65% efficiency in solar cells by using quantum dots?

Cleantech investors should all familiarize themselves with the work done at the National Renewable Energy Lab (NREL) if they aren't already.

Case in point: Last week's announcement that NREL researchers have used the nanocrystalline structures of "quantum dots" (nano-scale structures) to boost the potential efficiencies of solar cells up to a theoretical maximum of 65% -- versus today's best-in-class at around 35%. If we could double the efficiency of solar PV at the same cost, we would halve the cost of solar energy and get the technology that much closer to cost competitiveness.

That's a big "if". From an investors' standpoint this is a really early, largely theoretical finding that doesn't discuss the economic feasibility of the technological approach. However, it's worth noting that back in March, solar startup Konarka and quantum dot specialist Evident Technologies announced a plan to work together to develop technologies that sound a lot like what NREL has been working on.

Of course, there are a lot of other factors to consider such as cost, modularization, durability, etc. But such developments and efforts are nevertheless of strong interest to cleantech investors.

Vinod Khosla: Investing in clean energy

Here's an interesting post in Business Week's Deal Flow describing a recent interview with Vinod Khosla of Kleiner Perkins. It's always interesting to see top VCs describe where they see the investment opportunities in cleantech, and it's good to see that Vinod is apparently looking into biofuels, fuel cells and solar. Note that the post didn't mention any specific such investments, although the rumor is that Vinod put some personal money into Ion America (the formerly-stealth solid oxide fuel cell company) alongside John Doerr.

Good article on water technology

Just a quick post to note the useful article by Matt Marshall (of SiliconBeat) in Monday's Merc on water technology investments.

Water technologies are an important area for cleantech venture investors to consider, when one juxtaposes the magnitudes of the emerging unmet need for water for drinking, agricultural and industrial purposes, and the revenues of the overall global water services industry, versus the amount of venture investments that are annually applied into the space.

Energy from the ocean

Ocean power has been in the news a lot recently, and it may be of interest to cleantech venture investors to know what is going on:

Like some others (see SiliconBeat's posting today, for instance), I was struck by the Wired Magazine article on Common Heritage Corp. and their technology for ocean thermal energy conversion (OTEC). The article doesn't really describe the technology, but in a nutshell OTEC uses the heat of surface ocean water to boil a liquid like ammonia with a low boiling point. Then the ammonia vapor thus produced runs a turbine, just like a steam engine would. Finally, cold deep ocean water is used to re-condense the ammonia back into a liquid for re-use. At least that's this layman's take on it. Other benefits besides power generation include fresh water production via condensation off the cold water pipes, and the use of deep-sea nutrients brought up in the process. NREL has a good description of the technology, which has been around for quite a while and has enjoyed federal and state government funding for R&D at various stages.

According to Carl Hoffman, the author of the Wired story, a very private venture capital firm out of Memphis, TN named Alpha Pacific has funded CHC to the tune of $75M. If accurate (there doesn't appear to be any more information about Alpha Pacific or the round anywhere to be found), that would be a huge bet on this technology, amidst a lot of secrecy. The only thing missing is a catchy code name for the technology, something like "Ginger," perhaps.

Another backer of OTEC technology is the Abell Foundation, through their investment in Sea Solar Power (SSP). SSP was supposedly unsuccessful in its attempts in the late 1990s to raise a very large amoung of funding, but has been moving forward with a couple of demonstration projects with support from Abell.

Meantime, wave power -- the use of the motion of ocean waves to power generators -- has apparently been making some progress as well. The world's first commercial wave power farm is apparently going to be constructed in Portugal by Ocean Power Delivery, a Scottish company. The cost appears to be about $4.4M per MW (as point of comparison, a wind farm costs about $1.3M per MW, according to the AWEA), but it's a good start. Ocean Power Delivery is backed by cleantech VCs such as Norsk Hydro Technology Ventures, Sustainable Asset Management (SAM), and Carbon Trust, among others.

At the same time, another Scottish wave power startup, Wavegen, has run into a bit of trouble and required rescue via trade sale to Voith Siemens Hydro.

Another technological approach being considered by ocean power startups is the installation of water-driven turbines directly into rivers or ocean currents. Several such demonstration projects have been proposed or have already been successfully tested.

Clearly, it is very early days for ocean-based power, with a lot more ups and downs to come (no wave-power pun intended). However, the long-term potential is there, and it will be interesting to follow the development of these technologies going forward.

