 Thank you, and hello from our passive solar banana farm high in the Colorado Rockies. I'm Amory Lovens from Rocky Mountain Institute. The electricity industry has built probably the most complex and essential machine in the world. Yet, like the fossil fuels that enrich the lives of billions, the electricity industry is now at risk of undermining the prosperity and security it created because its century old structures no longer fit rapidly changing conditions. Thomas Edison on the right invented the electricity industry. A few decades later, Henry Ford on the left, who used to work at Detroit Edison Company, industrialized the automobile fueled by John D. Rockefeller's Oil. The energy sectors these titans shaped transformed humanity, but at their core have changed little for a century. When Ford and Edison took a long nap on one of their car camping holidays together, woke up and saw their businesses today, they would recognize almost everything except the electronics. Yet today their industries faced vast disruptions as 21st century technology and speed collided head on with 20th and even 19th century institutions, rules and cultures. Today, oil and electricity, each emitting two-fifths of fossil carbon, are separate. Oil makes only 4% of global or less than 1% of U.S. electricity versus coals roughly 40%. But as we might imagine Ford mischievously muttering to Edison, let's see what happens when electricity displaces automotive oil and electric cars add flexibility and distributed storage to the grid, helping efficiency and renewables supplant giant power stations. As energy transformation, our species biggest shift since agriculture is part of the larger shift from molecules and atoms to bits and packets from hardware to software from hierarchies to networks. It transforms the electricity industry from centralized supply focused fossil and nuclear fueled and brittle to distributed customer focused, renewable and resilient. But the deepest change is how the information age informs, enables and organizes customers to take power into their own hands. It's wise to sell customers what they want before someone else does. And customers are figuring out that they can buy fewer electrons, use them more productively and timely, produce their own and even share them with others. For example, Dutch customers can now buy renewable electricity directly from other customers. Here's the peer-to-peer website of Fante Braun, literally from the source, the legal electricity version of a music file swapping website. I just met a German utility executive who buys his electricity from the guy in the upper left because he liked that cute piglet. And then he got a handwritten Christmas card from his electricity supplier. What big utility can dream of that level of customer intimacy? The disruptors are converging on the electricity industry from at least eight directions. Efficient use is taking utility sales away whilst renewables beat its supplies. Integrative design makes energy savings far bigger and cheaper, while customer preferences for independence, accountability, transparency, clean supply, health, remote control, superior value and experience can drive market choices. Invisibly optimizing when electricity is used and time-shifting supply through storage intensify competition from distributed renewables. New rules can allocate risks and rewards, and some of the greatest changes come from new financing mechanisms and new business models. So these eight-pack men of the apocalypse move fast. They don't just add, they multiply and exponentiate. They're not lone wolves. They hunt in packs and they feed on utility revenues. Together they're creating an alien competitive landscape faster than most utilities, cultures and stakeholders can cope. In August 2014, all central power plants were called dinosaurs, too big, too inflexible, not even relevant for backup power in the long run. Who said that? Not Greenpeace, but Union Bank of Switzerland. Let's start with the first two disruptors, which are making growth in electricity demand reverse in developed countries and slow in developing countries. In Australia, for example, big-state utilities over-invested, raising prices. In 2010, they forecast steep demand growth nonetheless, but got shrinkage. In 2011, they delayed the forecast growth for a year, but got more shrinkage. In 2012, they started recognizing reality but kept hoping for growth later and were again disappointed. In 2013, the contradiction intensified with rapid growth of rooftop solar, which the count is a negative load. In 2014, the utilities began forecasting more realistically, being more right this time. But in 2015, with demand still heading down through August, they raised the forecast. Just the past five years, revolution in demand cut 2020 revenues by about 20%. Basic utilities, you see, don't follow NBA economics where lower demand drops prices because most costs are fixed for power plants and grids already built. Lower demand spreads the same fixed costs over smaller sales. Thomas Edison secretary Samuel Insel built the industry on a virtuous circle. Rapid demand growth, ever bigger plants, ever cheaper production, hence lower prices