Derek Kerton: Trends, The Future, Innovation | Turn the Lens podcast with Jeff Frick Ep24

Cold Open

All right, So you ready?

Sure.

Okay, So I will count this down, and we will go in 3, 2, 1.

Jeff Frick:

Hey, welcome back, everybody, for another episode of Turn the Lens. Jeff Frick here, coming to you from the home studio, and I'm excited for this next guest. We have a lot of shared passions, but we also have a lot of interesting things going on. And he's really into the future. He's really into innovation, and everyone is trying to figure out the innovation story. So we're really excited to have him on. We met a long time ago, but paths have recently re-crossed. So welcoming in through the magic of the internet. He's Derek Kerton, He's the Managing Director and Principal Analyst at the Kerton group. And specifically in the context of this conversation, he is also the Chairperson of the Cleantech Council, which we will get into. Derek, great to see you.

Derek Kerton:

Hi Jeff, Good to have you and be on your podcast. Thanks for inviting me

Jeff Frick:

My pleasure. Thanks for accepting the invitation. So recently, paths re-crossed. You're at this thing called the Cleantech Council. So give us a quick overview of the Cleantech Council, what it's all about.

Kerek Kerton:

Sure, Jeff. Cleantech Council is as a group that we have formed here in Silicon Valley and the notion is that there's a mountain of innovation taking place towards a cleaner, greener, more circular economy. And a lot of those innovations are happening here in Silicon Valley. So what we'd like to do with the Cleantech Council is find the startups whose technologies are going to have an impact on a cleaner and better world and get them in front of the bigger companies that are looking for partnerships and they're looking for solutions for them to adopt and looking for companies that will help them meet their ESG goals.

Jeff Frick:

It's a pretty interesting model. There's so many innovation centers as you drive up and down (U.S. Highway) 101 or if you're paying attention in Palo Alto or a lot of places, you'll see all the innovation centers for car companies, Innovation centers for Siemens, Innovation Centers for all these big corporates. The Ford Autonomous Vehicle Center is, you know, just down the road from Tesla, Big companies see the opportunity to try to get a little bit of that Silicon Valley juju, but it's still a challenge. The Cleantech Council is not your first or second, but it's actually your third kind of structuring of a way to bring innovation from little companies and academe and then connect with big companies so there's a lot of innovation models, there's Venture (Capital), You know, there's corporate venture investing, there's incubators, there's Y Combinators, there's all these things to try to get innovation into big companies. What are some of the the things that work really well? What was the opportunity that you saw to create this, this kind of model of marrying innovation with big companies?

Derek Kerton:

You've touched on two topics that I'll answer there. One is, where did I get the inspiration to do the Cleantech Council and have I done things like that in the past. In 2000, we started something called the Telecom Council, which was interesting because the mobile Internet was just emerging. The Internet itself, connected broadband, 24x7, was just starting to be something in homes with DSL and the phone companies were are ISPs, and they were finally realizing that, hey, a lot of the technology coming out of California is now a lot more relevant to us than it used to be. Content and applications and services, that layer on top of telecom networks are starting to be something we might want to offer to our customers.Either buy them and offer them ourselves or a pass through as a partner. So the phone companies started showing up in Silicon Valley with permanent field offices to do research and to do scouting. And so at the time, I was working for a Korean phone company called SK Telecom here in Silicon Valley, and I started collaborating with some colleagues from British Telecom and Swisscom and also Nokia venture partners. And what we said at the time was, Hey, a lot of us are looking at the same ideas that, you know, the four of us for different reasons. And we're not really competitive. We could all share these ideas and compare notes and pass along some of the best startups, and in so doing each do a better job in finding the best startups and bringing them back to our home head offices. So we started doing that on a monthly basis, just getting together and saying, Here's, you know, what are you seeing? What am I seeing? What trends are you observing? What's important for me to make sure I'm not missing as a guy who's watching Silicon Valley for a phone company and by sharing and combining that knowledge among these four people, we found we could be much more effective for our employers and for our companies. And so we quickly grew that to about a dozen of these phone companies  that, as I said, had been arriving in Silicon Valley. And we found our powers multiplying and the quality of the job we were able to do was impressing our head offices more and more, it looked like we were punching with the weight of, you know, two or three or four people. And we were, you know, for each one of us. And so when I left SK Telecom I kind of formalized that group into the Telecom Council. We made it a monthly meeting and we also said listen instead of just talking about these startup companies that are pretty impressive when we're meeting once a month, why don't we bring a couple of them in to pitch us at the same time?

So I'll say, Hey, I found these guys, Here’s the CEO and the CEO of that startup would make a pitch. So that was the genesis of the model that the Kerton Group has reproduced in Telecom and in automotive and in clean tech. In the automotive industry, We started noticing ten years after the phone companies, the car companies were saying almost the same thing, Hey, now we have these connected cars and they're starting to have some interesting capabilities. The screen, our dashboards in the center consoles are no longer a bunch of buttons and dials. It's starting to be a screen, and that's starting to look a bit like a tablet or a phone these days. In what way do apps and content and services make sense for cars. And in what way can technology deeply affect cars and the electrification became part of that wave, electrification of cars.

So ten years after the phone companies, we noticed a wave of auto manufacturers showing up in Silicon Valley. And we said, listen, we got a model we can reproduce with these people. And so we launched the Autotech Council in 2010. A big part of my personal interest is in cleaner and greener technologies and redesigning urban living and better ways that use through resources but still produce really good lifestyles and outcomes. I've been very interested in green technologies, very deep in renewable energy early adopter prototyping, a lot of these solutions myself.

