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Summary

  • Hazel Henderson's review of Jigar Shah's book "Creating Climate Wealth."
  • Understanding the trajectory of SunEdison.
  • Following Jigar Shah's reasoning for Green Investments.

CREATING CLIMATE WEALTH: UNLOCKING THE IMPACT ECONOMY, by Jigar Shah, ICOSA Publishers, Denver, CO, 2013

Author Jigar Shah is also the legendary entrepreneur who founded SunEdison (NYSE:SUNE) in 2003 with his own savings and a mortgage on his home, which also served as the company office. By the end of that year, SunEdison had two Fortune 500 customers and in 2004 its revenue broke $1 million. In 2007, SunEdison employed six hundred people with revenue of $200 million. In 2012, SunEdison's solar installation revenue was $2 billion, and Jigar Shah sold the company to Missouri-based MEMC Electronic Materials.

This book is Jigar Shah's personal account of how he built SunEdison, and helped scale the solar energy industry from $5 billion globally to its over $93 billion by 2013. Shah is an entrepreneur motivated by the now voluminous research from IEA, NREL, McKinsey Global and many other reports we cite in our Green Transition Scoreboard® (GTS) 2014 report which outlines how the world's energy system can shift to 100% renewables by 2050. This can be done without any new technological innovations - merely deploying all the decades of innovation we already possess, as the economic development opportunities of this century.

Shah discovered that the missing links were innovative business models, new start-up companies rather than the incumbent energy players and electric utilities and crucially for investors: new financing models.

We reached similar conclusions in our GTS research, as we tracked the dilemmas of centralized electric utilities which had opposed grid additions from solar and wind while hewing to their 100-year old business of building new power supplies and extending transmission grids. This demand-led model forced customers to pay for these new plants by lobbying legislators to impose their notorious CWIP (construction work in progress) billings. Demand tanked as customers and businesses left their grids and covered their own roofs with ever-cheaper solar panels. Utility stocks began to tank in Europe, and solar and wind advanced while asset managers of institutions and pension funds' portfolios questioned utility bond issues as their electricity demand cratered. Too late, the utility industry began to upgrade their supply management to incorporate solar and wind-generated electricity - even thinking how to add compatible DC lines to their AC grids. Currently utilities are pushing smart meters (less for customer savings ) so as to manage their loads, do away with manual meter-readers and monetize the data collected on households. Their latest effort is a push from their trade association EPRI (Electric Power Research Institute) to promote rapid adoption of electric vehicle fleets to restore their demand and jumpstart the EV market.

Instead, Jigar Shaw saw that distributed generation and micro-grids would continue to win the electricity market share simply on efficiency grounds and growing consumers' hatred of centralized control of their lives by utilities. Shah shaped SunEdison to capitalize on this US electricity market which needed a key strategy: to reduce upfront costs of installing solar even though it yielded rapid pay backs since there were no fuel costs and greater reliability.

This book spells out in detail just how all these new financing models work and how they grew SunEdison's legendary success. Key among these retail financing models is third-party financing of upfront costs. SunEdison owned the panels it installed, and the customer simply signed long-term contracts to pay for the electricity at lower rates than utilities were offering. The added long-term fixed price of the electricity not only benefited the customer, but also provided the profit margin for SunEdison and assurance to skeptical mainstream financial firms of steady ROI. Big banks Goldman Sachs (NYSE:GS), Wells Fargo (NYSE:WFC), HSH Nordbank, Bank of Hawaii (NYSE:BOH) and others jumped in after Goldman's initial $60 million in June 2005. Shah explains in detail all the additional financing models he has since developed in other sectors. These are the reasons behind his current venture investments in KMR Infrastructure, Empower Energies, MPC Energy and BrightFarms.

Jigar Shah's story in this book inspires me and others to share his vision: dismantling the 19th and 20th century carbon economy and replacing it with the $10 trillion in green investments now in the pipeline and in the projections of so many public and private reports we also cite.

