The real renewable energy opportunity: Transmission?

Received an interesting UtiliPoint Issues Alert email today from Ken Silverstein (unfortunately, it's not posted yet on their website, but I will link to it when it's available).

Silverstein's message is that utilities are increasingly backing renewable energy, driven in no small part by Renewable Portfolio Standards (RPS) which are now in effect in 19 states. While the aggregate non-hydro renewable energy supply remains less than 2% of the US's 770,000MW overall generation capacity, he reports that some experts think that share might triple within four years.

One thing to note, however, is that what this really comes down to is wind and geothermal power. While solar power is coming along, waste-to-energy continues to make some noise, and some still hold out hope for microgen fuel cells to play a part, wind and geothermal are already the renewable energy of choice for most utility or renewable energy certificate (REC) programs. And when you consider that there are few venture-backable deals to be found in wind and geothermal now, as those industries have matured, then it isn't clear how a venture-stage investor can take part in the emergence of renewable energy by utilities.

Something else that Ken reports, however, is also notable: Transmission is the key constraint for many of these projects. Wind and geothermal power resources are often found inconveniently far away from existing transmission lines. For that power to be useful, there's got to be a connection made to get that power to where it will be used.

This can be a significant obstacle -- at the recent PowerGen Renewable Energy Conference in Las Vegas, one presenter I saw showed that it made more sense to place a new renewable energy project in a certain location in New Mexico that wasn't as good in terms of the efficiency of the local resources, but was more conveniently sited to the best transmission resources.

Ken points out that the transmission grid in the Midwest is already overloaded, making it difficult to harvest that region's significant wind power potential. Also, he notes that in Texas it has been estimated that new transmission costs up to $1m per mile, and that bringing 10,000MW of renewable power to market would require an additional investment of $2B.

Thus, the market opportunity for new technologies that enable lower-cost, reliable, higher-throughput power transmission could be huge, and near-term...

Millennium Ecosystem Assessment

Here is a sobering story on the state of the world's natural resources.

Whether one is a pessimist or an optimist about the future of global resources, it's worth noting that every time a story like this comes out, it simply bolsters the argument that clean technologies will be increasingly advantaged over the long run. The trick is to find such technologies that are also money-makers over the short term...

Demand response/ load management is a $1.3B industry in the U.S.

ACEEE today released a useful primer [note: link opens a large pdf file] on the practice and current status of demand response/ demand side management/ load management in the U.S.

In light of the data released today by Nth Power that showed significant and growing interest by VCs in the generation side of energy tech, it's interesting to note that centralized utility-led efforts to reduce demand for electricity in the first place remains a vibrant market.

Such programs apparently saved 22,904 MW of peak-load power in 2003. According to my amateur calculations, that's the equivalent of obviating the need for:

• Approx. 100 large coal fired plants; or
  
• 270 GE Frame 7 natural-gas-fired turbines; or
  
• 2,290 Bavaria Solarparks (currently the largest photovoltaic project in the world); or
• 90,000 Siemens Westinghouse solid oxide fuel cells; or
  
• 382,000 Capstone 60 microturbines

... Just to put things in perspective.

Clean energy investments continue to be strong

Nth Power today released the results of their annual survey of "energy tech" venture investing.

The bottom line is the headline -- such investments totalled $520m in the US in 2004, up slightly from 2003's $509m.

But some of the more interesting bits are in the details.

• The firm's data tracked 69 applicable transactions, for an average deal size of $7.5m. That average is up a bit from 2003, but there were more deals done in that year (84).

• 40% of all funding went to companies in California. What does this mean? Are 40% of the investable energy tech startups located in California? An argument could be made that this shows there are as yet untapped investment opportunities in energy tech outside of the west coast...

• The data shows that funders' interest was largely captured by generation-related technologies -- "distributed generation" investments rose 34%, fuel cell deals rose by 40% (although this was also driven by "battery replacement" applications), and solar investments jumped by 62%.
  

Fine work by Rodrigo Prudencio and the rest of the Nth Power team.

GE Commercial Finance provides capital for residential solar systems

While venture capital is increasingly turning to cleantech, a major gap in project financing still exists.

