BOSTON--Green tech has been a hot venture capital investment category the past few years, but that doesn't mean investors are actually earning money. In fact, some venture capitalists eyeing gold in green may soon be moving on, a panel of investors said here on Friday.
In the third quarter this year, green tech garnered more venture capital than the traditional categories of software and biotech, bouncing back after a sharp drop-off earlier this year. That reflects the high level of confidence that investing in energy-related technologies makes sense in the long run.
But there's a growing understanding that applying the same venture model used for biotech or IT won't always work in energy, said speakers at a panel on venture capital at the Fifth Annual Clean Energy Conference.
"Clean tech is broadly recognized as an area of expansion," said Issam Dairanieh of BP's alternative energy venture capital arm. "But those who went into it because it looked sexy will suffer. Those who went into it without doing their homework will go away."
The two most dramatic differences between IT and energy technology is the amount of time required to build a product and the capital that's needed. A product could take 15 to 18 years to enter into the fuels business and cost tens or hundreds of millions of dollars to develop, said Dairanieh. The traditional venture model is built around getting sizable returns in five to seven years.
"Venture capital in clean tech as currently practiced will not be successful or last very long," said Matthew Nordan, a vice president at venture-capital company Venrock. Venrock is focusing on very early-stage companies with an eye toward finding one that can have a technology breakthrough over many years, Nordan said.
The panelists said that the best VC investors are patient and invest for the long term. But there are many investors who chase fads, said Bic Stevens of Stevens Capital Partners. "Most VC returns are made by getting ahead of a bubble," he said.
Right now, many venture capitalists in green tech are focusing on the companies they have already invested in to ensure that they succeed, a situation that makes it more difficult for newly formed start-ups to secure funding. IT-heavy areas, such as smart grid, are also getting more attention in part because they can be businesses that IT investors feel comfortable with.
The shift to later-stage venture investments was clear in an analysis of third quarter venture capital done by Ernst & Young. For the first nine months of the year, 62 percent of the companies that received funding were already shipping products, compared to 37 percent for the same period last year.
BP's Dairanieh said that despite some limitations, there is an important role for venture capitalists to play in developing very specific technologies. For example, a biofuel company can develop a process for converting algae to fuel, but a small company should expect to bring it to market by partnering with established companies, such as refiners and distributors.
Another heavy presence in energy investing is Washington, with billions of dollars in stimulus money and research funding being put toward energy. Over the past year, many start-ups have applied to Department of Energy programs with a hope of getting a grant or loan.
General unemployment may be on the rise, but the clean-tech sector should be a bright spot for job seekers, according to a report released Thursday by Clean Edge research.
The clean-technology sector was one of the largest recipients of venture capital last year, raising about $3.35 billion in the U.S., according to New Energy Finance statistics in the the "Clean Tech Job Trends 2009" report (PDF).
Unlike most reports from research firms, this one is free to download in full.
The 29-page report, which also draws on statistics from other organizations such as the Pew Charitable Trusts, includes a plethora of useful information for the clean-tech job hunter, including schools offering green career training, job posting and social media sites dedicated to clean-tech jobs, a list of the largest clean-tech employers, and a list of the best green-tech blogs.
Based on the number of job postings and placements, and public and private investment, the report found the solar industry to be the leading clean-tech sector, followed by biofuels and biomaterials, conservation and efficiency, smart grids, and wind power.
(Credit:
Clean Edge)
For those willing to move for a job, the report lists the 15 areas in the U.S. where people are likely to find the most clean-tech job activity, as well as a separate list for global clean-tech hotspots.
"Unlike the early days of computers and IT, the clean-tech economy is a highly dispersed phenomenon, with no single place, industry, or professional demographic controlling the sector," Ron Pernick, co-founder and managing director of Clean Edge, said in a statement.
Not surprisingly, the San Francisco and Los Angeles greater metropolitan areas topped the U.S. list at No. 1 and No. 2, respectively. The greater New York metropolitan area (which includes northern New Jersey and Long Island) was No. 3 for clean-tech jobs. Here's the breakdown:
- San Francisco-Oakland-San Jose
- Los Angeles-Riverside-Orange County
- New York-northern New Jersey-Long Island (N.Y.-N.J.-Conn.-Pa.)
