Trolls on LinkedIn (or...why is there no downvote?)

 https://www.linkedin.com/posts/aaronfyke_heres-a-note-about-dealing-with-trolls-on-activity-7298888265842008064-D0AH?utm_source=share&utm_medium=member_desktop&rcm=ACoAAAABB7kB-2B9zRZQLX14AfkEisG4m27cuvQ

AI, the noise and the silence

 Undoubtedly, the output from LLMs, and the output from AI image generation software, appears like magic.  There are a handful of "magical" moments I've seen with computing over the years.  These include seeing real-time rendering and shading on a SUN station, seeing a rocket launched from one desktop appear on another player's screen in DOOM, and realizing that I was chatting with a real person on the other side of the world in some early internet chat room.  Now these events are lost in time, and are as mundane as watching a jet engine spin and an airplane fly, which were magical in their own right in their time.

So, AI is the new technological sorcerer, and a flood of "AI companies" have now all replaced a flood of "blockchain" companies from merely 4 years ago.  And with that, there will be new unicorns, decacorns, and companies so valuable we'll need to dig into the Pokedex to find a good name.  However, those will be the exceptions.  There will also be...thousands...of companies that embrace AI where it simply offers no value, or the company itself will provide nothing unique.  Because of this, there's actually a risk that good data analytics companies get drowned out in the noise.

And I use that phrase intentionally.  The vast majority of companies in Thin Line's portfolio are big data analytics companies.  Get access to a large pool of data and use it to provide insights or predictive analytics that wouldn't otherwise be available.  Then use this to target various climate verticals, such as the rise of renewable energy, the growth of EVs, the decarbonization of industry, or the increasing threats of climate change.  That thesis has been consistent since the firm's creation in 2017.  Very few of my companies are ones that I would want to be associated with the AI-hype, but that's simply because once you enter that storm of hype and noise, it can be very hard to stand out.

So, to all entrepreneurs pitching an "AI" company, please be clear up front what value you offer.  Be proud of what you have built and don't hesitate to showcase it.  Explain where you get your data, the improvements that come from your analytics, and the value you can bring to an industry.  Those metrics have stayed consistent across hype cycles, and they will let investors and customers really appreciate what you've built.  And what magic you've created.

Carbon Breakeven Point for an EV is 2 Years in the US

 This shouldn't be an unusual point. EVs require a lot more minerals to produce (lithium, copper, etc), and the total embodied carbon of an EV is greater than that of an ICE (internal combustion engine) vehicle *on day 1*. However, moving forward, the ICE will burn gasoline or diesel, and the EV will "burn" the blended carbon intensity of the grid. If that is entirely renewables, then the carbon intensity is zero. If it is a mix of coal/gas/hydro/renewables (as the grid is), then there will be some associated emissions.

BloombergNEF (New Energy Finance) published, in March, some really interesting analysis looking at the breakeven points and determined that the number is 2 years in the US, today, and will be between 1-4 years for most markets in 2030, by projecting future energy mix. In all cases, as the electricity grid decarbonizes, then EVs get cleaner.

I say this because I just returned from a wonderful dinner in Houston with senior people at traditional energy companies, and the comment came up that EVs have a negative carbon value - ie, they use more carbon at the beginning, and *never* breakeven. This is a popular distortion of reality, and I told the group that the breakeven was 4 years, when in actuality, it is less.

https://about.bnef.com/blog/no-doubt-about-it-evs-really-are-cleaner-than-gas-cars/

Thin Line Capital closes Fund II - Looking Back as a Long-Time Climate Investor/Entrepreneur

 

December was an incredibly busy month, culminating in the completion of two significant milestones for the firm.  We made the final investment for Thin Line Capital Fund I, completing its portfolio.  We also successfully completed fundraising for Thin Line Capital Fund II, reaching its final close.

The final investment in the Fund I portfolio is a company called XGS Energy.  I have been following geothermal energy since 2007 when I was living in Australia.  Geothermal, I believe, will be the next exciting boom in renewable energy production, following the explosive growth we’ve seen in wind, solar, and energy storage.  Geothermal has the potential to provide firmed (or dispatchable) carbon free energy, solving the variability problems that wind and solar have.  Both wind and solar have gone from a few gigawatts of global capacity, to being around a terawatt, each, of global installed capacity.  Geothermal today is around 20 GW, which is where solar was in 2008 (only 16 years ago!).  I fully expect a similar rise in geothermal production, and I expect XGS to be a significant player in that.

I’ve always positioned Thin Line Capital as a firm with long-standing roots in the clean energy and sustainability industry.  I started my cleantech career in 1994, when I published “Recovery of Thermomechanical Exergy from Cryofuels”, originally at the World Hydrogen Energy Conference when I was an undergrad with IESVic at the University of Victoria.  My career led through hybrid electric vehicle development, fuel cell development, to MIT, which ultimately led me to Southern California, to the home of the initial EV1 development.  As the first cleantech boom was ignited I was with a concentrated PV company when we raised our first capital (thank you Nth Power and Rockport); I joined an Australian VC firm and invested alongside KPCB and Khosla into Ausra, a concentrated solar company.  With the collapse of the cleantech boom, I returned to Pasadena and joined the XPRIZE Foundation to help launch an Energy XPRIZE.

Following this, for a period of over twelve years, I was able to start several companies at Idealab, including Energy Cache, Energy Vault, and Heliogen.  I was the CEO of two of these, and had terrific support from Idealab, Bill Gates, Claremont Creek, and a number of other investors.  Finally, around 2017 (see my logo), I first started talking to people about the resurgence of cleantech (thank you Howard Morgan!).  Overcoming the stigma from the 2006-2008 industry failures, then getting a final close of Fund I in the middle of Covid was a real challenge.  And, while raising a first fund is difficult, continuing to raise funds, demonstrating the viability of the investment thesis, and the long term viability of the firm, is the real name of the game.  With this success, I thought that this was a good time to look back on lessons learned through the execution of Fund I.

Lessons Learned

While putting a lot of money into a company that fails isn’t great, putting too little money into a company that takes off is arguably worse.  Discipline matters, and sticking to an investment thesis is key.  Randomly approaching different opportunities in an ad hoc manner, with no consideration of stage, check size, or valuation, is a terrible way to hedge risk and develop a structured portfolio.

Investing in picks and shovels – into companies with a low capex solution supporting a fast growing vertical – is a strong strategy for returns.  
A frustrating gap of many clean energy companies is the need to use venture dollars, or rely on government grants, to build “first of a kind” projects.  Given our investment capacity, companies managing market risk rather than technology risk have been a much better fit for Thin Line Capital’s seed-stage funds.  Of course, remaining flexible for the occasional exciting exception is important.

Seed entrepreneurs can provide disproportionate outcomes if given the right mentorship and support.  Seed stage companies all have “holes” – they wouldn’t be seed-stage without them.  However, by recognizing which holes are fixable, and which are catastrophic, makes all the difference.  Investing in those companies where I can provide specific expertise to help fill those holes provides me with an enormous advantage.