For many clean technologies, the reality on the ground is that even the best solution can be hard for customers to pay for with cash -- the systems being sold are large and expensive. What consumer is going to pay $30k in cash to put a solar system on their roof, whether or not it makes sense financially? What budget-strapped facilities manager for a large company is going to install a superior HVAC system, if it means he goes over his budget this year, even if it saves money in the long run?

These are on the end user side, but other project financing needs are seen on the vendor side -- who is going to give a startup the money to build the first few plants for their breakthrough technology? Thus, we see a lot of business plans where the company is looking to use cash from VCs to build out a plant, or to pay for equipment to be leased to customers, and they are difficult to fund. VCs prefer not to provide capital for "steel in the ground," if possible -- traditional venture capital is often too expensive to be put into such hard assets.

But the need is real nonetheless, and a failure to get project financing can kill even the best-funded of technologies and business plans.

This gap appears to be being filled, fortunately, as other entities are also now recognizing the need. For example, GE Commercial Finance is now funding rooftop solar systems. And other venture debt groups are now starting to provide early funding for some of the needs described above -- it's still expensive capital, but it's not as expensive as venture capital. You are going to see more of these project finance companies focusing on cleantech, since the markets for these technologies are real and fast-growing, and such financiers can find attractive opportunities with little competition for their services.

Over time, as such capital becomes more readily available, technologies such as distributed generation, building automation, and industrial water/ wastewater treatment are going to see very rapid demand growth. If the vendors of these technologies can arrange for the capex up front via such financing, then all the customer sees is an annual expense that is lower than the annual savings they enjoy from the system -- and that's an easy decision for the customer to make.

Is carry on the rise?

According to this column from PrivateEquityOnline.com, some top VC funds are seeking, and getting, higher carry -- to 25% and even 30% ("carry" or "carried interest" is the share of a fund's profits that the fund's managers receive).

It is especially interesting in light of the news I noted earlier that there is a $53.6B capital overhang in the industry.

Clearly there is no shortage of capital seeking action in the venture sector right now -- why else would investors be willing to pay such high carry to get into top funds. And perhaps there is more capital than can easily be spent. An interesting problem. It suggests deal valuations will continue to be driven up, which as this Red Herring article notes, seems to be happening already, and is not very good for returns.

But as noted previously, there are good reasons to believe that cleantech remains underinvested. I can tell you that my firm (Expansion Capital Partners) is seeing no shortage of intriguing deals at attractive valuations. It will be fascinating to watch how this develops over time...

Red Herring covers CTVF

In case you missed it, here is a great description of the materials panel at the Cleantech Venture Forum that I referenced in an earlier post.

Is there too much capital in cleantech?

The NYT has an interesting article today describing the fact that there is too much capital chasing investments right now. This follows on the heels of an announcement by Dow Jones that they estimate there is a $53.6B capital overhang right now in the VC industry.

There seems to be too much capital chasing too few deals right now in venture capital, but is that true specifically in cleantech?

Cleantech has been described as being "underinvested" right now. According to the latest figures from Cleantech Venture Network, in 3Q04 cleantech represented only 7.2% of all VC investments. That's up from 4.2% the previous quarter.

There are two ways to look at this figure: a) Given that energy, water, etc. markets are comparable in size to IT and telecom markets, cleantech remains underserved by VC; or b) there are reasons why energy, water, etc. markets are less applicable to venture investment.

The answer is probably a bit of both. But one lesson that can be drawn is that all of this capital is going to eventually hit on cleantech and start driving up valuations just as has happened in other VC sectors. This can already be seen in some deals in the market, and in the increased interest in cleantech by "traditional" VCs...

CTVF Day 2: Another really long post

Day 2 of the Cleantech Venture Forum, the day which is generally for VCs only, saw some very interesting discussions and presentations. Several potential investment opportunity areas were highlighted, and the day also served to illustrate the breadth of markets addressed by "clean technologies".

