At the peak of the technology bubble in March of 2000, spending on Internet infrastructure had exploded, Cisco Systems had a market cap of $578 billion, and venture capitalists were pumping millions into anything that ended in “.com.” Over the next three years, 655 telecom companies would go bankrupt, and $5 trillion in market cap would vanish from stock exchanges.
A disaster, right? It felt like one at the time. Raising money for an Internet startup became nearly impossible on Silicon Valley’s Sand Hill Road. Yet all that investment in the infrastructure of the Internet—the switches, the routers, and the fiber optic cable—drastically reduced the costs of bandwidth and made possible the applications layer, the things we love about the Internet—Twitter, streaming movies, cloud computing. Today we use information technology to do things we didn’t imagine circa 2000, like buying shoes without trying them on first. All this was accomplished with software and clever ideas for better using the available infrastructure.
We see in this story important analogies with clean energy. Advanced biofuels, electric cars, and solar power are living through their own boom and bust times. The cost of solar panels has fallen from over $4.00 per watt to less than $1.00 in just four years. That’s bad for solar investors, and panel makers are struggling to survive. Some have gone out of business. But at the same time, infrastructure is being built. Spending on solar, wind, and other forms of renewable energy has exploded, reaching $250 billion per year.
Raising venture capital for capital-intensive clean tech, especially for early-stage companies involved in new types of energy production, has become increasingly difficult. That has investors like us thinking about new ways to apply our dollars to the energy problem. We believe the next opportunity is what we call the “cleanweb”—a form of clean tech that takes advantage of the Internet, social media, and mobile communications to alter how we consume resources, relate to the world, interact with each other, and pursue economic growth.
We think that IT and fast-growing Web business models can expand the use of renewable energy. These days the challenges that industries like solar, wind, and biofuels face are often not about fundamental science. Many of the big breakthroughs have already taken place, and in some circumstances, electricity from wind and solar is already cheaper than electricity from fossil fuels. What hampers these industries now is poor sales channels, complex financing and incentives, and a failure to communicate with consumers.
That makes them ripe for disruption by the application of information technologies, which will drive the next phase of cost reduction and implementation, especially for solar. The price of a rooftop solar installation has dropped by half in the last few years, but the reductions in panel prices can’t continue. Now more than half the price of a home solar array is made up of soft costs like site evaluation, customer acquisition, and financing. On average, solar companies spend $2,500 to acquire each new customer. Imagine the frustration when after sending a truck out to a home, an installer discovers that a tree shading the roof makes the project uneconomical or that the customer doesn’t qualify for financing. That’s a significant waste of time and money.
Better information can reduce these inefficiencies. OneRoof Energy, for example, a solar company we’ve invested in, uses satellite imagery to remotely work up a customer’s project, determining its cost and viability long before a truck ever rolls out to the house. Another company we’re backing, Solar Mosaic, is raising money for solar installations via online crowdsourced loans. We estimate that IT-driven solutions alone can reduce solar costs by another 75 percent; if so, solar could become decisively cheaper than electricity from coal. Eventually it could account for 15 to 20 percent of U.S. electricity needs.