Cleantech Policy Needs Clarity, Consistency and Cojones

EarthTechling recently interviewed me and asked for my perspective on trends in cleantech, including marketing, communications and PR. Some themes that emerged:

  • Five suggestions for cleantech companies to set themselves apart in a crowded market
  • Backing “boring” businesses usually works
  • Technology innovation we have plenty off; we need marketing, financing and business innovation (plus the 3Cs from energy policymakers – clarity, consistency and cojones

See the full interview

High Noon for US Clean Energy Leadership: March 21, 2011

A wise man once said that contemporary politics is fueled by two things: raising money, and a fear of angry mobs. OK, I actually said that. Nevertheless, it makes sense that the ultimate nightmare for DC lawmakers would be an angry mob with money. At the Renewable Energy Finance Forum-West this week in San Francisco, a gathering of top financiers, project developers, executives, etc, it was clear that there are a lot of angry and frustrated American businesspeople with money who are sick and tired of Washington’s refusal to treat renewable energy and cleantech as THE pillar of our future economic growth (not to mention a solution to our increasingly resource-constrained world). Not surprisingly during REFF, Beijing’s aggressive moves to become the cleantech power were repeatedly contrasted against DC’s cowardice and failure to act. Yet, so far the efforts to change the situation in DC by the broader clean energy business community have added up to only a sliver of the lobbying dollars spent by Big Oil and Coal, plus the occasional pilgrimage to DC by a few handfuls of business leaders to implore action (and increasingly that requested action is just short-term fixes, not long-term solutions). So with Solar Power International just around the corner; with WindPower coming up in May 2011; I have a question for Rhone Resch and for Denise Bode. Why are you gathering your mobs with money in Los Angeles?

Perhaps what’s not needed is the current drip campaign, nor “constructive engagement” with the representatives in DC, but blunt force trauma. Congress, and especially the Senate, needs to be convinced that the clean economy interest group is just as powerful as the fossil fuel lobby, with the money to back up its talk. Congress also needs to viscerally feel that the clean economy is a money-making, tax-generating, vote-swaying reality. So I have two specific calls to action for the renewable energy industry.

  1. For the next 3 years, EVERY major trade show for every sector of clean energy – solar, wind, geothermal, power storage, smart grid (thanks Gridwise Alliance Forum for being in DC already), should take place in Washington, D.C. Seeing is believing. If Solar Power’s 50,000 delegates, Windpower’s 25,000 delegates and other similar numbers descended on DC every year and disrupted Congressional limos, lawmakers might pay more attention.
  2. That 1,000,000 business people – employers and employees (present and future) – from the clean energy industry descend on the Capitol Building on March 21, 2011, and show the power and confidence of the new “industrial evolution”. Not NGOs, not lobbyists, but the real deal – CEOs, CFOs, installers, retrofitters, you name it. If we need a sea change in US energy policy, let’s put a sea of angry people with money at the doorstep of those failing to act.

Jeff Immelt of GE: you called Congress “stupid” because of it’s failed energy and climate policy. Will you sign on?

Jim Rogers of Duke Energy: you’ve argued that the most energy efficient economy will be the leader of the 21st century. Will you sign on?

Bill Gates: you want billions of dollars more investment in clean energy R&D. Sign up.

Tom Friedman of the New York Times: you clearly have a bee in your bonnet on this topic. Will you show up?

Being an optimist, I have already created an event page on Facebook, called the Million Business Voices for a Clean Energy Economy and another on LinkedIn. If there are at least 10,000 people signed up before October 10, this thing might have a chance. So spread the word.

