Month: July 2017

Investment masterclass Q&A: Nancy Pfund, DBL Partners – Part II

Welcome to Part 2 of our in-depth talk with Nancy Pfund, managing partner at DBL Partners, a venture capital firm specialising in companies and start-ups that offer both rewarding financial returns and positive social impacts. There have been some serious clean tech companies in DBL’s portfolio. As well as being one of the earliest backers to Tesla and SolarCity, to utility-scale solar tracker company NEXTracker to Off-Grid Electric, which deploys solar in rural Africa; to others in energy storage like Advanced Microgrid Solutions and Primus Power.

Following a discussion about the gradual spread of energy storage and related cleantech across the US, from initial progress concentrated in leading regions such as California – From a manufacturing point of view as well I guess because Tesla assembles cars in California and they’re producing batteries out of the Gigafactory in Nevada. I guess it’s another nice social benefit of this technology to foster that manufacturing side of things?

We really care about creating quality jobs here in the US and that was one of our main motivations, for our first investment in Tesla many years ago, is that we thought there’d be an opportunity to revitalise and grow the car manufacturing industry in the US for 21st Century needs. That has turned out to be the case, so with storage in the early days, of course everything came from Asia, that’s where the battery market was thriving and continues to thrive. We will increasingly see domestic production because of the ability to do it in a cost effective way, with all kinds of savings relating to transportation and international regulatory obligations so there are a lot of reasons to build the domestic US battery manufacturing business and it has a huge positive impact in terms of employment and migrating people from the 20th Century energy job profile to a 21st Century one.

There’s going to be so much demand for energy storage between electrification of transport and stationary storage that we’re going to need plants in a lot of different places, which is good news. This is going to be a full employment act for battery manufacturing.

When you first invested in Tesla, you knew there was this aim to turn around transportation but could you see them coming this far, both in transport and in energy storage?

With every investment you make you hope it’s going to be a gamechanger and make great returns but also change the world. We had that belief going in, we knew it was risky and we went through many years, it was a very difficult evolution for the company but of course now it’s legendary. We did believe very firmly from the get-go, not only in the electrification of transportation vision that Tesla had, and we wanted our company to be successful but we also wanted it to change the industry in terms of its social impact. We want Detroit, Germany, Japan and China to make EVs and so that took a little longer than the immediate rise of Tesla but it’s happening in a very emphatic way. So that’s been a huge win but really the combination of solar and storage was part of the original plan! I know people may find that hard to believe but we invested in SolarCity very soon after investing in Tesla, we’d been in the solar market, we knew that storage was going to be important and the companies started working on this many, many, years ago.

So while it looks like this is a new idea, a new vision on the part of Tesla, it really isn’t. It’s been part of the plan from pretty much the beginning of the company.

Once you electrify transportation and people have electric cars and are charging them, then it sets up a huge incentive to green grids, to power your car off solar and put in storage to optimise your energy footprint from the roof to the garage.

We’ve seen a big portion of the success of US solar has been in the Investment Tax Credit (ITC) mechanism, which gives buyers a form of subsidy. Other countries like Germany, the UK and Japan boosted their solar industry with feed-in tariffs (FiTs). There seems less expectation that there will be a subsidy-driven market for energy storage in most territories, but are things like ITCs and FiTs crucial, or just nice to have?

Certainly the ITC has played a critical role in growing the solar industry in the US by creating the ability in the first five to seven years to use tax equity to finance the leases. And it’s brought in billions of dollars of private capital to finance the growth, it’s a huge success story. Now that the industry is bigger and more mature, we’re moving to loans, banks are coming in, there are other ways to finance now but there certainly weren’t in the first years. It’s not a coincidence that the places that do have supportive policies for storage are going to be the early adopters. California has significant storage mandates, there’s the SGIP rebate, Massachusetts is doing similar things, Hawaii has some programmes. So you will see supportive policies driving the industry in those regions.

Now, a lot of people feel it would be great to have something like an ITC for storage and there have been discussions about that. In this political climate it’s very unclear if that would be feasible, but the good news is that it’s not 100% necessary because you’ve got huge states like California with supportive policies that create the model and then as you’re scaling – and this is assisted by the growth of the EV industry that’s driving down battery prices – you’ll get costs in line over the next few years so that they become compelling on their own vis a vis alternative approaches. We do need supportive policies that show the true cost of the peaker plant approach, for example, and it’s becoming widely known that we’re seeing a lot more methane leaks from gas infrastructure than we thought. While it’s been viewed as a bridge [to lower emissions], it’s not as solid a bridge as we thought. As that becomes known and it becomes harder to build and justify more gas peaker infrastructure, it will help storage as well, because the comparison will be more favourable.

For companies like DBL it’s like looking at those innovations from an early stage investor interest but will we see more institutional investors get involved?

