The Innovation Statement is a great first step, but it takes more than that to build a true innovation ecosystem. Here’s how we can boost clean energy start ups at no additional cost to the taxpayer.
I’ve just been lucky enough to travel the world on a Winston Churchill Fellowship, where I met hundreds of energy entrepreneurs taking a chance on an unproven idea. Why were there seemingly so many of these entrepreneurs elsewhere, but barely any I knew back home in Sydney?
After some deduction – I’ve distilled it down to two ideas which we desperately need if we are to create an innovation and start-up culture to spark a clean energy revolution. And the best thing – they can both come from existing government funding streams and therefore have no additional cost to the tax-payer.
Innovation Idea #1 – Create spaces for clean-energy entrepreneurs
On my travels, the first thing I did upon arrival in each destination was seek out the local energy and clean-tech start-up hub. These included PowerHouse in Silicon Valley, Green Town Labs in Boston, Urban Future Lab in New York, EurefCampus in Berlin, or New Energy Docks in Amsterdam. Visiting these spaces was always a highlight – their atmosphere alone empowering and the connections I made inspiring. These spaces provide potential change-makers with the mentoring, camaraderie and confidence to take calculated gamble on bringing an unproven idea to life.
Danny Kennedy, a mentor at PowerHouse solar incubator and co-founder of Sungevity discusses benefits of the incubator:
“As much as anything, confidence is what Powerhouse inspires. The main benefit is the social piece…sharing with one another the struggle.”
Through-out Australian capital cities, start-up incubators and chic co-working hubs are popping up left, right and centre, but we still do not have a dedicated space for clean-energy entrepreneurs. This is despite the obvious advantages this would bring in terms of collaboration, industry and research partnerships and building investor relationships.
Danny Kennedy:
“Having an anchor institution in Australia is obvious to me because we have such a mature solar market, skillset and talent pool… We need it, you need it, we all need it.”
In fact, perhaps with a prod from Turnbull himself, the federally-funded Australian Renewable Energy Agency (ARENA) funding could help pay for clean energy start-up spaces in capital cities around Australia. A thought which segue-ways nicely to Idea #2….
Innovation Idea #2 – ARENA should place emphasis on energy start-up funding
There are two general types of clean-tech public funding:
The ‘Bill Gates approach’ is that current technology is in general not good enough for an energy revolution, due to cost, inefficiencies and variability. This approach tends to focus on funding new early stage research and development in high-risk hardware solutions. Whilst his beliefs on this have softened over last couple of years, this approach still underpins Gates’s announcement in Paris last week.
The other train of thought I will call the ‘Jigar Shah approach’. Jigar is the inventor of the power purchase agreement (PPA) and co-founder of SunEdison. His approach goes more like “Dear Bill Gates: we already have the technology to solve climate change.” Jigar tends to think we need to focus heavily on deployment and innovation should focus on software, soft-costs, finance costs, customer acquisition and any other innovative business model which overcomes barriers to uptake.
ARENA is a federal public funding body which has $2.5 billion in funding out to 2022. They have focused mostly on Bill Gates style hardware investments until now (however they did give a remarkable $166m to AGL for the Broken Hill solar farm with the aim that it would reduce deployment costs for later utility scale projects). You can view a list of ARENA projects here.
In my view, the timing is right to instill a fundamental shift in ARENA funding towards the Jigar Shah approach. For Australia, with declining manufacturing and one of the most attractive distributed energy markets in the world, it makes much more sense to fund innovative business models which overcome adoption barriers to already mature technologies. These solutions are much lower risk, are scaleable, and have a faster payoff for public funding relative to early stage R&D. What’s more, they create economic activity and jobs in Australia. This is important – so many highly talented UNSW solar research graduates have sought work overseas because that is where manufacturing is – and they’ve made some Chinese solar companies very rich (not to take anything away from this amazing research institute).