Notes from Renewable Energy Finance Forum

Some of the trends, information I found interesting at REFF-West (rather than Tweet all of them, I’ve just listed them here):

 

  • Compared to REFF-West last year, the mood was considerably more positive. Especially important, project finance appears to be recovering (the “community as a whole is looking to migrate back to development projects”) and tax equity is attracting more players than just JP Morgan. Jonathan Yellen of Deutsche Bank said “the projects market… is very strong for what we just went through”. He attributed this in part to the tightening of the bond market, which was pushing institutions more aggressively into funding solar, wind and geothermal projects.
  • Some skepticism exists – Dan Reicher of Google said that without more policy support “we’re staring at the biggest cliff” for renewables when stimulus funding runs out in 18 months. Many at the meeting said DOE needs to be replaced by a CEDA (or the Green Bank), with Matt Cheney of Fotowatio less upbeat on the prospects for solar projects, and saying that “banks were not open for business” as claimed and calling for more innovation from the banking community on financing models.
  • VCs are also seeing more action – Anup Jacob of Virgin Green Fund said he’s now seeing 6 deals a day, up from 6 a week half a year ago. He lamented, however, that the quality of the deals was too low.
  • The forecast for M&A activity in 2010 is to expect “a lot of upside”, according to Jim Metcalfe of UBS Securities. IPO outlook “is improved, but there is still some way to go” to get back to the sweet spot of 2006/2007, according to Kevin Genieser of Morgan Stanley. There are 24 IPOs on file in various markets, but they will be smaller in scale, so likely to get good reception,
  • Not new, but good quote from Mike Eckhart of ACORE: “If you’re interested in clean energy, the government is your partner”. Like it or not, in the highly regulated energy space, you better get your government groove on.
  • Coal-to-liquid – I was unaware that the US CTL program began in 1944. Give it up already, or in the words of John Geesman, “after 65 years, the audacity of hope should yield to the audacity of nope”.
  • Parker Weil of BofA Merrill Lynch said the “markets doesn’t believe that the best companies are getting the government funding”. 250 reviewers in DOE building every day since May reviewing ARRA projects, Matt Rogers of DOE said. But oddly, there is little transparency in how the decisions to fund are made – the credit committee for DOE loan program is confidential. That was troubling to many.
  • Renewable energy technology entrepreneurs should not see utilities as competitors who will try to go it alone and scale their own technology, according to Weil, who said the utilities do not have as strong of a capital position as many believe.
  • Former US Rep. Vic Fazio thinks the Senate can find 60 votes for climate and energy bill in the January-March 2010 timeframe. On a similar note, Tim Newell, advisor to U.S. Renewables Group, said that the capital markets have already discounted the possibility of climate legislation happening in 2009,
  • China – good intelligence from Ryan Wiser of LBNL
    • Good chance it will surpass the US in wind installations for 2009.
    • Solar PV feed-in tariff could come this year, but more probable next year (already feed-ins for biomass and wind).
    • Expecting government to significantly increase their targets for wind and solar generation by end of 2009
  • “Biofuels is a 4-letter word in most investment shops right now” – Jacob
  • Hottest sectors in next 12 months:
    • PV, CSP – Yellen
    • “Big Wind and Small (i.e. distributed) Solar” – Weil
    • Wind for developers, smart grid for private equity – Jim McDermott
    • Smart grid and solar – Jacob
    • Smart grid (including demand response, meters and data management) – Geneiser

Interesting events mentioned that are worth sharing: US Partnership on Renewable Energy Finance and The Networked Grid

Global Cleantech Race Quickens: SEZ to LCZ

China’s amazing surge as an economic power started with the creation of special economic zones (SEZs) nearly 30 years ago, as did my “it’s complicated” love affair with the country. The zones provided a blueprint for the rest of the country toward accelerated wealth creation. They also marked the beginning of a catastrophic decline in environmental capital. Now the country may be dusting off the SEZ concept and considering the creation of Low Carbon Zones (LCZs). My involvement in the US-China Clean Energy Forum and JUCCCE has put China front of mind, as has my front-row seat in the international race to see who becomes the superpower of cleantech. In the resource-constrained world of the future, the economies that are most efficient (i.e. best at innovating and adopting clean technologies) will win. First proposed in 2007, the idea of Low Carbon Zones was an outcome of interaction between EU and Chinese think tanks, with the support of the UK Foreign Ministry and China’s National Development and Reform Commission (NDRC). The concept, thumbnailed here and here with even greater detail here, states:

LCZs would aim to stimulate transformational regional political leadership, endorsed at the national level, to create an enabling environment for large-scale innovative low carbon private and public investment. Just as SEZs provided China with a laboratory to shape its participation in the global market economy, the LCZs could pioneer approaches to decarbonisation compatible with Chinese institutions and development approaches.

