Start-up EcoFactor is looking at home energy management as a big math problem.
The Silicon Valley-based company on Tuesday is formally launching and is announcing that the largest utilty in Texas, Oncor, has signed on with EcoFactor's residential energy-management service for three years.
There are several companies developing Web-based software or displays to show consumers, in more detail than a monthly bill, how much energy they are using.
A conduit for gathering data.
(Credit: Carrier )EcoFactor's software, by contrast, works behind the scenes by gathering data from a two-way thermostat and then analyzing the information to optimize heating and cooling systems, which often account for about half of home electricity use.
Collecting thousands of pieces of information a day helps create a picture of a home's "thermal characteristics" and make heating and cooling systems run 20 percent to 30 percent more efficiently, said Scott Hublou, the company's senior vice president of products and co-founder. Even homeowners who have programmed thermostats can benefit because the analysis is customized for a single home, he said.
"People want to do the right thing but they don't necessarily have all the answers, which depends a lot on the thermal characteristics of the house and the mechances of the HVAC (heating, ventilation, and air conditioning) systems. Sometimes it's the best guess," Hublou said.
EcoFactor combines thermostat settings and information on weather forecasts to run HVAC systems more efficiently. For example, in a trial it found that in two nearly identical homes it was more efficient to turn on the air conditioner one hour before residents came home, rather than to run it at a slightly higher temperature all day long. People can also override settings, which is another piece of data the software uses.
To use the service, consumers need to have a two-way thermostat that can send data over a home broadband connection to EcoFactor's hosted application, which is written on the open-source LAMP stack.
EcoFactor plans to offer the service through business partners, including utilities. There are also a number of service providers, notably telecom operators and cable companies, that are looking to offer home energy-management services to existing customers.
In the deal with Oncor, the software will be used as part of demand-response program in Texas in which customers get a discount to cut electricity use during peak times, typically the middle of a hot day when the air conditioning load on the system is high.
Rather than adjust thermostats higher during peak times, the EcoFactor software will be able to "pre-cool" homes in anticipation of the demand-response event, which should make it more comfortable for people participating in the progam, Hublou explained. Altogether, the software will be used to cut three megawatts of peak power, the equivalent of about 2,000 average-size air conditioner units.
EcoFactor, which was founded three years ago, is funded by angel investors. The company is now in the process of trying to raise a series A round of venture capital.
In the past few weeks, I've had an opportunity to experience the cutting edge in plug-in electric vehicle technology. In some cases, you'd think you're just driving a regular car.
The bulk of production plug-in electric vehicles available now are either utility trucks, small cars that top out at 25 miles per hour, or the pricey Tesla Roadster sports car. Now automakers are building plug-in sedans and SUVs with lithium ion batteries designed for the mass market.
Judging from the cars I've driven, automakers are trying to strike a balance between enticing consumers with new technology but not asking them to make sacrifices. So even though electrification is shaking up the auto industry, the biggest learning curve for owners may be around fueling rather than driving. And if the goal is to make plug-ins mainstream, that's probably a good thing.
Consider the electric Ford Focus which is due out in 2011. It runs entirely on batteries for a range of about 100 miles and will be manufactured side-by-side with the gasoline edition.
During my drive two weeks ago, I was eager to feel the acceleration. Vehicles that run off electric motors have "instant torque," which means you get the car's top acceleration at all speeds. The Focus was indeed zippy and responsive, but when I asked if it was better than the gasoline Focus, Ford's director of global electrification Nancy Gioia told me that it'd be the same--on purpose.
Ford dialed back the potential acceleration of the electric Focus so drivers can expect the same from the gasoline and electric versions. The same is true for braking.
"That makes the technology less scary and more familiar--and, actually, safer. Because if you jump from an (electric car) to a regular car, you don't want to have to remember very different (conditions)," she said. Limiting the maximum available acceleration also saves the batteries to help deliver on expected range.