Who you invest with can matter almost as much as who you invest in.  Partnerships matter, and we’ve striven to nurture those with world-class coinvestors.  I’m pleased to say that we’ve partnered with certain investors multiple times, validating our confidence in them, and their confidence in Thin Line.

Being a startup founder is difficult, stressful, uncertain, and lonely. One of the strengths of Thin Line Capital that I try to emphasize is my own experience as a repeat founder and CEO.  A founder is limited in who they can speak with on the challenges of a company, and I think the founders I work with would agree that the greatest strength we bring is our ability to help them plan a path forward.

However, given that, it’s important to remember:

The founder is driving the company; the investor is supporting. Even though many of my companies have navigated through multiple crises and successes (in just the last year!), we must never lose sight of the fact that they are in driver’s seat, with all of the responsibilities which come from sitting in that chair.  At best, as the investor, I’m in the passenger seat holding the map.  It’s critical to empower founders with the responsibility and resources to make the right calls.

I have been incredibly privileged to work with the companies that formed the portfolio for Fund I.  I am greatly appreciative of the LPs who have chosen to back Thin Line Capital (both Fund I and Fund II).  I am now setting my sights to finding extraordinary founders building extraordinary companies for Fund II, and I look forward to whoever I may partner with along the way!

Aaron Fyke, Founder and Managing Partner

Thin Line Capital

 

The momentum of climate change

 I was thinking of this quote from "Red Dwarf: Infinity Welcomes Careful Drivers":

It didn't make sense. Holly reprogrammed the Drive computer to slow down. Which the Drive computer did. But because they were accelerating so fast, slowing down merely meant they were accelerating slightly less quickly than they were before. However, they were still accelerating. So they were slowing down, but still going faster. That didn't make much sense to Holly either. The only thing that was clear was that by the time they'd slowed down enough to be actually slowing down, in the sense of going slower - rather than the kind of slowing down that meant they were actually getting faster, albeit faster more slowly - they would already have broken the light barrier. Which was impossible. 

At times, everything that is happening with carbon emissions feels like this.  We're putting in more renewables, we're adopting EVs, per capita emissions are leveling off (but population is still rising), per GDP emissions are leveling off (but GDP is still rising).  So, when are we going to start seeing our emissions peak, and then decline (and then get to zero).  By the time we slow down enough to be actually slowing down, rather than slowing down meaning we're still going faster, but more slowly, how does this all play out?

It's important to recognize that a lot of progress is being made.  And things can seem to happen slowly, and then all at once.  Five years ago, there was one EV on my street.  Now a dozen homes around me all have EVs.  Heat pumps have been known to be extremely efficient for decades, but now people are actually buying them in a meaningful way.  Renewable penetration, both in North America and Europe, but also in India and China, is increasing in a material way, because renewable energy is significantly cheaper, and continues to get that way.  It takes a long time to move a ship, but we are getting it done.
 

Ethics in Tech

I want to take a moment to talk about ethics. Today there are two big tech stories. The first is that an infamous entrepreneur was sentenced to over 11 years in prison, effectively for fraudulent behavior hurting investors, employees, and risking customers’ health. The second is about how fraud and theft evaporated billions of customers’ holdings in the cryptocurrency space.

One thing that I’ve learned as an entrepreneur/VC for the last 16 years is that this is an industry that runs on trust. Investing in a company is not like buying a house. A house is a zero-sum game. The reproducibility of selling a single family home is such that it can happen millions of times a year with standard legal docs. However, when VCs invest in a company, or when an entrepreneur chooses to partner with an investor, a long-term bond is formed. This exists for the next several years, where everybody is pulling for a successful outcome. We can pay lawyers all day long to try to paper every edge case and contingency, but the fact is, the startup community relies on relationships, reputations, and honest dealing to operate. Investors and entrepreneurs want to work with other investors and entrepreneurs that they know and trust. This is why trusted introductions are so important, and this is why it can be so difficult to break into the scene as an outsider - the very way that the community does business relies on this.

Having unimpeachable ethics and integrity is something I’ve always taken pride in. I have my parents to thank for that. It’s how I operated as an engineer. It’s how I operated as a founder. It’s how I operate now as a VC. I know that a number of my investors have specifically mentioned to me that my moral code was a key part of their decision to back me. I signed my first “code of ethics” oath when I became a Professional Engineer early in my career. Engineering is a demanding profession, and if shortcuts are taken, then people die. I’ve never forgotten those lessons. And now, as a VC, I recently posted my commitment to the code of ethics proposed by VC Lab. I make many gut-wrenching decisions a week, clouded in uncertainty - that’s how the startup game works - and I cannot imagine not having a strong moral compass as my guiding light.

I’m also proud to say that the importance of strong ethics applies to the entrepreneurs that I have worked with. Over my long career, I have worked with entrepreneurs with rock-solid integrity; and I have, unfortunately, worked with a few entrepreneurs (and VCs) whose lack of integrity was disgraceful. However, the latter have always been in the small minority, and do not shape my view of the community as a whole. When I invest in a company, I take an extremely active role, working closely with the founders to do everything I can to help out, as part of the company itself. I’m extremely proud to partner with those entrepreneurs who have to make tough decisions often, always considering what the right path is, to meet their duty of care to their employees, customers, and investors. There is no higher calling than service to others, and I have the utmost respect for entrepreneurs who recognize their responsibilities and take them seriously.

So, what does this have to do with today’s announcements? Too often, the media celebrates billionaire founders who have a complete lack of integrity. And, the sad truth is that you can abuse others, lie, cheat, steal, and make it to the three-comma club. But that’s not how I operate. And that’s not how most entrepreneurs I know operate. And that not how the vast majority of the venture/startup scene operates. There is no more powerful force, as a force of good, than the world-changing nature of startups, and we need to shun those who would act otherwise, because their actions don’t represent the majority, but instead, can hurt everyone. 

Emissions Impact of Inflation Reduction Act

"The Inflation Reduction Act does about two-thirds of the remaining work needed to close the gap between current policy and the nation's 2030 climate goal".  

This was the quote from the group at the REPEAT Project, who have put together a terrific analysis of the effects of the bill. 

The nation's 2030 goal is 50% below 2005 levels.  So this is really encouraging, but this shows that we are both making a terrific step with this Act, but also have steps to go, on the same order as this one, to hit our targets. 

Senate Democrats have enough votes to pass the Inflation Reduction Act (https://www.nytimes.com/2022/08/04/us/politics/sinema-inflation-reduction-act.html).  As reported by the New York Times, "Senator Kyrsten Sinema, Democrat of Arizona, announced on Thursday evening that she would support moving forward with her party’s climate, tax and health care package, clearing the way for a major piece of President Biden’s domestic agenda to move through the Senate in the coming days."

This opens the door for $369B of investment in to clean energy infrastructure at all levels, which is an amazing market signal for pulling our economy into a zero carbon future.  The effects of that investment is shown below.  The full report is here, but I'm just going to talk about one of the slides today - slide 7.