It appears an initial pilot of the LCZ concept is planned for China’s heavy industrial province of Jilin. I hope the idea flies, as it’s clearly in the global long-term interest. But no doubt questions of IP, tech transfer and ultimately money could create concerns within the industrialized democracies that the West is once again funding China’s development, only to be left holding the bag.

Another seemingly similar initiative in China has recently emerged from the Climate Group, outlined in a new report, which also focuses on developing low carbon cities. According to the Climate Group, the program aims to recruit, motivate, and engage 20 Chinese cities in a five-year campaign to transform and accelerate the local market for energy efficiency and renewable energy technologies. MOUs have already been signed with the cities of Guiyang and Dezhou.  It’s unclear from the materials I’ve read what the specific funding mechanism for either of these concepts will be, although with the backing of groups like the NDRC at the central government level, it’s certainly within the realm of the possible. As I’ve written about before, China’s scale offers the greatest potential for any country (except for maybe India) to drive down costs of cleantech and make clean solutions truly commercially viable.

But that doesn’t mean other countries aren’t trying to compete. Less developed ideas seem to be emerging in the US and Europe. Cities like Seattle and Boston have been floating the idea of cleantech innovation hubs. Various states are also vying to attract cleantech investment and economic stimulus money, including Colorado, Pennsylvania, New Mexico and Michigan. In Europe, efforts are also under way to create the region’s first cleantech incubator, which if successful, might be followed by others. And of course, there is the Oz-like effort in MASDAR in Abu Dhabi (“pay no attention to that man behind the curtain”), where the Wizard is oil money.

It’s great to see a growing understanding that low carbon leadership will mean future political and economic leadership in the world. I just hope that those in the emerging Cleantech Great Game keep in mind the lessons of the original Great Game – that the fight for supremacy over a largely unmapped, strategic territory often leads to unnecessary pain and suffering at the expense of the common good. Let’s hope that the newly announced International Renewable Energy Agency (IRENA) can play a role in fostering the needed collaboration and help us put aside the myopia often caused by financial gain.

NW RE Events Picking Up

Nice to see Seattle and Portland starting to attract and create some quality cleantech, clean energy events. It starts next week with Oregon’s Green Advantage: Opportunities for Entrepreneurs, which will showcase local companies such asPV PoweredPlas2FuelGreenlite MotorsPowermandShorepower and UV Cleaning (as well as some leading NW multinationals and investors). In addition, there is ACORE’s Renewable Energy Finance Forum (REFF) – West, scheduled for Seattle in October, which promises to be a highlight of the year and already has a solid lineup of speakers. Also, because of the work being done in the region around algal biodiesel by such firms at Bionavitas and Bioalgene, the 2008 Algal Biomass Summit will also be taking place in Seattle in October. Stay tuned as well for the kick-off of the Pacific Northwest chapter of the Renewable Energy Business Network (REBN) in September (you can click on Chapters to find the PNW link and sign up for updates).

Cleantech vs. Recession – Who Wins?

Software as a service (SaaS) has already been declared by Forbes as a recession-averse part of the tech sector, citing the fact that it weathered an earlier downturn in 2000-2002. Cleantech barely existed as a category in 2002, so we don’t have historical performance to go on. Would consumers and businesses continue to spend on green? Would investment remain hot? Would many of the positive environmental gains made in the past several years stall or even reverse?

Those are some of the questions posed informally to companies that I work with. The conclusion? Cleantech, like nearly every other sector, would take a hit, particularly the companies still in need of funding, but it would also find distinct opportunities – in particular efficiency plays (some are already calling 2008 the year of energy efficiency given that energy costs are at record-breaking highs and that the most significant energy-efficiency legislation in three decades was recently enacted.

