Stranded investments, the Energiewende and blockchain: An interview with the Rocky Mountain Institute

During the Berlin Energy Transition Dialogue held at the German state department on April 17 and 18, 2,000 experts from 90 countries discussed the Energiewende, German for energy transition, that is occurring both in their countries, and in Germany.

Jules Kortenhorst, CEO of the U.S. based Rocky Mountain Institute, moderated the Investor Forum. He took time out of his schedule to talk with pv magazine about some of the issues raised during the event.

pv magazine: You moderated the Investor Forum at the Berlin Energy Transition Dialogue. What were the most interesting issues raised?

Jules Kortenhorst: There were three very important conclusions that came out of this panel. The first one is that the unrelenting decline in costs, particularly of wind and solar, means that the transition in the electricity sector is well on its way, and financing the ongoing transition is no longer the biggest challenge.

The second conclusion is that electricity alone is not enough, we have the hard to abate sectors, and the transition in these hard to abate sectors is more complicated. Some have a clear idea of how to get there. In personal mobility, for instance, we can see that the electric car is coming around the corner, and is soon going to be more cost effective, in the same way that wind and solar have become more cost effective.

It is harder to imagine how we are going to have the same sort of breakthroughs in other industries, such as aviation, marine, steel, cement and heavy industries. The capital and financial consequences of this transition are going to be astounding. Both in terms of the loses – we will see when people will have to write off their investments in fossil fuels based energy companies – but also in the amount of money that is going to be made in those that are building the energy infrastructure of the future.

We’re now talking about stranded investments. During the session, we heard a number of around US$200 billion.

I don’t have the numbers at my fingertips, but I think this is a conservative assumption. At the moment, we can clearly see that coal-fired power generation in much of the world in the very near future will be stranded, but we also have to start thinking about gas-fired power being stranded in the not too distant future, which will in turn strand a lot of infrastructure, such as gas pipelines and coal logistics.

I think coal represents more than 50% of the railroad transport in the U.S. Are we thinking about railroads as partly stranded assets? And then there is the slightly more distant future, where the current production capacity for eternal combustion engine cars – not a stranded asset in the traditional sense – but is a sector that will see massive upheaval and realignment of value.

Who will pay for these stranded investments?

Well see that’s interesting, because those stranded investments have already been paid for. The question is: Should the investors be compensated for having made the wrong investment choices? We can make two arguments: Firstly we can say, “Look anybody who invested in RWE, or a in a coal mining or oil company, has made this as a conscious decision and allocated the risk to that capital.”; The alternative argument is that in some instances, it may well be wise from a political economy point of view to help take those assets off the infrastructure, to retire those assets or make them go away, and it could be that some financing mechanisms, subsidies or support schemes could be useful. I personally think that if we want to support the transition financially, we should worry about the livelihoods and job security of people who work in the coal industry. But I don’t think we should worry too much about the people who own the coal mines.

In a vote, most of the audience said the real take-off of the energy transition will be in 2020. What do you think?

That is a very good question. I think that some people who have been working in this space argue that they started the Energiewende 10, 15, 20 years ago. We’re here in Germany. The Energiewende was a German concept, and started here with investing in technologies before they were commercially viable. But if your question is at which moment is the tipping point – that is probably now.

If you say that the Energiewende is the closing of the last coal-fired power plant, and the last internal combustion engine car has been sold, then it probably is another 10 or 15 years down the road. I would argue that we are definitely in the middle of the transition. When we will look back at the Energiewende, we will say, look at the Paris agreement from two years ago as the point when the world decided to, together, decarbonise the world’s energy system.

This conference is also discussing the German Energiewende from the point of view of experts outside of Germany. What is your view?

Let me start by saying that I have tremendous respect and appreciation of the fact that Germany, as a country, has provided the early offtake and policy instruments like feed-in-tariffs and early commitments to establish the solar and wind industries that are the cornerstones of the energy transition. It is also true that in the process of creating this revolution, Germany has made some choices, which we are now dealing with the consequences of.

The choice to close down the nuclear power fleet further complicated the Energiewende. It was a choice that the German people made, so no comment on that. The choice to put the burden of the feed-in-tariff on consumers rather than the industry, out of fear of the industry moving out of Germany, might not have been the wisest move.

The choice to accelerate the transition away from diesel and gasoline vehicles is sort of right now at the forefront of this incoming cabinet in Germany. It is a choice that is difficult for the country, due to its massive installation base, and its position as a power house in the automotive sector. It is not easy for the incumbents to be the leading disruptors. So that is a decision that we may still see play out.

Do you think, overall, that the Energiewende is on a good track here?

