Originally posted on pv magazine USA. Richard Matsui, Founder & CEO of kWh Analytics, speaks with Shayle Kann, Senior Vice President of Research & Strategy at Energy Impact Partners.
Shayle Kann is clean energy’s own dedicated Malcolm Gladwell.
Throughout his career, Kann has prioritized the ability to be “curious, analytical, and a storyteller.” He has made it his job to understand the whole industry.
And as former head of GTM Research, how Shayle Kann thinks about a subject has for the past decade of his career shaped how the broader solar industry thinks about a subject. Ideas like solar + storage soon arriving to compete with gas peakers and viral stats like the one President Obama used in his 2014 State of the Union speech (that the U.S. installs a solar project every four minutes) can be traced back to Kann’s work.
He’s also a living example of Gladwell’s ‘10,000 hour rule’—a decade into his energy career, Kann is widely regarded as an expert on not just solar, but how the broader electric industry operates.
In this interview, Kann discusses how he chose his current role at EIP, Greentech Media as a startup, and the solar industry’s ‘Next Frontier.’
Starting in Energy
Richard Matsui: Many people are familiar with your story while at GTM. Prior to that, how did you first get into energy?
Shayle Kann: I got into energy in college through a class called ‘Strategic Natural Resources.’ We read Dan Yergin’s book The Prize and I discovered a whole world out there called “Energy” that was undergoing dramatic transformation. It just hooked me. I found it utterly fascinating.
At that point, I was a psychology major. It was too late for me to change my major without an extra semester I couldn’t afford, so I tailored my major. I ended up studying the psychology of energy behavior, which is this subset of psychology that looks at the types of behavioral interventions that actually get people to change their actions with regard to energy. The big revelation in the psychology literature at the time was that you can tell people as much as you want about how much energy they consume and all the reasons why they should conserve, but that has virtually zero statistical impact on their actual consumption.
Richard Matsui: Don’t tell Opower.
Shayle Kann: But, tell people what their neighbors are consuming, and it does have a statistical effect. Of course, this came before Opower, and that has become the backing to what ultimately became Opower’s model.
Richard Matsui: Right, fair point.
Shayle Kann: After my entry into energy, I took a course taught by a semi-retired Southern California Edison regulatory executive on utility regulation and discovered that I was actually even more interested in utilities and utility regulation. As a result, after I graduated, I went to work at the California Public Utilities Commission. I quickly discovered that I am not meant to be a regulator. However, I learned a lot, and still to this day utilize insights that I gained from my very brief period working there. Understanding how the regulatory process works is invaluable.
In 2007 I received a Fulbright grant to go to Australia. I ended up doing academic research on wind project finance during a credit crunch, essentially asking how you finance incredibly capital-intensive assets when there’s no money. I spent about a year researching, travelling around Australia, and watching kangaroos hop in front of my house (no joke).
When I came back in 2009, I randomly stumbled across GTM when it was a ten-person startup. From there I sort of discovered that market analysis is something for which I have both a passion and a talent.
GTM as a Startup
Richard Matsui: When we were first connected during my McKinsey days ten years ago, I remember buying reports from both GTM and Photon Consulting. Back then I would give the edge—sometimes a significant edge—to Photon. What helped GTM, as the underdog startup, to succeed?
Shayle Kann: One thing that was always true for us, whether in comparison to Photon or other competitors later: we never had the most resources. Without as many people to dedicate, we were not as global in scope as some of our competitors. We figured that we could add value by identifying a few specific areas of frothiness and confusion and dedicating attention to quantifying what was happening, identifying the players, and understanding the strategies involved.
Our first major foray into that was going really deep on solar in the U.S. We partnered up with SEIA to start tracking the whole market in detail each quarter. We went as deep as we possibly could, down to the level where we would look at individual micro markets and every policy development and rate structure that matters for solar in the U.S. You could not possibly cover that granularity if your mandate was to cover everything all the time. We decided we would pick places where we could go deep at the expense of going broad. And then as time went on, we continued to do that just in new areas. That worked for us.
Richard Matsui: I like that lesson: The importance of focus. As a startup, it’s difficult to succeed unless you’re willing to take some bets on what’s important and what’s not.
Changing How We Think
Richard Matsui: What idea are you most proud of popularizing? Perhaps the idea that gas peakers may soon be replaced by solar plus storage?
Shayle Kann: We made a few calls that I’m proud of. Storage soon arriving to compete with gas peakers is a good, current example, and one that I think will prove to be true. Another is the rise of residential solar loans (as opposed to leases), which we predicted early and is well underway. We also made a concerted effort early on to hammer home the point that the value of distributed energy is a function of rate design – so we started modeling actual rate structures and load profiles rather than just comparing the levelized cost of distributed solar to total retail rates.
