one subject to another subject. that was said by the president as being a minimal intrusion on the confidentiality privilege for an unrelated subject, certainly by no means an excessive one. >> mr. lacovara, we only have a few minutes. are you going to address the dependency of the house judiciary impeachment should either lead the court to conclude that this whole business before us is a non-judicial matter such that the judge's orders should be q uas hed.

>> that was to be my point, sir, and i will make it right now. the notion that because there is concurrently under way an impeachment inquiry before the house of representatives, that somehow makes this a non-justiciable political notion. it is not supported by sound constitutional law or by any of the decisions of this court, and indeed, i would submit that to the extent the court has discretion in the matter, and although this court has now been given discretionary certiary power, district courts have no such option, it would not be a wise discretion for this court to stay. this is not a request between two jurisdictional committees over who has discretion over a bill. it's not even a dispute between

a president and a cabinet officer over what proper executive policy ought to be. this is a criminal proceeding, a federal criminal case against six defendants. a subpoena has been issued to obtain evidence for use at the trial, which is scheduled to begin on september 9. the court cannot escape the fact that this is a trial of tremendous national importance, but a trial that was brought to a head without regard to the impeachment inquiry. this is an independent, separate constitutional process that is under way, and a traditional, ordinary pro se remedy, a subpoena, has been utilized to obtain evidence for that trial. there is some debate about whether the evidence is critical to our prosecution. i noted in justice renquist's

opinion a few weeks ago in renquist versus tucker, he said the same thing, that it's up to the prosecution to present all material evidence for the jury, for the fact finder. that's what this case involves. to say there will be public consequences, even political consequences to the court's action does not mean this is a political question so that the court must regard it as non-justiciable. the same argument would have prevented this court from deciding marby versus madison. he went ahead and did his duty on behalf of this court but he faced impeachment. >> they decided in favor of president jefferson, didn't he?

>> no, sir. >> he didn't? >> no, sir. he said expressly -- >> he surely decided it. jefferson won the case, the battle, but lost the war of judicial supremecy. >> the case is normally thought of as being solely with original jurisdiction, but if one reads the case again, i submit, judge marshall got to the jurisdiction point or after he said a lower court should issue and would be obliged to issue a mandamus to madison because a judge did not have the authorization to order against madison. at the time it was a courageous act. >> but there is a case in article 3 that did not.

>> later when he issued the subpoena to president jefferson, that was to profound physical consequences, but he stated again eloquently that it was the court's duty to obtain evidence if it was material to the trial. the notion that political consequences should stay the hand of the court is a notion that, again, speaking through marshall, the court rejected in cohens against virginia in the cherokee nation case where it was common knowledge that the state legislatures in virginia and georgia would interpose themselves and defy this court. and marshall uttered the words which i think are justly famous, the justice of the court can't reach out for jurisdiction it doesn't have. it has an obligation to exercise the jurisdiction it does have, whatever may be the political consequences of that act. the court's action in ex-parte milligan in telling him he didn't have the right to conduct the civil war the way he wanted to conduct it.

in war power cases in world war ii, this court did not say because of consequences of the president or because of a political action one way or another, the court should stay its hand. and youngstown, where our colleague's brief closes by quoting justice frankf ururter' opinion saying the court should be reluctant, but we have an obligation to look into an assertion of presidential power. and even if embarrassment could be caused to the president by our disagreeing with him, it is still the duty of the court to tell him when he is wrong. this court, in powell against mccormick, how could there be a more political case than telling the house of congress that it has to seat a member that it

excluded. but the court said the constitution forbad it. it was up to the court to decide what the constitution allows. examine ev and even though the court determines it differently from another branch, far from supporting the president's position, demands that the court affirm the action the judge has taken. this is emphatically the province of this court to decide. not to belabor the point, but perhaps the finest chapter in the court's recent history has come in the fields of reapportionment, civil rights, and the procedural rights of the criminally accused. it would be naive to say those were not profoundly, politically

important decisions, but they were made as decisions of constitutional law despite the consequences that political branches might face, despite the public reaction, the court understood its duty to interpret the constitution. that's all we ask for today. that's all judge serica has done. we believe he has done it correctly. we believe the case is fully justiciable, we believe the principles briefed by the parties support the correctness of the decision below. and we submit that this court should fully, explicitly and decisively and definitively up hold judge serica's decision. >> thank you, mr. lacovara. mr. burger, you have 15 minutes. >> thank you. despite my brother's recent

argument, of course sawyer was an important case with political implications. of course, the other cases were, in and of themselves, important cases with political implications. but this case is different in that the decision in this case will have an undeniable impact on another proceeding. in another proceeding which the constitution says is essentially a political proceeding from which the court is excluded. and for this court to be drawn in to that thicket, if i may call it that, seems highly inappropriate, at least at this time. as i indicated at the outset, the house committee has made certain political decisions, the president has made certain political decisions. they will each have to bear the responsibility of those decisions with the american people. this court should not impair, interfere with or otherwise participate directly or indirectly in that proceeding.

and it's inevitable it would happen. this courtroom wouldn't be full today if this were simply a suit on a subpoena brought by the special prosecutor against the president, even though that would be an important political matter because the president is involved. but this is important for other reasons quite apart from that, other reasons which i suggest indicate quite clearly that this court ought to, in its discretion and in its judgment, stay its hand, at least until such time as those proceedings have run their course. because those are political decisions being made, they should not bear the burden either way of a judicial decision. >> under that theory, all the criminal trials that have been going on should stop. >> that would not be the first time, mr. justice douglas, that a criminal trial was delayed. and in balancing the importance to this nation, i would suggest that is clearly indicated, and i don't believe the defendants

would be crying very bitter tears. but in any event, the justiciability of this case seems to be the single, most important matter that my brother would prefer not much to talk about. but there can be no doubt about it if you read page 59 in his brief, he says, he, the president, is now the subject of an impeachment inquiry by the committee on the judiciary, the house of representatives, and the subpoena evidence may have a material bearing on whether he is impeached, and if impeached, whether he is convicted and removed from office. and i suggest the constitution and all of the history of the framers makes it quite clear that the framers conceived impeachment as a legislative process. the court was excluded specifically from that function. barber against madison itself, i agree with the chief justice. they decided the case in favor of the president. the rule was discharged and the

commission was not issued. but it also held, and it's been the law since that case, that the courts will not interfere with or direct a discretionary act on the part of the president or any other branch of government. and that's been confirmed in mississippi against johnson and any case since that time. and the discretion that the constitution by implication and by necessity that has invested in the president in determining which of his confidential communication shall be made public or released is a discretionary act that this court ought not, by its decision, to undertake, because this court is not equipped in knowledge, background or any other way to exercise that discretion for the president of the united states. this is not a ministerial act. finally, i observe a slight but significant shift in my brother's position with respect to the prima facia nature as

naming the president as a co-conspirator. it can be made prima facia. i take it that's by examining the evidence before the grand jury in order to determine whether or not that evidence, in fact, supports that determination. we have invited this court and judge serica to do just that. the special prosecutor has opposed in each instance this or any other court looking behind that to see whether, in fact, the evidence can be made, as he now states a position, to support a charge of criminality. before the argument, the argument was that because it was a find organiing or a vote, it prima facia. now it's somewhat different. but in any event, an action by a

grand jury purporting to assess criminality to a president of the united states is a clear intrusion upon the legislative function and power with respect to impeachment. as i said earlier, the president is not above the law, nor does he contend that he is, but he does contend that as president, the law can be applied to him in only one way, and that's by impeachment, not by naming as a co-conspirator in the grand jury indictment, not by indictment or any other way, and, therefore, in this case, i urge that this court take such action as is appropriate and overrule judge serica's decision and order this case be dismissed. >> thank you, mr. st. clair, thank you, mr. jaworsky, mr. lacovara. the case is submitted. >> you have been listening to the oral arguments from july 8, 1974, the case united states versus nixon.

