We describe our podcast as “Scaling Clean, the podcast for clean economy CEOs, investors and the people who advise them.” Ken Locklin is the first we’ve had on the show from the last category. And there’s a reason for that: Ken is the cleantech oracle you probably haven’t heard of because he has the enviable combination of foresight and humility.
Ken wouldn’t boast about himself like I do about him.
For over three decades, Ken’s honed his ability to observe the major developments within multiple clean economy sectors, and then distill the trends for the rest of us. He’s so good at it, that while serving as Impax Asset Management’s North American Director, he co-wrote a Bloomberg New Energy Finance (BNEF) 2016 report, “Mapping the Gap: The Road from Paris.”
In clean economy, BNEF reports are the closest thing we have to religious scripture, and it’s fair to describe Ken as belonging to a small field of elite advisors and trend spotters for clean economy sectors. I had the privilege of talking with him recently, and the conversation yielded one great soundbite after another. Like this, on the ideal CEO background:
“We’re at a stage in the market that it’s still early enough to accommodate pioneers and reward them, but it’s late enough in the development of clean energy that we need the expertise from very established executives and world-class players.”
Listen to the newest episode on Apple, Spotify, Radio Public, Amazon Music, iHeart, Google Podcasts, and Stitcher.
Episode 6: Overview
- Introduction
- What differentiates leading a cleantech company?
- Characteristics of the ideal clean economy CEO
- The future of clean economy
- Solving the problems faced in energy transformation
- 3 steps for cleantech sector growth
Introduction
Mike Casey:
This is Scaling Clean, the podcast for clean economy CEOs, investors, and the people who advise them. I'm your host, Mike Casey. I run Tigercomm, a firm that counsels companies that are helping move the US economy onto a more sustainable footing. In each show, we bring you usable insights on how to scale and run clean economy companies from the people who are succeeding at building, funding or advising the most successful firms in your sectors.
We described this show as a podcast for clean economy CEOs, investors, and the people who advised them. And for that last category, Ken Locklin is the first we've had on the show, and there's a reason for that. Ken is the Cleantech Oracle you might not ever have heard of because he has the enviable combination of the ability to look around a lot of corners while staying humble. But for over three decades, he's honed his ability to observe the major developments within multiple clean economy sectors and then distill those trends for the rest of us. He's so good at it that Ken served as Impact Asset Management’s North American director and from that perch, he co-wrote a Bloomberg New Energy Finance interim report several years back, predicting trend lines in our sectors. Those reports are the closest we had to religious scripture in Cleantech. And it's fair to describe Ken as belonging to a small field of elite advisors and trendspotters for clean economy sectors. And with that, I wanna welcome Ken to Scaling Clean. Ken, thanks for joining us.
Ken Locklin:
Thanks very much, Mike. Always terrific to have a chance to work with Tigercomm.
Mike Casey:
How would you describe the arc of your career to date? In other words, how does a guy like you get to where you are now?
Ken Locklin:
Yeah, and the situation with renewables was especially interesting for me. I came immediately before the work I was doing in renewables, I had been working in project finance in the energy sector. So I had a sense of some relevant skills in that sector and the challenges and the potential, frankly, of that sector. But it seemed to me that there was a potential to tackle a segment of the climate change challenge by supporting the sustainable economy transformation. So we knew global economies had to transform to a more sustainable form and frame, and that was a job that I was hoping to try and help. My analysis was the skills I had developed working in frontier markets geographically were potentially applicable or deployable to help in this new sector, which was global in its application, but required the same kinds of abilities to work across public and private finance so that you could make progress both in trying to attain some commercial success, but also to be involved in this critical societal transformation.
Mike Casey:
In your work tracking sectors and companies that comprised them, I imagine you've observed and met a lot of CEOs. Looking back, what qualities did the top CEOs in these sectors possess?
Ken Locklin:
These were pioneer industries, each of the individual subsegments of the clean energy transformation. And I think that successful CEOs in those sectors have been able to combine a visionary leadership style with a very high degree of technical sophistication because often these are brand-new technologies that traditional finance and players in particular don't routinely understand. And they also had to have the ability to develop strong and in particular cross-cutting teams. So building those teams from people with disparate skill bases is a crucial requirement in a frontier market like this. They had to have an appetite for risk, of course, because it is a new market and risks were being taken when people walk away from various established traditional finance careers to do this work, but they had to be powered at the end of the day by a determination to be working for the broader public good. They could make more money at Goldman doing traditional oil and gas finance. But it took that ability to see the bigger picture that would enable them to really lead and build a team successfully in this new space but also to build an industry successfully.
What differentiates leading a cleantech company?