- Boston-Worcester-Lawrence-Lowell-Brockton (Mass., N.H.)
- Washington, D.C.-Baltimore (Md., Va., W.V.)
- Denver-Boulder-Greeley
- Seattle-Tacoma-Bremerton
- Portland-Salem
- Chicago-Gary-Kenosha (Ill., Ind., Wisc.)
- Sacramento-Yolo County
- San Diego
- Austin-San Marcos, Texas
- Phoenix
- Detroit-Ann Arbor
- Houston-Galveston-Brazoria
The report also contains a comprehensive spreadsheet detailing the type of clean-tech jobs available, the typical degree level required, and the median pay levels. The jobs range in median pay from $36,100 to $106,000.
And while some jobs like project developer or geothermal power engineer require a bachelor's degree or even a specified engineering degree, most of the jobs on the list were true "green-collar" jobs in that they only require a high school diploma. Those jobs included HVAC service technician, journeyman lineman for smart grid, network operations center technician for smart grid, solar fabrication technician, and solar energy system installer.
Can a $1 billion help save the environment? George Soros hopes so.
The billionaire financier and philanthropist plans to invest part of his wealth on clean tech to fight global warming. In a speech at the Project Syndicate editors' forum in Copenhagen, Denmark, on Saturday, Soros gave the keynote address announcing his new plans.
Soros said he will invest $1 billion in clean-energy technologies and will provide $100 million--$10 million each year for the next 10 years--for the new Climate Policy Initiative, a watchdog-type foundation to promote measures to combat climate change.
"Global warming is a political problem," Soros announced to the meeting of editors in Copenhagen, the same city where representatives from around the world will meet in December to try to hammer out a new climate agreement. "The science is beyond dispute," he added, "but how do we achieve the objectives we all know are necessary? That is a political problem."
The need for cleaner coal has been a critical issue for Soros, who has invested in so-called "clean coal" technologies. In April, he was part of a consortium that funded $50 million toward PowerSpan, a firm researching and developing methods for cleaner coal.
On another front, Soros announced last year that his investment fund would pour $25 million in funds toward Qteros, a company that can make cleaner ethanol from a single microbe.
Soros offered few details on where he plans to invest the $1 billion. But he said he will look for profitable opportunities, and also "insist that the investments make a real contribution to solving the problem of climate change."
Clean energy has been a key issue for Soros. The billionaire has given speeches and interviews promoting development of alternative energy as not just a necessary goal but one that could revive the global economy.
Of course, clean energy has become an increasingly popular sector all around. A recent report on venture capital funding found that more money is being invested in green tech than in software or biotech.
Born in Budapest in 1930, Soros survived both the Nazi and Communist occupations of Hungary. After fleeing to England where he studied economics, he eventually settled in the United States. Soros amassed his huge fortune as the chairman of Soros Fund Management. He was recently ranked by Forbes as the 15th richest American, with an estimated net worth of $13 billion.
Two companies said Wednesday that they have developed a method for turning sewage sludge into ethanol.
Israel-based Applied CleanTech and Marlborough, Mass.-based Qteros created a joint development project that combines sewage treatment technology and a microbial process for converting biomass into ethanol.
Applied CleanTech's feedstock which can be used to make electricity or liquid fuels.
(Credit: Applied CleanTech)The method can turn municipal solid waste into a fuel and reduce the amount of sludge processed by traditional treatment facilities, the companies said. Many researchers have been studying ways to extract usable energy from sewage sludge but there are not any commercial operations that make liquid fuel.
Applied CleanTech's core technology, which is already used in treatment plants, extracts the biosolids from raw sewage, which is a way to reduce the overall amount of wastewater that needs to be treated.
In its partnership with Qteros, the biosolids are used as a feedstock to produce ethanol. Qteros, founded two years ago, is developing an ethanol-making process in which a naturally occurring microorganism digests the cellulose in biomass and turns it into ethanol. It's an alternative to the traditional multistep, enzyme-based method.
"Our customer is every municipality that has a waste water treatment plant," said Jeff Hausthor, Qteros co-founder and senior project manager, said in a statement, adding that the process reduces the expense of operating waste water plants.
Increasing domestic natural gas production and retrofitting buildings to be more efficient should form the basis of a low-carbon U.S. energy policy, according to a statement put out Monday during the Clean Energy Summit.
