Enabling the Decentralized Energy Revolution

Posted on by Bhanu Nuthakki

The energy landscape is undergoing a generational shift. We built the grid with predictable demand and supply from large power plants in mind. This status quo is quickly changing and in this post, I’ll dive into the software tools we’ll need to adapt to the evolving grid.

What’s Changing? Why?

After decades of relative stagnation, electricity demand growth is accelerating. EVs, electrification of HVAC and water heating, increased domestic manufacturing (including green steel and green hydrogen), and AI workloads are expected to drive the uptick in demand. While these are critical behavioral shifts on our path to decarbonization, they are straining the aging grid by introducing increased demand and shifting load profiles.

The supply side isn’t getting off easy either. Renewables continue to come online at a faster pace, but the bulk of the renewable capacity being added is intermittent and distributed. Markets with high intermittent resource penetration and inadequate grid infrastructure (looking at you, California) are increasing curtailment and interconnection queue continues to build up. While flexible loads (thermal batteries, hydrogen, AI training) and battery storage (both existing and new technologies) are helping alleviate some pain on the supply side, more solutions are needed.

So What?

Tldr, we have a much more dynamic world for electricity demand and supply moving forward, with significant added complexity for utilities to manage. Simply deploying more transmission infrastructure may not be an economically favorable option. We need to adopt new technological solutions on both the demand and supply side in addition to infrastructure upgrades to successfully and expeditiously navigate this shift. On the supply side, we need tools to make it easier to identify, develop, deploy, operate, and orchestrate DERs. On the demand side, we need tools to provide increased visibility into and orchestrate emerging demand sources.

We need to identify, build, deploy, and operate a massive amount of new infrastructure. This includes accelerating deployment of clean energy sources, EV chargers, HVAC upgrades, thermal batteries, and transmission. However, significant soft costs reduce adoption of these technologies. It will be critical to drive operating leverage using technology across the value chain for new infrastructure deployment.

Fortunately, we have made significant advances in the performance of computing, machine learning, computer vision, drones, sensors, and connectivity solutions. The surface area to apply these advances cost-effectively to lagging technology adopters like utilities and infrastructure developers is massive. Let’s break down the types of solutions we can deploy at different stages in the value chain.

Identifying Viable Sites & Projects

Software can help reduce field work and streamline workflows when it comes to identifying viable projects. We need tools that can sift through energy usage patterns, land parcel information, solar and wind potential, and the patchwork of policies and permitting at various governmental levels. Solutions include:

Making the Money Work

Financing clean energy is its own beast. We need software that can translate the technical jargon of energy into the language of investors, unlocking the capital needed to make projects a reality.

Getting Things Constructed

Construction has famously seen declining productivity, but digital tools can play their part in enabling infrastructure deployment.

Optimizing Grid Investments

Utilities will need tools to manage and upgrade an increasingly complex grid, and a lot of advances in ML and AI are well suited to address the challenge.

There’s a whole host of companies improving manufacturing processes, reliability, and broader industrial automation that I have not covered that can have a material impact on our ability to deploy infrastructure as well.

The Bottom Line

The shift to distributed energy won’t be a walk in the park. But with the right enabling tools, policy support on interconnection and energy markets, we have a shot at building a smarter, cleaner, and more affordable energy future. And that’s the kind of innovation challenge worth sinking our teeth into.

P.S. as with other content I’ve written about, there is a U.S. centric skew; however, a lot of the noted themes apply in other geographies as well but with additional complexity and intricacies that need to be taken into account.

Taking a Crack at the Split Incentive Problem in Multi-Tenant Buildings

Posted on by Bhanu Nuthakki

Rethinking buildings as power plants is an essential part of reducing the emissions footprint of buildings. Despite the economic viability of deploying solar at a majority of commercial buildings in the U.S., less than 1% of commercial buildings have onsite solar deployments. The problem is particularly acute at non-owner occupied buildings due to the split incentive problem.

This is exactly the problem that King Energy is trying to solve. I found the company when I was seeking companies enabling a future where buildings act as distributed power plants. I was fortunate to learn that they were hiring on the finance team, and recently joined the firm to take a crack at solving the split incentive problem and accelerate the deployment of solar.

How I Approached the Decision

When considering my next career move, I knew that I wanted to work on a climate postive mission. In addition, I narrowed in on the intersection of early stage startups, fintech, and software as the best opportunity for growth while also adding value right from the start. King Energy fit perfectly within these search criteria.

Yes, King Energy manages solar development and the complexity of permitting and interconnection, tenant management, EPC, and procurement relationships. However, the company’s competitive advantage will be built on repeatable processes to 1/ underwrite and finance new projects at an attractive & viable cost of capital and 2/ systematically identify buildings with the highest ROI, acquire properties and tenants efficiently, and manage the complexity of billing at multi-tenant properties.

In addition, the long term opportunity here is to couple solar deployments with storage, EV chargers, other efficiency upgrades. In doing so, potentially developing enough capacity & density to operate virtual power plants that can participate in demand response and grid optimization.

What Got Me Excited

I loved everyone I met through the interview process. I feel energized and fortunate to have the chance to build King with John, Brian, Mike, and the rest of the team!

Deploying climate solutions will require tapping into capital sources along the funding continuum including project finance. Venture capital alone won’t get the job done. The project finance markets across most of solar are mature, but not so much in the rent-a-roof business model that King is pursuing. In my role at King, it’ll be fun to try to unlock project finance and leverage incentives in the IRA for multi-tenant commercial solar deployments. I’m excited to build expertise in renewable energy capital markets and in financing mechanisms that will be critical to deploying climate solutions for many decades to come.

