Jigar Shah has a disarmingly powerful message for today’s young capitalists: fixing the climate crisis is the biggest financial opportunity of our lifetimes. Indeed, Shah is on track to become a role model for a new generation of entrepreneurs who are committed to leveraging mainstream investment for social transformation.
In Creating Climate Wealth, Shah makes the case that clean energy represents a ten trillion dollar investment opportunity—if we are just willing to look at what already makes economic sense in addressing the impacts of climate change. The premise of his book, as he states it in a recent video interview, is that 50% of the climate challenge can be tackled profitably with existing technologies, if we have the right business models.
So regardless of whether or not one “believes” in man-made climate change, there is enough reality to extreme weather events, rising energy costs, and warming oceans to give rise to the next phase of the post-industrial revolution. The magnitude of the challenge is also the magnitude of the opportunity. As businesses and societies come to terms with the new realities of the 21st century, they will take action to adapt to and mitigate the effects of climate change, investing in technologies that pay for themselves, safeguard the environment, and provide greater self-sufficiency.
Shah has never doubted that solar and other forms of clean energy will one day power the world. Although he was trained as an engineer, and was one of a few taking solar seriously, he quickly became convinced that it wasn’t technology that was standing in the way; it was short-term economics. It was when he studied for an MBA that he developed a different business model to address this real-world problem.
Jigar has made his fortune by wondering, “what if the economics of solar could be shown to be profitable over the long term, but the users didn’t have to bear the upfront cost of investing in the technology?” After all, consumers don’t have to pay for conventional power plants in advance either; they only pay for the energy they use—which is also enough to compensate investors for building them. With SunEdison, Shah pioneered the no-money-down Power Purchase Agreement or PPA, where the users agree to buy energy from a solar system on their roof rather than from the grid. They don’t have to own the systems, any more than they own the power plant; the investors put up 100% of the cost and make money over the long term, while the property owner gets power for less than the utility price.
This is a model we’ve tried out ourselves. We have a solar PPA system on the roof of our house, and after much investigation and experience, we’re extremely satisfied with both the concept and the reality. We are especially satisfied with our electricity bill—our total energy costs have plummeted!
These are relatively modern panels, but the technology has been around for a while (the photovoltaic effect was first discovered in 1839, and the technology was developed at Bell Labs in New Jersey in the 1950s). Jigar’s argument is that we can mitigate most of climate change with technologies that already exist.
In the book, Shah recounts a great deal of autobiographical detail which demonstrates that nothing in the process of building SunEdison was neat or easy. He offers two major lessons he learned: first, that the key to unlocking the new economy is not technology but discovering the right kinds of business models; and second, that attracting mainstream investment is more important than developing worthy but unbankable projects.
One of the Newest Tools: PACE
One of the newer approaches that Shah mentions is PACE, which stands for “Property Assessed Clean Energy,” and is the focus of our work in New Jersey. It addresses some of the major obstacles to implementing clean energy projects at scale, and leverages private capital to do it.
According to Jigar, “Given the state of our infrastructure, deploying solutions we have already invented represents the largest wealth-creation opportunity of our lifetime.” There’s a lot of money to be made in leveraging parts of the established wealth-creation system to address some of the problems that it has gotten us into.
This is not “social impact investment” or even “venture capital.” Mainstream pension funds and insurance companies look to invest in stable, predictable, long term income streams that are suited to their clients’ needs. Given that a lot of willing capital is committed to such funds, what kind of business model would be attractive to these institutions? What kind of products and services that support the “Climate Solution Economy” would pension funds and insurance companies invest in that can be deployed on a wide enough scale to truly make a difference?
One such opportunity is PACE. In the last five or six years, over 30 states have passed legislation that permits local governments to get involved in greening their jurisdictions — without cost to them or the tax-paying public at large. It works by offering property owners (currently, mostly commercial & industrial property owners) 100% of the financing, at competitive rates, to improve the energy efficiency of their properties or to add renewable sources of energy on site. The repayment stream on these capital investments (made using other peoples’ money) is attached to the property and collected through the government entity.
It’s a win for everyone involved:
(a) the property owner, with no money down, gets a more valuable property and typically saves money on energy costs from the start; and what often clinches the deal is that the repayment obligation transfers with the property if the owner sells it;
(b) the local governmental entity gets to upgrade the jurisdiction’s building stock, making the town, city or county more attractive to new ratables while having its costs reimbursed through the transaction;
(c) the public gets to see the community lower its carbon footprint, improve local property values, and the economic development and jobs that come with millions of dollars in new private sector investment in energy efficiency and renewable energy improvements;
(d) and last but not least, private sector investors get a highly secure, long-term, profitable asset; many sophisticated financial professionals see that PACE assessments are creating a new and in-demand asset class.
We’ve taken the time to give a high level overview of PACE’s benefits, not just because we are leading New Jersey’s PACE Program—but because it’s also a great example of a new and fairly unknown business model that leverages existing technology to contribute to the solutions we need, globally: lowering our carbon footprint and raising the standard of living among people.
PACE uses the need for, and benefit of, energy efficiency and renewable energy retrofits to invest private sector money that generates jobs and economic development. Indeed, PACE along with other innovative financing tools is helping to redirect our economy in the direction that Jigar is pointing us in: actually making headway in the effort to reduce our carbon footprint, become more sustainable, and ensure the long term future of humanity on Planet Earth.
For more information on PACE, please visit NewJerseyPACE.org.
In Ann Goodman’s interview, “Jigar Shah: To get rich, change the climate,” posted at Greenbiz.com (and at her blog site), the author further clarifies some of his intentions, in ways that are clear, forceful, and unequivocal:
- “The only point I want people to know about climate change is that we already have the technologies to stave off the worst impacts.”
- “[Solving climate change] is the only way we’ll make money! The days of consumerism are over; we’re at a point in our investing where we have to focus on common needs — transportation, agriculture, clean drinking water. It’s time to refocus on how we provide for the basic needs of the population.
- The work we’ve done in solar needs to be translated to the other 17 sectors in the book, whether transportation, building efficiency, agriculture. Translating those lessons will take me a lifetime. It’s not something I can get done in a decade.
But he is working on it, and given his track record of success he is likely to make considerable headway.
However, the challenges remain daunting:
The International Energy Agency in Paris believes we need $10 trillion of incremental new investment to stabilize to the 2 degrees we need. They think we’re on track to reaching $ 4.4 trillion of deployment, or just 44 percent of the goal. That’s 440,000 people selling $10 million of stuff by 2020, or $4.4 trillion. So we need 560,000 more people to get to $10 trillion by 2020. I think this is possible and that those people exist….
Finding and training the 560,000 people is non-trivial. Getting governments to understand their proper role in deploying this isn’t easy. I do think the success of this strategy depends on our ability to assess the risk of doing nothing. The fear part is valuable to get people attracted. So it’s a yin-yang. … We’ve been worried about the fear stuff since Al Gore’s “An Inconvenient Truth.” Now we have to match that with inspiration and hope.
For more information on Jigar Shah and Creating Climate Wealth, visit
http://creatingclimatewealth.co, http://www.huffingtonpost.com/jigar-shah/, http://www.solarplaza.com/article/solar-guru-jigar-shah-on-his-new-book-creating-cli.
Victoria Zelin & Jonathan Cloud, New Jersey PACE / CRCS[1]
[1] ©2013 Center for Regenerative Community Solutions / New Jersey PACE, a 501c3 NJ Nonprofit, www.CRCSolutions.org / www.NewJerseyPACE.org.
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