and joining us from new york is evan davis who was part of the house judiciary committee impeachment staff and one of the leaders in the impeachment and watergate cover-up task force. thanks very much for being with us. >> good to be here. >> as you look back at the oral ar arguments and the unanimous decision written by the chief justice, what was the significance of that? >> well, as a lawyer, i have to say that this is one of the top 10 decisions the supreme court of the united states has ever made. it's right up there with marberry versus madison. indeed, it cites marberry versus madison. and its principal holding is that no man, person is above the law. that's the basic conclusion of the case. to very quickly go over the four issues i mentioned earlier, the court held that it did have jurisdiction, the court held

that this was a totally proper dispute for the court to decide, the court held that the rule, the law governing subpoenas of this type had been complied with, and the court held that there was no absolute executive privilege that there was a need for balancing and that it would be appropriate for the need for this evidence in a criminal case to outweigh the interests of the president in the confidentiality of his conversations with his aides. the ruling of the court was actually that the tapes would now be turned over to the district court, judge serica, for what is called in-camera inspection. and that judge serica would have the opportunity to look at their relevance and their importance and their need in the criminal case and to make a judgment,

that he should be particularly careful with anything involving foreign policy or national security or military or diplomatic secrets, but that he would make a judgment after doing a careful review of the transcripts of the tapes, and to the extent he needed to, listening to the tapes themselves to be sure that they were accurate. as things developed right after that, that decision on july 24, things moved very, very quickly, much more quickly than anticipated. because on august 5, the president, rather than turning some of the key tapes over to judge serica for inspection, which could have taken quite a long time, and said on august 5 decided to make them public. and the document in which he decides to make those tapes public is a very interesting

document. because it has within it, as i read it as a lawyer, the tone of the president's lawyer, mr. st. clair, being very concerned that the facts had not been accurately stated to the court or to the house judiciary committee in certain important respects. one senses from reading the document that perhaps the president was also willing to correct the record and turn these documents over immediately. one senses some pressure from the president's lawyer, mr. st. clair. mr. st. clair has never -- he is now dead. he never wrote a memoir, never gave an interview, so we don't know for sure, but it's my belief that he played a role in getting these tapes made public quickly. and once they were public, everyone saw that the tape of june 23rd was a smoking gun.

that the president knew that mitchell, as head of the committee for the re-election of the president, was aware of this break-in before it happened, and that the president agreed with holdeman's suggestion, and indeed, reiterated it, that the cia should be told to tell the fbi that this is something the fbi should stay out of. that strategy did not work. the cia ultimately refused to go along with this approach, but there was no question that the president was involved in deciding to ask them to do that. and that led very quickly to the president's announcement on august 8 that he was going to resi

resign his actual resignation on august 9. so everything happened more quickly after the 8-0 decision. it was 8 because justice renquist had recused himself because he had been involved in the case while working for the executive branch and appropriately took himself out of the case. it was 8-0. it was written by the chief justice. the chief justice has the right to assign a decision to himself. he did assign this to himself. as you read the opinion, you see that it is trying to accommodate various interests of the judges trying to come, i think -- in my judgment trying to come to a unanimous result, which it does, 8-0. and i see in the wording, i am sure that various justices had suggestions about wording, and i think that the chief justice was

willing to accommodate all those suggestions to get a unanimous result. >> and what was your reaction, first of all, to the fact that it was unanimous and also the reaction of the committee staff that you were working with at the time? >> well, i had clerked at one point on the supreme court. i clerked for potter stewart, and it's so wonderful when the court speaks unanimously, because when this court speaks unanimously, the opinion is the voice of law as everybody has agreed. as you know, today so many of the opinions are 5-4 or 6-3, and to speak unanimously in this case, as they also did in another one of the top 10 cases, brown v. board of education, is a great statement of the principles and law of the country. so i was pleased that it was unanimous. i think personally i thought

that the special prosecutor was likely to prevail, but you couldn't be sure. i was surprised that the president went ahead and released the tape, what was later to be called the smoking gun tape, as quickly as he did, but it definitely brought a quick end to the process and the president's resignation. >> final question. as you look back 40 years later, those students of history, of law, and of government power, what are the lessons from this time period? >> well, the lesson of the time period, i think, is that the thing that is an impeachable offense, the thing that really constitutes an impeachable offense is a clear abuse by the president of the powers that are unique to the president. and here the president has the power, the overall power, of directing the cia, the fbi,

these are extremely powerful agencies of government, and when they're used to commit an obstruction of justice, which is what essentially was established by the tapes, and i should say also by the record even without the tapes, because even without the tapes, the committee voted 27-11 to recommend the watergate impeachment article, and of those votes, six of the 17 republicans voted for the article. so it had a measure of bipartisanship without the tapes. but with the tapes, it became a foregone conclusion and the president resigned. the lesson is we have a system that protects us against grave, serious abuses of power by

high-ranking officials in government, including the president, and in the end, no man is above the law. >> and do you remember when you personally felt that richard nixon was not going to complete his term in office? >> i knew for sure when i read the transcript of the june 23, 1972 tape recording of president nixon's conversation with robert haldeman, and i read that shortly after the president released it on august 5. >> evan davis served on the house judiciary committee staff looking into the impeachment inquiry of president nixon. thank you very much for being with us from new york, and we'll continue our programming next week as american history tv focuses on the resignation of richard nixon. 40 years later we'll have a chance to look back at the house judiciary committee and the

opening statements of july 1974. that's next sunday here on c-span 3 8:00 eastern time, 5:00 for those of you on the east coast. on american history tv, more watergate with the house committee's impeachment hearings against president nixon. we'll get opening statements from members of the committee starting with its chairman, new jersey chairman peter medina. that starts next thursday at 8:00 p.m. here on american history tv on cspan-3. here on c-span3, we complement that coverage by showing you the most relevant congressional hearings and public affairs event. then on weekends, c-span3 is home to national tv, the civil war's 150th anniversary, american artifacts, touring museums and historic sites,

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twitter. robert muller served as director of the fbi for 12 years, starting the job one week before 9/11. he spoke recently about cyb cybersecurity at a conference hosted by bloomberg news. i'd like to welcome to the stage robert muller, the former director of the fbi. he's currently a partner at wilmer hale, and we're going to talk just exactly about what businesses can do when they recognize a cyber threat and the measures that they should put in place. please welcome bob. [applause] >> you've had the opportunity to listen to a few panels this morning and the discussion with the admiral. what is your biggest concern? >> when do we get to cybersecurity?

>> you know, just for you, i'm going to start there. what is the biggest issue facing corporate america right now when it comes to cybersecurity? >> a lack of understanding of the area, the issues, and a policy or a practice, generally, of ceos and top management to delegate problems. and not recognizing the depth of the challenges and how swiftly a cyber attack can cut your reputation down. and not anticipating, not knowing this arena, it's very difficult for them to come up with an organizational structure that will immediately elevate those facts that would lead to substantial damage in the corporation. i look at what happened to me in the bureau and one of the mistakes i made was in upgrading

our information technology, for instance. >> how is that a mistake ? >> well, because i didn't ask the hard questions. on one hand you have the technologist, on the other u the business practice, the agents and the like. you have to come up with a new case management system. you delegate that. they tell you it's going to happen, it's going to happen. it doesn't happen, and you look back on it and reflect and you say, i delegated an area where i should have been personally involved. it goes back to what evan rogers was saying, you have to take responsibility at the time. i think too few senior management, no one understands that particular issue, and secondly, are uncertain as to how to address it. >> if you're ceo of a company, you might be a terrific manager. you might really understand sales, you might really understand your product, but you don't necessarily understand technology. >> but you have to understand it to the point that you can know and understand where the money

is going to -- adopting the new technology, upgrading the new technology. you just cannot leave it to others. you have to be sufficiently knowledgeable and understanding to ask the hard questions. i blame myself for not asking the hard questions. at a particular point in time, you come in and flip a switch, and this new system will work. in my mind i said, i don't really know how that's going to work. ultimately it did not. we had to go back and restructure and get it done. we got it done, but it's one of those areas where it should have taken more of my personal time to make certain it was on track. >> there's a lot of questions surrounding what's the responsibility of business, what's the responsibility of government when it comes to protecting the cyber arena. how does that break down? where do you see it? >> a couple things. i think on one side the federal government has to do a -- we're doing a better job, but do a better job in sharing information between nsa, fbi and

department of homeland security. and then on the other side, the business community needs to do a better job coming up with vehicles for sharing intelligence amongst themselves but also sharing that intelligence with the federal government. if the legislation that is contemplated up on the hill which gives a safe harbor to companies providing information to the federal government relating to breaches and the like passes, that would be tremendously helpful. but there has to be an exchange of information between the federal government on one side and the private sector on the other side. >> that's a lot of trust, though, because a company has to be willing to say, okay, i'm going to turn over all of this. >> but they have some control over what is turned over. they can protect their intellectual property and still turn over the information that is necessary to determine what is a piece of malware that was