I expect the path ahead for King to be really hard. There are more ways this could go wrong than it could go right. But, it’s a problem worth solving and I’m grateful to have the chance to take a stab at it. If you’re considering a career transition into climate and think I could be helpful, I’d love to chat!

Decarbonizing Buildings

Posted on by Bhanu Nuthakki

In this post, I dive into innovative companies and approaches that will help us attain net zero targets for the built environment. For a refresher on net zero commitments, see my prior writing here.

Buildings contribute over 1/3rd of global CO2 emissions. This includes 27% from operational emissions (direct and indirect energy use to run buildings). An additional 6% emissions come from embodied emissions (cement, steel, and aluminum used to construct buildings). Continued urbanization and increased standards of living will drive demand for buildings, with building surface area expected to double by 2060. The increased physical footprint is expected to increase demand for building energy by ~50% between 2018 and 2050.

Below, I will breakdown the contributors to buildings’ emissions footprint. Next, I will dig into the tools and intervention points we can use to reduce buildings’ emission footprint.

What Do We Use Energy in Buildings For?

We use energy in our buildings in a variety of ways. 2/3 of this energy is used in residential buildings, while commercial buildings account for the rest. What does this energy power? An illustrative summary below (usage will vary by geography, but using consumption in the U.S. as an example)

Mitigation Strategies

Armed with a breakdown of energy use in buildings, let’s dig into the path to decrease emissions from these activities. Before we jump in, one important callout, 35% of the energy used in buildings in 2021 came from fossil fuels (think gas powered space and water heating, stoves).

Increasing Energy Efficiency

The majority of buildings that will around in the coming decades have already been built. So, to achieve net zero commitments for buildings, it will be critical to improve energy efficiency in buildings. The path to net zero for energy use in buildings will involve a combination of improving cost curves for nascent technologies, incentivizing adoption of existing technologies through policy and financing innovations, and in some cases, inventing new technologies.

Heating

Space and water heating account for 40% of energy use in buildings. The emissions footprint of heating is even higher, representing 46% of building emissions as significant heating is natural gas powered. Heat pumps are a solution available today which provide 3-5x efficiency of gas boilers. The shift to heat pumps will have the added benefit of improving indoor quality and reducing home fire incidents.

Heat pump sales are recording highs. Large enterprises like Lennox and startups like Dandelion Energy and Quilt are driving innovations in heat pump technology. However, broader penetration faces a few demand side barriers. These include upfront costs (heat pumps can be 2-3x more expensive than gas furnaces), ongoing maintenance, and complexity of purchase and installation.

We’re starting to see companies tackle these problems. Startups like Helio are reimagining the consumer evaluation, purchasing, and installation process. Companies like Sealed are innovating on financing by offering no upfront payment home upgrades. In addition, regulatory incentives for heat pumps should serve as a tailwind for accelerating adoption.

Cooling

Cooling is another large contributor to energy use in buildings, and accounts for 10% of global emissions. The emissions from energy usage of cooling systems and fridges is significant. The emissions impact of cooling is exacerbated by the use of HFCs and HCFCs in refrigerants (used in ACs and fridges). The warming potential of these chemicals is in some cases >10000x that of CO2.

Cooling is expected to drive >1/3 of building energy demand growth through 2050. There is some good news, though. Best in class efficiency ACs today are 3x the average efficiency of air conditioners sold. However, mass market demand for cheap models (which are usually less efficient) is a headwind to adoption of more efficient ACs. Given this gap, policy intervention via efficiency standards can help drive improvements.

Startups like Blue Frontier and Transaera are innovating on next generation ACs that reduce energy and refrigerant use. Blue Frontier plans to offer HVAC-as-a-service, to reduce burden of upfront costs. In addition, innovations on heat pumps noted above are applicable here (heat pump systems are capable of cooling).

Insulation

Lack of proper insulation is the largest source of energy loss in buildings. Simple insulation solutions can improve energy efficiency of homes by 10-20%.

Companies like LuxWall are innovating on next generation windows expected to improve energy efficiency by up to 45%. In addition, increased policy incentives and regulatory support through building codes and efficiency standards can be catalysts for improving efficiency.

Lighting

After heating and cooling, lighting is the next largest user of energy in buildings. Fortunately, our shift towards LEDs from incandescent bulbs offers a great blueprint for the adoption more energy efficient technology. Furthermore, we can continue to drive further efficiency improvements with existing technology.

Software Orchestration / Monitoring

Finally, lack of visibility into energy use, poor UX, and inability to orchestrate and control appliance use in buildings is a hurdle to reducing the energy footprint of buildings.

Smart Thermostat companies for residences such as Nest were a great step forward. The next step will be companies such as Ardette and Runwise that are building the OS for operating buildings.

Making Construction Materials Greener

Steel

Steel contributes to 7% to global GHG emissions and 11% to global CO2 emissions. Path to net zero requires a 30%+ decrease in emission intensity per ton of steel. However, Steel is extremely challenging to decarbonize due to two key reasons. First, carbon is part of the chemistry to make steel. Second, heat levels of >1500 C required to melt iron ore.

We are starting to see innovation to address these issues. This overview by CTVC is a fantastic primer on next-gen approaches to decarbonize steel production. This report by McKinsey (summary graphic below) outlines approaches from current steel makers to decarbonize steel making.

