Creating Climate Wealth: Unlocking the Impact Economy
Never doubt that a small group of thoughtful committed citizens can change the world; indeed, it’s the only thing that ever has.
The reason for this book is to make the case that the solar industry has become a $100-billion industry because it was designed and structured by entrepreneurs that used mainstream investors not impact investors. This truth, about the role of impact investors in unlocking climate change solutions, could prevent approximately $10 trillion of mainstream capital from streaming into these solutions. There is a false choice often being made between high impact and high returns. We can have both. In fact, we must achieve both to achieve scale and unlock the greatest wealth creation opportunity of our time.
This opportunity begins with people. I am lucky. I have been one small voice in the world that was one of the first to attract mainstream capital to solar. I used a new business model to deploy solar energy that unlocked a multibillion-dollar solar energy services industry. Through hard work, timing, good luck, and demand, it has spawned hundreds of thousands of jobs and has made many people wealthy; it produces clean electricity close to customers—and continues to grow today at exponential rates.
Even though people may think this is an incredible story, the point is that it is really an attainable story and one that we can repeat again and again—not only to build more than one multibillion-dollar industry but rather to build many multibillion-dollar industries. If the International Energy Agency is right, it will add up to a new $10-trillion economy—while solving our global climate and environmental issues. This is what I mean by “creating climate wealth.”
Today, after the fact, investments in solar energy have been classified as impact investing, not socially responsible investing. The reality is that solar energy was really started by mainstream investors looking for financially compelling returns in an industry that happened to be “green.” Recently, impact investments have captured people’s imaginations. Impact investors concern themselves with finding investment opportunities that deliver both a financially compelling return and a positive impact on the environment or society. Yet most of these investors limit their impact investments to a small part of their portfolio because they believe they must sacrifice financial return to achieve the highest societal impact. I wholeheartedly disagree.
Impact investments can drive incredible wealth opportunities—and create a new economy. It is what I call, and the Carbon War Room has deemed, climate wealth creation.
To optimize climate wealth creation, we need structure. Structure assumes discipline. It helps investors choose between projects that have passed muster as opposed to projects with buzz that fizzle because they have no sustainable growth potential. It sets guidance parameters so investors find investments that will create new industries that deliver perpetual financial growth and return.
With rising commodity costs, water shortages, and global warming, the world market potential for these investments is enormous. A key reason is that many technologies exist that have already been tested and proven. We simply need to deploy them in a way that makes business sense. It is a precise focus on the deployment of existing technologies that will drive economic growth and jobs and create climate wealth—our next economy. For those who argue for innovation first, I would say that in this sector, only technology deployment and wealth creation from that deployment drives sustained interest in innovation funding; choosing one over the other is a false choice.
If the path to creating climate wealth will create a new economy, our impact investments need to go beyond being emotionally compelling investments. They need structure and business-model discipline to prove to traditional investors that the opportunities are solid. I will examine this idea throughout this book.
In just the last five years, about $1 trillion has been invested in the deployment of renewable electricity—most of it from mainstream capital sources. In 2013, the Global Impact Investing Network estimates that $9 billion will be committed to impact investments, a 12.5-percent increase from the $8 billion committed in 2012. Unfortunately, most of that money will never attract mainstream capital. As followers; we must change that.
The time has arrived when we must invest this money into opportunities that offer compelling financial returns and demonstrate the scale needed to impact climate change. We need investments that are part of the building blocks of driving a new industry. In fact, we can’t afford to waste our time or money on investments that do not drive a new industry. This is not about a short-term buck but rather a long-term fix.
So we must identify and invest in the businesses that can unlock the $10 trillion necessary to solve climate change. This is a big number; this book will show you how we can get there. The key is making sure we have the discipline to never compromise financial returns for societal returns—at least not in the impact investment space.
This book is about how a small group of people can lead a revolution from the “feel-good,” socially responsible investment that is attracting $9 billion in 2013 to impact investments that build solid businesses in perpetuity—ones that become the lion’s share of investor portfolios. Why? Simple: the financial returns are compelling, and the social and environmental impact are awe-inspiring.
As noted, I know this from personal experience. Much of my story and the story of the company I founded, SunEdison, are in this book. This is not a biography or history; rather, it is a testament to what can be done and an attempt to make clear the path to change. The opportunities are real. We have more to do in solar and much more to do in industries like shipping, building efficiency, industrial efficiency, heavy trucks, agriculture, and others we discuss later in the book.
The solutions, the technology, and the demand exist. What is needed is a well-oiled machine devoid of the persistent friction that clogs the capital flow to impact investments. We can’t wait for the Wall Street establishment; they lost the willpower to solve real problems long ago. We need a bastion of motivated entrepreneurs and investors to step up and execute. There is good to be done and a huge amount of wealth to be created if it is done correctly.