NGEN's materials panel

One of the day's early panel sessions, organized by NGEN, brought several researchers together to discuss a few specific opportunities in materials sciences -- NGEN's area of focus. Such technologies illustrate one typical investment thesis of "cleantech investors": As Daniel Colbert, CTO of NGEN, put it, "We're not a cleantech firm. We're a materials technology firm that happens to do a lot in areas that overlap in cleantech." Colbert described NGEN as targeting two different categories of cleantech investments: "Active" technologies that have a direct impact on environmental issues, such as those that clean up contaminants and pollutants; and "Passive" technologies that indirectly provide environmental benefits by improving materials or energy efficiency.

This is pretty typical of most of today's cleantech investors. The first order of business is to identify strong bottom-line investment opportunities. The hope is that, by identifying such opportunities and then putting them through a cleantech screen (ie: being mindful of looming natural resource constraints), you find technologies and investments that are also advantaged over the long run. Net-net, the fact that your technologies are helping solve environmental problems may feel good, but if it doesn't make money, we don't want to be involved.

One emerging technology introduced to the audience was solid-state lighting, presented by Tony Cheetham of UC Santa Barbara. For example, there are the LED lights used in many traffic lights around the country, replacing incandescent bulbs based on glowing filaments, just like the one Edison originally invented. Why is this a clean technology?

• Edison's first lamp got 1.4 lumens (a measure of brightness) per watt.
• Modern incandescents (like the ones we use in our homes) get 15 lumens/watt.
• Fluorescent lights get about 70 lumens/watt.
• Solid state lighting has the potential to achieve 200 lumens/watt.

The fewer the watts used, the less energy wasted. And lighting represents 20% of all electricity consumption in the US.

Of course, as Cheetham admitted, there is a lot of progress yet to be made. Current state-of-the-art solid state lights in the lab achieve only 80 lumens/watt, and the ones available commercially only get 30 or so. But according to Cheetham, "This is something that's going to show returns in the next few years, and is a wonderful investment opportunity." He cited forecasts that showed this to be a $10B market opportunity by 2025, with viable commercialization and profitability in only a few years. Specific technology breakthroughs still sought include:

• Higher efficiency for near-UV LEDs,
  
• Longer lifetimes for organic LEDs (OLEDs)
• Perfecting the transformation of blue LED light into white (as Cheetham amusingly put it, while shining a blue-tinted 'white' light at the audience, "If you want a romantic evening at home with your partner, this is not the color for it."
• More suitable substrates
• Lower defect densities for the primary material being used, gallium nitride
• And better packaging and integration

Companies that target these challenges may be of interest to early-stage cleantech investors.

Another technology spotlighted was antimicrobial coatings. The presenter, Matthew Tirrell (also of UCSB), made the tenuous connection of antimicrobial coatings to cleantech by arguing that "they protect against other environmental contaminants that harm humans -- bacteria." This is a shaky argument at best (by that argument, hunting mountain lions could be called a 'cleantech' activity). But still, many of these coatings allow currently-used materials to last longer before needing to be replaced, and that efficiency savings can be considered cleantech. Regardless of the justification for the audience, it was an interesting presentation.

Tirrell pointed out that the market for antibiotics is $26B and growing. Although much of this is targeted for use by humans and animals, not for coatings, antimicrobial coatings are starting to be seen in market segments such as building materials, HVAC (heating and variable air control, incl. air conditioners), food processing and packaging, healthcare, and others. Part of what is driving the need for breakthrough materials is the rise of antibiotics-resistance by some of the more dangerous bacteria out there.

Tirrell explained that bacteria basically have 6 or 7 vulnerabilities to target, but that many of these have the side effect of speeding up the development of resistance, whereas a few don't seem to have the same effect -- these, therefore, are the areas of most interest to the market. He highlighted two startups:

• Agion - a company using silver ions bound into a ceramic matrix, which can then be incorporated into fibers or devices, so that they release slowly over time (silver ions bind to specific sites on the surface of bacteria and kill them)
• Migenix - a company developing antimicrobial peptides

Are these really cleantech? It is unclear. And given the current state of biotech VC investing, it is not surprising that these companies may be trying to re-brand themselves as "cleantech" in hopes of gaining some differentiation and higher multiples. But cleantech or not, they captured the attention of the audience (this was also helped by Tirrell's fascinating illustrative graphics).

