👷🏻‍♀️ Addressing the skilled labor shortage #006

Climate is more than just climate tech

The tech industry sometimes over-indexes on the belief that new innovation will rapidly transform the world in the blink of an eye. Virtual reality was supposed to make the real world obsolete. Instead, Meta has to force employees to test out its own VR products. Crypto was supposed to transform the entire global financial system, but instead we get headlines like Miami nightclubs mourn absence of high-rolling crypto entrepreneurs. Self-driving cars were promised to us long ago and we’re finally starting to see signs of real progress. To be clear, techno-optimism, free markets, and improving quality of life in society with new gadgets and gizmos are all great things if rooted with proper attribution. Unfortunately, when we over-emphasize the raw power of new technologies, we fail to recognize the importance of non-technological entities like communities, policy, and labor.

The Problem

Climate change manifests in the form of droughts, flooding, and heatwaves - just to name a few. These are physical problems that impact the livelihood of real people. To avoid further catastrophe, we need to rapidly build out clean energy infrastructure. This includes solar and wind farms, retrofitting and electrifying 100 million buildings, and upgrading thousands of miles of grid infrastructure — all within the next 30 years. Even with the Inflation Reduction Act closing the gap between climate progress and profit optimization, our country still faces a severe shortage of skilled labor to actually get us there.

The primary constraint for all this new construction is skilled labor. There’s no such thing as a “climate technician” or “climate builder” to do this work. The future of clean energy infrastructure lies in existing fields like construction, electrical, and HVAC. Unfortunately, the construction industry has suffered from a plateau of productivity in the last several decades while all other industries have become more productive via new technologies. Additionally, the industry suffers from an aging workforce. Between 2003 and 2020, the percent of construction workers 55 and older nearly doubled. We need significantly more tradespeople who can climb a roof to install solar, put in a heat pump, or set-up an EV charger.

Top-down estimates suggest the mobilization towards a zero-carbon America will create 25 million jobs over the next 15 years. In solar alone, we’ll need 900,000 workers by 2035 in order to reach Biden’s goals. Currently we’re only on track for 400,000 jobs by 2030! In order to make this energy transition a reality, we can no longer pray for miraculous breakthroughs in the lab or for robots to replace human workers tomorrow. We need to put hard hats on and roll up our sleeves.

Why can’t employers just hire more?

If there’s not enough skilled workers, then going to the employers is one way to pinpoint the root cause. Basic supply and demand economics dictate that if companies simply paid more, then we could solve this labor shortage, but it’s not so simple. These businesses operate under low margins and have been hesitant to adopt new technologies. Like the construction industry, they follow the motto: “If it ain’t broke, don’t fix it” without full awareness of the inefficiencies. Due to the local, physical nature of this work which resembles the construction industry, there’s a long-tail of mom & pop shops that don’t have the budget to hire large teams or expertise in digital tools. From calling up dozens of rooftop solar installers, I learned that hiring and retaining employees is one of their key challenges. The demand for skilled labor is so high that prior experience is often not required. Companies are mainly looking for someone who’s eager to learn with strong communication skills since they’ll be working on a team and interacting with customers on a daily basis.

What are workers looking for?

Last year, I walked the streets of New York City asking random strangers if they’ve ever considered getting a job in clean energy. I approached folks in the trades like an HVAC technician who happily accepts more work when it’s available (for that sweet overtime pay) and a painter who told me he makes $180K a year!

From talking to security guards in retail stores and Amazon delivery workers, I got a sense of what they value. Pay is the #1 factor by far. It sounds obvious, but people want to be paid enough to cover their basic needs, support their family, and have some left over to put into savings. Training is a legitimate barrier because most prospective workers can’t afford to quit their jobs and take a couple months off to get training. I asked a security guard if he would prefer to do training during nights and weekends, but he actually prefers mornings since his work shifts start in the early afternoon and go into night. They need to be able to integrate the training and education into their existing work schedule.

Among the dozen or so conversations, most weren’t aware of the opportunities in clean energy trades. Between the current job and everything else life throws at you, it’s hard to always know what’s out there. It’s crucial to not just bring awareness to skilled labor in climate-relevant fields, but also pave a reliable path for folks to get into these jobs.

What exists today?

Today, there are already a myriad of organizations operating at full-speed to accelerate the clean energy transition. Across the US, corps programs like California Climate Action Corps are training (and paying!) youth to help underserved communities through climate action projects. Workforce investment boards like NYSERDA have dedicated more than $120 million to support clean energy workforce development and training. Community colleges offer green workforce programs and solar energy training (Minnesota, North Carolina, and New York). With private funding, non-profits such as Homeboy Industries, Grid Alternatives, and Solar One are offering free training to underserved and low-income folks.

