The state of California, recently anointed as the 5th largest economy in the world, is no stranger to complex risks. From the infernal wildfires that set parts of the state ablaze claiming 43 lives and setting records in terms of costs, to the oscillation between droughts and infrastructure-threatening rain, set against perennial seismic risks, California has long been a proving ground for the innovations needed for societal adaptation and long-range economic viability.
While the 5th largest economy in the world can clearly marshal considerable financial resources to respond to these hazards, the state’s most abundant resource (after the sun) appears to be the policy prowess for future-proofing and growing the industries of tomorrow. The recent move to hardwire climate resilience and energy security into California’s building code is such an example and the world should take notice and follow suit.
By 2020, California has mandated that newly constructed homes must have solar panels on their roofs. Not only does this highlight how the case for renewable energy must be adapted to regional environments, it shows that the economies of scale now achieved in the solar industry arc towards widescale adoption. These efficiencies are likely to improve. If the previous 10 years of solar panel costs are any guide, where there was a 73% decline in prices, the next 10 with a wave of aesthetic (such as Tesla’s solar tiles) and utilitarian innovations (such as improvements in battery storage) afoot, are likely to keep pace.
California nursing a native industry and harnessing an abundantly native resource, the sun, is likely to push greater demand for the skills, technologies and workforce needed to future-proof much of the world. Economics based on certainties like public policies based on equilibrium between financial, social and environmental goals should be lauded. California has just achieved the climate change equivalent of mandating automakers to add airbags and basic safety features to all their cars.
If there is any lesson to be drawn from 2017 it is that we must now confront climate change in the present tense. Last year recorded between $300 and $500 billion in insured losses, which offers some comfort to the insured who often labors with long waiting periods and slow responses, while at the same time leaving an enormous protection gap that bleeds its way to tax-payers. The energy sector, from public utilities, like Puerto Rico’s bankrupt and broken PREPA, to the oil and gas value chain, carries a large climate change crosshair on its back. Indeed, Hurricane Harvey’s massive rain bomb, drowning Houston, the 4th largest city in the U.S. and the choke point for 25% of the country’s refining capacity, drives home the vulnerability. If California is a proving ground for climate-smart energy innovations, Puerto Rico and the islands of the Caribbean are the canaries in the climate change coal mine.
As Harvey’s flooded waters retreated – where only 15% of Houston homes had adequate coverage – so did the insurance industry’s risk appetite to continue carrying certain losses on their balance sheets. Showing how this insidious trap works, Houston has had 3 500-year floods in the past 3 years consecutively. Resilience at the household level, following California’s example, is our first line of defense while at the same time offering a clear pathway to building a competitive economy.
Already today, despite the ongoing policy battles arrayed against renewable energy, the sector employs more people in U.S. electricity generation – 43% of the total – than oil, coal and gas combined. Calls to build back better, where adding to renewable energy capacity is a stride in the right direction, should be tempered with questions about reconstruction in the first place, especially if principles of resilience are not being ingrained in code and nature’s lines of defense are not being respected. Rebuilding with bricks and sticks in a flood zone, Tornado Alley, near fire or hurricane-prone areas is a disaster waiting to happen.
Long-range, California is seeking to decarbonize its energy matrix by half by 2030. Pulling in the 80,000 average new home starts into the electricity matrix beginning in 2020, where there are 15,000 solar-ready homes today, is a great stepping stone towards the 2030 goal. However, the one ingredient that appears to be missing from California’s strategy is to turn these 80,000 homes – and the many thousands more to follow – into a closed-looped decentralized energy marketplace, armed with the ability to efficiently resell or plug in excess energy capacity to their neighbors.
While the economics are sound, California, like much of the U.S., is coping with an affordable housing shortage. Adding between $8,000 and $12,000 to solar-enable new homes may only widen the affordable housing gap, unless the state deploys technologies and platforms that monetize renewable energy investments at the household level. The household calculus on California’s move still bears out positively for homeowners who will be able to net out the mortgage cost increases of being solar-ready through energy savings and efficiencies. The current estimations show a 50% advantage in the favor of energy efficiencies over unrecovered costs. But what of lower-income households or old housing stock, who have a slightly higher, albeit positive, barrier to entry? How do these people and homes benefit from a policy that so obviously benefits the state and indeed the world?
While California just hardwired energy security into its building code, the next policy challenge is to open the regulatory space for the resell of excess energy capacity at the peer-to-peer level. In this manner, each of the 80,000 new homes contributes to a hub and spoke energy network that will be far more resilient to the climate shocks and cyber threats that plague centralized electricity structures making them single points of failure. Increasingly, as is the case in Puerto Rico, state-owned and operated energy systems are quickly becoming stranded assets and a curse to even the most well-intentioned leaders. A growing statewide network of solar-ready and interconnected homes with the ability to resell energy, while adding community-level redundancy augurs well for the future.
No stranger to cutting edge technologies, California is very likely to lead the way on the next wave of energy innovation, which is to promote the adoption of blockchain-based energy remarketing and capital formation using cryptocurrencies as a means of exchange. This move will not only enhance system-level security, a decentralized energy matrix – like installing solar panels on individual homes – is a vastly safer bet in a turbulent world.