The current state of the automotive hydrogen industry

For those who are following the possibilities and investment opportunities in hydrogen fuel cell-powered automobiles, Fuel Cell Today released their annual survey on the industry today (link to pdf here).

One notable statistic: There appear to be 100 hydrogen refueling stations around the world now, growing at a rate of about 30 to 40 per year. As point of reference, there are about 171,000 gasoline refueling stations in the U.S.

But as the history of gasoline-fueled vehicles shows, a lack of refueling stations is probably not the limiting factor for adoption of the technology -- even though gasoline stations came about as early as 1907, until the 1920s most gasoline was sold through other channels, and that didn't terribly hinder the adoption of the automobile...

In any case, it is an interesting report on the current state of the automotive hydrogen industry.

Rising valuations and cleantech

A couple of surveys announced in recent days (Fenwick & West, and VentureOne) have indicated that valuations of venture-backed companies have risen 20%-plus over the past year. VentureOne, for instance, noted that the median pre-money valuation was $15M in the last quarter, versus $12.2M in Q1 of last year. The Fenwick & West survey only covered the bay area, but pointed to much the same results.

I have not seen any breakdown which speaks to any markets other than IT, healthcare, consumer products, and "other", so it's hard to say if cleantech has been similarly affected. From anecdotal evidence, some of the same upward trend has been seen in cleantech VC, although it would appear to be very much deal-by-deal, with a few popular deals getting pretty high valuations. In sector specifics, clean energy, energy efficiency and advanced materials have been garnering significant attention, and it wouldn't be surprising to see those sectors rising in valuation. Other sectors, however, such as clean water and clean manufacturing technologies, appear to be getting relatively less attention. It is unclear to what extent any or all of the cleantech sectors are insulated from the general trend in rising valuation. However, I can tell you that our cleantech-focused firm still sees plenty of dealflow out there at reasonable valuations...

In terms of drivers of the increase in valuations, the VentureOne survey pointed to not only cyclical factors within the VC community, but also to more companies bootstrapping themselves to a later stage before going out to raise their first institutional rounds. Certainly we are seeing this trend in the cleantech markets, as more companies we track are raising funds with a solid, experienced management team in place, proven products out in the marketplace, a strong initial set of customers, and more mature technology development. It would make sense that such a company's "Series A" would be at a higher valuation than an earlier-stage company's Series A. It is a very welcome sign in cleantech investing to see more and more companies at such a mature stage.

New study: Private equity in new and renewable energy technologies is growing quickly

According to Michael Liebreich and Bozkurt Aydinoglu of New Energy Finance Limited, the number and value of early stage, new or renewable energy technology private equity deals more than doubled from 2003 to 2004. According to their study, more than $950M went into angel, seed, expansion-stage, buy-out, spin-out, or PIPE investments in energy technologies last year.

The study's numbers are a bit at odds with Nth Power's numbers (discussed back in March), which totalled 2004 U.S. clean energy VC investments at $520M, and it would be interesting to figure out exactly why that is. For one thing, the Nth Power numbers only cover the U.S., while New Energy Finance's study covered at least the U.S. and Europe, possibly more. Another critical factor is that Nth Power's study only looked at venture investing, while New Energy Finance's looked at a much broader range of private equity deals.

But still, if these were the only differences then you would expect to see New Energy Finance's numbers consistently higher than Nth Power's, and yet looking back at what both studies said for 2003, the opposite is true. I suspect there are some large definitional differences between the groups as to what constitutes "clean energy" for one and "new and renewable energy" for the other. It would be good to better understand these differences, if only to understand why growth was 100%+ in one study and relatively low in the other. Does that mean that non-VC private equity investments in energy technology took off last year? Or that what really took off was investments outside of the U.S.? Inquiring minds want to know...

Regardless, the New Energy Finance study, as described in the linked article, has some fascinating data in it. The breakdowns by sector are particularly interesting.


UPDATE: In another set of related numbers, Carbon Trust has released a study showing that half a billion pounds has been invested by VCs into UK clean energy companies since 2000, with growth at around 30% per year. Here's a link to the pdf of their study.

NGEN completes first close of their next fund

NGEN announced today that they have completed the first close of their next fund, at $50M. NGEN is an advanced materials VC whose investments often fall in the cleantech sphere... More information as it becomes available, but in the meantime congrats to Steve Parry and the rest of the team at NGEN.

