Electrification is going to EXPLODE

(and Saul Griffith's new book "Electrify")

Electrification is a huge market that is going to explode in the next 5 years.  Here’s why:

• It’s a huge problem that has to be solved: 27% of our national emissions come from just operating our buildings (not including building them in the first place).  Reducing these emissions requires electrifying 100 million single-family homes (SFH), 5.2 million multifamily residential buildings (everything from duplexes to large high rises) that contain 40 million housing units, 5.5 million commercial buildings, and 350,000 industrial buildings.  

• The $369 billion in direct investment to reduce carbon emissions from the Inflation Reduction Act is going to spur disproportionate innovation in the space.  Robinson Meyer at the Atlantic has a great piece on how this money will be a catalyst for far greater investment and innovation.  

• All the technology to electrify buildings currently exists. The problem is that we haven’t figured out how to deploy it at scale and how to finance it.  

• Finally, from a customer’s perspective, it’s a horrific user experience right now.  Information is scarce, modeling tools are nonexistent and any solution involves multiple electrical, HVAC, and plumbing contractors and projects.  

• By the way, we don’t have enough workers in any of those areas, so any solution will create hundreds of thousands of jobs too.  

So we are going to spend the next 4 months going deep into the space from the perspective of investors and entrepreneurs.  Specifically, we want to answer these questions:

1. What are good resources to learn about electrification?

2. How big is the problem? How can it be broken down into buildings and types of buildings? For example, what is the emission footprint of the typical house?   Given the emission footprint of a typical building, are there geographic locations in which to focus?

3. What are the financing options for an individual building?  This includes PACE, HELOCs, IRA funding, and more.  More specifically, what’s missing? 

4. What are the financing options for a community? For example, Luis Aguirre-Torres, the sustainability director for the city of Ithaca, attracted over 100 million in private funding to overhaul 6000 buildings in the city. 

5. What public/private partnerships have been created to finance the conversion of buildings across a city?  

6. What options exist to overcome the split incentive in residential and commercial buildings?  

7. How can offsets from removing fossil-fueled HVAC and hot water systems reduce the expense for building owners?

8. What approaches might simultaneously solve the problem of not enough electricians, HVAC technicians, and plumbers needed to convert all these buildings while also creating jobs in environmentally impacted communities?

This is a group effort. On the team is Parker Thomas, Latham Turner and Elliot Gluck.  More are welcome and will be recognized in each newsletter. For now, we going to send a newsletter each week exploring what we’ve  found so far.

Onward!

Parker 

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On my journey so far, the very best starting point has been Saul Griffith’s book “Electrify”.  Written from the perspective of a scientist asking what is technically necessary to reach a solution, I found the book optimistic.  To summarize the book in one sentence, it’s this: “We have everything we need to solve climate change, we just have to figure out how to finance it - and we are good at that.”

My takeaways:

This is no longer about efficiency, it’s about complete transformation.  There are things that will change our lives, but “Those things that will change are for the better: cleaner air and water, better health, cheaper energy, and a more robust grid. Our citizens can keep pretty much all of the complexity and variety promised by the American dream, with the same-sized homes and vehicles, while using less than half the energy we currently use. This is a success story that casts aside the 1970s-era narrative of trying to “efficiency” our way to zero emissions. Our country faces a challenge of transformation, not of deprivation.”   

We need dramatically more electricity, but once we stop drilling for fossil fuels and moving it around, we need less energy overall.  “When we add up all of those savings, we find we only need ~42% of the primary energy we use today. Well, that is pretty remarkable. America can reduce its energy use by more than half by introducing no efficiency measures other than electrification.”

It’s really a question of financing - and we’ve been wildly creative and successful with financing before.  “Because borrowing money is the way to finance climate infrastructure. All of the technologies for decarbonization have high up-front capital costs and low lifetime fuel and maintenance costs. America solved similar finance problems with the invention of auto financing in the 1920s, the modern 30-year government-guaranteed mortgage in the 1930s, and rural electrification during the New Deal.”

The best analog to what is needed now is how we changed our economy during World War II.  “In 1939 the US had only 1,700 aircraft and no bombers. By 1945, the US had produced a war machine that included some 300,000 military aircraft; 18,500 B-24 bombers, 141 aircraft carriers, 8 battleships, 203 submarines, and 52 million tons of merchant ships; 88,410 tanks and guns, 257,000 artillery pieces, 2.4 million trucks, 2.6 million machine guns, and 807 cruisers, destroyers, and escorts; and 41 billion rounds of ammunition.”  Saul goes on to say that “The war analogy is not perfect, but it will help the public understand that if we shoot for a victory against climate change with a wartime-style mobilization of the nation’s industrial productivity, we stand to benefit enormously economically, and in terms of jobs and consumer well-being.”

Overall, “Electrify” is a clear-eyed description of what we need to do, how we need to do it, and how we will benefit if we do.  It’s also optimistic that we can, indeed, pull it off.  The barriers are no longer technological - they are political and financial.  

Onward.