 

 

What do you do? Who is it for? Why do they care?

 When I was involved with iCorps, several years back, one of the senior leaders, Viktor, would always ask teams: What do you do?  Who is it for?  Why do they care?

I thought that this was brilliant.  In three questions, a company can explain their innovation, their market, and their value.  I see so many pitches that talk about the need to solve climate change, and their commitment to the world, and the value of the team, and it takes until page five until I see the company is pursuing an energy storage technology.

One of the first things an investor does is try to see if a company is even a fit (sector, stage, etc) with a fund.  Answering these three questions right upfront is helpful.

Being part of the solution is going to create tremendous value

 “Being part of the solution is going to create tremendous value”

Those were the words of Mark Carney today (UN Special Envoy on Climate Change, prior Governor Bank of England, Governor Bank of Canada), when speaking about COP 26 today.  It was a great summary, so I’ll grab a few highlights.

Paris was about pledging to 2C with a stretch goal of 1.5C.  Glasgow was about pledging to 1.5C.  There was a serious commitment to this new number now that the science has clarified the consequences of even a 2C raise.  Global policy is currently putting us (roughly) on a 2.6C trajectory, so there is a gap between policy and 1.5C pledges.  In Mark’s opinion, that gap is going to close, and it’s only going one way - with policy driving towards 1.5C.

A consequence of this is that there is a push, in totality, for net zero emissions, with a 50% reduction in CO2 emissions by 2030, so things are going to happen in a big way in the short term.  This will be led by the financial community (which was led by a sub-sector of the financial community - the insurance industry - which have been noticing the consequences of climate change for a while).  Every financial institution of serious scale, either debt or equity, is going to own the emissions of their investments.  If a bank loans money to a company, they are going to own the financial liability of the Level 1, Level 2, and Level 3 emissions of that company.  Because of that, financial institutions are going to be asking pointed questions to the companies that they work with, which will start with the large public companies, and work downwards.  Those companies, to meet financial compliance, will then ask questions of their supply chain, and make purchasing decisions based on that information.  This chain of Finance —> Corporates —> Suppliers is the lever that moves the world.  He gave even just a simple example of a large fast casual restaurant being asked these questions, digging into their supply chain, and discovering, of all things, vast differences in carbon footprints of their various feta cheese suppliers, causing them to shift purchasing decisions in that part of their supply chain.  As Mark then said, about 90% of global emissions are going to be covered by this dynamic, which then forces financial institutions to question whether they want to move their business to the 10% that is remaining, or whether they are going to be part of this change.

Finally, when discussing the speed of these changes, he said, “We need quantum leaps in climate finance”.  I love what is happening in the financial world.  Long vilified (and reasonably warranted), the financial community is such a powerful force for change, it gives me great hope.  It also gives me great pride for my ability to have Thin Line Capital be a small part of pushing on this lever.

Amanda Gorman - Earthrise

In late August, 2018, I had the privilege of seeing Amanda Gorman, Inaugural Youth Poet Laureate of the United States, read this poem, Earthrise, at the Los Angeles Climate Reality Leadership Corps Training on Tuesday.  It was thrilling to see in person, and I'm glad that I can share with you the video and transcript.

Because an environmental movement of this size 
Is simply another form of an earthrise.

Amanda Gorman

(Transcript taken from the North American Association for Environmental Education)

https://naaee.org/eepro/blog/earthrise-poem-amanda-gorman

Our Purpose in Poetry:
Or, Earthrise

Dedicated to Al Gore and The Climate Reality Project 

On Christmas Eve, 1964, astronaut Bill Anders 
Snapped a photo of the earth
As Apollo 8 orbited the moon.
Those three guys 
Were surprised
To see from their eyes
Our planet looked like an earthrise
A blue orb hovering over the moon’s gray horizon, 
with deep oceans and silver skies. 

It was our world’s first glance at itself 
Our first chance to see a shared reality, 
A declared stance and a commonality; 

A glimpse into our planet’s mirror,
And as threats drew nearer,
Our own urgency became clearer,
As we realize that we hold nothing dearer 
than this floating body we all call home. 

We’ve known
That we’re caught in the throes
Of climactic changes some say
Will just go away,
While some simply pray
To survive another day;
For it is the obscure, the oppressed, the poor, 
Who when the disaster
Is declared done,
Still suffer more than anyone. 

Climate change is the single greatest challenge of our time, 

Of this, you’re certainly aware.
It’s saddening, but I cannot spare you
From knowing an inconvenient fact, because
It’s getting the facts straight that gets us to act and not to wait. 

So I tell you this not to scare you, 
But to prepare you, to dare you 
To dream a different reality, 

Where despite disparities
We all care to protect this world,
This riddled blue marble, this little true marvel 
To muster the verve and the nerve
To see how we can serve
Our planet. You don’t need to be a politician
To make it your mission to conserve, to protect, 
To preserve that one and only home
That is ours,
To use your unique power
To give next generations the planet they deserve. 

We are demonstrating, creating, advocating 
We heed this inconvenient truth, because we need to be anything but lenient
With the future of our youth. 

And while this is a training,
in sustaining the future of our planet, 
There is no rehearsal. The time is 
Now
Now
Now, 
Because the reversal of harm,
And protection of a future so universal 
Should be anything but controversial. 

So, earth, pale blue dot 
We will fail you not. 

Just as we chose to go to the moon 
We know it’s never too soon
To choose hope.
We choose to do more than cope 
With climate change 
We choose to end it—
We refuse to lose.
Together we do this and more
Not because it’s very easy or nice
But because it is necessary,
Because with every dawn we carry
the weight of the fate of this celestial body orbiting a star. 
And as heavy as that weight sounded, it doesn’t hold us down, 
But it keeps us grounded, steady, ready, 
Because an environmental movement of this size 
Is simply another form of an earthrise. 

To see it, close your eyes.
Visualize that all of us leaders in this room
and outside of these walls or in the halls, all
of us changemakers are in a spacecraft,
Floating like a silver raft
in space, and we see the face of our planet anew.
We relish the view;
We witness its round green and brilliant blue,
Which inspires us to ask deeply, wholly:
What can we do?
Open your eyes.
Know that the future of
this wise planet
Lies right in sight:
Right in all of us. Trust
this earth uprising.
All of us bring light to exciting solutions never tried before
For it is our hope that implores us, at our uncompromising core, 
To keep rising up for an earth more than worth fighting for.

Climate Justice with Former President of Ireland, Mary Robinson

We've been so focused on our acute, global catastrophe, that it's always good to pull back and occasionally check in on our long-term global catastrophe - climate change.  The effects of Covid-19, and the global response to Covid-19, have shown us what can happen in an interconnected world, and more importantly, how, as an interconnected world, solutions need to be cooperative and inclusive.  It is in both the best interests of the human race for us to work together, but it is in each of our *own* self-interests for us to work together as well, and I would like to keep speaking about that topic.  It is a topic called Climate Justice, and I was first introduced to the idea at the Los Angeles training for the 2018 group of Climate Reality Leaders, with Al Gore, where I was participating as a mentor.

