Following on an article from the professional networking site Focus.com on disruptive innovations that have turned markets upside down (iPad, Google Apps, Pandora, Zynga, etc.), the Carbon War Room posted a tweet asking, “What have been the disruptive innovations in the cleantech space?”  After a week of thinking this through, here’s my response.

First, what constitutes a disruptive innovation? I think of it as above all something that enables fundamental change.  Secondly it can be a product, process, or widget; and finally, the changes it engenders can take a long time to diffuse through society but they are fundamental.  History is littered with these innovations, including the telephone, the internal combustion engine car and the contraceptive pill.

But what’s next? What is on the horizon?  If, like me, you believe that we are approaching a convergence of technologies that over the next decade will rival the early 1900s in speed of change, then we have a number of examples that are worthy of inclusion.  I have limited my list to five potential cleantech disruptive innovations that will enable large-scale change.  In alphabetical order:

• 3D Printing
• Energy Harvesting
• Energy Storage
• Fuel Cell Technology
• Smart Meters

3D Printing

This, along with energy harvesting, is one of the two longer-term technologies on this list.  3D printing is still very much under development, probably at the same stage as the very first mobile phone,  and represents what could be a step change in manufacturing.

The technology prints successive layers on top of each other, building up to a pre-specified component. At present the technology, which is still very expensive, can be used to build working prototypes.

Why is it on this list?  With development, if the technology can get to the stage where it can print, with precision, parts for assembly, then outsourcing of manufacturing to third-world countries could become a thing of the past.  Taking into consideration that over 50% of the global shipping fleet, which itself contributed 4.5% of all global emissions of greenhouse gases in 2008, is made up of ships which are in effect floating warehouses of products sent from country of manufacture to country for sale, the clear potential for change is there.

Time till impact: near the end of this decade.

Energy Harvesting

Energy harvesting is the process of scavenging small amounts of power from a variety of sources, including saliently and temperature gradients.  Biomechanical energy harvesting is harvesting energy from movement.  Think about it: If we could even collect some of the energy it takes to type up a blog, go for a 10km run, or even walk to the corner coffee shop, it could be enough to offset some of each person’s power use.  Each person on the planet.  Now scale it up.  What about getting a nightclub to power their lighting from the energy produced by the dancers?  Actually, that’s already been done, at the Latitude Festival, in Suffolk, England.

Why is this significant?  Because the charging of gadgets such as mobile phone and laptops, according to the IEA’s base demand scenario, will account for approximately 1,700 terawatt-hours of electricity consumption by 2030.  To put this another way, with the proliferation of high-intensity energy-using consumer electronics, such as plasma screen TVs, as well as heating and cooling equipment, the residential sector will require an extra 280 GW of power to be installed by 2030.  This represents an additional 6% of global installed capacity over 2007 levels.

If we can offset even a fraction of this by collecting the energy in our bodies, and in our movement, we can reduce the need for new capacity, which even by 2030 is still likely to come largely from fossil fuels.

Time till impact: near the end of this decade. 

Energy Storage

Energy storage, from supercaps, flywheels, batteries, compressed air and hydrogen, is the latest step forward in the cleantech industry, and its impact is likely to grow significantly over the next decade as its potential to be a true disruptor is increasingly understood.

What it represents is the ability to create energy at time x, but use it later, at time y.  Considering that one of the biggest drawbacks of some renewable sources is their sporadic power production levels, the ability to take any excess and store it for later use represents a fundamental breakthrough.

According to my colleague Anissa Dehamna, in her Pike Research energy storage report Energy Storage Systems for Ancillary Services and Energy Storage on the Grid, these two areas represent a combined revenue of $125 billion by 2021.

The drivers of this scarily large number are many-fold, with one being that, on a fundamental level, electric grids require balance in order to function properly.  Energy storage technologies are emerging as a means of providing grid operators with an alternative to traditional grid management and being able to offer the grid operators the much needed control of grid loads.

But it’s not just at grid level that energy storage will offer a chance to change.  It is right up from residential, off- and on-grid, to community, to grid, to country-wide. Now that’s a real disruptor.

Time till impact: two to four years.

Fuel Cells

What fuel cells offer is a new General Purpose Technology (GPT) that can be used across many areas with minimal modification.  Note that here it’s not the end-use application that I am classifying as a disruptor, but the technology itself.

At its heart, fuel cell technology is simply an efficient hydrogen-rich fuel conversion device. As long we don’t use the worst possible fuel production chain (i.e., coal without carbon capture and sequestration), it has the potential to reduce emissions at the point of use. In many fuel chains it also represents the potential to reduce emissions from wheel-to-wire.