Electric drive
Another car in the all-electric category is the Think City, made by Think of Norway, which I got a chance to drive last week. From a design point of view, it's almost the polar opposite of the high-end Tesla Roadster. The Think City can go about 100 miles on its batteries and it's highway capable with a top speed of 60 miles per hour. In its first iteration, it only has two seats in the front and a hatchback.
Once again, I found the acceleration pretty good and responsive during my quick loop around a parking lot roof. But don't expect sports car-caliber handling. It struck me as a car simply designed to get you from one place to the next, but on electric charge. The company expects to start selling the Think City in Europe later this year and build a plant for the U.S. market next year.
Nissan, Tesla Motors, and Coda Automotive are among the other automakers betting on all-electric sedans. The thinking is that the limited range is acceptable for people who would rather fuel up on electricity than oil for their daily commutes. GM executives, for example, project that more than 90 percent of drivers could do 90 percent of their driving in electric mode.
If you drive 50 miles a day, all-electric cars probably aren't the best fit for your primary car. That said, a 100-mile range with daily charging can meet a lot of Americans' daily driving needs and rental cars are always available for long road trips.
Auto industry executives say it will be substantially cheaper to drive on an electric charge, but the high cost of batteries and power electronics raise the upfront cost. Ford's electric Focus, for example, will cost more than the gasoline version, although it should be eligible for a tax credit for plug-ins. The Chevy Volt is said to cost about $40,000, and Nissan's Leaf is said to cost in the $25,000 to $35,000 range, although the company is looking at options, such as battery leasing, to lower that upfront cost.
Plug-in hybrids
Analysts project electrics to be a very small slice of the overall market for hybrids and electric vehicles in the next five years because of the limitations on range and the anticipated higher cost associated with the new technology.
Sales of hybrids, meanwhile, are projected to grow. But what remains to be seen is how much traction plug-in hybrids will get. Toyota, Ford, and General Motors are preparing plug-in hybrids, which will start arriving in showrooms over the next two or three years. Initially, plug-in hybrids are being tested with fleet operators.
After taking the Focus for a ride, I took a spin in a prototype of a plug-in hybrid Ford Escape SUV being tested by utilities gauging the impact of plug-ins on the grid. The driving, again, was familiar; acceleration, handling, and the interior is all what I'd expect in an SUV. What was different is that I was quickly drawn to the fuel-efficiency feedback system.
In this case, the Escape drives mostly on its 10 kilowatt-hour battery (compared to a 1.5 kilowatt-hour battery in a regular hybrid) for the first 30 miles or so. But when you need an extra boost of power, the gasoline engine will kick in, which you can hear and see on the in-car display.
The big advantage of gas-electric vehicles, of course, is that you can fuel up away from an electrical socket. Overall, fuel economy will improve the more often you can charge up. In a test of its fleet of converted plug-in Priuses, Idaho National Labs found that its average mileage was 55 miles per gallon, but fuel economy dropped significantly if cars were not charged every day.
The technological twist on the plug-in hybrids is the extended-range electric vehicle or a series hybrid--an approach being used by the Chevy Volt and Fisker Automotive luxury sedans. In this case, it's the electric motor that moves the car all the time and the gas engine is used to run a generator for the motor. When I was taken for a drive in the Volt by a GM auto engineer this summer, I found the Volt had a lot of pep and handled turns well.
Having driven a number of plug-in vehicle variants over the past year, it's clear that these cars will work just fine for everyday driving. The technology of lithium ion batteries leaves plenty of room for both utilitarian and performance cars. Nobody can say how much more the average consumer will be willing to pay for fuel efficiency from the new technology, but the biggest change to daily habits may come when drivers fuel up by plugging in rather than filling 'er up.
DETROIT--For plug-in electric cars, it's no longer a question of if. It's a question of when and how.
After many years of buildup, plug-in vehicles aimed at mainstream buyers are set to come to the market starting next year. But even with the momentum around plug-ins, many questions remain unanswered over how this technology transition will impact the ailing auto industry and how the cars will received by consumers.