Grid Alternatives

Private companies also recognize not just the gravity of the problem, but also the business opportunity. Startups like Workrise follow a high-tech version of traditional staffing agencies. When investigating Workrise, I discovered that they haven’t focused on increasing the labor supply and instead have been acquiring staffing agencies which is an incredibly inefficient use of VC funding. Once considered a startup success story, after having tested the product myself, I’m confident they’re not going to single-handedly solve this labor shortage.

HeatSpring is an online education platform that offers courses in solar, heat pumps, energy storage and more. Their approach of aggregating online courses is compelling because it allows the trainee to find the ideal training course that fits their busy schedule. The key question I have is what percent of the pre-requisite training can be completed online and whether companies will be willing to hire workers who have only gone through online training.

Then there are startups like UpSmith and Faraday which are both directly addressing the training part of the equation. Simply put, there would be more skilled workers if getting trained was easier. Both are aiming to match prospective workers to companies that will sponsor the training (which indicates how dire the situation is). I’m a huge fan of this approach because it aligns the incentives between the worker and the company. I think it’s also worth pointing out that neither of these companies have positioned themselves as a “climate company” even though training and up-skilling HVAC technicians and electricians is crucial for the clean energy transition. The lack of overt climate branding reflects the priorities of skilled workers and employers who are looking for a stable paycheck earned through honest, hard work. While techies in Silicon Valley and policymakers on the Hill debate what jobs are “climate” and what isn’t, the work-to-be-done remains and will progress whether we label it as climate work or not. But this also reinforces climate’s increasing relevancy across the economy and the notion that every job is a climate job.

Lastly there’s Greenwork, the LinkedIn of clean energy jobs. They started out as a social network which allowed workers to view other workers’ profiles which I thought was peculiar and distracting. Since then, they’ve pivoted to an authorized installer network model which aims to match contractors with clean energy businesses. Hiring and retaining workers is a key problem to solve for clean energy businesses, but there are some major hurdles with a labor marketplace approach - which is worth diving into.

Why labor marketplaces are hard

A marketplace model is most effective when the pools of demand and supply are highly fragmented, thus the ability to generate high quality matches becomes valuable. At first glance, this seems to be true for skilled work given the local, physical nature of these businesses. But the plumber, HVAC technician, electrician, and roofer are employed disjointly given the low transferability across different trades which is different than gig workers juggling Doordash, Instacart, and Uber all at once. Bundling the skilled work disciplines together makes sense from a homeowner or project developer’s perspective, but less so from the worker’s perspective.

When it comes to skilled work, like the name suggests, the key differentiator between workers is their skill. There’s high variance in worker quality ranging from showing up to a site drunk to being invited to your general contractor’s house for Thanksgiving festivities (true story). As a result, the highly sought after workers end up getting paid and treated better which results in a close-knit sense of loyalty to their employer in this hands-on, in-person industry. Therefore, with its project or gig-based model, a labor marketplace faces the uphill battle of competing for highly skilled workers while contractors are able to offer more stable, reliable work.

It’s not impossible for a labor marketplace model to work, but it needs to offer some unique value proposition. I believe that the primary problem is the shortage of skilled workers rather than matching workers to jobs which means training is the key problem to solve for. While a labor marketplace theoretically could focus on training new workers, they’re incentivized by default to focus on existing workers. This is why I’m bullish on organizations focused on streamlining the path to become a solar installer, HVAC technician, electrician, etc. such as startups like UpSmith or Faraday, but also community colleges, state-funded programs, and non-profits.

Predictions

1. The “winners” in the skilled worker space will focus on training new workers and placing them into high-quality jobs.

2. There’s significant opportunity to improve current training through financial incentives (ISAs, employer-sponsored) and by embracing technology to improve the actual education experience (online, self-paced, VR).

3. Higher education has become less appealing as costs continue to skyrocket and the value of the four-year college diploma decreases. Offering an alternative via trade schools and training programs in high schools and community colleges will be crucial.

4. The optimal solution for the skilled labor shortage may not be a VC-backed startup. That doesn’t mean this isn’t a huge problem that’s worth solving.

5. There are distinct differences between the types of skilled work in clean energy, whether it’s HVAC vs. electrician or even utility-scale vs. resi solar. One approach is to try and aggregate contractors like Helio Home, but that’s predominantly for the customer’s benefit. The companies that directly focus on solving the contractor and worker’s needs will focus on one trade at a time, build a successful playbook, and only then move into additional disciplines.

Closing Thoughts

The labor shortage is real and it’s a must-solve problem. There’s no getting around the fact that we need skilled workers to literally construct the infrastructure needed for the clean energy transition. Combined with the backdrop of globalized remote work and all the AI buzz coming after creative disciplines like art and writing, it’s an interesting time. Perhaps we’ll even see wages converge as knowledge workers living in major US cities increasingly compete with the rest of the world and skilled manual work is increasingly valued. That said, solving the labor shortage is just one piece of the puzzle. Next time, I’ll uncover some glaringly painful problems in the supply chain and procurement process in clean energy.

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