Where's the Consumer Energy Disruption in Silicon Valley?
What Is behind the Consumer Energy Disruption
Solar energy was once deemed as an expensive investment for many investors. Today, things are changing fast in the consumer-energy sector because of cost-curves coming down on solar and storage and legislative, regulatory, and societal pressures to increase sustainability. And we're now economically competitive with traditional energy sources. Americans are investing in, inventing, building, and benefiting from a growing clean energy market that's driven by economics, which is something I have spoken about frequently.
For example, the investments being made in clean energy projects can save an estimated $900 billion. California has seen the number of solar installations grew from 500 to 500,000 over the past decade. Clean energy has had a rippling effect on the economy. So, why is Silicon Valley interested in consumer energy but still unable to disrupt how you and I generate, store, buy, sell, and use energy?
As a popular technology and business startup community, Silicon Valley is invested in many promising businesses. Located in San Francisco Bay, they're at the center of intellectual development. There has been some interest in consumer energy in Silicon Valley, but the area has been able to do very little to disrupt the network.
If we take an example from hybrid vehicles, Tesla is leading the intellectual way in electric cars and making major contributions to new consumer energy. But they're also disrupting the energy network by standing as the leaders in clean air vehicles. Their efforts have transformed the electric vehicle market overall. The number of models available in the U.S. and worldwide is surging, per BloombergNEF.
In North America, 104 electric offerings will be on sale by the fourth quarter of 2020, up from 79 in Q4 of 2019. New models available in the U.S. will include the Tesla Model Y, the Ford Mustang Mach-E, the Rivian R1T, and the VW I.D. Crozz. In the EU, the number will jump by 165 by the end of the next year, compared to 119 in Q4 2019. China will see a bump, too, per BloombergNEF's projection that includes full electrics and plug-in hybrids. However, Silicon Valley has been reluctant to invest in hype-driven consumer energy.
What Does Disruption Really Mean to Silicon Valley?
Ironically, many entrepreneurs in Silicon Valley love to talk disruption with very little understanding of what it means. To those in the valley, it's easy to mistake better products as disruptive. In Silicon Valley, the goal has been to always create better, cheaper, and faster products, but ones that aren't disruptive. Many venture capitalists believe that building better products is also a form of disruption.
To clarify, a disruptive product addresses a market that previously couldn't be served — that's known as a new market disruption or a low-end disruption. Venture capitalists often believe it's nearly impossible to respond to a disruption product, service, or good. In a new market disruption, VCs believe serving them would be unprofitable given the incumbent's business model.
For example, Google's search algorithm wasn't disruptive — AdWords, the advertising service, was. In contrast with Yahoo, which required advertisers to spend at least $5,000 to create a compelling banner ad and $10,000 for a minimum ad purchase, Google offered a self-service ad product for as little as $1. The initial AdWords customers were startups that couldn't afford to advertise on Yahoo. This was a classic new-market disruption.
As for a low-end disruption, the customers that incumbents lose are typically unprofitable for the incumbents. Big companies are happy to lose them, which is why Silicon Valley hasn't been able to disrupt the consumer energy network. In fact, even entrepreneurs following the same playbook as millennial-focused consumer startups like Lemonade and Robinhood have been able to create a disruption. Learn more by reading more details below.
Lemonade Insurance Disruption
Lemonade has been considered a next-gen disruptor in their field. In fact, as an insurance startup, they're on the list of the Next Billion Dollar Startups List. Moreover, they're one of the most unique brands to make this list. With a valuation of $2 billion, here's how they have been able to disrupt the insurance industry: artificial intelligence (AI). Lemonade has been able to integrate AI into their behind the scenes processes, including regulation, feature development, and production. Lemonade is transforming the insurance industry, but, according to recent reports, Lemonade refuses to use the same disruption to break into and invest in the coal industry. Lemonade believes that insurance companies shouldn't fund the very harms they're meant to protect against. They refuse to invest premiums in businesses that allegedly increase catastrophes, but they have done a great job disrupting insurance.
Robinhood Investment Disruption
More than likely, investment services like Robinhood have been unable to disrupt the consumer energy network because they're only willing to offer fractional stock trades, which is opening the door for younger investors. Robinhood offers fractional stock trades in the same league as giants like Amazon or Google parent Alphabet. Their goal is to lower the barrier for entry.
Unfortunately, they have been left with trying to keep up with the pace of innovation. According to Bill Capuzzi, CEO of Apex Clearing, "Over the past year, there has been an increase in adoption and demand among investors seeking exposure to higher-priced names at lower price points, who were previously shut out die to full share or round lot requirements." Robinhood has been able to bring new people into the investment trade. They've also been able to offer their customers a slick trade design and an appealing price tag. Others have not been able to follow the Robinhood model because they haven't been able to offer free trading without a catch.
What Silicon Valley Gurus Are Saying about Future Disruption
On the other side of the spectrum, Robert Gordon believes the revolution is almost over. He believes that the revolution from 1870 to 1970 can not be repeated, which makes it impossible for Silicon Valley to disrupt the energy sector. Kevin and Gordon don't have opposite opinions about the future. Instead, they differ on the uncertainty of the future for consumer energy. Gordon has difficulty believing how computers can continue to change our lives. Kelly's life, on the other hand, has been so transformed by computers, he can't imagine how anyone can't see their continued value even in consumer energy. Which side do you lean toward? Be sure to let me know if you think the greatest revolution is still coming.
To a few, "It's hard to believe the IT revolution will be a thousand times more disruptive than the industrial revolution." But it's normal to believe that any problem can be solved and any industry can be disrupted — or at greatly improved — if we just bring enough compounding power.
Silicon Valley grew rich and powerful by building the internet economy. It's full of technology optimists. They're changing the world with software, but they are greatly underestimated at doing so. To date, the internet has mostly disrupted businesses that deal with information. This makes it hard for investors down in Silicon Valley to believe that there can be a disruption in consumer energy with technology and software.
Where Is the Disruption in Consumer Energy Coming From?
According to the experts, "There is a major disruption taking place in the retail industry market." Businesses and consumers are harnessing emerging technologies to transform a retail energy model that has not changed in a century. Retail energy is moving from its traditional centralized model of dependency to something better. Retail energy customers become prosumers when they generate their own power through resources, such as the popular use of solar panels that can also be used to power their electric vehicles. Many investors think a customer-centric energy ecosystem is emerging.
In the United States, a smart grid initiative funded by the Department of Energy has committed $4.5 billion in new infrastructure, including a lot invested in smart meter allocation. The trend is rapidly going global. That's creating even more disruption in consumer energy.
Smart grids manage a variety of energy sources, including smart meters, smart appliances, renewable energy resources, and energy-efficient resources. Emerging consumer technologies are giving rise to the producing consumer, or prosumer. So, retail energy is creating a major disruption in the consumer energy network, even if Silicon Valley is not able to duplicate this kind of disruption.
So, What's Next?
Silicon Valley could do itself a lot of good by incorporating software into the consumer energy revolution. In fact, I think software is going to continue to be a major disruptor in energy markets. However, consumer energy continues to be limited in the valley. They can take an example from their neighbors at Google by investing in technology that reduces the total amount of energy consumption. It's hard to say how VCs will look at investing in consumer energy, but, for now, they haven't exactly been able to disrupt the network.
Incumbents and VCs should keep their eyes on the consumer energy market to see where the disruption will happen in the future. With the use of technology and software, there is indeed a major disruption that can take place in the consumer energy network.