Cement

Cement is the second most widely used material on earth after water and contributes 8% to global CO2 emissions. Similar to steel, 90% of cement’s CO2 footprint is from two factors. First, energy required to heat limestone in the kiln during production to ~1000C. Second, chemistry of heating limestone (a core input to produce cement) to high temperatures which releases CO2.

Cement emissions footprint can be reduced by using more efficient kiln technology and by optimizing % of clinker used. However, to achieve step change reductions, we need different pathways. Some examples include:

  1. Carbon neutral ways to produce industrial heat (e.g. renewable powered facilities, Rondo, Antora)
  2. Carbon Capture, Usage and Storage (CCUS) at point of production can help address the CO2 produced in the kiln. However, it can be cost prohibitive at $75 – 100 per ton of cement
  3. Alternate building materials that reduce emission intensity and/or sequester carbon (e.g. CarbonCure, Blue Planet Systems, Biolith by Biomason, Cross Laminated Timber)
  4. Alternative production methods that remove the need for the kiln in the production process (e.g. Sublime Systems)

Buildings as Power Plants

To date, buildings have primarily been consumers of electricity. Only 4% of homes and <2% of commercial buildings in the U.S. have rooftop solar. There is significant room for improvement here as we’ve seen significant improvements in the cost of solar and battery storage in the last few years. Rethinking buildings as potential producers of energy will play a big part in our energy transition. However, we need to solve a few problems to achieve this future. These include ease of installation of batteries, real-time connectivity to the energy markets, and software to orchestrate flow of energy from buildings. Companies enabling on this future include Swell, Lumen Energy, Enode, Leap and many others.

Additional Considerations

Design

An omission from the building footprint stats above is the impact of location. A residential building in a higher density area has a lower emissions footprint than one in a lower density area. The emissions impact of building in sparser areas includes impact of extending infrastructure (grid, pipelines, roads), clearing land, and transporting goods and services farther. Thoughtfully designing our communities, cities, and supply chains will play an important role in reducing the footprint of the built environment. Companies like Cul De Sac are tackling this problem. In addition, zoning reform can have a large impact as well.

Importance of Policy

Policy can have a large impact on outcomes in the built environment. Efficiency standards for appliances and building codes have helped drive reductions in building energy intensity. We can drive further improvements through policies on energy efficiency standards (e.g. federal building standard, AC and heat pump standards). I view efficiency standards as a critical policy intervention in areas where actual energy efficiency today is significantly below the efficiency of mature technology already available in the market.

In addition, policy via subsidies or tax credits can help drive cost curve improvements for nascent technologies. Policy can help improve refrigerant disposal standards. We know from past experience that policy interventions can be extremely effective (e.g. Montreal protocol)

Finally, to support electrification of buildings and transportation, we need to produce a lot more electricity. To build enough renewable capacity to support demand, we should improve the permitting process to build new power plants.

Financing Innovation

A couple of hurdles for adoption of energy efficient appliances at home are high upfront costs and complexity of installation. This partly explains low adoption of heat pumps, efficient ACs, and home insulation despite favorable lifetime ownership cost of these appliances. Accordingly, policy initiatives and companies addressing this challenge can serve as catalysts in helping drive building electrification.

Conclusion

As with many solutions to combating climate change, there is no silver bullet to decarbonizing the impact of buildings. But, with a combination of technology and business model innovation, consumer education, and thoughtful policy intervention, it is a solvable problem.

Net-Zero Commitments: Legitimate or Not?

Posted on by Bhanu Nuthakki

An increasing number of organizations, 46% of publicly listed entities as of 2022 (up ~4x from 2018 levels) have announced some form of net zero commitment. However, net zero commitments across entities are far from equal with greenwashing becoming an increasing concern. In this post, I’ll dive into what net zero commitments are and how I evaluate their effectiveness.

Before we can evaluate net zero commitments, it is important to define a few things.

What is ‘net-zero’?

Before we can evaluate net zero commitments, it’s important to define net zero. Per the IPCC, net zero is limiting warming to 1.5C over pre-industrial levels by 2100. However, only 16% of listed entities have committed despite the current scientific consensus on the importance of meeting this specific target. Therefore, we should question what the commitment is referring to.

What emissions are entities referring to?

Entities engage in a wide variety of activities that cause emissions. Therefore, it is important to think holistically about an entity’s emissions to ensure we are evaluating from the right base level.

So, how do we holistically determine an entity’s emissions? The scope concept as defined in the GHG Protocol is a great framework to evaluate emissions holistically. I’ve found the below infographic by South Pole to be informative. A quick glance illustrates why the measurement and reporting of Scope 3 emissions is a significant challenge.

Emissions Scope Framework

What steps are entities taking to get to reduce emissions?

There are two steps to achieving net zero. First, reducing emissions (e.g. Google’s data center innovations). Second, purchasing offsets.

In terms of emissions reduction, I believe that the optimal approach is to invest in innovation that’s applicable to other entities or situations. However, any efforts to reduce emissions with a favorable return are great.

Achieving net zero via offsets is a bit more nuanced discussion and warrants its own section. Before diving into that, a quick explainer of what an offset is.

What are ‘offsets’?

An offset is when a company buys the claim to an emission reducing activity that another entity undertakes. The emission reducing activities can include planting trees, land conservation/restoration, and carbon capture.

How to evaluate offset effectiveness?

