Originally posted on pv magazine USA.  In this #Solar100 Interview, Richard Matsui, Founder & CEO of kWh Analytics, speaks with Nat Kreamer, CEO of Advanced Energy Economy.

Nat Kreamer served in the Afghan War with special forces in the U.S. Navy, helped found what is now the largest residential solar company in the United States, held the position of board chair at Solar Energy Industries Association (SEIA), and was recognized by President Obama as a “Champion of Change” for his work as a veteran in clean energy.

Now he’s bringing these experiences to his role as CEO of Advanced Energy Economy (AEE), where he leverages policy advocacy and inter-industry collaboration to advance clean energy. AEE is Kreamer’s Avengers Initiative in the fight against climate change: different strengths combining forces for the sake of a shared future.

In this interview, Kreamer talks about how the war in Afghanistan impacted his work in clean energy, advice for new clean energy entrepreneurs, and the importance of embedding sustainability into ‘want’ products. Nominated by fellow leader Christian Roselund, Kreamer is Clean Energy’s Captain America and this month’s featured #Solar100 leader.

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On entrepreneurship, renewables, and war

Richard Matsui: How did you get into renewable energy?

Nat Kreamer: When I was flying back from serving in Afghanistan, I remember looking at the smog over Baltimore, not far from where I grew up, and thinking to myself, “This is crazy. If we had spent that money—half a trillion dollars at that point, and more since—on building a clean energy economy, we probably wouldn’t be fighting a war in the Middle East.” There’s nothing like a war to give you religion about making a change. It became increasingly clear to me that we couldn’t continue with status quo energy. Fossil energy is not sustainable from national security, economic, nor environmental perspective. Advanced energy entrepreneurial business number one was Sunrun, which was my entry into solar. When I came out to California in January 2007, the state’s solar industry was in its infancy, and I had the idea for creating a distributed renewable energy power company. That’s why SunRun was originally called “Sun Run Generation.” We financed solar systems on people’s roofs and sold them power. I would call up local solar installation companies and give them a power purchase agreement to sell to their customers. At that time, Sunrun was running on my money, and then later it became the personal money of Ed Fenster and then Lynn Jurich as well. That’s how Sunrun got started. Now it’s the largest provider of solar power to residential customers in the United States. After SunRun, I built a climate trading business for Virtu Financial, making markets in Europe and the United States, effectively creating another cash flow stream for the development of renewable energy and de-carbonization. I then ran a solar installation company and then built Clean Power Finance, which later became Spruce Finance, one of the largest solar electricity companies for homeowners and biggest financiers of home energy efficiency. I also served as Chairman of Solar Energy Industries Association (SEIA).

I had built four companies in a decade and I was beat. So I took time off.

During my year off, I thought to myself: What we need now is a system-wide solutions approach to creating an advanced energy economy. Getting to 100% secure, affordable, and clean energy requires an entire ecosystem of technologies and businesses. It can’t just be about solar; it’s going to be about solar, wind, efficiency, storage, grid technology, and electric vehicles. All those things have to work together, so for that to happen, we have to advance the policy interests for the entire ecosystem, not just one of its parts. Advanced Energy Economy does that. In many places, solar and wind are now the lowest cost form of energy. We’re disabling incumbents, so we’re in a position where we have to take responsibility and provide an entire ecosystem to replace the legacy energy system that has supported our industrial economy to date.

Richard Matsui: That reminds me of a conversation I once had with someone working at Tesla. The person described an awkward situation that occurred after the SolarCity acquisition when they realized there were SolarCity policy people fighting for net metering to support the solar business, while Tesla policy people were fighting against net metering for the storage business.

Nat Kreamer: That’s a great example. I have long been a believer in net metering—it’s not the problem. The fight over net metering is a symptom of the core problem, which is broken utility business model. I taught a class on changing the utility business at Northwestern for five years and have invested in the public market to make it happen. A better business model for the utility is one of a networked grid operator, which will become more valuable the more DG solar and storage are connected on it. Being a network and a monopoly are fantastic strategic positions to create a tremendous amount of equity value. Here in California, effectively all the investor-owned utilities have that business model. So does Hawaiian Electric. Embracing the networked grid operating model and aggressively getting off oil to become 100% clean has been good for HECO’s stock—it’s up 24% in the last year.