If we think back to the dot-com shakeout, while the losses were staggering for many, the collapse separated the wheat from the chaff. Current blue-chips like Amazon, Ebay and Expedia all proved that they were more than just clever ideas and marketing gimmicks and used a tough business environment to propel themselves. If a recession hits, it is likely to have a similar outcome for cleantech, a market ripe for a shakeout.  Who will be the winners and the losers? Here are some comments to consider:

From David Rosenberg, CEO of Hycrete, whose product makes concrete waterproof in an environmentally-friendly, cost-saving way:

“The answer is yes and no. All of construction is effected by a recession and we are already starting to see some projects getting delayed and cancelled and financing getting tighter. On the positive side, a slow down often allows greater time to investigate and improve construction practices – like green.  On the negative side, where budgets are slimmer and profits are less, greater upfront costs associated with green construction get harder to justify – of course this is not a Hycrete problem as we are better, faster, and less expensive.”.

From Matt Heinz, senior director of marketing at Verdiem, a developer of power management software for PC networks:

“The polar ice caps don’t care too much about recessions. Less flippantly, I think in the not-too-distant future, sustainability will be a fundamental, ‘table stakes’ part of doing business for global enterprises. Reducing the impact companies have on the world around them will soon become non-negotiable, and a requirement for doing business with customers (commercial and consumer) that expect them to act responsibly.

“Today, that isn’t the case – at least not yet. While several businesses have blazed a trail with significant corporate responsibility and sustainability initiatives, not enough of those efforts have paid off – either in increased sales or decreased operational costs. Unless such initiatives demonstrate a consistent ability to provide value to the organization, they’ll be close to the chopping block in leaner times.

“That said, technologies are emerging that allow companies to ‘go green’ and save green at the same time. And if this kind of savings is both real and verifiable, it’s the kind of thing that will get prioritized higher in lean times.”

From CEO Michael Ford of Choose Renewables, a source for consumer information and products on renewable energy content and commerce:

“It’s tough to make a broad projection regarding cleantech because there are so many facets. In general I think the entire space will perform better than most other segments – but I doubt it’s entirely recession proof.  I think energy efficiency / fuel efficiency will actually see a significant bump from recessionary times. And maybe even the biofuels movement, though I personally think the overall philosophy around ethanol in particular is questionable. However, I think some of the more expensive pure play renewables (solar, small scale wind, fuels cells, hydrogen, etc…) will suffer a bit – but still grow. I think big wind is going to keep going no matter what – unless Congress continues to screw up with the PTC.”

Michael Meehan, CEO of Carbonetworks, software platform that helps companies create effective carbon emissions strategies:

“Cleantech as a whole will definitely feel the crunch, but it’s a two-sided coin – how clients’ requirements will likely change, and what will happen to vendors as a result.

“The market is still immature and spans a lot of industries. ‘Niche-fication‘ (as Will put it in his blog) is only starting to occur. Especially in technology markets, niches can provide some insurance against recessive markets because the need for the service/technology is clearly defined and the incumbents are often well established. Cleantech is still a bit nebulous and a recession will have a direct effect on many areas of the cleantech spectrum: funding sources for startups, increased cost of outsourced services (e.g., int’l support, sales), and decreased demand for point products. That’s one side of the coin: increased competition, consolidation, and likely a more protectionist industry as the US/CAN dollar weakens against the Euro, inhibiting growth in an emerging market.

“The other side of the coin (the clients) will hasten this process as their expectations and requirements change out of necessity. Faced with increased demands on potentially shrinking budgets, companies will be forced to place more stringent diligence on technology investments, and cleantech is no exception. But there’s a somewhat unique opportunity for cleantech in this: the key here for vendors is to increase the focus on cost savings, process efficiencies, or uncovering opportunities that will help lower operational costs for these companies. That’s where the defining line will be for successful cleantech vendors and those that simply react to the market as it tightens up. Unlike other supply/demand markets such as manufacturing or distribution, cleantech has an edge because it can become strategic by helping companies be more competitive through improving their bottom line. This of course is our strategy at Carbonetworks, but it is also true of Verdiem, GreatPoint Energy, IT virtualization technologies, and other innovators who help companies do more with less and diversify. That’s the other side of the coin: rather than fighting over decreasing market share, successful cleantech companies will instead seek to increase the clients’ competitive position through cost reductions and diversification. Recession may be the impetus for this cleantech market shift, but it will be the clients under pressure that will drive it to consolidation. Whether that’s good or bad depends on where you sit, but cleantech is definitely not immune to market recession.”