"You have the feeling that we're at the beginning of something that could be very special," said David Cole, the chairman of the Center for Automotive Research, which is funded by government and corporate sources, during the opening of the Business of Plugging In conference here on Tuesday. "There are a great many uncertainties, but we have to recognize that the key invention is here with the lithium ion battery."
The sold-out conference, which attracted about 600 people, represented the varied groups needed to deliver these vehicles: automakers and supply chain suppliers, electricity utilities, policy makers, tech entrepreneurs, and investors.
Regardless of the initial volumes of electric-vehicle sales, the stakes in this shift are high. Electric vehicles promise to reduce pollution from transportation, decrease oil imports, and provide economic opportunity for a broad number of businesses.
Compared to biofuels or hydrogen fuel cell technologies, the large automakers and several start-ups have coalesced around electrification, to a greater extent. But there still remains the question of how much money consumers are willing to pay and how easily they can adjust strong habits.
"We've placed big bets in this area...(but) the question is: will consumers want these vehicles?" Bill Ford, the chairman of Ford Motor, said during a Wednesday talk. "The short answer is, it depends on how many trade-offs they need to make...and I think customers aren't prepared to make many trade-offs at all."
Hybrid premium
Plug-in cars come in various forms, but the larger battery means a higher purchase price than today's hybrids or equivalent gasoline models. If consumers are going to accept that up-front cost, automakers need to convince them that owning an electric car is cheaper in the long run. One idea that automakers are seriously considering is leasing batteries, which could make the monthly payments for a new electric car comparable to a gasoline version.
The actual prices for many cars aren't yet known, since companies have not yet decided. Nissan's all-electric Leaf sedan, set for its U.S. debut next month and availability next year, is said to be in the $25,000 to $30,000 range. Industry executives estimate that the electric Chevy Volt, due late next year, will be in the $40,000 range.
Fueling up an electric car is less expensive than running the equivalent gasoline-only vehicle, and auto industry executives say the maintenance is simpler on electric drives (no more oil changes, for example). Jonathan Lauckner, General Motors' vice president of global program management, on Tuesday said the cost per mile of the Volt could be a sixth of a gasoline car's, offering as much as $1,500 a year in savings. Those savings get better, if gas prices go up and if drivers can charge up more than once a day.
And consumers want this information. Surveys show that consumers are drawn to plug-ins for environmental reasons, but fuel savings are actually more important, according to a survey of U.S. drivers done by Ernst & Young. Safety, of course, is another high priority.
"We've always had a disconnect between the purchase price and the usage cost, where consumers way undervalue the usage costs, which will continue to be a problem here," Richard Curtain, of the Institute of Social Research at the University of Michigan, said during a panel on Wednesday. "If it got to less than a $5,000 premium, that would allay many of the concerns of the consumer."
Industry executives say volume production, a goal of the Department of Energy's $2.4 billion grant program launched in August, will help bring down costs in the coming years, much the way hybrid components fell in price. But that up-front premium is tough to totally erase, given that electrification is competing with a deeply entrenched technology: the internal combustion engine.
Battery improvements will help the cost picture as well. Many companies are working on batteries--a new generation of lithium ion batteries and other chemistries--that can pack more energy. More "energy-dense" batteries means that drivers will get a longer driving range from a battery of a given size. Ultracapacitors, another storage method, have also been proposed as way to work with batteries in vehicles.
Technology horse race
The different routes automakers are taking to electrification affects costs. General Motors' Chevy Volt has generated plenty of buzz, but company executives say its design will make at least the first generation of the car pricey. GM hopes to wring thousands of dollars from the Volt power train, notably the battery and power electronics in the second generation of the car.
Fisker Automotive, a start-up that received a $528 million loan from the Department of Energy, is using a similar power train for its planned Karma and Nina high-end luxury cars. Called an extended-range electric vehicle or a series hybrid, these cars will run on battery charge only in the beginning--40 miles in the case of the Volt--and then use an internal combustion engine to operate a generator for the electric motor on longer trips.