 

AEE and building comprehensive solutions

Richard Matsui: When I think about SEIA, I think “Solar at the national level”, and when I think of Vote Solar, I think “Solar at the state level.” Is there a shorthand of how to think about AEE?

Nat Kreamer: We represent the policy interests of an entire ecosystem of companies and technologies that are providing clean, secure, and affordable energy, as well as solutions for companies that use that energy. We represent the entire electric transportation sector. We take action at the state and federal levels, with a special focus on FERC (Federal Energy Regulatory Commission) and the rules that govern wholesale markets. We work predominantly with decision makers at the state level to have them consider the entire economy being run on advanced energy and electrified transportation. That’s governors, the public utilities commission, and the leaderships of legislatures. Some organizations talk about how there should be an entire economy-wide solution to going 100% clean power and electrifying transportation, but they don’t actually advocate for policy legislation and regulation that will make the ideas real. AEE does. For example, when we work with governors to develop energy plans, we consider solar, storage, efficiency, demand response, smart grid, electrified transportation, charging, cars — all of it. The head of one association said to me, “I’m always some technology type plus me,” and I said, “When you think of AEE keep adding the pluses because we represent the comprehensive solution.” This industry is large enough that it is no longer an insurgent; we need to bring policy makers holistic solutions, so that we aren’t rejected as a single special interest.

Richard Matsui: Your point about the pluses resonates. People don’t necessarily think about the pluses.

Nat Kreamer: Any one segment of technology or type of business will be more successful if you’re able to expand the market faster by bringing along other technologies. A great example is solar and grid technology. If you’re able to use grid technology to better manage a circuit, then you’re able to get more solar built.

Richard Matsui: Dollars are tight in solar, and even getting enough money to Vote Solar or SEIA can be challenging. If you are working on a policy agenda focused on the “pluses,” it seems that almost by definition, you’re working on problems that are otherwise falling through the cracks. Funding has traditionally not been available to tackle these hairy policy and technical problems. Is that a fair way to think about why we haven’t seen this approach before?

Nat Kreamer: I think there are two basic elements: The first is that each individual technology is relatively nascent and therefore it is relatively nascent in policy advocacy. Solar and wind got to be the biggest fastest, with very sophisticated organizations representing their interests, predominantly at the federal level. Energy policy in the United States happened in a big way on a single issue at the federal level (i.e. the investment tax credit), but when you look at integrated energy systems, energy policy mostly is governed at the state level. It has been a harder business challenge for advocacy organizations to take on multiple states at once, and look at the entire energy system, which is what AEE does.

The second element is creating a funding model for advocacy. You have to bring in a number of companies, so that you can invest in a way that a single one of those companies may not be able to afford. There is work that needs to happen 2-5 years ahead of transforming the market, but most clean energy companies are growing fast and cash-strapped so they can’t invest in that work. We work with and receive funding from both foundations and member companies. We do the foundational work of education upstream so that we can do advocacy with member dollars as it gets closer to the time to actually make the legislative or policy changes.

 

Advice for new cleantech entrepreneurs: build a ‘want’ product

Richard Matsui: Alright, so I’m going to take us back to when I had pitched you back in 2012.

Nat Kreamer: Yeah, I was thinking back to when we first time met, and it was at that startup speed dating event at the Department of Energy conference in Boulder.

Richard Matsui: Exactly. I would like to ask you to put those shoes back on and think back to the early days of building companies. What lessons would you impart on other startup founders who are looking to build businesses in clean energy?

Nat Kreamer: Good question. I think the most successful companies are the ones that are able to embed sustainability into ‘want’ products. A ‘want’ product is one the customer will pay a premium for because they want it; the classic want product is cosmetics. A ‘want’ product has benefits in excess to the financial utility that will allow you to earn a premium. Nest is a great success because they have built sustainability into a ‘want’ product. It built efficiency in. It’s a cool device, it looks great, it’s cost-effective, and you don’t have to do anything to it to make it work. People are willing to pay a very high premium for a Nest relative to other clean technologies.

