Solar Guru Jigar Shah on his new book: 'Creating Climate Wealth'
In light of his upcoming book 'Creating Climate Wealth', Solarplaza interviews Solar guru Jigar Shah. The visionary who founded SunEdison, was the CEO of the Carbon War Room and is a member of many climate change initiatives and enterprises.
Let’s start out with some questions about your background. What were your dreams when you were a kid? What kind of job did you have in mind for yourself as a grown up?
"Before I had a dream, I had the luck of growing up in a family of social and business entrepreneurs. We didn’t just talk about making money. We had discussion about making money while doing good things in the world. Plus we discussed what was new, and what was possible. My dad, a doctor, really marveled at science and medicine. We spent a lot of time talking about solving big problems, like cancer, and marveling at what had been accomplished like landing a man on the moon. So, my dreaming was set in a framework probably before I had dreams. Then, when I was 16, I picked up a book my Dad has purchased on energy years earlier. Why I picked up that book, I don’t know. But, it was either destiny or a happy accident. In any case, in it, was a few pages on solar power that became my inspiration. It focused me. I became an engineer in college because I was told that the solar industry hired only engineers. I then went on the get my MBA. While I love how things work, and engineering, my aptitude is really on business, strategy and finance. It is probably I actually performed better in my MBA classes than engineering classes."
Who inspired you in the past and who is still inspiring you (apart from your wife)?
"Well, my wife does really help me stay true to my values and aspirations. But other than my wife, my father was the entrepreneur I really was inspired by up close. He is a general practice physician and started two medical practices from scratch. Every dollar he made was poured back into the business and every mistake meant a different financial outcome for our family. It was heartwarming to see him up close succeed and make mistakes; it makes taking a risk that much less scary. In fact, I have found the greatest risk in life is not taking a risk. You risk giving yourself no chance for success."
Everyone makes mistakes, and most of the times you learn the best lessons from it. What was your biggest mistake, and what did you learn from it?
"Wow, so many to choose from. I have to say that my largest mistake was probably getting an engineering degree. I am happy for the knowledge I have, but it just really wasn’t where my heart was. My heart was in business, and business modeling. I could have followed my heart early on, I probably would have applied myself to my studies more in my undergraduate studies. But I don’t really view life through that lense. But, I think my engineering degree gave me a “license” too from people. It allowed me to do things as an engineer that they would have never let me do as a liberal arts major. I also think that knowing some of the fundamental principles in engineering enabled me to be more discerning of new technologies. Things happen for a reason and I am not sure mistakes are really something to be avoided as much as just part of the process."
You founded SunEdison and built it out into a global leading solar energy company. Can you explain why it became successful? Apart from a splendid idea and solid strategy, was there also any lucky development that helped you and your team?
"One of the books I read early on was “Fooled by Randomness” by Nassim Nicholas Taleb. In it he talks about the importance of knowing what was truly a reaction to your actions and what was just luck. I remember it having a profound influence on me. It was from that moment that I started noticing the value of knowing the difference between the two and really valuing 'good karma.' One of the things that made SunEdison so successful is that everyone was rooting for us. We had a culture of sharing and inclusiveness that was infectious. There were many contracts and business dealings that could have gone against us and instead went for us because just liked our attitude. I am proud that we could be so successful while being so inclusive."
What was your most curious business experience at SunEdison?
"In 2006 we were approached by a seller of a power purchase agreement. When we looked at the deal, the contract they had used was the exact same one that we created a year earlier. It was at that moment that I realized that copyright and intellectual property meant nothing to law firms and financiers."
Why is your book called “Creating Climate Wealth”? What are the main takeaways from this book?
"Let me start with a fact: Solving big challenges have always resulted in wealth creation. Think about the challenges of transportation, and then the economic and societal impact of the railroad, automobile and airlines. Or think about any other industry like telecommunications. Then let’s think about big goals we have had like curing polio, or landing a man on the moon. Addressing all of these issues had much more of an impact on our society and our lives than just solving the problem or taking on the challenge. Each changed our lives, created jobs, and made life better. We have always been able to make problems into opportunities. So, I look at Climate Change as the biggest opportunity in our lifetime, in fact the largest wealth creation opportunity on the planet. All of the business model and financial innovation in the solar industry that led it to reach $87B industry in 2012 with an average system size of less than $500,000 can be replicated to the other sectors of the economy. To solve climate change, solar can’t be the only winner. We have to apply the lessons learned to move more mainstream capital into solutions. That will add up to wealth creation. And, one more point, wealth creation is not about the few getting rich – although those that take the biggest risk should get the biggest reward. It is about creating whole industries that create great middle class blue-collar jobs so people can make a decent wage, own a home and send their kids to college. The wealth creation I discuss is wealth creation for society. The auto industry in the US was critical in creating the middle class. Solving Climate Change is this generation’s chance to enrich the world."
