Investor Khosla: Clean energy only matters when it meets 'China price'

WASHINGTON--Famed venture capitalist Vinod Khosla told energy and environmental ministers from around the world they greatly underestimate how rapidly energy is moving toward renewable sources.

Khosla was a speaker during the ministerial plenary at the Washington International Renewable Energy Conference (WIREC) 2008 here on Tuesday, where he argued that the energy industry is undergoing a technology disruption, much the way that telecom and computing did decades ago.

Vinod Khosla argues that people underestimate the pace of technology change in energy.

(Credit: Martin LaMonica/CNET Networks)

The reason people don't appreciate the pace of change is faulty projections, he said. Government officials and businesspeople trust market forecasts which have consistently been far off-base.

People believed that it would take decades for mobile phones to become widespread, but it happened much quicker because they had mistakenly assumed that the phones would remain the same as the original clunky prototypes. McKinsey forecast that there would be less than 1 million cell phones sold between 1980 and 2000, when the actual number was more like 109 million.

"We are repeating the same mistakes in energy," Khosla said. "It's hard for people to imagine what energy will look like in 10 or 15 years."

Because technology change happens faster than most people anticipate, he believes that several renewable energy technologies will become cost-competitive within five or ten years.

He forecast electricity production at the same price as fossil fuel power plants, biofuels from non-food sources at $1 a gallon, high-efficiency engines and lighting, and carbon neutral cement production.

"All these technologies are in development today. Oil will have to be $35 per gallon to compete," he said.

Underlying his assumptions, however, is a rapid adoption of these energy technologies.

To achieve these cost efficiencies, new energy technologies have to pass what Khosla calls the "Chindia test." That is, the need to be cheap enough for China, India, and other developing countries to purchase.

That scale will accelerate technology development and adoption, he argued. Expensive products like plug-in hybrid cars, which may be the darlings of environmentalists, simply won't drive large-scale change, he said.

"Plug-in hybrids are irrelevant because they are too expensive. Unless you can make 500 million or 800 million of those, it won't matter," he said.

His contention that plug-in hybrids are irrelevant, or "toys," a case he made late last year at a conference, brought fierce criticism from environmentalists.

Although a longtime denizen of Silicon Valley, Khosla is no stranger to Washington, D.C., where he has presented to congresspeople and lobbied for supportive policies.

The U.S. government should boost investment in research and technology and implement regulations that put a price on carbon emissions, he said.

Clearly an optimist, Khosla ticked off a number of technologies he has invested in that could shift the energy industry from fossil fuels, including solar thermal power, cellulosic ethanol, advanced geothermal, synthetic liquid fuels, and energy efficiency.

"We are mounting a war on oil, a war on coal, a war for efficiency and renewable materials," he said.