So I started with e-bikes in 2010, electric cars in 2012, solar on my roof in 2014 and progressing through and with a deep interest in that around 2018, 2019, we saw a wave of clean tech investments starting to get made in Silicon Valley and a new startup explosion coming from technology companies that could provide interesting greening, clean and green technologies. It's not the first time there was a clean tech wave that came earlier 2007, 2008. That may have been too early, like so many things. The technology really wasn't there to support them. The battery technologies weren't there yet, the cars weren't there, the motors, the solar panels didn't have the efficiency needed. So that particular clean wave kind of came and went. But as things go in cycles, this is kind of the second wave in Silicon Valley for clean tech. And we jumped on board. So we launched the Cleantech Council to do the similar thing that we do, find the interesting startups and take them to the bigger players.

Jeff Frick:

That’s great. Because we first met, I looked it up, it was 2017 and it was at the Autotech Council and what's amazing to me is like any industry, once you dig in a little bit, you know, kind of the micro specificity and the segmentation of little parts of the problem are amazing. I think the one that we first met was just all about high-resolution mapping solutions and the great debate, to whether you figured out on the fly or do you pull a database map and all the arguments pro and con against that. So I'm curious, what are some of the things that create a successful arrangement between a startup and a large company? The event that you invited me to the other day, all the companies, the big companies were huge multinational, international companies.

Derek Kerton:

You're spot on. ‘Indigestion’ is a great way of referring to it. You know, when we were looking at the automotive industry, a great way of referring to these startups from Silicon Valley or anywhere in the world meshing with these massive companies was that they're like gears, but they're turning at different speeds. The big companies are big gears, turning at a slow speed, and the startups are whipping gears, and they don't necessarily mesh immediately right off the bat. Large incumbent operators in any industry don't behave at the pace of Silicon Valley, and maybe they shouldn’t, right? They are risk-averse. They have a lot of legal obligations. In the case of a phone company, they have 911 obligations, the amount of uptime required by their governments and such. So these companies are risk-averse and need to be very reliable. The Silicon Valley companies are very much the opposite. So you had that huge culture clash, as you mentioned, between the two. And I find that initially when an industry starts turning their head away from in-house innovation and we need to partner to move really quickly, the world's moving more quickly, we need partners and they look to partners. They're generally not ready to do it. It takes some time for cultures to adjust. Though there are those years where the gears grind, and I say years because it's not over quickly. There's a lot of collateral damage, a lot of startups say, “Oh, we’re engaged with ‘Big Company X’, I think it's promising, but Big Company X can't make a deal fast enough. The startup runs out of money and everybody ends up pretty angry. So that's the culture clash that’s different paces. And the large companies often don't have an appetite for outside innovation, right? They got the ‘Not Invented Here’ syndrome. But I find that, and I'm going to be sad with the numbers, I tell you, but I find between three and six years of grinding those gears, industry generally says, “Aah, now we get it, we have to move quicker.” And the startups in the same space also say, “Aah, we get it. We have to move slowly. We have to have more runway money because these big companies aren't going to jump on board really quickly. And as those two sides adjust, you get the synchro mesh that lets those gears engage at a more reasonable speed.

So that's one of the main things to talk about your culture. The big thing I find is, how does it work? How do you make it work? The big companies need to change; the small companies don't have to. They're nimble already and they're turning on a dime all the time. They have a proposal for the Big Company; they’re going to say ‘Aah, we want to do this business model with you.’ Big company says ‘Yeah, we don't want that. We want the other one.’ They’ll say ‘We’ll do that too.’ So small companies, no problem. Turn on a dime. Pivot. The big companies need to build. And this is what they would do in these 3 to 6 years before they become good at adopting partnerships. They need to build a mechanism to ingest outside innovation. They need to build a roadmap for spotting, identifying good talent and good ideas, evaluating them fairly and democratically, choosing a winner quickly before that company runs out of money. Getting a pilot project up, getting the results of that, and implementing a contract and deal. Sounds pretty straightforward the way I just put it to you. But it can be massively different, difficult for a company that's not experienced in ingesting outside innovation, so the best companies that we’ve seen have an established process to do that. And what that means too is when they look at a company for a potential partnership, they'll say something to the effect of, “I’m looking for a better optical sensor that has a high resolution but can work within these wavelengths slightly wider than the human eyesight. I'm making this up because it could apply to cars, telecoms, or clean tech. We’re looking for a partner that can do that. If they have a good process, when they choose the eventual partner, they're going to have looked at multiple potential partners that have reasonable solutions for that, and they're going to know that they've done a decent job of beating the bushes, picking out one of the better ones, maybe not the best, but one of the better ones, sign that partnership and move forward and get that product out into consumers' hands as quickly more quickly than would otherwise happen.

The most important thing for big companies adopting innovation is for them to have an established innovation adoption process. Not lip service, not a bunch of PR about how we're pro-innovation, pro-partnership – an established process.

Jeff Frick:

What are kind of a range of good outcomes for that marriage for the little company. Is it a licensing deal? Is it a design win? Is it actually a contract to deliver, you know, a solution? Is it a POC? (proof of concept) Is it getting absorbed? Because the other bad thing, you know, kind of good news, bad news, used to joke in retail, right? Or wholesale. You just got Wal-Mart for a customer. Good news. Bad news. You just got Wal-Mart for a customer, right? I mean, the impact that a big company can have on a little company, just in meetings. Forget about everything else. Just simply death by meetings can really crush them. So, what does success look like? What are some of the ways that you've seen success play out between LittleCo and BigCo?