This video I'm attaching is an interesting discussion, which speaks a lot about climate justice.  It is with the former President of Ireland, Mary Robinson, moderated by Ibrahim AlHusseini, Founder and Managing Partner of Full Cycle, a growth fund targeting climate solutions.  Ibrahim and I met at USC when I was just in the initial phases of getting Thin Line Capital started.

Rather than tell you too much about the video, I just want to share with you this one quote from President Robinson.  I think it's magnificent:

We shouldn’t have the image of climate change being the polar bear on a melting ice floe…

it should be a woman, desperate because she can’t get enough food or water.

A very different image…

Former President of Ireland, Mary Robinson
July, 2020

It's almost an hour, but well worth watching:

https://vimeo.com/437450604

Where We Are Now - and what about July 4?

"Everybody sharing graphs and charts"

 -Steven Page, Isolation

First off, I want to thank everyone who appreciated my prior post, so this follow-up is for you.  I spend a lot of time looking at charts and graphs and I have no illusions that everyone else does that.  So, I wanted to let people know exactly where we are right now.  This coming weekend celebrates when, 244 years ago, “one people” chose to dissolve their prior allegiance and set up a new government - one that, four score and seven years later (87 years), would be described as “government of the people, by the people, [and] for the people”.  While people talk about individual liberties, this country was founded as a group that felt that they could collectively determine their own destiny.  We need to come together as a group to beat this.  To quote Lincoln again:

At what point then is the approach of danger to be expected? I answer, if it ever reach us, it must spring up amongst us. It cannot come from abroad. If destruction be our lot, we must ourselves be its author and finisher. As a nation of freemen, we must live through all time, or die by suicide.

While some might argue that this danger has come from abroad, the result is the same.  We ourselves are responsible for finishing it. 

Let’s see how we’re doing.

First, let’s look at LA County’s numbers.  As of today, July 2, we have been averaging roughly 2400 new cases per day, the highest we’ve ever been (Chart 1).  Back *in early April* I was hoping that we were seeing evidence of recovery, but not only are we not out of the woods, we haven’t even found our peak.  There are over 107,000 people known to be infected.  At a population of 10million, that puts the number of infected at about 1 person in 100.  The CDC says that, due to untested asymptotic carriers (that is, people who are sick and can infect others, but have no symptoms, so they don’t know it), the number could be up to 10x higher.  California is testing a lot, so let’s assume the current infectious pool is 2x-10x higher.  That puts the number of infected between 1-in-50 and 1-in-10.

Think about that.  If you go out to get a coffee today, or pop by the grocery store, did you see 50 people from the time you left your door until the time you got home?  If so, statistically speaking, one of them was infected.  Were you closer than six feet to them?  Did both of you have masks?  When you realize that infection isn’t some abstract concept, but a mathematical certainty, I hope it helps you examine your behavior.  If you are invited to a backyard party this weekend - how many people will be there?  If you *knew* that someone there could get you and your family sick, would you still go?
1 in 100 confirmed; 1-in-50 to 1-in-10 possible.  That is where we are in LA County right now.

Let’s turn to Pasadena (Chart 2).  From the start of this, until the end of May, Pasadena had a real tragedy with cases burning through elderly care centers.  A large, compromised population, in close proximity to one another, was a real tragedy.  However, it also blinded us to the larger danger, and in early June our infection rate dropped.  But that’s not the case any longer.  In the last half of June, infections have been increasing again, this time in the regular population.  Our 7-day average is now over 20 new cases a day, and just like LA, is not slowing down.  It’s easy to dismiss a disease as “only for old people”, but that’s not true anymore.  While the majority of deaths are our elderly population, there’s no indication that young people are immune from getting the disease.  This is happening and it is spreading through our city - affecting your neighbors, your friends, and your family.

By the way, the probability of death is more a function of co-morbidities, than age.  It’s just that older people tend to have more combined diseases.  However, one that isn’t correlated with age is obesity - this is actually killing more *younger* people who get infected.  So, it’s false to assume that younger people are safe.

One other aside before we continue - just because someone who is infected with Covid-19 survives, doesn’t mean that they don’t suffer tremendously.  There’s a large range between “asymptomatic” and “death”, and having permanently scarred lungs, but surviving, isn’t a winning scenario - one faced by many young people who are misled into feeling they are safe.

What about the increased testing?  The argument that increased testing causes increased cases (and, therefore, by extension, we don’t need to do anything) is misleading - however, it highlights why we need to focus on chart 3.  This is the data for all of California, not just LA or Pasadena.  California has been doing a great job in increased testing.  We are fighting an invisible enemy and testing lets us see where it is.  Back in April we tested maybe 20,000 cases per day and recently we’ve been testing over 100,000.  However, in a state of 40 million people, that’s still a small drop in the bucket.

Now, with those tests, if the number of actual infected stays the same, but our testing goes up, then the percent of tests that are new cases should go down.  We want that number to be less than 5%, and then we want to watch as it goes to 3%, 2%, 1%, and then finally zero.  No new cases, we’ve beaten this thing.  If the number is greater than 5%, and if it is going up, then that means the virus is expanding faster than our testing - we can’t find all of the infected, and it’s blowing up.  One week ago it was 5.3%, yesterday it was *11.2%*.  What little control California had is being undone.  This is why the Stay at Home orders are being reinitiated.  We aren’t winning this battle.  We can see it’s exactly the opposite and it is time for people to get serious.

So, what does that mean for this coming weekend?  Our chance to celebrate the document that dictated that we were a group of people, free to self-govern?  I think we should reflect upon our history.  Admiral Yamamoto of the Japanese Imperial Navy is oft-quoted as saying, post the Pearl Harbor attack:

I fear all we have done is to awaken a sleeping giant and fill him with a terrible resolve.

We need to awaken and fill ourselves with resolve that we are indeed under attack, and that the time for half-measures is over.  This whole time, had everyone taken this seriously, we could have ended this in a month.  Support your country by doing what L.A. County Health Director Dr. Barbara Ferrer says - stay home with your family this weekend and keep yourself safe.  You are not a victim of tyranny (we fought that 244 years ago); instead you are a part of the legacy of that effort and by isolating, keeping distant, wearing a mask, and recognizing the truly dire situation that we are in, you, and all of us as Americans - especially this weekend - can be what Lincoln called the “finisher” of this collective threat.

https://www.cityofpasadena.net/covid-19/#dashboard

http://publichealth.lacounty.gov/media/coronavirus/locations.htm

https://covidtracking.com/data/state/california

There is no finish line

Back in early 1980s, Nike came out with a brilliant print ad.  It's extremely hard to find, so I've included a copy of it here. 