We also originated a few viral stats. At one point, a couple of us had a competition to see who could create the most viral statistic about solar in the U.S. We thought the battle was over when I received a moveon.org email forward from my retired mother in Wisconsin which, unbeknownst to her, used one of our stats. But then President Obama used the other one (that the U.S. installs a solar project every four minutes) in his 2014 State of the Union speech, which would be tough to top.
But in the end, the thing we popularized that may have the most lasting power is the term “grid edge” to describe the rapid evolution of electricity where the utility meets the customer. We were sick of talking about the “smart grid”, which no longer encompassed the most exciting things happening in the sector, so we coined this other term in order to be able to analyze the areas we thought were most dynamic. We had no idea it would catch on like it did.
What’s Up Next
Richard Matsui: You have an interesting bird’s eye view of the industry. What were the most interesting ideas and opportunities that came to you when you were thinking through what you wanted to do after GTM?
Shayle Kann: Good question. GTM was an iconic experience for me. It was an all-consuming eight and a half years, and I loved it. When it came time to leave, that was no small action for me because so much of my time, attention, and identity were tied up with the organization. So, I wanted to give myself a little bit of mental space to find out and deliberately left without knowing what I wanted to do next.
I explored a range of different options. I considered joining or starting a brand-new startup, which in part appeals to me because I really enjoyed the early days of GTM when everything was in flux and nothing made sense—that was stressful, but it was a lot of fun. I also considered taking more of a strategy-focused position at an operating company. Ultimately, I realized I wanted to retain what I loved most about my world at GTM: It was my job to be curious, analytical, and a storyteller.
I wanted to be able to continue doing that work, but I was also hoping to find a position where I could put my money where my mouth was. It’s difficult to do that as an analyst, because you have a meaningful influence on the market, especially once you get a lot of voice in the industry. I wanted to be able to take a view on something and then take action upon it directly.
So when my current role presented itself as an opportunity, I realized that it had exactly those characteristics.
Richard Matsui: That’s interesting. It sounds like you were looking for two components in your next role: One, the ability to be curious and help craft the industry narrative, and two, the ability to apply your skillset and take action. What about EIP helped you decide this was the right place to take action?
Shayle Kann: EIP is a fascinating venture fund whose investors include some of the largest utilities in the world, and whose portfolio includes some of my favorite cleantech companies. From the outside, I was already somewhat enamored with EIP’s model because I think the company sits at the nexus of those who are ultimately going to be the most important players in energy transformation. On one side, there are the innovators—the startups that are building new technology and services, solving the problems that we are going to face as the next wave of technologies hit the grid. And on the other side, the utilities that are going to have to integrate and manage all of those things, keep the lights on, and maintain the customer base. EIP sits in between those two. EIP gets to invest in the start-ups and gets to work with the utility to provide them visibility and help them adapt and evolve their own strategies. It’s just really a cool place to be within this transformation because you get to see both sides and then try to help each group within that ecosystem to learn and do better.
Richard Matsui: When you put your VC hat on in your current role, what are the trends and themes you find most interesting?
Shayle Kann: This is a broad and somewhat tired framework, but I think we have four simultaneous transformations occurring within the sector: decarbonization, decentralization, digitization, and electrification.
Those are obvious trends but what’s unique about this time is that, while each one of them stands on their own, they are all happening simultaneously and they all interact with each other. As an example, electrification puts a bunch of electric vehicles on the grid. EVs suddenly catalyze decentralization because now you have another source of demand response or, potentially with vehicle-to-grid, you have another source of energy storage. The emergence of EVs presents new opportunities and new risks to the system.
Similarly, in the other direction, the proliferation of sensors, communications, and analytics that are happening at the grid’s edge will enable us to manage the upcoming influx of EVs. Were it not for those types of analytics, better planning, and visibility, we would have a much bigger problem when the EVs hit the grid.
I try to think about the way these four transformations are occurring and also how they interact with each other.
Richard Matsui: Is there an anti-thesis—either something that you see as particularly exciting but others don’t think so, or conversely something other people are really excited about but actually you’re skeptical?
Shayle Kann: That’s an interesting question. I would take a somewhat cautious approach to blockchain, not because I’m not a believer in blockchain necessarily, but because the hype to proof ratio is a little terrifying.
I’m also skeptical of startups that rely on getting consumers to spend a lot of their time explicitly thinking about energy. I think it’s widely recognized that customers generally pay very little attention to energy, and I don’t think that a business model that depends on that changing is going to find success.
I remember the Accenture statistic that customers think about their energy bill a total of eight minutes a year. I mean you could imagine that number doubling, but you probably can’t imagine it going up by orders of magnitude.
There are, however, lots of interesting ways to create great customer experiences that hide energy value within issues that are more front-of-mind. For example, EIP is invested in Sense, which offers residential energy disaggregation. You can use Sense to monitor your device-level energy consumption directly, but you can also use it to check, for example, whether your garage door is open or how long your child has been playing Xbox.
