Policy and Politics are Powerful Advantages in Energy Ventures

Amy Francetic, Managing Director
September 7, 2017

I am the Managing Director of Energize Ventures, a venture capital fund making software investments in the energy and industrial verticals. I am also a political junkie and have spent a fair amount of time throughout my career meeting with elected officials, advocating for energy policy, and trying to understand energy markets. Invenergy, an anchor investor of the Fund, and where I had previously worked, is a leading independent producer of clean energy. The company employs dozens of full-time staff and part-time consultants to help manage government and public affairs. Whether you’re a developer, utility, manufacturer or bank, you cannot succeed without a clear understanding of how policy will positively or negatively affect your business. The same can be said for entrepreneurs and venture investors.

Biofuels, solar cells, energy efficiency, and fuel cells have all been heavily funded and produced high profile failures over the past decade because market and policy conditions were misjudged and ignored by entrepreneurs and investors.

Let me explain why it is so advantageous to strengthen your policy and politics muscles as an entrepreneur, investor, or executive in the energy sector.

First, the playing field is not level across energy technologies. New technologies are competing for market share against incumbent technologies that enjoy strong existing political and economic support. For instance, critics of renewable energy often falsely claim that wind and solar cannot survive without government subsidies. The federal Production Tax Credit for wind and the Investment Tax Credit for solar are phasing out over the coming four to five years, and by then wind power is on par to compete against all other generation sources as a lowest cost resource. These incentives were created 20 years ago (1992 for the wind PTC, 2005 for solar ITC) to help launch new cleaner, domestic energy sources. But global fossil and nuclear energy incentives dwarf renewable incentives by a factor of 3:1. That margin increases when you measure cumulative incentives of the past 50 years. The mix of energy production sources (nuclear, wind, solar, natural gas, coal, etc.) is again in the foreground of government policy, and government intervention can have a big effect on competition and competitiveness. If you are starting a new company, don’t naively expect that you can compete on ideas and chutzpah alone.

Second, nimbleness and the ability to respond to market-specific opportunities in the business world are crucial for survival. Understanding local and federal policy helps businesses determine geographic prioritization. Domestic energy markets are diverse and complicated. Infocast has a good summary of regulated and deregulated markets in the US. Regulation determines the cost and mix of energy in a state, and prices for electricity vary from $.09 per kWh in North Dakota on the low end to $.29 in Hawaii on the high end. Additionally, the supply chain itself is complicated: wholesale power markets are supplied by bulk generators, and retail markets provide choice for end users with supply coming from power marketers and generators. Startup companies must consider all these factors when shaping their business model, and they must prioritize geographies as they expand and scale. This goes beyond knowing your customer — it means understanding the forces that influence your customer’s ability to choose.

Next, certain cities and states have progressive energy goals which are more welcoming to innovators and new companies. Chicago, Madison, Austin, and San Francisco are a few of over 100 cities in the US that have committed to 100% clean energy in the coming decades for their municipal energy supply. Additionally, clean energy jobs are growing faster than most industries in the US and certain states are adding these jobs faster than others. The Midwest Clean Jobs Survey counted nearly 600,000 jobs across 10 states with Illinois leading the way with over 120,000 jobs. This is an important data point to consider when building a new business — think about where the talent can be hired and trained and which state will be more likely to help grow a business.

Let’s note an important distinction: policy vs. politics. Policy is legislation and rule-making. Politics is how you get that policy implemented. You can be a policy genius and not get anything done if you do not understand the politics of an issue. And the politics are constantly changing with elections, so in order to be effective you need to invest some regular amount of time nurturing political relationships.

Entrepreneurs and investors punch way above their weight with elected officials. Remember, you are creating new jobs and elected officials all want to know how they can help (and take credit!). If your company is seeking government support to fund prototypes or win business, get to know them before making a request for support. It’s best to hire a consultant or lobbyist that can arrange meetings and advise on communications when starting government outreach. They are effective jungle guides, and good ones are worth every penny. Educating elected officials is an important responsibility of entrepreneurs and investors.

It’s understandable given the demands of running a high growth business that many entrepreneurs overlook the importance of creating a competitive advantage through policy knowledge and political action. Policy awareness can unlock a multitude of positive growth-enabling options, such as grants, brand awareness, industry influence, and corporate introductions, to name a few. Strategically align yourself with investors, advisors, and consultants to help navigate those opportunities.

The Energize Ventures team is here to help.