By Camilla Cavendish (THE TIMES, 02/11/06):
I was chatting to a green friend at Shell this week, expecting him to be excited by the sudden new focus on clean energy. “Actually I’m nervous,” he said. “It’s all coming faster than we expected.”
The demand for carbon-free power is about to become the most disruptive force in business since the internet. And disruptive innovations have a way of knocking flat even the most entrenched companies. Five years ago Google was tiny, just starting to sell adverts based on clicks. Ten years ago, Nokia was still thought of as a Finnish paper company. Twenty years ago Dell was a small business selling computers through geeky magazines. These companies came to dominate the market not because the established companies were stupid — not at all — but because they couldn’t quite bring themselves to turn their processes upside down.
That is what climate change will require. Sir Nicholas Stern was only repeating the growing consensus when he said this week that we must reduce greenhouse emissions dramatically within 20 years. That means adopting renewable energy at a hitherto unimagined pace. It means taking a different approach to the design of buildings and transport. It also means turning our power infrastructure upside down. Department of Trade and Industry figures show that we lose about half of our electricity in generation and transmission because we have giant power stations far away from users. We need to turn offices and hospitals into power stations, and let householders feed into the grid instead of letting the grid feed them. Woking has reduced its CO2 emissions by 77 per cent since 1992 by decentralising its energy. That’s what I mean about turning things upside down. Who would have thought the future was Woking?
It is admittedly hard to imagine anything knocking flat the vast infrastructure of the fossil fuel industry. We have invested so much in power plants, pipelines, pension plans and executive suites. Plus, the oil majors have 30 to 50-year investment horizons. How could they ever make their own plants redundant? True, they have long predicted the end of cheap oil. But that is not the same as no oil. It is clear why carbon capture, the new idea of storing carbon dioxide underground, gets your average BP man so much more excited than solar power. It is an add-on to his current business, not a threat to it. But although it might help us to make about 20 per cent of the cuts needed, it will be only part of the solution.
Shell and BP are no fools. They have been hedging their bets intelligently for years. Shell is the world’s biggest distributor of first-generation biofuels. BP Solar is the biggest solar-electric manufacturer. In the age of private equity and the internet, these companies know that they cannot kill an idea by sitting on it. But whether it is hydrogen or woodchips, they are mostly reliant on much smaller partners for innovation. They are not particularly good at developing nimble new businesses themselves.
When I talk to big power companies they tend to tell me why things cannot be done, or at least not now. Small companies think big. Take wind. Power companies complain that it is hard to get planning permission and that it is an unpredictable power source. All true. But one company is proposing to change all that. It would create a “supergrid” of interconnected offshore wind farms, stretching from the Baltic Sea to the Mediterranean, to provide a constant supply. It would make this a continental resource, not a national one. At one stroke this would create a powerhouse beyond anything previously envisaged. This ambitous piece of lateral thinking comes from the tiny Irish wind company Airtricity. Could Airtricity be the next Google?
It is no accident that the environmently friendly Smart car was designed by a watchmaker, not a car manufacturer. Swatch’s CEO wanted to make small cars as cheap and well designed as his watches were. And he did. Amory Lovins, of the Rocky Mountain Institute, has taken car design farther. Arguing that over half a car’s fuel use is related purely to its weight, he has designed a lightweight “hypercar”, made of carbon fibre and ultralight steel, which would more than double mileage per gallon and be tougher in a crash. And if you add in hydrogen fuel-cell power, you could double mileage again. While Ford continues to churn out loss-making SUVs, Mr Lovins is closer to where public demand may soon be.
Conventional industry has no monopoly on good ideas. A trickle of investment is starting to flow from venture capitalists who made their first fortunes on the dot-coms. The best known is Vinod Khosla, founder of Sun Microsystems, who is pumping his own money into ethanol. These people are ahead of the politicians, and perhaps better attuned to the public. They remember how quickly fortunes were built when a critical mass of consumers suddenly shifted online. They know that canal barges ran out of customers long before they ran out of canals, because the game had shifted.
This may all sound like pie in the sky. But it is worth revisiting some assumptions. Countries that have less than others invested in old models may find it easier to leapfrog to new ones. Commentators like to kick China and India for creating problems that they think the West will have to clean up. But China has started to build the ecocity at Dongtan that the Mayor of London dreams of copying. And Dongtan is the first of five.
The race is on, and the most nimble will win. Who knows, big oil may do the trick. But what is striking about many small British energy companies is their inventiveness and courage. The same kind of spirit built the Spitfires in 1937. Then, we did not make international agreements an excuse for inaction. We invested. Climate change is a different kind of enemy. But for some, the battle will be very profitable.