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The Energy Black Swan
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We've heard of a variety of energy innovations, from smarter grids to new generation of biofuels but nothing has converted into a radical form of energy innovation that many are looking forward to as yet. Biofuels have been competitive but they are struggling in scale. Other technologies such as solar have scale but are struggling to draw an economic equaliser with conventional energy technologies. With global economy also slowing down there may be more contractions in R&D investments into energy innovation. But there are investors who continue to believe in both the necessity and the possibility of the next black swan energy innovation; may be a little later but not never! One of them, leading the pack, also sternly believes in the cleantech black swan and continues to invest billions into this bet. Vinod Khosla, one of the founding members of Sun Microsystems is raising yet another $1 billion this year. Khosla is known to bet big on early stage, high risk ventures that he calls are like his numerous shots at the goal to bring forth 'black swan' energy innovations. His belief too doesn't seems to be changing with the economic environment, his search for the 'Black Swan' innovation remains as fervent in 2011 as it did in 2008. His firm Khosla Ventures has built a long list of venture investments in early stage, high risk investments which range across the spectrum of cleantech domain. Given their comprehensive repertoire in hunting the energy innovations, it would be interesting to see then what clues does his long list of investments give away about the winning energy technologies or sub-domains.
To figure that out I decided to analyse their portfolio and shortlist some of the key areas where Khosla ventures may be tipping towards. Many of these innovations would belong to three functional categories- Energy Generation (supply), Energy transmission & directly facilitating generation/deployment (bridge) and energy use or deployment (Consumption).
'Energy Generation' function would as the name suggest, to the function of generating energy. 'Energy transmission/ directly facilitate generation' refers to ventures that serve the purpose of developing technologies that transmit the use of clean energy and those that directly facilitate generation or deployment but could have other uses too like smart grids or batteries. These would be like bridging technologies. 'Use/Deploy' would refer to the ventures that bring innovation to the way we use the energy, for e.g. smart buildings or electric cars.
Therefore based on this categorisation scheme we traces the investments (by number of ventures invested) made by Khosla Ventures. The following distribution resulted.
And we weren't too surprised by the result we saw, most investments- almost half of them- were being made into the technologies that may change the way we consume energy (Deploy/Use category)! Yes the idea of hitting a revolutionary new technology to generate more energy does sounds more revolutionary but that doesn't seems to be the best bet, at least by the pattern that emerges from Khosla Ventures. And there seems to be very little focus on the bridging technologies. Is that a point of concern or not of course requires a separate discussion.
The strong focus on the consumption side actually suggests that the likelihood of a radical change may be more qualitative i.e. what we do with the energy resources available to us under business as usual condition rather than than a quantitative change in our energy eco-system. Quantitative change will be radical increases in the supply of energy.
However we also looked at the sectoral spread too and found three biggest areas that stood out. Number of ventures that received investments in battery technology area was higher than even those in solar energy generation area. Solar was the only clean energy technology that received more focus than any other technology. Alternative hydrocarbon appeared to be the most dominant sector too however this does seems to be a more localized nature of Khosla ventures portfolio. While it may appear surprising that why would batteries hold more promise than solar energy but in the fine print batteries have the potential to also facilitate both generation and deployment. Batteries will by themselves make it easier to use renewable energy given their infirm generation pattern or on the other hand also help deploy electric cars which will more or less depend upon the advances in battery technology to become more viable.
Therefore Khosla ventures' search for a radical energy innovation gives clues that the consumption side of the energy eco-system may change faster and more radically than supply side and two that the not so fancy sectors in the bridging function may hold a lot more promise contrary to the popular perception.
Yash Saxena is a sustainability consultant with Emergent Ventures, a climate change mitigating consultancy. He also works on innovation evangelism with Techpedia
yash (dot) saxena (at) emergent-ventures (dot)com