Our new wave of smart impact investing yields consistent returns—ones that make professional investors consider them on equal footing with other parts of their profit-generating portfolio. In order to meet basic fundamental investment criteria, each must simultaneously achieve the following goals:
- Solve pressing problems for consumers
- Yield impressive risk-adjusted returns for investors
- Generate both development and economic growth; politicians do not want to choose!
- Create local capacity that is independently sustainable and does not require the continual interjection of outside foreign firms to fix problems
We have at our disposal right now the power, knowledge, know-how, technology, resources, and proven solutions to change and improve our world. There are achievable strategies in this book with returns and benefits that are substantial—and sustainable. They create climate wealth.
After selling SunEdison, I started investing my own capital in impact investments. I have attracted investors into solar photovoltaic, solar thermal, hydroponics, gasified biomass, and other areas. Why? Each investment delivers compelling financial returns, creates jobs, and solves a pressing local problem today—and tomorrow.
In the pages ahead, I will share more of my story, including some of the lessons other motivated entrepreneurs and I have learned, and I will point to the real opportunities that exist to make these lessons tangible and real.
I do understand it is hard to comprehend things on a trillion-dollar scale because few can conceptualize that kind of money. All of us have trouble imagining solutions of that magnitude. Believe me, though, they are out there. The opportunities are exciting, and the timing is right. We need to begin to really have an impact and seize what lies before us. It will benefit the people and the planet, and it will drive enormous profit: impactful profit and the creation of climate wealth.
It does start with one person and then another—then another. Take it from me: just one small voice that joined with other small voices to engage a small group of committed citizens who, in turn, created (and changed) a $100-billion industry.
One more thought…
“Le mieux est l’ennemi du bien.” (“The perfect is the enemy of the good.”)
Before you read this book, please note that it is not about perfection; it is about deployment.
While many philosophize about the perfect solution or technology for clean energy solutions and climate change, this book focuses on the practical deployment of the best technologies that exist—technologies we have been piloting for over 15 years. The views expressed in this book are solely my own and are not intended to be the views of SunEdison, The Carbon War Room, or any other person or entity.
So, for example, while manufacturing solar panels may create carbon emissions, the energy returned on energy invested from solar far exceeds the same measurement from unconventional oil. The bottom line is that it is worth it.
If we waited for the perfect technology, we would not have a chance to solve the business model and finance model challenges. Simply put, we would run out of time.
And, we have seen that when we wait for perfection, it works against us. A case in point is waste to energy. While using waste as a fuel source can create energy, it also creates toxins in the environment. So, we make no real decision on waste to energy while garbage that could be recycled and repurposed overflows in landfills, creating a more everlasting environmental problem.
So while time is not on our side, this book is optimistic about the value in deploying now to accelerate progress. Transformational improvements in the sectors that are ready for it beats sitting idle.
And as we make progress day by day, Voltaire would say, “Très bien” (“Very good”).
Section I: Hypothesis, My Story, and How the World Works
CHAPTER ONE: My Hypothesis
“I’d put my money on the sun and solar power…I hope we don’t have to wait until oil and gas run out until we tackle that.”
By the time I graduated from high school, I was convinced that the whole world would one day be powered by solar and nuclear energy. I’m not sure why I felt so strongly about it. It was intuition or gut instinct— a feeling I couldn’t have justified at the time.
That unshakable belief can be traced back to when I was sixteen, growing up in Sterling, Illinois, a small, whistle-stop, rural town where my father practiced medicine. He was a general practitioner, a rapidly forgotten medical practice on the American landscape.
My dad gave me a short, twenty-page picture book about energy that he bought from a college student selling the books door to door. I was not interested at the time and so the book must have gathered dust for a few years on a shelf in the living room until I was sixteen. I have no idea what prompted me to pull the book off the shelf and rapidly leaf through it. But I’ll always remember how its contents fired my imagination, igniting a passion that has never been extinguished to this day. That book changed my life and became the foundation for my career.
Initially, the pictures captured my attention more than the flimsy text. Each of the book’s six chapters—each one had two facing pages—were about the principal energy sources: coal, natural gas, nuclear, hydro, wind, and solar.
After reading the short book several times, I kept on returning to the sections on nuclear and solar particularly. I didn’t know anything about energy, but I thought solar was pretty damn cool. I thought that sparsely populated areas such as Sterling should be solar powered cities, because they were so dense, ought to be powered by nuclear energy.
I assumed that because each chapter in the book had two pages, all energies were equal. I didn’t know that coal, natural gas, and nuclear dominated our world, and wind and solar were irrelevant back then.