recently used? if it affected their networks, is it affecting other networks? in the wake of september 11, one of the things we had to do was develop relationships with other partners in order to be successful. principal partners, state and local law enforcement. we could not be successful in avoiding a tax. in the cyber arena, it's the private sector. we're not going to be successful, and we're getting ahead of this curve without having mechanisms for the sharing of intelligence in the private sector, sharing it amongst the federal agencies and then having that information shared amongst those sectors. >> what's your perception of how that's personally working? are private companies sharing enough information? >> episodically. most of it, i would say, is tremendously informal. there has to be a more formal process of sharing in sectors, and thanks to the department of

homeland security and particular sectors, there is a growing body of capability of integrating the intelligence in particular sectors, particularly the financial sector, for instance. >> why in particular the financial sector? >> because they have gone a lot further in most others in setting up capabilities that allow the sharing of information. >> you're at wilmer hale now. if a client comes to you and says, i think there's been a breach. what do you advise them to do as the next course of action. >> you're on the right side of post-breach. one would hope they had taken certain steps pre-breach. but post-breach, the most important thing is the charge. you cannot go to your ceo or chief security officer and say, okay, you're in charge. a substantial breach implicates, first of all, your own people,

your customers. one of the first steps you have to take is determine what exactly was the breach, how devastating was it, how do you control it, and that requires forensics. and too often there is a delay between the breach and getting forensics on board to tell you exactly what happened, and you can't notify, or you don't think you can notify until you know exactly what happened. consequently, you have to address the forensics, you have to address the fact that the sec is going to want to know if it's a material breach, praerhaps th department of justice. there are five or six or seven entities that have to be looked at in order to determine what the next steps are, and then you have to orchestrate a bringing together of those particular strains of responsibility in such a way that you move quickly and have somebody in charge who is not necessarily just a technician, not just a human resources person but somebody who has the ear of the ceo. >> what does a company need to

do to inform the people that have been affected? you look at the target example, and the target did not immediately come out and tell customers. in fact, there is no law on the books that requires them to do so. the banks need to let the customers know that their credit cards may have been violated, but target doesn't need to do so. any guidance there for corporate america in terms of communicating with the people affected? >> one of the circumstances you see is thawhen there is a substantial breach. one is litigations coming down the pike, which is a substantial part of it. but litigation is not as important as reputational damage, particularly if someone has products and sells things. the reputational damage can way outweigh any considerations related to the inevitable litigation that will come down the pike. so prioritizing to preserve that reputational damage by notification, but notification

with a fairly firm understanding at what happened is tremendously important, and then assuring your public, your customers, that it's not going to happen again and you resolved it takes leadership from above. it can't be leadership two or three levels down. >> so leadership, basically, it sounds like overall defining the person who is in charge, and that person who is in charge really having a firm grasp of the technology space overall is critical. >> yes, but you need -- it's, again, like developing i.t. you need the technical aspects of it. that's part of it. but you also need the people aspects of it. particularly when the most serious contemplated breach would be the insider threat, the snowden threat. >> that's a good point because the nsa has to deal with something like that.

>> they'll continue to talk about protecting networks. there won't be a tremendous amount of emphasis placed on the biggest vulnerability, a disgruntled employee who has administrators' rights who is unhappy and then can do the damage from within. so that you have to identify very quickly and address it from the human resources point of view. >> are there mechanisms to do that? >> there is an extreme in the government, for instance. everybody in the fbi has to take a polygraph periodically. >> how periodically? i'm just curious. >> every five years. >> every five years? wow. >> you look at your financials, you look at what nsa, at what e an rogers indicated was happening at nsa in terms of the restrictions. at one end of the spectrum, you have the auditing of the

downloads, you have the focus on individuals or financial situations, the polygraphs for nsa for the secrets that they keep. and on the other end, you have companies that say, well, we trust our employees. and if we instituted anything along those lines, it would indicate a distrust, and not only would our employees be unhappy but they would be so unhappy, they'll go to some other employer where this is not required. >> so it's a balance. >> and in between, you have to draw the line. >> it a challen's a challenging. let me ask you about something that the admiral and i spoke a bit about, and that is the concern we're getting into ourselves a protectionist environment as far as our global economy is concerned. china could you saccusing us oy them, we're saying they are spying on us. the fear in the tech community

is the fear that we're going to lose business opportunities as a result of all this worry. how do you see that playing out as we're in this sort of infantile stage of cyber hyper-awareness? >> i do think in the short term the disclosures will affect the relationship. i'd like the admiral to think, though, that our technology is such that it outdoes everybody else. certainly in europe and elsewhere and europe and the west, ultimately we will prevail despite the efforts of companies to bolster developing internal corporations to take over some of that information capability. in china, it was inevitable in any event. china wishes, wants our technology and to the extent they can get our technology and

build their own data has been forever and a day. this may be a bump in the road, but, again, i think it was either inevitable or our technology is such that a large community of persons are going to gravitate to it. and this will be, as i say, a bump in the road. >> is it naive for other countries to say, oh, you guys are looking at us, or is it naive of us to say, oh, you're looking at us? can we assume it's all happening? >> there are a number of countries out there, some of whom have been our greatest critiquers, who have their own internal capabilities that are not necessarily known to the population and not necessarily understood by their parliaments. the one thing that has been missing from the coverage of this is the fact that we're the only country that i'm aware of where we have a court that passes on the request to intercept an individual international security realm,

that being the fisa court. and that provides a protection that no other country has, whether it be scandinavia, the u.k., the home secretary, france or elsewhere, there is not a court between the prosecutor and the investigator and the interception that passes on the probable cause for that particular interception. and so we have safeguards that i think are in some ways very much more advanced than you would find in many of those countries who have criticized us so heavily. >> but at the same time is our technology so advanced that assuming we've checked off all those boxes, we can gather much more. >> not so much different. in fact, there are countries around who have far less strictures on what their national securities can do. whenever nsa picks up an american citizen, they either

drop it or the fbi will get a memo there is some criminal conduct, and the memo will say, we intercepted individual a or individual number 1 who appears to be involved in this criminal activity. they don't indicate the name of the person. we look at it, see if it's something we would investigate, and then we have to send another memo back to nsa saying, yes, we're interested in investigating, give us the information. when the cyber attacks were a substantial concern day in and day out, this procedure was frustrating in terms of getting information you may need, but nonetheless, we have that protection there, we have that wall there that protect the surveillance of the american citizen that you would not find in any other country. >> i spoke to the head of a company the other day who had been working closely with the fbi, and as a result of the sort of intel that they were gathering in the cyber world, they were able to basically

figure out that $500 million had been siphoned off from various bank accounts across the globe. and one of the things that this individual was citing was the cooperation there between a private company, and in this case, the fbi. is that the way of the future? is that how the fbi and -- you were the director of the fbi. is that the future for going after these cyber criminals? >> yes. and anticipating some of the criminals. one of the things we tried to do was take a particular sector, the financial sector. take the exchanges, for instance. one would think there would be targets. and what we want to do is, as we've done in other areas, go out and develop relationships with the security individuals in those particular, whether it be exchanges or financial institutions, so that they know who in the fbi has profficiency in this area and a name -- a

face with a name, and so if there is a breach, then they know who to call and the fbi agents that do it know what they're doing, know what evidence they'll need from their logbooks and the like, so develop that relationship in anticipation of the probability at some point in time that there would be a breach. so we're doing much more of that. we're also understanding the responsibility for disclosing to victims the fact that they have been breached or hacked into by the chinese, russians, iranians or others. we had several thousand last year of a knock on the door and say, did you know the chinese or the russians were in your networks? and a full majority of them did not know that, but it's our responsibility to alert persons to that. >> in terms of the fbi personnel that you have now, is there much being done in terms of training them to understand technology? >> one of the things in the wake

of september 11, one of the priorities was that the organization be able to know, understand and utilize the digital arena. and in the wake of september 11, we also understood that our traditional hiring patterns of lawyers, accountants, former military and former law enforcement was inadequate to the new world, so quite honestly we opened up the language in the wake of counterterrorism, we have opened it up to the language of aerial specialists. in the wake of the attacks, we found we had almost a thousand interviews to be done of persons who had in some way been utilizing amtrak, so we didn't have the chemists or the biologists to be able to do that kind of interview. so we have hired chemists, biologists and the like. likewise in the cyber arena, software firms, hardware firms, computer scientists. over the last 12 years, we've