spurring more demand. But if efficient use shrinks demand, then Insel spiral reverses into a vicious spiral of higher prices and lower demand and if big old plants can't beat a swarm of new small ones, this death spiral intensifies. The most invisible and hence underrated disruptor is far more efficient use of electricity. In 1975, the U.S. government and industry all insisted that the energy needed to make a dollar of GDP could never go down. A year later, I suggested heretically that it could drop by 67% in 50 years. So far, it's dropped by 54% in 39 years. Yet, just the innovations so far can now save another threefold or twice what I originally thought at only a third the real cost and that already looks conservative. For the first two decades, most savings were in fuel, not electricity. Then improvements in motor systems, light, appliances, and computing began catching up with fuel saving cars and weatherized buildings. So far, the United States has saved twice the fraction of fuel as it has of electricity and yet saving electricity is more valuable, its potential is similar, and we tend to replace lamps and motors quicker than cars and buildings. So we may learn to save electricity faster than fuel. Most of the world's electricity is wasted and efficiency techniques keep improving faster than they're applied. So the unbought efficiency resource keeps getting bigger and cheaper, the low-hanging fruit keeps growing back faster than we can pick it. So U.S. electricity used peaked in 2007 and has fallen in five of the past seven years, but that just scratches the surface. Over the next 35 years, U.S. buildings which use three-fourths of electricity can triple or quadruple their energy productivity, saving $1.4 trillion net present value with a 33% internal rate of return. The savings are worth four times their costs. And industry can accelerate to doubling its energy productivity with a 21% internal rate of return. To do all that by 2050, we'd only need by 2030 to adopt efficiency at the pace achieved in the Northwestern states a decade ago. Energy savings get bigger and faster with a disruptive innovation we've developed at our little black swan hatchery and call integrative design. It often makes very big energy savings cost less than small or no savings, turning diminishing returns into expanding returns. For example, you might think I would burn a lot of gas to stay warm here at 2200 meters elevation in the Colorado Rockies down to minus 44 Celsius. But my house does no combustion that's so 20th century and it has no heating system. Super insulation, ventilation, heat recovery and super windows that insulate like 16 sheets of glass but look like two and cost less than three passively provide 99% of its heat. Eliminating the heating system paid up front for the efficiency that displaced it. Many of the 40,000 European passive buildings had helped inspire do the same thing and they can look like whatever you want. So inside this house the central atrium has so far produced 58 banana crops with no furnace. Last year this 30 kilogram twin crop harvested itself by pulling down the tree. In 1984 this house saved 99% of its space and water heating energy and 90% of its electricity all with a 10 month payback. These technologies which we've retrofitted are so much better that our lights and appliances seem to use less electricity than their monitoring equipment. Integrative design yields many benefits from each expenditure. For example the white arch in the center of the main photograph has 12 functions but only one cost. Our 2010 retrofit of the Empire State Building first remade its windows into super windows so they'd pass light but block heat that shrank the chillers saving 17 million dollars of capital expenditure more than paying for the super windows and cutting the total payback to three years. The 38% energy saving seemed pretty good until our cost effective retrofit three years later saved 70% making this half century old federal complex more efficient than the best new U.S. office which in turn is only half as efficient as RMI's new office now nearing completion with no mechanical heating or cooling equipment yet its technologies were all available five or ten years ago what's mainly improved is not technology but design. Integrative design also applies to industry which uses half of global electricity mostly in the motors that use three-fifths of all electricity. Half that motor power runs pumps and fans pumps the biggest user move liquids through pipes yet a typical industrial pumping loop was redesigned to use at least 86% less pumping energy not by getting better pumps and motors and controls but just by replacing long thin crooked pipes with fat short straight pipes that also shrinks the pumping equipment and its capital cost in some new piping in my own house here this rearrangement of our metal furniture as designers saved about 97% of the pumping energy in some new piping and every unit of flow or friction saved in the pipes saves ten units of fuel cost pollution and global weirding back at the power plant just these pipe and duct improvements not yet in any engineering text or official forecast could save roughly a fifth