The summit, held for the second year in Las Vegas, brought together some of the most recognized political figures shaping energy policy, including Sen. Harry Reid of Nevada, Energy Secretary Steven Chu, and businessman T. Boone Pickens. Other speakers included Bill Clinton, Labor Secretary Hilda Solis, Al Gore, and green jobs advocate Van Jones.
The event was organized by the Center for American Progress and the Energy Future Coalition, which jointly put out a memo touting the benefits of natural gas and building efficiency.
The memo says that there is now technology to tap natural gas in so-called nonconventional sources, namely trapped in shale deposits in the U.S. "This creates an unprecedented opportunity to use gas as a bridge fuel to a 21st-century energy economy that relies on efficiency, renewable sources, and low-carbon fossil fuels such as natural gas," according to the memo. (Click for PDF of full text.)
Natural gas can be used to make electricity and as a transportation fuel. The memo recommends investing in natural gas filling stations for large trucks and buses, which are much harder to run from electric batteries than passenger cars. In addition to reducing imports of oil, natural gas burns cleaner than coal, emitting half as much carbon
Efficiency, considered the most cost-effective way to reduce fossil fuel use, was a consistent topic of discussion at the summit as well.
The Center for American Progress and Energy Future Coalition estimated that retrofitting 40 percent of U.S. homes and buildings would save consumers $1,200 a month on energy bills and create 625,000 jobs.
"Energy efficiency should be the first source we turn toward to meet energy demand and reduce consumers' bills" said Reid, who is a key figure in the energy and climate bill being considered by Congress. "It creates more jobs than nearly every other energy investment and the cheapest, cleanest, safest energy is the energy we never have to use."
Katherine Sierra
(Credit: The World Bank)SAN FRANCISCO--How will a shift in carbon reduction play out with the world's poor? This is an issue The World Bank is grappling with as it prepares for the international climate change summit in Copenhagen this December.
Katherine Sierra, the vice president for sustainable development at The World Bank, and Awais Khan, the director of KPMG's Clean Tech Venture Capital Practice, spoke on this topic Tuesday here at the Commonwealth Club.
Along with higher temperatures, climate change is causing rising sea levels, shifts in rain/snow patterns, and an increase in weather-related natural disasters. Although the impact is worldwide, people in developing countries get the brunt of it with severe risk to their agriculture, food, and water, Sierra said.
"We took a major step a couple years ago because we felt we weren't doing as good a job as we should have in integrating environment into our programs," said Sierra. "We actually merged our infrastructure practice with the environmental and social practices."
On top of being more vulnerable to climate change, countries in the developing world have a shortage of infrastructure. According to The World Bank, 1.6 billion people in the developing world still do not have access to electricity, and those who do may have only intermittent service.
"There are areas in Pakistan that have 12 to 14 hours of blackouts per day," said Khan. If the shortest way to fix that problem is through burning coal, he explains, that's what governments will do.
However, being the ninth-largest coal deposit in the world--with 186 billion tons of coal, Pakistan's "government is very favorable to using cleaner coal technologies," Khan said. "Sometimes we don't give enough credit to governments of developing countries."
The event fell on the heels of an article Sierra wrote for The San Francisco Examiner last week, where she explained what The World Bank, an international financial institution that loans money to developing countries, intends to do regarding climate change and the world's poor. Last year, The World Bank gave almost $7.6 billion for energy financing, a third of which went to renewable energy and energy efficiency. Projects included putting in rapid bus transport in five major cities in Mexico and working on smart grids in Turkey.
But another third of the $7.6 billion put forth was given to fund traditional fossil fuels. This is what skeptics generally point to when criticizing The World Bank's initiatives and intentions. The nonprofit Bank Information Center, for example, released a study in February on how The World Bank's energy financing is being felt by developing countries
The organization found that although The World Bank increased funding for renewable energy (by 11 percent), it dramatically increased funding for fossil fuels (by 102 percent) last year. "The bank's continued lending focus on fossil fuels commits many developing countries to fossil-fuel based energy for the next 20 to 40 years," said Heike Mainhardt-Gibbs, a consultant with the Bank Information Center.
The Bank Information Center points out that when developing countries begin to work on greenhouse gas emission reductions, it will be more difficult and expensive because of their extended use of fossil fuels.