Derek Kerton:

Okay, well, the good news is it's not so much like a Wal-Mart contract because that's a physical product, and you've got to scale up your physical product production really quickly when you make that Wal-Mart contract. In the tech world, things are generally more scalable, not infinitely, but, you know, if your software solution, it’s very scalable. So you have some custom engineering requirements that the customer will want, the large customer, but you don't have to instantly have the materials and the factories that could produce widgets, right? You're producing software. Sometimes it's widgets, though. So there is that. Success for the Startup Company is a pilot project, generally a contract towards a pilot project. When that happens, the small company, they want to do deals with multiple big companies, but the first one to engage with them on a pilot project generally demands most of their resources to satisfy that. But the upside is prove yourself in this case and you will make that deal with that first company, and that will give you a viable scale for long-term economic viability. So now that you have that first customer, you are maybe now a profitable company. Now the second and third customers are going to be wildly profitable, right? As you scale up and massive advantages you've got, especially in the world of big incumbents. So if you're a startup making a deal with a big incumbent in any industry, so I'll talk energy industry. If you make a deal with Shell Oil, you're very likely to make a subsequent deal with another large oil company with a similar solution because there's going to be a proof case that you had with them, the first established company, right?

Jeff Frick:

Another kind of big topic I want to touch on is the role of the government, both in terms of regulation as well as stimulus and taxes. I think people discount the role that government can have in changing and shaping things, whether it's incentives around EVs, car purchasing, whether it's more recently, you know, the investment in the EV charging infrastructure. There's some new sustainability laws going in place in New York that everyone thinks is going to have a huge impact on the buildings. That can't maintain, you know, the kind of level of sustainability that they need to with financial penalties, which might kind of be a tipping point for some of these, you know, kind of inefficient buildings that just don't make the grade anymore.

But you've got DARPA (Defense Advanced Research Projects Agency) and the Department of Energy. So there is a large kind of influence from the government on basic innovation, basic development, and kind of incentivizing a change in behavior. How do you see that playing out within both the startups as well as the big companies and leveraging, a little bit of either, hopefully tailwinds, I assume I don’t think you'd want to go into the government headwinds, but tailwinds to really move the needle on some of these big important issues.

Derek Kerton:

It's absolutely true that governments can have a huge impact on the rate of adoption of sector, a technology sector, new ideas, and solutions, and there's really some good aspects of that as well as a few negative ones.

And the negative I'll start with first, it's that the government might lead us and incentivize down a path that isn't necessarily the right one. And that’s I think, where a lot of people who are against government interference would say, "Yeah, but governments make bad choices to take us the wrong decision," and I won't deny that that's potentially true.

One of the great things about, if there are any, about the greenhouse effect is we know that less carbon in the atmosphere is good. So I don't have to worry too much myself about the Government's making a mistake about whether more CO2 or less CO2 is the right choice. So if you have governments incentivizing less CO2 in the atmosphere through a variety of programs, there's a really good chance that the winds that they're putting behind sails are blowing in the correct direction. So in the case of climate action, in the case of alleviating some of our greenhouse problems, some of the disasters that are now hitting us, I think governments can have a really big effect in the right, and I'm pretty sure it can be in the right direction. So how do they do that? Well, there’s two things right, the carrot and the stick, and pretty well known that if you put a stick on it, and that's basically a regulation, limits, curbs, caps on production of negative externalities. So if you limit pollution, you require cars to run cleaner through CAFE standards (Corporate Average Fuel Economy) or anything like that. That's the stick. And of course, penalties are paid if solutions don't meet the minimum requirements. And then of course, there's the carrot, which we're seeing a lot with the Inflation Reduction Act, the IRA in the U.S.A., and CHIPS Act as well. And the carrot is out there to say, if you do these things, we're actually going to add money to the pile. We're going to subsidize those solutions. We're going to incentivize through financial, through money, either you for producing them or, in the case of the IRA, it's often we're going to subsidize your customers for buying these solutions. So if you can provide them, your customers will be more willing to pay for them. Of course, those help make new technologies hit the market, reach scale economies, and then once they're at scale economies, we believe they can be self-sustaining. My background was in economics, so I love all those arguments because I firmly believe in them. I believe that nascent industries, if you have a good idea that you want to get out there, it's right from the get-go. Based with incumbent industries that have all kinds of built-in systemic advantages. They've just had years to develop. Their supply chains, their solutions, their vendors. And of course, those players are going to be resistant to new entrants as well. So they're going to have some competitive forces they put to kind of squash or compete against new ideas. So this nascent industry has a difficult time grabbing hold. Now, if it's something obviously great, like solar energy, eventually it will emerge. But the question is, would humanity and society and our economy be better off if those technologies emerged 10 years or 20 years sooner?

And my answer is unequivocally, I believe so, yes. So if we can make those technologies hit scale economies at self-sustainability ten years sooner than they would without those kinds of incentives, we've done a great service to the globe in terms of climate, and we've also done a great service to ourselves because cheaper energy and more available and more plentiful energy, that's not actually something that costs the country money. This is something that's going to open the door to phenomenal opportunity. The 20th century was driven largely by energy provided by oil, by fossil fuels, and look at, I mean, you can't deny the boom in economic wealth that we got as a result of discovering this source of energy to power our machines and to let us abstract more, mine more, you know, do grab more things, build more materials.

We built phenomenal wealth on the back of that readily available energy. And just that now we've realized there’s a cost to pay that we maybe weren't as aware of in the 20th century. But then now, I mean lucky timing because it could have been a world where this didn't exist. But we have a couple of alternatives now that are getting cheaper and cheaper by the year and that are very close to passing cost parity with fossil fuels and they're on their way down.

