If A Policy-Based Business Is Good Enough For Elon Musk, Is It Good Enough For Us?
Sign up for daily news updates from CleanTechnica on email. Or follow us on Google News!
With co-author Edward Sim.
What do Elon Musk, Japanese baths, and Chinese photovoltaic manufacturing plants have in common? They’ve been enabled or made more efficient by government policy decisions, and the smart companies and individuals who could follow the policies profited handsomely.
Let’s start with Japanese baths. The Japanese people are very high consumers of domestic hot water at 420 liters per day on average. That’s almost twice as much as the average for the United States, and it’s almost entirely due to the Japanese custom of taking hot baths. It’s a somewhat ritualized process, as many things in Japan are, with gradations of etiquette, a pre-bathing process, bathing, then washing and rinsing. Onsens, a style of communal baths based on hot springs, extend it further, but those aren’t the types of baths significant for our discussion of policy-based businesses.
Heat-pump warmed baths are. What do heat pumps have to do with ritualized Japanese bathing? Efficiency, innovation, and policy. Japan is a geographically isolated, mountainous country with no fossil fuel resources of its own. Its tectonic activity as part of the Pacific Ring of Fire created a large number of hot springs throughout the country, which in turn were exploited by the Japanese as an inexpensive source of hot water for a variety of uses, including bathing. But as the population grew, the resource of free hot water didn’t.
Heating water is an energy intensive process, so Japanese policy-makers undertook a governmental initiative to assess end-to-end hot water consumption and potential efficiency measures. They realized that heat was a resource that could be moved around with heat pumps. Even more interestingly, they realized that the refrigerant in the heat pump could be CO2, making the technology not only a significant efficiency measure in the face of the demands of addressing climate change, but also a direct consumer of that greenhouse gas. In the face of the Montreal Protocol for substances that damage the ozone layer, an international treaty that Japan was signatory to, having a non-ozone depleting, low-global warming potential refrigerant was of value. Japan remains committed to this path, being signatory to the 2016 Kigali Amendment to the protocol, the ninth revision to the Protocol, which is specifically about lower global warming refrigerants.
Companies like the Japanese firm Sanden stepped into the opportunity, creating heat pump products which they now sell globally. Japan is the international leader in heat pump technology, using heat pumps more than any other nation and selling them internationally. The Japanese firm Daikin is spending US$410 million to build a factory in Texas to serve the rapidly growing North American heat pump market, one that is driven in large part by policies designed to displace gas furnaces and high global-warming potential air conditioners with the more efficient technology that also doesn’t cause global warming to nearly the same degree.
But what does this have to do with Elon Musk and Chinese solar photovoltaics? There are two threads to this story.
The first is that solar PV is dirt cheap in large part due to twin policies of funding research and stimulating the growth of markets. The research on this is fairly clear, showing that up to 2012, module efficiency was the leading cost of price drops, but starting in 2001, economies of scale for manufacturing, distribution, construction, and operations took a larger role. For the past decade, it has been economies of scale for deployed technologies which have been creating the precipitous drops in solar power costs globally. A similar story has been playing out in wind energy.
Enter Elon Musk and his cousin Lyndon Rive. Musk and Rive were convinced of the market potential of solar power. They were assisted in this by clear federal governmental policy signals that this was a market that it was committed to. The US Department of Energy was explicit about what it was doing, having formulated a strategy and followed through. A key component of this was the Become One in a Million program, devoted to getting a million US rooftops covered in solar panels. It covered every state and had 886 partners by the end of 2005.
In 2006, Rive founded Solarcity as its President and CEO, with Musk as Chairman. They looked at the policy commitment, created an innovative zero-down leasing business model, and started selling solar panels like roofing shingles across the US. But the company didn’t offer the option in every state immediately. It focused on the jurisdictions with the best combination of incentives for homeowners and themselves, following policy improvements into each state in turn.
A decade later it was installing about 30% of the non-utility solar in the United States each year, 870 MW of capacity in 2015 alone. Subsequently, the company has been acquired by another Musk company, Tesla, and remains one of the top non-utility solar companies in the country.
What Rive, Musk, Sendan, and Daikin saw was opportunity created by policy. They were aware of the proposed and emerging policies and structured their businesses in advance to take advantage of them. In early stages, there isn’t any opportunity for an emerging company to mitigate the risk of changing policy, but as you grow establishing and maintaining ties to policy makers becomes important.
And as the Paris Accord and Kigali Amendment implications sweep through North America and the world, more business opportunities will arise and more innovative businesses will be finding profitable ways to deliver value that’s good for their shareholders and the world.
Edward Sim and Michael Barnard are working with a team to develop a policy-aware business model for a low-carbon HVAC transformation company focusing on commercial real estate.
Chip in a few dollars a month to help support independent cleantech coverage that helps to accelerate the cleantech revolution!
Have a tip for CleanTechnica? Want to advertise? Want to suggest a guest for our CleanTech Talk podcast? Contact us here.
Sign up for our daily newsletter for 15 new cleantech stories a day. Or sign up for our weekly one if daily is too frequent.
CleanTechnica uses affiliate links. See our policy here.
CleanTechnica's Comment Policy
