Energy Efficiency, Technology, and Startup Incubation in the Heartland

Executive Summary

Northwestern University, McCormack School of Engineering graduates Nikita Jain, Rushi Shah, and Ben Wagner recently concluded a three month co- sponsored (by, Veritatis Advisors Chief Don Macdonald and Vissant Capital Director Doug McConnell) market cluster analysis to pinpoint midwestern energy efficiency (EE) free market, policy, and startup incubation hurdles and opportunities.

This ground breaking piece, the team considers Midwestern economic engine capabilities, workforce capabilities, culture, diversity, and core resources. It concludes with stark recommendations obvious to some but likely a bitter pill to others.

It is well known Midwestern business and political leaders squabble over coastal scraps, compete for coastal start-up and incubation assets and IP in the cleantech and EE cleantech space. But things are perhaps not a bleak as before despite continued workforce (i.e. brain drain). These hurdles left the team wondering – Why cannot we overcome these hurdles? and ‘What if’ we cooperated, do what is best in our regional interest, what Midwesterners are good at doing?

Introduction

“The distribution of your startup costs between labor, space, and other factors will be the same nearly anywhere. It’s only the price tag that changes” How Much documents.

These results from How Much propose a difficult question to policy makers chasing corporate logo’s that through cooperation and focus rather than rabid state by state or city by city competition results can profoundly different.

The Northwestern’s team primary conclusion points to thinly spread economic activity, and perhaps too much industry and workforce diversity, lack of collaboration resulting in dilution.

“Perhaps we need to step back, settle down, and work together to focus on what we are good at instead of chasing others (i.e. coastal states) observed Don Macdonald, Veritatis Advisors Chief Pollinator. We are scrambling for the scraps, left-overs and it appears mis-guided use of public and private resources”.

From the study

The Midwest is known as “America’s Heartland”; famous for expansive farmland and busy railroads. The region is often considered behind technologically, surviving off the backs of blue collar workers. It frequently pales in comparison to the coasts, regions that are thought of to be leading the way in technology and innovation. That being said, the Midwest has a variety of unique strengths in the food & agriculture, manufacturing, and transportation & logistics industries that are ripe for technological advancement. These industries are high energy intensity, and therefore much of the innovation focuses on increasing energy efficiency and reducing environmental impact.

The Midwest’s focus on these industries is particularly important because of the region’s unique strengths in these spaces. The Midwest has always been the home of major agricultural production, accounting for over one third of the country’s total agricultural output. Although still recovering from the global economic crisis, the Midwest manufacturing industry has continued to be a large source of GDP for almost every state in the region. Additionally, one of Chicago’s greatest advantages is the city’s placement as a central transportation hub for the entire country, home to many leading transportation and logistics companies serving both freight and passengers.

Chicago is quickly becoming the home of vertical, indoor farming, a process that can be used to farm year round with high yield ratios and reduced transportation costs. The Midwest region as a whole is leading the way with indoor farming as an alternative to other urban farming methods such as greenhouses, more prominent in other regions of the country. Reduced long term costs and energy savings makes indoor vertical farming a technology to not only watch, but invest in. This effort has high potential for success, but the lack of awareness and popularity has left it an untapped and underfunded area.

In the cross section of transportation and manufacturing are two very different, but similar purposed technologies: battery technology for electric vehicles and alternative fuels (biofuels). Biofuels is primarily useful for jet fuels, because airplanes cannot safely use battery technology. At the same time, the production capacity of biofuels makes it an unrealistic technology in terms of complete (or even majority) substitution for diesel, let alone gasoline. Vehicle electrification is growing in the Midwest, with various Chicago-area campaigns supporting this high-potential technology. The ease of use and reduced cost to consumers are additional reasons why the Midwest should prioritize investment in and growth of electric vehicles over biofuels.

We recommend a focus and prioritization of 1) the Midwest Manufacturing, Food & Agriculture, and Transportation & Logistics industries, and 2) Indoor vertical farming and vehicle electrification technologies. In an attempt to build the Midwest energy efficiency scene, the region needs to first understand its strengths, and then leverage them in order to ensure further growth and innovation.

Problem Description and Context

The energy markets of specifically Chicago and the Midwest are diverse, complex and highly regulated. These qualities have resulted in a lack of innovation of energy efficient technologies that are also renewable and sustainable. When universities and companies patent and develop these technologies, there is a loss of mindshare and economic value, so there is a need to retain these assets.

Additionally, the utility industry is under dynamic change, so energy efficiency lags. Overall, there needs to be better acceptance of and preparation for disruption, change, and growth. Within the Chicago startup scene, these qualities are reflected. Startups work independently with their own agendas. There is a desire for a collective, focused energy efficiency space for startups. The same applies to professionals and university staffing.

A key part of being able to develop this collective space and effort is having the ability to identify strengths and weaknesses of the Midwest, analyze potential for growth and competitive forces, and understand the needs and abilities of the region. This is where our team comes in.

The overall goal is to map out the strengths of the Midwest energy market and energy efficiency initiatives. This includes a discussion of the niche for startups and innovation, the leaders in each area, technologies that have been developed and that have been successful, and the resources to leverage. The full study paper is available:Final Report (1)

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