A handful of automakers--Ford, Nissan, Think, and Coda Automotive among them--are making all-electric vehicles, also called battery-electric vehicles. Because of the limited range of about 80 miles to 100 miles, these cars are being sold as second cars in the United States or Europe or for city driving.
By contrast, Toyota, which has already sold millions of Priuses, believes that the way to sell large volumes of plug-in cars is to build on the existing hybrid technology, where batteries and the gasoline engine both propel the car.
"We think that blended (mode) is going to be the only way to reach the cost parity that the consumer is going to want," said Justin Ward, the advanced power train program manager at the Toyota Technical Center. "There (are) a lot of high-end cars, but how high do you go before it becomes unattainable for the general consumer?"
Infrastructure
Electric and hybrid cars aren't going to take over the market any time soon, because of cost and because they face competition from more efficient gasoline engines and diesels. Market researcher IHS Global Insight projects that pure-electric and range-extended electric vehicles will account for just more than 1 percent of the total market by 2014, with hybrids and plug-in hybrids being nearly 21 percent.
But even though plug-ins of various types will be a niche in the early years, utilities need to start preparing now. On a local level, utility executives are concerned that just a few plug-in cars, which can pull as much juice as a whole house when charging, will strain local power grids. That's particularly true, if consumers install faster 220-volt charging ports, which will cut charge time to about two or three hours, from six or eight.
The way to avoid stressing the grid is to charge cars at off-peak times, utility executives say. Pacific Gas & Electric, considered one of the most aggressive utilities in embracing new technologies, plans to offer customers a 220-volt charger that has a timer so consumers can take advantage of lower rates at off-peak times. Using a smart-grid technology, a car charger could pick its charge time and rate by communicating through a smart meter.
But what if someone can't charge at home? Like others, utility industry group the Edison Electric Institute advocates new building codes demanding that all new buildings are wired so that charging stations can be added in places such as underground parking garages in apartment buildings or retail areas, according to Anthony Earley, the chairman of the institute and CEO of utility DTE Energy.
A few charging stations will go a long way, according to people who spoke at the conference. "We act like this is a chicken-and-an-egg problem, but it's really not," said Mark Duvall, the director of electric transportation at the Electric Power Research Institute. "They are not enabling technologies, in my opinion, but they can help."
If plug-in electric vehicles are wildly popular with consumers and fleet owners, the industry will then face the challenge of having sufficient capital to scale up. During a discussion on battery technologies, academics said that even now, there isn't a sufficient workforce to do the engineering required for electric vehicles, with the most glaring hole in materials science.
Although higher manufacturing should significantly cut battery prices, there were regular questions about the supply of lithium at the conference. Overall, auto and battery company executives said lithium supply is not a pressing concern. Lithium could be extracted from different sources and can be recycled, said Yet Ming Chiang, the chief scientist of battery upstart A123 Systems and professor of ceramics at the Massachusetts Institute of Technology.
The U.S. auto industry has an opportunity to be reinvigorated with electric auto technologies, as its seeks to transition from the "rust belt to the green belt," Michigan Gov. Jennifer Granholm said Wednesday. China, meanwhile, is investing heavily in electric transportation, which national leaders see as a way to "leapfrog" to the latest technologies, said Yibing Wu, the managing director of Legend Holding, the company that makes Lenovo laptops and is moving into clean energy.
On an environmental level, plug-in hybrid cars have 30 percent lower carbon emissions, even if a car is fueled by coal-fired power plants, Earley said. That's particularly important on a global level, since hundreds of millions of cars are expected to be sold in the coming years in developing countries, said Ann Marie Sastry, a University of Michigan professor and a co-founder of a Khosla Ventures-backed battery company Sakti3.