been hiring up in that arena. but also we have a number of persons that are not at the top level of quality in terms of capabilities but just under it around the country. we have by now way over a thousand individuals around the country that are capable of doing these investigations. but let me make one point when i say that. and that is we focus on protecting networks -- we focus on the cyber aspect, but we cannot forget that behind every cyber attack, there is a warm body sitting behind the keyboard. and part of understanding and addressing this is identifying those persons who are responsible, indicting them in certain cases, arresting them and convicting them as we have throughout the years. one of the problems in this area is you don't know at the outset of an intrusion whether it's the chinese, the russians, whether it's organized crime or here or russia or it's that 18-year-old sitting up in a bedroom

somewhere that has the capabilities to hack in. >> can you say there is a particular part of this world where we're seeing the majority of cybercrime originate? >> i wouldn't -- i don't think i talked about it in sort of gross terms. i would say on the one hand -- i divide it into five sectors. the first is the unanimous low sec. those individuals are capable, and don't want to steal the information for the information's sake but just want to embarrass you. second you have the targets and the like. thirdly you have the intellectual property and the espionage. fourth, you have the terrorists and potential use of cyber by terrorism. fifth, you have the military using cyber as several years ago the russians sent the tanks into georgia. they knocked out georgia's commanding control before they sent the tanks out. those are the five vectors of

threats that we in the bureau would deal with. >> it's a lot. >> it is, but in order to be successful in addressing those threats, you have to know who is sitting behind that keyboard. is it somebody from anonymous? or is it that russian hacker out of russia or the u.k.? >> so you can identify that? >> yes, you can, but it takes a combination of investigative skills which we have traditionally had coupled with the use of this new medium in the cyber arena. so you can't dismiss the necessity of identifying the persons, identifying where the servers are, identifying the building where that person is, tracing an ip address to a particular belieuilding, to a particular apartment, to a particular individual. >> let's go back to preventive measures again. i think target had to have been every retail ceo and every ceo's just nightmare. and i can remember talking off record with some people that

said, you know, look, in some ways -- that that could have been me. there is no reason that that -- forgive me. we're going to see a little bit on we're going to see a little bit on target coming up and we've got the business week team that did the investigation into the story. as it turned out, there were actually a number of things that that company could have, should have done to prevent what eventually happened, but it's 20/20 hindsight, right? it's easier to look back after the fact. what is it that corporations, especially corporations that are dealing with consumer information and you talked about it earlier, once you lose that trust on the consumer, that's a very, very hard thing to regain. what do they need to be doing so make sure that they don't become like target? >> well, you have to, again,

think beyond just the technology. you have to -- do you have another insider that is a threat? so it's human resources. and how do you identify that? how do you monitor downloads of your information? you have to map the networks and determine what the vulnerabilities in those networks are and then identify particularized tools to address those vulnerabilities. and develop a structure and a strategy that identifies those vulnerabilities and closes those vulnerabilities, and at the same time understand that you will be breached at some particular point in time. what is going to hahn when you get the e-mail saying, hey, look, we have a breach here. what are you going to -- who are you going to turn to and who is

going to be in charge of orchestrating the various elements in the corporations to make certain that you're addressing this particular -- >> the cto then is a pretty important job. >> it is. it's a very important job but it also is a specialized job. >> let me segue into state concerns. we have talked about corporate america and their concerns. what about state concerns? i mean, you know, we keep hearing of all these cyber threats. we've seen this huge improvement in technology that people are able to access. what's the danger for us? ft. you were still at the fbi today, what would be your concern for the country from a state perspective? >> well, there are a couple cyber issues that rise to the forefront, actually probably three. first, and this is in terms of

enhanced capabilities of the cyber criminals, and that is the -- use of a wiper virus to wipe out information on hard drives. in 2012 as i'm sure you're aware, the saudi arabian oil company was infected by a virus that wiped out 30,000 hard drives, and that's the first large-scale incident we have seen, but i think anybody who is in this business who is responsible for the corporate security is concerned by what would happen if you -- it's not just a denial of service attack which is a problem. it's not exfiltration of information, it's wiping out information you may are may not have a backup for that can wholly disrupt your company. that's a problem. second is the financial arena, and the ability to address attacks that would -- banks have been targets for a substantial period of time. but if it increases in terms of the capabilities and the effect on information, that's tremendously problematic. and the last is internally the systems that run much of our

industrial complexes and the fact that those systems were built at a time where the internet was open and have very, very few precautions and it is very difficult and expensive to tighten down the systems to the point where you could totally preclude individuals from getting in. >> what does that mean? what could they do? >> there have been displays on what can happen if you get in and -- into the computer system and within a couple shifts of controls have a water station blow up. the power grid adversely affected. there was an attack on a power station in california several months ago. i think you probably are aware. it was actually more of an on the ground firing of weapons at the power station, but it is worrisome in the sense that

someone took it upon themselves to undertake and orchestrate an attack on a power station. if you had a hacker with sufficient skills, that would be a substantial threat to us. >> well, here we are talking about what corporate america needs to do better to prevent themselves from being in a bad situation. what does the country need to do better to prevent anything such as what you just described? >> well, on the one hand, as i said, it's important for us to recognize that as we learn in september 11th, so we have to apply here, and that is the best offense is sharing of information. we did not share information before september 11th. there were walls between cia, fbi, and even within the fbi until those walls were removed. when keith alexander was in charge of nsa, janet napolitano and dhs, we met to make sure we understood the lanes in the road and how we can share information

with understanding the strictures you have in terms of those sharings, but again on the other hand, the success is going in large part dependent on finding ways to utilize and harness the talents, the capabilities, the intelligence of the private sector to address terrorism in the cyber arena. >> what have you seen from the private sector? have you seen a willingness to do that. at the same time, as i have talked about, people are worried about turning over information. >> there are models out there where in a particular area, 60, 70, 80 corporations will come together to set up an exchange so you can exchange particular intelligence and then throw that

intelligence over the transom to the fbi. so there are models out there that are just beginning to grow that we can follow. the only other point i would make is you have to take into account that the american public wants to understand and know what information is going to the federal government and what that information is being used for. and so it's important to have transparency in terms of the architecture that is established for this information sharing, but you have to have the information sharing. >> so i'll give you a recent example. eric schmidt and mark zuckerberg and reed hastings, all big tech players at the white house recently meeting with the president, and they were voicing concern that, you know, that basically the privacy of their users was being threatened by all of this. so how do you reach that balance where, you know, you have ceos that say, okay, i'm willing to

turn over this information because maybe it's critical to our national security, but at the same time i need to protect my customer in all this. >> well, you don't turn over necessarily the personally identifiable information. what you do is you take the patterns that are established. you may see it as an isp, particular patterns are established that indicate wrongdoing, and you can cordon off that information that should not be turned over but there's substantial information that can and should be turned over and it would not be to the detriment of the particular company because the company can put persons in places where you establish this kind of connectivity to ensure that that company's information is used appropriately. and by the same token to the extent they join that, they get the benefit of the intelligence that comes back that may enable them to avert an attack. >> it doesn't seem like we're there yet though. >> we're not there yet.