of the world's electricity but also relieving out quite a lot now three other formidable disruptors combine to threatens utilities ability to compete for customers shrinking demand and the shift is very fast electricity saving technologies of course can evolve dramatically for example Edison's incandescent lamps got 11-fold more efficient over 130 years and then new types of lamps slowly followed and improved but then like a thunderbolt came white light emitting diodes LEDs and each decade they got 30 times more efficient 20 times brighter and 10 times cheaper in the next five years they'll take two-thirds of the world's general lighting market Lighting uses a seventh of the world's electricity so LEDs are exposing the historic flaw in the business model of electric utilities you see Thomas Edison didn't sell electricity he sold light he would charge you a cent to run a lamp for an hour but as electric motors became popular and meters available New York Edison company wanted to switch from selling light to selling kilowatt hours Edison probably didn't foresee that his lamps would ultimately get so antique they'd be outlawed but he did know as an inventor that lamps would become far more efficient so to capture their reduced operating cost he wanted to keep selling lighting surfaces not kilowatt hours he was overruled in 1892 and utilities have been making the same mistake ever since so greater customer efficiency cuts their revenues not their costs they sell a commodity when what customers want is an infrastructure or a service now entrepreneurs as impressive as Ford and Edison are building new industries that can sweep away the old model by saving electricity and providing it differently led steep slope is not unique what else changes this fast well leds turn electricity into light photovoltaics pvs turn light into electricity and in the past five years pvs photovoltaics meteorite strike has fatally disrupted utilities by making solar power cost less than traditional power plants fossil fuels alone this is what a game changer looks like and wind power the lower aqua curve is now so cheap that it often makes coal gas and nuclear plants shut down as uneconomic just to run renewables fuel price is zero so the utility gets no more revenue when you flip the switch moreover your new oil or gas well makes my next one cost more but your new solar panel makes mine cost less so can fossil fuels really win that game bloomberg thinks not and projects that over the next 15 years fossil fuel and nuclear growth on the left will be cut in half not counting bigger retirements while renewable growth on the right triples here's the market evidence in each of the past four years modern renewables not counting big hydro have added over 80 gigawatts per year and got over a quarter trillion dollars annual investment china proposes to add a thousand gigawatts a trillion watts nearly an america's worth of renewables in the next 15 years perhaps twice as much again by 2050 lest you think that's impossible china leads the world in seven kinds of renewables it has for three years running produced more wind power than nuclear power and in 2013 alone china added more photovoltaic capacity than the us has added since inventing it in 1954 germany's streamlined installation halves the us cost of rooftop solar systems yet in 20 of the united states firms now install rooftop pvs when nobody down perhaps soon cash back and beat your electric bill deuter bank expects that'll become profitable in about 80 percent of the world by 2017 bypassing power companies the way mobile phones bypassed wireline phone companies gives electricity executives nightmares and venture capitalist sweet dreams far easier than leaving the grid customers can swap electricity with it but use storage to timeshift power and save money for five us locations for households on the left and commercial buildings on the right the colored annual bars show what fraction of electricity use can thereby be met more cheaply by solar without net metering than by grid power solar power can take over so fast that utility revenues could drop by half in the 2020s and tesla's home battery price just moved these graphs three years further to the left next add a third disruptor flexible demand whose information technology or it infrastructure can provide other valuable services to creating economies of scope as well as of scale and also exploits more's law you know in the past 40 years pvs got 100 times cheaper but microchips got 10 million times cheaper utilities match supply to demand but it lets customers match flexible demand to desired supply making purchases of grid power small and off-peak in hawaii one home in eight is solar powered and hundreds have cost effectively added batteries and left the grid a typical Hawaiian household uses appliances at various times roughly half while the rooftop pvs are operating that's the yellow curve but the utility wants to confiscate the rest of their solar production without paying for it so smart appliances can soon conveniently move 80 or 90 percent of the household loads into the solar hours the utility would then lose nearly all its intended windfall and most of its ordinary