Solar’s ‘Next Frontier’, Grid Modernization, & Ten-Year Predictions
Richard Matsui: What’s the ‘next frontier’ for solar?
Shayle Kann: I think that the most valuable people in the solar industry right now are the people who understand wholesale markets and electricity financing. Historically, the solar industry didn’t really need those skills, right? Everything had a long-term PPA, so you just built off of that. But now it turns out that solar is becoming exposed; basis risk is a perfect example.
Richard Matsui: Agreed. Recently, I was on an Infocast panel talking about hedges. We were talking about our volume hedge, and the infrastructure bankers were talking about price hedges. They used a completely different set of vocabulary. Sitting there, I was reflecting on the fact that our entire industry, or maybe 99% of the solar industry, has come this far without understanding the basics of the underlying electricity market that we’re serving.
When college students ask me how they can make an important contribution to renewables, I say that I think that understanding of the wholesale electricity market is quickly becoming the new “must-have” skillset. Not enough solar people understand it, including myself.
Shayle Kann: I agree with that. I think having people who understand the wonky wholesale market and these wonky products is incredibly important. For example, the people who are paying attention to the Flexible ramp in CAISO as opposed to flexible capacity—those differences really matter. Especially now that all this solar is getting paired with storage, so it’s somewhat dispatchable. We need people who can understand that in-depth, and I barely scratched that surface.
Richard Matsui: Solar and utilities have had an ongoing love-hate relationship, or at least a love-fear relationship. Last month we talked with Katherine Hamilton, and in addition to sharing numerous insights and reasons for optimism in solar, she warned that the solar industry should watch out for grid modernization as the latest attempt from utilities to maintain profits by rate-basing unnecessary investments that “suck the air out” for other opportunities. Do you see opportunities that are win-win for both industries? Or will the relationship continue to be an adversarial one?
Shayle Kann: I tend to think of the challenge as a function of the regulatory construct. As an example, SolarCity, did all this work to make the case that solar has—in particular locations and at particular times—meaningful value to the grid. Currently, the problem is that value is not monetizable by either solar or by utilities. As a result, there is very little incentive to place solar in the places where it adds the most value on the grid. That’s a problem that regulations need to fix. We need to improve electricity pricing schemes, we need locational pricing, we need to open up opportunities for non-wires alternatives. Those types of things do tend to be win-wins, because ultimately if you believe that these distributed resources, solar being an example, have true value to the system, then we should have a regulatory construct that Is structured accordingly. There are a lot of win-win opportunities, just as long as that’s our north star: Get the right resources in the right places.
Richard Matsui: You’re roughly around your ten-year anniversary of working in and around solar. Do you have a non-consensus bet on what will happen by your twenty-year anniversary?
Shayle Kann: I think in the next decade, we will have an operational solar project somewhere in the world selling power at 1 cent per kilowatt hour.
One of the big lessons for me over the past decade: Do not underestimate the solar industry’s ability to bring cost down. Just don’t do it.
Richard Matsui: I hear you. I remember reading both your demand forecast model at GTM and my own model back at McKinsey. Neither look very smart, today.
Shayle Kann: There was a period during which we would under-forecast global solar demand because a feed-in tariff market would pop up virtually overnight. Suddenly, the Czech Republic would install 2 GW and that would throw everything out of whack. Then we started to calibrate our demand forecast better, and we ended up fairly accurate.
However, it’s still challenging to predict exactly which combination of factors will drive solar down to 1 cent per kilowatt hour. We’re going to see manufacturing cost reductions, longer system lives, and lower cost of financing—and you are more familiar with that last point than anybody else. While some may think we’ve hit the asymptote for solar, I don’t think we’re anywhere near it.
Richard Matsui: I agree, though it’s worth noting that this is the counterpoint to Varun Sivaram’s thesis.
Shayle Kann: Sort of. The core questions in the debate Varun has sparked are whether solar is currently on a trajectory to low-enough cost for long-term growth, and whether the systems around solar (both physical and regulatory) will adapt fast enough to integrate it at high penetration. My prediction here is that we will see *a* project selling power for $0.01/kWh, not that it will be the norm.
Broadly speaking, I agree with Varun about what will need to happen in order for solar to hit 40%, 50% or more of global electricity production. But I don’t necessarily agree that we’re currently off-track. Solar has broken through, and continues to break through, many seemingly impenetrable barriers. And I love looking at all the innovative companies I’m seeing now who are going to solve the next set of challenges.
“Solar Nerds Everywhere”
Richard Matsui: Good seeing you at the EIP office warming party. It was great—and I mean this in the best way possible—to meet with other solar nerds that I don’t see often.
Shayle Kann: There are solar nerds everywhere—I was hiking in Tilden Regional Park the other weekend and two people walked by and I heard one say, ‘SolarCity’s customer acquisition costs are crazy.’ [laughs] Can’t escape it.
Richard Matsui: Better that than talking about the latest Instagram fad.
Shayle Kann: That’s true.