Vinod Khosla, co-founder of Sun Microsystems (s JAVA) and one of Silicon Valley’s most active cleantech investors through his firm Khosla Ventures, doesn’t always sound like a VC who has invested hefty sums in lithium-ion battery startups, including Sakti3 and Seeo. “Lithium-ion batteries are overhyped and will possibly be replaced,” he said today at the AlwaysOn Summit at Stanford. He told me after his talk, however, that Khosla Ventures is backing the technology because the “lithium-ion markets are here today. We’re investing because there are good markets.”
Problem is, costs have to down — or oil prices have to shoot up — for most battery ventures to make big winners of entrepreneurs and their investors, Khosla said. When asked during his talk this morning with Fenwick & West Chairman Gordon Davidson what it will take to get low-carbon cars on the road in significant numbers (which would boost demand for technology from companies like Sakti3), Khosla said, “The most important thing to remember is economic gravity — the cheapest thing ends up winning.” For that reason, he said, “I can’t imagine lithium ion making low-carbon cars pervasive anytime soon.” Then again, if oil prices jump to $100-150 per barrel, “you’ve got a different ballgame.”
It’s largely the cost issue that Khosla says makes hybrid vehicles “greenwash.” He drives a hybrid, and considers the Toyota Prius “interesting,” but says it offers a very expensive, and thus limited solution for reducing greenhouse gas emissions. “Just get a bucket of white paint, paint your roof, and you’ll save more carbon,” he said, than you would driving a Prius. Never mind all-electric cars, he said, which in the U.S., China and India will be “plugging into a lump of coal” for years to come.
Khosla sees government subsidies in the U.S. and Europe as a key to bringing many clean technologies to the global market at competitive cost. “Every investment we make should reach unsubsidized market competitiveness,” he said, usually in the timeline of 5-7 years. This is important, he said, because fast-growing markets in China, India and elsewhere in the world don’t have subsidies. So the idea is to “use the U.S. and European regulations to get down the cost curve until such time that you can compete” without government assistance.
At this point, Khosla sees some parallels between the relatively early stage of cleantech innovation, and expectations for the Internet in the early 1990s — we have no idea what “one breakthrough will change the rules on what renewable energy is.” Back in 1990, he said, “everybody assumed the digital world would be interactive TV…the Internet came from left field, from an unlikely instigator: the browser.” Right now, it’s too early to tell what the instigator will be for energy. “There are radical approaches that might come along, a different kind of battery, for example…or a different kind of sequestration, that we aren’t planning on.”
On the road to those radical breakthroughs, we can expect to see some massive failures in the cleantech sector. “What is amazing about this is the size of the markets. We are dealing with much harder science and technology, so we will see much higher rate of failure,” Khosla said, “but the wins will be bigger. More money will be made in cleantech than in traditional areas of Silicon Valley — by far.”