In your book you mention “small is beautiful” next to how putting “10 Trillion dollar to work”? How does this go together?
"The 20th century was defined by bigger is better. The larger the project the more proud we were as citizens of the planet. This year the solar industry will install $100B of systems and the average project size will be less than $500,000. That means the solar industry will deploy over upwards of 1,000,000 systems, many of them residential. To put this in perspective, this is more money than will be deployed this year into new coal power plants, natural gas power plants, or nuclear power plants. This only happens because thousands of people are selling solar in their own communities – around the world. This can be replicated to other sectors like local food, waste recycling, efficiency projects, car sharing, and many other sectors. The solar industry is now on track to deploy $1 Trillion by 2020. The wind industry is on a similar pathway. We have to figure out what we did right in the solar and wind industry and replicate that to all of the other sectors – it most certainly won’t happen based solely on top down mandates from Government alone.
The other thing to note is that small is beautiful, and million dollar successes lead to billion or trillion dollar industries. We always build one house at a time, one car at a time, one computer at a time. It is through business engineering and mass production that we can lower costs to build millions of small projects."
Is money the biggest threshold to massive solar PV application? Or is the lack of information the bottleneck, like many people and businesses simply don’t know that in their situation solar is also economically more attractive?
"Money is necessary to deploy infrastructure in our capitalist society. But the real challenge is information for customers and developers. The solar industry has investors who demand certain characteristics in projects for them to be considered “safe” investments. We don’t communicate as well as we could, but the solar industry communicates between the investors and developers far better than the investors into the other climate change solutions sectors. Once this communication occurs, developers tell customers what the characteristics of a deal looks like and the customer can say “yes” or “no”."
Nowadays, visionaries and guru’s all speak about lateral empowerment, bottom-up initiatives and small is beautiful. You quote in your book “Never doubt that a small group of thoughtful committed citizens can change the world”. Is there still a role to play for governments?
Say you would be in charge as a minister. What would you directly implement in order to stimulate massive solar energy application?
"Absolutely, Government always plays a key role in infrastructure. Whether it is policy, mandates, permits, or planning the Government is essential. Today, the Government needs to level the playing field. In many sectors, consumer empowerment through technology is illegal. Today, in progressive Austin, TX they are considering passing a law to prohibit peer-to-peer car sharing by saying you can only charge your friend the cost of fuel – this is only to protect the taxi industry. Tesla wants to sell cars direct to consumer because electric vehicles don’t require all the service and maintenance of traditional gasoline powered cars. The powerful auto dealership lobby is trying to pass laws to make that model illegal. Entrepreneurs have to have fair access to the marketplace – this is where the Government has its most essential role.
Second, many of these technologies need some subsidy to develop the local scale to compete fairly. Solar for instance is at least 75% more expensive in countries that have never deployed solar vs. a traditional market like California or Germany. A small amount of subsidy can erase this delta and make these important climate change solutions more accessible.
Finally, the Government has the responsibility to make sure that basic services are available for all citizens. For instance, when the mobile phone was savaging the business model of the traditional phone company, the Government had a responsibility to step in to help smooth over the transition in a way that encourages innovation, but protected the most vulnerable who were most negatively affected by the disruption."
How disruptive is the development of the PV industry? In the coming years, how will ‘Joe sixpack’ experience the impacts of expanding PV application?
"Solar is a form of distributed energy resources (DER). DER will be extremely disruptive because it allows customers of a utility to choose a more suitable power source than what is currently being offered under the current command and control system. Once the individual can acquire electricity cheaper than the collective, the collective ceases to be the dominant business model.
In the near-term companies like Wal-Mart are using solar to protect themselves from rising electricity rates. Homeowners are starting to use solar, not only to switch to renewable energy, but also to add some additional reliability through the use of battery backup. When the power goes out, they are the only house that has lights and money left over to treat people to beer and wine.
Germany, Australia, and Japan are approaching 10% of their total population switching to solar PV; the USA will also reach that point by 2020. This will cause the rest of the utility customers to have to pay more to finance an inefficient grid."