Offsets can have a wide degree of variance in cost and efficacy. They can range from $1 – $50+ per ton of CO2. The efficacy of an offset boils down to three key factors. First is accuracy, i.e. is the offset properly estimating emission reductions. Second is marginality, i.e. is the purchase of the offset leading to a benefit that wouldn’t have otherwise happened. The third is permanence, i.e. will the emission reduction sustain for a long period. Excellent educational material on what makes for a high quality offset here.

An entity may purchase offsets for a variety of reasons, but the two primary ones are regulatory and non-regulatory reasons. Non-regulatory reasons include mission alignment, CSR, marketing, branding, and product offering.

State entities (e.g. California) determine the offset quality required for regulatory reasons. We can assume a reasonable level of offset quality, despite some downsides.

However, there isn’t a required offset quality for offsets purchased for non-regulatory reasons. It’s important to scrutinize this bucket of offsets because it gives entities free rein to continue their emitting activities while purchasing ineffective offsets to claim emission reductions.

So, how might we go about understanding if the offsets are effective? Gold Standard and Verified Carbon Standard both offer rigorous, transparent, and widely used certification standards for offsets. Gold Standard also offers excellent educational material to understand the nuances of offsets.

(June 2023 update: Verra, the publisher of Verified Carbon Standard has come under increasing scrutiny due to questions over the efficacy of its certification, specifically for forest based offsets. Even more reason to evaluate the efficacy of offsets before purchase)

In addition, there are several startups that have emerged to introduce more transparency, improve measurement, and reduce friction in the offsets markets. A few examples include Pachama, Patch, Carbonx. It’s too early to gauge how much sustained impact these startups can have, but the space is benefiting from much needed innovation.

What data is available?

To be able to evaluate the above questions, it’s important for companies to publish their emissions data. This is the final criteria to evaluate net zero commitments: how well does the company’s reporting help address the questions above? A model example of a company that does this well is Microsoft.

What do I think is most effective?

I’ve previously written about my belief that innovation is a big driver in helping address climate change here and here. I continue to believe this to be true. This could mean reducing emissions via innovation. Or, it could mean making advance commitments to purchase offsets attained through nascent technologies like direct air CO2 capture or ocean sequestration. There’s potential to drive technology maturation and cost competitiveness through these investments.

Digression on Pragmatism & Fossil Fuels

One aside, I continue to think that the approaches to reducing emissions are very situation-dependent (excellent podcast diving into this). If you’re reading this, you’re likely extremely privileged. You likely live in a country that has contributed significantly to cumulative GHG emissions. It can be easy to forget that the poor bear the brunt of the negative consequences of climate change. Even in an affluent place like San Francisco, it could mean supporting more affordable housing so people can avoid living in wildfire zones.

In developing nations, continued investment in more efficient fossil fuels will very much be part of the solution (e.g. helping households transition from wood to LPG). Investing in more efficient use of fossil fuels, like less carbon intensive fertilizer production to address food insecurity, will form part of the solution too.

Most critically, it’s helping drive economic growth (even if partly powered by fossil fuels). This could mean having the ability to afford housing that protects against extreme weather events. This could also mean having the ability to invest in advance warning systems and infrastructure to protect from natural disasters. It could further mean having the ability to afford air conditioning during a heat wave.

As such, western countries (the largest cumulative polluters to date) should continue to lead the charge in investing in innovation to drive the energy transition. Western banks and UN entities should continue to invest in projects that focus on improved fossil fuel efficiency that can be a source of cheap power and drive economic growth in developing countries.

Parting Thoughts

As a stakeholder in companies claiming emission reductions, I hope this deep dive can help you be more informed about the legitimacy of net zero commitments. If this has piqued your interest, I highly recommend reading Science Based Targets content on net zero commitments.

2021: What I’ve Enjoyed & Learned

Posted on by Bhanu Nuthakki

Happy new year! As 2021 has wrapped, I wanted to reflect on what I’ve most enjoyed and my personal journey this past year. I hope the recommendations will be interesting to you. I hope this post serves as a reminder for you to reflect on your 2021. Let you take stock of your accomplishments and failures, so that you may approach 2022 with more intentionality.

Recommendations

A compilation of my favorite content and experiences I’ve most enjoyed in 2021.

Book(s)

  • Non-Fiction – The Code Breaker by Walter Isaacson
    I first learned about CRISPR (a gene-editing method) a few years ago. Ever since, I’ve loved to geek out its potential applications to human health (and beyond). The Code Breaker follows Jennifer Doudna, one of the lead scientists that helped discover CRISPR’s structure. The discovery has opened the floodgates for a number of commercial ventures in the area and real-world therapeutic applications.

    The book serves as a biography of Doudna all the way through her Nobel Prize victory in 2020. I loved the book because of its breadth. It covers the discovery and increase in understanding of CRISPR, the ethics of gene-editing, and the interpersonal and competitive dynamics in science research. Plus, so many amusing acronyms (you’ll know what I mean). It’s a fantastic read!
  • Fiction – A Memory Called Empire and A Desolation Called Peace (sequel) by Arkady Martine
    Fantastic science-fiction/fantasy entries. The books are set in space and follow (very roughly) an ambassadorial transition and first contact with a different species in the first and second books respectively. The world-building in the book is intricate and inventive. The story weaves through politics, culture, identity, conquest, diplomacy, sacrifice, betrayal, and duty – thrilling read!

    Honorable mention to Americanah, a memorable novel that tells a fantastic story focused on race and identity (highly recommend the audio version, the accents add an additional layer of nuance).