So if fossil fuels drove all that advancement in economic wealth in the 20th century, why would anybody look at the opportunity to have free energy from the sun and the wind as an economic driver for the 21st century? We're going to have another boom based on energy availability this century. But it's not going to be from the fossil fuels; it's going to be from the renewables.

And I say free, and I understand you have to put up infrastructure to capture it. You have to put up grids to move it, you have to put up storage to handle it. It's not a given thing. It takes capital investment to make it happen. But once that capital is in place, the sun just keeps on giving.

Jeff Frick:

Although I do think it'll be interesting to see if there's some law of unintended consequences on externalities at scale. I always think of things like wind or even ocean. At some point, do you start impacting some natural currents, flows, etc. But we won't address that today. But what I do want to do is let's get into some of the actual science because I was amazed at some of the stories coming out of some of the presentations attending the event.

One of the general themes is this kind of energy from garbage, everything from this amazing process of basically reverse processing aluminum cans to go back to bauxite and electricity to just pulling lots of different stuff off of garbage heaps and doing it today, and this thing the new thing I learned SAF - Sustainable Aviation Fuel. And just the impact of both the aviation industry and the maritime industry. We all know about cars, but I don't think most people focus on that. So I wonder if you can share some of your thoughts in terms of there's a really core hardcore basic science breakthroughs that are happening in these areas that are really exciting.

Derek Kerton:

And this is why the second wave of clean tech is really exciting and interesting because a lot of the technology that we're seeing is actually going to be able to support it. Where previously, I mentioned the fact that solar and renewable energy are reaching price parity with fossil fuels. Very difficult to convince people to adopt clean solutions 15 years ago when you had to pay a substantial surcharge for them, there weren't the available subsidies from the IRA to cover that surcharge. And even if there were, the surcharge was just too high so that a little bit of government subsidy wouldn't have cut it.

So, you know, the first wave of clean tech suffered from that. It's just too expensive to do. It's just not economical. It's a lot easier to convince people to adopt a modern, cleaner solution when it's also better for them economically or from a value it provides, a service it provides. And so we're kind of at this cool inflection point where, you know, some of these ideas, you can adopt them because you want to be green or you can adopt it because it's just better. People didn't buy Tesla cars en masse and start the EV revolution because they wanted to be environmentally friendly. They bought them because, hey, that's going to be really efficient for my long commute. And over the years I'll save money on gasoline.

You just mentioned some of the startups that we saw in some of our meetings that we hold in the Cleantech Council. And yeah, you mentioned the circular economy, the notion of taking things that are garbage heaps and making value out of it. There are high-value items in garbage, higher value, higher in value and lower value items. And sorting garbage is essential to adding value to the garbage in general because if you can sort the materials, then they can maybe have actual market value once they're sufficiently filtered of all the other junk. So we've seen people use robotics, which you probably everybody knows has advanced a lot lately, artificial intelligence, machine learning, and computer vision, massive different technologies here in Silicon Valley. But you put a robot over a conveyor belt full of garbage, add a bunch of cameras and a robot arm, and you tell it to sort the garbage and it starts using its robot arm to knock garbage left, right, or pick it up, put it somewhere else, and it can start to do all the things we usually do with our blue box, but at a faster speed and with a higher level of accuracy.

And so as these robots are sorting the garbage, it can pull out obviously aluminum and all of a sudden there you have a source of value. It can sort glass by color and basically it can sort it any which way you want and you can train the robot to pick, you know, sort or filter for different things. But also, the robot can train itself. So through machine learning, it can evaluate the sorting and it can constantly get slightly better and better over time until, you know, it’s really highly effective. And then, you know, the next year they can build a faster robot with two arms and take a faster stream of garbage. So now we're able to separate the materials. If you throw on a little carrot-stick incentive for recycling, for example, glass is recycled pretty thoroughly, but...People don't really want to use it. It's kind of easier to go to raw materials, mine raw materials, and make new glass the color you want, and get the plastics, same thing. It’s just you can make a higher quality plastic from raw materials, virgin materials, than you can from recycled materials. But you add a little bit of government incentive to using the circular economy and the recycled materials. And then you add some of the modern technologies for treating the polymers inside of plastic. Costs a bit of money to treat those polymers and use these new technologies. But using the new technology, that costs a little bit of money applying the subsidy that covers that cost. Now the recycled plastics or recycled glass can be more economical for a business than virgin raw materials, and thus you get this awesome circular economy. And of course, the aspiration, the hope is that once it gets to a certain scale, it becomes self-sustaining. That's back to my economics training where, you know, we learned that when industries are nascent, costs are very high because they’re doing things at low volumes typically. As volumes go up, we go down a learning curve where we get better and better at doing it and we're doing it in large volumes. And so the cost per unit starts to drop, the cost of doing things over time drops.

Jeff Frick:

I want to shift gears a little bit and one of the other topics that came out at one of the presentations was really fundamental changes in the way the grid works and power distribution and we come from a world where it was always centralized creation of energy, and then it was distributed out to the grid. And unfortunately, that grid is very, very old. And we see all kinds of problems with wildfires, long term transmission as well as, you know, falling down and catching fires, but also they lose a lot of energy. And what's really interesting, there's a great video. I know if you've seen it with Marques Brownlee. He's a big YouTuber and he just completed an experiment. He's 100% Tesla. He's got a Tesla powerwall. Did you see it, he has the Tesla Tiles.

Derek Kerton:

He does a lot of Tesla stuff I’ve seen.

