Nancy Floyd, Nth Power

“I had some interesting opportunities presented to me, and I pushed myself.”

That’s how Nancy Floyd, co-founder of Nth Power, a San Francisco-based venture capital firm specializing in energy technologies, describes her career.

Floyd discovered her entrepreneurial streak early on in an unlikely place: the Vermont Public Utility Commission. While working on federal legislation that laid the groundwork for deregulation, Floyd found time to hatch the first nonprofit to provide home energy audits for low-income customers.

“Once you’ve figured out you’re an entrepreneur and a risk-taker, you never go back,” she says.

Floyd’s first major venture was to help launch a wind development company at a time when “wind was so not mainstream,” she explains.

Under Floyd’s direction, NEC Energy Corp. constructed $30 million worth of wind turbines in California’s Altamont Pass in the 1980s. “Talk about cowboy days…” Floyd muses. “We created the business model.”

NEC eventually formed the basis for FPL Energy, which generated 40 percent of U.S. wind power in 2004.

But Floyd left the wind business when inconsistent federal tax credits stifled the industry. Her second experience with a deregulating market, this time in the telecommunications industry, turned Floyd on to the power of innovation brought by competition and market demand. What Floyd says interested her most was the role technology plays in transforming the landscape.

More important was her realization that this awareness was not being developed in the traditional telecom companies. “These were seemingly disruptive technologies funded by venture capitalists,” she says.

Nth Power grew out of this realization. Floyd says she believes the time is right for exponential growth in energy technology.

“We have never in the history of this country been in the spot we are now related to energy,”she says. “I’m not going to say its that we’re running out of oil in 20 years. It’s around global warming and not being able to produce enough oil to meet demands.”

Floyd recently took time to talk with Sustainable Industries Journal about her perspectives on this moment in history.

SIJ: You’ve talked about a major shift in energy use and technology. Before that happens, are consumers going to have to understand energy differently?

Floyd: People will start thinking more and more about energy in terms of their own reliability needs. It takes time for people to change the way they do things. To change the way people do things you need to find those early-adopter markets that are ready for change … and then there’s a whole education process for the rest of the market that leads to more mainstream adoption. … That allows you to segue to other markets, perhaps the markets you’re most excited about.

The home computer was marketed as a way to store home recipes. To many people that seemed like an immediate market. ... They’ve got to start somewhere.

Where new technologies start and where they’re first adopted are the big customers. If you think about computers and fax machines, it started with business. And then, as prices came down and operating systems got easier to work with, it reached the mainstream population.

The same path will be followed with new energy technologies. Ten years ago, CFOs of major companies didn’t think about energy. Every CFO of every major company in this country, if not this world, is thinking long and hard about energy. It’s one of the highest operating costs they face.

SIJ: In 2001, 25 states had deregulated their electric utilities. What effect has re-regulation in many of these states had?

Floyd: I think that actually having competition, just the threat, caused them to wake up. But re-regulation hasn’t really slowed the traction that new technologies are getting. There are certainly
long sales cycles. Many of them have just gotten funded in the last few years and it takes five, six, maybe seven years for us to see it in the mainstream market.

Today the market drivers are so much stronger. Deregulation has been left in the dust. Include the fact that we have an aging infrastructure in this country and elsewhere; that there’s increasing demand for oil and natural gas that now, on a daily basis, is beginning to outstrip supply; very significant global warming concerns, terrorism and national security concerns. As well as, do we continue to have the architecture of big central power plants or have more distributed architecture with clean small generation? All of these are really driving the opportunities now. And it’s gotten investors … really interested.

We are at an inflection point. From 1990 to 1998, $300 million in venture capital was invested in energy technology. From 1999 to 2004, $4.5 billion of venture capital was invested in it. This is one of the largest industries in the world, absolutely hungry for change and innovation.

SIJ: There seems to be a lot of interest now in focusing on how power is supplied to consumers. Why is there so much attention on this particular aspect of energy?

Floyd: There is more pressure on utilities to provide highly reliable power. Automated manufacturing costs us a lot of money now if the power goes out. What’s driving investments in advanced metering is the ability to use the system efficiently.

If you have advanced metering, utilities can send real-time price signals. Right now we pay a blended rate for energy. It includes the cheapest cost of energy because you’re using the lowest cost resources, and as demand increases you have to turn on the plants that are the most expensive to run and we end up paying the blended rate for that. You can measure people’s usage in five minute — or less — increments. Then you can begin to charge for what people use.

Real-time pricing sends price signals so people save energy when it’s most expensive. We’re optimizing the generation that’s out there. So balancing the system, getting the most out of the system is the rationale for advanced metering.

SIJ: If it’s so important, when do you think real-time pricing is going to happen?

Floyd: It’s starting to happen around the country. California is going to be mandated to do real-time pricing starting next year, rolled out over a number of years. It’s a very big deal. Think about it: When my teenage boys IM [instant message] for fun, why are we sending meter readers out? It’s unbelievable.

SIJ: It sounds like a lot of the new technologies take responsibility for managing energy use away from consumers. Do you think that’s true?

Floyd: So far, we have found that energy efficiency alone is a very weak market driver. People don’t care enough and don’t pay enough to conserve. When you start paying a real price instead of a blended price — people will start to care about saving energy at that point. Right now energy is too cheap for people to really care about saving it.

SIJ: Doesn’t that mean asking consumers to give up quite a bit of control over their electricity use?

Floyd: It wouldn’t be giving up control at all... It’s really not even noticeable. We have a company working with PacifiCorp, and what they do is go in and install this little device on air conditioners. They cycle people’s air conditioners on and off, just a couple of minutes. The compressor is off and in the couple of minutes where they turn it off and back on … the temperature in your house might rise 1 degree.

You’re not even going to notice a change. There’s a technology to dim lights in office buildings very slowly over a minute or minute and a half, by up to 30 and 40 percent, and it’s almost imperceptible. ... The real driver was workplace productivity — when you have lighting appropriate for the task, people are more productive. … People don’t have to even care about energy efficiency.

SIJ: In an article about H2Gen, a company in Nth Power’s portfolio that makes small-scale hydrogen generators, CEO Barney Rush said he wants to “avoid the best being the enemy of the good.” Does that thinking relate to your investments?

Floyd: Sure. In the case of H2Gen ... maybe we’ll start with applications that have nothing to do with fuel cell cars. As venture investors, we need to make money for our investors, and when we make an investment we need to think that there’s an immediate market. There are a lot of companies that use hydrogen and have it shipped in — refineries, pharmaceutical companies. And H2Gen wants to sell into those immediate markets as a way to generate some volume, which brings prices down.

I’m looking for initiatives that aren’t regulatory-driven, that are market-driven. That’s when you know you’ve got a real industry.