Update: The fund is targeted for final close at $150M. Already signed up as LPs are CalPERS, CalSTRS, The Camille and Henry Dreyfus Foundation, Cycad Group, the Glenn Foundation, Siemens Venture Capital, Asahi Glass Co., Air Products, BASF, Bayer MaterialScience, DuPont, DSM and Henkel. Kudos to NGEN for attracting a great group of investors.

Cleantech VCs: U.S. is missing the boat on clean energy

At the Red Herring spring conference, as the magazine reported here, several cleantech VCs including Bill Green (Vantage Point), Chuck McDermott (Rockport), and Nancy Floyd (Nth) talked about how far behind the U.S. is falling when it comes to clean energy technologies.

As usual, Bill, Chuck and Nancy have it right, and in fact this trend has been easy to see for a while now (see this 2001 MSNBC article, for example). In 2002, Japan-based PV manufacturers made 251.1MW of solar panels; Europe-based manufacturers made 135.1MW; and US-based manufacturers only made 120.6MW. In terms of wind power, Germany has over 15GW of installed capacity, first in the world; the U.S. is tied with Spain at down around 7GW or so.

But while things may be growing faster overseas than here at home, they're still growing quickly here too. And once one looks outside of energy generation to other clean technologies such as clean water technologies, clean manufacturing, intelligent energy efficiency technologies, etc., U.S. cleantech markets look very robust indeed.

Red Herring names 5 cleantech companies as among the "100 Hottest Private Companies in North America"

Red Herring came out with their list of the "100 Hottest Private Companies in North America" this week, and several are venture-backed cleantech companies that we've previously talked about.

I'm not sure what exactly are the metrics to define how "hot" a company is. But it's still another great sign that cleantech continues to gain attention among venture investors and pundits. As the editors of the magazine wrote:

"The Red Herring 100 is a leading indicator for the next wave of promising companies. Our list provides a barometric reading of the market, revealing the industry sectors where technology is exciting, where money is being invested, and where the possibility of long-term growth is strong."

Here are the leading cleantech companies that I spotted on the list:

• AgIon
• Dust Networks
• Comverge
• Konarka Technologies
• Nanosolar

I'm sure we could all nominate other well-deserving companies as well, but kudos to these companies for the recognition they're getting by being included on this list.

CABA looking for VCs to participate in a "pitch-fest" on intelligent buildings

On Sunday, June 26th in Anaheim, the Continental Automated Buildings Association (CABA) is going to be holding a VC pitch-and-feedback session where four pre-selected firms seeking funding will get the chance to present to a handful of VCs interested in the space.

CABA is pleased to invite your company to take part in an exciting session where you will have an opportunity to pitch your innovative intelligent building technologies to a team of venture capital (VC) professionals.

These investment professionals are interested in exploring the next wave of intelligent building technology innovations. They will offer constructive feedback, move-forward strategies on how to better prepare presentations to VCs. There will also be an open discussion that will give you a perspective on the key drivers fueling investment for tomorrow's buildings.

VCs who are interested in participating should contact David Dern at CABA for more details. I believe they are still soliciting applications from companies interested in being one of the companies pitching the VCs as well...

CarboPur raises Series A

CarboPur, a maker of advanced activated carbon products for filtration applications, announced they have raised Series A funding of an undisclosed amount from Ventures West. The company had previously raised $440k in seed funding in 2003 from MSBI Capital.

See this good post by Tyler at Clean Break for a useful description of the company and its potential. He reports the round was probably $3-5M.

Ion America emerges from stealth mode

Here's an article which mentions that Ion America (the "stealth" solid oxide fuel cell company at Moffett Field that is backed by John Doerr and others including Cypress Semiconducts) will soon be placing a demonstration unit at Cypress's campus in San Jose. It will be a small unit (only 5kW), and represents just a nice small positive step for the company.

What's interesting is that now Ion America is finally starting to emerge from its "stealth mode", a period which had seen a lot of speculation (such as this post on SiliconBeat). Whereas now you're actually seeing quotes from Ion America management -- who are now also being seen out and about at industry events and local cleantech meet-ups -- and acknowledgement of certain financial backers. Does this mean the company feels it's getting close to ready for prime time? Or simply a recognition that Ion America has been the biggest open "secret" in the fuel cell industry for some time now?