Mike Casey:
Are there ways in which leading a clean economy company is different from leading companies in more mature sectors? And if yes, what are those differences?
Ken Locklin:
Yeah, it actually is the case. In a sense, as I was saying before, we're talking about different kinds of emerging markets, geographic or sectoral. And so in an emerging market, it's critical for leadership CEOs in particular to have a clear and transformative vision. There's no point in leading if you're not gonna strive to achieve new things and new directions. Those CEOs had to be able to craft a team, as I was mentioning, that has a full range of specialized skills, especially in this sector of clean energy where you were creating a whole new industry. You couldn't just go pick off the shelf a team of people who were doing the work you needed. You had to go out and assemble those with technical sales and commercial skills, market understanding skills, and analysis and strategic planning skills from a variety of different sources and meld them together into an effective team. But then, and this is critical, the successful CEOs had to be able to read the wind, where the market and the opportunities and demands were heading them. I like to say that leadership in any emerging market, particularly in clean energy, is a lot more like artful tacking with the wind when you're sailing than it is like the straight-line driving of an offshore powerboat.
Mike Casey:
So United Airlines CEO listening to this might say, well, I have to pay attention to trends and I have to see where the industry is going. So, Ken, I'm not that different. Is that difference you're talking about as a matter of degrees, or is it a little bit more fundamental or foundational in the difference between working in a mature sector company versus a clean economy company?
Ken Locklin:
I think, although they're related and people have crossed over, I think it's fundamentally different because we're talking about the wins and whims of a developing market like these in clean energy. And over the last couple of years, a couple of decades that I've been working, it just can be just overwhelming and it can overwhelm any effort by a CEO to mechanically muscle through a business plan in these very choppy competitive waters. I would suggest to the folks at United, that they're working in an industry, which is almost a hundred years old now, and the conditions of that market have changed continuously. That's not novel, but we're talking about the creation. So the question, the analog to me is if you stopped and talked to Wilbur and Orville Wright, how would they be designing an industry of the future to fly a bunch of people around when there was only room for two on the plane? In these kinds of conditions before you can lead the market, you have to read the market, and people who think they know and come in with the experience of success in other sectors have generally not performed very well in this market.
Mike Casey:
I often assert in our thought-leadering here, that clean economy is mostly comprised of new sectors within existing industries as opposed to a new industry. Why is that distinction important? So Google created a new industry. It created the search engine industry, so to speak, and it didn't displace anything. But solar and wind are new sectors within the energy industry, and that's important because they are displacing and disrupting entrenched incumbents to us as communicators, both in the Markham realm and in the public affairs realm in particular, that has a very meaningful downstream difference in the experienced reality of these companies. But I'm interested in your views on that. Are clean economy sectors new sectors? Or are they new industries?
Ken Locklin:
That's important and they are of course new sectors for the most part in established industries. There wasn't an established legacy industry when Google materialized doing what it sought to claim market share in. But, if you're generating power, thank you very much. There's a very established industry that has been doing that for a long time. The only problem is they've set fire to the atmosphere of the planet in the process, and that hasn't worked out for all of us so well. So I think that it's critical to recognize when you are in the creation of a new sector, which is directly competitive with legacy industries because that means that you have to be able simultaneously to play both offense and defense. You have to create a business that's competitive and able to succeed and grow with all of the challenges associated with its technology and its market.
But at the same time, you have to be fending off efforts by the legacy industry to directly disrupt or in some cases completely overturn or eliminate the entire sector alternative that you represent. And over time, you have to both be successful at playing offense and defense. And that includes playing political games and understanding policy, influence, decision-makers, and the public sphere. Because you can't just assume that your better widget is going to be able to solve this problem when somebody who had a thing that was like a widget and more or less did the same thing but made a mess over in the back corner while it was being used is trying to hang on to their business model.
Characteristics of the ideal clean economy CEO
Mike Casey:
Ken, have you seen changes in the backgrounds of CEOs entering clean economy sectors?
Ken Locklin:
There have been really significant changes. I think all of us who've been at this from the early going have seen it in the last quarter century. And what you've seen, overall is that the leadership has become less technologically focused as the industry's become better established. There are a lot of PhDs and researchers who were involved in the early clean energy companies, and that's much more rare now. Companies are bigger and better established. They have deeper staff, and you are requiring a new kind of sophistication in the leadership. Right now, you're seeing a generation of those more seasoned commercial and industrial leaders who already have extensive corporate experience under their belts, and they're being drawn to the clean energy marketplace because it's growing much faster than their legacy industry is. In some cases, it's a direct competitor, and the clean energy industry is winning.