Applications that will see the largest benefit, in terms of the environment, are likely to be in the marine sector, micro combined heat and power (mCHP), and, if the kinks can be ironed out, reducing power demand from data centers.  Apart from residential mCHP, most of these applications won’t see a change in attitude toward energy consumption; the process itself will be the disruption.  Micro CHP, though, represent a real game changer.  Here fuel cells will be just one of a suite of options being developed to go into residential units that will provide, at a minimum, the baseload power demand of a home.  I’ve already written a number of blogs on fuel cells that provide the full flavor of this disruption, so feel free to look back at them.

Time till impact: two to four years.

Smart Meters

Smart meters provide consumers with information in a format that empowers them to alter their behavior.

Education has always been a key to change, and smart meters provide householders with an energy education,  among other things.  How much power or water is being used when?  When users alter their behaviour, how does this change affect their power demand (and their bills)?  We have already seen evidence from Japan that when users discern a clear, visible, and direct correlation to energy costs, energy consumption per home goes down.

Although technically advanced, smart meters are the easiest technology on this list to understand in terms of their impact. And of the five technologies on this list, they are the one technology that’s already starting to have an impact. This is likely to snowball over the coming decade.

Time till impact: Now.

These are not the only five potential disruptive cleantech innovations, but the five that get me thinking. I believe that in 10 years, when we look back upon 2011, the energy landscape will be different, and in twenty years it could be virtually unrecognizable.  Technology and sustainability have not always been easy bedfellows, but our increasing ability to harness innovation for sustainability will make the next decade or two an exciting time to be working in this space. 

It’s the fall, and the discontent of American billionaires, like that of New York Mets fans, is rising.  Not only has laconic investment guru Warren Buffett demanded that the U.S. levy more taxes on the privileged, i.e., super-wealthy people like him; but also another group of billionaires (or at least hundreds-of-millionaires) has stood up to demand a more active role for government in creating a cleantech energy economy for the 21^st century.

 In Washington, D.C., a group calling itself the American Energy Innovation Council unveiled a manifesto calling for “energy innovation and proposed reforms of government programs to yield greater economic benefits.”  Among other things, the report calls for sharp increases in federal funding for cleantech R&D and a Quadrennial Energy Review that will identify “market failures and technology choke points in order to better orient federal programs and resources.”

The AEIC is headed by Bill Gates, legendary Silicon Valley investor John Doerr, former national security adviser Gen. Jim Jones, GE CEO Jeffrey Immelt, and other luminaries.  “Unfortunately, the country has yet to embark on a clean energy innovation program commensurate with the scale of the national priorities that are at stake,” the group declared in a briefing hosted by the Senate Energy and Natural Resources Committee.  “In fact, rather than improve the country’s energy innovation program and invest in strategic national interests, the current political environment is creating strong pressure to pull back from such efforts.”

Another group created by wealthy individuals, called Advanced Energy Economy, is calling on business leaders from the cleantech sector as well as “other industries that are committed to American leadership in advanced energy” to catalyze regional and state efforts to expand clean energy business opportunities and R&D.  The group was founded by Tom Steyer, the founder of Farallon Capital Management in San Francisco (disclosure: Steyer was a college classmate of mine and remains an acquaintance), and Hemant Taneja, a managing director of General Catalyst Partners, a tech VC firm in Cambridge, Mass.  AEE’s mission is “to usher in an advanced energy economy driven by America’s business leaders and entrepreneurial thinkers.”

Besides the prevalence of billionaires, there’s another common thread to these fledgling efforts: the conviction that the United States, specifically the U.S. government, is not doing enough to promote cleantech innovations and maintain American competitiveness in the clean-energy sector, which will attract $2.3 trillion in investment worldwide by the end of the decade, according to The Pew Charitable Trusts.  The U.S. government should invest $16 billion a year in clean-energy innovation, the AEIC says—more than three times the level of current funding.

 “A group of business leaders came together to say that the investment in energy research is much lower than it needs to be,” Gates told the Marketplace Morning Report.  “Whether it’s for getting low-cost energy or securing our energy supply or reducing environmental damage, we need breakthroughs. And the government funds research in a lot of areas, but in the case of energy, it’s very low.”

How realistic a three-fold increase in clean-energy investment is at a time of poisonous showdowns in D.C. over budget deficits is an open question. There’s no question, though, that an increasing number of people at the very pinnacle of capitalism see such investments as not only critical to building a sustainable energy regime, but also fundamental to keeping the United States competitive in the 21^st century.