From that moment on, I was determined to learn everything I could about solar power. I was also interested in nuclear energy, but it was my hypothesis that solar would someday power the world that I wanted to prove—until someone debunked it. No one could.
My teachers knew little more than I did about solar energy. My search began. Keep in mind there was no way to Google information then. The Internet was not widely available. I was fueled instead by imagination and an occasional Popular Science article.
Everyone I talked with said he or she had a positive gut feeling about solar and nuclear energy. The general consensus was that these power sources had enormous possibilities and were destined for big things.
I remember my high school math teacher cornering me and saying, “You are right, Jigar, solar is pretty interesting. Good boy. Keep working on it.”
I don’t think she cared all that much about it, but she was polite enough not to discourage me and kill my dream.
Nine years later, in 1999, my early hypothesis about solar was confirmed when I landed my first serious solar job with BP Solar. But my feelings about nuclear’s economic realities had changed. The cost of harnessing nuclear power on a large scale in every country except China was actually increasing. And nuclear power stations’ cooling towers require more water than most coal plants do. The only alternative to the water usage associated with nuclear energy is more expensive dry cooling. And nuclear-waste issues have yet to be resolved.
I never shelved my belief in the power and impact of nuclear power. I am still pro-nuclear but just cannot see how large multibillion-dollar projects make financial sense. It could make sense for smaller projects. Small modular reactors, or SMRs, are being used throughout the world, pioneered by the US military, because they’re a cost-efficient and flexible way to power ships at sea. The terrestrial version would be mass-manufactured and brought to a site ready to install, saving an enormous amount of time, labor, and cost by avoiding on-site construction.
Belief in Solar Reinforced
Meanwhile, the more I learned, the more my belief in solar was repeatedly reinforced. Even cynics and skeptics admitted that although they didn’t understand solar power, they said it would be nice to figure out—a conclusion at which I had already arrived. But the confirmation, if nothing else, was inspiring.
Searching for a college in which to study solar energy wasn’t easy. It was hardly a popular major. Many people suggested that I get an engineering degree. Looking back, it made sense. Engineering was really valuable even if it wasn’t my first passion.
I decided to attend the University of Illinois, Urbana-Champaign, at the suggestion of one of its researchers, Ty A. Newell, who had written extensively about solar ponds. Even though I didn’t have the personality of an engineer and knew even then that I wanted to be an entrepreneur, he persuaded me to study mechanical engineering, allowing me to design my own major because there were so many electives. That translated into a perfect opportunity to study solar and gather information to support my hypothesis.
Fueling My Entrepreneurial Passion
Even as a kid, I knew I wanted to be an entrepreneur. I can thank my family for teaching me entrepreneurial basics—the importance of being self-reliant and thinking for myself. These principles were ingrained in me as far back as I could remember. I grew up in a family of overachievers, doers in the best sense of the word. They taught me that there are certain things we can change and other things that are out of our control. I still remember every word of Reinhold Niebuhr’s Serenity Prayer, which was framed on my mother ’s night table:
God, grant me the serenity to accept the things I cannot change,
courage to change the things I can,
and wisdom to know the difference.
More than an eloquent and beautifully written poem, it was a philosophy of life for my family. To this day, its prophetic verse still guides me. It’s also one of the indestructible bulwarks for being a successful entrepreneur. It motivated me to excel, to be as good as I can possibly be. I’ve never been a complainer. If something is wrong, I try to fix it rather than throw in the towel and move on. With that steadfast, focused mindset, I embraced solar with an unstoppable passion, fueled by boundless energy.
I worked a string of part-time jobs because I thought being self-sufficient would be a good thing. I chose a job that would let me find time to study solar. One job in particular—working nights in a dormitory—stands out because it gave me the opportunity to take advantage of the university’s computer lab, which boasted cutting-edge technology for its day. It housed the country’s first popular graphical Internet browser, Mosaic, which was developed by a team including Marc Andreessen, who went on to co-found Netscape.
At the time, the Internet was commercialized at the university level. With an empty computer lab to myself, I couldn’t have asked for a more idyllic research environment. The North Carolina Solar Center had hundreds of files on a file transfer protocol (FTP) site. I downloaded every file I could find on solar, about one hundred, mostly about passive solar. I printed them on a dot-matrix printer and stored them in two fat binders, each with five hundred pages.
Because solar energy wasn’t taught at universities, I was among a handful of people around the world who was seriously researching it. In the early to mid-1990s, solar was a hobby, and the people who studied it shared their files on FTP servers.
By the time I graduated, I was more convinced than ever that my hypothesis was bulletproof. There was no question in my mind that it was only a matter of time before the world would be powered by solar. I was hell-bent on getting a job in the industry.