>> it seems like there is this resistance. how do you work through that? >> well, there has to be something in it for them that outweighs the downsides in their perception of theft of their intellectual property or identifying them as a breacher in advance of the time they want to do it. but you structure it in such a way that it's beneficial to them in terms of the intelligence they get and by the same token they control the personnel and the information that's put into this unified intelligence structure. >> okay. so we'll get there? >> we'll get there. we'll get there. as the admiral said, you just hope we get there without a catalyst along the lines of a september 11th. >> is that something you worry about? >> yes. i think everybody -- >> i brought up that term earlier. you know, it's a hard thing to think about because 3,000 lives were lost on 9/11, but are there events that you worry about that could happen from a cyber perspective that would be catastrophic like that? >> there could be. looking at the power grids or looking at our infrastructure. yes.

financially it would cripple us if there were a substantial attack on wall street, on the exchanges. it also could lead to a loss of lives to the extent that we can be -- our command and control knocked out in afghanistan or iraq or some place we're at war and somebody is ahead of us in terms of intelligence as well as technology so that they are able to eliminate our command and control and leave us defenseless when our enemies are moving against us. >> it's a brave new world. director mueller, thank you very much for your time today. >> thank you. thank you. [ applause ] we're live now on the senate strategic international studies in washington for a discussion on the solar energy sector and its economic liability. officials from bloomberg energy finance and the department of energy. live coverage of the event

getting underway momentarily here on c-span 3.

okay, good morning. i'm the director of the energy and national security program here at csis. thank you for here and happy august to everybody. we're really, really pleased to have everyone here today. for what is actually the third in a new series we have started here at csis energy program called the frontier energy

series. for those who are regulars here, we spend a lot of time thinking about energy markets, energy policy, but one of the things we have always sort of quietly prided ourselves on or tried to be conscious of doing more of was looking at issues of technology evolution, technology adoption and the innovation cycle. we think it's really important because in terms of our public education mandate it's really important to understand what it is that is the ecosystem that make. s different technologies, different technology applications succeed or fail and how do we as people who think about policy and markets think about that process. so we are really, really pleased with the first session on drilling technology. it was very interesting. we recently also had the international energy agency to talk about the energy perspectives, which is all about the innovation process. today we're especially pleased to have the session on social

energy, which we called adoption and marketability to really look at what's happening in the field of solar, how far have we come, how far do we have to go and what are both of the innovations happening on the technology side of that equation but also in terms of markets and financing and a whole other range of things that we think are making solar an area that warrants increased attention. i'm really pleased today to have ethan zind ler here who is not only the head of policy analysis, but a senior associate with the csis energy program. these are smart people that we borrow from time to time to help us gauge where we're heading and how we're dealing with an issue. i can think of no better person to have here today to frame the discussion we're about to have on solar than ethan, so i thank you for taking time out of your day and has helped us put together a group of panelists to

help us dive deeper into the various aspects of that sort of energy technology ecosystem that i was talking about before. we have the acting team lead for the balance of systems soft cost. i think that might be one of the longest titles in the worltd, at the u.s. department of energy. it's good work, so good title. and next to her, we have the ceo of soul systems and we'll talk a little more about what they are going to talk about when we get to that section. and then we also have norma daly, the policy adviser, but he's representing solar world. so we have, like we said, three people who represent various aspects of the sort of challenge and process that we're here to talk about today. so ethan is going to go ahead and give a bit of an overview presentation and then we'll move into comments from the panel

about how their world intersects with some of the things that he will tee up for us and then we'll have a bit of a discussion. so thank you very much. it's an on the record discussion. when we get to the q&a, please wait for microphones so we can make sure people are able to hear it. without further adieu, ethan. >> first, thanks so much, sarah. i'm honored to be parking lot of this organization and take part in this discussion here today. and thanks everyone for making it despite the supposed road closures and insanity that was supposed to ensue. i'm going to do a couple things. i'm going to talk broadly about where the solar market is today and then where we see it going. and then talk about a few potential either obstacles or opportunities, which i'm hoping segues nicely into a conversation with each of our panelists and thanks to all of them for joining us as well today. first, let me start with the biggest context material.

one of the main things that our firm does is track investment in clean energy. so just to start us off, a little context, which is we have tracked over a trillion and a half dollars in new capital that's been invested in clean energy. to be clear, my definition here is a fairly narrow one of renewables, not even large hydro, not nuclear, not natural gas, but a narrow sense of renewables and biofuels and energy-smart technology. so the good news is you have seen this incredible rise up to $320 billion at one time of investment. last year it has been declining, although this year we think we're going to see things come back a bit and probably go up a bit. about a quarter tril dollars per year invested overall. that works. so solar, don't strain your eyes

trying to reach each sub segment of this, but my point here is a pretty simple one. as we turn the clock back, our firm was founded in 2004. when f you turn the clock back then, for many of the quarters we were tracking wind in the early days was tracking more money in other technologies. biofuels also had its day. if you look at the last several years, the yellow chunks represent investment but also large scale solar thermal. you can e see how solar increasingly represents a larger overall share of clean energy. now in terms of where solar is going on, where it's getting installed, this is just a quick glance at where the major markets have been. first of all, of course, on an overall volume basis we went

from 6.5 gig watts total installed worldwide in 2008 all the way up to 40 by 2013. so five times growth in about five years, which is pretty amazing rate of growth. but then as a sub segment of this, important to look at where the markets have been and how they have been changing. the dark green bars at the bottom, that's western europe. so you can see that 2008 through 2011 and even 2012, the majority or close to a majority of the installations were taking place in spain and germany and elsewhere. but that has dropped very dramatically in the last couple years as an adjustment has gone on particularly in western europe around tariff programs. those have been scaled back or eliminated altogether. and the real growth markets interestingly enough, have been japan, in part which you can see is the orange part and post

fukushima age where it was taken offline. they have gone through a major program to install more pv and china. c china had the biggest year we had ever recorded for new capacity installations last year. there are a lot of potential reasons for this that we can get into, but china for a long time was the larger producer, the last several years, had been the largest producer. it's also now the largest demand market as well. this is just a more optimistic forecast for us. this is one of the most impossible thing s s to try to forecast. this market grows very, very quickly. we tend to be pretty aggressive and every time we think we're being aggressive, we undershoot the mark. we expect continued strong growth globally. one last note. the last top chunk is rest of

world. that includes a lot of things. but a lot of it is the developing world. and what we're starting to see is a lot more opportunities for pv in countries which don't have very large grids. but for whom solar can make sense on an economic basis to go straight to pv without building out. so this is just a quick glance at the u.s. market. this is our view. this year we'll see 4.6 to 5.6 gig watts of capacity added. we have broken it out by segment, but utility, commercial and residential. the most note worthy is we look out on our forecast is in 2017 we expect basically the eutilit market to potentially collapse because of the exploration of the u.s. investment tax credit, which is so critical to the development of those projects. looking longer term, we think

the market will continue on its way. this is one of my main points, because we think solar is becoming economic without su subsidies. we're really heading in that direction. we have arrived there in many cases, but that's sort of where we're going. now, on the economics, not all markets are created equal when it comes to the costs of pv. there are major differences between the cost of installing solar system on your roof in california and doing it in germany. and that's sort of what we tracked here over time. the different lines show the cost of installation per residential system in different markets. sort of as a baseline, the bottom line is the cost the chinese module, but as you work your way up, you can see different countries. germany has been the world leader at a cost of over $2 a watt, but you can see above that, some of the other markets

including california, which is probably more about close to $4 or $5 per installed watt. so there are big differences in terms of markets. i think one of the things we're hoping is why that is. if everyone is buying modules at variations in prices, the system costs at the end of the day are very different. why is that? now to the question of the economics of it and the cost competitiveness and bare with me for just a moment on this chart. what this is is a look at the cost of electricity. that's the cost of generating power from your system. assuming that you want to earn a reasonable rate of return on it. and how cost competitive solar can be in different markets.

so along the bottom to top access, you can see the cost of power and the left to right axis is a proxy for the level of sun. let me back up and say there's two things into going into a determination of whether or not you should put a solar system. one is how expensive is the power that you're getting out of the socket? how much do you save by offsetting that? and two, how sunny is it where you live? so how much juice can you actually produce. so if you live in a market where it's very expensive to buy electricity and it's very sunny, that's the place right now economically it it makes sense for you to put a pv system on your roof if you can get it financed. on the other hand, there are a lot of gray areas. places where electricity is expensive, but it's not very sunny. so this is a look at where we are now. this tracks our level liezed cost of electricity for pv right now. the markets that are essentially

above that, by our view, is a theet ret call construct. but it's important it can make sense right now for the consumer to put a pv system on their roof giving the cost savings they can enjoy based on the electricity prices they may be paying and the level of sun where they live. and as the price of solar comes down, which is that 2020 curve line, more markets are going to become viable economically. again, this is an analysis that is not including subsidies. this is stripping out subsidies and saying what's competitive, what's not. . another way to look at pricing is to look at the actual contracts being signed. we track the power purchase agreements that get signed for larger projects. we're talking about residential, utility scale here, you can see that the cost of the prices come down all the way to a $50 ppa

that was signed in texas. one thing to note here is if you are the developer who owns that project and signs that ppa, you are going to benefit from the 30% investment tax credit. that allows you to sign lower and still earn your rate of return. this is not an unsubsidized analys analysis. now looking forward, in our view there's a lot of great opportunity for this market and prices are going to continue to decline and this is going to continue to play a much larger role in the overall energy ecosystem. so 2010 about $4.64 was the global average that we were tracking per residential cap access per watt of solar. we have seen that drop down in 2013, 2014 to $2.62. this is a global number.