"The small car is absolutely going to be essential for electrification and to all of us because it doesn't matter where the carbon comes from--whether we generate it or it comes from the emerging economies," Sastry said. "It's imperative (that) the United States play a role in this technology development because of our own interest in climate change."
DETROIT--There's a great deal of interest from consumers in plug-in vehicles but electricity utilities say they need to prepare even before electric cars start to plug in.
Industry association the Edison Electric Institute on Wednesday issued a pledge that its members will take steps to smooth the transition to electrically fueled vehicles. The chairman of the institute and CEO of utility DTE Energy, Anthony Earley, voiced the industry's support for plug-in vehicles here at the Business of Plugging In Conference.
"The industry's challenge will be to effectively manage this transition," Earley said. "We recognize that now is the time. After years of debate, the electric vehicle is ready for prime time."
In a DOE-sponsored program, a number of utilities are testing the mileage improvements and impact on the grid of plug-in electric vehicles.
(Credit: Martin LaMonica/CNET)The statement underscores the growing interconnectedness between the auto and utility industries that's occurring as a wave of plug-in electric cars approach car dealerships.
Plug-in hybrid or pure-electric cars promise to be cheaper to fuel up--the equivalent of $1 per gallon, Earley said. But there are a number of barriers to widespread adoption, including higher upfront costs and the potential impact on the electricity grid.
Utility executives say that adding just a few plug-in electric vehicles to an area could overload the local distribution circuit, particularly if drivers install faster 220-volt chargers at home. There have also been concerns that fueling millions of vehicles from the grid will require construction of more power plants to meet the added demand.
Utilities and auto executives say there is sufficient demand to charge vehicles in the near term with existing power plants if cars are charged at off-peak times, typically overnight. But there needs to be some products and policy changes to ensure that off-peak charging takes place en masse.
In its pledge, the Edison Electric Institute said that they will seek to install more charging stations in public places. Also, it will encourage development of policies that give consumers cheaper electricity rates at off-peak times.
Utilities are now working in a U.S. Department of Energy-sponsored program to test the impact of plug-in electric vehicles. The Edison Electric Institute also said that utilities will establish customer support and education.
A panel considers whether cleaner tech boost the auto industry. From left, Center for Automotive Research CEO David Cole, venture investor Ray Lane, Ford Motor Chairman Bill Ford, and Michigan Governor Jennifer Granholm.
(Credit: Martin LaMonica/CNET)DETROIT--Venture investor and former Oracle president Ray Lane argued on Wednesday that U.S. is losing out to other countries in emerging energy technologies.
Lane, now a partner at famed venture capital firm Kleiner, Perkins, Caufield & Byers, said that the U.S. needs to view clean-energy technologies as a way to rebuild a shaky economy and position the country for long-term growth.
He spoke at the Business of Plugging In conference here on Wednesday, where many speakers emphasized the benefits of electric vehicles to reduce oil imports, cut carbon emissions, and revitalize the ailing auto industry.
But Lane made the case that there are implications to national economic competitiveness as well. There are technology disruptions happening in energy that will shake up a number of industries, but the U.S. is being outpaced in investing in this area by other countries.
"We can expect to live in the next 10 years where China will outspend us in order to invent the technologies," Lane said. "We may be buying their technology if we do not ramp up our seriousness. We led electronics, we led biotech, we led the Internet. We are not leading in this arena."
Lane said that other countries, including Germany and China, have policies that are more conducive to technology innovation and manufacturing. Auto efficiency standards are one third more efficient than the U.S. in China, which spends a higher percentage of economic output on research and development and has set aggressive goals for wind power adoption.
"Engineering must come back to be our number one priority," Lane said. "This is wrong time to cut R & D."
DETROIT--If plug-in electric cars become popular in your neighborhood, you may face an electricity supply crunch when it comes to charging.
There have been a number of studies measuring whether the national power grid can fuel large numbers of electric vehicles. But the biggest concern regarding the impact of plug-ins is at the local level, where adding just a few vehicles could strain a local circuit, said Peter Darbee, the CEO of California utility Pacific Gas & Electric, during a talk at the Business of Plugging conference here Tuesday.
