Talking Renewable Energy

By Xinchen Li 

When he was still an undergraduate student at Yale, 19-year-old Daniel Gross developed a passion for environmental studies and economics. Now more than 25 years later, Gross is expressing his interest in these two areas by promoting private investment in the adoption of renewable energy.

Gross graduated Phi Beta Kappa from Yale in 1992, majoring in environmental studies and economics. He now works as a clean energy private equity and infrastructure investor specializing in renewable energy and clean technology. He is also an adjunct professor at the Yale School of Management and the Yale School of Forestry and Environmental Studies, where he recently received the 2018 Faculty Award for Curriculum and Pedagogy. 

Gross was appointed in March to the Board of Directors of Sunworks, Inc., a provider of high performance solar power solutions for agriculture, commercial, industrial, public works, and residential markets. 

“It’s a privilege for me to be able to bring something good into the world while also providing a meaningful financial return to investors,” Gross said. 

In the past 15 years, governments have played an active role in expanding the adoption of clean energy through favorable policies and incentives, especially in Western Europe, North America, and Japan.

As renewables have become more widely deployed, the per unit cost has decreased as the volumes have increased, thanks to tremendous economies of scale, Gross said. In some regions, renewables are already cheaper than coal and natural gas in generating electricity. 

“We are now at the point where the capital markets are funding the transition to a sustainable future without the need for significant government support, which is pretty exciting,” Gross said. 

But Gross acknowledges that even though the adoption of renewables is becoming cheaper every day, it faces other obstacles: namely, transmission and storage. 

The most favorable renewable resources for wind and solar power tend to be found in places that are not populous, such as North and South Dakota or the Mojave Desert, Gross explained. The challenge is how to harness that energy and transmit it to population centers such as New York, Los Angeles, and Chicago. 

Permitting and constructing transmission lines that cross multiple states as well as individual backyards is no easy task. It infringes upon property rights and requires large-scale cooperation among states, Gross said. 

Another potential obstacle that hinders the adoption of renewables is the absence of large-scale energy storage. 

In the U.S., the wind resource tends to be strongest on winter nights, and the solar resource is most plentiful in early summer afternoons. By contrast, peak power demand from consumers occurs in the late afternoon or early evening, when people get home from work and start cooking, and running dishwashers and laundry machines. It is therefore crucial to find a way to store the solar power generated during the day or the wind power generated at night so that it can be used during peak hours, he added. 

The expansion of the U.S. transmission network is not a challenge of engineering or new technology, but it requires governmental coordination, Gross said. The challenge with storage is that it is costly. Thus, the solution is to incentivize greater investment in storage until it reaches economies of scale and the market becomes self-sustaining.

Gross’s job will help make it happen. 

Due to deregulation in the U.S., fewer and fewer utilities actually own power plants, Gross mentioned. Utilities are in the business of transmitting and delivering power, whereas Independent Power Producers are in the business of owning power plants and generating electricity.

“In other words, private capital is funding power generation,” Gross said.

Renewables are a favorable choice for the independent power producers because they are moderate in risk and the revenues and expenses are readily predictable, Gross said.

A solar facility will operate for 20 to 30 years. Most of the cost is incurred upfront, and the ongoing maintenance is not very expensive, Gross explained. A solar power producer can enter into a 20-year contract selling all of its electricity to an investment-grade utility, which is a regulated monopoly with a low risk of default. 

“I now have a business model with a stable and predictable cash flow,” Gross said. “It’s an ideal asset for an institutional investor.”

Gross previously worked in the alternative energy investment group at Goldman Sachs and at GE Capital’s Energy Financial Services unit. These are just two examples of major Wall Street investors that have become serious about renewable energy and clean technology.

Even though utilities will benefit from adopting renewables in the long run, many of them are currently fighting against the threat created by abundant distributed energy, Gross noted. As individual households install solar panels on their rooftops, for example, their non-solar neighbors have to bear a larger share of the fixed costs of maintaining the transmission and distribution network. As more households disconnect from the grid and reduce their dependence on coal and natural gas, the existing grid infrastructure becomes less valuable and more expensive for the households that remain dependent upon it. This encourages more households to defect from the grid in a phenomenon known as the “reverse network effect,” Gross said. 

“If the utilities don’t reinvent and reimagine themselves, they will become dinosaurs and eventually go extinct,” Gross said.

Gross said the widespread adoption of renewable energy will be led by the next generation of entrepreneurs and executives, and it is for this reason that he decided to teach at Yale despite his tight schedule as an investor. 

“When I think about the remainder of my career, the contribution I can make as an individual might be significant, but it’s still me as an individual,” Gross said. “If I can educate and prepare younger people to enter the workforce, help them develop a skill set, provide them with a sense of mission, and ensure that their value and integrity are sound — the contribution they will make in the future is much bigger than me.”

Gross added that his experience engaging with today’s students is refreshing and hopeful. Every year, more and more of them express a commitment to dedicating their careers to sustainable energy and infrastructure. 

“[Many of the students I teach] are idealistic. They want to do something important and meaningful with their lives, and they believe that saving the planet will be more fulfilling than making as much money as possible,” Gross said. 

In addition, Gross also recently traveled to Cape Town to teach sustainable energy and infrastructure finance to a class of 75 governmental delegates and professionals from 23 countries across Sub-Saharan Africa. 

Many Africans still live in rural villages without electricity, Gross said. The goal is not simply to bring energy to them but to make it clean energy. This transition will require private capital and innovative finance. 

“Entrepreneurs, bankers, and government regulators in Africa desperately need the same finance skill set as their counterparts in the United States,” Gross said, adding that he is determined to continue teaching in Africa. 

Gross said the goal of his career is consistent with the values that Phi Beta Kappa celebrates. 

“Being inducted into Phi Beta Kappa is a prestigious accomplishment that both encourages and inspires students to achieve higher goals,” Gross said, “It rewards people who have worked hard and distinguish themselves.”

As an adjunct professor, Gross strives to help younger generations make their own lives meaningful. 

He added that as a Phi Beta Kappa alumnus, he feels honored that he can provide students with a set of professional tools and knowledge about the market that they wouldn’t be able to obtain from other sources. 

“It’s been gratifying to discover that my non-academic professional experience can be so valuable in an academic setting,” Gross said.

Xinchen Li is a junior at Duke University, majoring in political science and economics. She transferred to Duke from the University of California, Los Angeles, where she became a member of Phi Beta Kappa in 2017. UCLA is home to the Eta of California Chapter of Phi Beta Kappa. Duke is home to the Beta of North Carolina Chapter.