Newsletter

  • The Generalist by Mario Gabriele
    Amazing deep dives into technology focused entities (with a bent towards web3 companies/protocols). I came away from each post with an understanding of the history, product, business model, and future prospects of the topic. So, if you’re looking for investment analysis type content on cutting edge companies, the Generalist is terrific!

    Some favorites include the Stripe and OpenSea pieces.

Device

  • Wonderboom 2
    Amazing portable bluetooth speakers. Easy to carry, great sound, float in water (and are water resistant) and perfect for the indoors and outdoors. Plus, you can even buy two and connect them for stereo sound. Sadly, the speakers only charge via micro-USB. But, solid purchase overall!

Subscription

  • Feedly (Pro)
    Feedly is an RSS reader that I use for almost all my reading needs. I use it to aggregate my reading across publications, blogs, newsletters, twitter feeds, and google alerts.

    One of the biggest downsides I’ve experienced since quitting social media a couple of years ago was the decline in interesting content I was able to keep up with. Feedly through its twitter feed and google alert functionality alleviates that to a great extent. Plus not having email clutter and being able to curate information by themes is fantastic. The biggest negative by far, is the limited new content discovery capabilities. If you’re in the market for a reading aggregator, I’d highly recommend testing Feedly.

Movie

  • Dune (Part I)
    Fantastic movie based on an adaption of the novel by Frank Herbert. The watching experience feels insanely epic without compromising on intimate character glimpses. The plot is very gripping, the world building is terrific, and the visuals are awesome. I highly regret not seeing it in a theater and cannot wait for Part II.

TV Show

  • Succession, Season 3
    An amazing drama-comedy that continues to follow the obnoxious Roy family. The character arcs are terrific, the production quality and set locations are excellent, and the plot is hella engaging. One of the only shows that I saw as an episode came out each week in a long time!

Places

  • Grand Teton and Rocky Mountain National Parks were absolutely spectacular. Amazing alpine and sub-alpine scenery with terrific opportunities for hiking and other outdoor adventures if you’re into that sort of thing.

Year in Review

While I was wrong in expecting an end to the pandemic in 2021, I’m hopeful we can make significant progress this year. On a personal level, 2021 was a terrific year with a lot to be grateful for and several lessons.

Travel

I entered 2021 hoping for fewer restrictions on travel than we’ve experienced. It’s been difficult to have not seen my parents in over 2 and a half years due to visa constraints. On the flip side, it’s given me the opportunity to explore more of San Francisco, California, and the U.S. I’m so grateful to have had the time and resources to visit several national parks (one of my favorite aspects about the U.S.) and explore more stateside. In 2022, I’m hopeful that I’ll be able to travel to India to see my parents, attend the weddings of a couple of close friends, and have the opportunity for further exploration!

Plaid

I switched jobs in early 2021 and joined the strategic finance team at Plaid. In a short 9 months, I’ve seen us grow headcount by over 50%, raise a Series D, announce exciting new products, and continue to execute on our mission. Personally, I’ve learned about the industry, the company, and have been fortunate to bring my skills to bear on several challenging and high-impact projects. Looking at 2022, I’m energized to further increase my impact and improve my skills. I’m excited to contribute to continued effective capital allocation at Plaid and to go after the significant value creation opportunities that remain.

Lessons

My investments in Chinese (and tutoring stocks specifically) and Brazilian internet stocks took a beating in 2021. The tutoring thesis in China even led to some substantial permanent losses. The biggest lesson coming out of this was to be cautious in applying learnings in one country to another. While the business models and economics might be comparable, the macroeconomic and regulatory differences in other economies that I’m less familiar with can be sources of significant additional risk. I appreciate that the trade-off of adopting a concentrated and growth-oriented investment approach is increased risk of volatility and capital loss. However, I’m more appreciative of regulatory implications in business now than I was a year ago.

I chose to sideline my personal life during my time in investment banking. In 2021, I’ve gained an appreciation for the effort it takes to be deliberate about your personal wellbeing as a working professional. The effort it takes to pursue new hobbies (boxing and tennis this year) and relationships, sustain mental and physical health, read consistently, nurture relationships with family, friends, and your professional network, etc. A few approaches that work have been to set up my physical and digital environments with the appropriate nudges, set aside recurring blocks on my calendar, and have friends hold me accountable. I continue to iterate and learn from what I read/listen to and the people around me on navigating this balance. I expect it will always be a work in progress because I can’t think of anything more important than designing my lifestyle with intention and molding it to my ever-changing priorities.

Looking to 2022

I’m grateful for a terrific year and to have been surrounded by amazing friends, loved ones, and well-wishers. I’m excited to take learnings from this year and to strive for continued progress in 2022. Wishing everyone a fantastic new year ahead. Onward!

Subtract First

Posted on by Bhanu Nuthakki

If you’re like me, you’re constantly trying to get better at something, and often many things. Constantly trying to improve. This desire manifests in seeking improvements across many facets of life. Relationships with family, friends, and romantic partners. Career. Physical fitness. Food habits and discipline. Sleep. Travel. Seeking new experiences. The list is often endless and often energizing. However, can also feel intimidating and cause significant angst.

A pattern that I’ve noticed emerge as a result of this desire is that one defaults to ‘solving’ it by doing more. Work more. Read more. Book another trip. Commit to another plan. Listen to content at 1.5x or even 2x speed. Sometimes, this approach is the right answer, especially over short periods of time. It can also be exhausting. More importantly, it can take away the pleasure of doing things and lead to being too far removed from the rationale for doing these things in the first place.