Darbee predicts that demand for plug-in vehicles will be very high, as turned out to be the case with cell phones. Based on early data, it's clear that purchasers of plug-in electric vehicles live near each other. Berkeley, California, for example, represents 18 percent of all customers in PG&E's territory while Fresno is only 2 percent.
PG&E CEO Peter Darbee; John Lauckner, General Motors' vice president of global program management; and George Pataki, former New York governor and counsel at Chadbourne & Parke, on a panel at the Business of Plugging In conference in Detroit.
(Credit: Martin LaMonica/CNET)But high concentrations of plug-in electric vehicles poses a serious challenge to utilities, Darbee said. Plug-in electric cars could draw electricity equivalent the amount needed to run one home, or up to three homes in certain places, he said.
"You can see if you have three or five electric cars arrive in a neighborhood, you're going to overload the local circuits, and that will lead to blackouts," Darbee said. "So we see it as an opportunity but we also see it as a challenge of significant proportions."
Darbee said that utilities need to work with auto companies and policy makers to ensure that customers have a smooth experience and that the grid is not stressed.The utility--considered one of the most progressive in the U.S.--is also taking a number of steps to avoid potential problems.
PG&E plans to recommend that consumers have a 220-volt charging point at home, which will allow most plug-in electric cars to recharge in two or three hours, rather than six or seven hours for a regular 110-volt outlet. Although it's more convenient for consumers, that higher-voltage charging significantly boosts the draw--as much as 6.6 kilowatts.
Darbee said that PG&E is a strong endorser of plug-in electric vehicle technology because it can significantly reduce carbon dioxide emissions and reduce imports of foreign oil. But there is a "nightmare" scenario for utilities. That's when large numbers drivers come home on a hot day when the load is already maxed out and they turn on air conditioners and lights, and plug in their cars.
"If that (charging) were at 220 (volts), the results would be pretty dramatic and pretty negative. You would create a peak on top of the current peak load. The effect would be to bring down the electrical system if you had substantial concentrations in the area," Darbee said.
To avoid that situation, PG&E plans to offer a 220-volt charger along with a timer. The consumer would be able to get off-peak rates--called dynamic pricing--by charging between 11:00 p.m. and 4:00 a.m.
Smart-grid technology, whereby homes are equipped with meters that can communicate with the utility, gives more flexibility. In that case, the utility could charge three electric cars in succession or at different rates overnight to ease the draw on a local circuit. Or the utility could offer consumers a menu of charging alternatives.
In about seven or 10 years, utilities are envisioning vehicle-to-grid capability in which a plug-in electric car owner would sell electricity from a battery back to the grid. A driver could program the system so that the stored energy is sold only at a certain price, Darbee said.
The costs of bulking up local electricity circuits should be shared by all people in a service territory, he argued. "Just like when there were hair dryers or electric driers, there was a shared cost," he said.
DETROIT--General Motors on Monday opened the doors to the OnStar EV Lab here, a testing center for in-car communications the company hopes will give its electric Chevy Volt more high-tech appeal.
The OnStar EV Lab, housed in GM's downtown Detroit corporate headquarters, is now using the OnStar communications system to gather data on 19 Chevy Volt vehicles for engineering purposes. The same technology will give consumers the ability to tap online services and perform tasks specific to a plug-in electric vehicle, company executives said.
When GM releases the Volt at the end of next year, consumers will be able to
"The car will have to talk to the grid and be able to pull very sensitive (utility) data," Posawatz said. "Electric vehicle customers want to manage their energy--they're very into data. OnStar is an enabling tool for us."
The OnStar system could broker communications with the utility so that consumers can charge at off-peak times, such as the middle of the night, and potentially take advantage of lower rates. "Smart charging," or charging at off-peak times, is important to manage so that plug-in electric vehicles don't add to peak-time electricity demand. In the near term, utility executives say the biggest concern is that many cars in one local area will tax one particular electricity distribution point.