This ad was foundational for the formation of my fund.  I couldn't even really remember the ad fully when I began Thin Line Capital, but I knew that it had to do with perseverance, and a commitment to loftier goals.  Rereading it now makes me feel that it captures the essence of another brilliant quote from literature - Tennyson's Ulysses:

We are not now that strength which in old days

Moved earth and heaven, that which we are, we are;

One equal temper of heroic hearts,

Made weak by time and fate, but strong in will

To strive, to seek, to find, and not to yield.

Yes, we *are* strong in the will to strive, to seek, to find, and not to yield.  Right now we are facing a global pandemic, causing death and destruction greater than any recent war.  The consequences of the response to the pandemic (or, should I say, the necessary response given the initial failed response) has caused unemployment rivaling the Great Depression.  Furthermore, a string of racially motivated killings, and police brutality, on the heels of three and a half years of fascist rhetoric has spilled out into the streets with the last eight days of protests and unrest.  As others have said, 2020 is the worst of 1918 (Spanish Flu), 1929 (Great Depression) and 1968 (Race riots). 

However, our charge is not to complain about the race to be run.  Instead, it is to recognize that race and run it well.  In the US we like to talk about forming "a more perfect union".  However, this has also given rise to recognition globally of changes that need to be made in other countries.  To quote Dr. King - the arc of the universe may be long, but it bends towards justice.  And in what we do, and it all we do, we must recognize that there is no finish line.  There is no point where we quit and stop and say that we are done.  Instead, we recognize that excellence in anything requires the motivation not to compete against some outside force, but to pursue excellence for the sake of excellence.  To pursue justice for the sake of justice.  And to pursue a better world for those that come after us as service to those who come after us. 

I love the last line, and I think it's key for any driven person:

"Beating the competition is relatively easy.  But beating yourself is a never ending commitment."

The Importance of Data Clarity

“3.6 Roentgen.
    Not Great, Not Terrible”

     - Anatoly Dyatlov (Chernobyl, HBO, 2019)

So, I posted my last results for Los Angeles to my neighborhood on Nextdoor.  With traditional Nextdoor diplomacy, one of the neighbors said that the data was useless.  While I argued that it was worthwhile to examine the data regardless, as it was the best that we had, I thought this post should show the effect of limited testing on data quality, in particular with the state of California.

The quote I used at the start of this article, of course, is a reference to the amazing HBO miniseries, Chernobyl.  The authorities had been making decisions based on a meter that had, as its highest reading, a radiation dose of 3.6 Roentgen.  Later in the show we see that the true value was 15,000, not 3.6.  What does this mean for us?  I think we experienced a similar event.

As much as I would like to say otherwise, the numbers for Los Angeles since April 20 have been terrible.  On April 20 alone, the number of cases shot up by 1,475 (the previous highest ever single day increase before then was “only” 711).  I tried to tell myself that this was because of a surge of reported cases due to a long-standing backlog.  And, to some extent, this was true.  The new case numbers began to fall, finally getting back to 461 new cases on April 26.  However, they have begun what cannot be disputed as an inexorable climb, resulting in 1,033 new cases reported today, May 1.

How can there be good news in this?  How can we say we’ve even peaked?  Much less that we are declining?  Is there any hope? 

The answer, it appears, is that there is.

I always knew that our testing limitations were affecting the data, but I had no way of knowing how.  I knew that, behind the numbers, was the bias that the amount of testing each day was not constant, and therefore the new cases would be skewed by this number.  It’s very interesting to see how much that was the case.

Let’s zoom out a bit, from Los Angeles, to California as a whole.  Using data on testing, shown here, we observe a few things.  The first is that around April 22, there were over 165,000 new case results (the previous numbers were closer to 20,000 new tests/day).  This caused the massive spike, as indeed, there were over a week’s worth of data coming in in one day.

But, what’s really interesting is if we plot the number of new cases as a percent of the number of new tests.  Every time we see 100% we have our “3.6 Roentgen” moment.  We report that many new cases because that’s how many new tests we had.  The *actual* new cases were much, much more.

We’ve been reading from a pegged-out meter for most of March and April. 

This is why Dr. Fauci (and many others) have been saying that we need more tests.  Only by actually seeing past the infected can we learn about the trends.

So, where’s the hope?  It comes on April 14.  Let’s zoom in to that last part of the curve.

This is the graph to look at.  If we are ramping up our testing faster than our actual cases are falling, we will actually continually see an increase in our cases (until we finally exhaust all of our infected, and then the chart will plunge).  Right now, that seems to be happening.  However, if we look at this graph, we’re basically normalizing the curve to assume a constant number of tests per day.  And when we do *that*, the curve is finally starting to fall.

This data is not dropping particularly quickly, and it’s hard to make predictions from it.  However, at this rate, it implies that we’re on track to have another two weeks or so until we get to zero.  I’m really reluctant to make that kind of statement, given the misadventures with Easter, with Ventura and Orange County beaches, and with our population of tactical armored, Confederate flag-waving, “Patriot” cosplayers.  However, assuming that cooler heads prevail, this is a very important piece of the puzzle, and evidence that data quality is a thing.

The Case for Staying Home - Now it gets hard

I’ve been tracking LA closely this week.  And, unfortunately, we’re not seeing the numbers we want to see.

We are now entering the time when people’s patience for staying indoors is wearing thin.  Protests are happening demanding that we open everything up again.  Disgusting displays, including blocking an ambulance in Michigan, and protests here in Huntington Beach (“Liberate Huntington Beach”, echoing the inflammatory rhetoric of Trump) are starting to happen.  House parties are still going.

And yet, in theory, if nobody came near anybody for a period of two weeks, we’d see new cases crash to zero.  But that’s not happening.  And, it’s not happening because people don’t understand what’s happening, and they feel that social distancing doesn’t apply to them.  We aren’t doing enough - and we certainly can’t afford to slide backwards.

I was quite excited earlier this week.  It really looked liked LA would hit zero new cases before the end of April.  We’d then monitor to keep those cases at zero, and then we’d be done.  I was looking forward to celebrating that event.

That day is looking further and further away.  Today it was announced that in the last 24 hours we reached 11,391 confirmed cases in LA County, and added another 537 new cases - that’s where we were April 3.  At the rate we’re falling, instead of hitting zero new cases by the end of April, we’re now looking at the third week of May (assuming that there isn’t yet another resurgence from people gathering around Easter).  I’m hopeful that with each passing day people treat this with more seriousness, not less.  We need to to get through this.  We must maintain the strength to get through this - by supporting ourselves and supporting each other. 

We have avoided the nightmare of New York, but if you look, Florida just had more new cases in one day than ever before.  The US refuses to peak and decline as regional infection zones begin to grow (we reached over 700,000 cases here in the US today).  Italy, while declining, is doing so at a snails pace and isn’t likely to hit zero new cases until late May, and now we’re seeing Canada backtrack and start to ramp up a second peak. 

This is the cost of complacency.

 

I also want things to get back to the way they used to be.  But in order for that to happen, we need this number to be zero.  Then, we need this number to stay zero until we are sure that there are no lingering cases.  We need this to happen as quickly as possible.  And it’s not happening fast enough.