Tesla’s electric cars are another want product. When you can have fantastic acceleration, electric motors on every wheel creating 4-wheel drive, and a low center of gravity, you get a performance vehicle that’s a ‘want’ product. Revenue from EVs is up 75% in the U.S. in the last year, according to AEE’s 2019 Market Report. From economic perspective, we are fast approaching the moment when the first-cost for an EV is the same as gasoline vehicle. Because EV are much cheaper to power and fix, their sales are going to skyrocket. Gasoline is going to get crushed just like coal did.

Another example is building efficiency is up 10% this past year, and it’s now a $83 billion market in the U.S., but no one markets on efficiency, they market on better lighting and controls so your house looks better, which really means that you’ll look better. It’s the same buying motivation as cosmetics.

Find a product that people want to have, think about how clean, affordable energy gets used by it or created by it and you will get product pull-through. Transportation was the fastest growing segment in the advanced energy economy last year, with building efficiency the biggest, and still growing. And it’s different than solar, which is a ‘need’ product. With solar you say, “Let me talk to you about the energy bill.” Most consumers don’t know anything about their energy bill, but they know a lot about their car and they know a lot about how they want their house to feel and look. When you sell them something they want that has advanced energy attributes, then you can make a very, very big difference.

Richard Matsui: That’s a great insight. So you’d be uniquely positioned to answer the question: Can rooftop solar be made into a ‘want’ product? Perhaps in combination with storage? Or is it intrinsically an uphill battle?

Nat Kreamer: I think the residential solar company’s best opportunity is to become a solutions provider of multiple technologies into the home, where some of them are ‘want’ products. If they can make this metamorphosis successfully they may pull-through rooftop solar on the basis of those ‘want’ products. ‘Want’ products have lower selling expenses and every residential solar company needs to find a cheaper way to get customers.

Richard Matsui: When you think back to 2012, is there something you would do differently with CPF?

Nat Kreamer: With CPF, I think we were the first of what people would call now a private YieldCo; in fact we predated the public YieldCo business model.

We were solving the problem of expanding access to financing at the most effective level across the solar industry, and later home efficiency. It’s easy in an industry dominated with engineering and finance to forget how important simplicity is for sales. I think that’s an important lesson I learned. The want product concept didn’t occur to us at the time because we were so focused on solar. That said, if I’m thinking about where we could have inserted financing in a want product, I think we could have looked at the electrification of transportation as opposed to efficiency.

Richard Matsui: Hindsight is 20/20. You can write that report now because the hardware cost has come down quite a bit. It probably looked a little different then.

Nat Kreamer: Exactly. I think we’re going to see hockey-stick growth with electric vehicles. If you look at average gasoline prices in the U.S. versus the average power prices and then look at the current generation of vehicle miles driven for the passenger car versus an EV-4 version (which is the technology out there today) we can run the car on electricity for 78% less than gasoline. That’s huge, and it isn’t just cars. When people go on a boat, they don’t want to hear an engine. They’re out in nature for freedom and quiet. There are companies in Europe now building electric outboard motors. The electric motor is way more expensive than a gasoline powered one, but if you look at cost per hour to run, which is the important maritime metric, which includes CAPEX, maintenance, and fuel, those electric motors, which are being built in very small quantities as outboards so they have no scale benefits yet, are running at $2 per hour versus $60 per hour for a conventional Mercury or Yamaha gasoline-powered outboard motor. Within five years, every fishing boat you see should have an electric outboard that’s silent. Electric outboards are another example of a ‘want’ product where the efficiency, cleanliness, and the cost savings are built in.

People need to realize that the industrial ecosystem that is advancing clean, secure, affordable energy is $1.6 trillion globally per year. That’s bigger than pharmaceuticals, double airlines, and in the U.S. it’s growing four times faster than the rest of the economy. Advanced energy is growing the fastest where it is built into a ‘want’ product, and that’s something for your home, your office, or your vehicle. And we are seeing at the state level policy leaders and politicians recognize that this is a tremendous opportunity for investment, job creation, putting dollars back in the voters’ pockets, and a clean environment. It is becoming a political no-brainer and it’s frequently bipartisan once you get outside of the DC beltway.