The World Bank says the fossil fuels they are funding are increasingly clean coal technology and natural gas, which is the cleanest fossil fuel. "We want hospitals with refrigerators, schools with light bulbs," Sierra said during her talk, "if you look at any projections, they tell us under any circumstance we still need fossil fuels."
This will all be hashed out come December when representatives from over 180 countries meet in Copenhagen to work on a new treaty that addresses global warming. Within this international agreement, countries will look at what is doable and possible to lower greenhouse gas emissions while still trying to get energy to the world's poor.
Clean-technology investing could be seeing a rebound.
Cleantech Group, a research firm backed by Deloitte, released a preliminary report on Thursday showing a slight uptick in clean-tech funding during the second quarter of 2009 in North America, Europe, China, and India.
After two quarterly declines, the increase is good news, but the Cleantech Group noted that the quarter-to-quarter comparison for the same period a year ago is still down.
"The (second-quarter) total is up 12 percent from the previous quarter, although down 44 percent from the same period a year ago. The average round size in (the quarter) was $12.9 million, up from $12.3 million (the previous quarter)," the report stated.
Silicon Valley venture capital funds remained the top clean-tech investors in the second quarter.
(Credit: Cleantech Group)Cleantech Group said that while solar investments are still down, clean-tech investments in the utility and automotive sectors have risen. In fact, automotive firms saw the biggest influx of clean-tech investments, which Cleantech attributes largely to the government's stimulus package for the automotive industry.
North America was the biggest investor in clean technology, making up about 66 percent. Europe and Israel were the second biggest investors, at 21 percent. India and China were less invested in clean technology, making up only 11 percent and 1 percent of the total investments in clean tech for the quarter, respectively.
The Cleantech Group also pointed to some big automotive deals completed during the quarter:
- Kleiner Perkins and T. Boone Pickens together invested $100 million in San Diego start-up V-Vehicle.
- Fisker Automotive, which plans to make a plug-in electric luxury sedan, raised $85 million from Kleiner Perkins and Eco-Drive Partners.
- Think Global, a Norwegian company that specializes in electric cars, raised $39 million.
- Israel-based ETV Motors received $12 million from Quercus Trust.
Battery companies also saw the love. Lithium ion battery maker A123 Systems raised $100 million from General Electric, and Deeya Energy, working on a "redox flow battery," raised $30 million from Technology Partners.
The Cleantech Group also listed the venture capital firms that invested the most in clean technology for 2Q09. Not surprisingly, Kleiner Perkins Caufield & Byers topped this list of green-tech investors, with Khosla Ventures, Braemer Energy Ventures, Robeco Alternative Investments, Draper Fisher Jurvetson, VantagePoint, and Venture Partners following.
Lithium ion battery company A123Systems has received a $69 million investment round from General Electric and others, the company announced Monday.
With its latest funding, A123Systems plans to expand its facilities in Massachusetts and Michigan, as well as build new facilities in Michigan. A portion of the proceeds will also be used to develop applications for the smart grid, such as utility-scale storage. The company has its headquarters in Watertown, Mass.
GE invested $15 million toward this latest round, bringing its total investment stake to 10 percent in the company. A123Systems also announced GE will receive a seat on its board of directors.
"We've accelerated our plans to expand our U.S. manufacturing. We do not believe our country can afford to wait to develop advanced batteries," David Vieau, A123Systems chief executive, said in a statement.
A123's battery cells are used in hybrid electric vehicles and electric cars. The company's batteries and battery systems are also used for grid energy storage and portable power.
Updated on April 1 at 6:15 a.m. PDT with comments from utilities.
Updated on April 2, 3:05 p.m. PDT to address dispute over Boehner cost estimate.
The first draft of an energy and climate change bill calls for national mandates for renewable energy and energy efficiency but leaves crucial details on carbon regulations open for negotiation.
The House Energy and Commerce Committee on Tuesday released the first draft of the American Clean Energy and Security Act of 2009, (click for PDF) which its backers hope will be voted on this summer. Key figures for the bill in the House are Rep. Henry Waxman, who chairs the Energy and Commerce Committee, and Rep. Edward Markey, who chairs the Energy and Environment subcommittee.