And the prospects both for that growth potential and for having a social impact are very powerful. I cannot tell you the number of times I've heard older fossil fuel executives who are now active on the clean energy front say that their grandchildren ask them why they were involved in a business that was polluting the planet. And the answer they eventually came up with was, well, I'm stopping doing that now and going over to help with the solutions. So I think all of us have to recognize that we're at a stage in a market where it's still early enough to accommodate pioneers and reward them, but it's late enough in the development of clean energy that we need the expertise from very established executive world-class players.
Mike Casey:
If you were going to computer-generate the ideal clean economy CEO, what settings on the dial pad would you set?
Ken Locklin:
That's a really good question. I think that I'd be looking at this stage in the development of the industry. I would be looking for relatively balanced positions on the midpoint positions, on the technological sophistication dial, the market knowledge dial, and market sophistication dial. But I would be setting higher the dials that produced stronger teams from disparate players and parts, in other words, not a culture that's grown up inside itself, but people from other industries who've been brought together and can be hammered into an effective and kneeled team for that company. And I would also have the dial set for higher sophistication and tolerance for innovation and tolerance of risk. So they have to be tolerant of continuously learning new things, not expecting to know the technology in detail and expect that that knowledge will work for a decade at a time. But at the same time, they have to be willing to take risks that fall outside of the traditional parameters because these are pioneer industries.
The future of clean economy
Mike Casey:
How will the clean economy be different five years from now?
Ken Locklin:
We will continue to see drops in cost in both wind and solar in particular, and that's important. There'll be other improvements in some of the smaller, less central technologies. All of that is beneficial. The big change is going to be the decline in the cost of energy storage. Energy storage now appears to be improving on the trajectory that we saw with solar a decade ago, which is one of the fastest learning curves in terms of reduction in cost for a new technology that we've seen in modern industrial history. So, energy storage cost declines are going to be the fundamental factor, I believe, of the next decade in particular. And what that's going to mean over that decade is you're creating a new generation of investment opportunities from the clean energy sector generally. And that's going to cause clean energy to move from being an important incremental power source to the cost-effective 24/7 energy resource that's capable of powering the entire economy. That's going to happen. The critical steps required in that transformation will take place in the coming decade, I believe.
Mike Casey:
As you look into the Ken Locklin crystal ball, when do we get to renewable baseload, coast to coast?
Ken Locklin:
That's a really good question. I wouldn't make or take that bet because the market is still so immature that it is heavily impacted by policy factors. We, those of us who live in the Washington Metro area have been watching with great interest, what was anticipated to be a tremendous transformation when we went from one administration with very little interest in clean energy to another administration, which had a tremendous commitment to clean energy. If we look at the changes at a fundamental policy level, enacted policies, new bills in place, and capital deployment, there has been very little change. So the critical reason is that this market is still so young and because of the costs and these hidden externalities that we have to deal with in the clean energy sector in order to compete with fossil fuel-powered energy generation, those market externalities can only be balanced up by government decision making.
So, for all of us to be successful in making this transformation, governments have to take an active role on behalf of their populations to protect them from the worst impacts of the climate change path we're on. So we've just seen today that NOAA is announcing that they are expecting this year's hurricane season to be heightened over prior hurricane seasons for the seventh year in a row. I'm not sure how you can have a higher-than-average for seven years in a row. I think you need to work on the average, but that's the reality that we're dealing with today. So if governments decide on behalf of the American people to protect their long-term financial and physical interest by taking the steps that make sense to support a clean energy economy, we could be in a position of seeing the majority of the country's energy come from clean and renewable resources within a couple of decades if they were really serious. If there are some steps, but it's not a serious commitment, it will take more than 40 years. And if we're on a usual business case it'll take more than 50. The process is happening all on its own, purely commercially, but it's very slow.
Solving the problems faced in energy transformation
Mike Casey:
Can I be remiss if I didn't ask about transmission and get your thoughts on it? Where does the transmission problem get solved the fastest?
Ken Locklin:
Transmission isn't a tremendous challenge because these technologies, as good as they are, are not uniformly applicable. They are not going to be available in every market equally effectively at the same time of the day and the same time of year. So we need transmission to support the backbone of even a distributed energy system, certainly through the next couple of decades. So how is that transmission made available? That's an excellent question to which the United States at least does not have a very good answer. There's a lot more attention being paid inside of the folks at the Federal Energy Regulatory Commission to think about these longer-term issues around transmission. The industrial capability and technology requirements are well established. There's no challenge there. And probably the best news is that we both have companies that are superbly positioned to install massive amounts of transmission capability in any place in the world.
