long concerned about climate change, vc steve westly is feeling electrified

Steve Westly, a former Chief Financial Officer for the state of California, maintains a strong interest in governmental affairs. Having previously held an executive position at eBay and served as an early member of Tesla’s board of directors, he has also championed clean energy initiatives for approximately three decades, leading him to feel encouraged by the current political climate, with former U.S. Vice President Joe Biden gaining momentum and expanding his lead as he approaches a potential victory in the election.

Earlier today, we spoke with Westly, who established the venture firm The Westly Group 13 years ago and is currently seeking up to $250 million for a fourth fund, as indicated in SEC filings made earlier this week. Our discussion centered on whether he believes Biden will be able to enact any portion of his climate plan, considering the potential for continued Republican control of the Senate. We also inquired about his perspective on venture capitalists relocating from California and his assessment of the most promising opportunities available at present. We began our conversation with the latest news developments. The following has been lightly edited for conciseness.

TC: With Joe Biden appearing poised to win the U.S. presidential election while Donald Trump continues to assert claims of a rigged election and pursue legal challenges, are you concerned about this rhetoric, particularly given the lack of opposition from many Republicans?

SW: It is reasonable to have concerns regarding such matters, but I believe most observers are focusing on the broader context. This will not be a closely contested election with a result of 270 to 268 electoral votes. Biden is projected to secure between 290 and 306 electoral votes, representing a significant margin. He has also received over 4 million more votes nationwide than Trump. The electorate has made its decision, and it has done so decisively.

In most states, established rules stipulate that a recount will not be triggered if the vote difference is less than a percent or half a percent—currently, Biden holds a 1.6% advantage in Nevada and a 1.4% lead in Arizona. Furthermore, I anticipate his lead in Pennsylvania will expand to 100,000 votes, thereby further diminishing the possibility of a Trump victory.

I am also observing an increasing number of Republican officials, such as Senator Bob Toomey of Pennsylvania, stating that votes should be counted, rules should be followed, the President’s actions are irresponsible, and it is time to move forward.

TC: Over time, has the investment focus of The Westly Group evolved? When the firm was initially founded, it was among the few venture firms exclusively dedicated to ‘cleantech’ investments.

SW: The growing interest in sustainable energy is somewhat amusing, as I have been involved in the energy sector for 30 years, including through my work in government. I authored two books on the future of energy in the 1980s, so I have considerable experience in this field.

Our core investment thesis remains centered on the ongoing revolutions in smart energy, mobility, and smart buildings, all of which are propelled by renewable energy sources. These sources now cost less than carbon-based fuels in nearly every region globally, from the United States to India and Africa. This is not a matter of political opinion; it is a demonstrable fact.

Currently, 70% of all new energy capacity being added is sustainable. Consequently, it is prudent for investors to recognize this trend. The declining costs of energy storage—particularly the dramatic reduction in the price of lithium-ion batteries, which reached a pivotal point in 2018, bringing the cost of a kilowatt-hour to under $150—is driving the widespread adoption of electric technologies.

Automakers have been hesitant to publicly acknowledge this shift due to concerns about shareholder reactions, but we are progressing toward a future where the majority of energy will be sustainable and most vehicles will be electric, and this transition will occur more rapidly than many anticipate.

Buildings are also crucial, as they have historically lacked intelligence. Now, they are becoming digitized structures with integrated power storage. Soon, every home, building, hospital, and university will operate on digitized energy, enabling continuous energy arbitrage between buildings, homes, and vehicles, potentially eliminating the need for consumers to pay for electricity or gasoline. A decade ago, when I proposed this concept, many dismissed it as unrealistic, but California now mandates that all new homes include solar panels.

TC: What implications does this shift in revenue streams have for PG&E, the utility company serving much of Northern California, whose infrastructure is already deteriorating and contributing to wildfires?

They should emulate forward-thinking utilities like Duke [a Westly Group investor] and European companies that are diversifying beyond traditional revenue models. Every utility should offer a comprehensive range of services, and a menu limited to electricity and gas is insufficient. It’s akin to offering only soup and meat. These companies should explore options such as installing power walls, financing solar panel installations, and even providing financing for electric vehicles.

TC: While PG&E faces significant challenges, California itself may be experiencing difficulties as many individuals leave the Bay Area, citing factors such as taxes. Are you concerned about a broader exodus from the state and its potential consequences?

SW: This is a critical question for the next decade. California is poised to confront a substantial debt burden. We have transitioned from a budget surplus to a potential $40 billion deficit in a remarkably short timeframe, largely due to the impact of COVID-19.

This year’s shortfall will be partially offset by a robust IPO market, as capital gains are taxed similarly to income, making the state heavily reliant on stock market performance. However, with 12.6 million Americans currently unemployed, a disproportionate number of whom reside in California, a Democrat-controlled legislature may consider implementing a series of tax increases.

The failure of Proposition 15 [which would have reassessed property taxes based on current market value] highlights the ongoing nature of this issue. Nevertheless, continued tax increases risk driving entrepreneurs to other states. I am aware of numerous friends who have relocated to Austin. A balanced approach to managing expenses while avoiding the displacement of residents is essential.

TC: What potential solutions do you envision?

SW: As the former CFO of California, I can state that the options are to either increase revenue through taxation or reduce spending. These are the fundamental choices.

In the long term, we require a comprehensive overhaul of the tax system to reduce our dependence on capital gains, which creates a volatile cycle where budget cuts are necessary during market downturns, followed by rehiring efforts during economic recovery.

TC: With Joe Biden potentially winning the election, but with a strong possibility of a Republican-controlled Senate, and climate change not ranking among the top five concerns for voters of either party, could this issue be postponed once again?

No, it simply means that a collaborative approach will be necessary, and he will need to prioritize issues with broad appeal to achieve progress.

Trump underestimated the widespread popularity of sustainable energy today and the fact that states previously resistant to green initiatives—including Texas, North Dakota, and South Dakota—are increasingly becoming leaders in wind and solar power. Consequently, their senators, who once advocated for ‘natural gas forever,’ are now acknowledging the growing employment opportunities in the solar and wind industries.

TC: What initial steps do you foresee?

SW: Biden will reinstate the United States into the Paris climate agreement. He will also champion the global movement toward electrification, supporting the adoption of electric vehicles and sustainable energy sources.

We will also likely see penalties or restrictions imposed on carbon-based fuels, driven by the increasing evidence that carbon emissions contribute to public health problems, reduce air quality, and result in financial burdens for insurance companies. With Munich Re and other insurers quantifying these costs and passing them on to policyholders, governments can leverage this data to appropriately charge carbon producers.

TC: Traditional energy companies—the largest carbon emitters—claim to be committed to addressing this problem. Do you believe this is primarily a matter of public relations?

SW: A significant portion of it is optics, but it also reflects a growing realization that companies must adapt their business models or risk failure. They don’t want to repeat the fate of Kodak; they aspire to be like Apple and reinvent themselves.