it's more expensive in california, as i mentioned before, but we think prices are going to continue to get reduced as costs get squeezed out in part by the technology, but also from the nontechnology costs, which elaine can talk about as well. in terms of our long-range view, we have our long-term perspective. many people do that a long time away. i put that out there as the caveat. but it will continue to see strong growth. it's worth note figure you look at a market, a global energy market in terms of demand for overall electricity that doubles from 2012 to 2030, you can have pv take up a very large share of the annual and new capacity installations, which is the middle chart and you'll still end up with 18% pv by the time we get to 2030. so while we may be bullish on the growth of pv in terms of our outlook and modelling, we're

also realistic that there's not going to completely displace fossil generation any time soon. as long as the economy keeps growing globally and we keep having more demand for energy, there's going to be room for a lot of technologies to grow. we think pv will be the strongest to grow in some of the implications and developing countries. that leaves plenty of room for other technologies. so i'll finish up in just a moment, but what are some of the things -- that's a nice, happy picture of falling costs, cost competitiveness, economic competitiveness, long-term opportunity. what are some of the things that are potentially short-term obstacles to further growth? a couple i'll cover here. one, in some cases, some strong opposition to pv that's coming from various incumbent players, particularly some utilities.

two f we don't hit our goals or bring our costs down as quickly as could happen, and three, the potential impact of trade disputes. i'll take those one at a time here. so first, if you take your mind back for just a second to that chart i showed earlier and hold on looking this for just a second, we thought about what was it that made residential cost competitive? a big part of it is the cost of the electricity that comes into your house. the socket electricity that you get. now in europe the total cost of electricity that a consumer buys has been very much impacted by taxes and fees. it's about a 50/50 split on what the consumer is paying between the two of those things. so if you raise electricity prices, you make pv more cost competitive. now this is not -- frankly, this is a message that has not gone

unnoticed by u.s. utilities that are concerned about potentially losing market share to pv. so in a number of markets around the country, and i think maybe you can talk about this from the installer perspective, a numb of conversations have begun to take place about the implications of the rise of solar and should there be a fee imposed to take into account the cost of having 24/7 power even though a pv system only provides it when the sun is essentially shining. this is an ongoing discussion and is taking a lot of different forms about fees and other kinds of things, but it's an issue that's starting to take place and we'll see how it plays out. the second thing is around technology. i showed that nice projection that we have in costs coming down. but part is that is the fact we're going to continue to see technology improvements and continue to see the costs of the

equipment continue to come down. and that is to some degree reliant on investment from venture capital and private equi equity. it's a little bit of a flattened chart, but if you look back at the 2007, particularly 2008 the great hay day of venture capital investment, there was a tremendous amount of interest in all kinds of new technologies that would potentially change the world. the only interesting fallout is that actually one of the least sexy or excitiing technologies s the one making and doing it at bigger and bigger scale and driving that cost now. there's a lot of investment in different types of technologies. the level of that investment in new technologies has definitely declined as we go to the last couple years. in fact, even though we have

seen a nice uptick of investment, a good deal of that now is starting to go into those companies who are installers and getting out there and doing the systems who don't represent a sort of technology plan. that's okay because if you go back a few slides, we're at about $$4.50 a watt. if the actual module costs under $1 a watt, that's a fifth of the total cost. that leaves maybe $3 or $4 of costs from all kinds of other things. aplieg for the permits, getting the guys on the roof to put the things up there, all that stuff. there's a lot of financing. there's a lot of room for. reducing that cost as well. so we hope that we'll see more of that. elaine will talk about that in a moment. finally there's the issue of trade. maybe before i talk about this is to put this in context. our firm has been around for ten

years. in the past five years in particul particular, the amount of trade conversations that have gone on has grown -- you can't track it unfortunately, but there are many countries around the world have that have various forms of trade policies. in some cases they represent tariffs. in other cases, in a number of cases, they represent domestic u content rules where they simply require that the equipment that gets installed in that country get manufactured in that country or some percentage of that. countries as diverse as turkey or brazil have all had various types of domestic content rules and others as well. this is an ongoing issue. one thing to keep in mind, and i'm certainly aware it's a controversial issue, is that if you go back to the charts that i showed earlier, we think we're sort of in the second or third inning of solar and there's a lot more growth to come.

so you could make the argument that from the long-term perspective, there needs to be lots of manufacturing hubs around the world. it's not crazy for individual ko countries to try to create their own hubs where they are going to be serving those markets whether it's brazil or turkey or whenever. but on the other side, if you drive up the price of solar through these kinds of tariffs, you can use reduce the rate. so i put that out there. i know this is an issue that's of enormous interest to a lot of folks. and i think nova can talk more about the specifics on the u.s./china trade relationship, and i won't walk through each individual aspect of this other than to say that there's been a c couple rounds now, or several rounds now of tariffs imposed by the u.s. on chinese-made equipment prompted largely by a case brought by solar world, which is a manufacturer head

quartered in germany. and in the short run, the immediate tariffs in 2012 essentially put a certain kind of tariff in one channel of distribution into the united states but created the opportunity for chinese module makers to source their cells from taiwan and get the cells, put them in the modules in china and then send them to the u.s. and avoid tariffs. the latest round of tariffs seeks to address that. i won't get into too many details other than to say there's a lot of different paths into the united states for different types of manufacturers. frankly, we read a decision that came down the other day and it's complicated to think about these different kinds of paths. the bottom line, our view is that we anticipate that chinese manufacturers are going to continue to try to export to the u.s. and more likely they will

choose the path now of a direct integrated supply chain out of china and incur what will be a 31% in many case tariff when they arrive here. now the big question is what does it mean for the overall impact that the u.s. market. a couple things to keep in mind, if you go back to the chart i showed, it represents under 10% of the global market in the u.s. we're an important market, but we're not the biggest market. so there's a lot of capacity out there that can come into this country of the different routes. one thing to note from the manufacturer's perspective. the second thing if you're looking at a total cost of $4 to $5 a watt and you're talking about a module cost of under $1, by our estimate if you add 18 cents on to that, that's going to make the cost higher, but it's on a percentage basis against $4 to $5 a watt is not

that high of an overall impact. that's our short-term take on it. i hope as we have a conversation, the real question is about the question of the short-term issues around building manufacturing hubs in different parts of the world and what the value is for that and then the longer-term view as well. so i think that's just about it. thanks very much. >> great. thanks very much, ethan. there's a lot on the introduction what we should do now is spend a little bit of time digging down deeper into various aspects of what ethan talked about. i would like to start with elaine, acting lead for the balances system soft cost program at the u.s. department of energy. a little bit about what you do at the department of energy to think about solar issues more broadly and particularly what your specific challenge is or opportunity is in the work that you're doing. >> thanks for having me. and thanks for all that awesome

information. so i'm here with the u.s. department of energy sun shot initiative. . for those not familiar, it's a program that was a presidential initiative started under then secretary of energy choo basically to help drive the cost of solar energy into around where it was cost competitive with conventional energy sources. the cost target was 6 cents a kilowatt hour for a utility scale. so we're about three years now into this decade-long challenge that was going from 2010 to 2020. in that we had cost targets for the hardware, for the soft cost, for grid integration and on the hardware side of thing, we have been doing really well. the cost of the hardware have dropped very, very rapidly over recent years. and so now what we have in front of us is a challenge to continue to drive those markets here in

the united states for electricity. so within the sun shot initiative, we have five sub program teams. we work on technologies and concentrating solar power. we also have a systems integration program that works on all of the power electronics, the systems components, grid operations and then we have a manufacturing innovations group and then the balance of systems soft cost area. that's basically everything else. as ethan was mentioning that encompasses everything from your permitting, your financing, training and workforce development as that gets to the installation costs. so we cover all of that. we also help to work with a number of leaders, folks working on policy and regulatory aspects, provide them with high-quality analysis and things like this. and so we're really kind of a shop when it comes to looking at

