
BG: I believe that solar will account for a dramatically increased portion of our electricity usage – it's miniscule today but will be much higher. There will be a number of startups that grow into Google-like size. Many startups also will be acquired by large companies and so innovation will take place outside those companies, then migrate into big corporations through acquisitions.
WC: What's next for Energy Innovations?
BG: Our biggest challenge is to take advantage of the enormous market in California and continue to roll out reliable systems to piggyback onto larger and greater business. The opportunity is incredibly exciting. I believe there is chance to build very large business here in California. I hope that other states will get as aggressive as California in years to come.
WC: As you have suggested in this conversation, Idealab has evolved quite a bit over the past ten years. What is the future of Idealab, particularly in the realm of tackling big problems and creating world-changing companies?
BG: At Idealab, our mission is to create and operate pioneering companies, and to challenge the status quo. We are very focused on all aspects of the renewable energy arena, and this is the area that excites us the most. We are completely driven by the idea of making renewable energy cost effective, across a whole spectrum of opportunities. We believe that that will allow us to build great businesses and make the world a better place.