Whilst AGL got $166 million, sub $100k funding is rare for ARENA and that’s a big shame; it is at this scale where a little-bit of funding can go a long way – particularly for start-ups which focus on finance, soft-costs and customer acquisition and new business models like community energy, for example. Further making it harder for entrepreneurs, ARENA’s processes are too cumbersome and do not specifically target early stage start-up companies with their language or approach.
And given the nature of yesterday’s Innovation Statement, the timing couldn’t be better for such a shift. It could be a savvy way for Prime Minister Turnbull to boost his clean energy credentials and satisfy the left on issues of climate change, without irritating the more conservative factions of his party.
What ARENA can learn from the SunShot Initiative
The US Department of Energy’s (DOE) SunShot program is an exemplary program which ARENA can look to for inspiration. The SunShot program has assisted approximately 400 US solar energy start-ups, established companies and non-profits in commercialising new innovative solar business models and solutions.
Danny Kennedy praises the program:
“I’ve got to give them credit. They came at this problem like the Moonshot initiative and they’ve achieved a lot…. they’ve done a lot of incentive programs and competitions which are very creative. The SunShot program has return value to the American Purse like you wouldn’t believe and and has dropped costs – both soft and hard – significantly”
Minh Le, former director of the DOE’s SunShot program is someone Kennedy says he “really admires”. I had the pleasure of interviewing Minh Le in New York. He explains how the SunShot’s Incubator Program, in operation since 2007, took a portfolio approach to their public start-up investments.
“In the SunShot Incubator program alone, we gestated about 100 small businesses and injected about US$138m taxpayer dollars. In aggregate, these companies have since raised over US$3 billion in follow on investment so it’s been resoundingly successful in getting these ideas to reach commercial maturity …and reached our ultimate goal of job creation.
One thing Sunshot has done well which ARENA has ignored is give out many small grants to early stage start-ups, via a competitive pitching process to a panel of experts.
Aaron Clay, founder of Oakland based SunSwarm – an early stage start-up aiming to match community solar customers with projects – received a $25,000 SunShot Catalyst grant to reach the proof-of-concept stage. To receive the grant, Aaron had to submit a short information statement and pitch to a panel of advisors in a pitching competition. Once successful, the money is released on reaching certain milestones, but there is minimal intrusion and no cumbersome reporting requirements – allowing the entrepreneur to get on with the job of delivery.
Le explains how this approach has brought countless innovators out of the woodwork:
“The competitive approach and talent we’ve unlocked has been exciting. The stats suggest it is easier to get into Stanford or Harvard than get SunShot funding. It’s about a 1 in 20 chance of getting funded.”
Businesses past the proof-of-concept phase and ready for commercialisation are eligible to receive more funding, with more stringent oversight. For example, Ty Jagerson of Palo Alto based Village Power received a US$500k Catalyst grant to develop their community solar investment platform, money essential to the development of the business.
Minh Le highlights the important role through expert and research partnerships, which could be a great way to get universities more engaged with local start-ups here in Australia (a key feature of the Innovation Statement):
“Each incubatee is offered 5% in resources funding in addition to their grant funding, and we connect them to our government energy labs, NREL being the most prominent, for such support.”
“About 20-25% of companies are no longer in operation, which is not a bad rate of failure relative to the general start-up community, which I think comes down to the resources, expert mentoring and connections that we provide.”
Le again, on how the DOE itself innovated their approach to minimise bureaucratic processes to suit the approach of start-ups (notice how similar this sounds to Turnbull’s language yesterday):
“If we (the government) can’t innovate how do we expect the start-up community to innovate. The faster the government can get the funding out to the community – in a fast-changing space like solar – the faster we can get results. That mindset attracted some really entrepreneurial people to government. We took risks, made use of various prizes and awards, streamlined applications and roadblocks, and we were able to cut the time taken to get money out by half, and attract a really high calibre of talent to the program.”
Chris Cooper is president of Repower Shoalhaven, a community solar organisation that creates solar projects for people to invest in.
Please click on the Citizen Power tag line to read more of his stories.