The BizJournals article is also a general good overview of the SOFC market, mentioning several other companies in the space.

EnviroClean Technologies raises $650k

EnviroClean Technologies, which offers a surface cleaning service (e.g., cleaning sidewalks, parking garages, etc.) that is environmentally-friendly, announced a raise of $650k in seed financing. Blackbird Ventures, part of the Blackbird Group, provided the capital. EnviroClean claims that they have the only surface cleaning solution that meets current legal requirements...

Konarka raises $7M in new venture debt financing

Word today that Konarka raised additional capital via debt financing from Lighthouse Capital Partners, to fund further development of their photovoltaic plastic solution. To date the company had already raised over $30M in equity from many leading cleantech venture firms and strategic investors. A lot of people have high hopes for Konarka's ability to produce flexible, inexpensive photovoltaics -- they were recently named as a Red Herring 100 Company.

CalPERS makes first ETP commitment

After announcing their plan to put $200M into cleantech investments back in March of last year (under their "Environmental Technology Program"), today CalPERS announced the first recipient will be NGEN, the Santa Barbara materials science venture firm. This first commitment will be $15M. But expect a lot more such news to come, as the rest of the $200M is put to good use...

VC funding, Cleantech, Clustering, and the Bay Area

So the Merc today posted all of the local Bay Area startups who received venture capital funding in the first quarter, according to the MoneyTree Survey and some additional research.

It's encouraging to see so much venture activity in the area. By my count, they've listed almost 200 venture-backed deals in the Bay Area alone in the last quarter. Certainly gives evidence that overall, VC and tech innovation remain quite busy here.

It's almost surprising, however, to see how few of those deals listed are clean technology deals. The deals on this list that we are tracking (Expansion Capital Partners tracks most deals and potential deals in the clean technology space) include:

• Novariant -- GPS-enabled tools for agricultural efficiency
  
• Method Cleaning Products -- environmentally-safe cleaning products
• Pionetics -- water purification products
• UltraCell -- MEMS-based micro fuel cells
• Dust Networks -- low-power mesh networks, e.g. for sensors
• Nano-Tex -- clothing treatments that enhance durability and lifetime in addition to other attributes
  
• Lovoltech -- power conversion electronics that enable cooler-running, efficient systems

Seven out of 196 is not a high percentage. Especially considering that available numbers suggest that cleantech venture capital is around 5-7% of all VC funding on average -- you would expect to see double the number of cleantech deals in an average quarter (and assuming deal size isn't a differentiating issue), as a portion of VC deals in the Bay Area.

But I used the phrase "almost surprising" on purpose: There is a good reason why the Bay Area numbers will be relatively low -- there is not yet the clustering effect in cleantech as you see in other industries like IT and Biotech. Whereas for software, for example, there are a few prime locations to start a new venture (the Bay Area being one of the leading spots, of course, with 35% of all VC funding in Q1), cleantech enterprises remain fairly far-flung.

Why is that? There are a few key factors which have prevented more clustering:

• One factor that drives clustering is the advantages of locating near other similar firms in order to attract a specialized, skilled talent pool. But the "cleantech industry" is really several industries that work well together from an investors' standpoint, but which remain very different industries in terms of technologies, customers, etc. A water technology startup, for example, won't see the value in placing their new enterprise near a cluster of energy technology firms for purposes of poaching talent or teaming up, etc. Even within larger industry segments such as energy technology, there are major operational differences between hydrogen, solar, wind, "smart grid", and other segments. So it is unlikely that recruitment reasons would drive clustering of broadly-defined cleantech enterprises -- although this still doesn't explain why (with the exception of hydrogen/ fuel cell startups around Vancouver) there aren't any sector-specific clusters (where is the "Solar Alley", for example?).

• Another factor that drives clustering is concentration of funding sources. But right now, the cleantech investment crowd is also fairly scattered across the Bay Area, Boston, the Pacific Northwest, Philadelphia, Southern California, Colorado, etc. -- everywhere. As more and more IT/ Comm/ Biotech firms already clustered in the Bay Area start to look into making investments in clean technologies, perhaps this factor will begin to drive clustering among clean technology companies, but right now it is not a factor.