Jeff Frick:

And he's got the Tesla car. And he said, "You know, I've had it now long enough, and I'm not paying any money for electricity." But the thing that really popped out is that his car was by far the largest consumer of energy in the house. So what's interesting now is, is this conversation about the cars working both ways and now suddenly all these electric cars becoming an extension, almost like an IoT (internet of things) extension of the grid to store and potentially feed back because, you know, we've got this kind of fundamental disconnect between sustainables and when they're on and when they're off. But this idea of kind of a distributed grid and not necessarily a rebuilding of the old grid but really kind of establishing a new grid with all these different pieces now that are attaching and adding intelligence and adding storage. And Marques Brownlee, the end of his story was, "I'm 100% self-sufficient, both for transportation as well as everything in my house." But it's really this  giant battery in the Tesla the big X factor.

Derek Kerton:

Yes. So what you're talking about in a larger sense is, you know, the concept of distributed grid or microgrid. And it's the notion that it's, and you mentioned that the previous model, which is, you know, macrogrid where the production happens somewhere in your state but far away from you. Sometimes we import some energy out of state, but we port it from a long way over transmission lines, step down the voltage before it gets to your house and you're a net consumer.

The concept of distributed grid is more along the lines of, well, what if so we have historically we have production on one side of my camera and consumption on the other side, and the notion of a distributed grid is, well, what if we took those things and made them happen all over? So not only is consumption happening over here, consumption at my house, but I'm also doing some production at my house and maybe I'm also doing some storage at my house. And so then in my neighborhood, we're also having multiple people who are in any given hour consuming, producing, storing, unleashing storage and things like that. And so if you had this distributed grid immediately, some of the benefits that occur are you talked about our aging grid and how, among other things, our long-distance transmission lines. Can they handle all the surge of electric cars we're starting to adopt? Well, ceteris paribus meaning all things being equal, no, they can't.

But what if, why would all things be equal for crying out loud we're moving into the future here, all things are not going to be equal, so we're going to have more distributed grids, we’re going to have production happening closer to consumption. So we don't need to use those long-distance lines for every little bit that every kilowatt that goes into our home or our car batteries. So what if I'm producing voltage for my house, talking about my house as a microgrid, I got solar panels. I don't have a battery yet. That's one thing I didn't get on when I put my solar panels on. And so I'm a little bit behind on this, but I'll tell you why I'm not going to buy one. I'm waiting for what Marques is talking about. I'm waiting for my car to be the battery. I can buy a set of Tesla Powerwalls, a pretty high price or any competitor's Powerwalls. And they're just typically what people put in is a fraction of the size of a Tesla car battery. So I have a Nissan Leaf and a Tesla out here. Why would I want to buy more batteries? I've already got phenomenal. I bought over 100 kilowatt-hours of storage in my cars that I could potentially tap into in case of an emergency to get me through a power outage, but also in the case of a daily flow of energy to be a microgrid.

So when the sun is shining here in California, I can produce, I can use the energy that I'm producing. I can choose to run a pool pump and a hot tub pump in the middle of the day when I'm producing energy locally. So now I'm producing and consuming locally. I'm already a bit of a microgrid. If you add in the fact that I could put energy into my car. Okay, well, my pool's done running. My solar panels are cranking, and I'm not using all the energy. I can put energy back into the grid, which is interesting too as part of a distributed grid and such. But I could also just throw it into my car battery because energy is cheap midday when solar is cranking here in California. I don't want to throw it back into the grid when it's cheap. Maybe I'll put it back into the grid 7 p.m. at night when energy is expensive, so I'll do some arbitrage. But also manage my personal energy consumption. I will do this as an individual. But what happens in the world when, and obviously the technologies are just around the corner from being mature to do this? But Tesla doesn't have two-way charging, it only takes in energy. We're starting to see some cars that have vehicle-to-grid or V2X, vehicle to anything, where you can plug tools into the back of your Ford F-150 Lightning, you can plug some cars into grids and have them reverse feed your home. So as those technologies start to emerge, we have the technology to do it. Now, it's just a question of can we manage it? It's pretty complicated, the average homeowner to think of themselves as a grid operator.  So we need really good software to manage it, to come with the hardware, to provide the solution. But the pieces of this puzzle are all falling into place. And your quote of Marques is exactly that. Hey, wait a minute, I got the solar, I got the car, I got the home, I have the pieces of the puzzle here for me to be my own grid operator. All that’s lacking is the vehicle, the V2X part of it, and then the management intelligence. So it's pretty exciting. Our home is a microgrid, but there are times when I need more energy than I'm able to produce or I’m producing more than able to use. Well, now I want to ship that out through the grid wires. But do I want to ship it to the next state over or, if I'm in NorCal? Do I want to ship it to SoCal? No, I want to ship it to the person closest to me who has the opposite case.

If I'm in a position of oversupply, who in my neighborhood right now has demand? Okay, the energy only has to travel a few hundred yards to the next consumer. So we kind of, and by having multiple homes in this larger neighborhood microgrid, now, we can smooth out the peaks of supply and demand. Obviously, solar is something that everybody has a peak production at, but our consumptions could be in very different times. So we smooth out some of those things. And the grid operator, in my case, PG&E (Pacific Gas and Electric), could potentially feel fewer surges in demand and fewer surges in supply as a result of having these micro-grids self-managing around the neighborhoods, homes, etc., etc., certainly enterprise campuses and things like that are already operating as microgrids. It's all pretty cool stuff. And another thing I want to bring on to tack on to this conversation is so often people who are, you know, climate deniers or against going green and green technologies, they say things like, 'Oh EVs man, that's all real cool.' But as soon as everybody gets EVs, it brings down the grid, and that's back to what I said, assuming nothing changes.