Absolutely. We have visitors from all of the big finance firms all the time wanting to know more about these companies and where will they go next. So I think that there’s a huge amount of interest in this and you’ll see this become – I mean, even now the investment firms are writing reports about it and visiting the companies so it’s all going to be good.

You can follow Nancy Pfund on Twitter: @NancyPfundDBL

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Energy storage investment masterclass: Q&A with Nancy Pfund, DBL Partners

Nancy Pfund is managing partner at DBL Partners, a venture capital firm which specialises in investing in companies and start-ups that offer both rewarding financial returns, and positive social impacts. There have been some serious clean tech companies in DBL’s portfolio. As well as being one of the earliest backers to Tesla and SolarCity, to utility-scale solar tracker company NEXTracker to Off-Grid Electric, which deploys solar in rural Africa; to others in energy storage like Advanced Microgrid Solutions and Primus Power, Pfund is extremely well-placed to offer a quick Q&A ‘masterclass’ in energy storage investing.

What were some of your key takeaways from 2016 in energy storage?

It was a seminal year for energy storage. Energy storage really moved from dream to reality. The hard work that lots and lots of companies have been doing for several years to get battery storage into primetime, they flipped the switch and while we don’t have widespread energy storage yet, we definitely took the important first steps toward that reality. I think you see it through the very high profile merger of SolarCity and Tesla, which was a statement about energy storage and its role not only in transportation but most importantly in greening the grid and pursuing consumer personalisation and choice, as well as utility use of storage to avoid the need for peaker plants and such.

Similarly other chemistries that will be important made some very significant moves into pilots and flow batteries, different chemistries, nickel-zinc, zinc bromide. I’m not the person to ask for all the different battery types but we’ve seen uptake on the part of utilities, corporate customers and in certain locales, residential when paired with PV. For all of those reasons we saw 2016 as a huge inflection point for energy storage.

We’ve seen significant growth in the various different use cases for energy storage. It’s not just households with PV, or just utilities doing more to make grids resilient – would you say it’s been an “all of the above” kind of year?

I would but with the underlining emphasis that corporations are becoming significant storage customers. As we see the move towards 100% renewables on the part of massive companies like Apple and Google and Microsoft and Amazon, they are now becoming, as they build that renewable infrastructure for their servers and operations, not surprisingly, some of the earliest storage customers. One of our companies Primus Power that has a zinc bromide flow battery has an installation at Microsoft HQ for example which is very significant in terms of signalling that part of the toolkit for corporations to reduce costs by going renewable and achieve their sustainability goals, a big part of that toolkit is the battery or the storage architecture.

A huge part of DBL’s raison d’etre is positive social impact – if corporations are choosing to do this is that a good marriage of business sense with social benefits?

You don’t have to sacrifice financial return to deliver a positive social result and I think storage epitomises that because you’re seeing significant companies in their early days being built that will bring returns to investors at the same time that you’re addressing a critical need. If we electrify everything – which we’re moving towards doing – we need to do it in a way that uses green resources and the nature of those resources will require storage. So it’s a virtuous circle.

And it’s not just the batteries or the storage architecture, it’s also the integration. There’s some really interesting work being done, like Advanced Microgrid Solutions [is doing] to develop a virtual power plant at a commercial building or office park by integrating storage assets with renewables, with the grid, with software to manage demand and reshape load. Saving the customer money, strengthening the grid reliability by applying locational strategies, putting storage in areas where it’s needed – so helping the utility and the end use customer and the overall grid. So that’s really where we’re heading and using storage both in front of and behind the meter.

Is energy storage in the US still concentrated in leading regions, such as California, where around 100MW was deployed in six months to deal with the shortfall created by the Aliso Canyon gas leak? And have developments in those leading regions sent shockwaves around the rest of the country?

 A lot of energy innovations happen in California first because there’s a history here of good policy and utility and innovative new entrants pushing the envelope – and there’s a consumer will for it. I can tell you that every battery company, every battery integration effort is being affected by what’s going on in California. AMS just announced that they’ve got a Texas utility to do this [take up energy storage]. Hawaii is of course active in PV and storage.

So it’s happening and just as with solar where California is head and tails above others in terms of PV installations, you’re going to see other states catch up and in some ways storage has less of a headwind because you don’t need the elaborate policies that solar needed to get started with. I would signal that Massachusetts has a storage mandate they’re working on and it’s just a process that we’ll see dissemination of across the board. In Hawaii residential PV-plus-storage is cost effective given that they have extremely high utility rates so it’s natural they would look at it there too. The numbers will start to work out in California over the next two to three years, so you’ll see a steady rise in the customer solution architecture for storage as well, as prices come down.

The fact that California is leading, it’s the sixth largest economy in the world – so it’s not like it’s some tiny state that doesn’t have anyone living there. Even today, a huge percentage of US solar is in California, so it’s a terrific place to start. It’s like this is a really good place to hatch the next generation of the clean grid infrastructure.

Part II of this interview will follow later this week.

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