• Yet another factor that would drive clustering would be the formation of "market ecosystems" -- clusters of vendors, customers, etc. that would make proximity valuable. However, to date customers have been scattered. Customers of clean technologies such as clean energy, clean water, and clean manufacturing are utilities, manufacturers, universities etc. Broadly speaking, these customers are either regionally dispersed for historical reasons (e.g., utilities) or are not really that similar in their own operations (e.g., customers of industrial water treatment technologies, which can include everything from semiconductor fabs to food processing). This factor may change over time as more large companies like GE begin to move more and more into clean technologies -- they may form the hubs of new clusters. But for now, proximity to customers isn't driving clustering.

• Finally, clean technologies tend to be industrial in nature -- they are often evolved from heavy industries' technologies, or driven by the unmet needs of manufacturers, etc. And this means that the companies that are started up by entrepreneurs who originally come out of these industries will locate near where they were already living or doing research. Sometimes that will be in high-tech areas like the Bay Area, but sometimes that will be in strong industrial areas like the Midwest, etc. This is especially true given how expensive it is to do business in the traditional high-tech areas.
  

So that's why the Bay Area numbers look the way they do -- it actually reflects more of a clustering effect in IT/ biotech/ comm than any particular weakness in clean technology. It also reinforces the feeling that cleantech remains relatively underinvested at this point, when you contrast the seven above deals to the 70 or so software deals that were done, and reflect upon the comparative size of the market for enterprise software versus the size of the the overall global energy and water markets...

What does this mean for investors interested in clean technologies?

First of all, be prepared to look far and wide for opportunities. The right firm with the right technology and management team may actually be in Wisconsin or Toronto, not Cupertino. Many traditional VCs I speak with in the Bay Area limit their reach to the west coast to help leverage their time with board meetings, etc. But cleantech, as least how it stands right now in its early days, will require more time spent on airplanes.

Secondly, there is the possibility, as noted above, that when cleantech clusters do start to evolve they won't be in the Bay Area or other traditional "tech corridors". Already we've seen the emergence of one nascent hydrogen/ fuel cell cluster in the Vancouver area. And the fact that GE is going to be spending $1.5B a year on cleantech R&D may drive some clustering in Niskayuna, New York. Who knows. The point is that the Bay Area could conceivably miss the boat on this emerging market. Unlikely, but a definite possibility. However, as noted above as more Bay Area investors start to look at clean technology investing then that could drive entrepreneurs to increasingly locate here in the Bay Area.

One last thought -- it would be great to see the Merc come up with a better organizing structure to better account for cleantech as an emerging investment space. Something is wrong when they have to put Novariant, etc. under "Consumer" as a market category. Cleantech is a fast-growing investment space, and it would be good to see the Merc get in front of that. But at very least, even the MoneyTree survey has an "Industrial/Energy" category.

Aspen Aerogels raises $50M

Aspen Aerogels, which manufactures ultra-light materials for insulation and other purposes, announced that they raised $30M in equity (mostly from new investor Reservoir Capital Group, with participation from existing investors Rockport Capital Partners), and $20M in debt (link here -- registration required). $30M of the proceeds will go to building a new manufacturing facility.

Aspen Aerogels' "frozen smoke" is finding potential uses in everything from liquid natural gas transport container insulation, to deep-sea pipelines, to military applications, to fuel cell applications, and even including spacecraft re-entry insulation. The company previously raised $35M, and has so far taken in $5M in mostly grant revenues. So clearly here are some investors who are making a very big bet on this company and its technology.

More institutional investors pledge capital for clean technologies

Last year, the cleantech investing world was bolstered by the news that CalPERS and CalSTRS have pledged to devote $1.5B to investments in clean energy. A significant portion of this is to be invested through venture capital firms.

Now early word has come out of additional institutional investors pledging similar large amounts of capital for the same purposes (exactly how additive the new pledges are isn't clear from the article). If true, it means a broadening of the commitment out of California's state institutions, into other states' and countries' employee pension funds, etc.

Money talks. As more money is increasingly eartagged for clean energy, it will continue to drive venture investor interest in the space, and encourage entrepreneurs and researchers to build new clean energy enterprises.

This is great news. It would be even better to see similar pledges and efforts in clean water technologies and other clean technologies.

Agile Systems raises C$7M

Happy to announce Expansion Capital Partners' newest investment, in leading electronic controls manufacturer Agile Systems. The Canadian company raised C$7M from investors Expansion Capital, RBC Capital Partners, Covington Capital, Roynat Capital, and BEST Total Return Fund, and also including a credit facility from GE Commercial Finance Technology Lending.