But why would you assume nothing changes the way things are going in the past couple of decades? Let me put it to a different way. Not only are they - I think they're wrong. I think they're inversely, totally the opposite of what's actually going to happen? I think electric cars are going to be one of the huge benefits to grid operators in terms of smoothing out demand and smoothing out supply. Once these things are bidirectional with vehicle to grid, V2X solutions, we're going to be able to manage them remotely. Grid operators are going to be able to send requests for people, 'Please don’t use any energy right now.' Great. I'll just tap into my car. They can signal with a wish, like, 'Please don't use energy.' That may or may not be effective. We've actually learned that as a society that generally doesn’t work too well. But if my energy company says to me, 'Okay, go ahead, use energy, I just doubled the price, though.' I will back off using energy because the price has gone up. Supply and demand seems to consistently work. So I will tap into my car's batteries when they jacked up the price. So this real-time pricing, they will be able to smooth out, they will be able to manage the supply and manage the demand that they're seeing out in the market to smooth the load on the network and on the aging grid. And cars are an essential part of leveling the demand and supply on the grid and actually making that ask get more value, extract more value from that legacy infrastructure and lowering the amount of capital investment. Grid operators have to make...

Jeff Frick:

It’s really interesting. It's kind of like... It's kind of like the big investment in all these charging stations. Everybody has a charging station at their home. Why? We don't need a gas station like we have gas stations. We don't have gas stations at home. We do have plugs at home. It's like it's a different paradigm. But the other piece on the microgrid that I thought was interesting is so there's the big piece, the use case you just described, but there's also these remote locations where now that the price of the batteries and the price of the solar has gotten so low that I think one of the people that spoke at your meeting said these remote stations that are, you know, kind of fire monitoring or whatever they are are completely self-contained. They do have a diesel generator. But because of the sophistication of the software, because of the batteries, because really kind of smart, intelligent management and cheap solar panels, that they don't really need much of the diesel. These things are, you know, kind of again, these kind of self-sufficient little microgrids. It's so cool.

Derek Kerton:

That links two of the industries I work closely with. So telecom and clean tech. And so the telecom industry often puts cell towers on top of hills on top of mountains. We want them to have gap-free coverage. So they've got to cover it all these freeways. And these state roads that go in the middle of nowhere. And so they want to get into efficient coverage. So let's say there’s a power line running down beside this road in the middle of nowhere. They can tap into that power and put a cell tower right there next to the roadway. But that only covers a certain, let's say, a one kilometer in either distance. I’m Canadian, so I’m going to do it in kilometers, however, if they put it up on the side of the hill that you can also see, then that tower could cover double, two kilometers either direction, so they could save money and reduce the amount of towers.

But then they go, 'Oh, but what's the price to run the electricity and the fiber connection, etc.,' up the hill to where we want to put the tower. So they have those trade-offs. But if they can have a microgrid up at the top of the hill that produces its own power sufficiently enough to run 24/7 throughout the year, they can say listen, we're just going to go for maximum range. We don't have to make the compromise and we don't have to trench and dig from the roadway where the power is all the way up to the top of the hill. That's free, we’ll just use this new battery technology and some of these great solar panels. And yeah, we will have a generator as a backup. So diesel, what will actually end up happening as we go forward? The company mentioned diesel generators need to be used frequently to work because they need to fire up weekly to circulate the oil to make sure it's not getting too old, etc., etc. Also, you need to run them every week just to test it. Well, what, they might change those to a different kind of fuel. Like natural gas stores a lot longer. So that, it's really just a pure backup plan. And of course, they can reduce the size of the generator required because they're primarily going to rely on solar and battery.

Jeff Frick:

And we could go forever and ever. I’d love to get your take on in the context of moving the generation of power closer to the demand. Do you think they'll ever be like small nuclear? The nuclear Navy's been running in the United States, now since 1961. I looked it up before the interview. So 60 years. Right. And I'm sure there's been more accidents than we're probably aware of, but relatively safe. And there is certainly the problem of getting rid of the spent uranium at the end of the process. That said, it seems logical to me that for certain applications there's going to be certain types of high demand. I don't know, making steel, making cars. I'm not that clued into high demand where, you know, again, to get away from the transmission and to take the pressure off the grid, there would be maybe a small aircraft carrier-sized nuclear reactor to power a plant or a specific number of plants or something. Do you see that in all your conversations on the future? I haven't heard it very much.

Derek Kerton:

I do. I see it, but I think I don't see it enough to think it's likely. Do I think it's technically possible? 100%. As you said, it's already in ships and it's been in ships for about 70 years. So the technology to make a small nuclear reactor that could provide a lot of energy and you're right, there are lots of industrial processes that need a lot of energy, aluminum production, just being one, for example.

And so, you know, where do you see aluminum production facilities? I don't know if you're aware, but you see them near hydroelectric installations, they co-locate close to the generation of energy. Again, they're paying a high price to be located next to hydroelectric. If they could locate closer to mining, that would save a lot of energy moving the mining resources around and things like that. But I think the risks involved of nuclear are high. And I'm not saying too high, but high. And the risks are not just an accident, but also sabotage and micro-terrorism and things like that. So can we, how can we assure the security? When the military is operating these mini nukes, we don't have as many concerns about security around them as when civilians are operating them in industrial applications. So there's that concern.

And then, frankly, there's really just the innate fear that people have of nuclear after things like Chernobyl and Three Mile Island. So, you know, there's going to be a lot of "not in my neighborhood" to that particular solution. So that's a huge challenge for fission to overcome. Is NIMBY a part of it is very real. And, you know, political leaders have to face it as they're making, you know, do we have laws that enable these solutions or do I want to face the electoral consequences of those decisions? So my guessing is that technologically it's something that absolutely could be done and would make sense in certain cases, like you said. But all told, No, I don't think so.