Yes it is. Is it fast enough though? No, it is never fast enough. But it is on a much better track than in the country where I currently reside: the United States.

Nevertheless, the U.S. solar industry appears to have been able to withstand President Trump so far.

It is absolutely true that the new measures that have been put in place by the new administration in the U.S. have not been reflective of the fact that market economics are so dramatically pointing in the other direction. So if you have a very cheap horse and carriage shop next to a Tesla or BMW dealer, and are arguing that you have the best horse and carriage shop in the world, it may not be the best way to sell personal mobility in 2018. In fact, the increase in solar costs for let’s say middle-sized solar projects associated with the tariffs, represents only about 10%, and our work on reducing the cost of community solar alone will drive costs down over the next few years by at least 20%.

Event Horizon, which takes also place in Berlin parallel to the Energy Transition Dialogue is co-organised by Grid Singularity. You have partnered with this blockchain start-up to create the Energy Web Foundation. Can you tell me more?

About two years ago, the Rocky Mountain Institute partnered with Grid Singularity to create an open source blockchain infrastructure for use in the energy space. We concluded together that the use of blockchain in the energy space would massively benefit from a trusted fast, robust, secure blockchain infrastructure; and we realised that each energy company on its own would have a harder time putting that infrastructure together. However, if we joined forces, this could move a lot faster.

Since then, we have brought together over 30 of the largest energy companies from around the world, including from the U.S., Asia and Europe. We have brought together up to 50 entrepreneurs and start-ups looking for applications.

The Energy Web Foundation intends to launch the blockchain open source standard in the spring of next year. We are well on our way with the beta version of the network. It is up and running, testing is happening, apps are being developed, corporates are learning what this technology can do, and we believe that next year that will be another important step in the energy transition.

What role does the Rocky Mountain Institute play in this?

We are the energy experts, while Grid Singularity are the blockchain information technology experts. Together we govern the board of the Energy Web Foundation. The board has two representatives from the Rocky Mountain Institute, two representatives from Grid Singularity, and an independent from the World Energy Council. It is a Swiss foundation to ensure neutrality. A lot of the work is in telling the story and building the momentum behind the standard; and in explaining the impact on regulators and  utilities. This is done by the Rocky Mountain Institute. Grid Singularity does a lot of the work in building the IT infrastructure.

One motive for establishing blockchain is to develop a technology that allows one to build an energy infrastructure, which is not controlled by the big utilities. Now these big utilities are partners in the Energy Web Foundation, and also control the validation of the transactions in this energy blockchain. Some attendees expressed their concerns, that now they will take back control. What is your view on this?

It is a very good question. The Energy Web Foundation was set up with the specific purpose of ensuring that this is an open source standard for the public good, created and managed with the intention of benefitting everyone. By having such a large number of energy companies, large and small, grid operators, power producers, and oil and gas companies in our eco system, we have ensured that no one has control.

For that specific reason, the governing structure has been built so that Grid Singularity and the Rocky Mountain Institute, in the end, have control over the future of the foundation, so we can ensure that it is a platform created for the public good. It will be a force of disruption – I think quite a few of our members are well aware of the fact that blockchain will have a totally disruptive impact on their business, and they have joined the platform to ensure they understand this disruption, and not to stop it.

But there is still the argument that the Energy Web Foundation runs a so called consortium blockchain. Different to Ethereum, where many miners control each other, in the consortium blockchain only the members of the consortium validate the transaction. Can it be manipulated?

The crux of the blockchain technology is that it is a distributed ledger, and the trust based system is based on a distributed approach to building trust. In my mind, it is impossible to imagine a single bad actor capturing the ledger and manipulating it for its own good. But you are correct to ask this question, because it is a concern that keeps us focused on our mission, which is to make this an open source standard that accelerates the transition to a sustainable energy future for everyone.

Who is behind the Rocky Mountains Institute?

The Rocky Mountain Institute is an energy transition organisation. We were founded more than 35 years ago by Amory Lovens, who is one of the greatest thinkers on energy in the last 40 years. The institute has 200 staff members in five offices around the world. In the U.S. and China, we have offices on the ground, and we also work in India, Africa, and the Caribbean. We have been growing very quickly.

How is the Rocky Mountain Institute funded?

75% our money comes from philanthropy, from a very broad range of individuals and foundations. We’re not a member-based organisation, so are different from the World Wildlife Foundation or Greenpeace. About 25% of our funding comes from membership platforms and fee-for-service-work – companies that ask for our help in accelerating the energy transition; in figuring out how to get their building more efficient, or in building the platform for buying corporate renewables.