Agile's electronic controls help drive efficiency gains in the operation of motors and other devices. Electric motors account for about 60% of the electricity used in U.S. industrial buildings, for example, and that energy consumption can be a big share of overall expenses -- so Agile's products can go directly to helping their customers' (and their customers') bottom line...

The Deal: Is clean technology at a tipping point?

There were two good cleantech articles in The Deal yesterday:

• The first discussed whether clean technology venture capital is at a "tipping point". The reporter did a good job of talking with a good number of players in our industry (including Diana Propper, one of the partners at Expansion Capital Partners), and exploring a lot of the issues at the heart of the question, "Is cleantech the next big thing?" Eric Prouty's statements do a particularly good job of noting some of the inherent limits on the role of venture capital in the various markets "cleantech" addresses, while also speaking to the potential. The article is a good overview of our industry segment right now -- although as usual it focuses much more on energy than on the other sectors cleantech investors also care about, such as clean water, clean manufacturing, and advanced materials technologies, etc.

• The second article provides a decent overview of the debate around fuel cells: If, and if so when and how. This site has already described this debate pretty thoroughly in the past, so we won't dive into it again here, but this article is worth checking out if you are considering investments in the fuel cell and hydrogen market.

Whether fuel cells play a leading role or not, clean technologies may indeed be at a tipping point. As GE's announcement yesterday illustrated, the need for step-change resource efficiency gains through technological innovation is filtering into all levels of the economy. At the same time (and not coincidentally), many clean technologies in energy generation, water purification, energy infrastructure, sensors, etc. are all getting to a point of maturity to where they are ready for broad adoption -- they are well-past the beta stage.

Furthermore, given the state of capitalization and investing in traditional IT, telecom and biotech markets, it is natural that venture investors will increasingly turn to industrial technologies as another potentially lucrative area for investments -- and clean technologies (which are often quite industrial in application) by their very nature are very often on the "right" side of global resource and economic trends.

Finally, as the first The Deal article noted, other factors are also coming into place, such as strong, proven management teams and improved regulatory climates.

That article ends on a slightly down note, suggesting the possibility that clean technologies could become overinvested. But at 5-7% of total VC investments today, and especially when compared to the overall size of the energy, water, and manufacturing technology markets, it's hard to make a case that we're anywhere close to that point. If anything, cleantech venture capital remains an underinvested space relative to the opportunity. And it is exciting to be investing in a market that may be nearing a tipping point, but where there are still plenty of investment opportunities as yet undiscovered...

Further information on ORYXE's Series C

As previously noted, ORYXE has raised a hefty Series C round. Official announcement came today that the total round was $11M, and included new investors Ridgewood Capital and Royal DSM. Total investment to date has been $25M.

ORYXE is well-positioned in the clean fuel additive space. It will be interesting to see how quickly the company is able to penetrate this regulatory-driven market. According to today's announcement, it appears progress is well underway, with production facilities and initial customers getting signed up.

Nanotech: A few smaller items of interest

This site has had a few recent discussions about the overlaps between nanotech and cleantech (here, and here, among others), but as always there are a few follow-up items that might be of interest to cleantech investors:

• The carbon nanotube electronics business is forecast by NanoMarkets to be a $3.6B opportunity by 2009. Among the cleantech applications described for these materials are low-power, high-sensitivity sensors (Nanomix is a good example for this).

• Charles Choi's most recent Nano World column listed what he describes as the "Ten most overlooked nano firms" -- mostly firms that have chosen to bootstrap or are family-owned instead of getting VC backing. But while the list of companies is by itself interesting, it also serves as a nice survey of the wide variety of applications -- some, but not all, cleantech -- being targeted by nanotech startups.
  

• Whether those firms are being overlooked or not, VC investments in nanotech are starting to come back. In the first quarter of this year, 12 nanotech firms raised $155M, about as much as had been raised by nanotech firms in the three previous quarters combined. There were a few big deals in there that temporarily drove a particular spike in the numbers, but it still appears to be a positive trend.
  

"Ecomagination": What does it mean for venture investors?

Jeffrey Immelt's "Ecomagination" announcement this morning is getting a lot of attention in the clean technology world, for good reason. Given GE's stature, track record and resources, the news that they will be more than doubling their R&D commitment to clean technologies is a big deal, and should lead to new breakthroughs.