As a policy wonk at the US Office of Technology Assessment, the National Science Foundation and the National Academy of Engineering from 1974 until 1980, I witnessed the political tug of war documented in The Politics of the Solar Age (1981, 1986) and identified the root of the problem of mispricing assets and mal-investments' overshoot in fossilized sectors. This underlying problem was in economic models which ignored the fundamental basis of all industrial societies as ENERGY and humanity's evolution of technologies to use it more efficiently. Economists still use their obsolete model of factors of production as land, labor and capital - missing the role of energy. I revealed that this fatal flaw was first outlined by Nobelist chemist Frederick Soddy in 1913, who pointed out that the Sun's daily photons and those stored in the Earth in fossilized plants and animals actually were the basic energy factor of production! My long-time friend Jeremy Rifkin, author of The Third Industrial Revolution, also discovered Soddy's analysis - ridiculed by the economic grandees, which is at last republished as Cartesian Economics (2012)!

At Ethical Markets, we are fortunate to have on our Advisory Board Dr. John "Skip" Laitner whose models of "exergy" (energy actually used to produce economic development rather than wasted) now indicate the extent of mismanagement, waste and mispricing due to this basic error in economic models. This malfunctioning source code lurking in our hard drives is still uncorrected, causing so much wasteful use of our precious fossil fuels - all of which now can be correctly priced and carried on the books. These reserves need not all be written down as stranded assets, but instead valued in situ as potential chemical feedstocks - rather than burned in obsolete energies, buildings, power plants, transportation, cities, agriculture and infrastructure.

GREEN INFRASTRUCTURE

GTS research cites official estimates of $35 trillion to be invested in infrastructure over the next 25 years, as this book also reports. This new focus on Sustainable Infrastructure is fuelling the expanding offerings of green bonds we cover in our forthcoming mid-2014 GTS update and is the mission of Daniel Weiner's Global Infrastructure Basel. In the USA, this infrastructure investment is projected at more than $2.2 trillion (p. 71). Jigar Shah believes, as I do, along with venture capitalists, including John Doerr, that this re-tooling of the global economy we call the Green Transition is the world's biggest business opportunity for widespread prosperity - based beyond the centralized control of utility companies, kleptocratic governments and the global financial casino.

Shah cites E.F. Schumacher's Small is Beautiful as the emerging distributed, locally owned and controlled development alternative. I was honored by the foreword Schumacher wrote to my Creating Alternative Futures (1978, 1996). Green economies are now exploding worldwide after the 2012 commitments by 191 countries at Rio+20 in Brazil to phase out the almost $500 billion of annual subsidies to fossil fuels. They pledged to shift to cleaner, greener, knowledge-rich economies as I describe in Mapping the Global Transition to the Solar Age. Shah believes, as we do, that the Solar Age economies have now scaled due to innovative business and financial models so that most will no longer need subsidies. Now markets are working better: energy is recognized as EROI in business and finance - all that is needed is wider leadership, more entrepreneurs and, crucially, governments to set standards and frameworks. As Amory Lovins is quoted, "Governments can steer, but not row," (p. 20). Evidence of this public-private cooperation is the Global Insurance Industry Statement, November 2013.

Ethical Markets will be promoting this book, which is needed by every asset manager. However, they need not be confused by the book's subtitle: Unlocking the "Impact Economy." The word "impact" has been promoted by many ESG investors to try to differentiate their strategies and to interest mainstream finance as a new "asset class." This is misleading since all investments have impacts - some blow the tops off mountains and pollute the Gulf of Mexico. Jigar Shah points out some of the false premises of "impact investing" in that it confuses philanthropic funding with expectations for financial returns. This is why Shah took the hard route: to convince mainstream finance that efficient solar, wind and other renewable energy could also be militantly profitable. We agree!

For full disclosure, I have many long investments in small private renewable energy companies as well as publicly traded Envision Solar (OTCQB:EVSI), Natcore (OTCPK:NTCXF), Waterfurnace (OTC:WFIFF) as well as yieldco Hannon Armstrong (NYSE:HASI).

Source: Review Of Creating Climate Wealth: Unlocking The Impact Economy