The third panelist, Greg Keenan of Air Products, presented the opportunities for further innovation in hydrogen technologies. But this raises one recurring theme of the conference -- the "opportunities" for further technological development in hydrogen were seen as serious obstacles by many participants.

What "hydrogen economy"?

VCs in attendance seemed to have very divergent views on the future of the "hydrogen economy" in general, and for specific hydrogen-related technologies such as H2 generation, fuel cells, etc. Some remain convinced that the technologies hold significant promise for the future. But many others expressed (particularly in side conversations) significant pessimism. "The 'hydrogen economy' is a broken model," one VC expressed to me, capturing the views of many I spoke with.

The argument for hydrogen technology is simple: Hydrogen can be combined with oxygen (e.g., in fuel cells) to create electricity with few byproducts (often only H2O) and no climate impacts (at least within the context of that specific reaction itself). As climate change forces changes in public policy regarding fuels and energy sources, the argument goes, and as hydrogen technologies become more efficient over time, these technologies will revolutionize transportation and power generation.

But as one VC I spoke with described, the problem is that the basic concept has some general flaws. First, he argued, hydrogen is only a form of energy storage, it is not itself a source of energy -- in other words, at some point you have to create the hydrogen, which takes a lot of power. Then you have to re-transform the hydrogen back into power for use. So essentially hydrogen is a middleman. This VC argued for eliminating the middleman in many cases.

But even those attempts to eliminate the middleman with other related technologies, such as solid oxide fuel cells (SOFCs), appear to face their own significant challenges. SOFCs, which have the capacity to use fossil fuels directly, rather than requiring pure hydrogen input, would eliminate the need to generate, transport, and store hydrogen, and are thus seen by some as a "stepping stone" to a hydrogen economy. But SOFCs are, according to many (and bolstered by yesterday's SOFC company presentations) still years away from commercial readiness.

Some stepping stone. VCs generally need technologies to take no longer than 5 to 7 years to widespread adoption, in order to make their promised returns.

Another investor pointed out that there are significant challenges facing many of the specific leading technologies. For example, this investor pointed to proton-exchange membranes' (PEM, one of the leading contenders for an automotive fuel cell) reliance upon Nafion, a Teflon-like material that shares its toxicity. And as Keenan's presentation showed, there are other significant challenges as well.

He described several areas where significant technological challenges exist in hydrogen-related technologies.

• PEM fuel cells only work in certain temperatures, and with high humidity. What is strongly needed are membrane materials that operate well at low humidity and high temperatures (>100 celsius). But so far, such materials have not been discovered.
• Storage of hydrogen. If auto makers are to incorporate hydrogen-fueled devices into their cars, they will need storage that is comparable to gasoline. To get 300 miles' worth out of a typical car requires a gasoline tank that holds 15 gallons and that weighs (fully loaded) 94 pounds. So hydrogen storage will need to achieve similar volume and weight. Unfortunately, no means exists for this. For similar 300-mi. range, storing gaseous hydrogen at 700 bar pressure would require a 53 gallon tank that weighs 232 pounds. Liquid hydrogen would mean a 48 gallon tank weighing 190 pounds. Other emerging approaches provide only incremental improvements. Said Keenan, "There is not a storage technology today that will meet the needs of the automotive guys. There will be a lot of talk about advanced materials solutions. But when you see them, ask about the container. Ask about what else needs to be in the system, what other costly support it needs. And will it be safe?"

One audience member interjected to ask about the use of carbon or other types of nanotubes for storage. At this point, Colbert, who has direct experience in such technologies, dashed the audience member's hopes: "I wish it were true that nanotubes could be a solution, but they don't seem to meet the need. And even if they were, the costs would have to be dramatically lower."

Keenan was one of those who drew the optimistic conclusion: That companies that found solutions to these dilemmas would be well-positioned for success. But others in the audience appeared to draw the conclusion that these are further examples of the obstacles preventing the eventual emergence of a 'hydrogen economy'. When diesel gensets and electric/ hybrid motors are achieving many of the goals of hydrogen- and other fueled fuel cells, what is the incentive to spend billions of dollars overcoming these signficant obstacles over many years to come? And that's assuming it will ever even make sense to have a system where energy is used to create hydrogen which is then used to create energy.