Jeff Frick:

Let's shift gears 100% away from there to something that I know you love and that I love. And that's your ebike and your PEVs (Personal Electronic Vehicles). And really, I know you're very much into the concept of a 15-minute city. You spend a lot of time in Paris, so you've got kind of an international point of view. And it's interesting because it looks like Paris is going through kind of what Amsterdam went through in terms of a reconfiguration around bikes and people.

So I wonder if you can share A) your passion about this topic, but then two tying it back to your other things and the impact on cars and the impact on clean energy of all of us spending more time on our electric bikes or unicycles or scooters or whatever it is to reduce some of those two-mile car trips, three-mile car trips, and half-mile car trips.

Derek Kerton:

Yeah. Okay, so there's a lot to unpack there for me. First one is, so let's talk first of all, you mentioned that Paris, so yeah, I have an apartment in Paris. So I'm very lucky in that sense that I have it because I love it. And one of the reasons I love Paris is, you know, after living in Silicon Valley for so long and really thriving on the energy of this place and the creativity it's got, the way it's been so dominant in technology for 60 years or more, really, you know, it kind of captures, if you're a geek, captures your heart, you really want to spend time there immersed in it.

And when I go to Paris, what I find, first of all, is the remnants of the Enlightenment and amazing innovations and thinking and philosophy, politics that they had there in that era. And it's just, the pieces of it are still there, still remains inspiring. And you can see it in the architecture and the museums and stuff. So it's just phenomenal for looking back at being the center of innovation for the world in a previous era than Silicon Valley. But what's really cool is it's also doing a lot of the crazy things right now. So in terms of urban design, because of the mayor of Paris (Mayor Anne Hidalgo) is fairly avant-garde in this sense. She was elected around I can’t remember the exact date, say, 2012, for argument's sake, for her first six year term and adopted very aggressive policies towards multi-modality for transport, not just cars, fewer cars in fact and other potential modes, scooters, bicycles being one of them, pedestrianization as such.

And so that was highly controversial. But she managed to, you know, just take the arrows at her back and forge ahead. And at first people thought it was ugly and pretty bad. But by the end of her first term, enough people were convinced about the benefits of the solution and the liberating aspect, the reduction in pollution, the reduction in noise that she actually was able to win a second term as mayor and push further with that. And then her second term as Mayor ran her into COVID, where she was able to double down. So many cities took advantage of COVID and the lack of daily commuters to and the need for social distancing. People didn't want to ride the public transit, so they needed to expand bike lanes and multi-modality, and other lanes for transit. So Paris took advantage of that, installing just many kilometers bicycle lanes during COVID and then made the decision to make them permanent. So it has been pretty amazing to see them.

You know, they were massive innovators for many times Paris through history. Pretty impressive the Enlightenment in particular. But then also very recently. Now you mentioned Holland and Amsterdam as being really interesting for bike culture and not using cars, and you said Paris was like them. And I like to think they're very different and give very different lessons to us. Each one extremely important.

When you look at Holland and you look at Amsterdam, what you see is the effect of 40 years of good policy towards balancing the use of cars in the urban environment with other modes of modality, balancing the space that's dedicated to cars in the urban environment with space dedicated to recreation and people and commerce. They've had 40 years to work on it. So when you go there, you're looking at the end game, you're looking at what could be in any other urban environment in the world. You could say, Oh, we don't have public transit in the US. Well, with 40 years do you think we can get there. So the point is with 40 years you can do what Amsterdam has done. What’s very interesting about Paris is what you're looking at is the rapid-fire process of the same thing.

Paris in 2012 elected a very forward-looking mayor. What can you do in a decade? Go to Paris to see. And the important thing is people say, Oh, we could never do it. It's too hard. Well, Amsterdam was a car-based city before 1972, and they were able to do it over four decades. Paris was a car-based city in 2012. And look what they're able to achieve in a decade of serious effort. So those are both very important examples for what can be done and what our end goals might be. But also Paris is an example of you don't have to wait; it doesn't have to take forever. If you have the courage of your convictions, you can push forward the change. But not just that. If you have a six-year term, you have the time to actually have people realize that these are actually good changes. I like my new lifestyle in Paris. I like my walkable cities and you get reelected. There's certain political quirks that gave Paris the ability to have that, and one is that the mayor Anne Hidalgo is mayor for the people inside the peripheral road and where car ownership when she started was only 39%. Car owners being a minority were not the overwhelming voting force. So she was able to win that election. Now, people outside of the peripheral road generally don't like the changes because they want to be able to easily drive in and park in the city. So that unique political environment has made it easier for her to survive politically while making those changes.

Jeff Frick:

Yeah, it’s interesting. Well then, my other favorite example is Janette Sadik-Khan right in New York. She worked for (Mayor) Bloomberg and was a huge force behind the Citi Bikes and putting those in and the miles and miles or kilometers of green bike lanes, as well as all those little parklets in the little funny shaped the little funny shaped blocks that they have because they've got the diagonal streets, Broadway, etc. And you know, her book is called ‘Street Fight’ and I saw her speak and read that book. And I was like, Oh my goodness. But it's great. And as you say, even in Amsterdam, even though it has been 40 years, it wasn't always that way. And there's plenty of pictures where you can see those courtyards in those downtown spaces with all these stupid cars in front of all these beautiful buildings, like come on.