Because rolling the Volt out will require coordination with utilities, General Motors plans to offer the Volt only in certain regions of the U.S. when the car is first made available. "It certainly won't be a nation-wide roll-out," Posawatz said.
The Chevy Volt at GM's newly opened OnStar EV Lab.
(Credit: Martin LaMonica/CNET)Having an integrated communications system, which uses the digital cellular network, with OnStar is a boon to Volt engineers because there isn't a lot of available data on battery performance from cars of similar design, company executives said. The Volt is an extended-range electric vehicle that can drive 40 miles on battery charge and then uses an internal combustion engine to sustain the battery charge for longer rides.
There are 20 modules on the Volt that can feed information back to GM engineers at the OnStar EV Lab, allowing them to get performance and diagnostic information on individual cars. The system also allows GM to get data on the battery subsystem, which the company is testing rigorously as it finalizes the car. For example, OnStar can monitor battery charge, temperature, and the performance of the liquid-cooling system.
OnStar, which is a subsidiary of GM, now has 5.6 million subscribers who pay either $199 or $299 per year for services, such as road-side assistance or remote car unlocking, which are handled by people in GM call centers. Although the system was designed to poll performance data on gasoline cars, GM executives said that the technology platform is flexible enough to work with different powertrains.
GM plans to offer the OnStar service in China next year. Also, GM intends to sell the Chevy Volt in China, western Europe, and Canada, executives said.
If you're looking to bankroll a green-business revolution, boring old banks and the government are looking just as effective as flashy venture capitalists.
Tech investors from Silicon Valley to Shanghai are betting billions of dollars on breakthrough green technologies, with many hoping to repeat the success of Google or Amazon in the energy industry. It's a shift that has helped create the buzz around clean energy among entrepreneurs, politicians, and in industry.
But despite a lot of attention on high-risk ventures, experts say the financing engine for the clean-energy economy needs to be a hybrid, drawing on both venture capital and on more staid funding sources, many of which are hamstrung by the global capital crunch.
"Venture capitalists are critically important for starting new innovations and getting businesses incubated. But what hasn't happened to date is getting large-scale capital to help bring those businesses to commercial scale," said Bracken Hendricks, a senior fellow at the Center for American Progress think tank and expert on green jobs. "We need the policies and financial mechanisms to turn early start-up companies into global powerhouses."
Using a baseball analogy, venture capital is all about hitting home runs--one company could deliver 10 or 20 times the initial investment within five or seven years. To get that, venture capitalists traditionally seek out companies that have a proprietary technology that sets them apart from the pack.
But many businesses that create green collar jobs are not a clean fit with that high-risk, high-reward model. Although they still require financing, companies that manufacture wind turbines or do home energy audits, for example, don't require technology breakthroughs.
"If you care about investing in clean energy for job growth, venture capital may not be the way to go," said one investor who requested anonymity. "Government spending should be doing more to support service industries."
Government funding could, for example, be used to retrain tradesmen to retrofit commercial buildings to be more efficient, he said. Meanwhile, large-scale energy projects, such as a solar power plant, rely largely on bank-issued debt and, increasingly, government loan programs.
Running the numbers
There are signs that entrepreneurs and investors in the green-tech field are getting a better grip on how to finance their ideas. The key is to pull money from different sources at different stages, say investors.
Start-up Hara Software is betting that businesses need to get smarter about managing natural resources and carbon emissions even before regulations force them into it.
The Silicon Valley start-up on Monday is scheduled to come out of stealth mode after 18 months to announce the details of its software service which it designed for what its founder calls a "post-carbon economy era."
The 25-person company received $6 million in venture capital from Kleiner Perkins Caufield & Byers, where partner Al Gore played a role in getting Hara funded. It's the second software-focused investment after PC power management company Verdiem that KPCB has funded as part of a green tech push first launched in 2006.