Not that the other energy sources weren’t valid. Wind power, for one, never excited me because it was large-scale, not necessarily local. Also, sometimes the wind blows; sometimes it doesn’t. But the sun is everywhere. It’s unfailingly—even mystically—predictable. I understood why it was the basis for the Hindu Gayatri mantra:
Oh God, Thou art the Giver of Life, Remover of pain and sorrow,
The Bestower of happiness, Oh! Creator of the Universe,
May we receive thy supreme sin-destroying light, May Thou guide our intellect in the right direction.
I learned a great deal about solar at the University of Illinois, but it didn’t mean that much because solar jobs were hard to find. I wasn’t greeted with a beckoning job market desperate to test my knowledge, enthusiasm, and passion. I scoured the country to find companies that were even remotely connected to this nascent industry. The few companies out there were hardly more than startup operations struggling to survive.
I finally landed a job at a startup company in Vermont that made wind turbines. I drove cross-country in my Toyota pickup to take a job paying $30,000 a year.
It turned out to be a classic, if not clichéd, entrepreneurial experience. The company was already teetering on the brink of bankruptcy when I arrived. As for my salary, I saw only $6,000 of the promised $30,000.
I wasn’t cheated or duped. The company’s founder had every intention of paying me, and the rest of his staff as well. But promised funding never materialized. Prospective customers backed out at the last minute. When my boss couldn’t meet his payroll, the full-time staff stopped coming to work. And for good reason. They had wives, children, and mortgages. If I had been in their place, I would have done the same thing, but I was twenty-two, and I had only myself to support.
Life has a strange and wonderful way of working itself out. At the time, the ideals of the Serenity Prayer came back to me: living one day at a time, enjoying one moment at a time, and accepting hardships as the pathway to peace.
In When It Hits the Fan, Gerald C. Meyers (former chair of American Motors) said that heroes are often born in a crisis.
I certainly didn’t see myself as a hero, but I sensed that hardship often creates opportunities. And this was a learning experience not to be passed up.
I took a part-time job at a nearby grocery store to cover my living expenses and kept coming to work every day. It was just my boss and me.
I quickly learned to be a jack-of-all-trades and master of none of them. I was a janitor, business-plan writer, and accountant. When I left a year later, I had learned a lot about startup companies, especially what happens when there isn’t any money coming in. What I did see at the wind company definitely informed my thoughts for the later idea that became SunEdison. In case after case, when we worked on the deals with prospective clients who were mostly farmers, they balked when they came to understand what the upfront cost would be. They were interested in having the energy but did not want to part with the $80,000 to $100,000 the installation would cost. Return on investment (ROI) did not matter. And they really did not want to be in the energy business. A different model was needed that would cover the cost of the equipment over time.
I moved to Washington, DC, to take a job with a consulting company whose only client was the US Department of Energy. Actually, I was a Beltway bandit, a slang term for a temp worker who did whatever he or she was told. I took on a variety of projects, such as writing reports and studies about alternative energies and putting together PowerPoint presentations. It was also a valuable experience because I learned what makes our capital tick, how the power politics game is played, and, most importantly, how not to get things done.
During this period, I enrolled at the University of Maryland in College Park to get my MBA. I had figured out that I did not want to be an engineer, and most of what is really involved in business was foreign to me due to the highly technical nature of the engineering program. If I was going to be marketable in the business community, I needed a business background. I did not approach the MBA with SunEdison in mind; the business plan was born in a course. It was yet another valuable opportunity to flesh out my hypothesis about solar energy and write the business plan for SunEdison, which was an assignment for an entrepreneurship class I took. I got an A for the business plan, further confirmation that all my assertions about solar were on the money.
But I temporarily shelved the idea of launching SunEdison to take a job with BP Solar as a business analyst in its mergers-and-acquisitions department—a smart move that turned out to be a hugely valuable experience. Having written the business plan for SunEdison, I found BP a great place to test my ideas. It was an amazing experience because many smart people mentored me. It was also an indescribable ego-booster for me as such a young person. I realized the impact and value of working for the world’s third-largest energy company. Suddenly, people treated me differently. Prior to joining BP, no one wanted to talk to me when I called to pitch an idea. That changed when I joined BP. As soon as I said I worked there, I had people’s undivided attention.
Not only did my stint with BP do wonders for my confidence, but it also taught me the value of brand and the clout of a high-powered business card. BP also encouraged me to pitch my business plan for SunEdison. BP turned it down but said it had merit. I didn’t give up on the idea; I just put it on hold until I could get more traction behind it. One of my professors, who was a venture capitalist, said, “Jigar, you’ve got a great business plan, but right now,” which was the height of the dot-com boom, “nobody wants to mess with infrastructure.”
So I put it on hold until the timing was right, which was September 2003, when I left BP to launch SunEdison. The rest, as they say, is history.