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The Neglected Demand Side

Is a shift in energy start-ups and investing on its way?

Paul Bieganski, now finishing up a term as president of the Minnesota Venture Capital Association, has been a venture investor, entrepreneur, and technology developer. As chief technology officer at the since relocated and repurposed Net Perceptions, he helped develop a filtering application that Amazon.com used to make its product recommendations—“Customers with similar searches also purchased . . . .” More recently, as managing director of venture investing for Minnetonka-based Cargill, he backed information technology, cleantech, and life science companies.

 

Last summer, Bieganski left Cargill to form his own local venture firm, Big Picture Partners, where he’ll focus on investments in energy technologies, particularly on the demand rather than the supply side. Bieganski is also cofounder of one of the firm’s primary portfolio companies, Packet Power, a stealth-mode start-up whose technology helps track electricity usage.


What leads you to conclude that the demand side of the energy equation is being overlooked by entrepreneurs and investors?

It’s not necessarily overlooked in the sense that people are not doing anything, but I think the focus has really been on supply, probably because the most obvious fact that people notice is the increasing prices on the supply side.

But what happens more or less in every ‘energy shortage’ or price-spike cycle is that people first have that reaction, then realize that increasing supply is very, very expensive in terms of capital, has environmental issues, political issues, and is really hard. It requires often much more capital than people are willing to spend. Plus, a lot of that capital is subject to the volatility of energy prices.

If you analyze it all the way through and look at what it would take to increase supply by 10 percent—or pick a number—and then you compare that with what it would take to reduce demand by 10 percent, you pretty quickly come to the realization that using 10 percent less is actually a lot easier, a lot cheaper, and may eliminate a lot of the supply side investment that would be necessary.

 


This is something that we’ve been hearing from Xcel Energy, Great River Energy, and other suppliers for a while. Are more entrepreneurs and investors also beginning to see things this way?

I think so. It’s definitely starting, but it requires a bit of new thinking. Fundamentally, when you say ‘new energy,’ it feels new, it feels exciting. If you’re talking about saving something, that usually means within the context of something established, which sounds and feels old. That’s probably more psychological than anything, but it’s also a reality—you have to figure out how to do it within the context of what’s already there. Take the power distribution grid, for example, or air conditioning installations, or what have you—those are not things that tend to change overnight.

But what people oftentimes overlook is that the very same thing is true on the [supply] side. If you start talking about introducing new types of fuels, most people underestimate by orders of magnitude what’s involved, or why the world would even consider that. And in most cases the answer is, ‘The world wouldn’t.’ But that hasn’t stopped people from investing a lot of money—a lot of it, I think, foolishly.”

 

 


But does early emphasis on the supply side really come down to those psychological factors?

Well, there’s a little bit of that. There’s also—it depends on perception of reality. The question is, do you believe that there’s fundamentally a shortage of energy, as in ‘We don’t have enough’? Or do you believe that there’s plenty of energy and, yes, it gets more expensive because the market prices it to whatever the world is willing to pay, but we’re not really at a crisis situation?

If you believe that there’s a fundamental shortage, then the supply side is where you want to go—you want to supply something that the world has a shortage of.

But if you don’t necessarily buy that—which I personally don’t; I’m not in the camp that says there is a true shortage of energy. Yes, there are other interesting trends at play, which we can talk about. But if you don’t subscribe to [the idea of a real shortage], then where you need to go is, what’s the most cost-effective way of reducing your dependence or the energy-cost component of whatever it is you’re doing? Which is what most of us are doing now—more and more of what we’re doing is driven by energy [costs].

 


Could you talk a little bit about what Packet Power does?

We’re getting close to disclosing more about that. All I can say is that it is looking at the demand side of the electrical energy world, and trying to do it at the lowest possible level of granularity. Because, really, if you look at the electrical power distribution system today, it is incredibly inefficient, and it’s remarkable how little we actually know about what goes on in the world of electricity.

 


When you talk about granularity, are you talking from the perspective of utilities or from the individual consumer perspective?

I’m talking about getting all the way down to where energy actually gets used—every device in the world, not necessarily ‘consumer’ as in ‘person,’ but I think that’s definitely where things will go.