The city of Palo Alto, Calif., is using Hara Software's program for developing a carbon emissions reduction program.
(Credit: Hara Software)The software also has a content database to share information on effective efficiency programs and green technology products that a company can use, explained CEO Amit Chatterjee, who left SAP to start Hara. Its product is now being used by about 12 organizations, including Coca-Cola and the city of Palo Alto, Calif.
Chatterjee argues that metrics related to the environment, such as energy consumption, water use, and waste, are often indicators of how well a corporation performs financially. Companies with sustainability programs tend to run efficiently, have a positive brand, and have minimized the risk from things such as environmental fines, he said.
"Businesses are now becoming unprofitable because of the way they manage natural resources," he said. "Now (managing) natural resources is a core element of a business' processes."
City planners at Palo Alto, for example, were able to cut out $2.2 million in expenses related to waste and energy use.
Niche business?
Once caps on greenhouse gases are in place, which will affect large corporations, then Chatterjee predicts there will be a "tidal wave" of attention in tools to mitigate carbon emissions. Statements from President Obama on the importance of climate change regulation drove some businesses seeking better tools to Hara, he said.
The American Clean Energy and Security Act of 2009, a bill making its way through the House, would impose a nation-wide cap on greenhouse gases and force heavy polluters, such as utilities, to report and lower their own emissions. The bill has a long way to go before becoming law, which would be next year at the earliest, and caps will be phased in over many years.
But even with the absence of a national carbon regulations, there is a growing number of software companies developing programs focused on helping businesses improve their environmental profile.
In a sign of consolidation among providers, SAP last month purchased Clear Standards, one of several companies young software companies with tools for tracking carbon emissions. Some focus on giving a very accurate picture of emissions and the impact of energy-efficiency programs, while others are designed for purchasing carbon offsets in voluntary or regulated markets.
The basic idea behind carbon regulations is to put a price on putting pollutants in the atmosphere. Within businesses, analysts expect that carbon will be treated as a commodity which financial planners will have to account for and track the price of.
Hara plans to sell its software to financial planners as well as business people responsible for purchasing energy and sustainability officers. Chatterjee said the company seeks to differentiate itself from others by tracking a number of environmental attributes, not just greenhouse gases and energy use.
There are already many programs, called Environmental, Health and Safety software, to help companies comply with environmental regulations. What remains to be seen is whether the latest generation of software focused on climate change abatement will be used for a relatively narrow function, such as energy procurement, or for more strategic initiatives.
Chatterjee said Hara's software is designed to be flexible so that companies can manage relatively straight-forward initiatives, such as fuel reduction, and make plans for deeper changes with the company, such as adopting on-site renewable energy or developing new products.
"This is not another ERP package. Because the business is changing, you want something that is flexible, not something institutionalized," he said.
SiCortex, a company that makes energy-efficient high-end servers, is shutting down and seeking to sell its assets, according to reports.
Maynard, Mass.-based SiCortex was unable to close a follow-on round of financing because its venture capital investors did not have money available, according to a report at high-performance computing site Inside HPC. SiCortex has raised $42 million from Chevron Technology Ventures, Flagship Ventures, JK&B Capital, Prism VentureWorks, and Polaris Venture Partners.
Intellectual property manager Gerbsman Partners is trying to sell the assets of SiCortex, according to a blog post from Gerbsman. A memorandum posted on Thursday from Gerbsman says that SiCortex has customers in the U.S. government and universities in Europe and the U.S.
SiCortex's revenue grew substantially in the last quarter, selling high-performance computing products focused on low-power consumption. But it was not profitable, which forced the company to lay off employees and retain only a small staff focused on an exit strategy, according to the Inside HPC report, citing an unnamed source.
Representatives from the company did not return calls and e-mails requesting comment on Thursday.
The company's demise underlines the difficult economic conditions where smaller companies are trying to preserve cash and find customers to remain solvent.