The point is to lead a better life, whatever that means to you. I suspect that doesn’t mean doing more just for the sake of it, rather, means doing what will truly move the needle on your objectives. Oftentimes, that requires reflection. It requires doing things because they have utility. It requires deliberation and thoughtfulness. That inherently takes time and focus. The only way to create space for that to happen is to prioritize. Prioritize – not by adding more to an already busy schedule and doing more, but first by reflecting on what truly has utility and subtracting out the rest.

We have unlimited access to learn about ‘optimizing’ everything on demand. The true differentiator is to be able to use this access to drive favorable behavior. This involves developing the muscle to take a step back, reflect, subtract the unnecessary, and be deliberate with how you choose to spend your finite time.

An approach that works for me is setting up routines for what I do want to do including setting aside specific time for deliberation. From a personal standpoint, it’s meditating and journaling. From a professional standpoint, it’s putting recurring times on the calendar to reflect on both tactical and strategic items. This is not to say I’ve perfected any of this. I anticipate that, by design, it will continue to be a work-in-progress. However, realizing that you have to stop doing a lot and prioritize what you care about was a powerful lesson. I suspect it’s one that I will continue to come back to.

P.S. As I was discussing the idea for this post, a friend noted the book, Subtract by Leidy Klotz that expounded on this. I can’t speak to the book specifically. However, as noted above, I vouch for the core idea (unless I’m misunderstanding the summary).

Why Strategic Finance?

Posted on by Bhanu Nuthakki

I recently switched jobs to join the strategic finance team at Plaid! I’ve since received the question – Why did I make the switch? Here’s why I did, and why Plaid was THE place for my next professional adventure:

Investment banking analysts have common exit paths that are well documented. In determining my next move, I chatted with folks in investing, corporate finance, corporate development, and strategic finance. Investing encompasses numerous asset classes across both public and private markets. Plus, a word of caution: roles at corporations can vary significantly despite having similar job titles. So what was my takeaway?

It was that value creation predominantly happens at the operating level. There are certainly fantastic investors that add significant value. Similarly, there are several corporate development teams that execute highly accretive and “synergistic” M&A strategies. However, both functions, particularly at the junior level are far too focused on deal execution for my liking. That’s where strategic finance roles stood out. They offered the ability to assist with high-impact decisions across various functions across the organization. That was by far the biggest selling point, to truly dive deep with an analytical lens on operational decisions. So, once I determined this fit, a pressing question remained: Who do I work for?

I asked myself the following questions when assessing opportunities (h/t to Naeem Ishaq for the core of the framework):

  1. Are they selling into a large end market that’s being disrupted? (bigger market = bigger problems to solve)
  2. Are they a market leader?
  3. Do I like the people? Will I be challenged by them? (very subjective, but trust your gut!)
  4. Do I think the company’s products will add value to the world?

So, Plaid?

I was extremely fortunate to receive a few offers and meet terrific people through my recruiting process. I was also incredibly fortunate that one of those offers was my first preference, Plaid!

So, why Plaid? How does it stack up against the questions I outlined above?

  1. COVID significantly accelerated the transition to Fintech and significantly expanded the already huge market opportunity in front of Plaid, IMO.
  2. Undisputedly the market leader as evidenced by the customer roster, brand recognition, and market research to name just a few indicators.
  3. Absolutely loved everyone I “met”. The level of intellect, friendliness, and professionalism was terrific! Sidenote: the answer to this question should have veto power over everything else on the list.
  4. Without a doubt! Finances are consistently one of the biggest stressors to folks. Plaid has enabled significant innovation by Fintechs that offer consumer-friendly products and help people improve consumers’ financial lives. As an immigrant, I know from personal experience the areas where the traditional financial system fails and the need for innovation in the space.

All that to say, I couldn’t be more thrilled and energized to join Plaid! I’m thoroughly excited for an increasingly friendly world of financial products for consumers (including myself!) and a rapidly approaching world of embedded finance.

I hope this post was informative in providing some context into my recent job switch. There certainly will be assumptions and conclusions in here that may not hold up in a few years, but this is my best guess! I’m happy to be a resource to anyone who might be pondering a similar transition in their career, so don’t hesitate to give me a shout!

Business Approaches to Address Climate Change (Part 2/2)

Posted on by Bhanu Nuthakki

In Part 2, I’m going to discuss interesting approaches to addressing emissions in transportation, industrial production, and agriculture. If you haven’t read Part I, I’d recommend starting there.

Transportation

The transportation industry by end-use is one of the largest contributors to GHG emissions (~28% of all emissions in the U.S.). On the bright side, vehicle miles per capita in developed countries (using the U.S. as a proxy) have plateaued and emissions per mile have gone down as fuel efficiency standards have gone up. However, secular factors such as improving infrastructure, rising population, and income levels, particularly in developing nations are expected to drive demand.

An objection one might have, given the rise of remote work in recent months, is the impact of behavioral change around how much people need to travel for work. In response, I’d point out a few things. First, the majority of people don’t do knowledge work (yet). Additionally, remote work by itself will have a marginal impact on freight volumes and likely lead to more travel for pleasure. Regardless, even if demand for transportation and emissions from transportation reduce, it will remain one of the largest contributors to GHG emissions. So, what are some key areas within transportation and approaches that can move the needle?