The majors have done this work all over the world in much more forbidding locations than the United States. And they have the technologies to effectively move that power these days within the tolerances we need for the kind of industrial requirements we have. But what we don't have is a policy environment that supports the growth of that industry at the pace that we will require. Again, the good news is the capital available to support that activity swamps the amount, even the amount of capital that's required for this industry, which is huge, is swamped by the scale of capital financing. And we talked about this back even in the ORB report. So the funding is there for the work. It can make financial sense, but you need to have government policies to support it because some of these transmission challenges, particularly eminent domain issues, are very difficult and have to be worked out at a higher level. They can't be settled town by town or county by county.
Mike Casey:
Net-net is a policy or commercial execution more important to clean tax sectors at this stage of their growth?
Ken Locklin:
You know, we haven't had a supportive policy at the level that we had hoped or needed, frankly, for a long time. And in the absence of a supportive policy, it hasn't been in direct opposition, but it hasn't been deeply supportive. In the absence of that, the industry commercially has done a terrific job of evolving and developing, and finding ways to be commercially competitive. And a lot of money has been made by good companies doing good work in the clean energy industry, building up an enormous industry, which dwarfs the coal industry, for example. So it’s important to recognize how effective we've been within clean energy, but we've been effective within a relative absence of really active support on the policy side. We won't get to the level that we need to within the timeframe that the IPCC is giving us without much deeper support from a public policy level.
Mike Casey:
Does all this leave Ken Locklin a climate optimist or climate pessimist, and does it leave him a cleantech optimist or cleantech pessimist knowing that those two things are related, but are different?
Ken Locklin:
I am, in both cases, what it’s called, a meliorist. I think things are gonna get better. I'm not an optimist or a pessimist, but I do believe they'll get better over time. I think that the technology development opportunity is strong and the potential is really impressive, frankly. And our capability as a society, and as an industry to meet technological challenges that are associated with the cleantech industry, so those challenges are gonna be met. There's no question at this stage that will continue to meet them and at almost any level of demand that you could realistically expect. I'm much more concerned about our ability to move quickly enough to solve the climate problem. Circling back, our first child is about to have her first child, so 30-odd years after she was born and that changed my career path. I find myself thinking about the fact that her baby girl is going to be coming into a world where that climate challenge is every bit as overwhelming as it was at that point of time. I have friends that attended the Rio Earth Summit with me back several years ago when all this work was being developed. And I saw one of those guys recently and said so, you know, net-net, where are we compared to where we were 20 or 30 years ago in Rio? And he said the bottom line, what was the worst case scenario then is the best case scenario now. That's how daunting the challenge is. So we all have a lot of work to do, and it's only the private sector that can get us there in the end.
3 steps for cleantech sector growth
Mike Casey:
Let me close this incredible interview out with this question. If you were going to address a joint session of clean power, Re+, and Inner Solar in the keynote address, what one to three steps would you tell the collective cleantech sectors they must do? What are the most important things they need to do that they're not already fully paying attention to?
Ken Locklin:
I think the Cleantech industry has done a pretty good job of meeting the commercial requirements that the market presented to it along the way. But what has been challenging for the industry and so to the extent that there's an external demand placed on the industry to meet a requirement technologically or in production terms, the industry has responded reasonably well. As I said before, this is a larger problem, though, that can only be addressed through public policy. So what the industry has to do now is do an even better job of identifying ways to combine their interest in support of the critical policies that have to emerge and be sustained by governments in the US and globally, indeed, over the next 20-year period.
So you see the effort, Mike, you and I have been at this long enough to know that back in the day you saw individual associations battling with each other for allocations from Congress every time there was an energy bill brought forward, one would snipe and try and peel off the other guy's interests. And since then, we've seen the development of organizations like the American Council and Renewable Energy which acts as an overall umbrella organization that helps combine and represent the interests of the individual sectors of the industry. Finding ways to tighten that cross-industry collaboration and make the points more clear around the kinds of policies that are needed for the climate challenge to be met will be the best way to produce an environment in which the industry will thrive. It doesn't need to be looking at the industry for direct support for itself as much as it needs to be supporting that overarching climate change, that arc of climate success will bend towards a successful future if all those individual organizations help reinforce policymakers’ views, educate them to what can be done and what's needed, and then support them with effective execution and competitive pricing as the markets develop.
Mike Casey:
Ken Locklin, amazing. This was everything I hoped it would be, and then some. I thank you for the work you've done. You are an oracle, at least to me. I think many in the industry appreciate the clarity and depth of your views and how accessible you make them.
Ken Locklin:
Always a pleasure for me, Mike, and congratulations and all the great work that Tigercomm has been doing. Keep it up.
Mike Casey:
This is Scaling Clean, a production of Tigercomm. I am Mike Casey, and I thank you for joining us. You can subscribe to our show for free anywhere you get your podcast. While you're there, leave us a rating and a review. We'd love to hear from you. Thanks for listening.