doing both the technology development and the integration and looking at the aspects in how we can support those looking to deploy these various technologies. but when i really look at where we're at and some of the recent analysis we have done, what we're seeing is well over half the cost of a solar installation is not tied up in the hardware. so i know that there's a lot of news in recent months and past year about storage, all these various things that can potentially have big impacts and change the way this technology is deployed, but the bottom line is for any of these things to work, you have to have a well-functioning market that values whatever they are bringing to the table. so there's the electricity coming out of a solar system or another renewable energy source,

but there's other aspects to manage i managing the grid. ethan was talking a little about this. making sure you have that power support and things like this. and there's technology that can do those kinds of things, but valuing those services is going to be an inkresingly important aspect. so i'm very excited about all the technology developments that are going on, but i also think there's a lot of work e we need to do on supporting well-functioning markets and putting in place mechanisms that can call all those services happening in the grid. and the question is who will be the various players who will do those things. another part of that -- it has been around the the recognition that since soft costs are not inherently hardware related, what those have to deal with are

people needing information. z we live in an information age. so when you look at computing capacity, these are all things we can get very much better at really, really quickly. so that means that there's a lot of great potential to drive the costs down by relying on investment in some of the areas where the u.s. has been very, very strong in the past and investing in venture capital. just as an anecdote, i was talking to one of our national lab analysts last week and he was indicating that he had been talking to some folks in the west who are working on the energy and balance market there. so california has an independent system operator that manages the electricity grid for california and they have a little bit of creep into some areas outside of

california where their energy market operates. . but they now are starting to be involved and put together this energy imbalance market that will allow them to interact with other markets in the west. as that work has been going on since last year, basically they have started to use the various algorithms and do the pricing to practice what it would be like when they integrate into that energy imbalance market. even though pacific corps is not yet integrated into the larger balancing region, they are already seeing savings just by u using the improved software that california has. so they are already seeing that they are having more efficient dispatch just from using better quality software. so that to me, again, is really exciting, and that's a really

critical piece. so i think in general some of the exciting things we are doing are really having an increased focus on some of the work we're doing on systems integration, on building up infrastructure data assets, on supporting software development and things like that. and along with all of that, there's actually a social science piece so we have a new program we launched just last year that's called solar energy evolution studies. that's a program that's supporting bringing together big data scientists, social scientists and on the ground practitioners who are using tools like randomize ued trials to improve programs. so by pulling those three pieces together, we can really and quickly integrate and figure out what works in the marketplace in a much better fashion. so that, for me, is also a pretty exciting development from the kinds of things we have been doing. i think it's a great place for

us to be working on doing development that you wouldn't necessarily see happening in an organic way otherwise. so between that and then the other area where i put a lot of my focuses on just increasing access to solar through new business models, things like sharing community solar, focusing on access to financing and things like this, that also has made a huge difference and that there's the opportunity to have very rapid changes in how we're reducing the costs there. i think that will make a big difference. one point i wanted to make is as you were going through switching through using the term cost and price, i think that's one really critical thing to note about the u.s. market is that the price of a solar installation is not necessarily closely pinned to the cost. so there are certain markets where i could say costs are

relatively similar or in some cases the cost may actually be higher in some markets, but the prices may be lower. and again, that has a lot to do with what the prevailing market will bare and consumer education to be frank. so we're hoping that we can provide more transparency in the marketplace as well for american consumers so that way they can educate a manner. i'm not just talking about individuals try iing to do residential programs, but the leaders, folks working with utilities, commissions to understand what the economics are can look like for them. >> thank you. i have a follow-up question when we circle back. so now i think we'll go to nova. . actually an international investment representing the views of somebody you work with

closely. tell us about the company, the perspective on the challenges and opportunities that come with the changing solar market from solar world perspective. >> sure. thank you, sarah and csis for having us here. first, a disclaimer. my comments don't represent solar world nor do they represent my law firm. they are my own. so they should be attribute ed to me. that said, a little bit about solar world. it's obviously been talked about here. it's a german company that decided to come to the united states and has invested about $650 million of its own money to make and produce solar here in the united states. why? because at the time it made perfect economic sense. toly silicon is made here in the

united states. labor is a small part of manufacturing. and the equipment is going to be market price. so it made sense giving the expanded u.s. economy and market for solar in the united states to come here, build it here, and continue to expand. it was a difficult problem starting in about 2008. china, through its five-year plans, decided that solar power was one of the industries that it needed to ramp up on. so it's first five-year plan in 2006 and then the subsequent it made the expansion of solar a priority for its market and it did very well to do that expanding in the united states. so the effect was about 20 u.s. businesses shutting its doors in the united states and many

innovative industries losing the ground to innovate here in america. solar world was like the other industries very much on the brink of losing out not only here but in europe as china expanded its exports. it's a good thing to expand exports and develop technologies, but when you do it at such a rate, it creates bubbles. it's when they are driven by subsidies from states. they eventually burst and that's what happened into the solar market. so solar world had very little recourse but to take the actions that were legal and available to it. one of those actions was to file trade cases with the u.s. department of commerce. now i have to make clear that the trade cases, it's u.s. law and international law. when china seated to the wto in

2001 one of the obligations it took on was article six, agreement on tariffs and trade and that it understood that the rules are that dumping and providing certain subsidies, expart subsidies into a market that causes injury can allow those foreign producers to file cases and grievance upon them. the important part of understanding tariffs is they are not just willie nilly tariffs. it goes through a rigorous process of looking at the cost practices of foreign producers, it goes on site, opens up books and accounts. it talks to the foreign governments to find out the subsidies being provided. but that's half the equation to determine what level of dumping or subsidy happened or occurred. you can do all that dumping as much as you want, but it has to

actually injury the u.s. market to be considered wto illegal. and that's what has been found nine times on the chinese producers. the net effect is tariffs have been put in place, as ethan has demonstrated. but if you look at shipments from china, they do go down after the initial filing. the first case in 2011, but then they eventually picked up because in the scope of the first case, there was a hole that allowed chinese producers to essentially take their wafers produced in house and then take it to taiwan to have it further manufactured and bring it back to china to produce a way to scope. that wasn't addressing the injury that was still occurring to solar world and the supporting coalition behind it

that includes 250 employers and over 25,000 employees so they determined a subsequent case needed to be filed to address the loophole in the first case. so the preliminary findings have come out recently on the dumping side, on the subsidy side, and additional duties have been put in place. but the end goal for solar world and the members of the coalition has always been to have a u.s. market that is fair and equitable and based on competition that is not wto illegal. that's the end goal. because i think given that level playing field, you are in position to compete fairly with the best innovations and the best cost pricing as you can. some interesting studies i came upon in terms of representing solar world are the renewable energy lab came out with a study and found it cost less to

produce and ship solar in the united states. that is because of what i said earlier on the polly silicon equipment. so u.s. producers ought to have a comparative advantage to make this product. ought to have a comparative advantage. on the economic side, do these trade actions, do they inevitably produce a situation where you have the things you want to have happening in the united states and the globe and expansion of renewable energies like solar and wind? i think they do. i think they create a level playing field or by other producers can come in. it's been very interest iing. one of the supports of our trade case was recently bought out by a chinese producer that's now

going to manufacture in the united states. solar city has gone and decided to do manufacturing in new york. so i think in the end, what you always want to create is a market without distortions and a market that allows for a competition and innovation to drive progress. one of the more fascinating stories i came across in some of my research in working on this case was a story of what happened in the 1980s. ronald reagan essentially did a 301, which is a trade action against japan in regards to semiconductors that were being shipped into the united states while japan had barriers and didn't allow semiconductors do go into its market. it was pretty controversial at the time, but he was able to negotiate an agreement whereby japan slowed its shipments and gave a new playing field for u.s. producers to have sort of a breather from onslaught of

dumping that was occurring. three years later a company near the brink and teetering discovers a new technology called the pent yum chip, you know the company rgs it's intel. that company has driven down prices. so the end goal, i think, in trade and in industry is to make sure you don't have distortions, temporary distortions that take away from the marketplace. players that could have otherwise brought great innovations and great new capabilities to expand solar and renewable energy, which i think is a good thing. with that said, thank you. >> thanks very much. we'll move on to the chief executive officer of soul systems to talk about the installer and financing perspective. good segue because speaking of

noin vags, because a lot of what has happened in the market is how you get these products out to different markets. there's a lot of innovation going on on that side as well. thanks for being here today. >> sure, just a footnote, we are not an installer, we are a financier. so hopefully you guys will still welcome my comments. but first, maybe a personal story. i'm not a policy expert. i'm pretty informed on the industry. i have been a ceo since 2008. i started the company and have been in solar and wind really since i can remember. i studied it throughout college and law school and renewable energy law and started the company in 2008. i think what i have seen in my journey is an industry that's exploding. and i think it's got real promise for the future, and i want to touch upon why i think that is. through maybe some stories and also through just a couple bull

es. the first is solar fundamentally changed in the early 2000s with third party financing. it's really the core of most companies now that install solar projects throughout the united states. sun power, solar city, these names ring a bell to you, they are involved in it all. . all of them are a function of the third party. financing revolution. i think that was the first change in solar that really started what is currently a multibillion-dollar market and will soon be a tril-dollar market. i think that was the biggest change early on that's really driven a lot of the companies to grow as they are. i remember when we started our company, we're based here in d.c., where about 30 people, e we started in my dining room table last year. we were the 91st fastest growing company in the united states.