Nowadays, In Germany and Italy, on sunny days, the millions of solar PV systems already produce half of the electricity demand. Within 5 years, this could double and so theoretically, coal and gas power plants could be turned off. The business impact for the existing energy utilities will be huge. Resistance, and a strong lobby can be expected against PV. What would be your advice to these ‘conservative’ utilities?
"In the same way that horse buggy manufacturers didn’t want to hear about cars, utilities are incapable of responding to DER. It is not that they are not smart enough, but there is simply no win-win situation. Utilities can save themselves by investing in DER technologies, but their traditional business model will lose value. Similarly, some traditional phone companies continue to exist because they purchased mobile phone companies while their traditional phone businesses died. Some utilities will make this switch but most will be replaced by another more nimble company."
To your opinion, should governments still financially incentivise PV application? On the one hand it could help market development, but on the other hand play into the hands of the big fossil corporates and other opponents...Is it necessary?
"DER subsidies for solar and other technologies should be designed intelligently to balance the speed of deployment with the cost of bringing innovation to the marketplace. Germany and California have almost the same size utility grids and started their solar programs at roughly the same time. Both Germany and California have now achieved “socket” grid parity and are phasing out/down incentives. But, California was able to accomplish this goal by increasing electricity rates less than 2% while German incentive programs will raise electricity rates by over 10%. We have 17 sectors within which to scale $10 Trillion of deployment. It is important that we balance the need for deployment with the cost of scaling up technology."
What market segment do you believe will drive the global PV market and why in the coming decade? Big ground mounted power plants, commercial roof applications, or the residential markets?
"In almost all cases, there are two classes of developers in the marketplace. Some in the PV space are trying to force Governments to allow them to install low cost solar PV in very low value central station utility places. Others are pushing high cost solutions in very high value situations like places with high utility rates or places using diesel fuel. The latter is a more profitable and sustainable marketplace, but the former gets more headlines and is more inspirational to Government leaders who like to take photos in front of big power plants. This tension is healthy and will remain for a long time, but in the end those going after high value targets will make more money and in the long-run deploy more solar."
Picture yourself in 2020. How much different will the PV industry look like? What will be the topics we will be discussing in the PV industry? What will have surprised us looking back in 2020 to the years behind back to 2013?
"In one aspect 2020 will be exactly the same, we will be focused like a laser on bringing more capital into the industry. From securitization to debt/equity to crowd sourcing, we will never have enough money investing in solar projects. But, by 2020 several major things will be different. Today, the vast majority of Governments do not believe that solar can be a major part of Utility 2.0 because they are obsessed by a non-technical ghost called “baseload” power. This insecurity will be gone by 2020 and every Government in the world will be fighting each other to deploy solar quickly to meet power shortages for their people. Like mobile phones in the last 15 years, solar will be viewed as a way to bring very valuable power to the 2+ billion that don’t have access to reliable electricity. Whether this is grid connected, mini-grids, or off-grid solutions, we will continue to see double digit solar growth to 100,000+ MWs in 2020."
Some visionaries are scared for the future, more in particular of the impact of global warming. What is your vision?
"I am always optimistic. I am not sure how one could not be. We have the technology today to solve major problems around the world on food production, clean water, electricity access, waste, sewage, and other basic dilemmas. I am excited that my generation will be the one that sees the successful deployment of this technology to truly make the world a more sustainable place.
I believe that through philosophy and technology we will be able to live within the ecosystem constraints of the planet. For instance, the empowerment of women will be helped greatly by climate change solutions that are critical to control population growth. We are on the cusp of truly empowering all of the humans on the planet to reach their potential. This includes people who have been forced to live in environmental dead zones, not just in China but also in the inner cities of the United States. Amazing time to be alive."
If you would start a new company, what would it be doing and where?
"I think there are a lot of businesses available today, but the big hole is bringing the solutions from the solar industry to other sectors. I have created a small fund to exploit these opportunities and trying to raise a larger fund through a group in Montreal called Inerjys. I have also invested in companies focused on savings diesel fuel. There are so many $Billion solutions that have to be scaled to reach $10 Trillion in deployed capital by 2020. Getting to $10 Trillion will be done million and billion dollar increments, another reason why small is beautiful. We can do it, but they have to be unlocked piece-by-piece. This represents the largest wealth creation opportunity of our generation."
What will you be doing 5 years from now?
"I think that empowering people to deploy clean infrastructure through business model and financial innovation is my life’s work. It allows me to work with every country in the world, every city, every town. I enjoy encouraging today’s youth to choose this career over all others. It is deeply rewarding and never gets boring."
Thanks so much for the interview!