The document was well received by clean-energy advocates on Tuesday but panned by political foes who complained that the global warming portions of the bill will amount to an energy tax on consumers.
According to a summary document (click for PDF), major provisions of the bill are:
A national renewable electricity mandate where utilities need to get 6 percent of power from solar, wind, biomass, or geothermal sources in 2012 and 25 percent in 2025. One-fifth of the requirement can be met with energy-efficiency measures.
A demonstration facility for carbon capture and sequestration where carbon dioxide from coal-burning power plants is stored underground.
Giving authority to the Federal Electricity Regulatory Commission for planning power grid modernization with smart-grid technology and upgrades to the transmission lines.
A single federal fuel-efficiency standard and low-carbon fuel standard for biofuels.
An "energy efficiency resource standard" to create incentives for electricity and natural gas companies to invest in customer efficiency programs.
A global warming reduction program modeled on recommendations from U.S. Climate Action Partnership, a coalition of large corporations advocating regulation. The target is a 20 percent reduction of greenhouse gas emissions below 2005 levels in 2020, 42 percent reduction in 2030, and 83 percent cut in 2050.
Programs to promote "green jobs," such as training, and rebates for heavily polluting industries that could be put at a competitive disadvantage from costs related to carbon regulations.
The proposals build on the significant energy and efficient-related investments already passed as part of the government stimulus package earlier this year. In general, green technology company executives and investors have said the stimulus plan can help the finance-challenged solar and wind industries in the short term and drive investment in smart-grid technologies and weatherization services.
In reaction to Tuesday's draft bill, environmental groups said that the bill moves the country in the right direction by lessening dependence on imported oil while investing in new green technologies.
"Firm limits on global warming pollution will drive investment to recharge our economy today and enhance our economic stability tomorrow. This discussion draft recognizes that we must act quickly to avoid the worst impacts of climate change and jump-start our economy with clean jobs," said National Resources Defense Council president Frances Beinecke in a statement.
House minority leader, Ohio Republican John Boehner, argued in a statement that the global warming-related portion of the bill will impose as much as $3,100 a year in energy-related costs on households during a recession.
How much and whether carbon regulations will raise electricity prices, is a source of debate. However, the author of a Massachusetts Institute of Technology (MIT) report (click for PDF), which is the source of Boehner's estimate, said that Boehner "misrepresented" the study.
MIT professor John Reilly, who published a study of cap and trade proposals in 2007, on Wednesday sent a letter to Boehner saying that actual number is closer to $340 per household per year, or about ten times less. (Click here for text of entire letter). The Republican party published a release on Thursday defending its cost estimate.
The cost of enacting climate change regulations remains a difficult question both practically and politically. The energy bill draft does not propose a specific mechanism for how a price is fixed to carbon dioxide emissions by heavy polluters. Some observers expect that an energy bill will only be passed this year if climate regulations are separated out.
At least two utilities on Wednesday supported the bill. Lew Hay, CEO of Florida-based FPL Group, a significant investor in wind and solar energy, said in a statement that the bill is a "bold blueprint" to confront "a triple threat of challenges: an economy in recession, an overdependence on foreign energy, and a warming planet."
While touting its actions on energy efficiency, National Grid also applauded the bill for addressing climate change but added that the entire country now needs a "clear framework" to reduce carbon emissions.
For more reaction to the draft bill, see the The New York Times, GreenWire, and Dow Jones.
National Semiconductor on Thursday announced that it has delved deeper into its energy efficiency efforts with the acquisition of Act Solar.
National Semi, which expanded into the solar business last year, plans to use the privately held company's technology for monitoring solar arrays with its SolarMagic product line.
Under the deal, whose financial terms were not disclosed, Act Solar's business for monitoring technology, which is designed to improve the efficiency of solar panels by balancing, or recirculating energy, will be folded into National Semi's SolarMagic business.
Power efficiency is an issue with electronic devices, given that it effects the life of powering a device and the amount of heat a device can generate. And the output of solar panels can be affected by shade, debris, different panel styles, and aging panels.
"Now with Act Solar, we can further improve the performance and efficiency of solar systems, at the same time providing monitoring capabilities not available before," said Mike Polacek, senior vice president of National's Key Market Segments. "This will make solar installations more efficient and ultimately reduce the cost of solar energy for everyone."