So that's encouraging simply from a technology perspective. But what does this specifically mean for venture investors interested in clean technologies, since GE isn't exactly at a venture stage of development? Fortunately, it's also good news here too.

1. This is a big legitimizer for clean technology markets. It will draw the attention of potential customers, GE's competitors and other large companies, and the overall investment community. The buzz gets louder.
   
2. GE is well-known to be highly acquisitive. This could mean more successful exits via trade sale for cleantech venture investments.
3. GE is also known for spinning out technologies that look promising but don't have a home within GE. This could come out of their increased R&D effort, opening up new businesses and thus new investment opportunities for VCs.
4. To the extent that innovations coming out of GE enable other innovations from outside of GE to take hold (for example, how improved battery performance could enable other clean technologies, as previously discussed), this could launch a bit of a virtuous circle in clean technology innovation.

GE had already been charging into clean technology (particularly in energy and water) before this announcement, so that's not new news. But the doubling of R&D spending is a big deal, and is great news today for cleantech venture investors.

[Update: Looking back at the recently released clean technology exit study (note: opens a pdf), it reminded me that total VC cleantech investing has been about $1-1.5B annually recently -- about as much as GE alone is now going to be spending each year on cleantech R&D. An indicator both of how big a deal the GE announcement is... but also of how underinvested the space is from a VC perspective.]

[Further update: Joel Makower's got a great post on his perspective on GE's announcement, worth checking out.]

Energy storage and cleantech investing

As this Financial Times article describes, many feel that batteries are ripe for a surge in innovation. This has attracted the attention of many cleantech investors, who see that improved battery technology could enable other anticipated clean technologies, and could lead to improved energy efficiency.

For example, batteries are currently a limiting factor in electric and hybrid-electric vehicles. Improved battery technology that would extend the range of battery-powered locomotion would enable these types of cars to achieve in the near future what fuel cell vehicles are expected to achieve in the longer-term. This Red Herring article describes this debate and mentions how big the market for such batteries is already ($2.9B in 2003).

But transportation is not the only place where improved battery technology could help grow clean technology markets. There are other examples in:

• Sensors, where improved batteries would help spur growth in wireless sensor networks,
• Electricity infrastructure, where batteries could help a number of "smart grid" applications,
  
• Improved backup power systems,
• Clean energy generation such as wind and solar, where the power generated is variable, to help "smooth out" supply,
  
• And numerous others.

With these kinds of applications in mind, cleantech venture investors are keeping an eye out for any improvements in battery technologies, and many are specifically targeting this space.

On the flip side, energy storage may be where fuel cells make their biggest initial impact (as previously described here), through "battery replacement" applications. A lot of cleantech investors are making big bets in this space as well.

Hydrogen: HyRadix raises additional capital

HyRadix announced today that they have raised an undisclosed amount of capital from Koch Genesis Company, LLC, SAM Sustainable Asset Management, and Caisse de depot et placement du Quebec. The Des Plaines, IL company is positioning itself to provide residential and commercial hydrogen fuel cell refueling stations once fuel cell vehicles become more available, but in the meantime HyRadix is also selling hydrogen reformers to industrial customers who need high-purity hydrogen for their processes.

Energy venture capital more than doubles in Europe

According to Tornado Insider, as cited in this Red Herring article, funding for energy technology startups in Europe and Israel more than doubled in 2004, reaching more than $200M. (As point of comparison, and as previously noted here, such investments in the US were about $520M last year, up about 2%.)

A few other things of note in the Red Herring article:

• Yet another energy technology venture fund is being raised (Energy Ventures II, following on the heels of Energy Ventures), this one in Norway, with more than $50M already committed
• The article mentions several European and Israeli firms that have received funding so far this year
• This interesting quote from an executive VP at Konarka: "The value of renewable energy is higher in Europe than it would be in the United States." A sentiment that probably explains the dramatic rise in funding there.
  

Nanotech and solar

[UPDATE: Matt Marshall at SiliconBeat posted an interesting piece on Nanosolar today, worth checking out.]

Here's an interesting story on the intersection of nanotech and solar. Given strong investor interest in both of these spaces, it's no wonder that the companies mentioned in this story (and others) are getting a lot of interest among cleantech VCs -- and IT VCs who are starting to take a look at cleantech.