revenue so the more the monopolist tries to rest value from the customer the more the empowered customer can fight back a customer push this far is largely or wholly lost unless she chooses the utility we've just analyzed six utilities anti-solar tariffs all our well-aim boomerangs likely to enlarge and speed solar adoption like information technologies cheaper renewables feed on themselves the cheaper they get the more we build so they get cheaper so we build more solar power worldwide is indeed scaling up faster than mobile phones yet we're often told that only cold combined cycle gas and nuclear stations can keep the lights on because they're 24-7 while wind power and photovoltaics are variable and thus unreliable let me explain why neither part of that statement is true first variable does not mean unpredictable here's how accurately the french grid operator in one stormy winter month forecast a day ahead the output of the country's wind farms i'll bet they wish they could forecast demand that accurately second we built the grid because no generator is 24-7 they all break when giant coal and nuclear plants fail a billion watts vanishes in milliseconds often for weeks or months often without warning grids routinely handle this intermittent intermittent by backing up fail plants with working ones and in exactly the same way but often at lower cost grids can handle the forecastable variations of solar and wind power by backing up variable renewables mainly with other renewables of other kinds or in other places thus highly reliable power can come from a portfolio of largely or wholly renewable sources when they are forecasted integrated and diversified by type and by location let me illustrate this with a aggressive but instructive hourly simulation from texas whose isolated grid is not connected to the rest of the united states it's expected 2050 summer electric loads can get much smaller and less peaky with efficient use then we can install enough wind and photovoltaic power to make 86 percent of the annual electricity and get the other 14 percent from dispatchable renewables that we can have whenever we want like geothermal small hydro solar thermal electric feedlot biogas burned in existing gas turbines burning municipal waste burning obsolete energy studies and this 100 renewable supply can then be matched to the load by putting excess electricity into two kinds of distributed storage ice storage air conditioning and smart charging of electrified autos both fully deployed and then recovering that energy when needed and filling the last gaps with unobtrusively flexible demand only five percent of the annual renewable output is surplus so the economics should be quite good now this is not just theoretical some national grid operators already integrate variable renewables in this way uh ireland 25 percent of consumption being renewable in the first five months of 2015 is closing in on germany which was 27 percent renewably powered in 2014 and by the way despite an unfavorable climate achieved its 2010 wind power target in 2005 and its 2050 solar target in 2012 italy was 33 percent renewably powered in 2014 but for other european countries with modest or no hydropower got about half their electricity consumption from renewables adding no bulk storage and with superior reliability for danmark and germany about 10 times better than americas so the operators have learned to run these grids as a conductor leads a symphony orchestra no instrument plays all the time but the ensemble continuously makes beautiful music making power generation the right size for the job is also vital for economics and for resilience what the economist magazine calls micropower that is renewables minus big hydro plus combined heat power or cogeneration now makes a fourth of the world's electricity and adds half the new generating capacity the most advanced national example of this decentralized power production rather like ireland uh is denmark over the past three decades denmark has shifted from centralized power stations the big red dots mainly burning coal to distributed wind turbines in blue 86 locally owned a whole constellation of those and of combined heat and power in brown often burning agricultural waste denmark is planning 100% renewable electricity and total energy by 2050 at essentially no extra cost america's aging dirty insecure electricity system has to be replaced by 2050 and whatever we replace it with is going to cost the same whether we buy more of what we've got or new nuclear and so-called clean coal or centralized renewables or more distributed ones but these four futures differ profoundly in seven kinds of risk around national security fuel water finance technology climate and health distributed renewables best manage all seven risks and if resiliently connected can eliminate the cascading blackout risk as regulators struggle to manage and entrepreneurs strive to speed all these swirling forces how can incumbents respond should electricity companies ignore deny resist diversify hedge finance transform or decline trying to block or tax competitors annoys the customers who then go away faster just hanging on doesn't work as deteriorating