Problems and Approaches

EVs: Tesla, Chargepoint, Lilac Solutions, CATL, Lime

A majority of transportation GHG emissions are from passenger travel. So, any innovations to boost the adoption of EVs can have a meaningful impact. Broadly, companies in the space include EV manufacturers, charging networks, battery manufacturers, and resource extraction companies.

Freight Efficiency: Convoy, Flock Freight

After passenger travel, freight is the next largest contributor to GHG emissions. Reducing the proportion of empty miles (estimated at 15-20% of all miles driven) by leveraging modern software route and load optimization tools strikes me as a low-hanging fruit we ought to address.

The conversation on transportation wouldn’t be complete without acknowledging the impact of ride-sharing and the potential mass adoption of autonomous vehicles. Ridesharing is likely to leave us worse off in the immediate term as people use ridesharing services as a replacement for more sustainable methods such as public transit. I’m hopeful, however, that in the long term we’ll continue to reduce dependency on personal vehicle ownership and increase vehicle utilization, particularly aided by the broader proliferation of autonomous vehicles.

Finally, government investments that drive behavioral change (such as investments and policies that encourage sustainable urban transit) and imposing greater discipline on the manufacturer side (through fuel efficiency standards, transparency requirements, etc.) will remain extremely important. So will the shift of the underlying energy production to cleaner sources as we discussed in Part I.

Industrial Production

Industries that produce the goods and materials that we use every day contribute 20%+ of the total GHG emissions. Particularly, combustion processes and materials used to produce steel, cement, and petrochemicals are the worst culprits. Steel and cement EACH account for 7%+ of all global carbon emissions. Emissions from heavy industries, given the structural factors outlined in this article are harder to make progress upon. Nonetheless, there are a few encouraging developments to highlight:

Problems and Approaches

Cement, Steel and Chemicals

Several interesting experiments to increase efficiency of various parts of the production process of heavy industries are underway. A recent announcement by LKAB (major Swedish mining company) that could significantly reduce the footprint of steel production is encouraging. Progress in this arena is reliant upon action from large mining and manufacturing companies that tend to be conservative. Given this backdrop, regulations will play a key role in driving investments in innovations that can help reduce emissions. Note that meaningful progress in improving the sustainability of industrial production will likely be a multi-decadal process. However, we need urgent action from the industry, regulatory, and investment communities to kick this process off.

Emissions Capture: See Part I

Agriculture

Agriculture is a major contributor to emissions. Cattle farming and meat production, in particular, leads to a large amount of potent GHG emissions. Similar to the demand for energy, demand for food and in particular, meat, is expected to rise as population and incomes rise. For instance, the per capita consumption of meat in the U.S. is 20x that of the per capita consumption of meat in India today and that gap will decrease as incomes rise.

However, we’re seeing greater pull from the demand side, with a rise in the number of people in rich countries increasingly adopting plant-based diets. While this decline is unlikely to stem the secular growth in global demand for meat, it has led to increased investment in alternative proteins. The supply-side, through the adoption of more sustainable practices, has a significant role to play in ensuring that we can sustainably feed the growing population of the planet. A few approaches that have caught my attention are:

Problems and Approaches

Alternative Protein: Beyond Meat, Impossible Foods, Memphis Meats, Finless Foods, All Things Bugs, Motif FoodWorks

Alternative proteins include plant-based substitutes, synthetically grown meat, and alternatives such as insect-based protein. Alternate proteins do require a change in public attitudes, but similar penetration in plant-based meat as seen in plant-based milk would still represent a major shift in consumption (and related emissions).

Crop Yield: Sym Soil, Grow Genics, Fasal, Indigo

Crop yields have gone up significantly in the last century, but disparity across countries remains high. Approaches that improve yield, education, and access have significant potential to drive crop yields and reduce the footprint of our agricultural production.

Food Waste and Supply Chain Optimization: Apeel, FoodCloud, Shelf Engine, Aero Farms, Agribazaar, Solar Freeze

Food waste accounts for 40% of all food production in the U.S. (including before and after reaching the consumer). Several companies (some of which are noted above) are addressing the problem at different stages in the supply chain and could make a significant dent in the food waste problem.

Additional Considerations

Given the availability of reliable data and my focus, a bulk of the data cited across both parts of this post have been focused on the U.S. However, the science, topics, and trends explored remain applicable on a global basis.

Since I wrote Part I, there has been a heightened (much needed) focus on addressing climate change in the zeitgeist. I’m hopeful that this increased attention in popular media is likely to attract higher caliber entrepreneurs and employees, customers, and funding to the arena.

Topics surrounding climate change have increasingly become an area of popular public discourse, and it’s important in our discourse not to get distracted by feel-good policies like banning straws. Yes, plastic pollution is a pressing issue, but banning plastic straws is addressing a marginal issue at best, and more likely to distract from more impactful and pressing issues (and create a false sense of contribution for individuals and enterprises). Similarly, personal lifestyle choices can have a meaningful impact, but I think they only form one leg of our response as individuals and as a society to addressing the GHG emissions issue.

Additionally, It’s important to be cognizant that climate change disproportionately impacts the world’s poorest who have contributed the least to current and cumulative emissions. Western countries were able to grow and industrialize with limited regard for emissions until the last few decades, so the ethical question remains, what level of restrictions on developing countries is reasonable? I don’t know what the answer is, but developed countries are and should continue to lead the charge in terms of R&D spending, innovation, and experimentation that can benefit the world at large.