All data from Johns Hopkins: https://coronavirus.jhu.edu
 

The Case for Staying Home - LA's speedbump

Monday afternoon looked really good for LA.  We reported only 228 new cases, the lowest seen since we hit our peak.  At this rate, we were on track to be zero new cases by April 23 - just 10 days later.

Then yesterday happened and we hit a spike of 627 new cases, which was almost near our previous peak of 711.  Today it came down again with only 449 new cases, but this has pushed the "zero new cases" date into early May.

Now, LA has only 10m people, so the data is going to be much jumpier than when looking at a whole state or country, but I must admit I had allowed myself to get excited by Monday's numbers.  Nevertheless, I'm hoping that we drop back to the levels we were at before.

However, it's been my observation that people are starting to take this less seriously than before.  There's a dual feeling of "this can't continue, so we just need to get out", and "nothing has really happened, so there's no big deal about getting back outside".  If that is the attitude of the population at large, this curve will take a long time to reach zero, or could simply flare back up again.  Now is not the time to be complacent.

Perhaps we shouldn't be surprised.  I had been hoping that LA was doing better, but if we look at Italy, they also are on track for reaching zero new cases in the first week of May as well.  If Easter weekend also created a surge, we won't see that until late next week.  Let's hope people continue to take this seriously, otherwise, it's even longer before we can return to normal.

The Case for Staying Home - The End of the Beginning

Winston Churchill, 1942

Now this is not the end.

It is not even the beginning of the end.

But it is, perhaps, the end of the beginning.

There are a couple of very important milestones to consider when we think of getting through this Covid-19 crisis.

1) The day that the number of new daily cases peaks, and each day after that we have fewer new cases than the day before.
2) The day that the number of new cases reaches zero.
3) The day that the number of existing cases reaches zero.
4) The day that we are confident that the number of asymptomatic carriers reaches zero.

For Los Angeles, Italy, Australia, and a bunch of other places, we have passed the first milestone.  We are truly at the end of the beginning.  Now, we need to see how quickly we reach the beginning of the end.

The reason that I'm mentioning this, by the way, is that I've seen a number of different reports that talk about a given location "peaking".  Yet, without context, we don't know what peak is being referred to.  The Institute for Health Metrics and Evaluation (IHME) has a brilliant set of analysis, where they talk about "peak hospital resources use" and "peak deaths".  These are both incredibly important metrics, but not what I'm discussing.

Last time I put up a graph which showed the peak of new cases for Italy.  I showed that Italy peaked on March 24, exactly 14 days after their March 10 stay at home order.  However, at the time, we didn't know how Italy's decline would look.  Now we do (apologies for the formatting - I wanted this to be legible):

We can see here that Italy is dropping at a steady rate of roughly 120 fewer new cases each day than the day before.  This doesn't mean that Italy is curing people at the rate of 120 people a day.  It means that, on April 9, Italy had 4204 new cases in the prior 24 hours.  Therefore, on April 10 (tomorrow), they will have only 4084 new cases in the previous 24 hours.  Because of the bounciness of the curve, this exact number is unlikely, but the trend is reasonably good.  If this continues linearly (and I really don't know if that's likely, or if it is set to accelerate or decelerate) then we can predict the day that Italy hits zero new cases.  Currently, that day is May 14 (Edit: with the original figure, this was April 30).  We can also predict the final number of infected, which would be 215,166 (Italy currently has 143,626 (again, all data from Johns Hopkins).  So, even though Italy is past their peak, over 60,000 more people are expected to contract the virus  before they finally get through this first wave (I'll talk more about subsequent waves later).

Given that I live in Los Angeles, I've been tracking LA with specific interest.  I had been hoping to see that we would demonstrate the same peak as Italy.  It took a few days to verify it, but since LA shut down on March 19, we should have seen our peak on April 2.  It looks like we could say it actually happened on April 3.  And, like Italy, there is now enough data to make an early prediction on the rate of decline (and, like Italy, I'm speculating that this decline is linear and I don't know if it will be).  Based on the last week, it looks like LA's new cases are declining at a rate of 21 fewer new cases/day (interesting fact, if we were to decline at the same rate as all of Italy, adjusted for population, that would be 20 fewer new cases/day - so we are seeing an extremely similar type of response).  Based on this projection, Los Angeles county will see zero new cases on April 29 with a total infected count of 12,045.  As of April 9 we are at 7955, so, like Italy, we still have about 1/3 of the way to go, and over 4000 people will become confirmed cases before the end of April.

However, this is all good news.  I think we can safely say that we are past milestone #1.  Now, the US as a whole is in much worse shape and I will continue to track the many states that are just beginning their infection ramp.

So, if this the end of the beginning, what is the beginning of the end?  There are two.  The first is a period after the zeroth new case.  If we assume that it takes 14 days to present possible symptoms, then we would want to see at least 14 days of zero new cases (ideally, much longer).  We want to make sure that all lingering infections have run their course before we lift social distancing measures.  Mayor Garcetti here in LA talked about us staying indoors until the end of May, and based on these numbers, that seems like the right plan.

The second "beginning of the end" is actually the next 12-18 months.  Until a vaccine is discovered and widely deployed, or herd immunity is reached, there will inevitably be flareups.  And, then, unless we act differently, we'll be scurrying back into our houses for another 3 months all over again.  Additionally, because, at least in the US, we have such a large population of states that are treating this virus with widely different levels of seriousness (from "adult and listen to the science" to "childish and criminal" a la Mayor Vaughn of Amity in the movie Jaws) we will have a secondary explosion just from people traveling within the country from one state to another.

So, the solution is twofold.  First, we must do like Germany, and implement widespread national testing for antibodies (I had a link here to FT, but it seems to only work if you go via Google).  This will allow us to know who is immune, and how widespread our herd immunity already is.  This allows us to get the economy restarted.  Second, we must do it right this time (like South Korea) and implement testing and case tracking and isolation to quickly pounce on flareups to allow us to stop the fire before we end up with another inferno.  This period will likely see social norms of continued mask-wearing and fist-bumps, rather than handshakes, well into 2021.  Remember that the Spanish flu of 2018/2019 had three severe waves.

So, we are not at the beginning of the end.  We likely are only 1/3 of the way through our quarantine and we must not relax our efforts to isolate (and we must have the utmost sympathy for the horrors to be witnessed by states that are have only recently entered their quarantine).  But, like Churchill said, we are likely at the end of the beginning.  And there is real comfort in that.

The Case for Staying Home - The light at the end of the Italian tunnel

From Lord of the Rings, Fellowship of the Ring

Aragorn: Are you frightened?

Frodo: …Yes.

Aragorn: Not nearly frightened enough.  I know what hunts you.

I posted a little over a week ago, and I wanted to update everyone.  I included this quote because not enough people in California are abiding by the restrictions (they *finally* had to shut down the Rose Bowl loop and parks because people just didn’t get it).  And nationally, as of Friday, 27 states still did not have *any* stay-at-home restrictions.  To those governors, this is all a big joke.  So, this post has three purposes - 1) to share some good news out of Italy and to project what that means for LA; 2) to encourage people to continue to follow the isolation policies and to explain how much more there is to come, and 3) to ask you to implore your loved ones who live in the half of the country not under these restrictions to self-isolate regardless.  They are going to be slammed hard.