we have grown from two people to what we are now. when we first started, there were a bunch of smaller companies out there as well. which was recently purchased for $54 million from director energy. that's a narrative that demonstrates how the industry has grown since we began and in large part they are a function of that third party innovation. what that means is that often times customers cannot afford the up front costs of solar. that was very true throughout the 2000s. solar projects, solar systems are still fairly expensive, as ethan pointed out earlier especially for homeowners, what the third party financing did was enable homeowners and businesses often to secure solar for no up-front costs and pay a lease payment or a power purchase payment on a monthly

basis for the power of the solar system produces. so i think that was the first of the innovation that really changed where we are today. the second, for better for words, is exactly what was talked about which is the entrance of the chinese as well as philippine markets as well as taiwan markets bringing down module costs significant ly. so another story, i remember sitting in our middle room in my apartment when we first started the business and hearing about this company called canadian solar that was selling solar modules for $2 a watt. this was about 2009. that was ground breaking at the time when solar modules cost $2.50, sometimes more. sun power was more than that. canadian solar was a chinese company. they had decided to use the name canadian solar for many obvious reasons, but they were shipping modules for $2 a watt. they are now 65 cents.

. those are competitives that are good if not better. that's a span of about five years between 2008 and 2013 when modules went down that quickly. some of it was because of scale and new markets. that's the third point which is people often say, is solar a function of u.s.-market gluttony from the government? sure solar is the on the back of solar subsidies like any other energy source. today solar is a function of the tax credit or state rps schedules is a fallacy. it's a big one. solar in the united states will do six gig ga watts is huge. i use another story. in 2008 when we started there was 300 mega watts of solar getting build in the united states. in 2013, there were 3 gig ga

watts. this year we think there will be six. that's 6 million kilowatts of projects. there's a solar system that goes in the ground every four minutes in the u.s. it's explosive. that scale is beyond the united states. the u.s. is going to do six gigs as i said. china and japan will do between ten and 15 in the 14 year as ethan showed you. solar is beyond the u.s. that's the third point beyond the first, which is third-party financing and the second which is technology cost. the third is market expansion. if you have scale in the u.s. that's a good thing. if you have scale globally, that's a huge thing. the fourth and -- this is a 2014 innovation. is the increase in public market participation in solar. one of the slides earlier demonstrated or illustrated the reduction in vc funding for solar. part of that reduction is

because vcs are in the united states and in 2008 and 2009 they were investing in solar modules. in 2009 and 2010 the chinese decided to destroy the u.s. solar module market. they did so effectively. that's good for the industry or not is a discussion i'm not going to entertain. what ended up happening was vcs didn't know how to invest in other times of companies. they don't invest in financial companies like our own that connect fortune 500 companies with the solar market. they invest in companies that innovate modules or inverters. frankly, this wasn't the country where that stuff was getting built affordably. i wouldn't argue that the decrease in vc funding is a huge down side. i would say it's a change in where the different parts and components of solar are being built. financing takes place in the united states. the biggest investors are u.s.

companies, companies like met life, u.s. bank, jp morgan, morgan and stanley. all are active with solar because we work with them. nationwide insurance is a client of ours. i think where the changes in 2014 is in thing s called yield codes. that's what's changing the nature of solar now. it's changing because whereas the cost of capital, in other words the cast to access, to finance solar, the cost of financing capital was 8% to 9% in 2009, it's sometimes in the order of 4% to 5% now. with lower cost of capital, you can build more competitive systems that are third-party finances which means more people can have solar which means the further explosion of the market which is why we are bullish open the market. we think the market will expand in 2013 and in 2014 and will continue to survive after the step down in the itc, the

investment tax kred frit 2016 to 2017 from 30% to 10%. as ethan mentionederer on the slide, there will be a decrease, we think in the overall volume of systems being built in the united states. solar has gone too far. we have come too far to be stopped at this point. i think if anything, it demonstrates that is the increased investment by utilities in solar like constellation, duke, pg & e, southern company that no one thought would be interested, like dominion. we think the future of solar is bright. i wanted to point out one of the things that elaine said earlier which is when we compare ourselves to germany costs versus the actual purchase price of solar projects, those graphs can be misleading. solar is being built in the united states on the residential side for $3 a watt if not less.

it's purchased for $3 a watt so it's built for less. i think in the u.s. companies are still innovating. i think we on our clients often times on the other side of the business are installers. we have seen huge leaps in proficiency and expertise from them. the future is bright. that's what i would say about solar. >> thank you very much. we're going to open it up for discussion in a minute. i thought i would take a couple of the points that he stopped on and pose them to the panel more broadly. typically, when we encounter any particular technology issue, whether it's something like solar that is traditionally not had a huge market share but has been something there's potential, lots of potential for scalability, one of the key questions is are we talking about a situation where support

for that technology, the support we have seen whether it's subsidy, rnd, whatever support the technology received to be able to scale up and reach that potential, whether we're talking about something where those support structures are changing, they could come from different places. for example, you may not need as much direct subsidy in terms of the production side. you may not need as much direct subsidy in terms of the installation or financing side. and/or, are we talking about something where we are envisioning a step change in solar. where we can look at a future where there's a great deal more solar. are we changing our expectation snz there's two things going on when we think about solar as a technology in terms of its applications. one is, is the nature of how we're growing these markets. two is our expectation for what the possible is. how do you think about both of

those things? in terms of the evolution of this technology. >> well, you know, i have to say, it's been interesting to watch how markets have changed over time here in the united states. basically, what i have seen -- some of the big differences between what we have seen in foreign markets like germany and here, even the variation from one state to another, i think you are right there are certain policies and regulatory regimes that have been more conducive to the market. but some of the evidence that we have seen is that what really matters in terms of the success of a solar market is just the duration of the policy that's in place. so to a certain extent, you have to determine what your goals are, what it is that you want to achieve. you have to make a commitment to reaching those. for the most part, companies will come into that space, they

will learn to operate within it. and they will innovate so they are successful. i think this technology, it's the pricing, the costs right now for the technology itself are sufficiently advanced and the technology is out of place where it's fully deployable. it's not something we have to do a lot of research into. with a little bit of the certainty and commitment, there's no reason why you can't have great markets across the u.s. and in other nations. >> we have -- i guess long story short, we have a lot of different solar markets in the united states. a lot of different regimes. longevity, cost, yes, matters a great deal. our general view is that we think this stuff is becoming more and more cost competitive. obviously, on the flip side,

subsidies become less and less important. by no means have we sort of completely turned the corner where everywhere solar is cost competitive without the support -- some kind of subsidy in some kind of way. >> from what i understand from your question, i think you were asking whether or not -- there's two questions. what are the changes in terms of policy. two, are there specific sort of deep technological changes that will take place. i think both will take place. the federal incentives for solar will start to ratchet down over time as you know. but i also think that with scale comes enormous amounts of investment. that's what we are seeing right now. solar city, i mentioned that earlier, these are $6 million market cap companies. that's a huge amount of money. they have resources to build

their businesses out. i think they will. i think a lot of that will come with the purchase of a module racking company that solar city recently purchased. investments in those types of technologies. >> ethan, maybe on your sort of overall outlook, you basically said you are bullish on what's possible in terms of added solar capacity. 2%, 18% by 2013. within the solar community i think that there's a lot of thinking about how to get to those kinds of growth rates, that kind of level. how do people outside the solar industry look at the potential bullish nature of solar -- the ing ra ing ra incorporation of solar? how does -- it doesn't have to be u.s. dependent.