Concluding Thoughts

In conclusion, climate change is a global issue with far-reaching and global impacts. Therefore, solving the issues noted requires a concerted global effort from multiple dimensions (to name a few, policy response, institutional and retail capital allocation, personal lifestyle changes & advocacy, entrepreneurship). I’m confident that entrepreneurship, in particular, can be a hugely important factor in addressing the issues around climate change. I hope the different problem areas discussed in both parts of this post have been informative in identifying areas ripe for innovation and entrepreneurship.

P.S I’m heartened to see an increased pace of business creation in the arena and increased funding for startups already underway.

P.P.S Don’t hesitate to let me know any gaps in my assumptions and analysis by reaching out to me directly.

Business Approaches to Address Climate Change (Part 1/2)

Posted on by Bhanu Nuthakki

Climate change has been particularly prominent in the public sphere recently. There are a plethora of ways in which anthropogenic activities contribute to emissions (and climate change). The public policy and private industry responses are similarly wide-ranging and disparate. This makes it challenging for an engaged citizen to identify & find activities that will help maximize their impact in combating emissions.

My intention for this post is to take a 30,000-foot view of the primary sources of emissions and explore different businesses/approaches towards tackling each of them. This is a top-down overview of a subject with a massive surface area, so the list below is far from exhaustive. I’m merely trying to highlight some interesting approaches. I hope it serves as a good starting point for determining if an initiative is addressing a major cause of emissions or an attempt at unsubstantiated virtue signaling.

P.S. I’m basing the order below off estimates of carbon-dioxide equivalent greenhouse gas emissions as seen below.

Energy Production

Energy production is by far the single largest contributor to GHG emissions. The primary end-use sectors are transportation, industries, residential, and commercial (we’ll discuss these in greater detail). So, what can we do?

As incomes and population continue to rise in the developing world, global demand for energy is expected to rise by 50% between 2018 and 2050. Plus, even in 2050, more than 2/3rd of our energy is expected to come from fossil fuels. The silver lining is the move towards cleaner natural gas and away from coal and the plateauing / decline of per capita energy usage in developed nations (thanks, LEDs?)

Given the secular factors (population and income growth) driving demand, the impetus is primarily on the supply side (whether through regulation or superior technology) to move the needle. What are some possibilities?

Problems and Approaches

Emissions Capture: Global Thermostat, Opus12, Climeworks
Several approaches that are generally expensive. But could be extremely impactful at capturing emissions at the source and potentially at reversal.

Oil Field Monitoring and Leak Detection: SeekOps, Satelytics, Sensia
Our efficacy at monitoring leaks will ultimately determine the emissions impact of the move to natural gas. Companies are leveraging novel data sources (drones, satellites, sensors, etc.) and ML / AI methods to address this.

Nuclear Energy: NuScale, Oklo, Terrestrial Energy
Modular nuclear fission reactors and nuclear fusion (as it becomes feasible) need to be a part of our energy toolkit. So, it’s encouraging to see startups attempting to address challenges with traditional nuclear reactors (meltdowns, waste, maintenance, etc.). Also, a few startups are experimenting with entirely new approaches.

PV Innovation: SwiftSolar, OxfordPV, Ciel & Terre
The cost-effectiveness of PVs has improved drastically over the last couple of decades. However, advances in the manufacture of PVs and addressing problems with storage and meeting peak demand are needed to drive the adoption of solar.

Note that approaches such as carbon offsets through tree planting provide marginal benefit (particularly in the short term). Though, this conversation with the founder of Pachama has made me re-question some of my assumptions.

An overview of interesting businesses in agriculture, transportation, industries and other misc. categories to follow in Part II.

Embracing Ambiguity

Posted on by Bhanu Nuthakki

It can feel extremely satisfying to classify something into a bucket. In doing so, you can tap into any preexisting knowledge you may have in that category. You don’t have to start learning from scratch. In fact, identifying patterns and using heuristics are essential to making sense of the world. However, these shortcuts won’t always lead to an optimal outcome. The more nuanced and idiosyncratic a topic at hand, the less reliable any single heuristic will be in optimizing the outcome.

When I’m faced with an unfamiliar situation or am learning something new, this is a principle I try to be cognizant of. The obvious downside of this approach is that it’s time-consuming and the benefits are uncertain when you start. Additionally, it can be overwhelming to learn something without leveraging prior knowledge. In a lot of scenarios, the outcome might not even be meaningfully better. For instance, you can derive the constant, pi, independently, but the approximation of 3.14 is likely sufficiently informative.

When diving deep into an important topic, however, I selectively use this mindset of embracing amguiguity. That way, I find that I can decrease the likelihood of hitting a local maximum. A common example of this is using principles from one sport to inform your approach to a similar sport. When I first started playing squash, I used my knowledge of basic racquetball techniques to guide my approach. Initially, my game improved, but eventually, it hit a plateau until I learned techniques more specific to squash from observation and research (i.e. youtube). As a consequence, I had to change aspects of my gameplay in ways that felt unintuitive. After the initial hump though, I got better and now enjoy the sport more than ever. This doesn’t mean I’ve reached my maximum potential, but I did reach a level that wasn’t possible before.

All this to say, it can be hard to overcome our heuristics and to accept the ambiguity that comes with it. However, it can enable us to unlock insights that we couldn’t have accessed before and that’s rewarding. This is the reason to selectively (but wholeheartedly) embrace ambiguity.