finance narrows the options in germany even before pvs made five percent of electricity they had destroyed the business model in half the market cap of europe's top ten utilities last year germany's biggest generation share came from renewables fossil fuel generation hit a 35 year low wholesale power prices have halved in four years and this april they were lower on peak than off peak but incumbents can embrace change they can buy the insurgents and offer their products as their own branded products or do other kinds of competition or collaborate to finance the transition or become a neutral integrator of all technically qualified offerings for various combinations germany's biggest and most market owned utility eon instead of lobbying for more government support announced bold plan to split in two the new half will profitably deliver efficiency renewables and customer centric services shareholders will get the unprofitable legacy business of the big thermal plants germany's second biggest utility of a and the french utilities that if his have adopted similar customer centric priorities so far without splitting utility managers understandably focus on the need for price to exceed cost but in focusing so intently on cost and margin many forget the other part of the business imperative that value must exceed price if competitors offer a superior value proposition and grab your customers and revenues profitably running a traditional utility won't be enough to keep you in business us automotive history evoked by stanford innovation lecturer tony seba shows how markets can flip with breathtaking speed on new york's fifth avenue in 1900 you have to look hard for the first car and then just 13 years later you have to look even harder for what might be the last horse the horse and buggy industry thought it would have many decades to adapt but henry ford's model t got 62% cheaper in 13 years today photovoltaic modules just got 80% cheaper in five years that's accelerating and now fords and Edison industries are at last merging the pace of transformation you see is not set by incumbents it's set by insurgents insurgents are not inhibited by incumbents business models or legacy assets or cultures but investors flee even before customers do because capital markets can be sniffed out disruption they act on leading indicators got hunches and herd behavior all spreading at the speed of twitter and once the capital markets think you're in or headed for the toaster they don't wait for the toast to get done before they decapitalize you and invest in your successors today's energy transformation isn't just fundamental it's elemental the first industrial revolution was the age of carbon creating our prosperity and the world's mightiest industries from coal and oil four fifths of the world's energy still comes each year from digging up and burning four cubic miles of the rotted remains a primeval swamp goo but now we know that most of the carbon in the ground cannot be safely burned even more cannot be competitively sold because efficiency and renewables can do the same tasks better cheaper and safer so actually the oil and coal industries are more at risk for market competition than even from climate regulation so the obsolete age of carbon is giving way to the modern age of silicon silicon microchips telecommunications and software turn people from isolated to networked and systems from dumb to smart silicon power electronics make electricity inter convertible and precisely applicable replacing fiery molecules with obedient electrons and silicon solar cells enable the ascent of energy from mining the fires of hell to harvesting the breath and radiance of heaven that transition is now starting to reach the last people on earth to gain the benefits of energy access some 1.2 billion people with family incomes around two dollars a day or less have little prospect of getting or affording grid electricity today they light their huts and hovels with kerosene paraffin lamps that would rank eighth among nations in carbon emissions plus huge health costs and these impoverished people are paying 38 billion dollars a year one fifth of the total cost of global lighting to produce very inefficiently one thousandth of the light but now they can banish darkness and teach their daughters and sons to read an entrepreneurial village woman can sell or lease them an integrated photovoltaic lithium battery smart chip control and led package for lighting like this walka walka that pays back in weeks or months and the smartphone it recharges out of this port can soon micro finance this device with mobile banking so no longer buying the lighting fuel earns an annuity equal to a month's extra income each year not waiting for grid power but buying efficient and distributed renewables now can meet those needs affordably and scalably the people most in need of electricity for a decent life can finally start to get it signaling a brighter future for us all so if you led or invested in a fuel or electricity company to which of these two offerings and strategies would you entrust your investments and our common future your choice of electricity's disruptive future could just save the world