VC Activity Picks Up in NW

I spend a lot of time with investors. No secret that people with innovative ideas need capital and I’m always interested in innovative ideas. In a post from last fall that also appeared in the Puget Sound Business Journal, I lamented that VC activity in the NW around cleantech was glacial. That has since changed. Coincidence, or are people actually paying attention to my blog? (Hey, I can dream… ). Here’s evidence of positive momentum:

  • Equilibrium – OVP alum Dave Chen is definitely someone to watch. His new fund will focus on the NW and clean/green. Growth capital is its focus.
  • Ignition - Internal resources have been dedicated. Expect them to focus more on the IT aspects of cleantech given their roots. Also interesting potential with their China JV fund - Qiming.
  • Maveron - I mentioned them in my earlier post. One investment in Terrapass.
  • Nth Power - Technically a Bay area shop, but because Nancy Floyd is based in Portland, they have deep ties to the area. 

    Nancy put money into Propel Biofuels and Imperium.

  • OVP - Made an initial investment in M2E Power, a mobile power company that came out of Idaho’s national lab.
  • Pivotal Investments - A new fund focused on early stage out of Oregon that’s already made one investment in SeQuential Biofuels.
  •  Phoenix - an original investor in Verdiem
  • Polaris - they now have someone in Seattle focusing more time on Cleantech. My sense is that they are initially looking for lower technology risk investments in the space.
  • Second Ave - Apologies to Pete Higgins for omitting him from my last post on this subject. He was actually one of the earlier NW investors, having put money into ICE Energy.
  • Vulcan Capital - Has invested in stirling engine/solar company Infinia, wireless energy controls Ember and Imperium.

Again, biggest credit goes to our brethren north of the border for being the most proactive. ChrysalixYaletownKyoto Planet - they have always been ahead of the curve in the region.Even so, some good deals are still passing us by. Local Seattle geothermal start-up AltaRock Energy - funded by Kleiner and KhoslaVerdiem - funded by Kleiner (although Seattle firm Phoenix was an initial backer). Powerit Solutions - funded by @ventures. Come on fellas, we can do better than that. Time to step it up. Who’s going to step up and lead funding in V2GreenBrammoCooler PlanetPV PoweredBionavitas and Sokets to name but a few?

There is also a good I-bank in Seattle called Cascadia Capital. Half of their shop is devoted to Cleantech, so if you are a Cleantech entrepreneur with some traction in your business and want a personal shopper, these are your guys. I should probably also mention the NW Energy Angels and the Keiretsu Forum, which are both active as well in the angel stages.

Cleantech Niche-fication Is Growing

It was inevitable. Cleantech as a category is so gigantic that no one could possibly be an expert in everything. So its gratifying to see the market start to mature and various players start to narrow their focus. This is certainly true in the VC world. XPV Capital, for example, is a firm that is focused exclusively on water. Smart, when you realize that according to Booz Allen, $40 trillion will have to be spent on urban infrastructure over the next 25 years, with much of that headed to water. One Earth Capital is focusing on agriculture and distributed energy. Clean-ag also gets too little attention, so good to see someone raising their hand. Many others are also honing their thesis into one or two areas. But even those areas seem daunting in scope, and I wouldn’t be surprised to see further layers being added as focus narrows even more. Media seems to be moving in that direction too – you now see Biofuels Digest and many others. Events as well are starting to diversify and get more specific. I’m personally far less interested in the broader events at this point, which seem to have the usual suspects in attendance and are more about being seen than being heard. Apparently I am not the only one who feels that way. I was recently contacted by a friend who now pretty much passes on the general Cleantech events. He is headed to Concentrated Solar Power Summit US instead. Another new CSP event is also happening in Europe a month later. Makes sense, and there is specialization happening in other areas under the Cleantech umbrella. Why would the CEO of Verdiem, an energy efficiency play involving PC power management (and client), want to go to a conference to hear about biofuels and coal-bed methane? (Rhetorical question).

Is Gates Fdn Missing the Sinking Boat?