The rare earths crisis, if you want to call it that, intensified this week. Two days after Chinese state media reported that production would cease at three major mines in eastern Jiangxi province, China’s rare earth’s heartland, officials from Japan, the United States, and the European Union announced a meeting in October to discuss ways to reduce reliance on rare earths supplies from the PRC, which controls around 97% of the world supply.

“We need to find out, how can you use less and how can you get more,” said a U.S. Department of Energy official.

These moves come two months after the World Trade Organization found that Chinese restrictions on a variety of raw materials exports were illegal. China, which has cited environmental harm and resource depletion as the reasons behind its rare-earths export quotas, has appealed that decision, but it’s expected that the European Union, United States, and Japan will at some point seek WTO legal action against China’s policy.

One way to reduce dependence on China is to find substitute materials for lanthanum, cerium, dysprosium, neodymium, and other high-demand rare earths, particularly in clean energy technologies such as wind turbines, fuel cells, and energy-efficient lighting. Our report, Rare Earth Metals in the Cleantech Industry, though, indicates that that will not be easy.

While “various companies, particularly those in Japan, are exploring new methods for recycling rare earth metals and developing new clean energy technologies that emphasize a low reliance on these materials,” author Euan Sadden wrote, “This is only applicable for certain applications such as permanent magnet (PM) motors for electric vehicles (EVs), where industry leaders such as Toyota have taken initiative and are moving forward with technologies that operate independent of rare earth metals.”

In the long run, new production and new non-rare-earth technologies will alleviate the current shortages and price spikes. For the next half-decade or so, though, you can expect rare earths to continue to be scarce, and pricey. The chart below shows Pike Research’s forecast for rare earths demand in the cleantech industry, through 2017.

Demand is predicted to grow by 40%, from around 9,000 tons a year to close to 12,600 tons. That’s not likely to change, regardless of efforts at substitution.

Over the last few decades, commercial buildings have been at the forefront of a number of energy storage technologies including batteries, flywheels (primarily in uninterruptible power system (UPS) applications), and thermal energy storage (TES). While the former market segment is mature, TES technologies are poised to take off in the next few years as building owners and managers look to curb energy costs and improve the reliability of the cooling supply.

At first glance, the business case for TES in commercial buildings isn’t readily apparent, as storing energy for later use doesn’t directly reduce the building’s overall energy consumption. In fact, although the round trip efficiency of ice-based TES is high (approximately 95%), some energy is lost in conversion. The key drivers of TES are actually utility pricing programs, such as dynamic pricing schemes and demand charges. Dynamic pricing schemes, such as time-of-use (TOU) pricing, charge more for electricity during on-peak periods than during off-peak periods, serving as a proxy for the higher wholesale cost of electricity during those periods and sending a price signal to customers to reduce loads. Such pricing schemes are on the rise throughout the United States and globally.

Demand charges, equally as important, charge customers for their maximum power draw at a peak moment during a billing period at a fixed rate, measured in $/kW. For example, demand charges for commercial and industrial (C&I) customers in ConEdison’s New York City territory are about $30/kW during the summer months. To put that into perspective, if a building occupant turns on a 2 kilowatt hairdryer during a peak load event on a hot summer afternoon in July, the building owner would have to pay about $60 more just to cover that extra bit of power.

So why are these pricing programs in place at all? Utilities in the United States invest significantly in generation and transmission assets that, in some cases, are used only a few hours a year in order to meet demand during hot summer days. By creating incentive schemes that transfer a portion of peak load to off-peak times by temporarily boosting retail electricity costs during peak periods, utilities can avoid the considerable costs of operating and maintaining those little-used assets – and pass the benefits through to their customers in the form of lower electricity rates.

Large energy consuming facilities, therefore, are finding that they stand to benefit from shifting as much of their energy consumption to off-peak times if their utility offers or mandates such schemes. There is about 1 gigawatt of grid-connected thermal energy storage on the grid globally today. Given that the key driver of TES is dynamic pricing schemes, TES has emerged in a number of pocket markets, most of them major urban centers, where these schemes exist. In the next decade, as penetration of TES grows in existing markets and dynamic pricing schemes and demand charges appear more broadly, TES will find its way into the energy management portfolios of a growing number commercial and industrial facilities. Pike Research estimates that the global market for custom ice-based TES installations could reach as high has $92 million by 2016 at an annual growth rate of 25%.