Derek Kerton:

And I saw your interview with the Moda City Life people (Melissa & Chris Brutlett). That talks deeply about that. So that's a great thing to bump back to if people want to hear more about what Holland’s been doing and how great the outcomes are.

Jeff Frick:

Well, we're getting to the end of our time. And I just want to touch on one last thing, which I think we really saw in cars and the EVs in terms of what scale can do. And you mentioned it briefly, you're training in economics and, you know, you see what happened, say, to battery technology or lidar technology or, you know, you see what happened with camera with camera technology because of mobile phones and what scale can really transform. So, you know, just kind of last word, as you look at the horizon and you see some of these really cool things coming down the pike, what gets you excited? You know, what do you see in the not too distant future that maybe people don't realize how close it actually is, some of these cool breakthroughs?

Derek Kerton:

That's what I see, what you just said. People don't realize how close it really is. So what excites me always and what jazzes me the most about a given technology, why I launched the Cleantech Council when I did, why I launched the Autotech Council, when I did, is when you see a trend, a growing trend that is really supporting a technology, you know, the escape velocity, you say ‘Wow,’ there's a big trend that's driving electric vehicles.

I'll cite one. It's the climate just can't burn (fossil) fuel anymore. As a result, we have to have more shift more towards the use of electricity. Okay. You see a massive trend. You go ‘Mmm,’ I'm going to invest in some EV companies. I'm going to launch you know, I'm going to launch into buying an electric car. One trend is interesting. What gets me jazzed When I see ten trends all these winds all blowing in the same direction, all filling the sails of a given technology and you go, okay, ten trends and each one of them is a, you know, following a Ray Kurzweil thing each one is growing at an exponential pace and they're all going in the same direction, like they're not clashing with each other. This trend is in opposition. No, they're all headed in the same way.

So you mentioned the EV example. I can talk about that. So I mentioned, okay, we need to reduce our carbon production because of the greenhouse effect. So it's going to be regulations. There’s going to be the carrot and the stick from governments towards EVs so that's government influence. There is ethical, and a lot of people making individual choices, preferences for greener technologies, so aside from government influence. There's a personal preference and then you're going to say, Well, they’re reaching economies of scale. Tesla's proven the case now, and now other carmakers are on board. Now the cat's out of the bag, so cat's out of the bag. Economies of scale.

Then you say, what about battery technology? It's pretty tough mining all that cobalt and lithium is pretty hard on the planet. Okay. Battery technologies are advancing at a steady rate, not a, you know, not exponential actually but every year they get better. And every year, now that there's a market for batteries, more money is being invested in developing new battery technologies. So the scale of this pace of improvements is going to accelerate a bit as more money is being dumped into new battery solutions. So we'll shift from cobalt, lithium, and nickel to lithium iron phosphate, other types of chemistries will shift to solid-state batteries, so batteries. I’m running out of fingers.

But batteries are another trend that's going to blow in the direction of electric vehicles. When you see multiple different things. So I'll throw out, let me going Software-defined cars. So cars you can define in software. Carmakers are seeing the benefit of being able to update their cars remotely. And electric cars are much more easily software defined and managed remotely. And then you see a lower cost of ownership through lower energy costs. So consumers are going to like that lower cost of ownership. And then you see lower maintenance costs with fewer moving parts on an electric vehicle. And then they go ‘Hmm, What is stopping this confluence of dozens of trends towards electric vehicles, and I go, Well, there's some resistance. People like their cars, they like the vroom vroom part, there's people who like antiques. So there's some very weak but real preferences against them.

Okay. So some people will hold on to an old, you know, ‘65 Corvette. More power to them. But what's the mass market going to do? It's going to change faster than anyone thinks. And Jeff, we're just talking about EVs. You could talk the same thing about solar panels. You could talk the same thing about distributed grids. I could say the same thing about, you know, 5G technologies in the telecommunications space. There are multiple trends backing each one of these things. And that, That is what gets me jazzed about a technology. In here in Silicon Valley or anywhere, when the winds of change are all blowing in the same direction, things change fast.

Jeff Frick:

I love that. I think we'll leave it there because that's just it, right? You only know you only know what's happening in the world that you know, and then it's actually happening in all the worlds that you don't, which outnumber the ones that you do. We should never judge the pace of innovation over the next five years by looking back and saying, Well, how was the past five years? You will under judge you will underestimate it over and over. Amara’s law, which sometimes gets sucked up into Gartner's hype cycle. But I'm going with Amara’s Law we overestimate in the short term and underestimate in the long term. And What's the other one? Right. Today's the slowest day of technological change for the rest of your life. So it's exponential curves are hard to gronk for people.

Derek Kerton:

True enough. Scary and and really energizing at the same time...

Jeff Frick:

Every coin has two sides.

But Derek, I think we'll leave it there. It was great to catch up. Thanks for inviting me to some of these events. It's really exciting to kind of get past the, you know, just another layer of UI on the same old stuff and actually see some of this really hardcore technology and physics processes and changing, you know, kind of 100-year-old processes that we're talking about to do things differently at less pressure and less temperature and better and really exciting. You're sitting right in the catbird seat.

Derek Kerton:

All assumptions are kind of off the table and lots of things are moving fast. Yeah, and I love what I do. I get to sit there and see it all change and try to just live a couple of years in the future and report back to you all on how painful or fun that is.

Jeff Frick:

Keep up the good work to help those little companies get some scale and help those big companies get a little innovation. All right.

He's Derek, I'm Jeff. You're watching Turn the Lens with Jeff Frick. Thanks for watching. Thanks for listening on the podcast. We’ll catch you next time. Take care.

Cold Close

And I think we're out.