Alternative fuels

Such conversations were also seen in another panel discussion, on alternative fuels. This panel included entrepreneurs with ethanol and clean coal technologies, as well as hydrogen investors.

It takes a venture capitalist to lump all these technologies under a single label. They are completely separate chemistries being used in very different applications. But the conclusions were nonetheless interesting. Faced with the question, "Has the age of alternative fuels finally arrived?" the panelists were fairly optimistic. But they naturally differed as to which fuels were going to succeed. And even the hydrogen/ fuel cell investors had to admit that the only near-term potential market for such technologies is portable storage, or battery replacement.

Clean coal, represented by Christopher Poirier of CoalTek, took some lumps (pardon the pun) from one audience member for being only an 'incremental clean technology'. But as Christopher pointed out, the benefits -- though incremental -- are nonetheless real when considered against the reality that coal use isn't going away anytime soon. And, he pointed out, coal represents 50% of all electricity generation in the US, so it is a near-term, huge market. Many VCs I spoke with agree with Christopher, and CoalTek appears to be the subject of strong interest in the investment community...

Clean water investing

Finally, another strong point of optimism was seen in the panel on water technology investing, moderated by Bernardo Llovera of Expansion Capital Partners. Panelists from GE, SAM Private Equity, RockPort Capital Partners, and Aqua International Partners all agreed that the market need for water technologies is real and near-term, and that the technologies being used by interesting venture-stage companies are often well-proven out with relatively few risks. While valuations and risks may be relatively high in the energy tech sector, there may be good dealflow to be found in water tech.

In all, another very successful Cleantech Venture Forum, kudos to Nick Parker and Keith Raab and the rest of the team at Cleantech Venture Network.

[Note: Very long posts like this are going to be by far the exception rather than the rule in this blog. But the CTVF is always such an important meeting point for most of the cleantech VC community that it seemed worthwhile to share many of my notes and takeaways from the event. rd]

Cleantech Venture Forum -- San Francisco

Just one long, end-of-day post today, as I am attending the Cleantech Venture Forum, put together by the Cleantech Venture Network (and co-sponsored by my firm, Expansion Capital Partners) on a semi-annual basis.

The Forum has become one of the best and biggest events at which to network with other venture investors in the cleantech community. The first day (today) is always centered around a series of brief presentations by 20+ cleantech companies seeking venture funding. The second day, those companies are asked to leave, and the meetings and sessions are for VCs talking to VCs. More on that tomorrow.

Today's sessions started out with a positive speech by Alan Salzman, Co-Founder and Managing Director of Vantage Point Venture Partners -- a large fund in the IT/ Telecom space that has started making some bets in the cleantech markets. He argued that cleantech is now mainstream. In his words, "The next eBay, Broadcom, or Google is going to come from Cleantech. All the ingredients are there, and that is why you're seeing many more mainstream VCs enter the space." [As always, my apologies if my paraphrasing differs from actual quotes... I am by no means a journalist]

The state of cleantech investing

Nick Parker of Cleantech Venture Network then presented some recent data on the current state of cleantech venture investing, based upon 2004 figures:

• 59% of cleantech VC funding went into either energy or materials/ nanotechnology-based applications. Most of that (40%+ of total funding) went into energy tech. Clearly energy tech remains the highest profile segment in cleantech. Solar in particular was cited as garnering a lot of attention.
• Nick expressed surprise that water hasn't gotten more attention, since it has been identified as a strong market as well, with perhaps more near-term potential.
• According to the Cleantech Venture Network data, about 2/3rds of all such funding is going into "follow on" rounds. Nick then mentioned that "This fact is somewhat worrying, because the ratio of early-stage to follow-on is reversed in the rest of VC investments [ie: tech, telecom, biotech]." He attributed this to a "supply bottleneck," that many large funds were running out of capital at this time, and haven't yet raised their new funds -- thus they are temporarily reserving their capital for re-investing in their own portfolio companies. To this observer, however, there are a lot of other more plausible explanations...
• Direct investments by pension funds (e.g., CALPERS), banks, etc. is on the rise.