1) Ok, let’s start with the good news out of Italy.  Many people have been watching Italy to see what it tells us about the path ahead.  Data from China is near useless, and the only other major country (South Korea) to have gotten through this employed massive testing to prevent an explosion.  We did not.  So, the tragedy of Italy (and Germany, Spain, etc) gives us the best look ahead for our fate.

The virus can have a 14 day lag from the time a person is infected until they show symptoms.  In theory, this means that we should expect a 14-day delay from the time of shutdown until the peak of infection (roughly - people don’t follow the shutdown perfectly, and the time to symptoms varies from person to person).  After the peak “new cases”, the number of new cases should begin to drop off (the rate of drop-off being related to the effectiveness of the self-isolation).  Well, Italy initiated their shut-down on March 10, and therefore by March 24 they should be at their peak.  The fantastic news is that is almost exactly what has happened:

Now, Italy’s peak was really lumpy, and it’s possible that it will shoot up next week and all of this optimism is misplaced.  However, I’m going to optimistically project that they are on the other side of this.  They haven’t had a day with more than their peak (6,557 new cases) since March 21, and it really looks like they are on the way down.  Now, we don’t know what the second half looks like.  However, a safe assumption is that they will see at least another 14 days of decline, and then by mid-April will have zero new cases.  Let’s hope that follows through.

The other piece of good news for Italy is the accompanying decline in their infection rate.  This is also shown on the graph.  They’ve managed to get their infection rate down from 25%/day to *5.6%/day*.  It seems hard to believe that Italy isn’t looking at the light at the end of the tunnel, which is great news for us.

2) So what does this mean for Los Angeles?  We initiated a shut-down on March 19.  However, we did it 7x sooner than Italy (at 0.002% infected, rather than 0.015%), so hopefully our peak will be much lower than that of Italy.  If we also see a peak at the 14 day mark, that would put it at April 2 (this Thursday) and possibly even earlier (the chart implies that we might be in it now, but we should see how the next few days play out).  There are a million reasons that this might not happen, but it is tracking that way.  Now, even with that good-news proclamation comes the warning - there are *many* people in LA who still don’t understand the seriousness of this (the Rose Bowl loop was finally closed because people weren’t distancing).  People need to understand that they need to stay indoors to stop the spread.  However, if that’s not enough motivation, then stay indoors to protect yourself.  Just like Frodo, people aren’t nearly frightened enough.  Stay away from each other!

I’ve included the LA chart, just for the completeness of being updated, but it’s really hard to confirm a slowing yet.  However, it is important to note that LA has far fewer people than Italy, and therefore the data will be much noisier (also, we’ve kept this much lower - we’re still 10x lower on a per capita basis than Italy, which is fantastic).

3) What about the US as a whole?  Ok, this is the real horror story.  People are talking about Washington, New York and California.  I don’t want to turn this into a political discussion, but I will say this.  The power of the Republican party is in their ability to stick to a unified set of actions.  It is extremely difficult for any Republican governor to defy President Trump.  Right now, Trump is focusing on a message of blaming others (the China Virus, blaming New York, etc).  This results in 27 states not even starting to self-isolate, while maintaining a narrative that this is a Democrat hoax, no more serious than the flu, we should lift all restrictions by Easter, etc (although, he’s walking that one back).  I implore you, if you have loved ones in a state that has not shut down, to tell them that they need to isolate to save themselves.  Health care in remote, rural areas, is even less capable of dealing with this epidemic than urban areas are.  Georgia has 2600 cases, Tennessee has 1500, Florida has over 4200.  These are numbers California had only a couple of days ago.  On a per capita basis, much of the country is in a much worse position than California.  And yet nobody is doing anything.  Here’s a map from Business Insider from March 27 (it’s a little out of date - my understanding is that Alaska has now shut down).  You can see a huge swath of the country is still not taking this seriously.

Ok, so what does that mean for the rest of the US?  If California (and New York and Washington state, and others) start to peak this week, and then begins to decline in the first half of April, we will still see a horrific explosion in the rest of the states.  The US added over 20,000 cases on Friday.  While the US infection rate is declining, this is because New York is dominating.  Once Florida and Louisiana explode, they will continue to push up that curve.  If you have loved ones who have not sheltered in place yet, in a state that is not responding, for their sake they need to protect themselves.

I’d like to close by sharing a video from Science Insider.  There are two take-aways.  The first is that when people say that 80% of cases of Covid-19 are mild, this is true.  However, a “mild case” is defined as any case that doesn’t require *oxygen*.  That’s the definition of mild.  Anything more severe and you are looking at hospitalization.  Now, what’s the second case?  The pathway for death is something called Acute Respiratory Distress Syndrome (ARDS).  I had a very close family member pass away from ARDS, and we spent a month watching him die, watching his lungs get weaker and weaker as we hoped against hope, until it was over.  This is not “just the flu”, this is not mild, and you don’t want anyone you know to go out that way.

So, let’s recoup.  Italy is our best predictor and they look like they are half-way through.  If we follow that path, we (Los Angeles) will peak this week.  However, people aren’t distancing enough, and that’s because they don’t take this serious enough.  If you don’t care about saving others, save yourself - stay home.  Finally, at least we here in California have solid leadership from at the state and local level.  That’s not happening in over half the country.  If you know or care about someone in one of these states, please have them stay at home for the same reason, or we’ll see horrific numbers just as New York, California, and Washington are recovering.

We can see the light at the end of the tunnel.  It’s a long way off, but I think we can see it.  Stay home and stay safe. 

Remember - we know what hunts us.

The case for staying at home (March 24)

I posted this to a local group on Nextdoor.com back on March 24.  A lot has changed since then, but I'm posting this now to be a background for an update that I will post next.

Hello neighbors. I realize that we're all going through a very difficult time. However, it seems that many people in California don't fully understand the benefit of social distancing, or why we need to stay indoors. I have been tracking data from Johns Hopkins, and I thought I would share. 

The first case to look is Italy. Outside of China, Italy is the most infected country in the world with 63,927 cases on March 23 (let's not get too happy - we're at 46,332). They were growing at a rate of 33%/day (like pretty much every country other than Japan). However, when 0.015% of their population was infected, they implemented a country-wide shutdown. This was on March 10. It's now been two weeks, and we can see the results in the graph. 

Their growth rate started dropping - 25%/day, 20%/day, 18%/day, 15%/day, 10%/day, and then yesterday they grew at 8%/day. The last two days showed fewer new cases than the day before. Two weeks after a national shutdown, they *may* be over the half-way point. If their infectivity keeps dropping, they might only see 15,000 deaths. 

