When your correspondent sat down with Idealab founder, Bill Gross, to talk about one of his newest and most exciting projects, Concentrated Solar Power (CSP) company, Heliogen, we spent about half our time discussing the technical challenges of producing industrial temperatures using solar power.
The rest of our meeting centered on his interest in climate change and his views on starting and funding climate change adaptation and mitigation ventures more broadly. Because of Gross’ long experience in the venture capital world, I found his comments to be insightful and his anecdotes quite memorable.
Kobayashi-Solomon: When reading about your background, I realized that you’ve been working on CSP since you were a teenager.
Gross: [Laughs] That’s right – I put myself through college at Caltech with the proceeds from my first company, Solar Devices, which sold plans and kits for small-scale solar ovens during the energy crisis in the early 1970s. I guess I have come full-circle in a sense with my work at Heliogen.
KoSo: What got you thinking about solar power again?
Gross: The specter of climate change looms large, of course. Talking to climate scientists, it’s clear that the window is closing to make the kind of changes we need to reduce emissions.
When people think about climate change mitigation, many of them frame it in terms of renewable energy – generating electricity from wind or solar. Thankfully, the move to renewables has actually been very successful over the past 20 years or so – the growth curves for wind and solar generating capacity have been quite steep and renewables have gone from being incidental to being material.
Unfortunately, though, the world is suffering from what Bill Gates calls the 75% Problem.
Generating electricity only accounts for about one-fourth of carbon emissions, so to really start reducing them, somebody needs to start working on clean substitutes for the three-fourths of energy that goes into things like making plastics, manufacturing glass and cement, and creating the other industrial goods that we consider indispensable to our modern lives.
KoSo: Essentially, we’ve got to figure out how to reengineer the Industrial Revolution with a new power source.
Gross: That’s right. And it’s a big shift. If you think about human history, for the first 300,000 years, our energy was derived mostly from biological sources – our own muscle power or the muscle power of animals.
The Industrial Revolution came about through our advances in the use of chemical power. We took advantage of the energy released from a chemical reaction – burning coal and later other hydrocarbons – to generate steam to operate increasingly complex machines. Eventually, we figured out processes for storing the energy we created, and these storage devices also relied on (and still rely on) chemical reactions.
Reading the climate science literature, it’s clear we have reached the limits of the chemical power paradigm. Now, it is time to transition to a paradigm that uses the power of physics.
KoSo: I get it! Heliogen uses the physics of optics. Your energy storage venture, Energy Vault, turns solar or wind energy into potential energy, to be converted into kinetic energy whenever it’s needed.
Gross: Exactly. The specifics of what we’re doing is complex and builds on advances in computing power, imaging, and AI, but at its heart, the technology just relies on Newtonian physics to do what we have done using chemical processes for the last few hundred years.
KoSo: Let’s talk about the funding environment.
From my experience, VCs lean toward software ideas – ventures that can scale quickly and have a lot of operating leverage.
Projects like Heliogen and Energy Vault are fundamentally different – they are companies with a lot of hard assets working on massive and novel infrastructure projects.
But if you talk about infrastructure investing, you’re usually talking about project finance or PE firms. These investors’ business models involve only taking on projects in well-established industries that they understand very well.
Again, Heliogen and Energy Vault – as novel technologies – don’t fit the PE model very well. How have you been able to find funding for these projects?
Gross: I agree that this is really a tough issue. You’re right about the VC and PE dynamics, so we really had to scramble, especially early on, to pull funding together and keep the ball rolling.
In our early days – when we were still working on Heliogen’s predecessor – we raised money through angels as well as through a crowd-funding platform. I feel an enormous sense of responsibility to all my investors, but I especially want to see Heliogen work out for that group of early investors in particular. They are folks that helped us get through a tough spot when our backs were against a wall. Because we were able to win their support, we were able to keep the concept of industrial temperature CSP moving forward and that idea eventually grew into Heliogen.
As the predecessor project started to show some good results, I was talking about it at a conference that Bill Gates was attending, and the topic piqued his interest. He asked me to come up to Seattle for a day, so a small group of us ended up sitting down with him in a conference room brainstorming and sketching out a path forward.
His support was really valuable to us, maybe even as much as from an ideas standpoint as a capital standpoint. Since then, we’ve been joined by some other very far-sighted individuals like Steve Case, Kittu Kolluri, and Patrick Soon-Shiong. These are all people that are able to break out of a typical VC or PE mindset and are willing to invest in ideas that take a revolutionary approach to hard assets.
KoSo: I know that you have some aggressive expansion plans for Heliogen. What are your plans to fund that growth?
Gross: A few months ago, I was invited to an investment conference in the Middle East. I was sitting in a banquet room that was over-the-top – decked out in gold leaf with no expense spared. I was sitting between the investment managers of some of the largest sovereign wealth and pension funds in the world, and I was really struck by their conversation.
Here are all these powerful guys sitting around talking about how they were making 5.2% return on their portfolios and how much they would love to be able to boost that number up to 5.3% – what seems like a totally incremental move.
But, listening to them it hit me, if you’ve got trillions of dollars of assets under management, making an additional 10 basis points on your portfolio really represents a big win [N.B. one basis point equals 0.01%, so 10 basis points means 0.10%].
It was then that it hit me. Namely, none of these people from oil producing countries were particularly wedded to the idea of producing oil at all. It’s just that the oil they are producing represents the best investment for their capital given their opportunity set.
I realized that if I could offer them an opportunity that was really big – even a trillion dollar opportunity – that had the potential to generate much better returns than they were getting while simultaneously helping to solve the 75% Problem of carbon emissions, it would literally be a win for everyone.
With Heliogen, we’ve done the calculations and it turns out that if you set aside some finite percentage of land out in the wild desert – an area that isn’t otherwise being utilized – and establish acres and acres of Heliogen arrays, that host country would essentially be able to corner the global hydrogen market and have a lock on the production of a totally green energy source that could power modern industry and society.
I’m not saying it would be easy – even a few percent worth of the land represents thousands of acres – but it is the kind of project that, given enough focus and engineering resources, is very doable.
KoSo: And doing it would really materially change the dynamics of carbon emissions – essentially, you would allow the world to continue to enjoy the conveniences of our modern society without jacking up the Keeling Curve any more. That’s an exciting idea!
Gross: That’s what I think too and why I and the rest of the Heliogen team are working so hard to make that vision a reality.
KoSo: Thank you for your time today, Bill. This has been great.
Gross: Thank you, Erik – it’s been a pleasure.
The days when we could afford to take an incremental approach to mitigating the effects of climate change passed sometime during the Reagan administration.
Your correspondent applauds Gross’ vision for a transformational change in the way energy is produced and stored – from an energy system based on chemistry to an energy system based on physics. I’m hopeful that Gross’ prodigious capacity as a builder, combined with his partners’ far-sightedness, will enable Heliogen and Energy Vault to grow to their full potential and help human civilization to thrive in the 21st century.
These are the kinds of projects towards which truly far-sighted investors – investors concerned about building and maintaining intergenerational wealth while advancing civilization – should be allocating capital.
Intelligent investors take note.