It’s an unenviable position to have to prioritize the world’s problems and solutions. First, there are too many. Second, there is an inter-relatedness to all of the problems that makes it difficult to pinpoint a chief culprit. Increasingly, however, it is clear that one issue trumps them all: energy. Plenty of other smart people have explained this, so I will just quote one – Nobel laureate Richard Smalley, who said “It is impossible to imagine bringing the lower half of the economic ladder of human civilization – about three billion people – up to a modern lifestyle without abundant, lowcost, clean energy”. He made a strong case that energy touches everything – disease, water, poverty, terrorism, malnutrition, etc. As you might guess, I’m no Bjorn Lomborn booster. From where I sit he’s advocating buying a dinghy to save those stranded on a desert isle when we need to marshal resources for an Armada to save the island’s inhabitants… and everyone else.

At any rate, it is encouraging to see a shift in public, business and government urgency that recognizes the energy calculus, some for energy security reasons, others for economic prosperity reasons and still others for climate change reasons. Support, happily, is getting stronger every day. Unhappily, as the Intergovernmental Panel on Climate Change notes, even with drastic action, we are still in big trouble.

Yet curiously, from a non-descript building on Lake Union here in Seattle, the Bill and Melinda Gates Foundation - the Fort

Knox of the NGO world with funds north of $30 billion and Warren Buffett’s still to come – is so far nearly quiet on the issue of energy. And dare I say that Mr. Gates, a technology revolutionary himself, seems nonplussed that he is missing a revolution that badly needs him.

It almost goes without saying that the Foundation is doing incredible work to alleviate suffering of the world’s poor. That work must continue and is testament to the size of Bill Gates’ heart and his commitment to activism and witness. But there are two sides to the coin. He is addressing the symptomatic and saving millions of lives, but oddly there is still nothing on the systemic issues surrounding energy that threaten billions. Even odder since technology – Mr. Gates’ playground – has a key role to play in reducing poverty through the production of clean, distributed energy.

Gates has clearly thought about energy. He has made two public pronouncements that I could find. One a 2006 interview with Newsweek, in which he stated that he was “already reading some books on energy and the environment… But I will read a lot more two years from now and think whether there’s something the foundation should do in those areas,” he said. “The angle I’ll have when I’ll look at most things is, What about the 4 billion poorest people? What about energy and environmental issues for them?”

In November 2007, he added for Rolling Stone: “Between now and 2100, how many people in Africa are going to die of malaria? Just do the numbers. Helping them avoid an eleven-inch rise in the water in 2100, we could do it and we should do it, we will do it. But in terms of relative priorities, if you want to help the poor, this is not the issue to be focused on.”  For a genius who started one of the most successful companies in human history, Gates appears to be unwilling to fully accept that energy affects the global commons, not discriminating based on income. While he’s reading up on the issues, China put 90,000 megawatts of coal-fired power online in 2006 alone (about the equivalent of two Californias in capacity). All dirty coal, some of which finds its way to our lungs here in the Pacific Northwest. In Beijing last week for the Cleantech Forum, the Chinese government’s cleantech guy, Shi Dinghuan, said that even by 2050, coal would still account for 50% of China’s power generation (it’s 70% now).

So far, the Foundation appears to be hedging on energy/climate change. In August, it made its first investment, with a 100 million Euro commitment to Peony Capital Ltd., a Beijing-based company that is using investment in technology to lower GHG emissions through the UN CDM process. But we are all fooling ourselves if we think the market will take care of introducing the technologies to deal with GHG quickly enough to make a dent. Nor is the slow churn of policy going to get us there fast enough. Where Mr. Gates could make a difference, for example, is using his financial leverage to advocate for the creation of a public/private fund that works to provide financing for clean technologies that are already out there but not being implemented because of cost. Coal plants in China are a great example. They don’t spend the money on cleaner technology, but if a powerful enough fund was created to drive the cost of the gasification/sequestration technology down and provide favorable financing (or even give it away), things could be greatly accelerated.

It is certainly just a coincidence that the Gates Foundation is moving its offices from the lakeside to higher ground over the next two years. But maybe not. Maybe they are preparing to add their important voices to the campaign against dirty energy – from dry ground as the world’s waters continue their eleven foot rise. One only hopes.