Ben Kuo: What's US Renewables Group?
Jim McDermott: US Renewables group is an investor in renewable energy projects. We've got 10 people now, and are investing in two main categories.: stationary power generation (geothermal, biomass, landfill gas, wind and solar) and clean fuels (biodiesel and ethanol).
BK: I see one of your recent investments was ASAlliances Biofuels?
JM: We invested in ASA Biofuels for 600 million gallons of production capacity for ethanol, consisting of 6 100 million gallon plants.
BK: So you've gone out and raised your own fund for these investments?
JM: Yes, we've raised a series of high net worth individuals, trusts, and institutional money worth $100M.
BK: The energy business seems to be a big departure from your software experience, why did you decide to go into energy?
JM: It's actually funny - software was actually a big departure for me. Prior to business school, I worked in public power for First Boston. I went into the software business after business school at UCLA, because that was around the time the energy market went haywire because of deregulation. I ended up in software because there was nothing to do in the power business. People were telling me the same thing when I went into the software business.
BK: What's the similarity/difference between what you were doing in software and energy?
JM: There's actually a lot more domain expertise in energy. It's much more project finance focused. There's a lot more attention to how the debt and equity is structured to make sure a project can make money.
BK: What do you think of the rush into clean energy investments?
JM: The energy business is cyclical, and energy is back in vogue again. However, the more important thing to look at is that from the late 1970's until now, the technology cost per installed megawatt has decreased. There are a number of situations where renewables are just flat out cost competitive versus fossil. It's a combination of a decrease both in capital cost plus improvements in efficiency. The economics of renewables is closer to flat out competitive compared to 15 years ago.
I always joke that while people were investing in renewable energy 15 years ago because it was the right thing to do, this time the economics make sense because it's cheaper.
BK: Why did you decide to go back to the energy business?
JM: I love technology, but there's a couple of things. One is that I tend to gravitate towards more fundamental problems, and I think that how we produce and consume energy in the US and globally needs to be fixed. I believe we're going to live in a carbon constrained world, and we need to get busy as a society as well as an economy to continue to meet energy demand using things that are carbon neutral. I think that's something that's going to play out over the next 20 to 30 years. This is a business that I can be at as long as I'm working. Also, there are lots of opportunities to apply software to that-you've seen people like Vinod Khosla making investments in this area. There's lots of inefficiency in the supply chain, which you can attack with software. Things like investments in information technology, innovative uses of computer science and technology-to help with things like better yields out of crops and efficiency out of turbines. There's lots of opportunities to deliver carbon neutral solutions that are cost competitive.
BK: Thanks, it's been great catching up!