Silicon-based solar power is at the heart of the industry's current rapid growth, but these investors are gambling that nanotech-based "thin film" solar will be the next big wave, particularly as:

a) silicon prices rise; and
b) building integrated photovoltaics (BIPV) get closer to mass adoption (BIPV would be helped by flexible form factors, and also can better accomodate lower efficiencies in order to take advantage of lower costs).

Besides still facing some technological challenges, however, the biggest obstacles for such solar upstarts remains the channel and market. These startups all manufacture solar cells or other components, for the most part. In the meantime, in a currently silicon-dominated PV market, module manufacturing has been concentrated among a few large players (in the U.S., in 2003, three players made up more than 80% of all large solar module production). Sooner or later these cell manufacturers are either going to have to sell to those big players, who thus have some strong buying power, or they will have to do their own thing. BIPV has some potential for the latter approach, but requires a lot of market and channel development. Either way, companies offering relatively new technologies will also face an educational challenge in gaining end-user acceptance -- when people buy a solar panel or product, they're usually expecting it to last for 20 years, so they are often overly skeptical of new technologies.

Many of the investors interested in these technologies are already keyed into the importance of these issues, and the companies also have some good ideas for addressing them. Still, investors who are evaluating the technologies behind these emerging solar approaches should make sure to keep market and channel issues top of mind as well.

Prenova and Hot/Shot announce raises

Brief post here to note a couple of deals announced today of potential interest to cleantech investors:

• Prenova, an energy management solutions provider, raised what looks to be approx. $2M in an inside round from existing investors Frontenac, River Cities Capital Funds, and Austin Ventures. The company helps customers monitor and manage energy use and pricing, as well as energy asset operations. The total invested to date in the company now totals more than $17.5M.
  

• Hot/Shot Radar Inspections raised an undisclosed amount from undisclosed investors. Hot/Shot has a radar-based system ("polSAR") which can be used to inspect powerline poles to better estimate when repairs are needed, and thus reduces over-replacement of such poles -- there are something like 167M utility poles in place throughout the U.S., according to some estimates, so extending their lives and reducing replacement can actually add up to a big deal. [Unfortunately, as of time of writing this post the company's website appears to be down. Will update with a link when available.]
  

US Wind Industry to Add 2,500MW in 2005

Is wind energy at the inflection point?

According to the American Wind Energy Association, the industry is expected to add about 2,500MW in installed capacity in 2005, which would represent a 37% growth over 2004 according to this DOE site.

For venture investors, finding direct dealflow in wind energy now requires some work -- most of the turbines are now produced by large, integrated, publicly-traded players, and (as discussed before) a lot of the remaining investment opportunities are project finance-oriented.

However, the growth of wind capacity heightens the importance of electricity transmission technologies, and there remain some very interesting investment opportunities in wind power generation or facilitation.

"Virtual peaking power": Getting a lot of attention lately

Cnet's News.com had a nice little article on Friday on the emergence of energy efficiency service providers focused on freeing up electricity by taking occasional control of your thermostat.

By tweaking thermostats a bit on the highest-demand days, and aggregating the electricity saved within a particular utility's service area, these vendors provide "virtual peaking power" that allows the utility to avoid building a new power generation plant that wouldn't get much use, or to avoid purchasing spot power at exorbitant prices. It's a new spin on the old "negawatts" idea.

As the article points out, two of the bigger names in this emerging industry are Comverge and EnerNOC. Not coincidentally, both recently took in large infusions of venture funding:

• Comverge raised $13.6M in October in a Series B led by Rockport Capital
• EnerNOC raised $7.75M in January in a Series B led by Foundation Capital (here's a link to the pdf of the announcment)

Both Comverge and EnerNOC are basically outsourcers, managing these "virtual peaking power" supplies for their utility customers. Other utilities are tackling these activities by themselves, and the practice is growing quickly.

Such similar services can also be applied to lighting. One early company attempting to provide virtual peaking power by adjusting lighting (in office buildings, etc.) is Electric City.

The market potential for virtual peak power savings could be quite large -- between lighting, heating and air conditioning that covers a large portion of overall electricity consumption. Especially as natural gas prices remain high, avoiding the costs of purchasing spot power or building new gas-fired "peaker" plants is definitely a win for utilities, which explains the current interest.

Another technology winner in this market is the communications infrastructure that is needed to enable all the automated remote monitoring and control processes that drive these services. There are a lot of compelling investment opportunities generated by the emergence of virtual peaking power services.