However, if we compare their results to the US, we see a few things. Italy shut down at 0.015%, Spain shut down at 0.014% and LA shutdown (Eaton canyon and beaches aside) at 0.002%. The US as a whole will burst past 0.015% tomorrow, and instead President Trump is talking about *lifting* any restrictions. Ok, so how are those restrictions doing for us? 

The second graph shows Italy, the US, Los Angeles (LA), and Canada and it plots the new cases each day (as a percent of population). You can see Italy's recent downturn. But you can see how the US has exploded nationally (over 11 thousand cases were added *yesterday* - a week ago the entire country only had 4,661). 

So, what does this second graph tell us? Well, the US is where Italy and Spain shut down, and the federal government is still not doing that (although multiple states and cities are acting on their own to do so). Secondly, we're just where Italy was about 10 days ago, but growing much more rapidly. Third, you can see a significant difference between LA and the rest of the US (note, these figures already have population factored in, so don't make the mistake of thinking that LA has fewer people than the US - this has been accounted for). 

So, we *NEED* to shut down. It does work. It is working. We need to stay away from each other. Group with your family, but don't go near anyone else. We must freeze this in its tracks, and the benefits are there. The quicker we shut this down, the shorter we'll be stuck in home. The US as a whole is growing at 35%/day. Unabated, this will be close to ONE MILLION people infected by early April. We cannot let that happen, and this is why everyone is saying this is as serious as it is. I hope this data has been helpful. You can see it yourself at Johns Hopkins (https://www.arcgis.com/apps/opsdashboard/index.html#/bda7594740fd40299423467b48e9ecf6). 

Stay safe. Help your neighbors. Let's get through this.

Thin Line Capital closes its first investment

Thin Line Capital has made its first investment under its new structure.  I've been sharing my thesis with many people now ("we are in a 2nd wave of cleantech investing, one that supports high-growth low-capex opportunities") and I continue to attract investors willing to back me, as well as discover tremendously exciting new companies.

Sistine Solar is one of those companies.  I'm struck by the passion and success of the founder/CEO, Senthil Balasubramanian, and the rest of the team.  They are a group from MIT and they are working to unlock a whole new section of the market interested in aesthetics - a market segment awakened by Tesla's promises of a solar roof.  Sistine is looking to serve that need with their novel SolarSkin technology, allowing the solar panels to blend visually into the roof.  Check them out here at Sistine Solar.


And, to accompany this, here's the January edition of my newsletter.

The Thin Line                                   January, 2019

The Newsletter of Thin Line Capital                                   Aaron Fyke, Managing Director

New Opportunities in Residential PV

This month I’m focusing on the changing solar market.  The solar industry is split into three major segments – utility-scale, commercial and industrial (C&I) and residential.  Utility-scale installations account for about 50% of the US market.  They are the largest (>5 MW)[1], consuming the most amount of land, ground mounted, and usually with at least one-axis, or two-axis tracking. C&I installations are the second largest in size (~500kW average), and represent 25% of the market.  A typical C&I installation would be on a flat roofed building, like a warehouse, factory, or retail center.  The smallest installations (around 5kW) form the last 25% of the market.  These are the residential installations, mostly located on single-family homes and mounted directly to the pitch of the roof.   

The Changing Face of Growth

The solar industry has seen staggering historic growth.  From 2010 to 2015 the average CAGR of all three market sectors was 55%/yr[2].  However, growth over the next five years is expected to be more muted, with an average CAGR of 4%.  The C&I industry is projected to be steady, with utility-scale growing at 

4%/yr and residential installations seeing a CAGR of 8% (from 2017 to 2023). The reasons are varied, but the ability of the grid to manage the variability of the solar resource, and the necessary adoption of storage are providing regulatory headwinds[3].  And yet, residential solar installations are still only between 1-2% of US homes.  

Residential Takes the Lead

Utility-scale solar has dominated the market for the past several years.  As the costs of solar equipment have collapsed, utility-scale solar has been the sector best positioned to take advantage of this.  With its smaller batch sizes, and greater labor content, the “soft-costs” of solar dominate in residential installations.  A typical residential installation might cost $3/W installed, whereas a utility-scale installation is under $1/W. 

Going forward, however, we see that the growth rate of residential solar is twice that of utility-scale solar.  That is where investment is most attractive. This will focus the attention of the industry on exploiting more the residential market, with less focus on growth in the utility market.

California Continues to Dominate

California dominates the national installation market for residential PV, accounting for around 40% of national installs[4].  As growth continues through 2023 forecasts, that ratio stays constant.  The market for residential solar in 2023 will be close to 1600 MW/yr in California and 3700 MW/yr nationally.  At $2.5/W

(assuming costs fall from today’s $3/W) that results in a $9.2B spend on solar hardware and installations in 2023.

Part of this growth is due to a market opportunity currently unique to California.  In May 2018, the five commissioners of the California Energy Commission voted unanimously to require that nearly all new homes in the state be built with solar panels.  The effect of this is that, starting in 2020, there will be an additional 200 MW/yr[5] due to new construction.  There are two takeaways from this – 1) the new home opportunity will add an additional $500M of spend to the market, and 2) due to the size of California’s market, this only adds about 12% to the already large market, which speaks both about the value of California policy, and the robustness of the market in absence of policy.

What Opportunities are Revealed?

Thin Line Capital’s investment thesis is to pursue low-capex opportunities that target the growth of large markets created by the changing energy landscape.  We are now investigating a company that has an exciting proposition which matches this thesis.

The first observation is that future growth warrants a focus on growth in the residential sector (over utility and C&I).  The second observation is that, as growth slows, installers and module manufactures will be looking to compete on an axis of differentiation other than the two historic measures of cost and performance.

TLC has identified an MIT spinout that has a very low-cost film that can be applied to any solar panel surface, allowing the solar panel to appear to be any image desired, allowing the solar panels to blend into the surrounding roof aesthetic, while only adding a small amount to the system price.  This maintains the home’s curb appeal while allowing the homeowner to participate in the benefits of solar ownership.  Because their IP revolves around proprietary printing processes and image design, this company can participate in this identified $9.2B annual spend without anywhere near the capital intensity of other companies in the value chain (such as module, inverter or racking manufacturers).

The company has a track record of satisfied customers in six states (MA, CA, SC, NY, TX, and NJ), a backlog of installers looking to adopt their product, and partnerships with construction material partners.  They are well positioned to serve the growth in these markets (including the new home-build opportunities in California in 2020).

---

[1] M. Mendelsohn, et al, “Utility-Scale Concentrating

Solar Power and Photovoltaics Projects: A Technology and Market Overview”, NREL Technical Report NREL/TP-6A20-51137, April 2012.

[2] US Solar Market Insight, Q4 2018, Wood Mackenzie Power & Renewables, December, 2018.

[3] “Why The U.S. Residential Solar Market Has Slowed Down”, Forbes, June 2, 2017.

[4] https://www.seia.org/solar-industry-research-data

[5] https://www.greentechmedia.com/articles/read/everything-you-need-to-know-about-californias-new-solar-roof-mandate