When Pacific Gas and Electric PCG declared bankruptcy — a topic I discussed in my article PG&E: The First S&P 500 Climate Change Casualty — I was in the midst of being introduced to the infamous traffic jams of Los Angeles.
Sitting in traffic, I had ample time to listen to the local radio station’s analysis of the bankruptcy news. It was that news story, followed by a lunch conversation with a prominent venture capital investor in LA that made me realize there are some silver linings to the PG&E bankruptcy.
I do not mean to belittle the suffering of people directly affected by PG&E’s bankruptcy. The fact that customers’ damage claims are moving to the bottom of the stack of bills to pay in bankruptcy — behind those of bond investors — could be held up as the definition of the phrase “adding insult to injury.” For those directly injured by the PG&E bankruptcy and the climactic conditions that underlie the filing, it is hard to find a silver lining.
However, this episode represents exactly what structural change looks like.
Many people are hurt, and a lot of what economists blithely dismiss as “frictions” occur during the transition. Those with luck and foresight will seize newly created opportunity that arises from the wreckage of the past paradigm.
The first hint of a silver lining from the civilizational perspective is one of the root causes behind PG&E’s recent difficulty in operating its business profitably and responsibly. The reason is that more and more customers are generating their own power through rooftop solar installations or local mini-grids, so are paying less for the services PG&E provides.
Clearly, the mini-grid phenomenon is the wave of the future and it fits perfectly with a process repeated in countless shifts in technology paradigms throughout history.
Medieval monks used to spend lifetimes buried in their monasteries’ scriptoria, intricately hand-lettering bibles that were worth their weight in gold. Gutenberg’s press — one of humanity’s greatest technological achievements — centralized the production of written texts and made bibles so cheap that German merchants could verify Luther’s sermon readings. A few hundred years later, the production of the written word is so decentralized I can write about it sitting in front of my living room fireplace.
Energy production and distribution in the 21 century is at the stage of word processing in the 1980s — just on the verge of being a truly and fully distributed technology. Advances in efficient home construction, battery storage, and mini-grid power sharing technology must be made before the transformation is complete.
The other silver lining to the PG&E story is psychological, not technical. The venture capitalist with whom I spoke, a survivor of the great Clean Tech boom-bust cycle in the aughts, tells me that he is seeing more deals cross his desk than during any other time in his career. Semi-retired and content to fund a few deals personally, he told me that he had decided to raise another fund simply because the interest in the climate change investing space is so strong.
I asked him what he thought the impetus was for the swelling interest, and he replied that the terrible fires last year had a lot to do with it. Not only the fires in California, but also those in British Columbia, the smoke from which wafted down to Seattle and Portland, leaving a gray blanket lying across the Pacific Northwest, made a deep impression on people there.
He and I both know that the fires that, more and more, burn year around in the western United States are simply an early sign of deep climactic disruption. People in the southeastern US too realized with some alarm that hurricanes are becoming more destructive, with the strongest one ever to hit Georgia coming indirectly from the Gulf of Mexico rather than directly from the Atlantic.
As I mentioned in my article Winning at Climate Change Investing, it is difficult to precisely tell when the investment catalyst will present itself, but the more straws piled onto the camel’s back is sure to have an effect eventually.
Investors interested in building and maintaining intergenerational wealth in this century would do well to remember that fact.