Strong returns found in cleantech VC study

Nick also described the results of a recently-released study that the Cleantech Venture Network sponsored (and that one of Expansion Capital's partners, Diana Propper, co-edited -- you can get an executive summary here). This study estimated exit returns for cleantech investing over the past 10-20 years, to try to finally answer the question "Can You Make Money From This?" That question remains ultimately unanswerable, but the study makes a good attempt and has some suggestive results. The full report is very detailed and data rich (covering over $90B in transactions over two decades); the methodology isn't perfect, but is the best available given the data at hand.

What the report shows is encouraging:

• Cleantech IPOs in the study yielded 5.3x returns on initial investment
• Cleantech M&A exits in the study yielded 4.1x returns on initial investment
• A hypothetical portfolio, assuming a 5-7 year holding period, and a 40% write-off level, would thus yield 30% or higher IRRs. This compares very well with the typical return across all VC categories of 26% over the past 10 years.
• This portfolio also outperformed the public markets, whether the starting point was 1990, 1995, or 2000.
• There are large and acquisitive players buying cleantech companies -- some of the largest in the study's database, btw, include Danaher, Tyco, and ABB.

Nick then went on to outline what he sees as the biggest challenges in cleantech investing right now:

• Fostering serial entrepreneurs
• Building big-small business partnerships
• Attracting institutional capital and getting recognized as an official investment category
• Avoiding a mini-bubble
• Building better linkages across capital categories, with project finance especially needed

To which I would add (if you will pardon the opinionizing) that we also need better weeding out of the technologies that just plain don't work. They taint the entire industry.

Company presentations (pass the hat)

The lion's share of the day was taken up by company presentations. Some were interesting; some were far-fetched. Some themes:

• There were several solid oxide fuel cell companies presenting; most were targeting large-scale adoption at least five years away, or more. But they are looking for additional development capital today. I've also spoken with a certain stealth solid oxide fuel cell company in the southern silicon valley -- and they're also a ways away from real commercialization. Even if there is something real there, it is a long way away.
• Plastics recycling is finally starting to catch on. In large part, that is driven by the implementation of very tough electronics take-back and other regulations overseas (such as Europe's WEEE). One such company, MBA Polymers, won the "most promising presenter" award today. Notably, all this activity is overseas -- even California-based MBA Polymers is building plants in China and Austria and not here stateside. MBA Polymers also illustrates the project financing gap in cleantech (which we will discuss in depth another time) -- they are looking to VCs to provide capital to finish the Austrian plant, and this is something VCs as a rule don't do, but there are few other places for the company to turn.
• A few other technologies that have been much-promised and a long time coming appear to be getting closer: Thin film flexible batteries will apparently soon make their introduction into the "smart" credit card market (Solicore), high-temperature superconductors may soon start appearing in specific pieces of equipment in the electricity distribution system (SC Power Systems), and alternative materials for logistical pallets are also coming soon (EcoDuro).
  

Other companies that presented include:

• Acumentrics (Solid Oxide Fuel Cells)
• AgraQuest (Environmentally-friendly pest management products)
• Cyrium Technologies (Quantum-dot photovoltaics)
• EarthRenew (Organic fertilizer products)
  
• Energy Innovations (Rooftop solar PV concentrators)
• EnerNOC (utility-side demand response for electricity savings)
• EnviroScrub's as-yet-unnamed water filtration spin-off (removing arsenic from drinking water)
• Franklin Fuel Cells (Solid Oxide Fuel Cells)
• Kainos Energy Corp (Solid Oxide Fuel Cells)
• Nanox (Advanced catalytic converters)
• Stirling Energy Systems (solar thermal concentrators)
• Surefast technologies (end-user demand response for electricity savings)
• Verdiem Corp (software to reduce wasted electricity by corporate computer fleets)
• Watertrax (data management software for water treatment utilities)

A full day. More tomorrow.

Speaking of storage...

...Flywheels continue to get traction (if you'll pardon the pun), with today's announcement by Pentadyne that they've closed their $18M Series C round.

This represents a big bet by investors Nth Power, Rustic Canyon Partners, DTE Energy Tech, Accera, and Sempra Energy. Here's wishing Pentadyne luck with their UPS (uninterruptable power supply) products and other applications; it's a promising clean technology, and they're working with some of the bigger names in the power system business. And as Lee Bailey of Rustic Canyon points out, the technology has a lot of other potential applications outside of the UPS market.

The further mainstreaming of wind power

More news today of the fact that wind power is now mainstream in the energy market. As this NYT article describes, Zilkha Renewable Energy (one of the largest independent wind power developers) has been acquired by Goldman Sachs.

Goldman was already holding some interests in several wind power projects, but this is still a big step. The energy merchant/ trading industry is focused on one thing -- the bottom line. And for Goldman to be entering the business at such scale is just one illustration of the fact that a lot of smart money is now getting into wind power. Indeed, in many cases (e.g., in Texas), wind power is already less expensive on a per kWh basis than natural gas-fired power.

And let us not forget the Zilkhas. With a strong entrepreneurial history behind them, the father and son team founded Zilkha Renewable Energy after selling their previous venture -- an oil exploration company -- for $1B. They jumped from oil to wind in 1998, when wind wasn't such a clear-cut proposition, and it paid off. Watch them to see their next moves in the energy space...

Unfortunately for venture investors, the dominance of large players such as GE, Goldman, etc. into wind power means that we have now entered the next phase, where the easy plays in that market are now harder to find. Software, remote monitoring and control, and basic equipment refinements can still make for profitable plays, but the "home run" opportunities aren't clear. But that doesn't mean there aren't plenty of other generation, storage, and infrastructure plays out there for venture investors in the clean energy space. See this Fortune Magazine special section for some ideas along these lines.

More on the Clean Edge report

As this Forbes.com article shows, clean energy is getting more and more attention these days. The quote from Rodrigo Prudencio at Nth Power (another great clean energy VC) is pretty much exactly right: The comfort is coming back into the market, as people realize these really are big and important markets.

What's really useful in the article, however, is the litany of M&A and other "big company" activity it provides. Especially in clean energy and other clean technologies, the most likely exit for a venture investor is going to be a trade sale or other non-IPO outcome. So it's really important to see the big guys paying more attention to this and getting in on the action -- it shortens the investment horizon, which is a good thing.

Clean Edge releases new forecast of clean energy markets

Clean Edge, a Berkeley consultancy focused on clean technologies, has just released their latest forecast of clean energy markets, and the results are again encouraging.

Clean Edge has reason to be a bit of a booster for clean energy, but Joel Makower and his team over there are very sharp, and even just looking at what happened over the last year is -- to a cleantech investor, at least -- pretty exciting.

Their data shows that:

- The worldwide market for solar PV grew from $4.7B in 2003 to $7.2B in 2004 (they forecast it to grow to $39.2B by 2014).
- Wind stayed steady at about $8B for both '03 and '04 (they forecast $48B by 2014).
- Fuel cells and hydrogen markets are already a $900M market (they forecast $15B by 2014).

The 10-year timeframe for the forecasts is a bit long for venture investors to be counting on, but these are already big markets today. Solar in particular appears to be poised to become as important and established in the energy market as wind already is.

Now, how much of that is driven by regulatory and not market forces? Well, that's a post for another day. But this is an important and encouraging study.

Greetings

Given the increased interest in clean energy, and clean technologies in general, it seemed time to devote a space to sharing the latest cleantech investing news with friends and colleagues. As usual, I nominated myself...

First, a bit of background. I am a Principal with Expansion Capital Partners (note: Who have nothing to do with this blog), a cleantech-focus venture capital firm. I'm based out of San Francisco, and we also have an office in New York. What is "cleantech"? We tend to define cleantech as technologies that:

- Use energy, water and other raw materials more efficiently and productively,
- Deliver equal or superior performance,
- Improve customer profitability, through cost reduction and/or increased revenues, and
- Create less waste or toxicity

As you might imagine, this covers a lot of industries, from clean energy to clean water to clean manufacturing, etc.

I plan on using this space to aggregate various news stories of interest for cleantech investors (or perhaps just myself). Studies, news stories, and simple commentary. Comments are always welcome...

- Rob